Registration No. __________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
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)
Marjorie S. White
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. Reed Auerbach, Esq.
Thacher Proffitt & Wood Stroock & Stroock & Lavan
Two World Trade Center 180 Maiden Lane
New York, New York 10048 New York, New York 10038
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 the
Securities 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. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
========================================= ====================== ================= ==================== ===============
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
AMOUNT PRICE OFFERING REGISTRATION
TITLE OF SECURITIES BEING REGISTERED TO BE REGISTERED(1) PER UNIT (2) PRICE (2) FEE(1)
- ----------------------------------------- ---------------------- ----------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates and
Mortgage-Backed Notes, issued in series $750,000,000 100% $750,000,000 $221,250
========================================= ====================== ================= ==================== ===============
</TABLE>
<PAGE>
(1) $1,355,405,966.33 aggregate principal amount of Mortgage Pass-Through
Certificates and Mortgage-Backed Notes registered by the Registrant under
Registration Statement No. 333-1241 referred to below and not previously sold
are proposed to be consolidated in this Registration Statement concurrently with
the effectiveness hereof pursuant to Rule 429. All registration fees in
connection with such unsold amount of Mortgage Pass-Through Certificates and
Mortgage-Backed Notes have been previously paid by the Registrant under the
foregoing Registration Statement. Accordingly, the total amount proposed to be
registered under the Registration Statement as so consolidated as of the date of
this filing is $2,105,405,966.33.
(2) Estimated solely for the purposes of calculating the registration fee on the
basis of the proposed maximum aggregate offering price.
--------------------------
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
Pursuant to Rule 429 of the Securities Act of 1933, the Prospectus and
Prospectus Supplements contained in this Registration Statement also relate to
the Registrant's Registration Statements on Form S-3 Registration Statement No.
333-1241 and Registration Statement No. 333-39325). This Registration Statement,
which is a new registration statement, also constitutes a post-effective
amendment to Registration Statements No. 333-1241 and No. 333-39325. Such
post-effective amendments shall hereafter become effective concurrently with the
effectiveness of this Registration Statement in accordance with Section 8(a) of
the Securities Act of 1933.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement includes (i) a basic prospectus, (ii) an
illustrative form of prospectus supplement for use in an offering of Mortgage
Pass-Through Certificates consisting of senior and subordinate certificate
classes and (iii) an illustrative form of prospectus supplement for use in an
offering of Mortgage-Backed Notes.
CONTENTS OF REGISTRATION STATEMENT
----------------------------------
PAGE
----
Forms of Prospectus Supplement:
Version 1: Form of Prospectus Supplement relating to
a typical Senior/Subordinate Series........................ S-1
Version 2: Form of Prospectus Supplement relating to
an offering of Mortgage-Backed Notes....................... S-1
Basic Prospectus .................................................... 1
<PAGE>
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 May 1, 1998
[Version 1]
PROSPECTUS SUPPLEMENT
(To Prospectus dated ______________ __, 199_)
$____________________
DLJ MORTGAGE ACCEPTANCE CORP.
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199_-_
$______________ Class A Certificates Adjustable Rate
The Series 199_-_ Mortgage Pass-Through Certificates (the
"Certificates") will consist of the following five classes: (i) Class A
Certificates; (ii) Class B-1 Certificates, Class B-2 Certificates and Class B-3
Certificates (collectively, the "Subordinate Certificates") and (iii) Class R
Certificates. Only the Class A Certificates are offered hereby.
The Class A Certificates will initially evidence in the aggregate
approximately _____% of the entire beneficial ownership interest in a trust fund
(the "Trust Fund") consisting primarily of a pool of certain conventional,
adjustable rate, one- to four-family, first lien mortgage loans, with terms to
maturity of not more than 30 years (the "Mortgage Loans") to be deposited by DLJ
Mortgage Acceptance Corp. (the "Depositor") into the Trust Fund for the benefit
of the respective Certificateholders. The Mortgage Loans underlying the
Certificates were originated or acquired by ___________________________________
(the "Seller"). All of the Mortgage Loans will be serviced by the Seller in its
capacity as master servicer (the "Master Servicer"). The interest rate (the
"Mortgage Rate") on each Mortgage Loan will be adjusted monthly based on the sum
of the Index (as defined herein) and the related Gross Margin (as defined
herein), subject to certain lifetime rate limitations described herein. The
Index will be based on the monthly weighted average cost of funds of member
institutions of the Eleventh District of the Federal Home Loan Bank System as
described herein. Certain characteristics of the Mortgage Loans are described
herein under "Description of the Mortgage Pool."
____________________________________ (CONTINUED ON NEXT PAGE)
THE CLASS A CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE SELLER, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE
LOANS WILL BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE DEPOSITOR, THE SELLER, THE MASTER SERVICER, THE
TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES.
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
The Class A Certificates are being offered by the Underwriter from time
to time to the public in negotiated transactions or otherwise at varying prices
to be determined at the time of sale. Proceeds to the Depositor are expected to
be approximately $_____________ plus accrued interest, before deducting expenses
payable by the Depositor.
The Class A Certificates are offered when, as and if delivered to and
accepted by the Underwriter, and subject to various conditions, including the
Underwriter's right to reject orders in whole or in part. It is expected that
the Class A Certificates will be delivered in book-entry form through the same
day funds settlement system of The Depository Trust Company as further discussed
herein.
[NAME OF UNDERWRITER]
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS _________________.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
It is a condition of the issuance of the Certificates that the Class A
Certificates be rated "Aaa" by _________ ("______") and "AAA" by _______________
("_________________").
Distributions on the Certificates will be made on the 25th day of each
month or, if such day is not a Business Day, then on the next succeeding
Business Day, commencing in _____________ _____ (each, a "Distribution Date").
As more fully described herein, interest distributions on the Class A
Certificates will be based on the Certificate Principal Balance thereof and the
then-applicable Pass-Through Rate thereof, which will be adjustable. The
Pass-Through Rate on the Class A Certificates will be equal to the weighted
average as determined as of the Due Date (as defined herein) in the month
immediately preceding the month in which such Distribution Date occurs, of the
Net Mortgage Rates of the Mortgage Loans as described herein, which will be
approximately _____% per annum with respect to the first Distribution Date.
THE YIELD TO MATURITY ON THE CLASS A CERTIFICATES WILL DEPEND, AMONG
OTHER THINGS, ON THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS, REPURCHASES, DEFAULTS AND LIQUIDATIONS) ON THE MORTGAGE LOANS,
WHICH MAY VARY SIGNIFICANTLY OVER TIME. THE MORTGAGE LOANS GENERALLY MAY BE
PREPAID IN FULL OR IN PART AT ANY TIME. THE YIELD TO INVESTORS ON THE CLASS A
CERTIFICATES WILL BE ADVERSELY AFFECTED BY ANY SHORTFALLS IN INTEREST COLLECTED
ON THE MORTGAGE LOANS DUE TO PREPAYMENTS, LIQUIDATIONS OR OTHERWISE TO THE
EXTENT THAT SUCH SHORTFALLS ARE NOT OTHERWISE COVERED, AS DESCRIBED HEREIN. NO
ASSURANCE CAN BE GIVEN AS TO THE RATE AND TIMING OF PRINCIPAL PREPAYMENTS
(INCLUDING PREPAYMENTS, REPURCHASES, DEFAULTS AND LIQUIDATIONS) ON ANY OF THE
MORTGAGE LOANS. SEE "SUMMARY OF PROSPECTUS SUPPLEMENT-SPECIAL PREPAYMENT
CONSIDERATIONS," AND "-SPECIAL YIELD CONSIDERATIONS" AND "CERTAIN YIELD AND
PREPAYMENT CONSIDERATIONS" HEREIN AND "SPECIAL CONSIDERATIONS" AND "YIELD,
PREPAYMENT AND MATURITY CONSIDERATIONS" IN THE PROSPECTUS.
As described herein, a "real estate mortgage investment conduit"
("REMIC") election will be made in connection with the Trust Fund for federal
income tax purposes. The Class A Certificates will constitute a "regular
interest" in the REMIC. See "Certain Federal Income Tax Consequences" herein and
in the Prospectus.
There is currently no secondary market for the Class A Certificates.
________________ (the "Underwriter") intends to make a secondary market in the
Class A Certificates but has no obligation to do so. There can be no assurance
that a secondary market for the Class A Certificates will develop or, if it does
develop, that it will continue. The Class A Certificates will not be listed on
any securities exchange. See "Special Considerations" in the Prospectus.
The information set forth herein under "Summary of Prospectus
Supplement-The Mortgage Pool", "Description of the Mortgage Pool", "The Seller"
and "The Pooling and Servicing Agreement-The Master Servicer" has been provided
by the Seller. No representation is made by the Depositor, the Underwriter or
any of their respective affiliates as to the accuracy or completeness of the
information provided by the Seller.
------------------------------------
No person is authorized in connection with this offering to give any
information or to make any representation about the Depositor, the Seller, the
Master Servicer, the Class A Certificates or any other matter referred to
herein, other than those contained in this Prospectus Supplement or the
Prospectus. If any other information or representation is given or made, such
information or representation may not be relied upon as having been authorized
by the Depositor, the Seller or the Master Servicer. This Prospectus Supplement
and the Prospectus do not constitute an offer to sell or a solicitation of an
offer to buy securities other than the Class A Certificates, or an offer to sell
or a solicitation of an offer to buy securities in any jurisdiction or to any
person to whom it is unlawful to make such offer in such jurisdiction. Neither
the delivery of this Prospectus Supplement or the Prospectus nor any sale
hereunder or thereunder shall, under any circumstances, create any implication
that the information contained herein or therein is correct as of any time
subsequent to their respective dates.
------------------------------------
THE CLASS A CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL BE
PART OF A SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE DEPOSITOR
PURSUANT TO ITS PROSPECTUS DATED _________________ OF WHICH THIS PROSPECTUS
SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE
PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS NOT
CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND
THIS PROSPECTUS SUPPLEMENT IN FULL.
------------------------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-3
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Summary of Prospectus Supplement........................................... S-
Description of the Mortgage Pool........................................... S-
The Seller................................................................. S-
Additional Information..................................................... S-
Description of the Certificates............................................ S-
Certain Yield and Prepayment Considerations................................ S-
Pooling and Servicing Agreement............................................ S-
Certain Federal Income Tax Consequences.................................... S-
Method of Distribution..................................................... S-
Use of Proceeds............................................................ S-
Legal Opinions............................................................. S-
Ratings.................................................................... S-
Legal Investment........................................................... S-
Erisa Considerations....................................................... S-
PROSPECTUS
Prospectus Supplement.....................................................
Additional Information....................................................
Reports to Certificateholders.............................................
Summary of Terms of the Certificates......................................
Special Considerations....................................................
Description of the Certificates...........................................
Yield, Prepayment and Maturity Considerations.............................
The Trust Funds...........................................................
Loan Underwriting Procedures and Standards................................
Servicing of Loans........................................................
Credit Support............................................................
Description of Mortgage and Other Insurance...............................
The Pooling and Servicing Agreements......................................
Certain Legal Aspects of Loans............................................
Certain Federal Income Tax Consequences...................................
State and Other Tax Consequences..........................................
ERISA Considerations......................................................
Legal Investment..........................................................
Legal Matters.............................................................
The Depositor.............................................................
Use of Proceeds...........................................................
Plan of Distribution......................................................
Glossary..................................................................
S-4
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE HEREIN AND IN THE PROSPECTUS.
CAPITALIZED TERMS USED HEREIN AND NOT OTHERWISE DEFINED HEREIN HAVE THE MEANINGS
ASSIGNED IN THE PROSPECTUS.
TITLE OF SECURITIES........................ Mortgage Pass-Through
Certificates, Series _______.
DEPOSITOR.................................. DLJ Mortgage Acceptance Corp. (the
"Depositor"). See "The Depositor"
in the Prospectus.
TRUSTEE.................................... _____________________ (the
"Trustee"), a
__________________________________
located in ____________________.
See "Pooling and Servicing
Agreement-The Trustee" herein.
SELLER..................................... __________________________ (the
"Seller"). See "Description of the
Mortgage Pool-The Seller" herein.
MASTER SERVICER............................ _____________________________ in
its capacity as master servicer
(the "Master Servicer"). See
"Pooling and Servicing
Agreement-The Master Servicer"
herein.
CUT-OFF DATE............................... __________________.
DELIVERY DATE.............................. On or about __________________.
DENOMINATIONS.............................. The Class A Certificates will be
issued, maintained and transferred
on the book-entry records of DTC
and its Participants in minimum
denominations of $25,000 and
integral multiples of $1 in excess
thereof.
REGISTRATION............................... The Class A Certificates will be
represented by one or more
Certificates registered in the
name of Cede & Co., as nominee of
the Depository Trust Company
("DTC"). No person acquiring a
beneficial interest in a Class A
Certificate (each, a "Beneficial
Owner") will be entitled to
receive a Class A Certificate in
certificated form, except under
the limited circumstances
described herein. For each Class A
Certificate held by DTC, DTC will
effect payments to and transfers
of the Class A Certificates among
the respective Beneficial Owners
by means of its electronic
recordkeeping services, acting
through organizations that
participate in DTC. This
arrangement may result in certain
delays in receipt of distributions
by Beneficial Owners and may
restrict a Beneficial Owner's
ability to pledge the Certificates
beneficially owned by it.
S-5
<PAGE>
All references in this Prospectus
Supplement to the Class A
Certificates reflect the rights of
Beneficial Owners of such
Certificates only as such rights
may be exercised through DTC and
its participating organizations so
long as such Certificates are held
by DTC. See "Description of the
Certificates-Book-Entry
Registration" in the Prospectus.
THE MORTGAGE POOL.......................... Based solely upon information
provided by the Seller, the
Mortgage Loans will have the
characteristics described herein.
The mortgage pool (the "Mortgage
Pool") will consist of a pool of
conventional, adjustable-rate,
fully-amortizing mortgage loans
(the "Mortgage Loans") with an
aggregate outstanding principal
balance as of the Cut-off Date of
$_________________. The Mortgage
Loans are secured by first liens
on fee simple or leasehold
interests in one- to four-family
residential real properties (each,
a "Mortgaged Property") having
individual principal balances at
origination of at least
$___________ but not more than
$______________ with an average
principal balance at origination
of approximately $_____________.
The Mortgage Loans have terms to
maturity from the date of
origination of not more than 30
years, and a weighted average
remaining term to maturity of
approximately ___ months as of the
Cut-off Date.
The Mortgage Rate on each Mortgage
Loan will adjust monthly on the
date (the "Rate Adjustment Date")
specified in the mortgage note
(the "Mortgage Note"), without any
corresponding adjustment in the
amount of monthly payments, to a
per annum rate equal to the sum
(rounded, if applicable, to the
nearest multiple of 0.125%) of the
Index described below and a fixed
percentage set forth in the
related Mortgage Note (the "Gross
Margin") subject to the maximum
and, in certain cases, minimum
Mortgage Rates described below. On
each Rate Adjustment Date the
Index applicable to the
determination of the Mortgage Rate
will be equal to the Index as most
recently published as of 15 days
prior to the Rate Adjustment Date.
With respect to each of the
Mortgage Loans, the Mortgage Rate
may not exceed the related maximum
Mortgage Rate, which maximum
Mortgage Rates will range from
_____% to _____%, or be less than
the related Gross Margin or, in
certain cases, the related minimum
Mortgage Rate, which minimum
Mortgage Rates will range from
_____% to _____%. No Mortgage Loan
S-6
<PAGE>
provides for a periodic rate cap
on any Rate Adjustment Date.
The amount of the monthly payment
of principal and interest on each
Mortgage Loan will adjust annually
on the date specified in the
Mortgage Note (the "Rate
Adjustment Date") to equal an
amount which would amortize fully
the then outstanding principal
balance of the Mortgage Loan over
its remaining term and pay
interest thereon at the then
applicable Mortgage Rate.
As of the Cut-off Date, the
Mortgage Loans will have current
Mortgage Rates ranging from _____%
per annum to _____% per annum, a
weighted average current Mortgage
Rate of approximately _____% per
annum and a weighted average Gross
Margin of approximately _____%.
Approximately ______% of the
Mortgage Loans (by aggregate
outstanding principal balance as
of the Cut-off Date) will be
refinance mortgage loans. For a
further description of the
Mortgage Loans, see "Description
of the Mortgage Pool" herein.
All of the Mortgage Loans were
originated or acquired pursuant to
the Seller's lending program, as
described herein. See "Description
of the Mortgage Pool-The
Seller-Underwriting Standards"
herein.
INDEX...................................... As of any Rate Adjustment Date,
the Index applicable to the
determination of the Mortgage Rate
on each Mortgage Loan will be the
monthly weighted average cost of
funds for depository institutions
the home offices of which are
located in Arizona, California or
Nevada that are members of the
Eleventh District of the Federal
Home Loan Bank System as computed
from statistics tabulated and
published by the Federal Home Loan
Bank of San Francisco as most
recently available as of the date
15 days prior to such Rate
Adjustment Date. See "Description
of the Mortgage Pool" herein.
THE CLASS A CERTIFICATES................... The Class A Certificates will be
issued pursuant to a Pooling and
Servicing Agreement, to be dated
as of __________ __, 199_, among
the Depositor, the Master Servicer
and the Trustee (the "Pooling and
Servicing Agreement"). The Class A
Certificates in the aggregate
evidence an initial interest of
approximately _____% in a trust
fund (the "Trust Fund") consisting
primarily of the Mortgage Pool.
The Class A Certificates have a
S-7
<PAGE>
Certificate Principal Balance of
$_______________ as of the Cut-off
Date.
INTEREST DISTRIBUTIONS..................... The Pass-Through Rate on the Class
A Certificates on each
Distribution Date (as defined
herein) will equal the weighted
average, as determined as of the
Due Date in the month immediately
preceding the month in which such
Distribution Date occurs, of the
related Net Mortgage Rate (as
defined below) on each of the
Mortgage Loans. The Pass-Through
Rate on the Class A Certificates
will be approximately __________%
per annum with respect to the
first Distribution Date. The
weighted average Net Margin of the
Mortgage Loans is _________%. The
"Net Mortgage Rate" on each of the
Mortgage Loans is equal to the
Mortgage Rate thereon minus
_________% per annum (the "Expense
Fee Rate"). The Expense Fee Rate
consists of a component to
compensate the Master Servicer for
performing its servicing
responsibilities and obligations
under the Pooling and Servicing
Agreement (the "Master Servicing
Fee Rate") and a component to
cover certain expenses and the
fees of the Trustee. The Master
Servicing Fee Rate on each
Mortgage Loan is equal to _____%
per annum.
Holders of the Class A
Certificates will be entitled to
receive interest distributions in
an amount equal to one month's
interest accrued on the
Certificate Principal Balance of
the Class A Certificates at the
related Pass-Through Rate, in each
case less any related Prepayment
Interest Shortfall (as defined
herein) and shortfalls caused by
the Relief Act (as defined herein)
for such Distribution Date to the
extent not covered by payments by
the Master Servicer. See
"Description of the
Certificates-Interest
Distributions" herein.
PRINCIPAL DISTRIBUTIONS.................... Holders of the Class A
Certificates will be entitled to
receive on each Distribution Date,
in the manner and priority set
forth herein, to the extent of the
portion of the Available
Distribution Amount remaining
after distributions in respect of
interest on the Class A
Certificates, a distribution
allocable to principal that will
include (i) the Senior Percentage
(as defined below) of scheduled
principal payments due on the
Mortgage Loans and of the
principal portion of any
unscheduled collections (other
than Mortgagor prepayments and
amounts received in connection
with a Final Disposition of a
Mortgage Loan described in clause
(ii) below), including repurchases
of
S-8
<PAGE>
the Mortgage Loans, (ii) in
connection with the Final
Disposition of a Mortgage Loan an
amount equal to the lesser of (a)
the Senior Percentage of the
Stated Principal Balance of such
Mortgage Loan and (b) the Senior
Accelerated Distribution
Percentage (as defined herein) of
the related collections, including
any Insurance Proceeds and
Liquidation Proceeds, to the
extent applied as recoveries of
principal, and (iii) the Senior
Accelerated Distribution
Percentage of Mortgagor
prepayments on the Mortgage Loans.
The Senior Percentage as of the
time of any determination will be
equal to the aggregate Certificate
Principal Balance of the Class A
Certificates divided by the
aggregate Stated Principal Balance
of all of the Mortgage Loans.
Initially, the Senior Accelerated
Distribution Percentage will equal
100%. Thereafter, as described
herein, during certain periods,
subject to certain loss,
delinquency and other criteria
described herein, the Senior
Accelerated Distribution
Percentage may be 100% or
otherwise disproportionately large
(relative to the Senior
Percentage). In no event will the
Senior Accelerated Distribution
Percentage be less than the Senior
Percentage. See "Description of
the Certificates-Principal
Distributions on the Class A
Certificates".
ALLOCATION OF LOSSES;
SUBORDINATION............................ All Realized Losses will be
allocated first to the Subordinate
Certificates until the Certificate
Principal Balances thereof have
been reduced to zero and second to
the Class A Certificates to the
extent described herein; however,
Excess Special Hazard Losses,
Excess Fraud Losses, Excess
Bankruptcy Losses and
Extraordinary Losses (each, as
defined herein) will be allocated
to all of the Certificates as
described herein. See "Description
of the Certificates-Allocation of
Losses; Subordination" herein.
ADVANCES................................... The Master Servicer is required to
make advances ("Advances") in
respect of delinquent payments of
principal and interest on the
Mortgage Loans (net of the Master
Servicing Fee Rate), together with
an amount equivalent to interest
on each outstanding REO Property,
subject to the limitations
described herein. The Trustee will
be obligated to make any such
Advance if the Master Servicer
fails in its obligation to do so,
to the extent
S-9
<PAGE>
provided in the Pooling and
Servicing Agreement. See
"Description of the
Certificates-Advances" herein.
OPTIONAL TERMINATION....................... At its option, on any Distribution
Date when the aggregate principal
balance of the Mortgage Loans is
less than ____% of the aggregate
principal balance of the Mortgage
Loans as of the Cut-off Date, the
Master Servicer may purchase from
the Trust Fund all remaining
Mortgage Loans and other assets
thereof, and thereby effect early
retirement of the Certificates.
See "Pooling and Servicing
Agreement-Termination" herein and
"The Pooling and Servicing
Agreements-Termination" in the
Prospectus.
SPECIAL PREPAYMENT
CONSIDERATIONS........................... The rate and timing of principal
payments, if any, on the Class A
Certificates will depend, among
other things, on the rate and
timing of principal payments
(including prepayments,
repurchases, defaults and
liquidations) on the Mortgage
Loans. See "Description of the
Certificates-Principal
Distributions on the Class A
Certificates" and "Certain Yield
and Prepayment Considerations"
herein and "Yield, Prepayment and
Maturity Considerations" in the
Prospectus.
SPECIAL YIELD CONSIDERATIONS............... The yield to maturity on the Class
A Certificates will depend, among
other things, on the rate and
timing of principal payments
(including prepayments,
repurchases, defaults and
liquidations) on the Mortgage
Loans and the allocation thereof
to reduce the Certificate
Principal Balance. The yield to
maturity on the Class A
Certificates will also depend on
the Pass-Through Rate as it
adjusts from time to time and the
purchase price for the Class A
Certificates. The yield to
investors on the Class A
Certificates will be adversely
affected by any allocation thereto
of Prepayment Interest Shortfalls
on the Mortgage Loans to the
extent not covered by payments by
the Master Servicer as described
herein.
In general, if the Class A
Certificates are purchased at a
premium and principal
distributions thereon occur at a
rate faster than anticipated at
the time of purchase, the
investor's actual yield to
maturity will be lower than that
assumed at the time of purchase.
Conversely, if the Class A
Certificates are purchased at a
discount and principal
distributions thereon occur at a
rate slower than that assumed at
the time of purchase, the
investor's actual yield
S-10
<PAGE>
to maturity will be lower than
that assumed at the time of
purchase.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES............................. A real estate mortgage investment
conduit ("REMIC") election will be
made with respect to the Trust
Fund for federal income tax
purposes. Upon the issuance of the
Class A Certificates, Thacher
Proffitt & Wood, counsel to the
Depositor, will deliver its
opinion generally to the effect
that, assuming compliance with all
provisions of the Pooling and
Servicing Agreement, for federal
income tax purposes, the Trust
Fund will qualify as a REMIC under
Sections 860A through 860G of the
Internal Revenue Code of 1986 (the
"Code").
For federal income tax purposes,
the Class R Certificates will be
the sole Class of "residual
interests" of the REMIC; the Class
A Certificates and the Subordinate
Certificates will constitute the
"regular interests" of the REMIC
and will be treated as debt
instruments for federal income tax
purposes.
The Class A Certificates will be
treated as having been issued with
original issue discount for
federal income tax reporting
purposes. The prepayment
assumption that will be used in
determining the rate of accrual of
original issue discount, market
discount and premium, if any, for
federal income tax purposes will
be ____% CPR (as defined herein).
No representation is made that the
Mortgage Loans will prepay at that
rate or at any other rate.
[[Grantor trust disclosure:] Upon
the issuance of the offered
Grantor Trust Certificates,
Counsel to the Depositor will
deliver its opinion to the effect
that, assuming compliance with all
provisions of the related Pooling
and Servicing Agreement, the
Grantor Trust Fund will be
classified as a grantor trust
under subpart E, part I of
subchapter J of the Code and not
as a partnership or an association
taxable as a corporation.
Accordingly, each holder of a
Grantor Trust Certificate
generally will be treated as the
owner of an interest in the
Mortgage Loans included in the
Grantor Trust Fund.]
LEGAL INVESTMENT........................... The Class A Certificates will
constitute "mortgage related
securities" for purposes of the
Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA")
for so long as they are in one of
the two highest rating categories
by at least
S-11
<PAGE>
one nationally recognized
statistical rating organization
and, as such will be legal
investments for certain entities
to the extent provided in SMMEA.
SMMEA, however, provides for state
limitation on the authority of
such entities to invest in
"mortgage related securities",
provided that such restricting
legislation was enacted prior to
October 3, 1991.
The Depositor makes no
representations as to the proper
characterization of the Class A
Certificates for legal investment
or other purposes, or as to the
ability of particular investors to
purchase the Class A Certificates
under applicable legal investment
restrictions. These uncertainties
may adversely affect the liquidity
of the Class A Certificates.
Accordingly, all institutions
whose investment activities are
subject to legal investment laws
and regulations, regulatory
capital requirements or review by
regulatory authorities should
consult with their own legal
advisors in determining whether
and to what extent the Class A
Certificates constitute a legal
investment or are subject to
investment, capital or other
restrictions. See "Legal
Investment" and "ERISA
Considerations" herein and in the
Prospectus.
RATINGS.................................... It is a condition to the issuance
of the Certificates that the Class
A Certificates be rated "Aaa" by
___________ ("_______") and "AAA"
by _________ ("__________"). A
security rating is not a
recommendation to buy, sell or
hold securities and may be subject
to revision or withdrawal at any
time by the assigning rating
organization. A security rating
does not address the frequency of
principal prepayments or the
corresponding effect on yield to
investors. See "Certain Yield and
Prepayment Considerations" and
"Ratings" herein and "Yield,
Prepayment and Maturity
Considerations" in the Prospectus.
S-12
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
The information set forth in the following paragraphs has been provided
by the Seller. Neither the Depositor, the Underwriter, or the Trustee nor any of
their respective affiliates have made or will make any representation as to the
accuracy or completeness of such information.
GENERAL
The Mortgage Pool will consist of Mortgage Loans with an aggregate
outstanding principal balance as of the Cut-off Date of $______________. The
Mortgage Pool will consist of conventional, adjustable-rate, fully-amortizing,
first lien Mortgage Loans with original terms to maturity from the due date of
the first monthly payment of not more than 30 years. All percentages described
herein are approximate percentages (except as otherwise indicated) by aggregate
outstanding principal balance as of the Cut-off Date.
All of the Mortgage Loans to be included in the Mortgage Pool will have
been sold to the Depositor by _________________________________________ in its
capacity as a seller (the "Seller"), pursuant to a mortgage loan purchase
agreement between the Depositor and the Seller. The Mortgage Loans will have
been originated or acquired by the Seller, in accordance with the underwriting
criteria described herein. All of the Mortgage Loans have monthly payments due
on the first day of each month.
The Mortgage Rate on each Mortgage Loan will be subject to monthly
adjustment on the first day of the month specified in the related Mortgage Note
(each such date, a "Rate Adjustment Date") to a per annum rate equal to (i) the
monthly weighted average cost of funds for depository institutions the home
offices of which are located in Arizona, California or Nevada that are members
of the Eleventh District of the Federal Home Loan Bank System as computed from
statistics tabulated and published by the Federal Home Loan Bank of San
Francisco (the "Index"), as most recently available as of the date 15 days prior
to such Rate Adjustment Date, and (ii) a fixed percentage amount specified in
the related Mortgage Note (the "Gross Margin") ranging from _____% to ____%;
provided, however, that the Mortgage Rate will in no event be greater than the
maximum Mortgage Rate stated therein (the "Maximum Rate"), which Maximum Rates
will range from ____% to _____%, or, less than the related Gross Margin or, with
respect to certain of the Mortgage Loans, the minimum Mortgage Rate stated in
the Mortgage Note (the "Minimum Rate"), which Minimum Rates will range from
____% to ____%. No Mortgage Loan provides for a periodic rate cap on any Rate
Adjustment Date. Due to the application of the Maximum Rate, the Mortgage Rate
on any Mortgage Loan, as adjusted on any Rate Adjustment Date, may be less than
the sum of the Index and the related Gross Margin. See "-The Index" herein.
Each Mortgage Loan with a Loan-to-Value Ratio at origination in excess
of 80% is insured by a primary mortgage insurance policy. Each such insurance
policy provides coverage in an amount equal at least to the excess of the
original principal balance of the Mortgage Loan covered thereby, plus accrued
interest thereon and related foreclosure expenses over 75% of the value of the
related Mortgaged Property as determined at the time of origination of the
related Mortgage
S-13
<PAGE>
Loan. Any Mortgage Loan having a Loan-to-Value Ratio of less than or equal to
80% at origination is not so insured. There can be no assurance that the
Loan-to-Value Ratio of any Mortgage Loan determined at any time after
origination is less than or equal to its original Loan-to-Value Ratio.
All of the Mortgage Loans will be assumable. None of the Mortgage Loans
will be thirty or more days delinquent in payment as of the Closing Date, or
will have been thirty or more days delinquent more than once during the twelve
months preceding the Closing Date.
Each Mortgage Loan will have been originated or acquired by the Seller
on or before ----------- --, ----.
Pursuant to its terms, each Mortgage Loan is required to be covered by
a standard hazard insurance policy in an amount equal to the lower of the
original principal loan amount or the replacement value of the improvements on
the Mortgaged Property. See "Description of Mortgage and Other Insurance-Hazard
Insurance on the Loans-Standard Hazard Insurance Policies" in the Prospectus.
The Mortgage Loans will have the following approximate characteristics,
where applicable, as of the Cut-off Date:
NUMBER OF MORTGAGE LOANS.......................................................
INITIAL PASS-THROUGH RATE ON THE CLASS A
CERTIFICATES (1).............................................................
NET MARGIN (2):
WEIGHTED AVERAGE.............................................................
MORTGAGE RATES:
WEIGHTED AVERAGE.............................................................
RANGE ......................................................................
GROSS MARGINS:
WEIGHTED AVERAGE.............................................................
RANGE ......................................................................
MAXIMUM MORTGAGE RATES:
WEIGHTED AVERAGE.............................................................
RANGE ......................................................................
MINIMUM MORTGAGE RATES:
WEIGHTED AVERAGE.............................................................
RANGE ......................................................................
- ---------
(1) THE PASS-THROUGH RATE ON THE CLASS A CERTIFICATES IS EQUAL TO THE
WEIGHTED AVERAGE OF THE RELATED NET MORTGAGE RATE ON EACH OF THE
MORTGAGE LOANS. THE NET MORTGAGE RATE FOR EACH MORTGAGE LOAN IS EQUAL
TO THE MORTGAGE RATE (AS ADJUSTED PURSUANT TO THE TERMS OF THE RELATED
MORTGAGE NOTE) MINUS THE RELATED EXPENSE FEE RATE. THE EXPENSE FEE RATE
AS FURTHER DESCRIBED HEREIN IS APPROXIMATELY _____% PER ANNUM.
(2) SOLELY FOR PURPOSES OF THE ABOVE TABLE, THE NET MARGIN FOR EACH
MORTGAGE LOAN IS EQUAL TO (I) THE GROSS MARGIN APPLICABLE THERETO,
MINUS (II) THE EXPENSE FEE RATE.
The weighted average remaining term to maturity of the Mortgage Loans
will be approximately 29 years. All of the Mortgage Loans had original terms to
maturity of 30 years. None of the Mortgage Loans had a first payment date prior
to _______ __, 199_. The latest maturity date of any of the Mortgage Loans is
___________ __, ____.
S-14
<PAGE>
The Mortgage Loans will have had individual principal balances at
origination of at least $__________ but not more than $_____________.
Approximately ______% of the Mortgaged Properties will be located in
the State of ___________; approximately ____% of the Mortgaged Properties will
be located in the State of
____________________.
[No more than approximately _____% of the Mortgage Loans will be
secured by Mortgaged Properties located in any one zip code area in the State of
_____________ and no more than approximately ____% of the Mortgage Loans will be
secured by Mortgaged Properties located in any one zip code area outside the
State of ___________.]
Approximately ____% of the Mortgage Loans will be secured by single
family dwelling units. Approximately _____% of the Mortgage Loans will be
secured by units in planned unit developments. Approximately ____% of the
Mortgage Loans will be secured by units in condominiums. Approximately ____% of
the Mortgage Loans will be secured by two- to
four-family dwelling units.
The Mortgage Loans will each have an outstanding principal balance as
of the Cut-off Date of not less than $________ or more than $__________. The
Mortgage Loans will have an average outstanding principal balance as of the
Cut-off Date of approximately $_________. No more than approximately ___% of the
Mortgage Loans will have an outstanding principal balance as of the Cut-off Date
greater than $____________.
With respect to approximately ______% of the Mortgage Loans, the
Mortgagor represented in the documents submitted by such Mortgagor for the
closing of the Mortgage Loan that the Mortgaged Property initially will be
owner-occupied as the Mortgagor's primary
residence.
Approximately _____% of the Mortgage Loans are Mortgage Loans the
proceeds of which were used to purchase the applicable Mortgaged Property.
Approximately ____% of the Mortgage Loans are Mortgage Loans the proceeds of
which were used to refinance an existing Mortgage Loan (approximately _____% of
the Mortgage Loans were rate and term refinancings and approximately _____% of
the Mortgage Loans were equity take-out refinancings).
[___________ of the Mortgage Loans will be Buy-Down Loans. Certain of
the Mortgage Loans are secured by a leasehold estate. The Seller has represented
that all Mortgage Loans secured by a leasehold estate conform to the guidelines
of FNMA and FHLMC for leaseholds.]
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans will be approximately _____%. None of the Mortgage Loans will have a
Loan-to-Value Ratio at
origination in excess of ______%.
Approximately ______% of the Mortgage Loans were underwritten pursuant
to the Seller's full documentation programs. Approximately _____% of the
Mortgage Loans were underwritten
S-15
<PAGE>
pursuant to the Seller's alternative documentation programs. Approximately ____%
of the Mortgage Loans were underwritten pursuant to the Seller's limited
documentation programs.
The following table sets forth as of the Cut-off Date the number,
aggregate outstanding principal balance and percentage of the Mortgage Pool (by
aggregate outstanding principal balance) of the Mortgage Loans having
Loan-to-Value Ratios at origination in each given range. (The sum of the amounts
and the percentages in the following table may not equal the totals due to
rounding).
<TABLE>
<CAPTION>
LOAN-TO-VALUE RATIOS
<S> <C> <C> <C>
PERCENTAGE OF MORTGAGE POOL
LOAN-TO-VALUE RATIOS NUMBER OF AGGREGATE OUTSTANDING BY AGGREGATE OUTSTANDING
AT ORIGINATION (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------- -------------- --------------------- --------------------------
</TABLE>
Total....................
The following table sets forth the number, aggregate outstanding
principal balance as of the Cut-off Date and percentage of the Mortgage Loans by
aggregate outstanding principal balance as of the Cut-off Date having the Gross
Margins listed. (The sum of the amounts and the percentages in the following
table may not equal the totals because of rounding.)
<TABLE>
<CAPTION>
GROSS MARGINS
<S> <C> <C> <C>
PERCENTAGE OF
MORTGAGE POOL
BY AGGREGATE
NUMBER OF AGGREGATE PRINCIPAL
GROSS MARGINS(%) MORTGAGE LOANS PRINCIPAL BALANCE BALANCE
- ---------------- -------------- ----------------- -------
</TABLE>
Total.............................
S-16
<PAGE>
THE SELLER
[Disclosure as appropriate.]
UNDERWRITING STANDARDS
[Disclosure as appropriate.]
THE INDEX
The Index is the monthly weighted average cost of funds index for
member institutions of the Eleventh District of the Federal Home Loan Bank
System, as computed from statistics tabulated and published by the Federal Home
Loan Bank of San Francisco. The Index applicable on any Rate Adjustment Date is
the most recent figure as of the date 15 days before such Rate Adjustment Date.
Listed below are some historical values for the months indicated of the Index.
YEAR
MONTH 1995 1994 1993 1992 1991
- ----- ---- ---- ---- ---- ----
January ..........................
February ..........................
March ..........................
April ..........................
May ..........................
June ..........................
July ..........................
August ..........................
September..........................
October ..........................
November ..........................
December...........................
If the Index becomes unpublished or is otherwise unavailable, the
Master Servicer will select an alternative index which is based upon comparable
information.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as constituted at the
close of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Certificates,
Mortgage Loans may be removed from the Mortgage Pool as a result of incomplete
documentation or otherwise, if the Depositor deems such removal necessary or
appropriate. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Certificates.
A Current Report on Form 8-K will be available to purchasers of the
Class A Certificates and will be filed, together with the Pooling and Servicing
Agreement, with the Securities and Exchange Commission within fifteen days after
the initial issuance of the Certificates. In the event
S-17
<PAGE>
Mortgage Loans are removed from or added to the Mortgage Pool as set forth in
the preceding paragraph, such removal or addition will be noted in the Current
Report on Form 8-K.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 199_-_ Mortgage Pass-Through Certificates (the
"Certificates") will consist of the following five classes: (i) Class A
Certificates; (ii) Class B-1 Certificates, Class B-2 Certificates and Class B-3
Certificates (collectively, the "Subordinate Certificates") and (iii) Class
R Certificates. Only the Class A Certificates are offered hereby.
The Class A Certificates will initially evidence in the aggregate
approximately ____% of the entire beneficial ownership interest in the Trust
Fund. The Trust Fund will consist of (i) the Mortgage Loans, (ii) such assets as
from time to time are identified as deposited in respect of the Mortgage Loans
in the account (the "Custodial Account") established by the Master Servicer for
the collection of payments on the Mortgage Loans and in the Certificate Account
and belonging to the Trust Fund, (iii) property acquired by foreclosure of such
Mortgage Loans or deed in lieu of foreclosure, (iv) any applicable primary
insurance policies and primary hazard insurance policies, and all proceeds
thereof and (v) the representations and warranties of the Seller regarding the
Mortgage Loans.
Distributions on the Class A Certificates will be made on the 25th day
of each month or, if such day is not a Business Day, then on the next succeeding
Business Day (each, a "Distribution Date"), commencing in ________________ 199_
to Certificateholders of record on the immediately preceding Record Date. The
"Record Date" for each Distribution Date will be the close of business on the
last Business Day of the month immediately preceding the month in which such
Distribution Date occurs.
Distributions on the Class A Certificates will be made to each
registered holder entitled thereto, either (i) by check mailed to the address of
such Certificateholder as it appears on the books of the Trustee, or (ii) at the
request, submitted to the Trustee in writing at least five Business Days prior
to the related Distribution Date, of any holder of an Class A Certificate having
an initial Certificate Principal Balance of not less than $____________, by wire
transfer in immediately available funds; provided that the final distribution in
respect of any Class A Certificate will be made only upon presentation and
surrender of such Certificate at the Corporate Trust Office of the Trustee. See
"Pooling and Servicing Agreement-The Trustee" herein.
The Class A Certificates will be issued, maintained and transferred on
the book-entry records of DTC and its Participants in minimum denominations of
$25,000 and integral multiples
of $1 in excess thereof.
S-18
<PAGE>
BOOK-ENTRY REGISTRATION OF THE CLASS A CERTIFICATES
GENERAL. Beneficial Owners that are not Participants or Indirect
Participants (as defined in the Prospectus) but desire to purchase, sell or
otherwise transfer ownership of, or other interests in, the Class A Certificates
may do so only through Participants and Indirect Participants. In addition,
Beneficial Owners will receive all distributions of principal of and interest on
the Class A Certificates from the Paying Agent (as defined in the Prospectus)
through DTC and Participants. Accordingly, Beneficial Owners may experience
delays in their receipt of payments. Unless and until Definitive Certificates
are issued for the Class A Certificates, it is anticipated that the only
registered Certificateholder of the Class A Certificates will be Cede & Co., as
nominee of DTC. Beneficial Owners will not be recognized by the Trustee or the
Master Servicer as Certificateholders, as such term is used in the Pooling and
Servicing Agreement, and Beneficial Owners will be permitted to receive
information furnished to Certificateholders and to exercise the rights of
Certificateholders only indirectly through DTC, its Participants and Indirect
Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of DTC Registered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, such DTC Registered
Certificates. Participants and Indirect Participants with which Beneficial
Owners have accounts with respect to such DTC Registered Certificates similarly
are required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Beneficial Owners. Accordingly,
although Beneficial Owners will not possess physical certificates evidencing
their interests in the Class A Certificates, the Rules provide a mechanism by
which Beneficial Owners, through their Participants and Indirect Participants,
will receive distributions and will be able to transfer their interests in the
Class A Certificates.
None of the Depositor, the Master Servicer or the Trustee will have any
liability for any actions taken by DTC or its nominee, including, without
limitation, actions for any aspect of the records relating to or payments made
on account of beneficial ownership interests in the Class
A
Certificates held by Cede & Co., as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
DEFINITIVE CERTIFICATES. Definitive Certificates will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
"Description of the Certificates-Book-Entry Registration."
Upon the occurrence of an event described in the Prospectus in the
third paragraph under "Description of the Certificates-Book-Entry Registration,"
the Trustee is required to notify, through DTC, Participants who have ownership
of Class A Certificates as indicated on the records of DTC of the availability
of Definitive Certificates for their DTC Registered Certificates. Upon surrender
by DTC of the definitive certificates representing the Class A Certificates and
upon receipt of instructions from DTC for re-registration, the Trustee will
reissue the Class A Certificates as Definitive Certificates issued in the
respective principal amounts owned by individual Beneficial Owners, and
thereafter the Trustee and the Master Servicer will recognize
S-19
<PAGE>
the holders of such Definitive Certificates as Certificateholders under the
Pooling and Servicing Agreement.
For additional information regarding DTC and the Class A Certificates
as DTC Registered Certificates, see "Description of the Certificates-Book-Entry
Registration" in the Prospectus.
AVAILABLE DISTRIBUTION AMOUNT
The "Available Distribution Amount" for any Distribution Date is
determined with respect to all of the Mortgage Loans in the aggregate and is
equal to (a) the sum of (i) the balance on deposit in the Custodial Account as
of the close of business on the related Determination Date, (ii) all Advances
made with respect to such Distribution Date and (iii) certain amounts required
to be deposited by the Master Servicer in the Certificate Account, reduced by
(b) the sum of (i) scheduled payments on the Mortgage Loans collected but due
after the related Due Date, (ii) reinvestment income on amounts in the Custodial
Account or the Certificate Account, (iii) all amounts reimbursable to the Master
Servicer, (iv) any unscheduled payments, including Mortgagor prepayments on the
Mortgage Loans, Insurance Proceeds, Liquidation Proceeds (each as defined
herein) and proceeds from repurchases of the Mortgage Loans occurring in the
month of such Distribution Date and (v) the fees of the Trustee. With respect to
any Distribution Date, (i) the "Due Date" is the first day of the month in which
such Distribution Date occurs and (ii) the "Determination Date" is the 15th day
of the month in which such Distribution Date occurs or, if such day is not a
Business Day, the immediately preceding Business Day.
INTEREST DISTRIBUTIONS
On each Distribution Date, holders of the Class A Certificates will be
entitled to receive interest distributions in an amount equal to interest
accrued during the immediately preceding calendar month (such period, an
"Accrual Period") on the Certificate Principal Balance thereof at the then
applicable Pass-Through Rate, subject to reduction only in the event of (i)
shortfalls caused by the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act") or similar legislation or regulations and (ii) any
Prepayment Interest Shortfalls for such Distribution Date to the extent not
covered by the Master Servicer in the manner described below. As described
below, Accrued Certificate Interest on each class of Certificates is subject to
reduction in the event of certain interest shortfalls allocable thereto.
With respect to any Distribution Date and the Class A Certificates,
"Accrued Certificate Interest" will be equal to one month's interest accrued
during the related Accrual Period on the Certificate Principal Balance of the
Class A Certificates immediately prior to such Distribution Date at the then
applicable Pass-Through Rate less interest shortfalls, if any, allocated thereto
for such Distribution Date, to the extent not covered by the subordination
provided by the Subordinate Certificates in an amount equal to (i) any
Prepayment Interest Shortfall to the extent not covered as described below, (ii)
the interest portions of Realized Losses (as defined herein) (including Special
Hazard Losses in excess of the Special Hazard Amount ("Excess Special Hazard
Losses"), Fraud Losses in excess of the Fraud Loss Amount ("Excess Fraud
Losses"), Bankruptcy Losses in excess of the Bankruptcy Loss Amount ("Excess
Bankruptcy Losses") and losses occasioned
S-20
<PAGE>
by war, civil insurrection, certain governmental actions, nuclear reaction and
certain other risks ("Extraordinary Losses")) not allocated through
subordination, (iii) the interest portion of any Advances that were made with
respect to delinquencies that were ultimately determined to be Excess Special
Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary
Losses and (iv) any other interest shortfalls not covered by subordination,
including interest shortfalls relating to the Relief Act or similar legislation
or regulations, all allocated as described below. Accrued Certificate Interest
is calculated on the basis of a 360-day year consisting of twelve 30-day months.
The "Prepayment Interest Shortfall" for any Distribution Date is equal
to the aggregate shortfall, if any, in collections of interest (adjusted to the
related Net Mortgage Rates) resulting from Mortgagor prepayments on the Mortgage
Loans during the preceding calendar month (each, a "Prepayment Period"). Such
shortfalls will result because interest on prepayments in full is collected only
to the date of prepayment, and because no interest is collected on prepayments
in part, as such prepayments in part are applied to reduce the outstanding
principal balance of the related Mortgage Loans as of the Due Date in the month
of prepayment. The Master Servicer will be obligated to apply amounts otherwise
payable to it as servicing compensation in any month to cover any shortfalls in
collections of one full month's interest at the applicable Net Mortgage Rate
resulting from principal prepayments.
The Pass-Through Rate on the Class A Certificates on each Distribution
Date will equal the weighted average, as determined as of the Due Date in the
month immediately preceding the month in which such Distribution Date occurs, of
the related Net Mortgage Rate on each of the Mortgage Loans, which will be
approximately _____% per annum with respect to the first Distribution Date. The
weighted average Net Margin on the Mortgage Loans is _____%. The Net Mortgage
Rate on each of the Mortgage Loans is equal to the Mortgage Rate thereon minus
______% per annum (the "Expense Fee Rate"). The Net Margin on each of the
Mortgage Loans is equal to the Gross Margin less the Expense Fee Rate. The
Expense Fee Rate consists of a component to compensate the Master Servicer for
performing its master servicing responsibilities and obligations under the
Pooling and Servicing Agreement (the "Master Servicing Fee Rate") and a
component to cover the fees of the Trustee. The Master Servicing Fee Rate on
each Mortgage Loan is equal to _____% per annum.
As described herein, the Accrued Certificate Interest allocable to the
Class A Certificates is based on the Certificate Principal Balance thereof. The
Certificate Principal Balance of the Class A Certificate as of any date of
determination is equal to the initial Certificate Principal Balance thereof,
reduced by the aggregate of (a) all amounts previously distributed with respect
to such Certificate and applied to reduce the Certificate Principal Balance
thereof and (b) any reductions in the Certificate Principal Balance thereof
deemed to have occurred in connection with allocations of Realized Losses, as
described below.
PRINCIPAL DISTRIBUTIONS ON THE CLASS A CERTIFICATES
Except as provided below, holders of the Class A Certificates will be
entitled to receive on each Distribution Date, to the extent of the portion of
the Available Distribution Amount
S-21
<PAGE>
remaining after the interest is distributed to the holders of the Class A
Certificates for such Distribution Date, as described above, a distribution
allocable to principal equal to the sum of the
following:
(i) the product of (A) the then-applicable Senior
Percentage (as defined herein) and (B) the aggregate of the
following amounts:
(1) the principal portion of all scheduled monthly
payments on the Mortgage Loans due on the related Due Date,
whether or not received on or prior to the related
Determination Date;
(2) the principal portion of all proceeds of the
repurchase of a Mortgage Loan (or, in the case of a
substitution, certain amounts representing a principal
adjustment) as required by the Pooling and Servicing
Agreement during the preceding calendar month; and
(3) the principal portion of all other unscheduled
collections received during the preceding calendar month
(other than full and partial principal prepayments made by the
respective Mortgagors and any amounts received in connection
with a Final Disposition (as defined below) of a Mortgage Loan
described in clause (ii) below), to the extent applied as
recoveries of principal;
(ii) in connection with the Final Disposition of a
Mortgage Loan that occurred in the preceding calendar month, an amount
equal to the lesser of (a) the then-applicable Senior Percentage of the
Stated Principal Balance of such Mortgage Loan and (b) the
then-applicable Senior Accelerated Distribution Percentage (as defined
below) of the related collections, including Insurance Proceeds and
Liquidation Proceeds, to the extent applied as recoveries of principal;
(iii) the then-applicable Senior Accelerated Distribution
Percentage of the aggregate of all full and partial principal
prepayments made by the respective Mortgagors of the Mortgage Loans
during the preceding calendar month; and
(iv) any amounts allocable to principal for any previous
Distribution Date (calculated pursuant to clauses (i) through (iii)
above) that remain undistributed to the extent that any such amounts
are not attributable to Realized Losses which were allocated
to the Subordinate Certificates.
With respect to any Distribution Date, the lesser of (a) the balance of
the Available Distribution Amount remaining after the Accrued Certificate
Interest for such Distribution Date is distributed and (b) the sum of the
amounts described in clauses (i)-(iv) of the preceding paragraph is hereinafter
referred to as the "Senior Principal Distribution Amount."
A "Final Disposition" of a defaulted Mortgage Loan is deemed to have
occurred upon a determination by the Master Servicer that it has received all
Insurance Proceeds, Liquidation
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<PAGE>
Proceeds and other payments or cash recoveries which the Master Servicer
reasonably and in good faith expects to be finally recoverable with respect to
such Mortgage Loan.
The "Stated Principal Balance" of any Mortgage Loan as of any date of
determination is equal to the principal balance thereof as of the Cut-off Date,
after application of all scheduled principal payments due on or before the
Cut-off Date, whether or not received, reduced by all amounts allocable to
principal that have been distributed to Certificateholders with respect to such
Mortgage Loan on or before such date, and as further reduced to the extent that
any Realized Loss thereon has been allocated to one or more Classes of
Certificates on or before the date of determination.
The "Senior Percentage," which initially will equal approximately
_____% and will in no event exceed 100%, will be adjusted for each Distribution
Date to be the percentage equal to the aggregate Certificate Principal Balance
of the Class A Certificates immediately prior to such Distribution Date divided
by the aggregate Stated Principal Balance of all of the Mortgage Loans
immediately prior to such Distribution Date. The "Subordinate Percentage" as of
any date of determination is equal to 100% minus the Senior Percentage as of
such date.
Except as described below, the "Senior Accelerated Distribution
Percentage" for any Distribution Date occurring prior to the Distribution Date
in _____________ _____ will equal 100%. The Senior Accelerated Distribution
Percentage for any Distribution Date occurring after the first ten years
following the Delivery Date will be as follows: for any Distribution Date during
the eleventh year after the Delivery Date, the Senior Percentage for such
Distribution Date plus 70% of the Subordinate Percentage for such Distribution
Date; for any Distribution Date during the twelfth year after the Delivery Date,
the Senior Percentage for such Distribution Date plus 60% of the Subordinate
Percentage for such Distribution Date; for any Distribution Date during the
thirteenth year after the Delivery Date, the Senior Percentage for such
Distribution Date plus 40% of the Subordinate Percentage for such Distribution
Date; for any Distribution Date during the fourteenth year after the Delivery
Date, the Senior Percentage for such Distribution Date plus 20% of the
Subordinate Percentage for such Distribution Date; and for any Distribution Date
thereafter, the Senior Percentage for such Distribution Date (unless on any such
Distribution Date the Senior Percentage exceeds the initial Senior Percentage,
in which case the Senior Accelerated Distribution Percentage for such
Distribution Date will once again equal 100%). Any scheduled reduction to the
Senior Accelerated Distribution Percentage described above shall not be made as
of any Distribution Date unless either (a) both (i) the outstanding principal
balance of Mortgage Loans delinquent 60 days or more (including foreclosure and
REO Property) averaged over the last six months, as a percentage of the
aggregate outstanding principal balance of all Mortgage Loans averaged over the
last six months, does not exceed 2% and (ii) Realized Losses on the Mortgage
Loans to date for such Distribution Date, if occurring during the eleventh,
twelfth, thirteenth or fourteenth year (or any year thereafter) after the
Delivery Date, are less than 30%, 35%, 40%, 45% or 50%, respectively, of the sum
of the initial Certificate Principal Balances of the Subordinate Certificates or
(b) both (i) the aggregate outstanding principal balance of Mortgage Loans
delinquent 60 days or more (including foreclosure and REO Property) averaged
over the last six months, as a percentage of the aggregate outstanding principal
balance of all Mortgage Loans averaged over the last six months, does not exceed
4% and (ii) Realized Losses on the
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<PAGE>
Mortgage Loans to date are less than 10% of the sum of the initial Certificate
Principal Balances of the Subordinate Certificates.
Notwithstanding the above, if on any Distribution Date (a) the
Subordinate Percentage, prior to giving effect to any distribution on such
Distribution Date, equals or exceeds ____% (approximately twice the initial
Subordinate Percentage), and (b) both of the conditions set forth in either
clause (a) or clause (b) in the preceding paragraph have been met, then the
Senior Accelerated Distribution Percentage for such Distribution Date will equal
the sum of (i) the Senior Percentage for such Distribution Date and (ii) 50% of
the Subordinate Percentage for such Distribution Date, if such Distribution Date
is prior to the Distribution Date in _____________, and will equal the Senior
Percentage for such Distribution Date if such Distribution Date is on or
after the Distribution Date in ________________ ____.
Notwithstanding the foregoing, upon reduction of the Certificate
Principal Balance of the Class A Certificates to zero, the Senior Accelerated
Distribution Percentage will equal 0%. See "Credit Support-Subordinate
Certificates; Subordination Reserve Fund" in the Prospectus.
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on the
Certificates for the first month of the Trust Fund's existence.
__________ __............. Cut-off Date. The initial
principal balance of
the Mortgage Pool
will be the
aggregate principal
balance of the
Mortgage Loans as of
__________ 1, 199_,
after deducting any
principal payments
due on or before
such date. Any
principal and
interest payments
due on or before
____________ __ will
not be part of the
Mortgage Pool.
______ __ through
_________ __.............. Prepayment Period. Partial principal
prepayments and
prepayments in full
with interest
thereon to the date
of such prepayment
in full, received at
any time during this
period will be
deposited into the
Custodial Account
for distribution to
Certificateholders
on ------- __, 199_.
The Prepayment
Period for the
Distribution Date in
October 199_ and
each succeeding
Distribution Date
will be the
immediately
preceding calendar
month.
____________ __........... Record Date. Distributions on
___________ __, 199_
will be made to
Certificateholders
of record at the
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<PAGE>
close of business on
the last Business
Day of the month
immediately
preceding the month
of distribution.
__________ __ through
__________ __............. Collection Period. Payments due during
the related Due
Period
(_____________ __,
199_ through
_______________ __,
199_) from
mortgagors will be
deposited in the
Custodial Account as
received, and will
include scheduled
principal payments
plus interest on the
August balances.
___________ __............ Determination Date. On the Business Day
following the
Determination Date,
the information
necessary to
determine the
amounts of principal
and interest that
will be distributed
on __________ __,
199_ will be
transmitted by the
Master Servicer to
the Trustee.
___________ __............ Certificate Account
Deposit Date. On the __th day of
each month, or if
such day is not a
Business Day the
next preceding
Business Day, the
Master Servicer will
remit to the Trustee
the amount of
principal and
interest to be
distributed to the
Certificateholders
on such Distribution
Date from amounts on
deposit in the
Custodial Account,
together with any
Advances required to
be made by the
Master Servicer on
such Distribution
Date.
____________ __........... Distribution Date. On __________ __,
199_ the Trustee
will distribute or
cause to be
distributed to the
Certificateholders
the amounts
determined as of the
Determination Date.
If a monthly payment
due during the
related Due Period
is received from a
Mortgagor after
____________ __,
199_ and funds have
been distributed
with respect to such
late payment from
the Custodial
Account prior to
deposit therein,
such late payment
will be deposited
into the Custodial
Account as
reimbursement
therefor. If an
Advance has been
made with respect to
such late payment,
the Master
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<PAGE>
Servicer will
reimburse itself to
the extent permitted
by the Pooling and
Servicing Agreement
by withdrawing from
the Custodial
Account the amount
relating to such
Advance. If no such
Advance has been
made with respect to
such late payment,
the proceeds of such
late payment will be
distributed to the
Certificateholders
on the Distribution
Date occurring in
September.
Succeeding months follow the same pattern except for the Cut-off Date.
ALLOCATION OF LOSSES; SUBORDINATION
Realized Losses are allocable to the Class A Certificates based on the
following priorities.
Any Realized Losses which are not Excess Special Hazard Losses, Excess
Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses will be allocated
as follows: first, to the Class B-3 Certificates; second, to the Class B-2
Certificates; third, to the Class B-1 Certificates; in each case until the
Certificate Principal Balance of such Class has been reduced to zero; and
thereafter, the remainder of such Realized Losses will be allocated to the Class
A Certificates. Any allocation of a Realized Loss (other than a Debt Service
Reduction) to a Certificate will be made by reducing the Certificate Principal
Balance thereof, in the case of the principal portion of such Realized Loss, in
each case until the Certificate Principal Balance of such Class has been reduced
to zero, and the Accrued Certificate Interest thereon, in the case of the
interest portion of such Realized Loss, by the amount so allocated as of the
Distribution Date occurring in the month following the calendar month in which
such Realized Loss was incurred. As used herein, "Debt Service Reduction" means
a reduction in the amount of the monthly payment due to certain bankruptcy
proceedings, but does not include any permanent forgiveness of principal. As
used herein, "Subordination" refers to the provisions discussed above for the
sequential allocation of Realized Losses among the various Classes, as well as
all provisions effecting such allocations including the priorities for
distribution of cash flows in the amounts described herein.
As used herein, "Defaulted Mortgage Losses" are Realized Losses that
are attributable to the Mortgagor's failure to make any payment of principal or
interest as required under the Mortgage Note, but not including Special Hazard
Losses, Extraordinary Losses or other losses resulting from damage to a
Mortgaged Property, Bankruptcy Losses or Fraud Losses.
Allocations of the principal portion of Debt Service Reductions to the
Subordinate Certificates will result from the priority of distributions of the
Available Distribution Amount as described herein, which distributions shall be
made first to the Class A Certificates and then to the Class of Subordinate
Certificates then outstanding with the highest payment priority. An allocation
of the interest portion of a Realized Loss as well as the principal portion of
Debt Service Reductions will not reduce the level of Subordination, until an
amount in respect thereof has been actually disbursed to the Class A, Class B-1,
Class B-2 or Class B-3 Certificateholders, as
S-26
<PAGE>
applicable. The holders of the Class A Certificates will not be entitled to any
additional payments with respect to Realized Losses from amounts otherwise
distributable on any Classes of Certificates subordinate thereto. Accordingly,
the Subordination provided to the Class A Certificates by the Subordinate
Certificates with respect to Realized Losses allocated on any Distribution Date
will be effected primarily by increasing the Senior Percentage, of future
distributions of principal of the remaining Mortgage Loans.
Any Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses, Extraordinary Losses or other losses of a type not covered by
the Subordination will be allocated on a pro rata basis among the Class A
Certificates and Subordinate Certificates (any such Realized Losses so allocated
to the Class A Certificates, and the Subordinate Certificates will be allocated
without priority among such Classes). An allocation of a Realized Loss on a "pro
rata basis" among two or more Classes of Certificates means an allocation to
each such Class of Certificates on the basis of its then outstanding Certificate
Principal Balance prior to giving effect to distributions to be made on such
Distribution Date in the case of an allocation of the principal portion of a
Realized Loss or based on the Accrued Certificate Interest thereon in the case
of an allocation of the interest portion of a Realized Loss.
With respect to any defaulted Mortgage Loan that is finally liquidated,
through foreclosure sale, disposition of the related Mortgaged Property if
acquired on behalf of the Certificateholders by deed in lieu of foreclosure, or
otherwise, the amount of loss realized, if any, will equal the portion of the
Stated Principal Balance remaining, if any, plus interest thereon through the
last day of the month in which such Mortgage Loan was finally liquidated, after
application of all amounts recovered (net of amounts reimbursable to the Master
Servicer for Advances and expenses, including attorneys' fees) towards interest
and principal owing on the Mortgage Loan. Such amount of loss realized and any
Special Hazard Losses, Fraud Losses, Bankruptcy Losses and Extraordinary Losses
are referred to herein as "Realized Losses."
In order to maximize the likelihood of distribution in full of the
Accrued Certificate Interest for such Distribution Date and the Senior Principal
Distribution Amount, on each Distribution Date, holders of Class A Certificates
have a right to distributions of the Available Distribution Amount that is prior
to the rights of the holders of the Subordinate Certificates, to the extent
necessary to satisfy the Accrued Certificate Interest for such Distribution Date
and the Senior Principal Distribution Amount.
The application of the Senior Accelerated Distribution Percentage (when
it exceeds the Senior Percentage) to determine the Senior Principal Distribution
Amount will accelerate the amortization of the Class A Certificates relative to
the actual amortization of the Mortgage Loans. To the extent that the Class A
Certificates are amortized faster than the Mortgage Loans, in the absence of
offsetting Realized Losses allocated to the Subordinate Certificates, the
percentage interest evidenced by the Class A Certificates in the Trust Fund will
be decreased (with a corresponding increase in the interest in the Trust Fund
evidenced by the Subordinate Certificates), thereby increasing, relative to
their respective Certificate Principal Balances, the Subordination afforded the
Class A Certificates by the Subordinate Certificates.
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<PAGE>
The aggregate amount of Realized Losses which may be allocated in
connection with Special Hazard Losses (the "Special Hazard Amount") through
Subordination shall initially be equal to $__________. As of any date of
determination following the Cut-off Date, the Special Hazard Amount shall equal
$______________ less the sum of (A) any amounts allocated through Subordination
in respect of Special Hazard Losses and (B) the Adjustment Amount. The
Adjustment Amount will be equal to an amount calculated pursuant to the terms of
the Pooling and Servicing Agreement. As used in this Prospectus Supplement,
"Special Hazard Losses" has the same meaning set forth in the Prospectus, except
that Special Hazard Losses will not include and the Subordination will not cover
Extraordinary Losses, and Special Hazard Losses will not exceed the lesser of
the cost of repair or replacement of the related Mortgaged Properties.
The aggregate amount of Realized Losses which may be allocated in
connection with Fraud Losses (the "Fraud Loss Amount") through Subordination
shall initially be equal to $______________. As of any date of determination
after the Cut-off Date, the Fraud Loss Amount shall equal (X) prior to the first
anniversary of the Cut-off Date an amount equal to _____% of the aggregate
principal balance of all of the Mortgage Loans as of the Cut-off Date minus the
aggregate amounts allocated through Subordination with respect to Fraud Losses
up to such date of determination; (Y) from the first to the second anniversary
of the Cut-off Date, an amount equal to (1) the lesser of (a) the Fraud Loss
Amount as of the most recent anniversary of the Cut-off Date and (b) ____% of
the aggregate principal balance of all of the Mortgage Loans as of the most
recent anniversary of the Cut-off Date minus (2) the aggregate amount allocated
through Subordination with respect to Fraud Losses since the most recent
anniversary of the Cut-off Date up to such date of determination; and (Z) from
the second to the fifth anniversary of the Cut-off Date, an amount equal to (1)
the lesser of (a) the Fraud Loss Amount as of the most recent anniversary of the
Cut-off Date and (b) _____% of the aggregate principal balance of all of the
Mortgage Loans as of the most recent anniversary of the Cut-off Date minus (2)
the aggregate amounts allocated through Subordination with respect to Fraud
Losses since the most recent anniversary of the Cut-off Date up to such date of
determination. On and after the fifth anniversary of the Cut-off Date the Fraud
Loss Amount shall be zero and Fraud Losses shall not be allocated through
Subordination.
The aggregate amount of Realized Losses which may be allocated in
connection with Bankruptcy Losses (the "Bankruptcy Amount") through
Subordination will initially be equal to $_____________. As of any date of
determination, the Bankruptcy Amount shall equal $____________ less the sum of
any amounts allocated through Subordination for such losses up
to such date of determination.
Notwithstanding the foregoing, the provisions relating to Subordination
will not be applicable in connection with a Bankruptcy Loss so long as the
Master Servicer has notified the Trustee in writing that the Master Servicer is
diligently pursuing any remedies that may exist in connection with the
representations and warranties made regarding the related Mortgage Loan and
either (A) the related Mortgage Loan is not in default with regard to payments
due thereunder or (B) delinquent payments of principal and interest under the
related Mortgage Loan and any premiums on any applicable Primary Hazard
Insurance Policy and any related escrow payments in respect of such Mortgage
Loan are being advanced on a current basis by the Master Servicer.
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<PAGE>
ADVANCES
Prior to each Distribution Date, the Master Servicer is required to
make Advances (out of its own funds or funds held in the Custodial Account (as
described in the Prospectus) for future distribution or withdrawal) with respect
to any payments of principal and interest (net of the related Master Servicing
Fees) which were due on the Mortgage Loans on the immediately preceding Due Date
and delinquent on the Business Day next preceding the related Determination
Date.
Such Advances are required to be made only to the extent they are
deemed by the Master Servicer to be recoverable from related late collections,
Insurance Proceeds, Liquidation Proceeds or amounts otherwise payable to the
holders of the Subordinate Certificates. The purpose of making such Advances is
to maintain a regular cash flow to the Certificateholders, rather than to
guarantee or insure against losses. The Master Servicer will not be required to
make any Advances with respect to reductions in the amount of the monthly
payments on the Mortgage Loans due to Debt Service Reductions or the application
of the Relief Act or similar legislation or regulations. Any failure by the
Master Servicer to make an Advance as required under the Pooling and Servicing
Agreement will constitute an Event of Default thereunder, in which case the
Trustee, as successor Master Servicer, will be obligated to make any such
Advance, in accordance with the terms of the Pooling and Servicing Agreement.
All Advances will be reimbursable to the Master Servicer on a first
priority basis from either (a) late collections, Insurance Proceeds and
Liquidation Proceeds from the Mortgage Loan as to which such unreimbursed
Advance was made or (b) as to any Advance that remains unreimbursed in whole or
in part following the final liquidation of the related Mortgage Loan, from any
amounts otherwise distributable on any of the Subordinate Certificates;
provided, however, that any such Advances that were made with respect to
delinquencies which ultimately were determined to be Excess Special Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses
are reimbursable to the Master Servicer out of any funds in the Custodial
Account prior to distributions on any of the Certificates and the amount of such
losses will be allocated as described herein. In addition, if the Certificate
Principal Balances of the Subordinate Certificates have been reduced to zero,
any Advances previously made which are deemed by the Master Servicer to be
nonrecoverable from related late collections, Insurance Proceeds and Liquidation
Proceeds may be reimbursed to the Master Servicer out of any funds in the
Custodial Account prior to distributions on the Class A Certificates.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The effective yield to the holders of the Class A Certificates will be
lower than the yield otherwise produced by the Pass-Through Rate and purchase
price because monthly distributions will not be payable to such holders until
the 25th day (or the immediately following Business Day if such 25th day is not
a Business Day) of the month following the month in which interest accrues
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<PAGE>
on the Mortgage Loans (without any additional distribution of interest or
earnings thereon in respect of such delay).
The yield to maturity and the aggregate amount of distributions on the
Class A Certificates will be affected by the rate and timing of principal
payments on the Mortgage Loans and the amount and timing of Mortgagor defaults
resulting in Realized Losses. Such yield may be adversely affected by a higher
or lower than anticipated rate of principal payments on the Mortgage Loans in
the Trust Fund. The rate of principal payments on such Mortgage Loans will in
turn be affected by the amortization schedules of the Mortgage Loans, the rate
and timing of principal prepayments thereon by the Mortgagors, liquidations of
defaulted Mortgage Loans and purchases of Mortgage Loans due to certain breaches
of representations. The timing of changes in the rate of prepayments,
liquidations and repurchases of the Mortgage Loans may, and the timing of
Realized Losses will, significantly affect the yield to an investor, even if the
average rate of principal payments experienced over time is consistent with an
investor's expectation. Since the rate and timing of principal payments on the
Mortgage Loans will depend on future events and on a variety of factors (as
described more fully herein and in the Prospectus under "Yield, Prepayment and
Maturity Considerations"), no assurance can be given as to such rate or the
timing of principal payments on the Class A Certificates.
The Mortgage Loans generally may be prepaid by the Mortgagors at any
time without payment of any prepayment fee or penalty. As described under
"Description of the Certificates-Principal Distributions on the Class A
Certificates" herein, during certain periods all or a disproportionately large
percentage of principal prepayments on the Mortgage Loans will be allocated
among the Class A Certificates. Prepayments, liquidations and purchases of the
Mortgage Loans will result in distributions to holders of the Class A
Certificates of principal amounts which would otherwise be distributed over the
remaining terms of the Mortgage Loans. Factors affecting prepayment (including
defaults and liquidations) of mortgage loans include changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net equity in the
mortgaged properties, changes in the value of the mortgaged properties, mortgage
market interest rates, solicitations and servicing decisions. In addition, if
prevailing mortgage rates fell significantly below the Mortgage Rates on the
Mortgage Loans, the rate of prepayments (including refinancings) would be
expected to increase in subsequent periods. Conversely, if prevailing mortgage
rates rose significantly above the Mortgage Rates on the Mortgage Loans, the
rate of prepayments on the Mortgage Loans would be expected to decrease in
subsequent periods.
Although the Mortgage Rates on the Mortgage Loans will adjust monthly,
such increases and decreases will be limited by the Maximum Mortgage Rate on
each Mortgage Loan and will be based on the Index (which may not rise and fall
consistently with mortgage interest rates or with other indices) plus the
related Gross Margins (which may be different from the prevailing margins on
other mortgage loans). As a result, the Mortgage Rates on the Mortgage Loans at
any time may not equal the prevailing rates for other adjustable rate loans and
accordingly, the rate of prepayment may be lower or higher than would otherwise
be anticipated.
All of the Mortgage Loans are assumable under certain circumstances if,
in the sole judgment of the Master Servicer, the prospective purchaser of a
Mortgaged Property is
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<PAGE>
creditworthy and the security for such Mortgage Loan is not impaired by the
assumption. The extent to which the Mortgage Loans are assumed by purchasers of
the Mortgaged Properties rather than prepaid by the related mortgagors in
connection with the sales of the Mortgaged Properties will affect the weighted
average life of the Class A Certificates and may result in a prepayment
experience on the Mortgage Loan that differs from that on other conventional
mortgage loans.
The rate of defaults on the Mortgage Loans will also affect the rate
and timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. The rate of default on Mortgage Loans which are refinance or limited
documentation mortgage loans, and on Mortgage Loans with high Loan-to-Value
Ratios, may be higher than for other types of Mortgage Loans. Furthermore, the
rate and timing of prepayments, defaults and liquidations on the Mortgage Loans
will be affected by the general economic condition of the region of the country
in which the related Mortgaged Properties are located. The risk of delinquencies
and loss is greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among other factors,
increasing unemployment or falling property values. See "Yield, Prepayment and
Maturity Considerations" in the Prospectus.
The amount of interest otherwise payable to holders of the Class A
Certificates will be reduced by any interest shortfalls by the Master Servicer
as described herein. Interest shortfalls not allocable to the Subordinate
Certificates and not covered by the Master Servicer would be
allocated to the Class A Certificates as described herein.
When a principal prepayment in full is made on a Mortgage Loan, the
mortgagor is charged interest only for the period from the Due Date of the
immediately preceding monthly payment up to the date of such prepayment, instead
of for a full month. Partial principal prepayments are applied as of the first
day of the month following the month of receipt, with no resulting reduction in
interest payable for the month during which the partial prepayment is made. Full
or partial prepayments (or other liquidations) received in any calendar month
will be distributed to Certificateholders on the Distribution Date in the month
following the month of receipt. With respect to full prepayments (or other
liquidations), the Master Servicer is obligated to fund shortfalls in collection
of one full month's interest (adjusted to the related Net Mortgage Rate) but
only to the extent of the servicing compensation otherwise payable to the Master
Servicer. Accordingly, to the extent any such shortfall in interest collections
exceeds the amount that the Master Servicer is obligated to fund, the effect of
any such principal prepayment will be to reduce the aggregate amount of interest
that is available for distribution to Certificateholders, and will be allocated
among the Class A Certificates and the Subordinate Certificates in proportion to
the interest otherwise distributable or accrued thereon. In addition, the
application of the Relief Act to any Mortgage Loan will adversely affect, for an
indeterminate period of time, the ability of the Master Servicer to collect full
amounts of interest on such Mortgage Loan and such shortfall will not be covered
by the Insurance Instruments or under the Financial Guaranty Insurance Policy.
See "Certain Legal Aspects of the Mortgage Loans-Anti-Deficiency Legislation and
Other Limits on Lenders-Soldiers' and Sailors' Civil Relief Act of 1940" in the
Prospectus.
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<PAGE>
The yield to maturity of the Class A Certificates will depend on the
price paid by the holders of the Class A Certificates and the Pass-Through Rate.
The extent to which the yield to maturity of a Class A Certificate is sensitive
to prepayments will depend, in part, upon the degree to which it is purchased at
a discount or premium. In general, if a Class A Certificate is purchased at a
premium and principal distributions thereon occur at a rate faster than
anticipated at the time of purchase, the investor's actual yield to maturity
will be lower than that assumed at the time of purchase. Conversely, if a Class
A Certificate is purchased at a discount and principal distributions thereon
occur at a rate slower than that assumed at the time of purchase, the investor's
actual yield to maturity will be lower than that assumed at the time of
purchase. For additional considerations relating to the yield on the
Certificates, see "Yield, Prepayment and Maturity Considerations" in the
Prospectus.
As is the case with conventional, fixed interest rate mortgage loans
originated in a high interest rate environment which may be subject to a greater
rate of principal prepayments when interest rates decrease, adjustable interest
rate mortgage loans may be subject to a greater rate of principal prepayment due
to their refinancing to fixed interest rate loans in a low interest rate
environment. For example, if prevailing interest rates fall significantly,
adjustable interest rate mortgage loans could be subject to higher prepayment
rates than if prevailing interest rates remain constant because the availability
of fixed interest rate or other adjustable rate mortgage loans at competitive
interest rates may encourage mortgagors to refinance their adjustable interest
rate mortgages to "lock in" a lower fixed interest rate or to take advantage of
their availability of such other adjustable interest rate mortgage loans. A
rising interest rate environmental may result in an increase in the rate of
defaults on the Mortgage Loans.
WEIGHTED AVERAGE LIFE: Weighted average life refers to the average
amount of time that will elapse from the date of issuance of a security to the
date of distribution to the investor of each dollar distributed in reduction of
principal of such security (assuming no losses). The weighted average life of
the Class A Certificates will be influenced by, among other things, the rate at
which principal of the Mortgage Loans is paid, which may be in the form of
scheduled amortization, prepayments or liquidations.
CPR: CPR or Constant Prepayment Rate represents an assumed constant
rate of prepayment each month relative to the then aggregate outstanding
principal balance of a pool of mortgage loans for the life of such mortgage
loans. CPR does not purport to be either a historical description of the
prepayment experience of any pool of mortgage loans or a prediction of the
anticipated rate of prepayment of any mortgage loans, including the Mortgage
Loans included in the Trust Fund.
For additional considerations relating to the yields on the
Certificates, see "Yield, Prepayment and Maturity Considerations" in the
Prospectus.
S-32
<PAGE>
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") dated as of ___________ __,
199_ among the Depositor, the Master Servicer, and ____________________________,
as Trustee. Reference is made to the Prospectus for important information in
addition to that set forth herein regarding the terms and conditions of the
Pooling and Servicing Agreement and the Class A Certificates. The Class A
Certificates will be transferable and exchangeable at the corporate trust office
of the Trustee, which will serve as Certificate Registrar and Paying Agent. The
Depositor will provide a prospective or actual Certificateholder without charge,
on written request, a copy (without exhibits) of the Pooling and Servicing
Agreement. Requests should be addressed to N. Dante LaRocca, DLJ Mortgage
Acceptance Corp., 140 Broadway, New York, New York 10005.
The Master Servicer has the right to resign from the obligations and
duties imposed on it under the Pooling and Servicing Agreement upon the
appointment of a successor master servicer reasonably acceptable to the Trustee
and upon delivery to the Trustee of a letter from the Rating Agency that such
resignation and appointment will not, in and of itself, result in a downgrading
of the Certificates. The Master Servicer may not assign its obligations and
duties under the Pooling and Servicing Agreement.
ASSIGNMENT OF MORTGAGE LOANS
The Mortgage Loans will be assigned to the Trustee, together with all
principal and interest due on the Mortgage Loans after the Cut-off Date. The
Certificate Registrar will, concurrently with such assignment, authenticate and
deliver the Certificates. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the Pooling and Servicing Agreement which will
specify with respect to each Mortgage Loan, among other things, the original
principal balance and the outstanding principal balance as of the close of
business on the Cut-off Date, the scheduled monthly payment and the maturity
date.
As to each Mortgage Loan in the Mortgage Pool, the following documents
are required to be delivered to the Trustee in accordance with the Pooling and
Servicing Agreement: (i) the related original Mortgage Note endorsed without
recourse to the Trustee, (ii) the original Mortgage with evidence of recording
indicated thereon (or, if such original recorded Mortgage has not yet been
returned by the recording office, a copy thereof certified by the Seller to be a
true and complete copy of such Mortgage sent for recording), (iii) an original
assignment of the Mortgage in recordable form to the Trustee, (iv) the policies
of title insurance issued with respect to each Mortgage Loan and (v) the
originals of any assumption, modification, extension or guaranty agreements. The
assignments to the Trustee in connection with each Mortgage Loan are required to
be submitted for recording promptly after the Closing Date. The Trustee will
review each Mortgage File within 90 days of the Closing Date, and if any such
document is found to be defective in any material respect and the Seller does
not cure such defect within 60 days of notice
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<PAGE>
thereof from the Trustee the Seller will be obligated to purchase or substitute
for the related Mortgage Loan from the Trust Fund within 90 days of such notice.
Pursuant to the terms of the Pooling and Servicing Agreement, the
Depositor shall assign to the Trustee for the benefit of the holders of the
Certificates all of its right, title and interest to the representations and
warranties made therein by the Seller, in respect of the origination of the
related Mortgage Loans and the remedies provided for breach of such
representations and warranties. The representations and warranties made by the
Seller, with respect to the Mortgage Loans are similar to the representations
and warranties summarized in the Prospectus under the caption "Loan Underwriting
Procedures and Standards Representations and Warranties." Although such
representations and warranties differ from those summarized in the Prospectus,
they are generally similar in nature. Upon discovery by the Depositor, the
Master Servicer or the Trustee of a breach of any representation, warranty or
covenant which materially and adversely affects the interests of the
Certificateholders in a Mortgage Loan, the party discovering such breach will
promptly give written notice to such other parties. The Seller will have 90 days
from its discovery or its receipt of such notice to cure such breach or
repurchase or substitute for the Mortgage Loan.
Neither the Depositor, the Master Servicer, the Trustee nor any of
their respective affiliates will make any representations or warranties with
respect to the Mortgage Loans, or have any obligation to purchase or substitute
for a Mortgage Loan if the Seller defaults on its obligation to repurchase or
substitute for a Mortgage Loan either in connection with a breach of a
representation and warranty or in connection with a defective document as
described above, and no assurance can be given that the Seller will carry out
such obligations with respect to Mortgage Loans. Although the Subordination (as
described herein) will not be available to support the Seller's obligations to
repurchase or substitute for any Mortgage Loan, to the extent any such Mortgage
Loan is not repurchased or substituted for by the Seller and losses occur on
such Mortgage Loans, Subordination with respect to such Mortgage Loans will be
available to the extent provided herein. To the extent that the Subordination is
so utilized, such Subordination will be depleted more quickly than if such
Mortgage Loans had been repurchased or substituted for by the Seller.
THE MASTER SERVICER
__________________ (in its capacity as master servicer, the "Master
Servicer") will act as master servicer for the Certificates pursuant to the
Pooling and Servicing Agreement. For a description of the Master Servicer, see
"The Seller" herein.
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The following table sets forth certain information regarding the
principal balance of one- to four-family residential mortgage loans included in
the Master Servicer's servicing portfolio. The Master Servicer's servicing
portfolio includes mortgage loans held for sale and mortgage loans held for
investment which were originated or acquired by the Master Servicer's mortgage
banking operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(DOLLARS in millions, except average loan size)
<S> <C>
Beginning servicing portfolio(1)......... $
Add:
Loans originated or acquired....
Bulk purchase of servicing......
Deduct:
Sale of servicing rights........
Loans sold, servicing released...........
Run-off(2)......................
Ending servicing portfolio(1)............
Number of loans serviced.................
Average loan size........................
</TABLE>
(1) Includes mortgage loans held for investment originated or acquired as
part of the Master Servicer's mortgage banking operations which
totalled $__________ at December 31, 1991, 1992, 1993, 1994 and 1995,
respectively.
(2) Includes amortization, prepayments and foreclosures.
The following table sets forth certain information regarding the Master
Servicer's delinquency statistics for its one- to-four family residential
mortgage servicing portfolio for the periods presented (excluding mortgage loans
held for sale or investment):
<TABLE>
<CAPTION>
AT DECEMBER 31,
1992 1993 1994 AT JUNE 30, 1995
--------------------------- -------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
NUMBER SERVICING NUMBER SERVICING NUMBER SERVICING NUMBER SERVICING
OF LOANS PORTFOLIO OF LOANS PORTFOLIO OF LOANS PORTFOLIO OF LOANS PORTFOLIO
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days.........
60-89 days.........
90 days and over............ -------- --------- -------- --------- -------- --------- -------- ---------
Total delinquencies.........
Foreclosures pending........ -------- --------- -------- --------- -------- --------- -------- ---------
======== ========= ======== ========= ======== ========= ======== =========
</TABLE>
There can be no assurance that the delinquency experience of the
Mortgage Loans will correspond to the delinquency experience of the Master
Servicer's servicing portfolio set forth in the foregoing tables. The statistics
shown above represent the delinquency experience for the Master Servicer's
servicing portfolio only for the periods presented, whereas the aggregate
delinquency experience on the Mortgage Loans will depend on the results obtained
over the life of the Mortgage Pool. The Master Servicer's servicing portfolio
includes mortgage loans with a variety of payment and other characteristics
(including geographic location) which are not necessarily representative of the
payment and other characteristics of the Mortgage Loans. The Master Servicer's
servicing portfolio includes mortgage loans underwritten pursuant to guidelines
not necessarily representative of those applicable to the Mortgage Loans. It
should be noted that
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if the residential real estate market should experience an overall decline in
property values, the actual rates of delinquencies and foreclosures could be
higher than those previously experienced by the Master Servicer. In addition,
adverse economic conditions may affect the timely payment by mortgagors of
scheduled payments of principal and interest on the Mortgage Loans and,
accordingly, the actual rates of delinquencies and foreclosures with respect to
the Mortgage Loans.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicing Fees for each Mortgage Loan are payable out of the
interest payments on such Mortgage Loan. The Master Servicing Fees in respect of
each Mortgage Loan will be ____% per annum of the outstanding principal balance
of such Mortgage Loan. The Master Servicing Fees consist of (a) servicing
compensation payable to the Master Servicer in respect of its master servicing
activities and (b) subservicing and other related compensation payable to a
subservicer. The Master Servicer is entitled to retain as additional servicing
compensation any assumption and reconveyance fees, to the extent collected from
mortgagors, and any interest or other income earned on funds held in the
Custodial Account or the Certificate Account. It is not anticipated that the
Master Servicer will enter into any subservicing arrangements with respect to
the Mortgage Loans. The Master Servicer is obligated to pay certain ongoing
expenses associated with the Trust Fund and incurred by the Master Servicer in
connection with its responsibilities under the Pooling and Servicing Agreement.
See "Servicing of Loans-Servicing Compensation and Payment of Expenses" in the
Prospectus for information regarding other possible compensation to the Master
Servicer and subservicers and for information regarding expenses payable by the
Master Servicer.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by
holders of Certificates evidencing a specified percentage of all undivided
interests in the Trust Fund may be taken by holders of Certificates entitled in
the aggregate to such percentage of the Voting Rights. 99% of all Voting Rights
will be allocated among all holders of the Certificates (other than the Class R
Certificates) in proportion to their then outstanding Certificate Principal
Balances, and 1% of all Voting Rights will be allocated among holders of the
Class R Certificates, respectively, in proportion to the Percentage Interests
(as defined in the Prospectus) evidenced by their respective Certificates. The
Pooling and Servicing Agreement will be subject to amendment without the consent
of the holders of the Certificates in certain circumstances.
EVENTS OF DEFAULT
Events of default ("Events of Default") under the Pooling and Servicing
Agreement will consist of (i) any failure by the Master Servicer to distribute
or cause to be distributed to Certificateholders any required payment which
continues unremedied for two Business Days after such failure of the Master
Servicer; (ii) any failure by the Master Servicer duly to observe or perform in
any material respect any of its other covenants or agreements in the Pooling and
Servicing Agreement which continues unremedied for thirty days after the giving
of written notice of such failure to the Master Servicer by the Trustee or the
Depositor, or to the Master Servicer,
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<PAGE>
the Depositor and the Trustee by the holders of Certificates evidencing not less
than 25% of the Voting Rights; (iii) certain events of insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings and
certain actions by or on behalf of the Master Servicer indicating its insolvency
or inability to pay its obligations two (2) Business Days after due.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under the Pooling and Servicing
Agreement remains unremedied, the Depositor or the Trustee may in each case by
notice in writing to the Master Servicer terminate all of the rights and
obligations of the Master Servicer under the Pooling and Servicing Agreement and
in and to the Mortgage Loans and the proceeds thereof. Upon receipt by the
Master Servicer of such written notice, all authority and power of the Master
Servicer under the Pooling and Servicing Agreement shall pass to and be vested
in the Trustee, and the Trustee shall be authorized and empowered to execute and
deliver, on behalf of the Master Servicer, as attorney-in-fact, or otherwise,
any and all documents and other instruments, and to do or accomplish all other
acts or things necessary or appropriate to effect the purposes of such
termination. Upon receipt by the Master Servicer of notice of termination, the
Trustee will succeed to all the responsibilities, duties and liabilities of the
Master Servicer under the Pooling and Servicing Agreement and will be entitled
to similar compensation arrangements. In the event that the Trustee is
unwilling, it may, or if it is unable, it shall appoint, or petition a court of
competent jurisdiction for the appointment of, a mortgage loan servicing
institution with a net worth of at least $10,000,000, to act as successor to the
Master Servicer under the Pooling and Servicing Agreement. Pending such
appointment, the Trustee is obligated to act in such capacity. The Trustee and
such successor may agree upon the servicing compensation to be paid, which in no
event may be greater than the compensation to the Master Servicer under the
Pooling and Servicing Agreement. See "The Pooling and Servicing
Agreements-Rights Upon Event of Default" in the Prospectus.
LIMITATION ON RESIGNATION OF THE MASTER SERVICER
The Master Servicer may resign from its obligations and duties under
the Pooling and Servicing Agreement only if such resignation, and the
appointment of a successor reasonably acceptable to the Trustee, will not result
in a downgrading of the ratings assigned to any Class of Certificates, or upon a
determination that its duties under the Pooling and Servicing Agreement are no
longer permissible under applicable law. No such resignation will become
effective until the Trustee or a successor master servicer has assumed the
Master Servicer's responsibilities, liabilities, obligations and duties under
the Pooling and Servicing Agreement.
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate upon payment to the Certificateholders of all amounts held in the
Certificate Account and required to be paid to the Certificateholders pursuant
to such Pooling and Servicing Agreement, following the earlier of (i) the final
payment or other liquidation of the last Mortgage Loan remaining in the related
Trust Fund or the disposition of all property acquired upon foreclosure of any
such
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<PAGE>
Mortgage Loan and (ii) the repurchase of all of the assets of the Trust Fund by
the Master Servicer when the aggregate principal balance of the Mortgage Loans
equals __% or less of the aggregate principal balance as of the Cut-off Date,
pursuant to a provision of the Agreement giving the Master Servicer the right to
do so. Written notice of termination of the Pooling and Servicing Agreement will
be given to each Certificateholder, and the final distribution will be made only
upon surrender and cancellation of the Certificates at an office or agency
appointed by the Trustee which will be specified in the notice of termination.
Any such repurchase of Mortgage Loans and property acquired in respect
of the Mortgage Loans shall be made at a price equal to the sum of (a) 100% of
the unpaid principal balance of each outstanding Mortgage Loan (net of
unreimbursed advances attributable to principal) as of the day of such
repurchase plus accrued interest thereon at the Net Mortgage Rate to the first
day of the month such repurchase price is distributed and (b) the appraised
value of any property acquired in respect of any defaulted Mortgage Loan (but
not more than the unpaid principal balance of that Mortgage Loan together with
accrued interest at the applicable Net Mortgage Rate to the first day of the
month of such purchase) less the good faith estimate of the Master Servicer of
liquidation expenses to be incurred in connection with its disposal thereof. The
proceeds of any such distribution may not be sufficient to distribute the full
amount to the Class A Certificates if the purchase price is based in part on the
fair market appraised value of any underlying Mortgaged Property and such
appraised value is less than 100% of the unpaid principal balance of the related
Mortgage Loan. The exercise of the right to purchase the assets of the Trust
Fund as set forth in clause (ii) of the preceding paragraph will effect early
retirement of the Certificates of that series.
THE TRUSTEE
_________________ will be the Trustee under the Pooling and Servicing
Agreement. The Depositor and the Seller may maintain other banking relationships
in the ordinary course of business with the Trustee. Offered Certificates may be
surrendered at the Corporate Trust Office of the Trustee located at
______________________________________________________ or at such other
addresses as the Trustee may designate from time to time by notice to the
Certificateholders, the Depositor and the Master Servicer.
The Trustee is eligible to serve as such under the Pooling and
Servicing Agreement only if it is a corporation or banking association organized
and doing business under the laws of the United States or any state thereof,
authorized under such laws to exercise corporate trust powers and subject to
supervision or examination by federal or state authority and has combined
capital and surplus of at least $50,000,000.
The Trustee may, upon written notice to the Master Servicer, the
Depositor and all Certificateholders, resign at any time, in which event the
Master Servicer, will be obligated to appoint a successor Trustee. If no
successor Trustee has been appointed and has accepted appointment within 60 days
after giving such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for appointment of a successor Trustee. Any such
successor Trustee must be approved by _______ and _________________. The Trustee
may also be removed at any time by the Master Servicer, if the Trustee ceases to
be eligible to continue as
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<PAGE>
such as described above or if the Trustee becomes insolvent. Any removal or
resignation of the Trustee and appointment of a successor Trustee as described
above will not become effective until acceptance of appointment by the successor
Trustee.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
[IF A REMIC]
Upon the issuance of the Class A Certificates, Counsel to the
Depositor, will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the Pooling and Servicing Agreement, for
federal income tax purposes, the Trust Fund will qualify as a
REMIC
under the Internal Revenue Code of 1986 (the "Code").
For federal income tax purposes, the Class R Certificates will be the
sole Class of "residual interests" in the REMIC and the Class A Certificates and
the Subordinate Certificates will represent the "regular interests" in the REMIC
and will be treated as debt instruments of the Trust Fund. See "Certain Federal
Income Tax Consequences" in the Prospectus.
For federal income tax reporting purposes, the Class A Certificates
will be treated as having been issued with original issue discount. The
prepayment assumption that will be used in determining the rate of accrual of
original issue discount, market discount and premium, if any, for federal income
tax purposes will be based on the assumption that subsequent to the date of any
determination the Mortgage Loans will prepay at a rate equal to ___% CPR. No
representation is made that the Mortgage Loans will prepay at that rate or at
any other rate. See "Certain Federal Income Tax Consequences-REMICs-Taxation of
Owners of REMIC Regular Certificates-Original Issue Discount," "-Market
Discount" and "-Premium" in the Prospectus.
The Internal Revenue Service (the "IRS") has issued regulations under
Sections 1271 to 1275 of the Code generally addressing the treatment of debt
instruments issued with original issue discount. Purchasers of the Class A
Certificates should be aware that the OID Regulations and Section 1272(a)(6) of
the Code do not adequately address certain issues relevant to, or are not
applicable to, securities such as the Class A Certificates. In addition, there
is considerable uncertainty concerning the application of the OID Regulations to
REMIC regular interests that provide for payments based on an adjustable rate
such as the Class A Certificates. Because of the uncertainties concerning the
application of Section 1272(a)(6) of the Code to such Certificates and because
the rules of the OID Regulations relating to debt instruments having an
adjustable rate of interest are limited in their application in ways that could
preclude their application to such Certificates even in the absence of Section
1272(a)(6) of the Code, the IRS could assert that the Class A Certificates
should be governed by some other method not yet set forth in regulations.
Prospective purchasers of the Certificates are advised to consult their tax
advisors concerning the tax treatment of such Certificates.
It appears that a reasonable method of reporting original issue
discount with respect to the Class A Certificates generally would be to report
all income with respect to such Certificates as original issue discount for each
period, computing such original issue discount (i) by assuming that
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<PAGE>
the value of the Index will remain constant for purposes of determining the
original yield to maturity of, and projecting future distributions on, each
class of such Certificates, thereby treating such Certificates as fixed rate
instruments to which the original issue discount computation rules described
herein can be applied, and (ii) by accounting for any positive or negative
variation in the actual value of the Index in any period from its assumed value
as a current adjustment to original issue discount with respect to such period.
If the rules of the OID Regulations were applied literally to the Class
A Certificates it appears that such rules would (i) require that the weighted
average interest rate paid on such Certificates be modified and treated as if it
were, prior to the first Adjustment Date of the Mortgage Loans, an adjustable
rate based on the Index (plus or minus a fixed number of basis points) rather
than a fixed rate, with the adjustable rate being such that the fair market
value of the Certificates would not be affected by the substitution of the
adjustable rate for the fixed rate, (ii) accrue original issue discount, if any,
on such Certificates as so modified by assuming that the Index will remain
constant in each accrual period for purposes of determining the constant yield
to maturity of, and the cash flow projections on, such Certificates and (iii)
make a positive (or negative) adjustment to interest income in any period in
which the actual interest paid on such Certificates (including interest actually
paid at a fixed rate prior to the first adjustment date of the Mortgage Loans)
were greater or less than the interest assumed to be paid thereon (including the
interest assumed to be paid thereon at an adjustable rate prior to the first
Adjustment Date of the Mortgage Loans).
The OID Regulations appear to permit the holder of a debt instrument to
recognize original issue discount under a method that differs from that used by
the issuer. Accordingly, it is possible that the holder of a Class A Certificate
may be able to select a method for recognizing original issue discount that
differs from that used by the Trust Fund in preparing reports to the
Certificateholders and the IRS. Prospective purchasers of the Class A
Certificates are advised to consult their tax advisors concerning the tax
treatment of such Certificates in this regard.
The Class A Certificates will be treated as "qualifying real property
loans" under Section 593(d) of the Code, assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c)(5)(A)
of the Code generally in the same proportion that the assets of the Trust Fund
would be so treated. In addition, interest on the Class A Certificates will be
treated as "interest on obligations secured by mortgages on real property" under
Section 856(c)(3)(B) of the Code generally to the extent that such Class A
Certificates are treated as "real estate assets" under Section 856(c)(5)(A) of
the Code. Moreover, the Class A Certificates will be "qualified mortgages"
within the meaning of Section 860G(a)(3) of the Code. See "Certain Federal
Income Tax Consequences-REMICs-Characterization of Investment in REMIC
Certificates" in the Prospectus.
To the extent permitted by then applicable law, any "prohibited
transactions tax," "contributions tax," tax on "net income from foreclosure
property" or state or local income or franchise tax that may be imposed on the
Trust Fund will be borne by the Master Servicer or Trustee in either case out of
its own funds, provided that the Master Servicer or the Trustee, as the case may
be, has sufficient assets to do so, and provided further that such tax arises
out of a
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<PAGE>
breach of the Master Servicer's or the Trustee's obligations, as the case may
be, under the Pooling and Servicing Agreement and in respect of compliance with
then applicable law. Any such tax not borne by the Master Servicer or the
Trustee will be payable out of the Trust Fund, which may reduce the amounts
otherwise payable to holders of the Class A Certificates, to the extent any such
tax exceeds amounts otherwise payable to holders of the Class B-1, Class B-2 and
Class B-3 Certificates. See "Certain Federal Income Tax
Consequences-REMICs-Prohibited Transactions Tax and Other Taxes" in the
Prospectus.
For further information regarding the federal income tax consequences
of investing in the Class A Certificates, see "Certain Federal Income Tax
Consequences-REMICs-Taxation of
Owners of REMIC Regular Certificates" in the Prospectus.
[[GRANTOR TRUST FUNDS
CLASSIFICATION OF GRANTOR TRUST FUNDS
Upon the issuance of the offered Grantor Trust Certificates, Counsel to
the Depositor will deliver its opinion to the effect that, assuming compliance
with all provisions of the related Pooling and Servicing Agreement, the Grantor
Trust Fund will be classified as a grantor trust under subpart E, part I of
subchapter J of the Code and not as a partnership or an association taxable as a
corporation. Accordingly, each holder of a Grantor Trust Certificate generally
will be treated as the owner of an interest in the Mortgage Loans included in
the Grantor Trust Fund.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate." A Grantor Trust Certificate representing
ownership of all or a portion of the difference between interest paid on the
Mortgage Loans constituting the related Grantor Trust Fund (net of normal
administration fees and any Spread) and interest paid to the holders of Grantor
Trust Fractional Interest Certificates issued with respect to such Grantor Trust
Fund will be referred to as a "Grantor Trust Strip Certificate." A Grantor Trust
Strip Certificate may also evidence a nominal ownership interest in the
principal of the Mortgage Loans constituting the related Grantor Trust Fund.
CHARACTERIZATION OF INVESTMENTS IN GRANTOR TRUST CERTIFICATES
GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES
In the case of Grantor Trust Fractional Interest Certificates, subject
to the discussion below with respect to Buydown Mortgage Loans, Counsel to the
Depositor will deliver an opinion, in general, that Grantor Trust Fractional
Interest Certificates will represent interests in (i) "qualifying real property
loans" within the meaning of Section 593(d) of the Code; (ii) "loans . . .
secured by an interest in real property" within the meaning of Section
7701(a)(19)(C) of the Code; (iii) "obligation[s] (including any participation or
certificate of beneficial ownership therein) which [are] principally secured by
an interest in real property" within the meaning of
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Section 860G(a)(3)(A) of the Code; and (iv) "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code. In addition, Counsel to the
Depositor will deliver an opinion that interest on Grantor Trust Fractional
Interest Certificates will, to the same extent, be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code.
[The characterization of an investment in Buydown Mortgage Loans will
depend upon the precise terms of the related Buydown Agreement, but to the
extent that such Buydown Mortgage Loans are secured by a bank account or other
personal property, they may not be treated in their entirety as assets described
in the foregoing sections of the Code. No directly applicable precedents exist
with respect to the federal income tax treatment or the characterization of
investments in Buydown Mortgage Loans. Accordingly, holders of Grantor Trust
Certificates should consult their own tax advisors with respect to the
characterization of investments in Grantor Trust Certificates representing an
interest in a Grantor Trust Fund that includes Buydown Mortgage Loans.]
GRANTOR TRUST STRIP CERTIFICATES
Even if Grantor Trust Strip Certificates evidence an interest in a
Grantor Trust Fund consisting of Mortgage Loans that are "loans . . . secured by
an interest in real property" within the meaning of Section 7701(a)(19)(C) of
the Code, "qualifying real property loans" within the meaning of Section 593(d)
of the Code, and "real estate assets" within the meaning of Section 856(c)(5)(A)
of the Code, and the interest on which is "interest on obligations secured by
mortgages on real property" within the meaning of Section 856(c)(3)(B) of the
Code, it is unclear whether the Grantor Trust Strip Certificates, and the income
therefrom, will be so characterized. However, the policies underlying such
sections (namely, to encourage or require investments in mortgage loans by
thrift institutions and real estate investment trusts) may suggest that such
characterization is appropriate. Counsel to the Depositor will not deliver any
opinion on these questions. Prospective purchasers to which such
characterization of an investment in Grantor Trust Strip Certificates is
material should consult their tax advisors regarding whether the Grantor Trust
Strip Certificates, and the income therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including
any participation or certificate of beneficial ownership therein) which [are]
principally secured by an interest in real
property" within the meaning of Section 860G(a)(3)(A) of the Code.
TAXATION OF OWNERS OF GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES
Holders of Grantor Trust Fractional Interest Certificates generally
will be required to report on their federal income tax returns their shares of
the entire income from the Mortgage Loans (including amounts used to pay
reasonable servicing fees and other expenses) and will be entitled to deduct
their shares of any such reasonable servicing fees and other expenses. Because
of stripped interests, market or original issue discount, or premium, the amount
includible in income on account of a Grantor Trust Fractional Interest
Certificate may differ significantly from the amount distributable thereon
representing interest on the Mortgage Loans. Under Section 67
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<PAGE>
of the Code, an individual, estate or trust holding a Grantor Trust Fractional
Interest Certificate directly or through certain pass-through entities will be
allowed a deduction for such reasonable servicing fees and expenses only to the
extent that the aggregate of such holder's miscellaneous itemized deductions
exceeds two percent of such holder's adjusted gross income. In addition, Section
68 of the Code provides that the amount of itemized deductions otherwise
allowable for an individual whose adjusted gross income exceeds a specified
amount will be reduced by the lesser of (i) 3% of the excess of the individual's
adjusted gross income over such amount or (ii) 80% of the amount of itemized
deductions otherwise allowable for the taxable year. The amount of additional
taxable income reportable by holders of Grantor Trust Fractional Interest
Certificates who are subject to the limitations of either Section 67 or Section
68 of the Code may be substantial. Further, Certificateholders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holders' alternative
minimum taxable income. Although it is not entirely clear, it appears that in
transactions in which multiple classes of Grantor Trust Certificates (including
Grantor Trust Strip Certificates) are issued, such fees and expenses should be
allocated among the classes of Grantor Trust Certificates using a method that
recognizes that each such class benefits from the related services. In the
absence of statutory or administrative clarification as to the method to be
used, it currently is intended to base information returns or reports to the IRS
and Certificateholders on a method that allocates such expenses among classes of
Grantor Trust Certificates with respect to each period based on the
distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates will depend on whether they are subject to the "stripped bond"
rules of Section 1286 of the Code. Grantor Trust Fractional Interest
Certificates may be subject to those rules if (i) a class of Grantor Trust Strip
Certificates is issued as part of the same series of Certificates or (ii) the
Depositor or any of its affiliates retains (for its own account or for purposes
of resale) a right to receive a specified portion of the interest payable on the
Mortgage Loans. Further, the IRS has ruled that an unreasonably high servicing
fee retained by a seller or servicer will be treated as a retained ownership
interest in mortgages that constitutes a stripped coupon. For purposes of
determining what constitutes reasonable servicing fees for various types of
mortgages, the IRS has established certain "safe harbors." [The servicing fees
paid with respect to the Mortgage Loans for the Grantor Trust Certificates are
[not] higher than the "safe harbors" and, accordingly, may [not] constitute
reasonable servicing compensation.]
[IF STRIPPED BOND RULES APPLY
The stripped bond rules apply, each Grantor Trust Fractional Interest
Certificate will be treated as having been issued with "original issue discount"
within the meaning of Section 1273(a) of the Code, subject, however, to the
discussion below regarding the treatment of certain stripped bonds as market
discount bonds and the discussion regarding de minimis market discount. See
"-Taxation of Owners Grantor Trust Fractional Interest Certificates-Market
Discount." Under the stripped bond rules, the holder of a Grantor Trust
Fractional Interest Certificate (whether a cash or accrual method taxpayer) will
be required to report interest income from its Grantor Trust Fractional Interest
Certificate for each month in an amount equal to the income that accrues on
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such Certificate in that month calculated under a constant yield method, in
accordance with the rules of the Code relating to original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser for the Certificate. The stated redemption price of a Grantor Trust
Fractional Interest Certificate will be the sum of all payments to be made on
such Certificate other than "qualified stated interest," if any, as well as such
Certificate's share of reasonable servicing fees and other expenses. See
"-Taxation of Owners Grantor Trust Fractional Interest Certificates-If Stripped
Bond Rules Do Not Apply" for a definition of "qualified stated interest." In
general, the amount of such income that accrues in any month would equal the
product of such holder's adjusted basis in such Grantor Trust Fractional
Interest Certificate at the beginning of such month (See "-Sales of Grantor
Trust Certificates") and the yield of such Certificate to such holder. Such
yield would be computed at the rate (compounded based on the regular interval
between payment dates) that, if used to discount the holder's share of future
payments on the Mortgage Loans, would cause the present value of those future
payments to equal the price at which the holder purchased such Certificate. In
computing yield under the stripped bond rules, a Certificateholder's share of
future payments on the Mortgage Loans will not include any payments made in
respect of any ownership interest in the Mortgage Loans retained by the
Depositor, the Master Servicer, any subservicer or their respective affiliates,
but will include such Certificateholder's share of any reasonable servicing fees
and other expenses.
Section 1272(a)(6) of the Code requires, (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii) adjustments
in the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the Grantor Trust
Fractional Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates or whether
use of a reasonable prepayment assumption may be required or permitted without
reliance on those rules. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time of purchase of
the Certificate by that holder. Certificateholders are advised to consult their
own tax advisors concerning reporting original issue discount in general and, in
particular, whether a prepayment assumption should be used in reporting original
issue discount with respect to Grantor Trust Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired
at a price equal to the principal amount of the Mortgage Loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
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If a prepayment assumption is not used, then when a Mortgage Loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a discount or a premium generally will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Mortgage Loan that is allocable to such Certificate and the portion of
the adjusted basis of such Certificate that is allocable to such
Certificateholder's interest in the Mortgage Loan. If a prepayment assumption is
used, it appears that no separate item of income or loss should be recognized
upon a prepayment. Instead, a prepayment should be treated as a partial payment
of the stated redemption price of the Grantor Trust Fractional Interest
Certificate and accounted for under a method similar to that described for
taking account of original issue discount on REMIC Regular Certificates. (See
"-REMICs-Taxation of Owners of REMIC Regular Certificates-Original Issue
Discount"in the Prospectus.) It is unclear whether any other adjustments would
be required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders on the prepayment assumption of __% [CPR or SPA] (the
"Prepayment Assumption") and on a constant yield computed using a representative
initial offering price for each class of Certificates. However, neither the
Depositor, the Master Servicer nor the Trustee will make any representation that
the Mortgage Loans will in fact prepay at a rate conforming to such Prepayment
Assumption or any other rate and Certificateholders should bear in mind that the
use of a representative initial offering price will mean that such information
returns or reports, even if otherwise accepted as accurate by the IRS, will in
any event be accurate only as to the initial Certificateholders who bought at
that price.
Under Treasury regulations Section 1.1286-1, certain stripped bonds are
to be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (ii) the annual stated rate of interest payable on the stripped bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). The interest payable on the Grantor Trust Fractional Interest
Certificate [is [not] more than one percentage point lower than the gross
interest rate payable on the Mortgage Loans. The original issue discount or
market discount on a Grantor Trust Fractional Interest Certificate determined
under the stripped bond rules is [not] less than 0.25% of the stated redemption
price multiplied by the weighted average maturity of the Mortgage Loans,
original issue discount or market discount will [not] be considered to be de
minimis. Original issue discount or market discount of only a de minimis amount
will be included in income in the same manner as de minimis original issue and
market discount described in "-Taxation of Owners of Grantor Trust Fractional
Interest Certificates-If Stripped Bond Rules Do Not Apply" and "-Market
Discount."]
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[IF STRIPPED BOND RULES DO NOT APPLY
Subject to the discussion below on original issue discount, [if the
stripped bond rules do not apply to a Grantor Trust Fractional Interest
Certificate,] the Certificateholder will be required to report its share of the
interest income on the Mortgage Loans in accordance with such
Certificateholder's normal method of accounting. The original issue discount
rules will apply to a Grantor Trust Fractional Interest Certificate to the
extent it evidences an interest in Mortgage Loans issued with original issue
discount.
The original issue discount, if any, on the Mortgage Loans will equal
the difference between the stated redemption price of such Mortgage Loans and
their issue price. Under the OID Regulations, the stated redemption price is
equal to the total of all payments to be made on such Mortgage Loan 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," a
combination of "qualified floating rates" or an "objective rate" that does not
operate in a manner that accelerates or defers interest payments on such
Mortgage Loan. In general, the issue price of a Mortgage Loan will be the amount
received by the borrower from the lender under the terms of the Mortgage Loan,
less any "points" paid by the borrower, and the stated redemption price of a
Mortgage Loan will equal its principal amount, unless the Mortgage Loan provides
for an initial below market rate of interest or the acceleration or the deferral
of interest payments.
Notwithstanding the general definition of original issue discount,
original issue discount will be considered to be de minimis if such original
issue discount is less than 0.25% of the stated redemption price multiplied by
the weighted average maturity of the Mortgage Loan. For this purpose, the
weighted average maturity of the Mortgage Loan will be computed as the sum of
the amounts determined as to each payment included in the stated redemption
price of such Mortgage Loan, 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 by (ii) a fraction, the numerator of which is the amount of
payment and the denominator of which is the stated redemption price of the
Mortgage Loan. 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" rate or 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 each such payment and the denominator of which is the
outstanding stated principal amount of the Mortgage Loan. The OID Regulations
also 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 Grantor Trust Fractional Interest Certificates-Market Discount"
below.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount.
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In the absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield with respect to
all mortgage-backed securities. Certificateholders are advised to consult their
own tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Certificate at a cost less than such Certificate's allocable
portion of the aggregate remaining stated redemption price of the Mortgage Loans
held in the related Grantor Trust Fund will also be required to include in gross
income such Certificate's daily portions of any original issue discount with
respect to such Mortgage Loans. However, each such daily portion will be
reduced, if the cost of such Grantor Trust Fractional Interest Certificate to
such purchaser is in excess of such Certificate's allocable portion of the
aggregate "adjusted issue prices" of the Mortgage Loans held in the related
Grantor Trust Fund, approximately in proportion to the ratio such excess bears
to such Certificate's allocable portion of the aggregate original issue discount
remaining to be accrued on such Mortgage Loans. The adjusted issue price of a
Mortgage Loan 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 Mortgage
Loan at the beginning of the accrual period that includes such day and (ii) the
daily portions of original issue discount for all days during such accrual
period prior to such day. The adjusted issue price of a Mortgage Loan at the
beginning of any accrual period will equal the issue price of such Mortgage
Loan, increased by the aggregate amount of original issue discount with respect
to such Mortgage Loan that accrued in prior accrual periods, and reduced by the
amount of any payments made on such Mortgage Loan in prior accrual periods of
amounts included in its stated redemption price.
The Trustee will provide to any holder of a Grantor Trust Fractional
Interest Certificate such information as such holder may reasonably request from
time to time with respect to original issue discount accruing on Grantor Trust
Fractional Interest Certificates. See "Grantor Trust Reporting" below.]
[MARKET DISCOUNT
A Certificateholder may be subject to the market discount rules of
Sections 1276 through 1278 of the Code to the extent an interest in a Mortgage
Loan is considered to have been purchased at a "market discount," that is, in
the case of a Mortgage Loan issued without original issue discount, at a
purchase price less than its remaining stated redemption price (as defined
above), or in the case of a Mortgage Loan issued with original issue discount,
at a purchase price less than its adjusted issue price (as defined above). If
market discount is in excess of a de minimis amount (as described below), the
holder generally will be required to include in income in each month the amount
of such discount that has accrued (under the rules described in the next
paragraph) through such month that has not previously been included in income,
but limited, in the case of the portion of such discount that is allocable to
any Mortgage Loan, to the payment of stated redemption price on such Mortgage
Loan that is received by (or, in the case of accrual basis
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Certificateholders, due to) the Trust Fund in that month. A Certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield method based on the yield of the Certificate to such holder)
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 during or after the first taxable year to which such election
applies. In addition, the OID Regulations would 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 Mortgage Loan 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 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 "-REMICs Taxation
of Owners of REMIC Regular Certificates-Premium" in the Prospectus. Each of
these elections to accrue interest, discount and premium with respect to a
Certificate on a constant yield method or as interest is irrevocable.
Section 1276(b)(3) of the Code authorized 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 such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period, market discount on the Mortgage Loans should accrue, at the
Certificateholder's option: (i) on the basis of a constant yield method, (ii) in
the case of a Mortgage Loan 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 stated interest remaining
to be paid on the Mortgage Loan as of the beginning of the accrual period, or
(iii) in the case of a Mortgage Loan 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 at the beginning of the accrual period. The
prepayment assumption, if any, used in calculating the accrual of original issue
discount is to be used in calculating the accrual of market discount. The effect
of using a prepayment assumption could be to accelerate the reporting of such
discount income. 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 Mortgage Loan purchased at a discount in the
secondary market.
Because the Mortgage Loans will provide for periodic payments of stated
redemption price, such market discount may be required to be included in income
at a rate that is not significantly slower than the rate at which such discount
would be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans generally will be
considered to exceed a de minimis amount if it is greater than 0.25% of the
stated redemption price of the Mortgage Loans multiplied by the number of
complete years to maturity remaining after the date of its
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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 used, if any. The effect of using a prepayment
assumption could be to accelerate the reporting of such discount income. If
market discount is treated as de minimis under the foregoing rule, it appears
that actual discount would be treated in a manner similar to original issue
discount of a de minimis amount. See "-Taxation of Owners of Grantor Trust
Fractional Interest Certificates-If Stripped Bond Rules Do Not Apply."
Further, under the rules described in "-REMICs-Taxation of Owners of
REMIC Regular Certificates-Market Discount" in the Prospectus, any discount that
is not original issue discount and exceeds a de minimis amount may require the
deferral of interest expense deductions attributable to accrued market discount
not yet includible in income, unless an election has been made to report market
discount currently as it accrues. This rule applies without regard to
origination dates of the Mortgage Loans.]
PREMIUM
If a Certificateholder is treated as acquiring the underlying Mortgage
Loans at a premium, that is, at a price in excess of their remaining stated
redemption price, such Certificateholder may elect under Section 171 of the Code
to amortize using a constant yield method. Amortizable premium is treated as an
offset to interest income on the related debt instrument, rather than as a
separate interest deduction. However, premiums allocable to Mortgage Loans for
which an amortization election is not made should be allocated among the
payments of stated redemption price on the Mortgage Loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in
computing amortization of premium allowable under Section 171 of the Code. If
premium is not subject to amortization using a prepayment assumption and a
Mortgage Loan prepays in full, the holder of a Grantor Trust Fractional Interest
Certificate acquired at a premium should recognize a loss, equal to the
difference between the portion of the prepaid principal amount of the Mortgage
Loan that is allocable to the Certificate and the portion of the adjusted basis
of the Certificate that is allocable to the Mortgage Loan. If a prepayment
assumption is used to amortize such premium, it appears that such a loss would
be unavailable. Instead, if a prepayment assumption is used, a prepayment should
be treated as a partial payment of the stated redemption price of the Grantor
Trust Fractional Interest Certificate and accounted for under a method similar
to that described for taking account of original issue discount on REMIC Regular
Certificates. See "-REMICs-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" in the Prospectus. It is unclear whether
any other adjustments would be required to reflect differences between the
prepayment assumption used, if any, and the actual rate of prepayments.
[TAXATION OF OWNERS OF GRANTOR TRUST STRIP CERTIFICATES
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The "stripped coupon" rules of Section 1286 of the Code will apply to
the Grantor Trust Strip Certificates. Except as described above in "-Taxation of
Owners of Grantor Trust Fractional Interest Certificates-If Stripped Bond Rules
Apply," no regulations or published rulings under Section 1286 of the Code have
been issued and some uncertainty exists as to how it will be applied to
securities such as the Grantor Trust Strip Certificates. Accordingly, holders of
Grantor Trust Strip Certificates should consult their own tax advisors
concerning the method to be used in reporting income or loss with respect to
such Certificates.
The OID Regulations do not apply to "stripped coupons," although they
provide general guidance as to how the original issue discount sections of the
Code will generally be applied. In addition, the discussion below is subject to
the discussion under "-Possible Application of Proposed Contingent Payment
Rules" and assumes that the holder of a Grantor Trust Strip Certificate will not
own any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue
discount will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Certificate
at the beginning of such month and the yield of such Certificate to such holder.
Such yield would be calculated based on the price paid for that Grantor Trust
Strip Certificate by its holder and the payments remaining to be made thereon at
the time of the purchase, plus an allocable portion of the servicing fees and
expenses to be paid with respect to the Mortgage Loans. See "-Taxation of Owners
of Grantor Trust Fractional Interest Certificates-If Stripped Bond Rules Apply"
above.
As noted above, Section 1272(a)(6) of the Code requires that a
prepayment assumption be used in computing the accrual of original issue
discount with respect to certain categories of debt instruments, and that
adjustments be made in the amount and rate of accrual of such discount when
prepayments do not conform to such prepayment assumption. Regulations could be
adopted applying those provisions to the Grantor Trust Strip Certificates. It is
unclear whether those provisions would be applicable to the Grantor Trust Strip
Certificates or whether use of a prepayment assumption may be required or
permitted in the absence of such regulations. It is also uncertain, if a
prepayment assumption is used, whether the assumed prepayment rate would be
determined based on conditions at the time of the first sale of the Grantor
Trust Strip Certificate or, with respect to any subsequent holder, at the time
of purchase of the Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption and on a constant yield computed using a representative initial
offering price for each class of Certificates. However, neither the Depositor
nor the Trustee will make any representation that the Mortgage Loans will in
fact prepay at a rate conforming to the Prepayment Assumption or at any other
rate and Certificateholders should bear in mind that the use of a representative
initial offering price will mean that such information returns or reports, even
if otherwise accepted
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as accurate by the IRS, will in any event be accurate only as to the initial
Certificateholders of each series who bought at that price. Prospective
purchasers of the Grantor Trust Strip Certificates should consult their own tax
advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
Mortgage Loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Certificate, it appears that no loss may be available as a result of any
particular prepayment unless prepayments occur at a rate faster than the
Prepayment Assumption. However, if a Grantor Trust Strip Certificate is treated
as an interest in discrete Mortgage Loans, or if the Prepayment Assumption is
not used, then when a Mortgage Loan is prepaid, the holder of a Grantor Trust
Strip Certificate should be able to recognize a loss equal to the portion of the
adjusted issue price of the Grantor Trust Strip Certificate that is allocable to
such Mortgage Loan.
POSSIBLE APPLICATION OF PROPOSED CONTINGENT PAYMENT RULES
The coupon stripping rules' general treatment of stripped coupons is to
regard them as newly issued debt instruments in the hands of each purchaser. To
the extent that payments on the Grantor Trust Strip Certificates would cease if
the Mortgage Loans were prepaid in full, the Grantor Trust Strip Certificates
could be considered to be debt instruments providing for contingent payments.
Under the OID Regulations, debt instruments providing for contingent payments
are not subject to the same rules as debt instruments providing for
noncontingent payments, but no final regulations have been promulgated with
respect to contingent payment debt instruments. Proposed regulations were
promulgated on December 16, 1994 regarding contingent payment debt instruments.
As in the case of the OID Regulations, such proposed regulations do not
specifically address securities, such as the Grantor Trust Strip Certificates,
that are subject to the stripped bond rules of Section 1286 of the Code.
If the contingent payment rules under the proposed regulations were to
apply, the holder of a Grantor Trust Strip Certificate would be required to
apply a "noncontingent bond method." Under that method, the issuer of a Grantor
Trust Strip Certificate would determine a projected payment schedule with
respect to such Grantor Trust Strip Certificate. Holders of Grantor Trust Strip
Certificates would be bound by the issuer's projected payment schedule, which
would consist of all noncontingent payments and a projected amount for each
contingent payment based on the projected yield (as described below) of the
Grantor Trust Strip Certificate. The projected amount of each payment would be
determined so that the projected payment schedule reflected the projected yield
reasonably expected to be received by the holder of a Grantor Trust Strip
Certificate. The projected yield referred to above would be a reasonable rate,
not less than the "applicable Federal rate" that, as of the issue date,
reflected general market conditions, the credit quality of the issuer, and the
terms and conditions of the Mortgage Loans. The holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each month the
adjusted issue price of the Grantor Trust Strip Certificate at the beginning of
the period multiplied by the projected yield, and would add to, or subtract
from, such income any variation between the
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payment actually received in such month and the payment originally projected to
be made in such month.
Certificateholders should consult their tax advisors concerning the
possible application of the contingent payment rules to the Grantor Trust Strip
Certificates.]
SALES OF GRANTOR TRUST CERTIFICATES
Any gain or loss equal to the difference between the amount realized on
the sale or exchange of a Grantor Trust Certificate and its adjusted basis,
recognized on the sale or exchange of a Grantor Trust Certificate as a capital
asset, will be capital gain or loss, except to the extent of accrued and
unrecognized market discount, which will be treated as ordinary income, and (in
the case of banks and other financial institutions) except as provided in
Section 582(c) of the Code. The adjusted basis of a Grantor Trust Certificate
generally will equal its cost, increased by any income reported by the Seller
(including original issue discount and market discount income) and reduced (but
not below zero) by any previously reported losses, any amortized premium and by
any distributions with respect to such Grantor Trust Certificate. The Code as of
the date of this Prospectus Supplement provides a top marginal tax rate of 39.6%
for individuals and a maximum marginal rate for the 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 or loss from the sale of a Grantor Trust Certificate may be
partially or wholly ordinary and not capital in certain circumstances. Gain
attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as ordinary income
to the extent that the Grantor Trust Certificate is held as part of a
"conversion transaction" within the meaning of Section 1258 of the Code. A
conversion transaction generally is one in which the taxpayer has taken two or
more positions in the same or similar property that reduce or eliminate market
risk, if substantially all of the taxpayer's return is attributable to the time
value of the taxpayer's net investment in such transaction. The amount of gain
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 that taxable year, for
purposes of the rule that limits on the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
GRANTOR TRUST REPORTING
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The Trustee will furnish to each holder of a Grantor Trust Certificate
with each distribution a statement setting forth the amount of such distribution
allocable to principal on the underlying Mortgage Loans and to interest thereon
at the related Pass-Through Rate. In addition, within a reasonable time after
the end of each calendar year, based on information provided by the Master
Servicer, the Trustee will furnish to each Certificateholder during such year
such customary factual information as the Trustee deems necessary or desirable
to enable holders of Grantor Trust Certificates to prepare their tax returns and
will furnish comparable information to the IRS as and when required by law to do
so. Because the rules for accruing discount and amortizing premium with respect
to the Grantor Trust Certificates are uncertain in various respects, there is no
assurance the IRS will agree with the Trustee's information reports of such
items of income and expense. Moreover, such information reports, even if
otherwise accepted as accurate by the IRS, will in any event be accurate only as
to the initial Certificateholders that bought their Certificates at the
representative initial offering price used in preparing such reports.
BACKUP WITHHOLDING
In general, the rules described in "-REMICs-Backup Withholding" in the
Prospectus will also apply to Grantor Trust Certificates.
FOREIGN INVESTORS
In general, the discussion with respect to REMIC Regular Certificates
in "-REMICs-Foreign Investors in REMIC Certificates" in the Prospectus applies
to Grantor Trust Certificates except that Grantor Trust Certificates will be
eligible for exemption from U.S. withholding tax, subject to the conditions
described in such discussion, only to the extent the
related Mortgage Loans were originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be
exempt from United States withholding tax under Section 871(h)(1) of the Code,
and the Grantor Trust Certificate is not held in connection with a
Certificateholder's trade or business in the United States, such Grantor Trust
Certificate will not be subject to United States estate taxes in the estate of a
non-resident alien individual.]]
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
agreement (the "Underwriting Agreement") between the Depositor and
_______________ (the "Underwriter"), an affiliate of the Depositor, the
Depositor has agreed to sell to the Underwriter, and the Underwriter has agreed
to purchase from the Depositor, the Class A Certificates.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Class A Certificates is
subject to, among other things, the receipt of certain legal opinions and to the
conditions, among others, that no stop order suspending the effectiveness of the
Depositor's Registration Statement shall be in effect, and that no proceedings
S-53
<PAGE>
for such purpose shall be pending before or threatened by the Securities and
Exchange Commission.
The distribution of the Class A Certificates by the Underwriter will be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined, in each case, at the time of sale. Proceeds
to the Depositor from the sale of the Class A Certificates, before deducting
expenses payable by the Depositor, will be approximately $___________ plus
accrued interest thereon from the Cut-off Date. The Underwriter may effect such
transactions by selling the Class A Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter for whom they act as agent. In
connection with the sale of the Class A Certificates, the Underwriter may be
deemed to have received compensation from the Depositor in the form of an
underwriting discount. The Underwriter and any dealers that participate with the
Underwriter in the distribution of the Class A Certificates may be deemed to be
underwriters and any profit on the resale of the Class A Certificates positioned
by them may be deemed to be underwriting discounts and commissions under the
Securities Act of 1933.
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriter, and under limited circumstances the Underwriter will indemnify
the Depositor, against certain civil liabilities under the Securities Act of
1933, or contribute to payments required to be made in respect thereof.
There can be no assurance that a secondary market for the Class A
Certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Class A
Certificates will be the monthly statements discussed in the Prospectus under
"The Pooling and Servicing Agreement-Reports to Certificateholders," which will
include information as to the outstanding principal balance of the Class A
Certificates and the status of the applicable form of credit enhancement. There
can be no assurance that any additional information regarding the Class A
Certificates will be available through any other source. In addition, the
Depositor is not aware of any source through which price information about the
Class A Certificates will be generally available on an ongoing basis. The
limited nature of such information regarding the Class A Certificates may
adversely affect the liquidity of the Class A Certificates, even if a secondary
market for the Class A Certificates becomes available.
USE OF PROCEEDS
The Depositor will apply the net proceeds from the sale of the Class A
Certificates against the purchase price of the Mortgage Loans.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon
for the Depositor and for the Underwriter by Thacher Proffitt & Wood, New York,
New York.
S-54
<PAGE>
RATINGS
It is a condition to the issuance of the Certificates that the Class A
Certificates be rated "Aaa" by _________ ("_______") and "AAA" by ___________
("__________").
The ratings of _______ on mortgage pass-through certificates address
the likelihood of the receipt by certificateholders of payments required
thereon. The ratings of _______ take into consideration the credit quality of
the mortgage pool, structural and legal aspects associated with the
certificates, and the extent to which the payment stream on the mortgage pool is
adequate to make payments required under the certificates. The rating of _______
on the Class A Certificates does not, however, constitute a statement regarding
frequency of prepayments on the Mortgage Loans.
Ratings by _______ address the structural, legal and issuer related
aspects associated with the certificates, including the nature and quality of
the underlying mortgage loans. Such ratings do not represent any assessment of
the likelihood of principal prepayments by mortgagors or of the degree by which
such prepayments might differ from those originally anticipated.
The Depositor has not requested a rating on the Class A Certificates by
any rating agency other than _______ and _______. However, there can be no
assurance as to whether any other rating agency will rate the Class A
Certificates, or, if it does, what rating would be assigned by any such other
rating agency. A rating on the Class A Certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Class A
Certificates by _______ and
- -------.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of similar ratings on different securities.
LEGAL INVESTMENT
The Class A Certificates will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
so long as they are rated in at least the second highest rating category by
_______ and _______ and, as such, are legal investments for certain entities to
the extent provided in SMMEA. SMMEA provided that states could override its
provisions on legal investment and restrict or condition investment in mortgage
related securities by taking statutory action on or prior to October 3, 1991.
Certain states have enacted legislation which overrides the preemption
provisions of SMMEA.
The Depositor makes no representations as to the proper
characterization of the Class A Certificates for legal investment or other
purposes, or as to the ability of particular investors to purchase the Class A
Certificates under applicable legal investment restrictions. These uncertainties
may adversely affect the liquidity of the Class A Class A Certificates.
Accordingly, all institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own
S-55
<PAGE>
legal advisors in determining whether and to what extent any of the Class A
Certificates constitutes a legal investment or is subject to investment, capital
or other restrictions.
See "Legal Investment" in the Prospectus.
ERISA CONSIDERATIONS
The U.S. Department of Labor has granted to the Underwriter an
individual exemption (Prohibited Transaction Exemption _____) which generally
exempts from the application of certain of the prohibited transaction provisions
of Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and the excise taxes imposed by Section 4975(a) and (b) of the
Code and 502(i) of ERISA, transactions relating to the purchase, sale and
holding by employee benefit plans and other persons subject to ERISA and the
Code ("Plans") of pass-through certificates underwritten by the Underwriter,
provided that certain conditions are satisfied. In addition, other exemptions
may possibly apply to a Plan's investment in Certificates.
S-56
<PAGE>
DLJ MORTGAGE ACCEPTANCE CORP.
DEPOSITOR
$---------------
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 199_-_
$___________ CLASS A CERTIFICATES ADJUSTABLE RATE
----------------------
PROSPECTUS SUPPLEMENT
----------------------
[NAME OF UNDERWRITER]
____________ __, 199_
<PAGE>
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 supplement 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 May 1, 1998
[Version 2]
PROSPECTUS SUPPLEMENT
(To Prospectus Dated ____________, 19__)
$----------------
DLJ Mortgage Acceptance Corp.
Company
DLJ MBN Trust 19__-___
[Name of Master Servicer]
Master Servicer
Mortgage-Backed Notes, Series 19__-___
The DLJ MBN Trust 19__ (the "Issuer") will be formed pursuant to a
Trust Agreement to be dated as of _________________, 19__ between DLJ Mortgage
Acceptance Corp. (the "Company") and __________________________, the Owner
Trustee. The Issuer will issue $__________ aggregate principal amount of
Mortgage-Backed Notes, Series 19__-____ (the "Notes"). The Notes will be issued
pursuant to an Indenture to be dated as of _________________, 19__, between the
Issuer and ___________________, the Indenture Trustee. The Issuer will also
issue
$-----------
aggregate principal amount of the Issuer's Trust Certificates, Series 19__-____
(the "Certificates"). The Notes and the Certificates are collectively referred
to herein as the "Securities". Only the Notes are offered hereby.
The Notes will represent indebtedness of the related trust fund (the
"Trust Fund") created by the Trust Agreement. The Trust Fund consists of
adjustable-rate, conventional, residential, one- to four-family first lien
mortgage loans (the "Mortgage Loans"). In addition, the Notes will have the
benefit of an irrevocable and unconditional financial guaranty insurance policy
(the "Policy") issued by _______________ (the "Insurer") as described under "The
Policy" herein.
The interest rates on the Mortgage Loans (each, a "Mortgage Rate") will
change semi-annually based on the Index (as defined herein) and the respective
Note Margins described herein, subject to certain periodic and lifetime
limitations as described more fully
herein.
Payments of principal and interest on the Notes will be made on the
_______ day of each month or, if such day is not a business day, then on the
next business day, commencing on ____________, 19__ (each, a "Payment Date"). As
described herein, interest will accrue on the Notes at a floating rate (the
"Bond Rate") equal to [LIBOR (as defined herein)] plus _____% per annum subject
to certain limitations as described herein. See "Description of the
Securities--Interest on the Notes" herein.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" BEGINNING ON PAGE S-__ HEREIN AND ON PAGE ___ IN THE ACCOMPANYING
PROSPECTUS.
<PAGE>
It is a condition of the issuance of the Notes that they be rated "___"
by ___________________ and "____" by ___________________.
THE YIELD TO MATURITY ON THE NOTES WILL DEPEND ON THE RATE AND TIMING
OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, LIQUIDATIONS AND REPURCHASES) ON
THE MORTGAGE LOANS. SEE "CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS" HEREIN AND
"YIELD AND PREPAYMENT CONSIDERATIONS" IN THE PROSPECTUS.
There is currently no secondary market for the Notes.
____________________ (the "Underwriter") intends to make a secondary market in
the Notes, but is not obligated to do so. There can be no assurance that a
secondary market for the Notes will develop or, if it does develop, that it will
continue. The Notes will not be listed on any securities exchange.
THE NOTES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO NOT REPRESENT
AN INTEREST IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER, OR ANY OF
THEIR AFFILIATES. NONE OF THE NOTES OR THE UNDERLYING MORTGAGE LOANS ARE INSURED
OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY,
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 SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Notes will be purchased from the Company by the Underwriter and
will be offered by the Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The proceeds to the Company from the sale of the Notes are expected to be
approximately $___________, before the deduction of expenses payable by the
Company estimated to be approximately
$-------.
The Notes are offered by the Underwriter subject to prior sale, when,
as and if delivered to and accepted by the Underwriter and subject to certain
other conditions. The Underwriter reserves the right to withdraw, cancel or
modify such offer and to reject any order in whole or in part. It is expected
that delivery of the Notes will be made on or about ____________, 19__ [in
book-entry form through the Same Day Funds Settlement System of The Depository
Trust Company as discussed herein,] [at the office of __________________,
_______________, _________________] against payment therefor in immediately
available funds.
[Name of Underwriter]
[Date of Prospectus Supplement]
S-2
<PAGE>
THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF
A SEPARATE SERIES OF SECURITIES BEING OFFERED PURSUANT TO THE COMPANY'S
PROSPECTUS DATED ____________, 19__, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A
PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE SECURITIES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. 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.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER- ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED
SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET, SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
Issuer.................................. The Notes will be issued by DLJ MBN
Trust 19__-___, a Delaware business
trust established pursuant to the
Trust Agreement, dated as of ________
1, 19__ between the Company and the
Owner Trustee.
The Notes.............................. $____________ Mortgage-Backed Notes,
Series 19__-__. Only the Notes are
offered hereby. The Notes will be
issued pursuant to an Indenture,
dated as of ________ 1, 19__ between
the Issuer and ___________________,
as Indenture Trustee.
Company................................. DLJ Mortgage Acceptance Corp. (the
"Company"). See "The Company" in the
Prospectus.
Master Servicer........................ [Name of Master Servicer] (the
"Master Servicer"). See "[Name of
Master Servicer]" in the Prospectus.
Owner Trustee........................... , .
------------------ ------------
Indenture Trustee....................... , .
------------------ ------------
Delivery Date........................... On or about ____________, 19__.
Payment Date........................... The [______] day of each month (or,
if such day is not a business day,
the next business day), beginning on
___________________, 19__, (each, a
"Payment Date").
[Denominations and
Registration............................ The Notes (the "Book-Entry Notes")
will be issued, maintained and
transferred on the book-entry records
of DTC and its Participants (as
defined in the Prospectus). The Notes
will be offered in registered form,
in minimum denominations of $______
and integral multiples of $_____ in
excess thereof. The Book-Entry Notes
will be represented by one or more
Bond certificates registered in the
name of Cede & Co., as nominee of
DTC. No Beneficial Owner will be
entitled to receive a Bond in fully
registered, certificated form (a
"Definitive Bond"), except
S-4
<PAGE>
under the limited circumstances
described herein. See "Description of
the Notes--Book Entry Notes" herein.]
The Mortgage Pool..................... The Mortgage Loans are secured by
first liens on one- to four-family
residential real properties (each, a
"Mortgaged Property"). The Mortgage
Loans have individual principal
balances at origination of at least
$______ but not more than $_________
with an average principal balance at
origination of approximately
$_________. The Mortgage Loans have
terms to maturity of __ years from
the date of origination and a
weighted average remaining term to
stated maturity of approximately ____
years and __ months as of the Cut-off
Date. The Mortgage Rate on each
Mortgage Loan will adjust
semi-annually on its Adjustment Date
(as defined herein), with
corresponding adjustments in the
amount of monthly payments, to equal
the sum (rounded as described herein)
of the Index described below and a
fixed percentage set forth in the
related Mortgage Note (the "Note
Margin"). However, (i) on any
Adjustment Date such Mortgage Rate
may not increase or decrease by more
than 2% (the "Periodic Rate Cap"),
(ii) over the life of such Mortgage
Loan, such Mortgage Rate may not
exceed the related maximum Mortgage
Rate (such maximum Mortgage Rate is
equal to the Mortgage Rate at
origination plus a lifetime rate cap
(the "Lifetime Rate Cap")), which
maximum Mortgage Rates will range
from ______% to ______% and (iii)
with respect to approximately ____%
of the Mortgage Loans, by aggregate
principal balance as of the Cut-off
Date, over the life of such Mortgage
Loan, such Mortgage Rate may not be
lower than the minimum Mortgage Rate.
The difference between the Mortgage
Rate on each Mortgage Loan at
origination and the minimum Mortgage
Rate on such Mortgage Loan will equal
the lifetime rate floor (the
"Lifetime Rate Floor"). The minimum
Mortgage Rates will range from _____%
to ______% per annum. The Mortgage
Loans will bear interest at Mortgage
Rates of at least _____% per annum
but not more than ______% per annum,
as of the Cut-off Date. For a further
description of the Mortgage Loans,
see "Description of the Mortgage
Pool" herein.
The Index.............................. As of any Adjustment Date with
respect to any Mortgage Loan, the
Index applicable to the determination
of the related Mortgage Rate will be
a rate equal to the monthly weighted
average cost of funds for members of
the
S-5
<PAGE>
Federal Home Loan Bank of San
Francisco as most recently available
45 days prior to the Adjustment Date
(the "Cost of Funds Index" or
"Index").
Interest Payments..................... Interest on the Notes will be paid
monthly on each Payment Date,
commencing in 19__, at the Bond
------ Interest Rate for the related
Interest Period (as defined below).
The Bond Interest Rate for an
Interest Period will be equal to
LIBOR plus ___% as described herein
under "Description of the
Notes--Interest on the Notes."
Interest on the Notes in respect of
any Payment Date will accrue from the
preceding Payment Date (or in the
case of the first Payment Date, from
the date of initial issuance of the
Notes (the "Closing Date") through
the day preceding such Payment Date
(each such period, an "Interest
Period")) on the basis of the actual
number of days in the Interest Period
and a 360-day year.
Principal Payments.................... On any Payment Date, to the extent of
funds available therefor, Bondholders
will be entitled to receive principal
payments generally equal to the
amount, if any, necessary to bring
the Outstanding Reserve Amount up to
the Reserve Amount Target. In no
event will principal payments on the
Notes on any Payment Date exceed the
Bond Principal Balance thereof on
such date. On the Payment Date in
__________, principal will be due and
payable on the Notes in an amount
equal to the Bond Principal Balance
for such Payment Date.
The "Bond Principal Balance" of the
Notes on any day is the initial
balance thereof as of the Closing Date
reduced by all payments of principal
thereon as of such day.
P&I Collections........................ All collections on the Mortgage Loans
will be allocated by the Master
Servicer in accordance with the terms
of the Mortgage Loans between amounts
collected in respect of interest and
amounts collected in respect of
principal. See "Description of the
Servicing Agreement--P&I Collections"
herein, which describes the
calculation of the Interest
Collections and the Principal
Collections on the Mortgage Loans for
the Collection Period related to each
Payment Date.
With respect to any Payment Date, the
portion of Principal Collections and
Interest Collections that are
distributable pursuant to the
Servicing Agreement
S-6
<PAGE>
(together, the "P&I Collections") will
equal (a) Interest Collections for
such Payment Date and (b) Principal
Collections for such Payment Date.
Outstanding Reserve
Amount.................................. The distribution of the Additional
Principal Distribution Amount, if any,
on the Mortgage Loans will create the
Outstanding Reserve Amount. The
Outstanding Reserve Amount, if any,
will be available to absorb any
Liquidation Loss Amounts that are
allocated to the Mortgage Loans and
not covered by Principal Collections
and Interest Collections. Any
Liquidation Loss Amounts allocable to
the Bondholders and not covered by
such overcollateralization will be
covered by draws on the Policy to the
extent provided herein. The
"Outstanding Reserve Amount" on any
Payment Date is the amount, if any, by
which the Pool Balance as of the end
of the related Collection Period
exceeds the Bond Principal Balance on
such day (after giving effect to all
distributions on such Payment Date).
As of the Closing Date, the Reserve
Amount Target is equal to ___% of the
Cut-Off Date Pool Balance. The Reserve
Amount Target may be increased or
reduced from time to time pursuant to
the terms of the Pooling and Servicing
Agreement, with the consent of the
Rating Agencies and the Indenture
Trustee. To the extent the Reserve
Amount Target is reduced on any
Payment Date, the amount of the
Principal Collections distributed on
such Payment Date will be reduced and
on each subsequent Payment Date to the
extent the remaining Outstanding
Reserve Amount is in excess of the
reduced Reserve Amount Target until
the Outstanding Reserve Amount equals
the Reserve Amount Target.
Insurer................................. . See "The Insurer" herein.
----------
Policy.................................. On the Closing Date, the Insurer will
issue a Policy in favor of the
[Indenture Trustee on behalf of the
Issuer]. The Policy will
unconditionally and irrevocably
guarantee principal payments on the
Notes plus accrued and unpaid interest
due on the Notes. The Policy will not
guarantee payments on the
Certificates. On each Payment Date, a
draw will be made on the Policy to
cover (a) any shortfall in amounts
available to make payments of interest
on the
S-7
<PAGE>
outstanding Bond Principal Balance of
the Notes and (b) the amount, if any,
[by which the Bond Principal Balance
of the Notes exceeds the Pool Balance
at the end of the related Collection
Period]. In addition, the Policy will
guarantee the payment of the
outstanding Bond Principal Balance of
each Bond on the Payment Date in
------- (after giving effect to all
other amounts distributable and
allocable to principal on such Payment
Date). See "The Policy" herein and
"Description of Credit Enhancement" in
the Prospectus.
The Certificates....................... $________ Trust Certificates, Series
19__-__. The Certificates will be
issued pursuant to the Trust Agreement
and will represent the beneficial
ownership interest in the Issuer. The
Certificates are not offered hereby.
Final Payment of Principal on
the Notes............................. The Notes will be payable in full on .
In addition, -------- the Issuer will
pay the Notes in full upon the
exercise by the [Master Servicer] of
its option to purchase all Mortgage
Loans and all property acquired in
respect of such Mortgage Loans. See
"The Agreements--Termination;
Redemption of Notes" in the
Prospectus.
Federal Income Tax
Consequences........................... In the opinion of Tax Counsel (as
defined in the Prospectus), for
federal income tax purposes, the Notes
will be characterized as indebtedness
of the Issuer and the Issuer, as
created pursuant to the terms and
conditions of the Trust Agreement,
will not be characterized as an
association (or publicly traded
partnership) taxable as a corporation
or as a taxable mortgage pool within
the meaning of section 7701(i) of the
Code.
For further information regarding
certain federal income tax
consequences of an investment in the
Notes see "Federal Income Tax
Consequences" herein and "Federal
Income Tax Consequences" and "State
and Other Tax Consequences" in the
Prospectus.
LegalInvestment........................ So long as the Notes are rated in the
top two rating agencies, the Notes
will constitute "mortgage related
securities" for purposes of SMMEA. See
"Legal Investment Considerations"
herein.
S-8
<PAGE>
Rating.................................. It is a condition to the issuance of
the Notes that they be rated "____" by
and "____" by (each a _________
_____________ "Rating Agency"). A
security rating is not a
recommendation to buy, sell or hold
securities and may be subject to
revision or withdrawal at any time by
the assigning rating organization. A
security rating does not address the
frequency of prepayments of Mortgage
Loans, or the corresponding effect on
yield to investors. See "Certain Yield
and Prepayment Considerations" and
"Ratings" herein.
S-9
<PAGE>
[RISK FACTORS]
[Prospective Bondholders should consider, among other things, the items
discussed under "Risk Factors" in the Prospectus and the following factors in
connection with the purchase of the Notes:]
[Appropriate Risk Factors as necessary. Possible Risk Factors based on present
disclosure include the following:
DELINQUENCIES AND POTENTIAL DELINQUENCIES
Approximately _____% of the Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) were thirty days or more but less than sixty
days delinquent in their Monthly Payments (such Mortgage Loans, "Delinquent
Mortgage Loans") as of the Cut-off Date. Prospective investors in the Notes
should be aware, however, that only approximately _____% of the Mortgage Loans
(by aggregate principal balance as of the Cut-off Date), had a first Monthly
Payment due on or before ______ _, 19__, and therefore, the remaining Mortgage
Loans could not have been Delinquent Mortgage Loans as of the Cut-off Date.
Approximately _____% of the Mortgage Loans (by aggregate outstanding
principal balance as of the Cut-off Date), are secured by Mortgaged Properties
located in the State of California. Property values of residential real estate
in California have declined in recent years. If the California residential real
estate market should continue to experience an overall decline in property
values after the dates of origination of the Mortgage Loans, the rates of
delinquency, foreclosure, bankruptcy and loss on the Mortgage Loans may be
expected to increase, and may increase substantially, as compared to such rates
in a stable or improving real estate market.
In addition, ___% of the Mortgage Loans are secured by Mortgaged
Properties located in Orange County, California. On December 6, 1994, Orange
County filed for protection under Chapter 9 of the United States Bankruptcy
Code. If public services are curtailed as a result of Orange County's financial
difficulties, property values in the related market area may be adversely
affected.]
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date of $____________. The
Mortgage Loans will consist of conventional, adjustable-rate, fully-amortizing,
first lien Mortgage Loans with terms to maturity of not more than ___ years from
the due date of the first monthly payment. On or before the Delivery Date, the
Company will acquire the Mortgage Loans
S-10
<PAGE>
to be included in the Mortgage Pool from _______________ and ________________
(the "Sellers"). The Sellers will make certain representations and warranties
with respect to the Mortgage Loans and, as more particularly described in the
Prospectus, will have certain repurchase or substitution obligations in
connection with a breach of any such representation and warranty, as well as in
connection with an omission or defect in respect of certain constituent
documents required to be delivered with respect to the Mortgage Loans, in any
event if such breach, omission or defect cannot be cured and it materially and
adversely affects the interests of Bondholders. Neither the Company nor any
other entity or person will have any responsibility to purchase or replace any
Mortgage Loan if a Seller is obligated but fails to do so. See "Description of
the Mortgage Pool--Representations by Sellers" and "Description of the
Notes--Assignment of Trust Fund Assets" in the Prospectus and "--The Seller"
below. The Mortgage Loans will have been originated or acquired by the [Sellers]
in accordance with the underwriting criteria described herein. See
"--Underwriting" below. All percentages of the Mortgage Loans described herein
are approximate percentages (except as otherwise indicated) by aggregate
principal balance as of the Cut-off Date.
The Mortgage Rate on each Mortgage Loan will adjust semi-annually on a
date specified in the related Mortgage Note (the "Adjustment Date"). For
approximately
- ----%
of the Mortgage Loans, by aggregate principal balance as of the Cut-off Date,
the first Adjustment Date occurred prior to the Cut-off Date.
On each Adjustment Date, the Mortgage Rate on a Mortgage Loan will be
adjusted to equal the sum (rounded to either the nearest or next highest
multiple of _____%) of (a) a rate per annum equal to the monthly weighted
average cost of funds for members of the Federal Home Loan Bank of San Francisco
(the "FHLB of San Francisco") as published by the FHLB of San Francisco (the
"Cost of Funds Index" or "Index") and as most recently available as of the day
45 days prior to such Adjustment Date or, in the event that such Index is no
longer available, an index selected by the Master Servicer and reasonably
acceptable to the Trustee that is based on comparable information, and (b) the
related Note Margin, subject to the following limitations. The Mortgage Rate on
the Mortgage Loan on any Adjustment Date may not increase or decrease by more
than the Periodic Rate Cap applicable to such Mortgage Loan and, over the life
of such Mortgage Loan, generally may not exceed the Mortgage Rate at origination
plus the Lifetime Rate Cap, or be less than the Mortgage Rate at origination
minus any Lifetime Rate Floor, applicable to such Mortgage Loan. No Mortgage
Loan provides for payment caps on any Adjustment Date which would result in
deferred interest or negative amortization. Effective with the first payment due
date on a Mortgage Loan after an Adjustment Date therefor, the monthly principal
and interest payment will be adjusted to an amount that will fully amortize the
then outstanding principal balance of such Mortgage Loan at its stated maturity
and pay interest at the adjusted Mortgage Rate. Because the amortization
schedule of each Mortgage Loan will be recalculated semi-annually, any partial
prepayments thereof will not reduce the term to maturity of such Mortgage Loan.
An increase in the Mortgage Rate on a Mortgage Loan will result in a larger
monthly payment and in a larger percentage of such monthly payment being
allocated to interest and a smaller percentage being allocated to principal, and
conversely, a decrease in the Mortgage Rate on the Mortgage Loan will
S-11
<PAGE>
result in a lower monthly payment and in a larger percentage of each monthly
payment being allocated to principal and a smaller percentage being allocated to
interest.
The Cost of Funds Index reflects the monthly weighted average cost of
funds of savings and loan associations and savings banks, the home offices of
which are located in Arizona, California and Nevada, that are member
institutions of the FHLB of San Francisco, as computed from statistics tabulated
and published by the FHLB of San Francisco. The FHLB of San Francisco normally
announces the Cost of Funds Index on or near the last working day of the month
following the month in which the cost of funds was incurred. The Index is
available through a variety of sources, including, without limitation, Telerate,
The Wall Street Journal and USA Today.
Listed below are the historical values of the Cost of Funds Index since
19___. Such values may fluctuate significantly over time and may not increase or
decrease in a constant pattern from period to period. The following does not
purport to be representative of future values of the Index. No assurance can be
given as to the Index value to be applied on any future Adjustment Date.
<TABLE>
<CAPTION>
COST OF FUNDS INDEX
Month 19__ 19__ 19__ 19__ 19__ 19__ 19__ 19__
===== ===== ===== ====== ====== ====== ====== ===== =====
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January.................
February................
March...................
April...................
May.....................
June....................
July....................
August..................
September...............
October.................
November................
December................
</TABLE>
The initial Mortgage Rate in effect on a Mortgage Loan generally will
be lower than the sum of the Index that would have been applicable at
origination and the Note Margin. Absent a decline in the Index subsequent to
origination of a Mortgage Loan, the related Mortgage Rate will generally
increase on the first Adjustment Date following origination of such Mortgage
Loan. The repayment of such Mortgage Loans will be dependent on the ability of
the Mortgagor to make larger Monthly Payments following adjustments of the
Mortgage Rate. Moreover, because the maximum Mortgage Rate on any Mortgage Loan
is determined by adding the Lifetime Rate Cap to the Mortgage Rate at
origination, irrespective of the Index that would have been applicable at
origination, the maximum Mortgage Rate on a Mortgage Loan will generally be less
than the sum of the Index and the Note Margin that would have been applicable at
origination plus the Lifetime Rate Cap.
S-12
<PAGE>
Mortgage Loans that have the same initial Mortgage Rate may not always bear
interest at the same Mortgage Rate because the Mortgage Loans may have different
Adjustment Dates (and the Mortgage Rate therefore may reflect different Index
values), different Note Margins, different Lifetime Rate Caps and different
Lifetime Rate Floors, if any.
The Mortgage Loans will have approximately the following
characteristics as of the Cut-off Date:
Number of Mortgage Loans.........................
Mortgage Rates:
Weighted Average.............................
Range........................................
Range of Net Mortgage Rates.......................
Note Margins:
Weighted Average.............................
Range........................................
Maximum Mortgage Rates:
Weighted Average.............................
Range........................................
Maximum Net Mortgage Rates (1):
Weighted Average.............................
Range........................................
Weighted Average Months to Next
Adjustment Date after __________, 19__(2)......
(1) The difference between the maximum Net Mortgage Rate and the Net
Mortgage Rate as of the Cut-off Date may be less than the Lifetime Rate
Cap.
(2) The Weighted Average Months to the next Adjustment Date is equal to the
weighted average of the number of months until the Adjustment Date next
following
_____________, 19__.
The Mortgage Loans in the Mortgage Pool will have the following
characteristics as of the Cut-off Date (expressed as a percentage of the
aggregate principal balance of the Mortgage Loans having such characteristics
relative to the aggregate principal balance of all Mortgage Loans in the
Mortgage Pool):
The Mortgage Loans will have had individual principal balances
at origination of at least $__________ but not more than $__________.
None of the Mortgage Loans in the Mortgage Pool will have been
originated prior to _____________, 19__ or will have a scheduled
maturity later than ____________, ____. No Mortgage Loan in the
Mortgage Pool will have an unexpired term to stated maturity as of the
Cut-off Date of less than __ years and __ months. The weighted average
remaining term to stated maturity of the Mortgage Loans in the Mortgage
Pool as of the Cut-off Date will be approximately
S-13
<PAGE>
____ years and __ months. The weighted average Adjustment Date of the
Mortgage Loans in the Mortgage Pool next following the Cut-off Date is
____________, 19__.
Approximately _____% of the Mortgage Loans will have
Loan-to-Value Ratios at origination exceeding 80% but less than or
equal to 90%, and approximately ____% of the Mortgage Loans will have
Loan-to-Value Ratios exceeding 90%. The weighted average Loan-to-Value
Ratio at origination, as of the
Cut-off Date, is approximately _____%.
At least _____% of such Mortgage Loans will be secured by fee
simple interests in detached one- to four-family dwelling units with
the remaining units being secured by fee simple interests in attached
planned unit developments, condominiums or townhouses.
Approximately _____% of the Mortgage Loans in the Mortgage
Pool will be secured by Mortgaged Properties located in California.
No more than _____% of the Mortgage Loans in the Mortgage Pool
will be secured by Mortgaged Properties located in any one zip code
area in California, and no more than ____% will be secured by Mortgaged
Properties located in any one
zip code area outside California.
No more than _____% of the Mortgage Loans were equity
refinance mortgage loans made to mortgagors who used less than the
entire amount of the proceeds to refinance an existing mortgage loan.
The weighted average Loan-to-Value Ratio at origination of such
Mortgage Loans, as of the Cut-off Date, is approximately ______%.
Approximately ____% of the Mortgage Loans were made to Mortgagors who
used the entire proceeds to refinance an existing Mortgage Loan.
No Mortgage Loan provides for deferred interest or negative
amortization.
Approximately ____% of the Mortgage Loans in the Mortgage Pool
will have been underwritten under a reduced loan documentation program.
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans in the Mortgage Pool which were underwritten under such reduced
loan documentation program will be approximately ____% and no more than
approximately ____% of such Mortgage Loans will be secured by Mortgaged
Properties located in California. See "Servicing Agreement--The Master
Servicer" herein.
No more than ____% of the Mortgage Loans will be secured by
vacation or second homes. No more than ____% of the Mortgage Loans will
be secured by one- to four-story condominium units. No Mortgage Loans
will be secured by condominium units in buildings of five or more
stories.
S-14
<PAGE>
None of the Mortgage Loans in the Mortgage Pool will be
Buydown Mortgage Loans.
The following table sets forth the number and aggregate principal
balance as of the Cut-off Date of Mortgage Loans having their next Adjustment
Dates in the month described therein. The table also indicates the approximate
percentage of Mortgage Loans in the Mortgage Pool with an Adjustment Date in
each such month.
<TABLE>
<CAPTION>
MONTH OF NUMBER OF AGGREGATE PERCENTAGE OF
ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
=============== ============== ================= =============
<S> <C> <C> <C> <C>
</TABLE>
Total..................
The following table sets forth the number and aggregate principal
balance of Mortgage Loans having unpaid principal balances in the ranges
described therein as of the Cut-off Date. The table also indicates the
approximate weighted average Mortgage Rate and the approximate weighted average
Loan-to-Value Ratio at origination of the Mortgage Loans in each given range, as
of the Cut-off Date.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER WEIGHTED ORIGINAL
OF AGGREGATE AVERAGE LOAN-TO-
MORTGAGE PRINCIPAL MORTGAGE VALUE
PRINCIPAL BALANCE LOANS BALANCE RATE RATIO
- ----------------- -------- --------- -------- --------
<S> <C> <C> <C> <C>
Total, Average or Weighted Average................. _______ $____________ ________% _______%
</TABLE>
[Specific information with respect to the Mortgage Loans will be
available to purchasers of the Notes on or before the time of issuance of such
Notes. If not included in the Prospectus Supplement, such information will be
included in the Form 8-K.]
UNDERWRITING
S-15
<PAGE>
[Underwriting standards as appropriate.]
DELINQUENCY AND FORECLOSURE EXPERIENCE
Based solely upon information provided by the Master
Servicer, the following tables summarize, for the respective dates indicated,
the delinquency, forbearance, foreclosure, bankruptcy and REO property status
with respect to all mortgage loans originated or acquired by the Sellers that
were originated as of the date three months prior to the date indicated. The
indicated periods of delinquency are based on the number of days past due on a
contractual basis. The monthly payments under all of such mortgage loans are due
on the first day of each calendar month.
S-16
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 19__ AT DECEMBER 31, 19__
------------------------- --------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT
-------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total Loans Outstanding.......................... $ $
DELINQUENCY(1)
Period of Delinquency:
31-60 Days.............................. $ $
61-90 Days..............................
91-120 Days or More.....................
Total Delinquencies........................... $ $
==== ===== ====
Delinquencies as a Percentage of
Total Loans Outstanding.......................... % % % %
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 19__ AT DECEMBER 31, 19__
----------------------- -----------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT
-------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FORBEARANCE LOANS(2)................. $ $
Forbearance Loans as a
Percentage of Total Loans
Outstanding.......................... % %
FORECLOSURES PENDING(3).............. $ $
Foreclosures Pending as a
Percentage of Total Loans
Outstanding.......................... % % % %
BANKRUPTCIES PENDING(4).............. $ $
Bankruptcies Pending as a
Percentage of Total Loans
Outstanding.......................... % % % %
Total Delinquencies plus
Forbearance Loans, Foreclosures
Pending and Bankruptcies
Pending.............................. $ $
Total Delinquencies plus
Forbearance Loans, Foreclosures
Pending and Bankruptcies
Pending as a Percentage of Total
Loans Outstanding.................... % % % %
REO PROPERTIES(5).................... $ $
REO Properties as a
Percentage of Total Loans
Outstanding.......................... % % % %
</TABLE>
S-17
<PAGE>
(1) The delinquency balances, percentages and numbers set forth under this
heading exclude (a) delinquent mortgage loans that were subject to
forbearance agreements with the related mortgagors at the respective
dates indicated ("Forbearance Loans"), (b) delinquent mortgage loans
that were in foreclosure at the respective dates indicated
("Foreclosure Loans"), (c) delinquent mortgage loans as to which the
related mortgagor was in bankruptcy proceedings at the respective dates
indicated ("Bankruptcy Loans") and (d) REO properties that have been
purchased upon foreclosure of the related mortgage loans. All
Forbearance Loans, Foreclosure Loans, Bankruptcy Loans and REO
properties have been segregated into the sections of the table entitled
"Forbearance Loans," "Foreclosures Pending," "Bankruptcies Pending" and
"REO Properties," respectively, and are not included in the "31-60
Days," "61-90 Days," "91-120 Days or More" and "Total Delinquencies"
sections of the table. See the section of the table entitled "Total
Delinquencies plus Forbearance Loans, Foreclosures Pending and
Bankruptcies Pending" for total delinquency balances, percentages and
numbers which include Forbearance Loans, Foreclosure Loans and
Bankruptcy Loans, and see the section of the table entitled "REO
Properties" for delinquency balances, percentages and numbers related
to REO properties that have been purchased upon foreclosure of the
related mortgage loans.
(2) For each of the Forbearance Loans, the Master Servicer has entered into
a written forbearance agreement with the related mortgagor, based on
the Master Servicer's determination that the mortgagor is temporarily
unable to make the scheduled monthly payment on such mortgage loan.
Prior to entering into each forbearance agreement, the Master Servicer
confirmed the continued employment status of the mortgagor and found
the payment history of such mortgagor to be satisfactory. There can be
no assurance that the mortgagor will be able to make the payments as
required by the forbearance agreement, and any failure to make such
payments will constitute a delinquency. None of the Mortgage Loans
included in the Mortgage Pool are Forbearance Loans.
(3) Mortgage loans that are in foreclosure but as to which the mortgaged
property has not been liquidated at the respective dates indicated. It
is generally the Master Servicer's policy, with respect to mortgage
loans originated by the Seller, to commence foreclosure proceedings
when a mortgage loan is between 31 and 60 days delinquent.
(4) Mortgage loans as to which the related mortgagor is in bankruptcy
proceedings at the respective dates indicated.
(5) REO properties that have been purchased upon foreclosure of the related
mortgage loans, including mortgaged properties that were purchased by
the Seller after the respective dates
indicated.
The above data on delinquency, forbearance, foreclosure, bankruptcy and
REO property status are calculated on the basis of the total mortgage loans
originated or acquired by the Seller's that were originated as of the date three
months prior to the date indicated. However, the total amount of mortgage loans
on which the above data are based includes many mortgage loans which were not,
as of the respective dates indicated, outstanding long enough to give rise to
some of the indicated periods of delinquency or to foreclosure or bankruptcy
proceedings or REO property status. In the absence of such mortgage loans, the
delinquency, forbearance, foreclosure, bankruptcy and REO property
S-18
<PAGE>
percentages indicated above would be higher and could be substantially higher.
Because the Mortgage Pool will consist of a fixed group of Mortgage Loans, the
actual delinquency, forbearance, foreclosure, bankruptcy and REO property
percentages with respect to the Mortgage Pool may therefore be expected to be
higher, and may be substantially higher, than the percentages indicated above.
The information set forth in the preceding paragraphs concerning ____
and ----- has been provided by [Names of Sellers].
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as constituted at the
close of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Notes,
Mortgage Loans may be removed from the Mortgage Pool as a result of incomplete
documentation or otherwise, if the Company deems such removal necessary or
appropriate. The Company believes that the information set forth herein will be
substantially representative of the characteristics of the Mortgage Pool as it
will be constituted at the time the Notes are issued although the range of
Mortgage Rates and maturities and certain other characteristics of the Mortgage
Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K will be available to purchasers of the
Notes and will be filed, together with the Servicing Agreement, the Trust
Agreement and the Indenture, with the Securities and Exchange Commission within
fifteen days after the initial issuance of the Notes. In the event Mortgage
Loans are removed from or added to the Mortgage Pool as set forth in the
preceding paragraph, such removal or addition will be noted in the Current
Report on Form 8-K.
See "The Mortgage Pools" and "Certain Legal Aspects of Mortgage Loans"
in the Prospectus.
THE ISSUER
GENERAL
The DLJ MBN Trust 19_-_, is a business trust formed under the laws of
the State of [Delaware] pursuant to the Trust Agreement dated as of _____ 1,
19__ between the Company and ________________, as the Owner Trustee for the
transactions described in this Prospectus Supplement. The Trust Agreement
constitutes the "governing instrument" under the laws of the State of [Delaware]
relating to business trusts. After its formation, the Issuer will not engage in
any activity other than (i) acquiring the Mortgage Loans and the other assets of
the Issuer and proceeds therefrom and pledging them to the Indenture Trustee,
(ii) issuing the Notes and the Certificates, (iii) making payments on the
S-19
<PAGE>
Notes and the Certificates and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith.
The assets of the Issuer will consist of the Mortgage Loans and certain
related assets.
The Issuer's principal offices are in ___________, Delaware, in care of
________________, as Owner Trustee, at the address listed below.
THE OWNER TRUSTEE
_______________ is the Owner Trustee under the Trust Agreement.
__________________ is a [Delaware] banking corporation and its principal offices
are located at ____________________.
Neither the Owner Trustee nor any director, officer or employee of the
Owner Trustee will be under any liability to the Issuer or the Bondholders for
any action taken or for refraining from the taking of any action in good faith
pursuant to the Trust Agreement or for errors in judgment; provided, however,
that none of the Owner Trustee and any director, officer or employee thereof
will be protected against any liability which would otherwise be imposed by
reason of willful malfeasance, bad faith or negligence in the performance of
duties or by reason of reckless disregard of obligations and duties under the
Trust Agreement. All persons into which the Owner Trustee may be merged or with
which it may be consolidated or any person resulting from such merger or
consolidation shall be the successor of the Owner Trustee under the Trust
Agreement.
THE INSURER
[Insert Description of Insurer as Appropriate.]
DESCRIPTION OF THE SECURITIES
GENERAL
The Notes will be issued pursuant to the Indenture dated as of
________, between the Issuer and _________, as Indenture Trustee. The
Certificates will be issued pursuant to the Trust Agreement dated as of
____________, between the Company and _____________, as Owner Trustee. The
following summaries describe certain provisions of the Securities, the Indenture
and the Trust Agreement. The summaries do not purport to be complete and are
subject to, and qualified in their entirety by reference to, the provisions of
the applicable agreement. Only the Notes are offered hereby.
The Notes will be secured by the Trust Fund pledged by the Issuer to
the Indenture Trustee pursuant to the Indenture which will consist of: (i) the
Mortgage Loans; (ii) collections in respect of principal of the Mortgage Loans
received after the applicable
Cut-
S-20
<PAGE>
Off Date and collections in respect of interest on the Mortgage Loans from the
Cut-Off Date relating to the Mortgage Loan; (iii) the amounts on deposit in the
Custodial Account allocated to the Mortgage Loans and the Payment Account
(excluding net earnings thereon); (iv) the Policy; (v) certain hazard insurance
policies maintained by the Mortgagors or by or on behalf of the Master Servicer
or related subservicer in respect of the Mortgage Loans and (vi) an assignment
of the Company's rights under the Purchase Agreement and the Servicing
Agreement.
The Notes will be issued in denominations of $1,000 and integral
multiples in excess thereof. See "--Book-Entry Securities" below.
BOOK-ENTRY SECURITIES
General. Beneficial Owners (as defined in the Prospectus) that are not
Participants or Intermediaries (as defined in the Prospectus) but desire to
purchase, sell or otherwise transfer ownership of, or other interests in, the
related Book-Entry Securities may do so only through Participants and
Intermediaries. In addition, Beneficial Owners will receive all payments of
principal of and interest on the related Book-Entry Securities from the Paying
Agent (as defined in the Prospectus) through DTC and Participants. Accordingly,
Beneficial Owners may experience delays in their receipt of payments. Unless and
until Definitive Securities are issued for the related Book-Entry Securities, it
is anticipated that the only registered Bondholder of such Book-Entry Securities
will be Cede, as nominee of DTC. Beneficial Owners will not be recognized by the
Indenture Trustee or the Master Servicer as Bondholders, as such term is used in
the Indenture, and Beneficial Owners will be permitted to receive information
furnished to Bondholders and to exercise the rights of Bondholders only
indirectly through DTC, its Participants and Intermediaries.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Book-Entry Securities among Participants and to receive and transmit payments
of principal of, and interest on, such Book-Entry Securities. Participants and
Intermediaries with which Beneficial Owners have accounts with respect to such
Book-Entry Securities similarly are required to make book-entry transfers and
receive and transmit such payments on behalf of their respective Beneficial
Owners. Accordingly, although Beneficial Owners will not possess physical
certificates evidencing their interests in the Book-Entry Securities, the Rules
provide a mechanism by which Beneficial Owners, through their Participants and
Intermediaries, will receive payments and will be able to transfer their
interests in the Book-Entry Securities.
None of the Company, the Master Servicer, the Insurer or the Indenture
Trustee will have any liability for any actions taken by DTC or its nominee,
including, without limitation, actions for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Book-Entry
Securities held by Cede, as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
S-21
<PAGE>
Definitive Securities. Definitive Securities will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
"Description of the Securities--Form of Securities."
Upon the occurrence of an event described in the Prospectus in the
third paragraph under "Description of the Securities--Form of Securities," the
Indenture Trustee is required to notify, through DTC, Participants who have
ownership of Book-Entry Securities as indicated on the records of DTC of the
availability of Definitive Securities for their Book-Entry Securities. Upon
surrender by DTC of the definitive certificates representing the Book-Entry
Securities and upon receipt of instructions from DTC for re-registration, the
Indenture Trustee will reissue the Book-Entry Securities as Definitive
Securities issued in the respective principal amounts owned by individual
Beneficial Owners, and thereafter the Indenture Trustee will recognize the
holders of such Definitive Securities as Bondholders under the Indenture.
For additional information regarding DTC and the Book-Entry Securities,
see "Description of the Notes--Form of Notes" in the Prospectus.]
PAYMENTS
Payments on the Notes will be made by the Indenture Trustee or the
Paying Agent on the _____ day of each month or, if such day is not a Business
Day, then the next succeeding Business Day, commencing in __________. Payments
on the Notes will be made to the persons in whose names such Notes are
registered at the close of business on the day prior to each Payment Date or, if
the Notes are no longer Book-Entry Securities, on the Record Date. See
"Description of the Notes--Payments" in the Prospectus. Payments will be made by
check or money order mailed (or upon the request of a Holder owning Notes having
denominations aggregating at least $_________, by wire transfer or otherwise) to
the address of the person entitled thereto (which, in the case of Book-Entry
Securities, will be DTC or its nominee) as it appears on the Security Register
in amounts calculated as described herein on the Determination Date. However,
the final payment in respect of the Notes will be made only upon presentation
and surrender thereof at the office or the agency of the Indenture Trustee
specified in the notice to Holders of such final payment. A "Business Day" is
any day other than (i) a Saturday or Sunday or (ii) a day on which banking
institutions in the State of ___________ are required or authorized by law to be
closed.
INTEREST ON THE NOTES
Interest payments will be made on the Notes on each Payment Date at the
Bond Rate for the related Interest Period. The "Bond Rate" for an Interest
Period will generally equal the sum of [(a) LIBOR determined as specified
herein, as of the second LIBOR Business Day prior to the first day of such
Interest Period (or as of two LIBOR Business Days prior to the Closing Date, in
the case of the first Interest Period)] plus (b) ___% per
S-22
<PAGE>
annum. Notwithstanding the foregoing, in no event will the Bond Rate on any
Payment Date exceed a rate equal to the weighted average of the Loan Rates (net
of the applicable Servicing Fee Rate) (adjusted to an effective rate reflecting
accrued interest calculated on the basis of the actual number of days in the
Collection Period commencing in the month in which such Interest Period
commences and a year assumed to consist of 360 days).
Interest on the Notes in respect of any Payment Date will accrue on the
applicable Bond Principal Balance from the preceding Payment Date (or in the
case of the first Payment Date, from the Closing Date) through the day preceding
such Payment Date (each such period, an "Interest Period") on the basis of the
actual number of days in the Interest Period and a 360-day year. Interest
payments on the Notes will be funded from P&I Collections [and with respect to
the Notes, if necessary, from draws on the Policy.
[On each Payment Date, LIBOR shall be established by the Indenture
Trustee and as to any Interest Period, LIBOR will equal the rate for United
States dollar deposits for one month which appears on the Telerate Screen Page
3750 as of 11:00 A.M., London time, on the second LIBOR Business Day prior to
the first day of such Interest Period. "Telerate Screen Page 3750" means the
display designated as page 3750 on the Telerate Service (or such other page as
may replace page 3750 on that service for the purpose of displaying London
interbank offered rates of major banks). If such rate does not appear on such
page (or such other page as may replace that page on that service, or if such
service is no longer offered, such other service for displaying LIBOR or
comparable rates as may be selected by the Indenture Trustee after consultation
with the Master Servicer), the rate will be the Reference Bank Rate. The
"Reference Bank Rate" will be determined on the basis of the rates at which
deposits in U.S. Dollars are offered by the reference banks (which shall be
three major banks that are engaged in transactions in the London interbank
market, selected by _________) as of 11:00 A.M., London time, on the day that is
two LIBOR Business Days prior to the immediately preceding Payment Date to prime
banks in the London interbank market for a period of one month in amounts
approximately equal to the Bond Principal Balance then outstanding. The
Indenture Trustee will request the principal London office of each of the
reference banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate will be the arithmetic mean of the quotations.
If on such date fewer than two quotations are provided as requested, the rate
will be the arithmetic mean of the rates quoted by one or more major banks in
New York City, selected by the Indenture Trustee after consultation with the
Master Servicer, as of 11:00 A.M., New York City time, on such date for loans in
U.S. Dollars to leading European banks for a period of one month in amounts
approximately equal to the Bond Principal Balance then outstanding. If no such
quotations can be obtained, the rate will be LIBOR for the prior Payment Date.
"LIBOR Business Day" means any day other than (i) a Saturday or a Sunday or (ii)
a day on which banking institutions in the State of [New York] or in the city of
London, England are required or authorized by law to be closed.]
PRINCIPAL PAYMENTS ON THE NOTES
S-23
<PAGE>
On each Payment Date, other than the Payment Date in _________,
principal payments except as provided below will be due and payable on the Notes
in an amount equal to the Principal Collection Distribution Amount (as defined
below) for such Payment Date, together with any Liquidation Loss Amounts. On the
Payment Date in ______, principal will be due and payable on the Notes in
amounts equal to the Bond Principal Balance on such Payment Date. In no event
will principal payments on the Notes on any Payment Date exceed the Bond
Principal Balance thereof on such date.
ALLOCATION OF P&I COLLECTIONS
The Master Servicer on behalf of the Issuer will establish an account
(the "Distribution Account") into which the Master Servicer will deposit P&I
Collections for each Payment Date on the Business Day prior thereto. The
Distribution Account will be an Eligible Account. Amounts on deposit in the
Distribution Account will be invested in Eligible Investments maturing on or
before the Business Day prior to the related Payment Date.
On each Payment Date, P&I Collections will be allocated from the
Distribution Account in the following order of priority:
(i) to the Notes, the sum of the following:
(a) as payment for the accrued interest due and any
overdue accrued interest at the Bond Rate (as defined herein) on the
Bond Principal Balance (as
defined herein) of the Notes;
(b) an amount equal to the Principal Collection
Distribution Amount, applied to reduce the Bond Principal Balance of
the Notes; and
(c) an additional amount to be applied to reduce the
Bond Principal Balance (each such amount, a "Additional Principal
Distribution Amount"), to the extent necessary to bring the Outstanding
Reserve Amount up to the Reserve Amount Target; and
(ii) to the Insurer, the aggregate of all payments, if any, made
by the Insurer under the Policy [and any other amounts].
(iii) as payment for the premium for the Policy;
(iv) to reimburse prior draws made on the Policy (with interest
thereon);
(v) any other amounts owed to the Insurer pursuant to the
Insurance Agreement; and
(vi) the remaining amount, if any, of the P&I Collections
shall be allocated to the Certificates.
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For any Payment Date, the "Principal Collection Distribution Amount"
will equal Principal Collections for such Payment Date.
"Liquidation Loss Amount" means with respect to any Liquidated Mortgage
Loan, the unrecovered Principal Balance thereof at the end of the related
Collection Period in which such Mortgage Loan became a Liquidated Mortgage Loan,
after giving effect to the Net Liquidation Proceeds allocable to such Principal
Balance in connection therewith.
A "Liquidated Mortgage Loan" means, as to any Payment Date, any
Mortgage Loan in respect of which the Master Servicer has determined, based on
the servicing procedures specified in the Servicing Agreement, as of the end of
the preceding Collection Period that all liquidation proceeds which it expects
to recover with respect to the disposition of the related Mortgaged Property
have been recovered.
As of the Closing Date, the Reserve Amount Target is equal to at least
___% of the Cut-Off Date Pool Balance. The Reserve Amount Target may be
increased or reduced from time to time pursuant to the terms of the Pooling and
Servicing Agreement, with the consent of the Rating Agencies and the Indenture
Trustee. To the extent the Reserve Amount Target is reduced on any Payment Date,
the amount of the Principal Collections distributed pursuant to clause (ii)(b)
will be reduced on such Payment Date and on each subsequent Payment Date to the
extent the remaining Outstanding Reserve Amount is in excess of the reduced
Reserve Amount Target until the Outstanding Reserve Amount equals the Reserve
Amount Target.
The Indenture Trustee will establish the Payment Account into which the
Master Servicer will deposit the portion of the P&I Collections allocable to the
Mortgage Loan for each Payment Date on the Business Day prior thereto. The
Payment Account will be an Eligible Account. Amounts on deposit in the Payment
Account will be invested in Eligible Investments maturing on or before the
Business Day prior to the related Payment Date.
The "Bond Principal Balance" of the Notes on any day is the initial
principal balance thereof as of the Closing Date, reduced by all payments of
principal thereon as of such
day.
Except as provided below, payments pursuant to clause (i) will be
allocated to the Notes based on the amount of interest such Bond is entitled to
receive pursuant to such clause. Except as provided below, payments pursuant to
clauses (ii), (iii) and (vi) will
constitute payments of principal.
An "Amortization Event" will be deemed to occur upon (i) the occurrence
of certain events relating to a violation of the Seller's obligations under the
Mortgage Loan Purchase Agreement, (ii) the occurrence of certain events of
bankruptcy, insolvency or receivership relating to the Seller or the Master
Servicer, (iii) the Issuer becomes subject to regulation as an investment
company within the meaning of the Investment Company Act of 1940, as amended, or
(iv) the aggregate of all draws under the Policy exceeds __________;
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Notwithstanding the foregoing, if a conservator, receiver or
trustee-in-bankruptcy is appointed for the Seller, the conservator, receiver or
trustee-in-bankruptcy may have the power to prevent the commencement of the
Amortization Period.
OUTSTANDING RESERVE AMOUNT
The distribution of the Additional Principal Distribution Amount, if
any, to the Bondholders, will create the Outstanding Reserve Amount. The
Outstanding Reserve Amount, if any, will be available to absorb any Liquidation
Loss Amounts that are allocated to the Mortgage Loans and not covered by
Principal Collections and Interest
Collections.
Any Liquidation Loss Amounts allocable to the Bondholders and not covered by
such overcollateralization will be covered by draws on the Policy to the extent
provided herein. The "Outstanding Reserve Amount" on any Payment Date is the
amount, if any, by which the Pool Balance as of the end of the related
Collection Period exceed the Bond Principal Balance on such day (after giving
effect to all amounts payable and allocable to principal on the Notes that are
applied to reduce the Bond Principal Balance on such Payment Date).
To the extent that such overcollateralization is insufficient or not
available to absorb Liquidation Loss Amounts, and payments are not made under
the Policy, a Bondholder may incur a loss.
THE PAYING AGENT
The Paying Agent shall initially be the [Indenture Trustee], together
with any successor thereto. The Paying Agent shall have the revocable power to
withdraw funds from the Payment Account for the purpose of making payments to
the Securityholders.
MATURITY
The Notes will be payable in full on ___________. In addition, the
Issuer will pay the Notes in full upon the exercise by the Master Servicer of
its option to purchase the assets of the Issuer after the Pool Balance is
reduced to an amount less than or equal to $________ (___% of the initial Pool
Balance). The purchase price will be equal to the sum of the outstanding Pool
Balance and accrued and unpaid interest thereon at the weighted average of the
Loan Rates through the day preceding the Payment Date on which the Notes are
paid in full together with all amounts due and owing to the Insurer.
DESCRIPTION OF THE POLICY
On the Closing Date, the Insurer will issue the Policy in favor of the
[Owner Trustee on behalf of the Issuer] pursuant to an insurance agreement (the
"Insurance Agreement") between the Insurer, the Master Servicer and the Trustee.
The Policy will unconditionally and irrevocably guarantee principal payments on
the Notes plus accrued and unpaid
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interest due on the Notes. On each Payment Date, a draw will be made on the
Policy equal to the sum of (a) the amount by which the sum of interest accrued
at (i) the Bond Rate on the outstanding Bond Principal Balance of the Notes and
(b) the amount (the "Guaranteed Principal Payment Amount"), if any, [by which
the Bond Principal Balance of the Notes exceeds the sum of the Pool Balance at
the end of the related Collection Period (after giving effect to all amounts
paid and allocable to principal on the Notes that are applied to reduce the Bond
Principal Balances on such Payment Date)]. Pursuant to the terms of [the
Indenture], draws under the Policy in respect of the Guaranteed Principal
Payment Amount will be paid on the Notes by the Indenture Trustee, as principal
pro rata, based on the outstanding Bond Principal Balances thereof. In addition,
the Policy will guarantee the payment of the outstanding Bond Principal Balance
of each Bond on the Payment Date in _____________ (after giving effect to all
other amounts paid and allocable to principal on such Payment Date). In the
absence of payments under the Policy, Bondholders will directly bear the credit
and other risks associated with their investment to the extent such risks are
not covered by overcollateralization. The Policy does not guarantee any payments
to the Certificates.
CERTAIN PREPAYMENT AND YIELD CONSIDERATIONS
The yield to maturity of the Notes will depend on the price paid by the
holder for such Bond, the Bond Interest Rate and the rate and timing of
principal payments (including payments in excess of required installments,
prepayments or terminations, liquidations and
repurchases) on the Mortgage Loans and the allocation thereof.
In general, if a Bond is purchased at a premium over its face amount
and payments of principal on such Bond occur at a rate faster than anticipated
at the time of purchase, the purchaser's actual yield to maturity will be lower
than that assumed at the time of purchase. Conversely, if a Bond is purchased at
a discount from its face amount and payments of principal on such Bond occur at
a rate slower than that assumed at the time of purchase, the purchaser's actual
yield to maturity will be lower than that originally anticipated.
The rate and timing of defaults on the Mortgage Loans will also affect
the rate and timing of principal payments on the Mortgage Loans and thus the
yield on the Notes. There can be no assurance as to the rate of losses or
delinquencies on any of the Mortgage Loans, however, such losses and
delinquencies may be expected to be higher than those of traditional first lien
mortgage loans. To the extent that any losses are incurred on any of the
Mortgage Loans that are not covered by overcollateralization or the Policy,
losses resulting from default by Mortgagors may be allocated to the Notes. See
"Risk Factors--Limitations, Reduction and Substitution of Credit Enhancement" in
the Prospectus. Even where the Policy covers all losses incurred on the Mortgage
Loans, the effect of losses may be to increase prepayment experience on the
Mortgage Loans, thus reducing average weighted life and affecting yield to
maturity.
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[With respect to ___ Mortgage Loans representing ___% of the Cut-off
Date Pool Balance, the Mortgage Rate at origination is below the rate that would
result from the sum of the then-applicable Index and Gross Margin. Under the
applicable underwriting standards, Mortgagors under such Mortgage Loans are
generally qualified based on an assumed payment which reflects a rate
significantly lower than the maximum rate. The repayment of any such Mortgage
Loan may thus be dependent on the ability of the mortgagor to make larger
interest payments following the adjustment of the Mortgage Rate.]
With respect to the Mortgage Loans required minimum monthly payments
are equal to [the amount of interest currently accruing thereon,] and therefore
are not expected to significantly amortize the outstanding principal amounts of
the Mortgage Loans prior to maturity. As a result, a borrower will generally be
required to pay a substantial principal amount at the maturity of a Mortgage
Loan. Such Mortgage Loans pose a greater risk of default than fully-amortizing
mortgage loans, because the Mortgagor's ability to make such a substantial
payment at maturity will generally depend on the Mortgagor's ability to obtain
refinancing of the Mortgage Loans or to sell the Mortgaged Property prior to the
maturity of the Mortgage Loan. See "Yield and Prepayment Considerations" in the
Prospectus and "Risk Factors" herein.
There can be no assurance as to the rate of principal payments on the
Mortgage Loans. The rate of principal payments may fluctuate substantially from
time to time.
DESCRIPTION OF THE PURCHASE AGREEMENT
The Mortgage Loans to be transferred to the Issuer by the Company were
or will be purchased by the Company from [Name of Master Servicer] (the
"Seller") pursuant to the Purchase Agreement. Under the Purchase Agreement, the
Seller has agreed to transfer to the Company the Initial Mortgage Loans.
Pursuant to an assignment by the Company executed on the Closing Date, upon such
transfer to the Company, the Initial Mortgage Loans will be transferred by the
Company to the Issuer, as well as the Company's rights in, to and under the
Purchase Agreement, which will include the right to purchase the Subsequent
Mortgage Loans. The following summary describes certain terms of the form of the
Purchase Agreement and is qualified in its entirety by reference to the form of
Purchase Agreement.
TRANSFER OF MORTGAGE LOANS
Pursuant to the Purchase Agreement, the Seller will transfer and assign
to the Company all of its right, title and interest in and to the Mortgage
Loans, the related mortgage note, mortgages and other related documents
(collectively, the "Related Documents"). The purchase price of the Mortgage
Loans is a specified percentage of the face amount thereof as of the time of
transfer and is payable by the Company, as provided in the Purchase Agreement.
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The Purchase Agreement will require that, within the time period
specified therein, the Seller, acting at the Company's request, deliver to
____________________ (the "Custodian") (as the Issuer's agent for such purpose)
the Mortgage Loans and the Related Documents. In lieu of delivery of original
mortgages, the Seller may deliver true and correct copies thereof which have
been certified as to authenticity by the appropriate county recording office
where such mortgage is recorded. In addition, under the terms of the Purchase
Agreement, the Seller will be required to record assignments of mortgages
relating to such Mortgage Loans.
REPRESENTATIONS AND WARRANTIES
The Seller will represent and warrant to the Company that, among other
things, as of _________________, it is duly organized and in good standing and
that it has the authority to consummate the transactions contemplated by the
Purchase Agreement.
The Seller will also represent and warrant to the Company, that, among
other things, (a) the information with respect to the Initial Mortgage Loans set
forth in the schedule attached to the Purchase Agreement is true and correct in
all material respects and (b) immediately prior to the sale of the Initial
Mortgage Loans to the Company, the Seller was the sole owner and holder of the
Initial Mortgage Loans free and clear of any and all liens and security
interests. The Seller will also represent and warrant to the Company, that,
among other things, as of ______________, (a) the Purchase Agreement constitutes
a legal, valid and binding obligation of the Seller and (b) the Purchase
Agreement constitutes a valid transfer and assignment to the Company of all
right, title and interest of the Seller in and to the Initial Mortgage Loans and
the proceeds thereof. Such representations and warranties will also be made by
the Seller with respect to the Subsequent Mortgage Loans as of the date of
transfer to the Issuer. The benefit of the representations and warranties made
to the Company by the Seller in the Purchase Agreement will be assigned by the
Company to the Issuer and by the Issuer to the Indenture Trustee in the
Indenture.
Within ____ days of the Closing Date, the Custodian will review or
cause to be reviewed the Mortgage Loans and the Related Documents and if any
Mortgage Loan or Related Document is found to be defective in any material
respect and such defect is not cured within ____ days following notification
thereof to the Seller and the Issuer by the Custodian, the Seller will be
obligated under the Purchase Agreement to deposit the Transfer Price into the
Custodial Account. In lieu of any such deposit, the Seller may substitute an
Eligible Substitute Loan. Any such purchase or substitution will result in the
removal of such Defective Loan from the Trust Fund and the lien of the
Indenture. The obligation of the Seller to remove a Defective Loan from the
Trust Fund is the sole remedy regarding any defects in the Mortgage Loans and
Related Documents available to the Indenture Trustee or the Bondholders against
the Seller.
With respect to any Mortgage Loan, the "Transfer Price" is equal to the
Principal Balance of such Mortgage Loan at the time of any removal described
above plus accrued and unpaid interest thereon to the date of removal. In
connection with the substitution of
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an Eligible Substitute Loan, the Seller will be required to deposit in the
Custodial Account an amount (the "Substitution Adjustment Amount") equal to the
excess of the Principal Balance of the related Defective Loan over the Principal
Balance of such Eligible Substitute
Loan.
An "Eligible Substitute Loan" is a mortgage loan substituted by the
Seller for a Defective Loan which must, on the date of such substitution, (i)
have an outstanding Principal Balance (or in the case of a substitution of more
than one Mortgage Loan for a Defective Loan, an aggregate Principal Balance),
not in excess of the Principal Balance relating to such Defective Loan; (ii)
have a Loan Rate, Net Loan Rate and Gross Margin no lower than and not more than
1% in excess of the Loan Rate, Net Loan Rate and Gross Margin, respectively, of
such Defective Loan; (iii) have a Combined Loan-to-Value Ratio at the time of
substitution no higher than that of the Defective Loan at the time of
substitution; (iv) have a remaining term to maturity not more than one year
earlier and not later than the remaining term to maturity of the Defective Loan;
(v) comply with each representation and warranty as to the Mortgage Loans set
forth in the Purchase Agreement (deemed to be made as of the date of
substitution); and (vi) satisfy certain other conditions specified in the
Indenture.
In addition the Seller will be obligated to deposit the Transfer Price
or substitute an Eligible Substitute Loan with respect to a Mortgage Loan as to
which there is a breach of
a representation or warranty in the Purchase Agreement.
Mortgage Loans required to be removed from the Trust Fund as described
in the preceding paragraphs are referred to as "Defective Loans."
ASSIGNMENT TO THE ISSUER
The Master Servicer expressly acknowledges and consents to the
Company's transfer of its rights relating to the Mortgage Loans and its
obligation to pay for the Subsequent Mortgage Loans under the Purchase Agreement
to the Issuer, the Issuer's pledge of its interest in the Purchase Agreement to
the Indenture Trustee and the enforcement by the Indenture Trustee of any such
right or remedy against the Master Servicer.
DESCRIPTION OF THE SERVICING AGREEMENT
The following summary describes certain terms of the Servicing
Agreement, dated as of ________ 1, 19__ between the Company and the Master
Servicer. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the provisions of the Servicing
Agreement. Whenever particular sections or defined terms of the Servicing
Agreement are referred to, such sections or defined terms are thereby
incorporated herein by reference.
P&I COLLECTIONS
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The Master Servicer shall establish and maintain an account (the
"Custodial Account") in which the Master Servicer shall deposit or cause to be
deposited any amounts representing payments on and any collections received in
respect of the Mortgage Loans received by it subsequent to the Cut-Off Date. The
Custodial Account shall be an Eligible Account. On the _____ day of each month
or if such day is not a Business Day, the next succeeding Business Day (the
"Determination Date"), the Master Servicer will notify the Indenture Trustee of
the amount of P&I Collections to be included in funds available distribution to
the Mortgage Loan for the related Payment Date.
"Eligible Investments" are specified in the Servicing Agreement and are
limited to investments which meet the criteria of the Rating Agencies from time
to time as being consistent with their then current ratings of the Notes.
On the Business Day prior to each Payment Date, the Master Servicer
will make the following withdrawals from the Custodial Account and deposit such
amounts as follows:
(i) to the Distribution Account, an amount equal to the
P&I Collections for such Payment Date; and
(ii) to pay to itself various reimbursement amounts and
other amounts as provided in the Servicing Agreement.
As to any Payment Date, "P&I Collections" will equal the sum of (a)
Interest Collections for such Payment Date and (b) Principal Collections for
such date.
All collections on the Mortgage Loans will generally be allocated
between amounts collected in respect of interest and amounts collected in
respect of principal. As to any Payment Date, "Interest Collections" will be
equal to the sum of (i) the amounts collected during the related Collection
Period, including Net Liquidation Proceeds (as defined below), allocated to
interest, reduced by the Servicing Fees for such Collection Period and (ii) the
interest portion of the Transfer Price for any Defective Loans. As to any
Payment Date, "Principal Collections" will be equal to the sum of (i) the amount
collected during the related Collection Period, including Net Liquidation
Proceeds (as defined herein) allocated to principal and (ii) the principal
portion of the Transfer Price for any Defective Loans and any Substitution
Adjustment Amounts.
As to any Payment Date other than the first Payment Date, the
"Collection Period" is the calendar month preceding the month of such Payment
Date and in the case of the first Payment Date the period from the Cut-Off Date
to ___________.
"Net Liquidation Proceeds" with respect to a Mortgage Loan are the
proceeds (excluding amounts drawn on the Policy) received in connection with the
liquidation of any Mortgage Loan, whether through trustee's sale, foreclosure
sale or otherwise, reduced by related expenses, but not including the portion,
if any, of such amount that exceeds the Principal Balance of the Mortgage Loan
at the end of the Collection Period immediately
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preceding the Collection Period in which such Mortgage Loan became a Liquidated
Mortgage Loan.
With respect to any date, the "Pool Balance" will be equal to the
aggregate of the Principal Balances of all Mortgage Loans as of such date. The
Principal Balance of a Mortgage Loan (other than a Liquidated Mortgage Loan) on
any day is equal to the Cut-Off Date Principal Balance thereof, minus all
collections credited against the Principal Balance of such Mortgage Loan prior
to such day. The Principal Balance of a Liquidated Mortgage Loan after final
recovery of related Liquidation Proceeds shall be zero.
COLLECTION AND OTHER SERVICING PROCEDURES ON MORTGAGE LOANS
The Master Servicer will make reasonable efforts to collect all
payments called for under the Mortgage Loans and will, consistent with the
Servicing Agreement, follow such collection procedures as it follows from time
to time with respect to the mortgage loans in its servicing portfolio comparable
to the Mortgage Loans. Consistent with the above, the Master Servicer may in its
discretion waive any late payment charge or any assumption or other fee or
charge that may be collected in the ordinary course of servicing the Mortgage
Loans.
With respect to the Mortgage Loans, the Master Servicer may arrange
with a borrower a schedule for the payment of interest due and unpaid for a
period, provided that any such arrangement is consistent with the Master
Servicer's policies with respect to mortgage loans.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The Master Servicer will foreclose upon or otherwise comparably convert
to ownership Mortgaged Properties securing such of the Mortgage Loans as come
into default when in accordance with applicable servicing procedures under the
Servicing Agreement, no satisfactory arrangements can be made for the collection
of delinquent payments. In connection with such foreclosure or other conversion,
the Master Servicer will follow such practices as it deems necessary or
advisable and as are in keeping with its general subordinate mortgage servicing
activities, provided the Master Servicer will not be required to expend its own
funds in connection with foreclosure or other conversion, correction of default
on a related senior mortgage loan or restoration of any property unless, in its
sole judgment, such foreclosure, correction or restoration will increase Net
Liquidation Proceeds. The Master Servicer will be reimbursed out of Liquidation
Proceeds for advances of its own funds as liquidation expenses before any Net
Liquidation Proceeds are distributed to Bondholders.
EVIDENCE AS TO COMPLIANCE
The Servicing Agreement provides for delivery on or before March 31 in
each year, beginning in March 31, 19__, to the Indenture Trustee of an annual
statement signed by
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an officer of the Master Servicer to the effect that the Master Servicer has
fulfilled its material obligations under the Servicing Agreement throughout the
preceding calendar year, except as specified in such statement.
On or before March 31 of each year, beginning March 31, 19__, the
Master Servicer will furnish a report prepared by a firm of nationally
recognized independent public accountants (who may also render other services to
the Master Servicer) to the Indenture Trustee to the effect that such firm has
examined certain documents and the records relating to servicing of the Mortgage
Loans under the Servicing Agreement for the preceding calendar year and that, on
the basis of such examination, such firm believes that such servicing was
conducted in compliance with the Servicing Agreement except for (a) such
exceptions as such firm believes to be immaterial and (b) such other exceptions
as shall be set forth in such report.
CERTAIN MATTERS REGARDING THE MASTER SERVICER
The Servicing Agreement provides that the Master Servicer may not
resign from its obligations and duties thereunder, except in connection with a
permitted transfer of servicing, unless (i) such duties and obligations are no
longer permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature presently carried
on by it or its affiliate or (ii) upon the satisfaction of the following
conditions: (a) the Master Servicer has proposed a successor servicer to the
Issuer and the Indenture Trustee in writing and such proposed successor servicer
is reasonably acceptable to the Issuer and the Indenture Trustee; (b) the Rating
Agencies have confirmed to the Issuer and the Indenture Trustee that the
appointment of such proposed successor servicer as the Master Servicer will not
result in the reduction or withdrawal of the then current rating of the Notes
and (c) such proposed successor servicer is reasonably acceptable to the
Insurer. No such resignation will become effective until the Indenture Trustee
or a successor servicer has assumed the Master Servicer's obligations and duties
under the Servicing Agreement.
The Master Servicer may perform any of its duties and obligations under
the Servicing Agreement through one or more subservicers or delegates, which may
be affiliates of the Master Servicer. Notwithstanding any such arrangement, the
Master Servicer will remain liable and obligated to the Issuer for the Master
Servicer's duties and obligations under the Servicing Agreement, without any
diminution of such duties and obligations and as if the Master Servicer itself
were performing such duties and obligations.
The Servicing Agreement provides that the Master Servicer will
indemnify the Owner Trustee and the Indenture Trustee, as the case may be, from
and against any loss, liability or expense, imposed by reason of its willful
misfeasance, bad faith or gross negligence in the performance of its duties
under the Servicing Agreement or by reason of its reckless disregard of its
obligations and duties under the Servicing Agreement. The Servicing Agreement
provides that neither the Master Servicer nor its directors, officers, employees
or agents will be under any other liability to the Owner Trustee, the Indenture
Trustee, or
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any other person for any action taken or for refraining from taking any action
pursuant to the Servicing Agreement. The Master Servicer and any director or
officer or employee or agent of the Master Servicer shall be indemnified by the
Issuer and held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Servicing Agreement or the
Securities, other than any loss, liability or expense related to any specific
Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense
shall be otherwise reimbursable pursuant to the Servicing Agreement) and any
loss, liability or expense incurred by reason of its willful misfeasance, bad
faith or gross negligence in the performance of its duties thereunder or by
reason of its reckless disregard of its obligations and duties thereunder. In
addition, the Servicing Agreement provides that the Master Servicer will not be
under any obligation to appear in, prosecute or defend any legal action which is
not incidental to its servicing responsibilities under the Servicing Agreement
and which in its opinion may expose it to any expense or liability. The Master
Servicer may, in its sole discretion, undertake any such legal action which it
may deem necessary or desirable with respect to the Servicing Agreement and the
rights and duties of the parties thereto.
Any corporation into which the Master Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Master Servicer shall be a party, or any corporation
succeeding to the business of the Master Servicer shall be the successor of the
Master Servicer hereunder, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything in the Servicing
Agreement to the contrary notwithstanding.
EVENTS OF SERVICING TERMINATION
"Events of Servicing Termination" will consist of: (i) any failure by
the Master Servicer to (a) deposit in the Custodial Account or Payment Account
any deposit required to be made under the Servicing Agreement or (b) to pay when
due any amount payable by it under the terms of the Insurance Agreement, which
failure continues unremedied for three Business Days after the giving of written
notice of such failure to the Master Servicer by the Issuer or Indenture
Trustee, or to the Master Servicer, the Issuer and the Indenture Trustee by the
Insurer; (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 Servicing
Agreement or Insurance Agreement which, in each case, materially and adversely
affects the interests of the Bondholders or the Insurer and continues unremedied
for ____ days or ____ days, respectively, after the giving of written notice of
such failure to the Master Servicer by the Issuer or the Indenture Trustee, or
to the Master Servicer, the Issuer and the Indenture Trustee by the Insurer;
(iii) certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings relating to the Master Servicer and
certain actions by the Master Servicer indicating insolvency, reorganization or
inability to pay its obligations; or (iv) any merger, consolidation, or
combination with another entity and the surviving entity thereof or corporate
successor is not rated at least investment grade by the Rating Agencies. Under
the above circumstances, the Indenture Trustee with the consent of the Insurer
or the Insurer may deliver written notice to the Master Servicer terminating
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all the rights and obligations of the Master Servicer under the Servicing
Agreement. Under certain other circumstances, the Insurer with the consent of
51% of the outstanding principal amount of the Notes and the Certificates may
terminate all the rights and obligations of the Master Servicer under the
Servicing Agreement.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (i) above for the applicable periods referred to
therein or referred to under clause (ii) above for the applicable periods
referred to therein, shall not constitute an Event of Servicing Termination if
such delay or failure could not be prevented by the exercise of reasonable
diligence by the Master Servicer and such delay or failure was caused by an act
of God or other similar occurrence. Upon the occurrence of any such event the
Master Servicer shall not be relieved from using reasonable efforts to perform
its obligations in a timely manner in accordance with the terms of the Servicing
Agreement and the Master Servicer shall provide the Issuer, the Insurer and the
Indenture Trustee prompt notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
So long as an Event of Servicing Termination remains unremedied, the
Indenture Trustee with the consent of the Insurer or the Insurer may terminate
all of the rights and obligations of the Master Servicer under the Servicing
Agreement with respect to the Mortgage Loans, whereupon the Indenture Trustee
will succeed to all the responsibilities, duties and liabilities of the Master
Servicer under the Servicing Agreement and will be entitled to similar
compensation arrangements. In the event that the Indenture Trustee would be
obligated to succeed the Master Servicer but is unwilling or unable so to act,
it may appoint, or petition a court of competent jurisdiction for the
appointment of, an established housing and home finance institution or other
mortgage loan or mortgage loan servicer with all licenses and permits required
to perform its obligations under the Servicing Agreement and having a net worth
of at least $25,000,000 and acceptable to the Insurer to act as successor to the
Master Servicer under the Servicing Agreement. Pending such appointment, the
Indenture Trustee will be obligated to act in such capacity unless prohibited by
law. Such successor will be entitled to receive the same compensation that the
Master Servicer would otherwise have received (or such lesser compensation as
the Issuer and such successor may agree). A receiver or conservator for the
Master Servicer may be empowered to prevent the termination and replacement of
the Master Servicer where the only Event of Servicing Termination that has
occurred is an Insolvency Event.
AMENDMENT
The Servicing Agreement may be amended from time to time by the Master
Servicer, the Issuer and the Indenture Trustee, [with the consent of the
Insurer,] provided that the Rating Agencies confirm in writing that such
amendment will not result in a downgrading or a withdrawal of the rating then
assigned to the Notes.
S-35
<PAGE>
DESCRIPTION OF THE INDENTURE
The following summary describes certain terms of the Indenture. The
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the Indenture. Whenever particular
sections or defined terms of the Indenture are referred to, such sections or
defined terms are thereby incorporated herein by reference.
THE TRUST FUND
Simultaneously with the issuance of the Notes, the Issuer will pledge
the Trust Fund to the Indenture Trustee as collateral for the Notes.
REPORTS TO HOLDERS
The Indenture Trustee will mail to each Holder of Notes, at its address
listed on the Security Register maintained with the Indenture Trustee a report
setting forth certain amounts relating to the Notes for each Payment Date, among
other things:
(i) the amount of principal, if any, payable on such Payment
Date to Bondholders separately stating the portion thereof in respect of
Liquidation Loss Amounts and Additional Principal Distribution Amount and
stating the amount of any remaining
Liquidation Loss Amounts;
(ii) the amount of interest payable on such Payment Date to
Bondholders separately stating the portion thereof in respect of overdue accrued
interest and stating the
amount of remaining overdue accrued interest;
(iii) the Bond Principal Balance of the Notes after giving effect
to the payment of principal on such Payment Date;
(iv) P&I Collections for the related Collection Period;
(v) the aggregate Principal Balance of the Mortgage Loans
as of last day of the related Collection Period;
[(vi) the amount paid, if any, under the Policy separately
stating the portion thereof included in (i) and (ii) above; and]
(vii) the Outstanding Reserve Amount after giving effect to
the payment of principal on the Notes on such Payment Date.
In the case of information furnished pursuant to clauses (i) and (ii)
above, the amounts shall be expressed as a dollar amount per $1,000 in face
amount of Notes.
S-36
<PAGE>
CERTAIN COVENANTS
The Indenture will provide that the Issuer may not consolidate with or
merge into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state or the District of Columbia, (ii) such entity expressly assumes the
Issuer's obligation to make due and punctual payments upon the Notes and the
performance or observance of any agreement and covenant of the Issuer under the
Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Issuer has been advised
that the ratings of the Notes then in effect would not be reduced or withdrawn
by any Rating Agency as a result of such merger or consolidation, (v) any action
that is necessary to maintain the lien and security interest created by the
Indenture is taken and (vi) the Issuer has received an Opinion of Counsel to the
effect that such consolidation or merger would have no material adverse tax
consequence to the Issuer or to any Bondholder or Certificateholder. The Issuer
will not, among other things, (i) except as expressly permitted by the
Indenture, sell, transfer, exchange or otherwise dispose of any of the assets of
the Issuer, (ii) claim any credit on or make any deduction from the principal
and interest payable in respect of the Notes (other than amounts withheld under
the Code or applicable state law) or assert any claim against any present or
former holder of Notes because of the payment of taxes levied or assessed upon
the Issuer, (iii) permit the validity or effectiveness of the Indenture to be
impaired or permit any person to be released from any covenants or obligations
with respect to the Notes under the Indenture except as may be expressly
permitted thereby or (iv) permit any lien, charge excise, claim, security
interest, mortgage or other encumbrance to be created on or extend to or
otherwise arise upon or burden the assets of the Issuer or any part thereof, or
any interest therein or the proceeds thereof. The Issuer may not engage in any
activity other than as specified under "The Issuer" herein.
MODIFICATION OF INDENTURE
With the consent of both the holders of a majority of the outstanding
Notes and the Insurer, the Issuer and the Indenture Trustee may execute a
supplemental indenture to add provisions to, change in any manner or eliminate
any provisions of, the Indenture, or modify (except as provided below) in any
manner the rights of the Bondholders. Without the consent of the holder of each
outstanding Bond affected thereby, however, no supplemental indenture will: (i)
change the due date of any installment of principal of or interest on any Bond
or reduce the principal amount thereof, the interest rate specified thereon or
the redemption price with respect thereto or change any place of payment where
or the coin or currency in which any Bond or any interest thereon is payable;
(ii) impair the right to institute suit for the enforcement of certain
provisions of the Indenture regarding payment; (iii) reduce the percentage of
the aggregate amount of the outstanding Notes, the consent of the holders of
which is required for any supplemental indenture or the consent of the holders
of which is required for any waiver of compliance with certain provisions of the
Indenture or of certain defaults thereunder and their consequences as provided
for in the Indenture; (iv) modify or alter the provisions of the Indenture
regarding
S-37
<PAGE>
the voting of Notes held by the Issuer, the Company or an affiliate of any of
them; (v) decrease the percentage of the aggregate principal amount of Notes
required to amend the sections of the Indenture which specify the applicable
percentage of aggregate principal amount of the Notes necessary to amend the
Indenture or certain other related agreements; (vi) modify any of the provisions
of the Indenture in such manner as to affect the calculation of the amount of
any payment of interest of principal due on any Bond (including the calculation
of any of the individual components of such calculation); or (vii) permit the
creation of any lien ranking prior to or, except as otherwise contemplated by
the Indenture, on a parity with the lien of the Indenture with respect to any of
the collateral for the Notes or, except as otherwise permitted or contemplated
in the Indenture, terminate the lien of the Indenture on any such collateral or
deprive the holder of any Bond of the security afforded by the lien of the
Indenture.
The Issuer and the Indenture Trustee may also enter into supplemental
indentures, with the consent of the Insurer and without obtaining the consent of
the Bondholders, for the purpose of, among other things, to cure any ambiguity
or to correct or supplement any provision in the Indenture that may be
inconsistent with any other provision therein.
CERTAIN MATTERS REGARDING THE INDENTURE TRUSTEE AND THE ISSUER
Neither the Issuer, the Indenture Trustee nor any director, officer or
employee of the Issuer or the Indenture Trustee will be under any liability to
the Issuer or the related Bondholders for any action taken or for refraining
from the taking of any action in good faith pursuant to the Indenture or for
errors in judgment; provided, however, that none of the Indenture Trustee, the
Issuer and any director, officer or employee thereof will be protected against
any liability which would otherwise be imposed by reason of willful malfeasance,
bad faith or negligence in the performance of duties or by reason of reckless
disregard of obligations and duties under the Indenture. Subject to certain
limitations set forth in the Indenture, the Indenture Trustee and any director,
officer, employee or agent of the Indenture Trustee shall be indemnified by the
Issuer and held harmless against any loss, liability or expense incurred in
connection with investigating, preparing to defend or defending any legal
action, commenced or threatened, relating to the Indenture other than any loss,
liability or expense incurred by reason of willful malfeasance, bad faith or
negligence in the performance of its duties under such Indenture or by reason of
reckless disregard of its obligations and duties under the Indenture. All
persons into which the Indenture Trustee may be merged or with which it may be
consolidated or any person resulting from such merger or consolidation shall be
the successor of the Indenture Trustee under each Indenture.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Notes [will][will not] be treated
as having been issued with "original issue discount" (as defined in the
Prospectus). See "Federal Income Tax Consequences" in the Prospectus. The
prepayment assumption that will be used in determining the rate of accrual of
original issue discount, market discount and premium,
S-38
<PAGE>
if any, for federal income tax purposes will be [ ]% [ ]. No representation
is made that the Mortgage Loans will prepay at that rate or any other rate.
The Notes will not be treated as "qualifying real property loans" under
Section 593 (d) of the Code, assets described in Section 7701(a)(19)(C) of the
Code and "real estate assets" under Section 856(c)(5)(A) of the Code. In
addition, interest on the Notes will not be treated as "interest on obligations
secured by mortgages on real property" under Section 856(c)(3)(B) of the Code.
The Notes will also not be treated as "qualified mortgages" under Section
860G(a)(3)(C) of the Code.
Prospective investors in the Notes should see "Federal Income Tax
Consequences" and "State and Other Tax Consequences" in the Prospectus for a
discussion of the application of certain federal income and state and local tax
laws to the Issuer and purchasers of the Notes.
ERISA CONSIDERATIONS
Any fiduciary or other investor of Plan assets that proposes to acquire
or hold the Notes on behalf of or with Plan assets of any Plan 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. See "ERISA Considerations" in
the Prospectus.
LEGAL INVESTMENT
The Notes will constitute "mortgage related securities" for purposes of
SMMEA so long as they are rated in the highest two rating categories by a Rating
Agency. See "Legal Investment" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase from the Company, the Notes.
The Notes will be purchased from the Company by the Underwriter and
will be offered by the Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The proceeds to the Company from the sale of the Notes are expected to be
approximately $___________, before the deduction of expenses payable by the
Company estimated to be approximately $_______. The Underwriter may effect such
transactions by selling the Notes to or through dealers, and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter. In connection with the sale of the Notes, the
Underwriter may be deemed to have received compensation from the Company in the
form of underwriting compensation. The Underwriter and any dealers that
participate
S-39
<PAGE>
with the Underwriter in the distribution of the Notes may be deemed to be
underwriters and any profit on the resale of the Notes positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933.
The Company has been advised by the Underwriter that it presently
intends to make a market in the Notes offered hereby; however, it is not
obligated to do so, any market-making may be discontinued at any time, and there
can be no assurance that an active public market for the Notes will develop.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute payments the Underwriter may be required
to make in respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the Notes will be passed upon for
the Company by [Thacher Proffitt & Wood], New York, New York and for the
Underwriter by ________________, New York, New York.
RATINGS
It is a condition to issuance that the Notes be rated "___" by
_______________ and "___" by ___________________. The Company has not requested
a rating on the Notes by any rating agency other than _______________ and
_______________. However, there can be no assurance as to whether any other
rating agency will rate the Notes, or, if it does, what rating would be assigned
by any such other rating agency. A rating on the Notes by another rating agency,
if assigned at all, may be lower than the ratings assigned to the Notes by
___________ and ___________________________. A securities rating addresses the
likelihood of the receipt by holders of Notes of distributions on the Mortgage
Loans. The rating takes into consideration the structural, legal and tax aspects
associated with the Notes. The ratings on the Notes do not, however, constitute
statements regarding the possibility that Holders might realize a lower than
anticipated yield. A securities rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
S-40
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by the Underwriter. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus Supplement
or the Prospectus.
TABLE OF CONTENTS
[To be updated] PAGE
Prospectus Supplement
Summary.............................................. S-
Risk Factors......................................... S-
Description of the Mortgage Pool..................... S-
Servicing of the Mortgage Loans...................... S-
The Issuer........................................... S-
The Owner Trustee.................................... S-
Description of the Securities........................ S-
Description of the Purchase
Agreement....................................... S-
Assignment to the Issuer............................. S-
Description of the Servicing
Agreement....................................... S-
Description of the Indenture......................... S-
Federal Income Tax Consequences...................... S-
ERISA Considerations................................. S-
Legal Investment..................................... S-
Method of Distribution............................... S-
Legal Matters........................................ S-
Ratings.............................................. S-
Prospectus
Summary of Prospectus ...............................
Risk Factors.........................................
The Mortgage Pools...................................
Servicing of Mortgage Loans..........................
Description of Credit Enhancement....................
Purchase Obligations.................................
Primary Mortgage Insurance, Hazard
Insurance; Claims Thereunder.......................
The Company..........................................
The Agreements.......................................
Yield Considerations.................................
Maturity and Prepayment Considerations...............
Certain Legal Aspects of Mortgage Loans..............
Federal Income Tax Consequences......................
State and Other Tax Consequences.....................
ERISA Considerations.................................
Legal Investment Matters ............................
Use of Proceeds......................................
Methods of Distribution..............................
Legal Matters........................................
Financial Information................................
Rating...............................................
Index of Principal Definitions.......................
DLJ MORTGAGE ACCEPTANCE
CORP.
DLJ MBN TRUST
19__-__
$____________________
MORTGAGE-BACKED NOTES
SERIES 19__-__
------------
PROSPECTUS SUPPLEMENT
------------
-----------------------------------
_____,19__
[UNDERWRITER]
<PAGE>
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 May 1, 1998
PROSPECTUS
DLJ MORTGAGE ACCEPTANCE CORP.
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
MORTGAGE-BACKED NOTES
(ISSUABLE IN SERIES)
This Prospectus relates to Mortgage Pass-Through Certificates (the
"Certificates") and Mortgage-Backed Notes (the "Notes", and together with the
Certificates, the "Securities") 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 a related trust (a "Trust Fund"), the assets of which have been
deposited 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. Each Note of a Series will
represent indebtedness of a Trust Fund, the assets of which have been deposited
by the Depositor pursuant to a Sale and Servicing Agreement executed by the
Depositor, the Trustee and the Master Servicer or pursuant to an Indenture
executed by the Issuer and the Trustee 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 Securities 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 related Agreement may be divided into one or more Asset Groups and the
Securities of each separate Class will evidence beneficial ownership of each
corresponding Asset Group. See "Description of the Securities" herein.
Distribution of principal and interest of the Securities 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 the Securities 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
Securities of the related Series. See "Description of the Securities" 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 Agreement as described herein or in the related Prospectus Supplement.
See "The 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 of Certificates 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
SECURITIES, SEE "RISK FACTORS," WHICH BEGINS ON PAGE 9.
----------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE SECURITIES. THE SECURITIES DO NOT REPRESENT AN INTEREST IN OR
OBLIGATION OF THE DEPOSITOR, THE MASTER SERVICER OR ANY OF THEIR AFFILIATES.
NEITHER THE SECURITIES 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.
<PAGE>
Securities 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 Securities 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
<PAGE>
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 SECURITIES OFFERED
HEREBY AND THEREBY OR AN OFFER OF SUCH SECURITIES 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 SECURITIES 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 Securities. 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 and electronically through the
Commission's Electronic Data Gathering, Analysis and Retrieval System at the
Commission's website (http:\\www.sec.gov).
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning the related Trust Fund are
required under the related Agreement to be forwarded to Securityholders. With
respect to each Series of Certificates or Notes, Securityholders will be
referred to as the "Certificateholders" or the "Noteholders", respectively.
Unless otherwise specified in the related Prospectus Supplement, such reports
will not be examined and reported on by an independent public accountant. See
"The Agreements--Reports to Securityholders" 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
Securities 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, 9th Floor, New York, New York 10172,
Attention: Paul Najarian.
2
<PAGE>
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 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") or the
Mortgage-Backed Notes (the "Notes", and
together with the Certificates, the
"Securities") are issuable from time to
time in separate Series pursuant to
separate Pooling and Servicing Agreements
or separate Indentures, respectively.
Each Certificate of a Series will
evidence a beneficial ownership interest
in, and each Note of a Series will
represent indebtedness of the related
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, and the Notes of a
Series will represent indebtedness of 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 Securities 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 Securities
which are subordinated to other Classes
of Securities 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.
With respect to any Series of Notes, the
related Equity Certificates, insofar as
they represent the beneficial ownership
interest in the Issuer, will be
subordinate to the related Notes. Unless
otherwise specified in the related
Prospectus Supplement, any Class of
Securities 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
Securities--General," "Credit
Support--Subordinated Securities" and
"Risk Factors" herein.
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<PAGE>
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 Agreements."
ISSUER............................... With respect to each Series of Notes, the
issuer (the "Issuer") will be the
Depositor or an owner trust established
by it for the purpose of issuing such
Series of Notes. Each such owner trust
will be created pursuant to a trust
agreement (the "Owner Trust Agreement")
between the Depositor, acting as
depositor and the owner trustee (the
"Owner Trustee"). Each Series of Notes
will represent indebtedness of the Issuer
and will be issued pursuant to an
indenture (the "Indenture") between the
Issuer and the Trustee whereby the Issuer
will pledge the Trust Fund to secure the
Notes under the lien of the Indenture. As
to each Series of Notes where the Issuer
is an owner trust, the ownership of the
Trust Fund will be evidenced by
certificates (the "Equity Certificates")
issued under the Owner Trust Agreement.
The Notes will represent nonrecourse
obligations solely of the Issuer, and the
proceeds of the Trust Fund will be the
sole source of payments on the Notes,
except as described herein under "Credit
Support" and in the related Prospectus
Supplement.
TRUSTEES............................. The Trustee or Indenture Trustee (each,
the "Trustee") with respect to each
Series of Certificates and each Series of
Notes, respectively, will be specified in
the related Prospectus Supplement. The
Owner Trustee with respect to each Series
of Notes will be specified in the related
Prospectus Supplement.
INTEREST DISTRIBUTIONS............... Interest Distributions on the Securities
of a Series will be made from amounts
available therefor in the related
Certificate Account on each Distribution
Date at the applicable security interest
rate (a "Security Interest Rate")
specified in (or, with respect to
Floating Interest Securities, determined
in the manner set forth in) the related
Prospectus Supplement. The Security
Interest Rate of each Security offered
hereby will be stated in the related
Prospectus Supplement as the
"Pass-Through Rate" with respect to a
Series of a single Class of Certificates,
the "Certificate Rate" with respect to a
Multiple Class Series of Certificates and
the "Note Interest Rate" with respect to
any Series of Notes. The Security
Interest Rate on Securities of a Series
may be variable and change with changes
in the mortgage rate or pass-through
rates of the Mortgage Assets included
4
<PAGE>
in the related Trust Fund and/or as
prepayments occur with respect to such
Mortgage Assets.
Principal Weighted Securities may not be
entitled to receive any interest
distributions or may be entitled to
receive only nominal interest
distributions.
Compound Interest Securities will not
receive distributions of interest but
interest accruing with respect to the
principal balance of such compound
Interest Securities 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 Securities will be
made on the basis of their Compound
Value.
A Multiple Class Series may include one
or more Classes of Floating Interest
Securities. With respect to any such
Class of Floating Interest Securities,
the related Prospectus Supplement will
set forth: (a) the initial Floating Rate
(or manner of determining the initial
Floating Rate); (b) the method by which
the Floating Rate will be determined from
time to time; (c) the periodic intervals
at which such determination will be made;
and (d) the Maximum Floating Rate and the
Minimum Floating Rate, if any. See
"Description of the Securities" and
"Yield, Prepayment and Maturity
Considerations" herein.
PRINCIPAL DISTRIBUTIONS.............. Principal distributions on the Securities
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 Securities may not be
entitled to any principal distributions
or may be entitled to receive only
nominal principal distributions.
See "Description of the Securities" 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
Securities 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 Securities--Funding
Account." Monies on deposit in the
Funding Account and not applied to
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<PAGE>
acquire such additional Loans within the
time set forth in the related Agreement
or other applicable agreement may be
treated as principal and applied in the
manner described in the related
Prospectus Supplement.
OPTIONAL TERMINATION................. If so specified in the related Prospectus
Supplement, the Depositor, the Master
Servicer, or such other entity that is
specified in the related Prospectus
Supplement, may, at its option, cause an
early termination of the related Trust
Fund by repurchasing all of the Mortgage
Assets remaining in the Trust Fund on or
after a specified date, or on or after
such time as the aggregate unpaid
principal balance of the Mortgage Assets
is less than the percentage specified in
the related Prospectus Supplement. See
"Description of the Securities--Optional
Termination."
THE TRUST FUND....................... The Trust Fund for a Series will consist
of Private Mortgage-Backed Securities,
Agency Securities, Mortgage Loans or
participation interests therein,
Manufactured Home Loans or participation
interests therein, or any combination of
the foregoing (the "Mortgage Assets"),
together with certain accounts, reserve
funds, insurance policies and related
agreements specified in the related
Prospectus Supplement. (Mortgage Loans
and Manufactured Home Loans are referred
to herein as "Loans.") If so specified in
the related Prospectus Supplement, the
Mortgage Assets may be divided into Asset
Groups and the Securities 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
Securities 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 Securities evidencing
beneficial ownership of one Asset Group
prior to distributions to Subordinate
Securities evidencing a beneficial
ownership interest in another Asset Group
within the Trust Fund. With respect to
any Series of Notes, the related Equity
Certificates, insofar as they
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<PAGE>
represent the beneficial ownership
interest in the Issuer, will be
subordinate to the related Notes.
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
Securities 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 "Sub-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 Sub-Servicing
Agreement to perform customary servicing
functions. Advances with respect to
delinquent payments of principal or
interest on a Loan will be made by the
Master Servicer or the Servicers only to
the extent described in the related
Prospectus Supplement. Such advances will
be intended to provide liquidity only
and, unless otherwise specified in the
related Prospectus Supplement, will be
reimbursable to the Master Servicer or
the Servicer, as the case may be, from
scheduled payments of principal and
interest, late collections, or from the
proceeds of liquidation of the related
Loans, from other recoveries relating to
such Loans (including any insurance
proceeds or payments from other forms of
credit support). See "Servicing of
Loans."
FEDERAL INCOME TAX CONSIDERATIONS.... If an election is made for treatment of
the Trust Fund as a REMIC or as REMICs
under the Internal Revenue Code of 1986
(the "Code"), one or more Classes of
Certificates will be REMIC "Regular
Interests" and one Class will be REMIC
"Residual Interests" in the related
REMIC. If a REMIC election will not be
made for a Trust Fund, the federal income
consequences of the purchase, ownership
and disposition of the related
Certificates will be set forth in the
related Prospectus Supplement. Each
Series of Notes offered hereby will
represent indebtedness of the related
Trust Fund.
Investors are advised to consult their
tax advisors and to review "Certain
Federal Income Tax Considerations" herein
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<PAGE>
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
Securities 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
Securities 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 Securities 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,
Securities 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. Any Class of Securities that
represents an interest in a Trust Fund
that includes junior mortgage loans will
not constitute "mortgage related
securities" for purposes of SMMEA. See
"Legal Investment."
USE OF PROCEEDS...................... The Depositor will use the net proceeds
from the sale of each Series for one or
more of the following purposes: (i) to
purchase the related Mortgage Assets,
(ii) to repay indebtedness which has been
incurred to obtain funds to acquire such
Mortgage Assets, (iii) to establish any
reserve funds described in the related
Prospectus Supplement and (iv) to pay
costs of structuring, guaranteeing and
issuing such Securities. If so specified
in the related Prospectus Supplement, the
purchase of the Mortgage Assets for a
Series may be effected by an exchange of
Securities with the Depositor of such
Mortgage Assets. See "Use of Proceeds."
8
<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with an investment in the Securities.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Securities of
any Series will develop or, if it does develop, that it will provide
Securityholders with a sufficient level of liquidity or will continue for the
life of the Securities. Donaldson, Lufkin & Jenrette Securities Corporation (or
one or more of its affiliates) intends to make a secondary market in the
Securities, but has no obligation to do so. In addition, the market value of
Securities of each Series will fluctuate with changes in prevailing rates of
interest. Consequently, sale of the Securities by a Holder in any secondary
market which may develop may be at a discount from par value or from their
purchase price. Securityholders have no optional redemption rights. The
Securities 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 Securities. Thus, the prepayment
experience on the Loans comprising or underlying the Mortgage Assets will affect
the average life and yield to investors of each Class and the extent to which
each such Class is paid prior to its Final Scheduled Distribution Date. A Series
may include an Interest Weighted Class offered at a significant premium or a
Principal Weighted Class offered at a substantial discount. Yields on such
Classes of Securities will be extremely sensitive to prepayments on the Loans
comprising or underlying the Mortgage Assets for such Series. In general, if a
Security, including a Security of an Interest Weighted Class, is purchased at a
premium and principal distributions on the Loans occur at a rate faster than
anticipated at the time of purchase, the investor's actual yield to maturity
could be significantly lower than that assumed at the time of purchase. Where
the amount of interest allocated with respect to an Interest Weighted Class is
extremely disproportionate to principal, a Securityholder of such Class could,
under some such prepayment scenarios, fail to recoup its original investment.
Conversely, if a Security, including a Security of a Principal Weighted Class,
is purchased at a discount and principal distributions thereon occur at a rate
slower than assumed at the time of purchase, the investor's actual yield to
maturity could be significantly lower than that originally anticipated. Any
rating assigned to the Securities 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 Securities in accordance with the related Agreement.
Such rating will not constitute an assessment of the likelihood that principal
prepayments on the Loans underlying or comprising the Mortgage Assets will be
made by borrowers or of the degree to which the rate of such prepayments might
differ from that originally anticipated. As a result, such rating will not
address the possibility that prepayment rates higher or lower than anticipated
by an investor may cause such investor to experience a lower than anticipated
yield, or that an investor purchasing an Interest Weighted Security at a
significant premium might fail to recoup its initial investment. See "Yield,
Prepayment and Maturity Considerations."
CREDIT SUPPORT LIMITATIONS
The amount, type and nature of insurance policies, subordination,
overcollateralization, Financial 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
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<PAGE>
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
Securities 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
Securities 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 Securities 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, Financial Guarantee Insurance,
repurchase bond or other third-party credit support will not be guaranteed or
insured by the United States, or by any agency or instrumentality thereof. A
Series of Securities may include a Class or multiple Classes of Subordinate
Securities 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 Securities, 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 Securities," "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
Securities, the Trust Fund for a Series will be the only available source of
funds to make distributions on the Securities of such Series. The only
obligations of the Depositor with respect to the Securities of any Series will
be pursuant to certain representations and warranties, if any, in the related
Agreement. See "The Agreements--Assignment of Mortgage Assets" herein. The
Depositor does not have, and is not expected in the future to have, any
significant assets with which to meet any obligation to repurchase Mortgage
Assets with respect to which there has been a breach of any representation or
warranty. If, for example, the Depositor were required to repurchase a Loan
which constitutes a Mortgage Asset, its only sources of funds to make such
repurchase would be from funds obtained from the enforcement of a corresponding
obligation, if any, on the part of the Seller, the Servicer or the Master
Servicer, as the case may be, or from a reserve fund established to provide
funds for such repurchases. See "The Depositor."
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<PAGE>
INABILITY OF TRUSTEE TO LIQUIDATE THE COLLATERAL SECURING THE NOTES
Although the Trustee or the holders of a majority of the then aggregate
outstanding amount of the Notes of a Series may declare the principal amount of
all the Notes of such Series to be due and payable immediately if an Event of
Default occurs and is continuing under the related Indenture, there is no
assurance that the market value of the related collateral will at any time be
equal to or greater than the aggregate outstanding amount of the related Notes.
Therefore, upon an Event of Default with respect to the related Notes, there can
be no assurance that sufficient funds will be available to repay the related
Noteholders in full. In addition, the amount of principal required to be
distributed to Noteholders under the Indenture is generally limited to amounts
available to be deposited in the applicable Certificate Account. Therefore, the
failure to pay principal on a class of the related Notes may not result in the
occurrence of an Event of Default until the Final Scheduled Distribution Date
for such class of Notes.
SUMMARY OF 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 Securities of any Series. See
"ERISA Considerations" herein and in the related Prospectus Supplement.
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING REMIC RESIDUAL INTERESTS
Holders of REMIC Residual Interests will be required to report on their
federal income tax returns as ordinary income their pro rata share of the
taxable income of the related REMIC regardless of the amount or timing of their
receipt of cash payments as described in "Certain Federal Income Tax
Considerations--Residual Interests in a REMIC." Accordingly, under certain
circumstances, holders of Certificates which constitute REMIC Residual Interests
might have taxable income and tax liabilities arising from such investment
during a taxable year in excess of the cash received during such period. The
requirement that Holders of Residual Interest Certificates report their pro rata
share of the taxable income and net loss of the related REMIC will continue
until the principal balances of all Classes of Certificates of the related
Series have been reduced to zero, even though holders of Residual Interests have
received full payment of their stated interest and principal. A portion (or, in
certain circumstances, all) of a Residual Interest Certificateholder's share of
the related REMIC's taxable income may be treated as "excess inclusion" income
to such holder which (i) except in the case of certain thrift institutions, will
not be subject to offset by losses from other activities, (ii) for a tax-exempt
Holder, will be treated as unrelated business taxable income and (iii) for a
foreign holder, will not qualify for exemption from withholding tax. Individual
Holders of Certificates constituting Residual Interests may be limited in their
ability to deduct servicing fees and other expenses of the related REMIC.
Because of the special tax treatment of REMIC residual interests, the taxable
income arising in a given year on a REMIC residual interest will not be equal to
the taxable income associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pre-tax yield.
Therefore, the after-tax yield on the Residual Interest Certificates may be
negative or significantly less than that of a corporate bond or stripped
instrument having similar cash flow characteristics.
DESCRIPTION OF THE SECURITIES
GENERAL
The Securities will be issued in Series. Each Series of Certificates
will be issued 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. Each Series of Notes will be issued
pursuant to separate Indentures between the related Issuer and the Trustee for
the related Series identified in the related Prospectus Supplement. The Trust
Fund for each Series of Notes will be created pursuant to an Owner Trust
Agreement between the Depositor and the Owner Trustee. 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
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<PAGE>
Agreements and the Prospectus Supplement relating to each Series. When
particular provisions or terms used in each Agreement are referred to, such
provisions or terms shall be as specified in such Agreement.
Each Series will consist of one or more Classes, one or more of which
may consist of Compound Interest Securities, Floating Interest Securities,
Interest Weighted Securities or Principal Weighted Securities. A Series may also
include one or more Classes of Subordinate Securities. Unless otherwise
specified in the related Prospectus Supplement, a Class of Subordinate
Securities 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 Securities of each
separate Class will evidence beneficial ownership of, or be secured by, each
corresponding Asset Group.
The Securities 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 Securities
may be registered, and the Securities 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 Securities. If specified in the related Prospectus Supplement,
one or more Classes of a Series may be available in book-entry form only.
DISTRIBUTIONS ON THE SECURITIES
GENERAL. Commencing on the date specified in the related Prospectus
Supplement, distributions of principal and interest on the Securities 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 Securities which receive interest will be
made periodically at the intervals and at the Security Interest Rate specified
or, with respect to Floating Interest Securities, determined in the manner
described in the related Prospectus Supplement. Interest on the Securities 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 Securities of a Series
will be made by check mailed to Securityholders 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 security register (the
"Security 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 Security will be made only upon
presentation and surrender of such Security at the corporate trust office of the
Trustee for such Series or such other office of the Trustee as specified in the
Prospectus Supplement. If specified in the related Prospectus Supplement, the
Securities 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 each
Series of Certificates or Notes, the Security Register will be referred to as
the "Certificate Register" or "Note Register", respectively.
With respect to reports to be furnished to Securityholders concerning a
distribution, see "The Agreements--Reports to Securityholders."
SINGLE CLASS SERIES. With respect to a Series other than a Multiple
Class Series, distributions on the Securities on each Distribution Date will
generally be allocated to each Security entitled thereto on the basis of the
undivided percentage interest (the "Percentage Interest") evidenced by such
Security 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 Security Interest Rate of
the Securities 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 Security Interest Rate on the Securities 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
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<PAGE>
lifetime or periodic adjustment caps on their respective pass-through rates,
then the Security Interest Rate on the Securities of the related Series may also
reflect such caps.
MULTIPLE CLASS SERIES. Each Security of a Multiple Class Series will
have a principal amount or a notional amount and a specified Security Interest
Rate (which may be zero). Interest distributions on a Multiple Class Series will
be made on each Security entitled to an interest distribution on each
Distribution Date at the Security Interest Rate specified or, with respect to
Floating Interest Securities, 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 Securities to
receive current distributions. See "Subordinate Securities" below and "Credit
Support."
Interest on all Securities of a Multiple Class Series currently
entitled to receive interest will be distributed on the Distribution Date
specified in the related Prospectus Supplement, to the extent funds are
available in the Certificate Account, subject to any subordination of the rights
of any Subordinate Class to receive current distributions. See "Subordinate
Securities" below and "Credit Support." Distributions of interest on a Class of
Compound Interest Securities 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 Securities 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 Securities on the basis of the current Compound
Value of such Class. The Compound Value of a Class of Compound Interest
Securities 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
Securities of a Multiple Class Series may include one or more Classes of
Floating Interest Securities. The Security Interest Rate of a Floating Interest
Security will be a variable or adjustable rate, subject to a Maximum Floating
Rate, Minimum Floating Rate, or both. For each Class of Floating Interest
Securities, 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 Securities, Principal Weighted
Securities, 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 Securities within each Class.
The method or formula for determining the Percentage Interest of a Security 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 Securities shall be as set forth in the related Prospectus
Supplement. A Multiple Class Series may contain two or more classes of
Securities 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 SECURITIES. One or more Classes of a Series may consist of
Subordinate Securities. Subordinate Securities 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 Securities 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 Securities
evidencing beneficial ownership of one Asset Group prior to making distributions
on Subordinate Securities evidencing a beneficial ownership interest in another
Asset Group within the Trust Fund. Subordinate Securities will not be
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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. With
respect to any Series of Notes, the Equity Certificates, insofar as they
represent the beneficial ownership interest in the Issuer, will be subordinate
to the related Notes.
FUNDING ACCOUNT
If so specified in the related Prospectus Supplement, the related
Agreement may provide for the transfer by the Seller 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 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 Securities 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 Securities.
Unless otherwise specified in the related Prospectus Supplement, the related
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. A Funding Account can affect the application of the
requirements under ERISA. See "ERISA Considerations."
OPTIONAL TERMINATION
If so specified in the related Prospectus Supplement for a Series, the
Depositor, the Master Servicer, or another entity designated in the related
Prospectus Supplement may, at its option, cause an early termination of a Trust
Fund by repurchasing all of the Mortgage Assets from such Trust Fund on or after
a date specified in the related Prospectus Supplement, or on or after such time
as the aggregate outstanding principal amount of the Mortgage Assets is less
than a specified percentage of their initial aggregate principal amount. In the
case of a Trust Fund for which a REMIC election or elections have been made, the
Trustee shall receive a satisfactory opinion of counsel that the repurchase
price will not jeopardize the REMIC status of the REMIC or REMICs and that the
optional termination will be conducted so as to constitute a "qualified
liquidation" under Section 860F of the Code. See "The Agreements--Termination."
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, the Securities
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 Security 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
Securities (a "Securityowner") will be entitled to receive a Security issued in
fully registered, certificated form (a "Definitive Security") representing such
person's interest in the Securities except in the event that the book-entry
system for the Securities is discontinued (as described below). Unless and until
Definitive Securities are issued, it is anticipated that the only Securityholder
of the Securities will be Cede & Co., as nominee of DTC. Securityowners will not
be registered "Securityholders" or registered "Holders" under the related
Agreement, and Securityowners will only be permitted to exercise the rights of
Securityholders indirectly through DTC Participants. With respect to each Series
of Certificates or Notes, Securityowners and Securityholders will be referred to
as "Certificateowners" and "Certificateholders" or "Noteowners" and
"Noteholders", respectively.
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
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entities that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("indirect participants").
Securityowners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of Securities 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 Securityowner
to pledge such owner's Security to persons or entities that do not participate
in the DTC system, or otherwise take actions in respect of such Security, may be
limited. In addition, under a book-entry format, Securityowners may experience
some delay in their receipt of principal and interest distributions with respect
to the Securities 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 Securityowners.
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 Securities and
DTC, as registered holder, is required to receive and transmit principal and
interest distributions and distributions with respect to the Securities.
Participants and Indirect Participants with which Securityowners have accounts
with respect to Securities similarly are required to make book-entry transfers
and receive and transmit such distributions on behalf of their respective
Securityowners. Accordingly, although Securityowners will not possess
certificates or notes, the Rules provide a mechanism by which Securityowners
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 Securityholder under the related Agreement only at the direction of
one or more Participants to whose account with DTC the Securities 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 notes
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 Securities to the extent that such actions are taken on behalf of
Participants whose holdings represent that specified interest or voting
interest.
DTC may discontinue providing its services as securities depository
with respect to the Securities 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 Securities 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 Securities 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
Securityholders. 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 Securityholders.
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 Securityholders 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 Securities, 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.
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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 Securities 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 Security outstanding. The effect of such
provisions is to produce a lower yield on the Securities than would be obtained
if interest were to accrue on the Securities on the actual unpaid principal
amount of such Securities to each Distribution Date. The related Prospectus
Supplement will specify the time at which the principal amounts of the
Securities are determined or are deemed to reduce for purposes of calculating
interest distributions on Securities of a Multiple Class Series.
INTEREST OR PRINCIPAL WEIGHTED SECURITIES
If a Class of Securities consists of Interest Weighted Securities or
Principal Weighted Securities, a lower rate of principal prepayments than
anticipated will negatively affect the yield to investors in Principal Weighted
Securities, and a higher rate of principal prepayments than anticipated will
negatively affect the yield to investors in Interest Weighted Securities. The
Prospectus Supplement for a Series including such Securities will include a
table showing the effect of various levels of prepayment on yields on such
Securities. Such tables will be intended to illustrate the sensitivity of yields
to various prepayment rates and will not be intended to predict, or provide
information which will enable investors to predict, yields or prepayment rates.
FUNDING ACCOUNT
If the applicable Agreement for a Series of Securities 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
Securities--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
Securities 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 Securities, 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 Securities of a Series will be influenced by the rate at which principal on
the Loans comprising or underlying the Mortgage Assets for such Securities 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
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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 Security Interest Rate on the Securities may
be a number of percentage points less than interest rates on such Loans. In
addition, the weighted average life of the Securities may be affected by the
varying maturities of the Loans comprising or underlying the Mortgage Assets. If
any Loans comprising or underlying the Mortgage Assets for a Series have actual
terms-to-stated maturity of less than those assumed in calculating the Final
Scheduled Distribution Date of the related Securities, 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 Securities 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 Securities or prepayment rates of the Loans
comprising or underlying the related Mortgage Assets.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
TYPE OF LOAN. Multifamily Loans may have provisions which prevent
prepayment for a number of years and may provide for payments of interest only
during a certain period followed by amortization of principal on the basis of a
schedule extending beyond the maturity of the related mortgage loan. Additional
Collateral Loans, ARMs, Balloon Loans, Bi-Weekly Loans, GEM Loans, GPM Loans or
Buy-Down Loans comprising or underlying the Mortgage Assets may experience a
rate of principal prepayments which is different from the principal prepayment
rate for Additional Collateral Loans, ARMs, Balloon Loans, Bi-Weekly Loans, GEM
Loans, GPM Loans or Buy-Down Loans included in any other mortgage pool or from
conventional Fixed Rate Loans or from other adjustable rate or graduated equity
mortgages having different characteristics.
In the case of Negatively Amortizing ARMs, if interest rates rise
without a simultaneous increase in the related Scheduled Payment, Deferred
Interest and Negative Amortization may result. However, borrowers may pay
amounts in addition to their Scheduled Payments in order to avoid such Negative
Amortization and to increase tax deductible interest payments. To the extent
that any of such Mortgage Loans negatively amortize over their respective terms,
future interest accruals are computed on the higher outstanding principal
balance of such mortgage loan and
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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
Securities 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
Securities of the related Series.
Because of the payment terms of Balloon Loans, there is a risk that
such Mortgage Loans, including Multifamily Loans and Additional Collateral
Loans, that require Balloon Payments may default at maturity, or that the
maturity of such Mortgage Loans may be extended in connection with a workout.
With respect to Balloon Loans, payment of the Balloon Payment (which, based on
the amortization schedule of such Mortgage Loans, is expected to be the entire
or a substantial amount of the original principal balance) will generally depend
on the Mortgagor's ability to obtain refinancing of such Mortgage Loans, to sell
the Mortgaged Property prior to the maturity of the Balloon Loan or to otherwise
have sufficient funds to pay such Balloon Payment. The ability to obtain
refinancing will depend on a number of factors prevailing at the time
refinancing or sale is required, including, without limitation, real estate
values, the Mortgagor's financial situation, prevailing mortgage market interest
rates, the Mortgagor's equity in the related Mortgaged Property, tax laws and
prevailing general economic conditions. Unless otherwise specified in the
related Prospectus Supplement, none of the Depositor, the Master Servicer, or
any of their affiliates will be obligated to refinance or repurchase any
Mortgage Loan or to sell the Mortgaged Property.
A GEM Loan provides for scheduled annual increases in the borrower's
Scheduled Payment. Because the additional portion of the Scheduled Payment is
applied to reduce the unpaid principal balance of the GEM Loan, the stated
maturity of a GEM Loan will be significantly shorter than the 25 to 30 year term
used as the basis for calculating the installments of principal and interest
applicable until the first adjustment date.
The prepayment experience with respect to Manufactured Home Loans will
generally not correspond to the prepayment experience on other types of housing
loans.
FORECLOSURES AND PAYMENT PLANS. The number of foreclosures and the
principal amount of the Loans comprising or underlying the Mortgage Assets which
are foreclosed in relation to the number of Loans which are repaid in accordance
with their terms will affect the weighted average life of the Loans comprising
or underlying the Mortgage Assets and that of the related Series of Securities.
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 Securities who
purchased their Securities 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
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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.
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 Securities--Optional Termination."
THE TRUST FUNDS
GENERAL
The Trust Fund for each Series will be held by the Trustee for the
benefit of the related Securityholders. Each Trust Fund will consist of (a) the
Mortgage Assets; (b) amounts held from time to time in the Collection Account
and the Certificate Account established for such Series; (c) Mortgaged Property
which secured a Loan and which is acquired on behalf of the Securityholders 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
Sub-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 Securityholders under the
related 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
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
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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 loans to such trusts, and selling beneficial interests in such trusts.
If so specified in the Prospectus Supplement, the PMBS Issuer may be the
Depositor or an affiliate of the Depositor. The obligations of the PMBS Issuer
will generally be limited to certain representations and warranties with respect
to the assets conveyed by it to the related trust. Unless otherwise specified in
the related Prospectus Supplement, the PMBS Issuer will not have guaranteed any
of the assets conveyed to the related trust or any of the Private
Mortgage-Backed Securities issued under the PMBS Agreement. Additionally,
although the Loans underlying the Private Mortgage-Backed Securities may be
guaranteed by an agency or instrumentality of the United States, the Private
Mortgage-Backed Securities themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Mortgage-Backed
Securities by the PMBS Trustee or the PMBS Servicer. The PMBS Issuer or the PMBS
Servicer may have the right to repurchase assets underlying the Private
Mortgage-Backed Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
UNDERLYING LOANS. The Loans underlying the Private Mortgage-Backed
Securities may consist of fixed rate, level payment, fully amortizing Loans or
Additional Collateral Loans, GEM Loans, GPM Loans, Balloon Loans, Buy-Down
Loans, Bi-Weekly Loans, ARMs, or Loans having other special payment features.
Loans may be secured by Single Family Property, Multifamily Property,
Manufactured Homes, or, in the case of Cooperative Loans, by an assignment of
the proprietary lease or occupancy agreement relating to a Cooperative Dwelling
and the shares issued by the related cooperative. Except as otherwise specified
in the related Prospectus Supplement, (i) no Loan will have had a Loan-to-Value
Ratio at origination in excess of 95%, (ii) each Mortgage Loan secured by Single
Family Property and having a Loan-to-Value Ratio in excess of 80% at origination
will be covered by a primary mortgage insurance policy, (iii) each Loan will
have had an original term to stated maturity of not less than 10 years and not
more than 40 years, (iv) no Loan that was more than 30 days delinquent as to the
payment of principal or interest will have been eligible for inclusion in the
assets under the related PMBS Agreement, (v) each Loan (other than a Cooperative
Loan) will be required to be covered by a standard hazard insurance policy
(which may be a blanket policy), and (vi) each Loan (other than a Cooperative
Loan or a Loan secured by a Manufactured Home) will be covered by a title
insurance policy.
CREDIT SUPPORT RELATING TO PRIVATE MORTGAGE-BACKED SECURITIES. Credit
support in the form of reserve funds, subordination of other private mortgage
certificates issued under the PMBS Agreement, overcollateralization, letters of
credit, insurance policies or other types of credit support may be provided with
respect to the Loans underlying the Private Mortgage-Backed Securities or with
respect to the Private Mortgage-Backed Securities themselves. The type,
characteristics and amount of credit support, if any, will be a function of
certain characteristics of the Loans and other factors and will have been
established for the Private Mortgage-Backed Securities on the basis of
requirements of the rating agencies which initially assigned a rating to the
Private Mortgage-Backed Securities.
ADDITIONAL INFORMATION. The Prospectus Supplement for a Series for
which the Trust Fund includes Private Mortgage-Backed Securities will specify
(i) the aggregate approximate principal amount and type of the Private
Mortgage-Backed Securities to be included in the Trust Fund, (ii) certain
characteristics of the Loans which comprise the underlying assets for the
Private Mortgage-Backed Securities including (A) the payment features of such
Loans
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(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 note
interest rate, pass-through or certificate rate or ranges thereof for the
Private Mortgage-Backed Securities, (vi) the weighted average note interest
rate, pass-through or certificate rate of the Private Mortgage-Backed
Securities, (vii) the PMBS Issuer, the PMBS Servicer (if other than the PMBS
Issuer) and the PMBS Trustee for such Private Mortgage-Backed Securities, (viii)
certain characteristics of credit support, if any, such as reserve funds,
insurance policies, letters of credit or guarantees relating to the Loans
underlying the Private Mortgage-Backed Securities or to such Private
Mortgage-Backed Securities themselves, (ix) the terms on which the underlying
Loans for such Private Mortgage-Backed Securities may, or are required to, be
purchased prior to their stated maturity or the stated maturity of the Private
Mortgage-Backed Securities and (x) the terms on which Loans may be substituted
for those originally underlying the Private Mortgage-Backed Securities.
THE AGENCY SECURITIES
All of the Agency Securities will be registered in the name of the
Trustee or its nominee or, in the case of Agency Securities issued only in
book-entry form, a financial intermediary (which may be the Trustee) that is a
member of the Federal Reserve System or of a clearing corporation on the books
of which the security is held. Each Agency Security will evidence an interest in
a pool of mortgage loans and/or cooperative loans and/or in principal
distributions and interest distributions thereon.
The descriptions of GNMA, FHLMC and FNMA Certificates that are set
forth below are descriptions of certificates representing proportionate
interests in a pool of mortgage loans and in the payments of principal and
interest thereon. GNMA, FHLMC or FNMA may also issue mortgage-backed securities
representing a right to receive distributions of interest only or principal only
or disproportionate distributions of principal or interest or to receive
distributions of principal and/or interest prior or subsequent to distributions
on other certificates representing interests in the same pool of mortgage loans.
In addition, any of such issuers may issue certificates representing interests
in mortgage loans having characteristics that are different from the types of
mortgage loans described below. The terms of any such certificates to be
included in a Trust Fund (and of the underlying mortgage loans) will be
described in the related Prospectus Supplement, and the descriptions that follow
are subject to modification as appropriate to reflect the terms of any such
certificates that are actually included in a Trust Fund.
GNMA. GNMA is a wholly-owned corporate instrumentality of the United
States within HUD. Section 306(g) of Title III of the National Housing Act of
1934, as amended (the "Housing Act"), authorizes GNMA to guarantee the timely
payment of the principal of and interest on certificates representing interests
in a pool of mortgages (i) insured by the FHA, under the Housing Act or under
Title V of the Housing Act of 1949, or (ii) partially guaranteed by the VA under
the Servicemen's Readjustment Act of 1944, as amended, or under Chapter 37 of
Title 38, United States Code.
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which may
be required to be paid under any guarantee under this subsection." In order to
meet its obligations under any such guarantee, GNMA may, under Section 306(d) of
the Housing Act, borrow from the United States Treasury an amount that is at any
time sufficient to enable GNMA to perform its obligations under its guarantee.
See "Additional Information" for the availability of further information
regarding GNMA and GNMA Certificates.
GNMA CERTIFICATES. Unless otherwise specified in the related Prospectus
Supplement, each GNMA Certificate relating to a Series (which may be a "GNMA I
Certificate" or a "GNMA II Certificate" as referred to by GNMA) will be a "fully
modified pass-through" mortgage-backed certificate issued and serviced by a
mortgage banking company or other financial concern approved by GNMA, except
with respect to any stripped mortgage-backed securities guaranteed by GNMA or
any REMIC securities issued by GNMA. The characteristics of any GNMA
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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 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
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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 or a junior lien on Mortgaged Property. The Mortgage Loans may also
include Cooperative Loans evidenced by promissory notes secured by a lien on the
shares issued by private, non-profit, cooperative housing corporations and on
the related proprietary leases or occupancy agreements granting exclusive rights
to occupy specific Cooperative Dwellings. The Mortgage Loans may also include
Condominium Loans secured by a Mortgage on a Condominium Unit together with such
Condominium Unit's appurtenant interest in the common elements.
The Mortgaged Properties may include Single Family Property (i.e.,
one-to four-family residential housing, including Condominium Units, and
Cooperative Dwellings) or Multifamily Property (i.e., multifamily residential
rental properties or cooperatively-owned properties consisting of five or more
dwelling units). The Mortgaged Properties may consist of detached individual
dwellings, individual condominiums, townhouses, duplexes, row houses, individual
units in planned unit developments and other attached dwelling units.
Multifamily Property may include mixed commercial and residential structures.
Each Single Family Property and Multifamily Property will be located on land
owned in fee simple by the borrower or on land leased by the borrower. The fee
interest in any leased land will be subject to the lien securing the related
Mortgage Loan. Attached dwellings may include owner-occupied structures where
each borrower owns the land upon which the unit is built, with the remaining
adjacent land owned in common or dwelling units subject to a proprietary lease
or occupancy agreement in a cooperatively owned apartment building. The
proprietary lease or occupancy agreement securing a Cooperative Loan is
generally subordinate to any blanket mortgage on the related cooperative
apartment building and/or on the underlying land. Additionally, in the case of a
Cooperative Loan, the proprietary lease or occupancy agreement is subject to
termination and the cooperative shares are subject to cancellation by the
cooperative if the tenant-stockholder fails to pay maintenance or other
obligations or charges owed by such tenant-stockholder. See "Certain Legal
Aspects of Loans."
If specified in the related Prospectus Supplement, certain of the
mortgage pools may contain Mortgage Loans secured by junior liens, and the
related senior liens ("Senior Liens") may not be included in the mortgage pool.
The primary risk to holders of Mortgage Loans secured by junior liens is the
possibility that adequate funds will not be received in connection with a
foreclosure of the related Senior Liens to satisfy fully both the Senior Liens
and the Mortgage Loan. In the event that a holder of a Senior Lien forecloses on
a Mortgaged Property, the proceeds of the foreclosure or similar sale will be
applied first to the payment of court costs and fees in connection with the
foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the Senior Liens. The claims of the holders
of the Senior Liens will be satisfied in full out of proceeds of the liquidation
of the Mortgage Loan, if such proceeds are sufficient, before the Trust Fund as
holder of the junior lien receives any payments in respect of the Mortgage Loan.
If the Master Servicer were to foreclose on any Mortgage Loan, it would do so
subject to any related Senior Liens. In order for the debt related to the
Mortgage Loan to be paid in full at such sale, a bidder at the foreclosure sale
of such Mortgage Loan would have to bid an amount sufficient to pay off all sums
due under the Mortgage Loan and the Senior Liens or purchase the Mortgaged
Property subject to the Senior Liens. In the event that such proceeds from a
foreclosure or similar sale of the related Mortgaged Property are insufficient
to satisfy all Senior Liens and the Mortgage Loan in the aggregate, the Trust
Fund, as the holder of the junior lien, and, accordingly, holders of one or more
Classes of the Securities bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (ii) the risk of loss
if the deficiency judgment is not realized upon. Moreover, deficiency judgments
may not be available in certain jurisdictions. In addition, a junior mortgagee
may not foreclose on the property securing a junior mortgage unless it
forecloses subject to the senior mortgages.
Liquidation expenses with respect to defaulted junior mortgage loans do
not vary directly with the outstanding principal balance of the loan at the time
of default. Therefore, assuming that the Master Servicer took the same steps in
realizing upon a defaulted junior mortgage loan having a small remaining
principal balance as it would in the case of a defaulted junior mortgage loan
having a large remaining principal balance, the amount realized after expenses
of liquidation would be smaller as a percentage of the outstanding principal
balance of the small junior mortgage loan than would be the case with the
defaulted junior mortgage loan having a large remaining principal balance.
Because
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the average outstanding principal balance of the Mortgage Loans is smaller
relative to the size of the average outstanding principal balance of the loans
in a typical pool of first priority mortgage loans, liquidation proceeds may
also be smaller as a percentage of the principal balance of a Mortgage Loan than
would be the case in a typical pool of first priority mortgage 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 junior 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
Securityholders, 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 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 Securities. 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;
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(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
Securities (a "Designated Seller Transaction"). Such Securities 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.
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, plus in the
case of a Mortgage Loan secured by a junior lien, the principal amount of the
related Senior Lien, 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
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Payments after the Buy-Down Amounts have been depleted and, for certain Buy-Down
Loans, while such Buy-Down Amounts are being depleted.
Unless otherwise specified in the related Prospectus Supplement, with
respect to Multifamily Loans, (a) no Mortgage Loan will have been delinquent for
more than 30 days within the 12-month period ending with the Cut-off Date, (b)
no more than two payments will have been 30 days or more delinquent during a
three-year period ending on the Cut-off Date, (c) Mortgage Loans with respect to
any single borrower will not exceed 5% of the aggregate principal balance of the
Loans comprising the Mortgage Assets as of the Cut-off Date, and (d) the debt
service coverage ratio with respect to each Mortgage Loan (calculated as
described in the related Prospectus Supplement) will not be less than 11:1.
Unless otherwise specified in the related Prospectus Supplement, the
Bi-Weekly Loans will consist of fixed-rate, bi-weekly payment, conventional,
fully-amortizing Mortgage Loans payable on every other Friday during the term
thereof and secured by first mortgages on one-to four-family residential
properties.
Unless otherwise specified in the related Prospectus Supplement, ARMs
will provide for a fixed initial mortgage rate for either the first six or
twelve Scheduled Payments. Thereafter, the Mortgage Rates are subject to
periodic adjustment based, subject to the applicable limitations, on changes in
the relevant Index described in the applicable Prospectus Supplement, to a rate
equal to the Index plus the Gross Margin, which is a fixed percentage spread
over the Index established contractually for each ARM, at the time of its
origination. An ARM may be convertible into a fixed-rate Mortgage Loan. To the
extent specified in the related Prospectus Supplement, any ARM so converted may
be subject to repurchase by the Seller, the Servicer or the Master Servicer.
ARMs have features that can cause payment increases that some borrowers
may find difficult to make. However, each of the ARMs provides that its mortgage
rate may not be adjusted to a rate above the applicable lifetime mortgage rate
cap (the "Maximum Mortgage Rate") or below the applicable lifetime minimum
mortgage rate (the "Minimum Mortgage Rate"), if any, for such ARM. In addition,
certain of the ARMs provide for limitations on the maximum amount by which their
mortgage rates may adjust for any single adjustment period (the "Periodic Rate
Cap"). Some ARMs are payable in self-amortizing payments of principal and
interest. Other ARMs ("Negatively Amortizing ARMs") instead provide for
limitations on 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, generally
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
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support relating to the Mortgage Loans; (i) the geographic distribution of the
Mortgaged Properties securing the Mortgage Loans, (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 and (k) with respect to Mortgage Loans
secured by a junior lien, the amount of the related Senior Liens. 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 Securities 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, together with the related
Pooling and Servicing Agreement, with respect to each Series of Certificates, or
the related Servicing Agreement, Owner Trust Agreement and Indenture, with
respect to each Series of Notes, with the Commission within 15 days after the
initial issuance of such Securities.
THE MANUFACTURED HOME LOANS
The Manufactured Home Loans comprising or underlying the Mortgage
Assets for a Series of Securities 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
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weighted average interest rate on the Manufactured Home Loans; (c) the average
outstanding principal balance of the Manufactured Home Loans; (d) the weighted
average remaining scheduled term to maturity of the Manufactured Home Loans and
the range of remaining scheduled terms to maturity; (e) the range of
Loan-to-Value Ratios of the Manufactured Home Loans; (f) the relative
percentages (by principal balance as of the Cut-off Date) of Manufactured Home
Loans that were made on new Manufactured Homes and on used Manufactured Homes;
(g) any pool insurance policy, special hazard insurance policy or bankruptcy
bond or other credit support relating to the Manufactured Home Loans; and (h)
the distribution by state of Manufactured Homes securing the Loans. The related
Prospectus Supplement will also specify any other limitations on the types or
characteristics of Manufactured Home Loans which may be included in the Mortgage
Assets for a Series.
If information of the nature specified above respecting the
Manufactured Home Loans is not known to the Depositor at the time the Securities
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 Securities.
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 related Pooling
and Servicing Agreement or the related Servicing Agreement and Indenture. Unless
otherwise specified in the related Prospectus Supplement or related 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
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 Securities--Distributions on the Securities."
Funds on deposit in the Collection Account will be available for
deposit into the Certificate Account for certain payments provided for in the
related Pooling and Servicing Agreement or the related Servicing Agreement and
Indenture. Unless otherwise specified in the Prospectus Supplement or the
related 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 Securityholders
into which all funds received from the Master Servicer and all required
withdrawals from any reserve funds and any draws on any Financial Guarantee
Insurance for such Series will be deposited, pending distribution to the
Securityholders. 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 related Agreement, will be
available for remittance to the Securityholders; provided that, if it is
specified in the related Prospectus Supplement that the Certificate Account will
be maintained by the Master Servicer in the name of the Trustee, then, prior to
each Distribution Date, funds in the Certificate Account will be transferred to
a separate account established by and in the name of the Trustee from which the
funds on deposit therein will, subject to permitted withdrawals by the Trustee
as specified above, be available for remittance to the Securityholders. See also
"The Agreements--Certificate Account" herein.
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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 Securities, the originator of a Loan will
have applied underwriting procedures intended to evaluate the borrower's credit
standing and repayment ability and the value and adequacy of the related
property as collateral. FHA Loans and VA Loans will have been originated in
compliance with the underwriting policies of FHA and VA, respectively.
Each borrower will have been required to complete an application
designed to provide to the original lender pertinent credit information about
the borrower. As part of the description of the borrower's financial condition,
the borrower will have furnished information with respect to its assets,
liabilities, income, credit history, employment history and personal
information, and an authorization to apply for a credit report which summarizes
the borrower's credit history with local merchants and lenders and any record of
bankruptcy. If the borrower was self-employed, the borrower will have been
required to submit copies of recent tax returns. The borrower may also have been
required to authorize verifications of deposits at financial institutions where
the borrower had demand or savings accounts. Certain considerations may cause an
originator of Loans to depart from these guidelines. For example, when two
individuals co-sign the loan documents, the incomes and expenses of both
individuals may be included in the computation. In the case of a Multifamily
Loan, the Mortgagor will also be required to provide certain information
regarding the related Multifamily Property, including a current rent roll and
operating income statements (which may be pro forma and unaudited). In addition,
the originator will generally also consider the location of the Multifamily
Property, the availability of competitive lease space and rental income of
comparable properties in the relevant market
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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
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
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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 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
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support in the future the outstanding loan balance, and provides sufficient
value to mitigate the effects of adverse shifts in real estate values. Certain
states where the Mortgaged Properties may be located have "antideficiency" laws
requiring, in general, that lenders providing credit on Single Family Property
look solely to the property for repayment in the event of foreclosure. See
"Certain Legal Aspects of Loans" herein.
With respect to the underwriting standards applicable to any Mortgage
Loans, such underwriting standards generally include a set of specific criteria
pursuant to which the underwriting evaluation is made. However, the application
of such underwriting standards does not imply that each specific criterion was
satisfied individually. Rather, a Mortgage Loan will be considered to be
originated in accordance with a given set of underwriting standards if, based on
an overall qualitative evaluation, the loan is in substantial compliance with
such underwriting standards. For example, a Mortgage Loan may be considered to
comply with a set of underwriting standards, even if one or more specific
criteria included in such underwriting standards were not satisfied, if other
factors compensated for the criteria that were not satisfied or if the Mortgage
Loan is considered to be in substantial compliance with the underwriting
standards.
LOSS EXPERIENCE
The general appreciation of real estate values experienced in the past
has been a factor in limiting the general loss experience on Conventional Loans.
However, there can be no assurance that the past pattern of appreciation in
value of the real property securing such Loans will continue. Further, there is
no assurance that appreciation of real estate values generally will limit loss
experiences on non-traditional housing such as Multifamily Property,
Manufactured Homes or Cooperative Dwellings. Similarly, no assurance can be
given that the value of the Mortgaged Property (including Cooperative Dwellings)
securing a Loan has remained 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 Securities 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
Securities 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."
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REPRESENTATIONS AND WARRANTIES
Unless otherwise specified in the related Prospectus Supplement or in
the related Agreement, the Seller (or other party as described in the related
Prospectus Supplement) will represent and warrant to the Depositor and the
Trustee with respect to the Mortgage Loans comprising the Mortgage Assets in a
Trust Fund, upon delivery of the Mortgage Loans to the Trustee hereunder, among
other things, generally that: (i) any required hazard and primary mortgage
insurance policies were effective at the origination of such Mortgage Loan, and
each such policy remained in effect on the date of purchase of such Mortgage
Loan from the Seller by or on behalf of the Depositor; (ii) either (A) a title
insurance policy insuring (subject only to permissible title insurance
exceptions) the lien status of the Mortgage was effective at the origination of
such Mortgage Loan and such policy remained in effect on the date of purchase of
the Mortgage Loan from the Seller by or on behalf of the Depositor or (B) if the
Mortgaged Property securing such Mortgage Loan is located in an area where such
policies are generally not available, there is in the related mortgage file an
attorney's certificate of title indicating (subject to such permissible
exceptions set forth therein) the first lien status of the mortgage; (iii) the
Seller has good title to such Mortgage Loan and such Mortgage Loan was subject
to no offsets, defenses or counterclaims except as may be provided under the
Relief Act and except to the extent that any buydown agreement exists for a
Buy-Down Loan; (iv) there are no mechanics' liens or claims for work, labor or
material affecting the related Mortgaged Property which are, or may be a lien
prior to, or equal with, the lien of the related Mortgage (subject only to
permissible title insurance exceptions); (v) the related Mortgaged Property is
free from material damage and at least in adequate repair; (vi) there are no
delinquent tax or assessment liens against the related Mortgaged Property; (vii)
such Mortgage Loan is not more than 30 days' delinquent as to any scheduled
payment of principal and/or interest; (viii) if a primary mortgage insurance
policy is required with respect to such Mortgage Loan, such Mortgage Loan is the
subject of such a policy; and (ix) such Mortgage Loan was made in compliance
with, and is enforceable under, all applicable local, state and federal laws in
all material respects.
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.
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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 Securityholder in such Loan, the Seller (or other
party as described in the Prospectus Supplement) will be obligated to cure such
breach in all material respects, repurchase such Loan from the Trustee, or
deliver a Qualified Substitute Mortgage Loan as described below under "The
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 ("Sub-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 or 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 Securities 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 or 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 Sub-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 related Pooling and Servicing Agreement or 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 and Servicing Agreement or
Servicing 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 Securityholders of the related Series may
vary considerably depending on the particular Multifamily Loan, the Mortgaged
Property, the Mortgagor, the presence of an acceptable party to assume the
Multifamily Loan and the laws of the jurisdiction in which the Mortgaged
Property is located. If a Mortgagor files a bankruptcy petition, the Master
Servicer may not be permitted to accelerate the maturity of the related
Multifamily Loan or to foreclose on the Mortgaged Property for a considerable
period of time. See "Certain Legal Aspects of Mortgage Loans."
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer, to the extent permitted by law, will establish and maintain
escrow accounts ("Escrow Accounts") in which payments by borrowers to pay taxes,
assessments, mortgage and hazard insurance premiums, and other comparable items
that are required to be paid to the mortgagee will be deposited. Mortgage Loans
and Manufactured Home Loans may not require such payments under the loan related
documents, in which case the Master Servicer would not be required to establish
any Escrow Account with respect to such Loans. Withdrawals from the Escrow
Accounts are to be made to effect timely payment of taxes, assessments, mortgage
and hazard insurance, to refund to borrowers amounts determined to be overages,
to pay interest to borrowers on balances in the Escrow Account to the extent
required by law, to repair or otherwise protect the property securing the
related Loan and to clear and terminate such Escrow Account. The Master Servicer
will be responsible for the administration of the Escrow Accounts and generally
will make advances to such account when a deficiency exists therein.
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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.
Unless otherwise specified in the related Prospectus Supplement, 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 or
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 or 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 or Servicing Agreement; and
(vii) All other amounts required to be deposited therein
pursuant to the related Pooling and Servicing Agreement or Servicing
Agreement.
The Master Servicer is permitted, from time to time, to make
withdrawals from the Collection Account for certain purposes, as specifically
set forth in the related Pooling and Servicing Agreement or 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 or
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;
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(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 related Pooling and Servicing Agreement or Servicing
Agreement, any profits realized upon disposition of a Mortgaged
Property acquired by deed in lieu of foreclosure or otherwise allowed
under the related Pooling and Servicing Agreement or 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 related Pooling and Servicing Agreement or
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 Securities and Subordinate Securities,
to certain limitations set forth in the related Pooling and Servicing
Agreement or 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 related Pooling and
Servicing Agreement or the related Servicing Agreement and Indenture;
(ix) to make any other withdrawals permitted by the related
Pooling and Servicing Agreement or Servicing 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 or Servicing
Agreement.
SERVICING ACCOUNTS
Unless otherwise specified in the related Prospectus Supplement, 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 Sub-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 Sub-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 Sub-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.
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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
Securityholders 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 Securities 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 Securities of such Series. Neither the Depositor, the Master
Servicer nor any Servicer will be obligated to supplement the GPM Fund should
amounts therein and investment earnings thereon prove insufficient to maintain
the scheduled level of payments, in which event, distributions to the
Securityholders 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
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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 Securities 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 Securities, 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
Securityholders 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 Securityholders on the related Distribution Date. If the amount
necessary to include a full Scheduled Payment of interest as described above
exceeds the amount which the Master Servicer is obligated to advance, as
applicable, a shortfall may occur as a result of a prepayment in full. See
"Yield, Prepayment and Maturity Considerations."
MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING PROCEDURES
STANDARD HAZARD INSURANCE; FLOOD INSURANCE. Except as otherwise
specified in the related Prospectus Supplement, the Master Servicer will be
required to maintain or to cause the borrower on each Loan to maintain or will
use its best reasonable efforts to cause each Servicer of a Loan to maintain a
standard hazard insurance policy providing coverage of the standard form of fire
insurance with extended coverage for certain other hazards as is customary in
the state in which the property securing the related Loan is located. See
"Description of Mortgage and Other Insurance" herein. Unless otherwise specified
in the related Prospectus Supplement, coverage will be in an amount at least
equal to the greater of (i) the amount necessary to avoid the enforcement of any
co-insurance clause contained in the policy or (ii) the outstanding principal
balance of the related Loan. The Master Servicer will also maintain on REO
Property that secured a defaulted Loan and that has been acquired upon
foreclosure, deed in lieu of foreclosure, or repossession, a standard hazard
insurance policy in an amount that is at least equal to the maximum insurable
value of such REO Property. No earthquake or other additional insurance will be
required of any borrower or will be maintained on REO Property acquired in
respect of a defaulted Loan, other than pursuant to such applicable laws and
regulations as shall at any time be in force and shall require such additional
insurance. When, at the time of origination of a Loan or at any time during the
term of the Loan the Master Servicer or the related Servicer determines that the
related Mortgaged Property is located in an area identified on a Flood Hazard
Boundary Map or Flood Insurance Rate Map issued by the Flood Emergency
Management 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 or 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
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Property. This blanket policy may contain a deductible clause, in which case the
Master Servicer will, in the event that there has been a loss that would have
been covered by such policy absent such deductible clause, deposit in the
Collection Account the amount not otherwise payable under the blanket policy
because of the application of such deductible clause.
The Depositor will not require that a standard hazard or flood
insurance policy be maintained on the Cooperative Dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such borrower's Cooperative Dwelling or such
Cooperative's building could significantly reduce the value of the collateral
securing such Cooperative Loan to the extent not covered by other credit
support. Similarly, the Depositor will not require that a standard hazard or
flood insurance policy be maintained on a Condominium Unit relating to any
Condominium Loan. Generally, the Condominium Association is responsible for
maintenance of hazard insurance insuring the entire Condominium building
(including each individual Condominium Unit), and the owner(s) of an individual
Condominium Unit do not maintain separate hazard insurance policies. To the
extent, however, that a Condominium Association and the related borrower on a
Condominium Loan do not maintain such insurance or do not maintain adequate
coverage or any insurance proceeds are not applied to the restoration of damaged
property, any damage to such borrower's Condominium Unit or the related
Condominium Building could significantly reduce the value of the collateral
securing such Condominium Loan to the extent not covered by other credit
support.
SPECIAL HAZARD INSURANCE POLICY. If, and to the extent specified in the
related Prospectus Supplement, the Master Servicer will maintain a special
hazard insurance policy, in the amount set forth in the related Prospectus
Supplement, in full force and effect with respect to the Loans. Unless otherwise
specified in the related Prospectus Supplement, the special hazard insurance
policy will provide for a fixed premium rate based on the declining aggregate
outstanding principal balance of the Loans. The Master Servicer will agree to
pay the premium for any special hazard insurance policy on a timely basis. If
the special hazard insurance policy is canceled or terminated for any reason
(other than the exhaustion of total policy coverage), the Master Servicer will
exercise its best reasonable efforts to obtain from another insurer a
replacement policy comparable to the special hazard insurance policy with a
total coverage which is equal to the then existing coverage of the terminated
special hazard insurance policy; provided that if the cost of any such
replacement policy is greater than the cost of the terminated special hazard
insurance policy, the amount of coverage 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 Securities 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."
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FHA INSURANCE AND VA GUARANTEES. To the extent specified in the related
Prospectus Supplement, all or a portion of the Loans may be insured by the FHA
or guaranteed by the VA. The Master Servicer will be required to take such steps
as are reasonably necessary to keep such insurance and guarantees in full force
and effect. See "Description of Mortgage and Other Insurance--Mortgage Insurance
on the Loans."
POOL INSURANCE POLICY. If so specified in the related Prospectus
Supplement, the Master Servicer will be obligated to use its best reasonable
efforts to maintain a pool insurance policy with respect to the Loans in the
amount and with the coverage described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the pool
insurance policy will provide for a fixed premium rate on the declining
aggregate outstanding principal balance of the Loans. The Master Servicer will
be obligated to pay the premiums for such pool insurance policy on a timely
basis.
The Prospectus Supplement will identify the pool insurer for the
related Series of Securities. 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 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
Securities. 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 Securityholders,
will be required to present or cause to be presented, claims with respect to any
standard hazard insurance policy, pool insurance policy, special hazard
insurance policy, bankruptcy bond, or primary mortgage insurance policy, and to
the FHA and the VA, if applicable in respect of any FHA insurance or VA
guarantee respecting defaulted Mortgage Loans.
The Master Servicer will use its reasonable best efforts to foreclose
upon, repossess or otherwise comparably convert the ownership of the real
properties securing such of the related Loans as come into and continue in
default and as to which no satisfactory arrangements can be made for collection
of delinquent payments. In connection with such foreclosure or other conversion,
the Master Servicer will follow such practices and procedures as it deems
necessary or advisable and as are normal and usual in its servicing activities
with respect to comparable loans serviced by it. However, the Master Servicer
will not be required to expend its own funds in connection with any foreclosure
or towards the restoration of the property unless it determines: (i) that such
restoration or foreclosure will increase the Liquidation Proceeds in respect of
the related Mortgage Loan available to the Securityholders after reimbursement
to itself for such expenses and (ii) that such expenses will be recoverable by
it either through Liquidation Proceeds
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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 Internal Revenue
Service (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 Securityholders)
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.
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 Securityholders 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
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(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.
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 Securityholders.
Certain of these expenses may be reimbursable pursuant to the terms of the
related 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
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than the outstanding principal balance of and unpaid interest on the related
Loan which would be distributable to Securityholders. 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 Securityholders 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 Securityholders of such Series.
EVIDENCE AS TO COMPLIANCE
Each Pooling and Servicing Agreement and each 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, unless
otherwise specified in the related Prospectus Supplement, 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
related 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 Agreement.
Each Pooling and Servicing Agreement and each 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, unless
otherwise specified in the related Prospectus Supplement, 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 related
Pooling and Servicing Agreement or 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 related Agreement.
In the event of an Event of Default under the related Pooling and
Servicing Agreement or Servicing Agreement, the Master Servicer may be replaced
by the Trustee or a successor Master Servicer. See "The Agreements--Rights upon
Events of Default" herein.
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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 or 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 Securities; (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 related Pooling and
Servicing Agreement or 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
related 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 Agreement, provided that such successor or surviving entity meets the
requirements for a successor Master Servicer set forth above.
Each Pooling and Servicing Agreement and each 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 Securityholders for any
action taken or for failing to take any action in good faith pursuant to the
related 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 related
Agreement or the failure to perform its obligations in compliance with any
standard of care set forth in the related 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 and each
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 related Agreement or the Securities, 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
related 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 related 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 related Agreement
and the rights and duties of the parties thereto and the interests of the
Securityholders 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
Securities 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, financial
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 Securities of the related Series. Credit support may also be provided in the
form of an insurance policy covering the risk of collection and
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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
Securities and interest thereon at the Security Interest Rate. 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 Securityholders. If credit
support is provided with respect to a Series, the related Prospectus Supplement
will include a description of (a) the amount payable under such credit support,
(b) any conditions to payment thereunder not otherwise described herein, (c) the
conditions under which the amount payable under such credit support may be
reduced and under which such credit support may be terminated or replaced and
(d) the material provisions of any agreement relating to such credit support.
Additionally, the related Prospectus Supplement will set forth certain
information with respect to the issuer of any third-party credit support,
including (a) a brief description of its principal business activities, (b) its
principal place of business, place of incorporation and the jurisdiction under
which it is chartered or licensed to do business, (c) if applicable, the
identity of regulatory agencies which exercise primary jurisdiction over the
conduct of its business and (d) its total assets, and its stockholders' or
policyholders' surplus, if applicable, as of the date specified in the
Prospectus Supplement.
SUBORDINATE SECURITIES; SUBORDINATION RESERVE FUND
If so specified in the related Prospectus Supplement, one or more
Classes of a Series may be Subordinate Securities. If so specified in the
related Prospectus Supplement, the rights of the Subordinate Securityholders to
receive distributions of principal and interest from the Certificate Account on
any Distribution Date will be subordinated to such rights of the Senior
Securityholders 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 Securityholders
are paid to the Senior Securityholders (including amounts withdrawn from the
Subordination Reserve Fund, if any, and paid to the Senior Securityholders), and
will (unless otherwise specified in the related Prospectus Supplement) increase
whenever there is distributed to the Subordinate Securityholders amounts in
respect of which subordination payments have previously been paid to the Senior
Securityholders (which will occur when subordination payments in respect of
delinquencies and certain other deficiencies have been recovered).
A Series may include a Class of Subordinate Securities entitled to
receive cash flows remaining after distributions made to all other Classes. Such
right will effectively be subordinate to the rights of other Securityholders,
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 Securities, 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 Securities, 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 Securityholders. Moneys will be withdrawn from the Subordination Reserve
Fund to make distributions of principal of or interest on Senior Securities
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
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investments will be charged to such Subordination Reserve Fund. Amounts in any
Subordination Reserve Fund in excess of the Required Reserve Fund Balance may be
periodically released to the Subordinate Securityholders 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 Securityholders 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 Securities 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 Securities 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 Securities.
In a Series with overcollateralization, the allocation of losses to the
Securities is handled through the priority of payment process, first by interest
that otherwise would pay down principal on the Securities, and then such losses
would allocated to the Senior Securities only if the principal balance of the
Mortgage Loans was reduced to less than the principal balance of the Senior
Securities. If so specified in the related Prospectus Supplement, the level of
overcollateralization required under the provisions of the related Pooling and
Servicing Agreement or Indenture 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 Securities evidencing the
beneficial ownership of one Asset Group prior to distributions on Subordinate
Securities evidencing the beneficial ownership interest in another Asset Group
within the Trust Fund. The related Prospectus Supplement for a Series which
includes a cross-support feature will describe the manner and conditions for
applying such cross-support feature.
INSURANCE
Credit support with respect to a Series may be provided by various
forms of insurance policies, subject to limits on the aggregate dollar amount of
claims that will be payable under each such insurance policy, with respect to
all Loans comprising or underlying the Mortgage Assets for a Series, or such of
the Loans as have certain characteristics. Such insurance policies include
primary mortgage insurance and standard hazard insurance and may, if specified
in the related Prospectus Supplement, include a pool insurance policy covering
losses in amounts in excess of coverage of any primary insurance policy, a
special hazard insurance policy covering certain risks not covered by standard
hazard insurance policies, a bankruptcy bond covering certain losses resulting
from the bankruptcy of a borrower and application of certain provisions of the
Bankruptcy Code, a repurchase bond covering the repurchase of a Loan for which
mortgage insurance or hazard insurance coverage has been denied due to
misrepresentations in connection with the organization of the related Loan, or
other insurance covering other risks associated with the particular type of
Loan. See "Description of Mortgage and Other Insurance." Copies of the actual
pool insurance policy, special hazard insurance policy, bankruptcy bond or
repurchase bond, if any, relating to the Loans comprising the Mortgage Assets
for a Series will be filed with the Commission as an exhibit to a Current Report
on Form 8-K to be filed within 15 days of issuance of the Securities of the
related Series.
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LETTER OF CREDIT
The letter of credit, if any, with respect to a Series of Securities
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
Securities (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 Securities 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 Securities--Optional
Termination" and "The 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
Securities of the related Series.
FINANCIAL GUARANTEE INSURANCE
Financial Guarantee Insurance, if any, with respect to a Series of
Securities will be provided by one or more insurance companies. Such Financial
Guarantee Insurance will guarantee, with respect to one or more Classes of
Securities 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 Financial
Guarantee Insurance will also guarantee against any payment made to a
Securityholder which is subsequently recovered as a "voidable preference"
payment under the Bankruptcy Code. A copy of the financial 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 Securities of the related Series.
RESERVE FUNDS
One or more Reserve Funds may be established with respect to a Series,
in which cash, a letter of credit, Eligible Reserve Fund Investments, a demand
note or a combination thereof, in the amounts, if any, so specified in the
related Prospectus Supplement will be deposited. The Reserve Funds for a Series
may also be funded over time by depositing therein a specified amount of the
distributions received on the related Mortgage Assets as specified in the
related Prospectus Supplement.
Amounts on deposit in any reserve fund for a Series, together with the
reinvestment income thereon, will be applied by the Trustee for the purposes, in
the manner, and to the extent specified in the related Prospectus Supplement. A
Reserve Fund may be provided to increase the likelihood of timely payments of
principal of and interest on the Securities, 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 Securities, 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.
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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 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
Securityholders 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 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 Securityholders. 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 Securityholders.
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
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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 or 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.
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
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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 Securities will be
described in the related Prospectus Supplement.
The Servicemen's Readjustment Act of 1944, as amended, permits a
veteran (or, in certain instances, his or her spouse) to obtain a mortgage loan
guaranty by the VA covering mortgage financing of the purchase of a one- to
four-family dwelling unit to be occupied as the veteran's home at an interest
rate not exceeding the maximum rate in effect at the time the loan is made, as
established by HUD. The program has no limit on the amount of a mortgage loan,
requires no down payment from the purchaser and permits the guaranty of mortgage
loans with terms, limited by the estimated economic life of the property, up to
30 years. The maximum guaranty that may be issued by the VA under this program
is 50% of the original principal amount of the mortgage loan up to a certain
dollar limit established by the VA. The liability on the guaranty is reduced or
increased on a pro rata basis with any reduction or increase in the amount of
indebtedness, but in no event will the amount payable on the guaranty exceed the
amount of the original guaranty. Notwithstanding the dollar and percentage
limitations of the guaranty, a mortgagee will ordinarily suffer a monetary loss
only when the difference between the unsatisfied indebtedness and the proceeds
of a foreclosure sale of mortgaged premises is greater than the original
guaranty as adjusted. The VA may, at its option, and without regard to the
guaranty, make full payment to a mortgagee of the unsatisfied indebtedness on a
mortgage upon its assignment to the VA.
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 Securities
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 Securityholders. 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
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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 Securityholders 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 Securities by the aggregate net dollar amount of
claims paid less the aggregate net dollar amount realized by the pool insurer
upon disposition of all foreclosed Mortgaged Properties covered thereby. The
amount of claims paid includes certain expenses incurred by the Master Servicer
as well as accrued interest at the applicable interest rate on delinquent
Mortgage Loans to the date of payment of the claim. See "Certain Legal Aspects
of Loans" herein. Accordingly, if aggregate net claims paid under a pool
insurance policy reach the original policy limit, coverage under the pool
insurance policy will lapse and any further losses will be borne by the Trust
Fund, and thus will affect adversely payments on the Securities. 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 or 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 or 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."
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STANDARD HAZARD INSURANCE POLICIES FOR MANUFACTURED HOME LOANS. The
terms of the Pooling and Servicing Agreement or Servicing Agreement will require
the Servicer or the Master Servicer, as applicable, to cause to be maintained
with respect to each Manufactured Home Loan one or more standard hazard
insurance policies which provide, at a minimum, the same coverage as a standard
form fire and extended coverage insurance policy that is customary for
manufactured housing, issued by a company authorized to issue such policies in
the state in which the Manufactured Home is located, and in an amount which is
not less than the maximum insurable value of such Manufactured Home or the
principal balance due from the Mortgagor on the related Manufactured Home Loan,
whichever is less. Such coverage may be provided by one or more blanket
insurance policies covering losses on the Manufactured Home Loans resulting from
the absence or insufficiency of individual standard hazard insurance policies.
If a Manufactured Home's location was, at the time of origination of the related
Manufactured Home Loan, within a federally designated flood area, the Servicer
or the Master Servicer also will be required to maintain flood insurance.
If the Servicer or the Master Servicer repossesses a Manufactured Home
on behalf of the Trustee, the Servicer or the Master Servicer will either (i)
maintain at its expense hazard insurance with respect to such Manufactured Home
or (ii) indemnify the Trustee against any damage to such Manufactured Home prior
to resale or other disposition.
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 Securities, but will affect the
relative amounts of coverage remaining under the special hazard insurance policy
and pool insurance policy.
OTHER HAZARD-RELATED INSURANCE; LIABILITY INSURANCE. With respect to
Loans secured by Multifamily Property, certain additional insurance policies may
be required with respect to the Multifamily Property; for example, general
liability insurance for bodily injury and property damage, steam boiler coverage
where a steam boiler or other pressure vessel is in operation, and rent loss
insurance to cover operating income losses following damage or destruction of
the Mortgaged Property. With respect to a Series for which Loans secured by
Multifamily Property are included in the Trust Fund, the related Prospectus
Supplement will specify the required types and amounts of additional insurance
and describe the general terms of such insurance and conditions to payment
thereunder.
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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 AGREEMENTS
The following summaries describe certain provisions of the Agreements.
The summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the related Agreements. Where
particular provisions or terms used in the related Agreements are referred to,
such provisions or terms are as specified in the related Agreements.
ASSIGNMENT OF MORTGAGE ASSETS
GENERAL. The Depositor will transfer, convey and assign to the Trustee
all right, title and interest of the Depositor in the Mortgage Assets and other
property to be included in the Trust Fund for a Series. Such assignment will
include all principal and interest due on or with respect to the Mortgage Assets
after the Cut-off Date specified in the related Prospectus Supplement (except
for any Retained Interests). The Trustee will, concurrently with such
assignment, execute and deliver the Securities.
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 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 related Agreement, the
Depositor will represent and warrant to the Trustee regarding the Private
Mortgage-Backed Securities: (i) that the information
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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 Securities. Each Agency
Security will be identified in a schedule appearing as an exhibit to the related
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 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 Securityholders.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor will, at the time of delivery of the Securities, 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 related
Agreement may require the Depositor to repurchase from the Trustee any Mortgage
Loan required to be recorded but not recorded within such time, at the price
described above with respect to repurchase by reason of defective documentation.
Unless otherwise provided in the related Prospectus Supplement, the enforcement
of the repurchase obligation would constitute the sole remedy available to the
Securityholders 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 related 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
Securities to be assigned to the Trustee, together with principal and interest
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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 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
Securityholders 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 Securityholders in the Manufactured Home Loans
could be defeated. See "Certain Legal Aspects of Loans--Manufactured Home
Loans."
The Seller (or other party as described in the related Prospectus
Supplement) will provide limited representations and warranties to Depositor and
the Trustee concerning the Manufactured Home Loans. Such representations and
warranties will include: (i) that the information contained in the Loan Schedule
provides an accurate listing of the Manufactured Home Loans and that the
information respecting such Manufactured Home Loans set forth in such Loan
Schedule is true and correct in all material respects at the date or dates
respecting which such information is furnished; (ii) that, immediately prior to
the conveyance of the Manufactured Home Loans, the Depositor had good title to,
and was sole owner of, each such Manufactured Home Loan (subject to any Retained
Interests); (iii) that there has been no other sale by it of such Manufactured
Home Loans and that the Manufactured Home Loan is not subject to any lien,
charge, security interest or other encumbrance; (iv) if the Master Servicer will
not directly service the Manufactured Home Loans, each Sub-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 SECURITIES. The Depositor will cause any
Participation Securities obtained under a participation agreement to be assigned
to the Trustee by delivering to the Trustee the Participation Security , 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
Security. Each Participation Security will be identified in a "Participation
Security 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 Security. In the related Agreement, the
Depositor will represent and warrant to the Trustee regarding the Participation
Security: (i) that the information contained in the Participation Security
Schedule is true and correct in all material respects; (ii) that, immediately
prior to the conveyance of the Participation Securities, the Depositor had good
title to and was sole owner of the Participation Security; (iii) that there has
been no other sale by it of such Participation Security and (iv) that such
Participation Security is not subject to any existing lien, charge, security
interest or other encumbrance (other than any Retained Interests).
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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, or
Custodian on behalf of the Trustee, is found by the Trustee within 90 days of
the execution of the related 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 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 Securities 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
Securityholders), (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 Agreement as of
the date of substitution. The related 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 Securityholders 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 Securityholders 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.
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REPORTS TO SECURITYHOLDERS
The Master Servicer will prepare and will forward or will provide to
the Trustee for forwarding to each Securityholder 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 Agreement, among other
things:
(i) as applicable, either (A) the amount of such
distribution allocable to principal on the Mortgage Assets, separately
identifying the aggregate amount of any principal prepayments included
therein and the amount, if any, advanced by the Master Servicer or by a
Servicer or (B) the amount of the principal distribution in reduction
of stated principal amount (or Compound Value) of each Class and the
aggregate unpaid principal amount (or Compound Value) of each Class
following such distribution;
(ii) as applicable, either (A) the amount of such
distribution allocable to interest on the Mortgage Assets and the
amount, if any, advanced by the Master Servicer or a Servicer or (B)
the amount of the interest distribution;
(iii) the amount of servicing compensation with respect
to the Mortgage Assets paid during the Due Period commencing on the Due
Date to which such distribution relates and the amount of servicing
compensation during such period attributable to penalties and fees;
(iv) with respect to Compound Interest Securities, prior
to the Accrual Termination Date in addition to the information
specified in (i)(B) above, the amount of interest accrued on such
Securities during the related Interest Accrual Period and added to the
Compound Value thereof;
(v) in the case of Floating Interest Securities, 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 Securityholders 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
Securityholders is less than their required distribution, the amount of
the shortfall;
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(xiii) the amount of any withdrawal from any applicable
Reserve Fund included in amounts actually distributed to
Securityholders and the remaining balance of each Reserve Fund
(including any Subordination Reserve Fund), if any, on such
Distribution Date, after giving effect to distributions made on such
date; and
(xiv) such other information as specified in the related
Agreement.
With respect to each Series of Certificates or Notes, Securityholders
will be referred to as the "Certificateholders" or the "Noteholders",
respectively.
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 Securityholder of record at any time
during such calendar year a report summarizing the items provided to
Securityholders as specified in the related Agreement to enable Securityholders
to prepare their tax returns including, without limitation, the amount of
original issue discount accrued on the Securities, if applicable. Information in
the Distribution Date and annual reports provided to the Securityholders 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 Securities 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 Securities 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 Securityholders 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 Securityholders. See "Servicing of Loans" herein.
EVENT OF DEFAULT AND RIGHTS UPON EVENTS OF DEFAULT
POOLING AND SERVICING AGREEMENT AND SERVICING AGREEMENT. Events of
Default under the Pooling and Servicing Agreement or Servicing Agreement for
each Series of Certificates or Notes, respectively, generally include (i) any
failure by the Master Servicer to remit to the Trustee for distribution to the
Securityholders (or distribution to Holders of the Equity Certificates with
respect to a Series of Notes) 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 with respect to each Series of Certificates or by the Trustee or the
Issuer with respect to each Series of Notes, or to the Master Servicer, the
Depositor and the Trustee with respect to each Series of Certificates or to the
Master Servicer, the Issuer and the Trustee with respect to each Series of Notes
by the related Holders of Securities of such Series evidencing at least 25% of
Voting Rights of the Securities 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 related Pooling and Servicing Agreement or
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 with respect to each Series of Certificates or by the Trustee or the
Issuer with respect to each Series of Notes, or to the Master Servicer, the
Depositor and the Trustee with respect to each Series of Certificates or to the
Master Servicer, the Issuer and the Trustee with respect to each Series of Notes
by the Holders of Securities of such Series evidencing at least 25% of the
Voting Rights of the Securities 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.
Unless otherwise specified in the related Prospectus Supplement, so
long as an Event of Default remains unremedied under the Pooling and Servicing
Agreement or Servicing Agreement for a Series, the Trustee for such Series or
Holders of Securities of such Series evidencing at least 51% of the aggregate
outstanding principal amount of the Securities 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 or Servicing Agreement and in and to the Mortgage Loans (other than
its right as a Securityholder (or as Holder of the Equity Certificates with
respect to a Series of Notes) under the Pooling and Servicing Agreement or
Servicing Agreement, as applicable, 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 or 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 related Pooling and Servicing
Agreement or Servicing Agreement. Unless otherwise specified in the related
Prospectus Supplement, 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 or such other
amount as specified in the related Prospectus Supplement to act as a successor
to the Master Servicer under the related Pooling and Servicing Agreement or
Servicing Agreement (unless otherwise set forth in the related Pooling and
Servicing Agreement or Servicing Agreement). Pending such appointment, the
Trustee is obligated to act in such capacity.
No Securityholder of a Series, solely by virtue of such Holder's status
as a Securityholder, will have any right under the Pooling and Servicing
Agreement or Servicing Agreement for such Series to institute any proceeding
with respect to the related Pooling and Servicing Agreement or Servicing
Agreement, unless such Holder previously has given to the Trustee for such
Series written notice of default and unless the Holders of Securities evidencing
at least 25% of the aggregate outstanding principal amount of the Securities 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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INDENTURE. Unless otherwise provided in the related Prospectus
Supplement for a Series of Notes, an Event of Default under the Indenture
generally will include: (i) a default for five days or more (or other period of
time described in the related Prospectus Supplement) in the payment of any
principal of or interest on any Note or Equity Certificates of such Series; (ii)
failure to perform any other covenant of the Issuer in the Indenture which
continues for a period of 30 days after notice thereof is given in accordance
with the procedures described in the related Prospectus Supplement; (iii) any
representation or warranty made by the Issuer in the Indenture or in any
certificate or other writing delivered pursuant thereto or in connection
therewith with respect to or affecting such Series having been incorrect in a
material respect as of the time made, and such breach is not cured within 30
days after notice thereof is given in accordance with the procedures described
in the related Prospectus Supplement; (iv) certain events of bankruptcy,
insolvency, receivership or liquidation of the Issuer; or (v) any other Event of
Default provided with respect to Notes of that Series.
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, the Trustee or the holders of a
majority of the then aggregate outstanding amount of the Notes of such Series
may declare the principal amount (or, if the Notes of that Series are Compound
Interest Securities, such portion of the principal amount as may be specified in
the terms of that Series, as provided in the related Prospectus Supplement) of
all the Notes of such Series to be due and payable immediately. Such declaration
may, under certain circumstances, be rescinded and annulled by the holders of a
majority in aggregate outstanding amount of the related Notes.
If following an Event of Default with respect to any Series of Notes,
the Notes of such Series have been declared to be due and payable, the Trustee
may, in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply payments on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such Series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a Series following an Event of Default, unless (a) the holders of 100% of the
then aggregate outstanding amount of the Notes of such Series consent to such
sale, (b) the proceeds of such sale or liquidation are sufficient to pay in full
the principal of and accrued interest, due and unpaid, on the outstanding Notes
of such Series at the date of such sale or (c) the Trustee determines that such
collateral would not be sufficient on an ongoing basis to make all payments on
such Notes as such payments would have become due if such Notes had not been
declared due and payable, and the Trustee obtains the consent of the holders of
66 2/3% of the then aggregate outstanding amount of the Notes of such Series.
In the event that the Trustee liquidates the collateral in connection
with an Event of Default, the Indenture provides that the Trustee will have a
prior lien on the proceeds of any such liquidation for unpaid fees and expenses.
As a result, upon the occurrence of such an Event of Default, the amount
available for payments to the Noteholders would be less than would otherwise be
the case. However, the Trustee may not institute a proceeding for the
enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the Indenture for the benefit of the Noteholders
after the occurrence of such an Event of Default.
In the event the principal of the Notes of a Series is declared due and
payable, as described above, the holders of any such Notes issued at a discount
from par may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of such discount that is unamortized.
No Noteholder or Holder of an Equity Certificate of a Series, solely by
virtue of such Holder's status as a Noteholder or Holder of an Equity
Certificate, will have any right under an Owner Trust Agreement or Indenture for
such Series to institute any proceeding with respect to such Agreement unless
such holder previously has given to the Trustee for such Series written notice
of default and unless the Holders of Notes or Equity Certificates of any class
evidencing at least 25% of the aggregate Percentage Interests constituting such
class 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.
[Pursuant to the terms of the Indenture, if an Event of Default occurs
and is continuing, Senior Securityholders may be entitled to exercise certain
rights of the Holders of the Securities, without the consent of
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Subordinate Securityholders, and the Subordinate Securityholders may exercise
such rights only with the prior consent of the Senior Securityholders.]
THE OWNER TRUSTEE
The identity of the commercial bank, national banking association,
banking corporation, savings and loan association or trust company named as the
Owner Trustee for each Series of Notes will be set forth in the related
Prospectus Supplement. The entity serving as Owner Trustee may have normal
banking relationships with the Depositor or the Master Servicer.
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 Securities 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 Securities. In the event
of such appointment, all rights, powers, duties and obligations conferred or
imposed upon the Trustee by the Pooling and Servicing Agreement or Indenture
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 related Agreement.
DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency
of any related Agreement, the Securities or of any Mortgage Asset or related
documents. If no Event of Default (as defined in the related Pooling and
Servicing Agreement, Sale and Servicing Agreement or Indenture) has occurred,
the Trustee is required to perform only those duties specifically required of it
under the related 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 Agreement. However, the Trustee will not be responsible
for the accuracy or content of any such documents furnished by it or the
Securityholders to the Master Servicer under the related 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 Securityholders in an Event of Default. See "Event of Default and Rights
Upon Events 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 the related 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 Securityholders; 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 related Pooling and Servicing Agreement or
Indenture, (ii) if the Trustee
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becomes insolvent, (iii) if a tax is imposed or threatened with respect to the
Trust Fund by any state in which the Trustee or the Trust Fund held by the
Trustee pursuant to the related Agreement is located, or (iv) by the Holders of
Securities evidencing at least 51% of the aggregate outstanding principal amount
of the Securities 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 Securityholders, 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 Securityholders of the related Series, pursuant to the terms of
the related Pooling and Servicing Agreement or the related Servicing Agreement
and Indenture, 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 Securityholders, to clear and terminate the
Certificate Account and to make other withdrawals as required or permitted by
the related Agreements.
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 AGREEMENTS
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.
Unless otherwise specified in the related Prospectus Supplement, the
Pooling and Servicing Agreement for each Series of Certificates may also be
amended by the Trustee, the Master Servicer and the Depositor with respect to
such Series with the consent of the Holders possessing not less than 662/3% 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
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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.
Unless otherwise specified in the Prospectus Supplement, the Servicing
Agreement or Indenture for each Series of Notes may be amended by the parties
thereto without the consent of any of the Noteholders covered by such Agreement
(i) to cure any ambiguity, (ii) to correct, modify or supplement any provision
therein which may be defective or inconsistent with any other provision therein
or (iii) to make any other provisions with respect to matters or questions
arising under the Agreement which are not inconsistent with the provisions
thereof, provided that such action will not adversely affect in any material
respect the interests of any Noteholder covered by the Agreement.
Unless otherwise specified in the related Prospectus Supplement, the
Servicing Agreement or Indenture for each Series of Notes may also be amended by
the parties thereto with the consent of the Holders evidencing not less than
662/3% of the aggregate outstanding principal amount of the Notes 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 Agreement or
modifying in any manner the rights of Noteholders of such Series; provided,
however, that no such amendment may (i) reduce the amount of or delay the timing
of, payments received on any Note without the consent of the holder of such
Note, (ii) adversely affect in any material respect the interests of the holders
of any Class of Notes in a manner other than as described in (i), without the
consent of the holders of Notes of such Class evidencing not less than 662/3% of
the aggregate outstanding principal amount of the Notes of each Class of such
Series affected thereby or (iii) reduce the aforesaid percentage of aggregate
outstanding principal amount of Notes 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 Notes
affected thereby.
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. If specified in the related Prospectus Supplement, a
provider of credit enhancement may be entitled to certain Voting Rights of the
Securityholders.
REMIC ADMINISTRATOR
With respect to any Multiple Class Series of Certificates as to which a
REMIC election is made, 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 related Agreements for a Series will
terminate upon the distribution to Securityholders of all amounts distributable
to them pursuant to such Agreements 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 related Agreements and all property acquired in respect
of any Mortgage Loan. The exercise of such right will effect early retirement of
the Securities 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
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Cut-off Date Aggregate Principal Balance. In no event, however, will the trust
created by the related Agreements continue beyond the expiration of 21 years
from the death of the last survivor of certain persons identified therein. For
each Series, the Master Servicer or the Trustee, as applicable, will give
written notice of termination of the related Agreements to each Securityholder,
and the final distribution will be made only upon surrender and cancellation of
the Securities at an office or agency specified in the notice of termination.
See "Description of the Securities--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
Securities, the Mortgage Loans may also contain Cooperative Loans evidenced by
promissory notes secured by security interests in shares issued by private
corporations which are entitled to be treated as housing cooperatives under the
Code and in the related proprietary leases or occupancy agreements granting
exclusive rights to occupy specific dwelling units in the corporations'
buildings. The security agreement will create a lien upon, or grant a title
interest in, the cooperative shares and proprietary leases or occupancy
agreements, the priority of which will depend on the terms of the particular
security agreement as well as the order of recordation of the agreement or the
filing of the financing statements related thereto in the appropriate recording
office, or the taking of possession of the cooperative shares; depending on the
law of the state where the cooperative is located. Such a lien or security
interest is not, in general, prior to liens in favor of the cooperative
corporation for unpaid assessments or common charges. Such a lien or security
interest is not prior to the lien for real estate taxes and assessments and
other charges imposed under governmental police powers.
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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 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
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tax benefits accorded tenant-stockholders of a corporation that qualifies under
Section 216(b)(1) of the Code, the likelihood that such a failure would be
permitted to continue over a period of years appears remote.
FORECLOSURE ON MORTGAGES
Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust which authorizes the trustee to sell the property upon any default
by the borrower under the terms of the note or deed of trust. In some states,
the trustee must record a notice of default and send a copy to the
borrower-trustor and to any person who has recorded a request for a copy of a
notice of default and notice of sale. In addition, the trustee in some states
must provide notice to any other individual having an interest in the real
property, including any junior lienholders. The trustor, borrower, or any person
having a junior encumbrance on the real estate, may, during a reinstatement
period, cure the default by paying the entire amount in arrears plus the costs
and expenses incurred in enforcing the obligation. Generally, state law controls
the amount of foreclosure expenses and costs, including attorney's fees, which
may be recovered by a lender. If the deed of trust is not reinstated, a notice
of sale must be posted in a public place and, in most states, published for a
specific period of time in one or more newspapers. In addition, some state laws
require that a copy of the notice of sale be posted on the property, recorded
and sent to all parties having an interest in the real property.
An action to foreclose a mortgage is an action to recover the mortgage
debt by enforcing the mortgagee's rights under the mortgage. It is regulated by
statutes and rules and subject throughout to the court's equitable powers.
Generally, a mortgagor is bound by the terms of the mortgage note and the
mortgage as made and cannot be relieved from his default if the mortgagee has
exercised his rights in a commercially reasonable manner. However, since a
foreclosure action historically was equitable in nature, the court may exercise
equitable powers to relieve a mortgagor of a default and deny the mortgagee
foreclosure on proof that either the mortgagor's default was neither willful nor
in bad faith or the mortgagee's action established a waiver, fraud, bad faith,
or oppressive or unconscionable conduct such as to warrant a court of equity to
refuse affirmative relief to the mortgagee. Under certain circumstances a court
of equity may relieve the mortgagor from an entirely technical default where
such default was not willful.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes requiring
up to several years to complete. Similarly, a suit against the debtor on the
mortgage note may take several years and, generally, is a remedy alternative to
foreclosure, the mortgagee being precluded from pursuing both at the same time.
In case of foreclosure under either a mortgage, a deed of trust, or a
deed to secure debt, the sale by the referee or other designated officer or by
the trustee is a public sale. However, because of the difficulty potential third
party purchasers at the sale have in determining the exact status of title and
because the physical condition of the property may have deteriorated during the
foreclosure proceedings, it is uncommon for a third party to purchase the
property at a foreclosure sale. It is common for the lender to purchase the
property from the trustee or referee for an amount which may be equal to the
principal amount of the mortgage or deed of trust plus accrued and unpaid
interest and the expenses of foreclosure, in which event the mortgagor's debt
will be extinguished or the lender may purchase for a lesser amount in order to
preserve its right against a borrower to seek a deficiency judgment in states
where such a judgment is available. Thereafter, the lender will assume the
burdens of ownership, including obtaining casualty insurance, paying taxes and
making such repairs at its own expense as are necessary to render the property
suitable for sale. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale of
the property may not equal the lender's investment in the property. Any loss may
be reduced by the receipt of any mortgage guaranty insurance proceeds.
A junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages, in which case it
must either pay the entire amount due on the senior mortgages to the senior
mortgagees prior to or at the time of the foreclosure sale or undertake the
obligation to make payments on the senior mortgages in the event the mortgagor
is in default thereunder, in either event adding the amounts expended to the
balance due on the junior loan, and may be subrogated to the rights of the
senior mortgagees. In addition, in the event that the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause in a senior
mortgage, the
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junior mortgagee may be required to pay the full amount of the senior mortgages
to the senior mortgagees. Accordingly, with respect to those Mortgage Loans
which are junior mortgage loans, if the lender purchases the property, the
lender's title will be subject to all senior liens and claims and certain
governmental liens. The proceeds received by the referee or trustee from the
sale are applied first to the costs, fees and expenses of sale and then in
satisfaction of the indebtedness secured by the mortgage or deed of trust under
which the sale was conducted. Any remaining proceeds are generally payable to
the holders of junior mortgages or deeds of trust and other liens and claims in
order of their priority, whether or not the borrower is in default. Any
additional proceeds are generally payable to the mortgagor or trustor. The
payment of the proceeds to the holders of junior mortgages may occur in the
foreclosure action of the senior mortgagee or may require the institution of
separate legal proceeds.
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 Cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the Cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy agreement
which are owed to the Cooperative are made liens upon the shares to which the
proprietary lease or occupancy agreement relates. In addition, the proprietary
lease or occupancy agreement generally permits the Cooperative to terminate such
lease or agreement in the event the borrower defaults in the performance of
covenants thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from a sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement or which have become liens on the shares relating
to the proprietary lease or occupancy agreement. The total amount owed to the
Cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the value of the collateral below
the outstanding principal balance of the Cooperative Loan and accrued and unpaid
interest thereon.
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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.
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
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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
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.
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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 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 Securities. 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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JUNIOR MORTGAGES
Some of the Mortgage Loans may be secured by junior mortgages or deeds
of trust, which are junior to senior mortgages or deeds of trust which are not
part of the Trust Fund. The rights of the Securityholders as the holders of a
junior deed of trust or a junior mortgage are subordinate in lien priority and
in payment priority to those of the holder of the senior mortgage or deed of
trust, including the prior rights of the senior mortgagee or beneficiary to
receive and apply hazard insurance and condemnation proceeds and, upon default
of the mortgagor, to cause a foreclosure on the property. Upon completion of the
foreclosure proceedings by the holder of the senior mortgage or the sale
pursuant to the deed of trust, the junior mortgagee's or junior beneficiary's
lien will be extinguished unless the junior lienholder satisfies the defaulted
senior loan or asserts its subordinate interest in a property in foreclosure
proceedings. See "--Foreclosure on Mortgages" herein.
Furthermore, the terms of the junior mortgage or deed of trust are
subordinate to the terms of the senior mortgage or deed of trust. In the event
of a conflict between the terms of the senior mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the senior mortgage or deed of
trust will govern generally. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage or deed of trust, may have the right to perform
the obligation itself. Generally, all sums so expended by the mortgagee or
beneficiary become part of the indebtedness secured by the mortgage or deed of
trust. To the extent a senior mortgagee expends such sums, such sums will
generally have priority over all sums due under the junior mortgage.
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
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upheld the notice provisions as being reasonable or have found that the sale by
a trustee under a deed of trust, or under a mortgage having a power of sale,
does not involve sufficient state action to afford constitutional protections to
the borrower.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may
contain provisions obligating the borrower to pay a late charge if payments are
not timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon the late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if the
loan is prepaid. Late charges and prepayment fees are typically retained by
servicers as additional servicing compensation.
EQUITABLE LIMITATIONS ON REMEDIES
In connection with lenders' attempts to realize upon their security,
courts have invoked general equitable principles. The equitable principles are
generally designed to relieve the borrower from the legal effect of his defaults
under the loan documents. Examples of judicial remedies that have been fashioned
include judicial requirements that the lender undertake affirmative and
expensive actions to determine the causes for the borrower's default and the
likelihood that the borrower will be able to reinstate the loan. In some cases,
courts have substituted their judgment for the lender's judgment and have
required that lenders reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial disability. In
other cases, courts have limited the right of a lender to realize upon his
security if the default under the security agreement is not monetary, such as
the borrower's failure to adequately maintain the property or the borrower's
execution of secondary financing affecting the property. Finally, some courts
have been faced with the issue of whether or not federal or state constitutional
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.
SUBORDINATE FINANCING
When the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent an
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existing junior lender is harmed or the mortgagor is additionally burdened.
Third, if the mortgagor defaults on the senior loan and/or any junior loan or
loans, the existence of junior loans and actions taken by junior lenders can
impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceeds by the senior
lender.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. Similar federal
statutes were in effect with respect to mortgage loans made during the first
three months of 1980. The OTS, as successor to the Federal Home Loan Bank Board,
is authorized to issue rules and regulations and to publish interpretations
governing implementation of Title V. Title V authorizes any state to reimpose
interest rate limits by adopting, before April 1, 1983, a state law, or by
certifying that the voters of such state have voted in favor of any provision,
constitutional or otherwise, which expressly rejects an application of the
federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V.
In any state in which application of Title V has been expressly
rejected or a provision limiting discount points or other charges is adopted, no
Mortgage Loans originated after the date of such state action will be eligible
as Mortgage Assets if such Mortgage Loans bear interest or provide for discount
points or charges in excess of permitted levels. No Mortgage Loan originated
prior to January 1, 1980 will bear interest or provide for discount points or
charges in excess of permitted levels.
ADJUSTABLE INTEREST RATE LOANS
ARMs originated by non-federally chartered lenders have historically
been subject to a variety of restrictions. Such restrictions differed from state
to state, resulting in difficulties in determining whether a particular
alternative mortgage instrument originated by a state-chartered lender complied
with applicable law. These difficulties were alleviated substantially as a
result of the enactment of Title VIII of the Garn-St Germain Act ("Title VIII").
Title VIII provides that, notwithstanding any state law to the contrary,
state-chartered banks may originate "alternative mortgage instruments"
(including ARMs) in accordance with regulations promulgated by the Comptroller
of the Currency with respect to origination of alternative mortgage instruments
by national banks; state chartered credit unions may originate alternative
mortgage instruments in accordance with regulations promulgated by the National
Credit Union Administration with respect to origination of alternative mortgage
instruments by federal credit unions and all other non-federally chartered
housing creditors, including state-chartered savings and loan associations; and
state-chartered savings banks and mortgage banking companies may originate
alternative mortgage instruments in accordance with the regulations promulgated
by the Federal Home Loan Bank Board, as succeeded by the 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.
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MANUFACTURED HOME LOANS
SECURITY INTERESTS IN THE MANUFACTURED HOMES. Law governing perfection
of a security interest in a Manufactured Home varies from state to state.
Security interests in Manufactured Homes may be perfected either by notation of
the secured party's lien on the certificate of title or by delivery of the
required documents and payment of a fee to the state motor vehicle authority,
depending on state law. In some nontitle states, perfection pursuant to the
provisions of the UCC is required. The lender or a servicer may effect such
notation or delivery of the required documents and fees, and obtain possession
of the certificate of title, as appropriate under the laws of the state in which
any manufactured home securing a Manufactured Home Loan is registered. In the
event such notation or delivery is not effected or the security interest is not
filed in accordance with the applicable law (for example, is filed under a motor
vehicle title statute rather than under the UCC, in a few states), a first
priority security interest in the Manufactured Home securing a Manufactured Home
Loan may not be obtained.
As Manufactured Homes have become larger and often have been attached
to their sites without any apparent intention to move them, courts in many
states have held that Manufactured Homes, under certain circumstances, may
become subject to real estate title and recording laws. As a result, a security
interest in a Manufactured Home could be rendered subordinate to the interests
of other parties claiming an interest in the Manufactured Home under applicable
state real estate law. In order to perfect a security interest in a Manufactured
Home under real estate laws, the holder of the security interest must file
either a "fixture filing" under the provisions or the UCC or a real estate
mortgage under the real estate laws of the state where the home is located.
These filings must be made in the real estate records office of the county where
the home is located. Manufactured Home Loans typically contain provisions
prohibiting the borrower from permanently attaching the Manufactured Home to its
site. So long as the borrower does not violate this agreement, a security
interest in the Manufactured Home will be governed by the certificate of title
laws or the UCC, and the notation of the security interest on the certificate of
title or the filing of a UCC financing statement will be effective to maintain
the priority of the security interest in the Manufactured Home. If, however, a
Manufactured Home is permanently attached to its site, other parties could
obtain an interest in the manufactured home which is prior to the security
interest originally retained by the lender or its assignee.
With respect to a Series of Securities 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 Securityholders 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
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interest in the Manufactured Home in the state of relocation. In states which do
not require a certificate of title for registration of a Manufactured Home,
reregistration could defeat perfection. In the ordinary course of servicing the
Manufactured Home Loans, the Master Servicer will be required to take steps to
effect reperfection upon receipt of notice of reregistration or information from
the borrower as to relocation. Similarly, when a borrower under a Manufactured
Home Loan sells the related Manufactured Home, the Trustee must surrender
possession of the certificate of title or the Trustee will receive notice as a
result of its lien noted thereon and accordingly will be an opportunity to
require satisfaction of the related Manufactured Home Loan before release of the
lien. Under the related Pooling and Servicing Agreement or 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 Securityholders 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 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
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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,
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
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due under the Loan. In the event an obligor is successful in asserting such a
claim, the related Securityholders 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 Securityholders 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 Securities. 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 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 and Notes offered hereunder where Thacher Proffitt & Wood or
Stroock & Stroock & Lavan LLP is identified in the applicable Prospectus
Supplement as counsel to the Depositor (hereinafter "Counsel to the Depositor").
This discussion is directed solely to Securityholders that hold the Securities
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 and preparers of tax
returns (including those filed by any REMIC or other issuer) should be aware
that under applicable Treasury regulations a provider of advice on specific
issues of law is not considered an income tax return preparer unless the advice
(i) is given with respect to events that have occurred at the time the advice is
rendered and is not given with respect to the consequences of contemplated
actions and (ii) is directly relevant to the determination of an entry on a tax
return. Accordingly, taxpayers should
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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 Securities. See "State and Other Tax Consequences." Securityholders 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.
The following discussion addresses securities of two general types: (i)
certificates (the "REMIC Certificates") representing interests in a Trust Fund,
or a portion thereof, that the Trustee will elect to have treated as a real
estate mortgage investment conduit ("REMIC") under Sections 860A through 860G
(the "REMIC Provisions") of the Code and (ii) notes (the "Notes") representing
indebtedness of the Issuer for federal income tax purposes. The Prospectus
Supplement for each Series of Securities will indicate which of the foregoing
treatments will apply to such Series and, if a REMIC election (or elections)
will be made with respect to a Series of Certificates, will identify all
"regular interests" and "residual interests" in the REMIC.
REMICS
As to each Series of Certificates, unless otherwise disclosed in the
related Prospectus Supplement, the Trustee will covenant to elect to have
treated the Trust Fund, or a portion thereof, as one or more REMICs. 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.
CLASSIFICATION OF REMICS
Upon the issuance of each Series of REMIC Certificates, Counsel to the
Depositor will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the related Pooling and Servicing Agreement,
the related Trust Fund (or each applicable portion thereof) will qualify as a
REMIC and the REMIC Certificates offered with respect thereto will be considered
to evidence ownership of "regular interests" ("REMIC Regular Certificates") or
"residual interests" ("REMIC Residual Certificates") in that REMIC within the
meaning of the REMIC Provisions.
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 and 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 provide relief in the event of an
inadvertent termination of REMIC status, no regulations have been issued
implementing this provision. 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.
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CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES
In general, the REMIC Certificates will be "real estate assets" within
the meaning of Section 856(c)(4)(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)(4)(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 (including temporary investments of such proceeds) 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)(4)(A) of the Code.
TIERED REMIC STRUCTURES
For certain Series of REMIC Certificates, two or more separate
elections may be made to treat designated portions of the related Trust Fund as
REMICs ("Tiered REMICs") for federal income tax purposes. Upon the issuance of
any such Series of REMIC Certificates, Counsel to the Depositor will deliver its
opinion generally to the effect that, assuming compliance with all provisions of
the related Pooling and Servicing Agreement, the Tiered REMICs will each qualify
as a REMIC and the REMIC Certificates issued by the Tiered REMICs will be
considered to evidence ownership of REMIC regular interests or REMIC residual
interests in the related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will
be "real estate assets" within the meaning of Section 856(c)(4)(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.
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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 "constant yield" method described below, in advance of the
receipt of the cash attributable to such income. In addition, Section 1272(a)(6)
of the Code provides special rules applicable to REMIC Regular Certificates and
certain other debt instruments issued with original issue discount. Regulations
have not been issued under that section.
The Code requires that a reasonable 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 of REMIC Regular Certificates will be consistent with this standard and
will be disclosed in the related Prospectus Supplement. However, neither the
Depositor, any Master Servicer nor the Trustee will make any representation that
the Loans will in fact prepay at a rate conforming to the Prepayment Assumption
or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate
will be the excess of its stated redemption price at maturity 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" is interest that is unconditionally
payable at least annually (during the entire term of the instrument) at a single
fixed rate, at a "qualified floating rate," an "objective 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" 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 IRS.
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.
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Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Certificate will be considered to be
DE MINIMIS if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined, as to each payment included in the stated
redemption price of such REMIC Regular Certificate, by multiplying (i) the
number of complete years (rounding down for partial years) from the issue date
until such payment is expected to be made (presumably taking into account the
Prepayment Assumption) by (ii) a fraction, the numerator of which is the amount
of payment, and the denominator of which is the stated redemption price at
maturity of such REMIC Regular Certificate. Under the OID Regulations, original
issue discount of only a DE MINIMIS amount (other than DE MINIMIS original issue
discount attributable to a so-called "teaser" interest rate or an initial
interest holiday) will be included in income as each payment of stated principal
is made, based on the product of the total amount of such DE MINIMIS original
issue discount and a fraction, the numerator of which is the amount of such
principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue DE MINIMIS original issue
discount into income currently based on a constant yield method. See "Taxation
of Owners of REMIC Regular Certificates--Market Discount" for a description of
such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess
of a DE MINIMIS amount, the holder of such Certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for each
day during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period," that is, unless otherwise stated in the
related Prospectus Supplement, each period that ends on a date that corresponds
to a Distribution Date and begins on the first day following the immediately
preceding accrual period (or in the case of the first such period, begins on the
Closing Date), a calculation will be made of the portion of the original issue
discount that accrued during such accrual period. The portion of original issue
discount that accrues in any accrual period will equal the excess, if any, of
(i) the sum of (A) the present value, as of the end of the accrual period, of
all of the distributions remaining to be made on the REMIC Regular Certificate,
if any, in future periods and (B) the distributions made on such REMIC Regular
Certificate during the accrual period of amounts included in the stated
redemption price, over (ii) the adjusted issue price of such REMIC Regular
Certificate at the beginning of the accrual period. The present value of the
remaining distributions referred to in the preceding sentence will be calculated
(i) assuming that distributions on the REMIC Regular Certificate will be
received in future periods based on the Loans being prepaid at a rate equal to
the Prepayment Assumption, and in the case of Mortgage Assets other than Loans,
that distributions will be made with respect to each Mortgage Asset in
accordance with the participation agreement or other organizational document
under which such Mortgage Asset was issued, and (ii) using a discount rate equal
to the original yield to maturity of the Certificate. For these purposes, the
original yield to maturity of the Certificate will be calculated based on its
issue price and assuming that distributions on the Certificate will be made in
all accrual periods based on the Loans being prepaid at a rate equal to the
Prepayment Assumption, and in the case of Mortgage Assets other than Loans, that
distributions will be made with respect to each Mortgage Asset in accordance
with the participation agreement or other organizational document under which
such Mortgage Asset was issued. The adjusted issue price of a REMIC Regular
Certificate at the beginning of any accrual period will equal the issue price of
such Certificate, increased by the aggregate amount of original issue discount
that accrued with respect to such Certificate in prior accrual periods, and
reduced by the amount of any distributions made on such REMIC Regular
Certificate in prior accrual periods of amounts included in the stated
redemption price. The original issue discount accruing during any accrual
period, computed as described above, will be allocated ratably to each day
during the accrual period to determine the daily portion of original issue
discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases
such Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of the REMIC Regular
Certificate's "adjusted issue price," in proportion to the ratio such excess
bears to the aggregate original issue discount remaining to be accrued on such
REMIC Regular Certificate. The adjusted issue price of a REMIC Regular
Certificate
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on any given day equals (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 plus (ii) the daily portions of
original issue discount for all days during such accrual period prior to such
day minus (iii) any principal payments made during such accrual period prior to
such day with respect to such certificate.
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. 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 may not be revoked without the consent
of the IRS.
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 may result in discount
being included in income at a slower rate than discount would be required to be
included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department certain
rules described in the Committee Report should apply. The Committee Report
indicates that in each accrual period market discount on REMIC Regular
Certificates accrues, 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.
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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 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. By
analogy to recently finalized bond premium regulations, any allocable premium in
excess of the interest income may be deductible to the extent of prior accruals
of interest. The OID Regulations also permit Certificateholders to elect to
include all interest, discount and premium in income based on a constant yield
method, further treating such 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 presumably will require
use of a prepayment assumption in accruing market discount with respect to REMIC
Regular Certificates without regard to whether such Certificates have original
issue discount) will also apply in amortizing bond premium under Section 171 of
the Code.
REALIZED LOSSES
Under Section 166 of the Code, both corporate holders of the REMIC
Regular Certificates and noncorporate holders of the REMIC Regular Certificates
that acquire such Certificates in connection with a trade or business should be
allowed to deduct, as ordinary losses, any losses sustained during a taxable
year in which their Certificates become wholly or partially worthless as the
result of one or more realized losses on the Loans. However, it appears that a
noncorporate holder that does not acquire a REMIC Regular Certificate in
connection with a trade or business will not be entitled to deduct a loss under
Section 166 of the Code until such holder's Certificate becomes wholly worthless
(i.e., until its outstanding principal balance has been reduced to zero) and
that the loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, 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.
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TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
GENERAL
Although a REMIC is a separate entity for federal income tax purposes,
a REMIC generally is not subject to entity-level taxation, except with regard to
prohibited transactions and certain other transactions. See "--Prohibited
Transactions and Other Possible REMIC Taxes" below. Rather, the taxable income
or net loss of a REMIC is generally taken into account by the Holder of the
REMIC Residual Certificates. Accordingly, the REMIC Residual Certificates will
be subject to tax rules that differ significantly from those that would apply if
the REMIC Residual Certificates were treated for federal income tax purposes as
direct ownership interests in the Loans or as debt instruments issued by the
REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income of or
allowed as a loss to any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash distributions by the REMIC. Ordinary
income derived from REMIC Residual Certificates will be "portfolio income" for
purposes of the taxation of taxpayers subject to limitations under Section 469
of the Code on the deductibility of "passive activity 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 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. Such disparity between income and distributions may not be offset by
corresponding losses or
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reductions of income attributable to the REMIC Residual Certificateholder until
subsequent tax years and, then, may not be completely offset due to changes in
the Code, tax rates or character of the income or loss.
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 amortization of any premium on issuance) on the REMIC Regular
Certificates (and any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby), amortization of any premium on the
Loans, bad debt losses with respect to the Loans and, except as described below,
servicing, administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). The issue price of any REMIC Certificates
offered hereby will be determined in the manner described above under
"--Taxation of Owners of REMIC Regular Certificates--Original Issue Discount."
The issue price of a REMIC Certificate received in exchange for an interest in
the Loans or other property will equal the fair market value of such interests
in the Loans or other property. Accordingly, if one or more classes of REMIC
Certificates are retained initially rather than sold, the Trustee may be
required to estimate the fair market value of such interests in order to
determine the basis of the REMIC in the Loans and other property held by the
REMIC.
Subject to possible application of the DE MINIMIS rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Loans that it holds will be equivalent to the method for
accruing original issue discount income for holders of REMIC Regular
Certificates (that is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include such market discount in income currently as it accrues, on
a 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
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analogous to the method of accruing original issue discount described above
under "--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount."
As a general rule, the taxable income of a REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions and Other Possible REMIC
Taxes" below. Further, the limitation on miscellaneous itemized deductions
imposed on individuals by Section 67 of the Code (which allows such deductions
only to the extent they exceed in the aggregate two percent of the taxpayer's
adjusted gross income) will not be applied at the REMIC level so that the REMIC
will be allowed deductions for servicing, administrative and other non-interest
expenses in determining its taxable income. All such expenses will be allocated
as a separate item to the holders of REMIC Certificates, subject to the
limitation of Section 67 of the Code. See "--Possible Pass-Through of
Miscellaneous Itemized Deductions." If the deductions allowed to the REMIC
exceed its gross income for a calendar quarter, such excess will be the net loss
for the REMIC for that calendar quarter.
BASIS RULES, NET LOSSES AND DISTRIBUTIONS
The adjusted basis of a REMIC Residual Certificate will be equal to the
amount paid for such Certificate, increased by amounts included in the income of
the REMIC Residual Certificateholder and decreased (but not below zero) by
distributions made, and by net losses allocated, to such REMIC Residual
Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account
any net loss for any calendar quarter to the extent such net loss exceeds such
REMIC Residual Certificateholder's adjusted basis in its REMIC Residual
Certificate as of the close of such calendar quarter (determined without regard
to such net loss). Any loss that is not currently deductible by reason of this
limitation may be carried forward indefinitely to future calendar quarters and,
subject to the same limitation, may be used only to offset income from the REMIC
Residual Certificate. The ability of REMIC Residual Certificateholders to deduct
net losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in such Certificate. To the extent a distribution on a REMIC
Residual Certificate exceeds such adjusted basis, it will be treated as gain
from the sale of such Certificate. Holders of certain REMIC Residual
Certificates may be entitled to distributions early in the term of the related
REMIC under circumstances in which their bases in such REMIC Residual
Certificates will not be sufficiently large that such distributions will be
treated as nontaxable returns of capital. Their bases 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 bases 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 bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) 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."
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EXCESS INCLUSIONS
Any "excess inclusions" with respect to a REMIC Residual Certificate
will be subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the
daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
each day during such quarter that such REMIC Residual Certificate was held by
the REMIC Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Certificate at the beginning of the calendar quarter and 120% of
the "long-term Federal rate" in effect on the Closing Date. For this purpose,
the adjusted issue price of a REMIC Residual Certificate as of the beginning of
any calendar quarter will be equal to the issue price of the REMIC Residual
Certificate, increased by the sum of the daily accruals for all prior quarters
and decreased (but not below zero) by any distributions made with respect to
such REMIC Residual Certificate before the beginning of such quarter. The issue
price of a REMIC Residual Certificate is the initial offering price to the
public (excluding bond houses and brokers) at which a substantial amount of the
REMIC Residual Certificates were sold. The "long-term Federal rate" is an
average of current yields on Treasury securities with a remaining term of
greater than nine years, computed and published monthly by the IRS.
For REMIC Residual Certificateholders, an excess inclusion (i) will not
be permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable 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.
Recently enacted provisions governing the relationship between excess
inclusions and the alternative minimum tax provide that (i) the alternative
minimum taxable income of the taxpayer is based on the taxpayer's regular
taxable income computed without regard to the rule that taxable income cannot be
less than the amount of excess inclusions, (ii) the alternative minimum taxable
of a taxpayer for a taxable year cannot be less than the amount of excess
inclusions for that year, and (iii) the amount of any alternative minimum tax
net operating loss is computed without regard to any excess inclusions.
Under Treasury regulations yet to be issued, 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. A similar rule will apply with respect
to regulated investment companies, common trust funds and certain cooperatives.
NONECONOMIC REMIC RESIDUAL CERTIFICATES
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates 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
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inclusions, and (2) the transferor reasonably expects that for each anticipated
excess inclusion 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.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "--Foreign Investors In REMIC Certificates--REMIC
Residual Certificates" below for additional restrictions applicable to transfers
of certain REMIC Residual Certificates to foreign persons.
MARK-TO-MARKET RULES
On December 24, 1996, the IRS released final 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, 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.
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. For taxable years
beginning after December 31, 1997, in the case of a partnership that has 100 or
more partners and elects to be treated as an "electing large partnership," 70
percent of such partnership's miscellaneous itemized deductions will be
disallowed, although the remaining deductions will generally be allowed at the
partnership level and will not be subject to the 2 percent floor that would
otherwise be applicable to individual partners. 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
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year. The amount of additional taxable income reportable by holders of such
Certificates that are subject to the limitations of either Section 67 or Section
68 of the Code may be substantial. Furthermore, in determining the alternative
minimum taxable income of such a holder of a REMIC Certificate that is an
individual, estate or trust, or a "pass-through entity" beneficially owned by
one or more individuals, estates or trusts, no deduction will be allowed for
such holder's allocable portion of servicing fees and other 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 five 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.
Gain from the sale of a REMIC Regular Certificate that might otherwise
be capital gain will be treated as ordinary income to the extent such gain does
not exceed the excess, if any, of (i) the amount that would have been includible
in the seller's income with respect to such REMIC Regular Certificate assuming
that income had accrued thereon at a rate equal to 110% of the "applicable
Federal rate" (generally a rate based on an average of current yields on
Treasury securities having a maturity comparable to that of the Certificate
based on the application of the Prepayment Assumption to such Certificate, which
rate is computed and published monthly by the IRS), determined as of the date of
purchase of such Certificate, over (ii) the amount of ordinary income actually
includible in the seller's income prior to such sale. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
such Certificate at a market discount will be taxable as ordinary income in an
amount not exceeding the portion of such discount that accrued during the period
such REMIC Certificate was held by such holder, reduced by any market discount
included in income under the rules described above under "--Taxation of Owners
of REMIC Regular Certificates--Market Discount and--Premium."
REMIC Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from
the sale of a REMIC Certificate by a bank or thrift institution to which such
section applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for the taxable year, for
purposes of the
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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 stated in the related Prospectus Supplement, and to
the extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related Master Servicer or Trustee, in either case out of its own funds,
provided that the Master Servicer or the Trustee, as the case may be, has
sufficient assets to do so, and provided further that such tax arises out of a
breach of the Master Servicer's or the Trustee's obligations, as the case may
be, under the related Pooling and Servicing Agreement and in respect of
compliance with applicable laws and regulations. Any such tax not borne by the
Master Servicer or the Trustee will be charged against the related Trust Fund,
resulting in a reduction in amounts payable to holders of the related REMIC
Certificates.
TAX AND RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES TO
CERTAIN ORGANIZATIONS.
If a REMIC Residual Certificate is transferred to a "disqualified
organization" (as defined below), a tax would be imposed in an amount
(determined under the REMIC Regulations) equal to the product of (i) the present
value (discounted using the "applicable Federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the REMIC Residual Certificate, which rate is computed
and published monthly by the IRS) of the total anticipated excess inclusions
with respect to such REMIC Residual Certificate for periods after the transfer
and (ii) the highest marginal federal income tax rate applicable to
corporations. The anticipated excess inclusions must be determined as of the
date that the REMIC Residual Certificate is transferred and must be based on
events that have occurred up to the time of such transfer, the Prepayment
Assumption and any required or permitted clean up calls or required qualified
liquidation provided for in the REMIC's
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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 taxable years beginning after December 31,
1997, notwithstanding the preceding two sentences, in the case of a REMIC
Residual Certificate held by an "electing large partnership," all interests in
such partnership shall be treated as held by disqualified organizations (without
regard to whether the record holders of the partnership furnish statements
described in the preceding sentence) and the amount that would be subject to tax
under the second preceding sentence is excluded from the gross income of the
partnership (in lieu of a deduction in the amount of such tax generally allowed
to pass-through entities).
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(not including instrumentalities described in Section 168(h)(2)(D) of the Code
or the Federal Home Loan Mortgage Corporation), (ii) any organization (other
than a cooperative described in Section 521 of the Code) that is exempt from
federal income tax, unless it is subject to the tax imposed by Section 511 of
the Code or (iii) any organization described in Section 1381(a)(2)(C) of the
Code. For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity.
TERMINATION AND LIQUIDATION
A REMIC will terminate immediately after the Distribution Date
following receipt by the REMIC of the final payment in respect of the Loans or
upon a sale of the REMIC's assets following the adoption by the REMIC of a plan
of complete liquidation. The last distribution on a REMIC Regular Certificate
will be treated as a payment in retirement of a debt instrument. In the case of
a REMIC Residual Certificate, if the last distribution on such REMIC Residual
Certificate is less than the REMIC Residual Certificateholder's adjusted basis
in such Certificate, such REMIC Residual Certificateholder should (but may not)
be treated as realizing a loss equal to the amount of such difference, and such
loss may be treated as a capital loss. If the REMIC adopts a plan of complete
liquidation, within the meaning of Section 860F(a)(4)(A)(i) of the Code, which
may be accomplished by designating in the REMIC's final tax return a date on
which such adoption is deemed to occur, and sells all of its assets (other than
cash) within a 90-day period beginning on such date, the REMIC will not be
subjected to any "prohibited transactions taxes" solely on account of such
qualified liquidation, provided that the REMIC credits or distributes in
liquidation all of the sale proceeds plus its cash (other than the amounts
retained to meet claims) to holders of Regular and Residual Certificates within
the 90-day period.
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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.
The Trustee, as the tax matters person or as agent for the tax matters
person, subject to certain notice requirements and various restrictions and
limitations, generally will 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 the tax matters person
or as agent for the 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. Any
person that holds a REMIC Residual Certificate as a nominee for another person
may be required to furnish to the related REMIC, in a manner to be provided in
Treasury regulations, with the name and address of such person and other
information.
Reporting of interest income, including any original issue discount,
with respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. These information reports
generally are required to be sent to certain trusts and individual holders of
REMIC Regular Interests and the IRS; holders of REMIC Regular Certificates that
are corporations, trusts described in Sections 664(c) and 4947(a)(1) of the
Code, 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 among other things, 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 REMIC may 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. Treasury regulations (the "Final Withholding Regulations"), which
are generally effective with respect to payments made after December 31, 1998,
consolidate and modify the current certification requirements and means by which
a holder may claim exemption from United States federal income tax withholding
and provide certain presumptions regarding the status of holders when payments
to the holders cannot
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be reliably associated with appropriate documentation provided to the payor. All
holders should consult their tax advisors regarding the application of the Final
Withholding Regulations. 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). The Final Withholding Regulations
consolidate and modify the current certification requirements and means by which
a non-United States person may claim exemption from United States federal income
tax withholding. All holders that are non-United States persons should consult
their tax advisors regarding the application of the Final Withholding
Regulations, which are generally effective with respect to payments made after
December 31, 1998. For these purposes, "United States person" means a citizen or
resident of the United States, a corporation or partnership created or organized
in, or under the laws of, the United States or any political subdivision thereof
(except, in the case of a partnership, to the extent provided in regulations),
an estate whose income is subject to United States federal income tax regardless
of its source, or a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust. To the extent prescribed in regulations by the Secretary
of the Treasury, which regulations have not yet been issued, a trust which was
in existence on August 20, 1996 (other than a trust treated as owned by the
grantor under subpart E of part I of subchapter J of chapter 1 of the Code), and
which was treated as a United States person on August 19, 1996, may elect to
continue to be treated as a United States person notwithstanding the previous
sentence. It is possible that the IRS may assert that the foregoing tax
exemption should not apply with respect to a REMIC Regular Certificate held by a
REMIC Residual Certificateholder that owns directly or indirectly a 10% or
greater interest in the related REMIC Residual Certificates. If the holder does
not qualify for exemption, distributions of interest, including distributions in
respect of accrued original issue discount, to such holder may be subject to a
tax rate of 30%, subject to reduction under any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United
States shareholder of a controlled foreign corporation from taxation on such
United States shareholder's allocable portion of the interest income received by
such controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be
included in the estate of a non-resident alien individual and would not be
subject to United States estate taxes. However, Certificateholders who are
non-resident alien individuals should consult their tax advisors concerning this
question. Unless otherwise stated in the related Prospectus Supplement,
transfers of REMIC Residual Certificates to investors that are not United States
persons will be prohibited under the related Pooling and Servicing Agreement.
NOTES
On or prior to the date of the related Prospectus Supplement with
respect to the proposed issuance of each Series of Notes, Counsel to the
Depositor will deliver its opinion to the effect that, assuming compliance with
all provisions of the Indenture, Owner Trust Agreement and certain related
documents and upon issuance of the Notes, for federal income tax purposes (i)
the Notes will be treated as indebtedness and (ii) the Issuer, as created
pursuant to the terms and conditions of the Owner Trust Agreement, will not be
characterized as an association (or publicly traded partnership) taxable as a
corporation or as a taxable mortgage pool.
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STATUS AS REAL PROPERTY LOANS
Notes held by a domestic building and loan association will NOT
constitute "loans . . . secured by an interest in real property" within the
meaning of Code section 7701(a)(19)(C)(v); and (ii) Notes held by a real estate
investment trust will NOT constitute "real estate assets" within the meaning of
Code section 856(c)(4)(A) and interest on Notes will NOT be considered "interest
on obligations secured by mortgages on real property" within the meaning of Code
section 856(c)(3)(B).
TAXATION OF NOTEHOLDERS
Notes generally will be subject to the same rules of taxation as REMIC
Regular Certificates issued by a REMIC, as described above, except that (i)
income reportable on the Notes is not required to be reported under the accrual
method unless the holder otherwise uses the accrual method and (ii) the special
rule treating a portion of the gain on sale or exchange of a REMIC Regular
Certificate as ordinary income is inapplicable to the Notes. See "--REMICs
- --Taxation of Owners of REMIC Regular Certificates" and "-- Sales of REMIC
Certificates."
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 Securities 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
Securities offered hereunder.
ERISA CONSIDERATIONS
ERISA imposes certain fiduciary and prohibited transaction restrictions
on employee pension and welfare benefit plans subject to ERISA ("ERISA Plans").
Section 4975 of the Code imposes similar prohibited transaction restrictions on
tax-qualified retirement plans described in Section 401(a) of the Code
("Qualified Retirement Plans") and on Individual Retirement Accounts ("IRAs")
described in Section 408 of the Code (collectively, "Tax-Favored Plans";
Tax-Favored Plans and ERISA Plans, collectively, "Plans").
Certain employee benefit plans, such as governmental plans (as defined
in Section 3(32) of ERISA), and, if no election has been made under Section
410(d) of the Code, church plans (as defined in Section 3(33) of ERISA), are not
subject to the ERISA requirements discussed herein. Accordingly, assets of such
plans may be invested in Securities 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. Certain transactions involving a Trust Fund
might be deemed to constitute prohibited transactions under ERISA and the Code
with respect to a Plan that purchases the Securities, if the underlying
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Mortgage Assets and other assets included in the Trust Fund are deemed to be
assets of the Plan. The U.S. Department of Labor (the "DOL") has promulgated
regulations at 29 C.F.R. ss.2510.3-101 (the "Plan Asset Regulations") defining
the term "Plan Assets" for purposes of applying the general fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and the Code. Under the Plan Asset Regulations, generally, when a Plan
acquires an "equity interest" in another entity (such as the Trust Fund), the
underlying assets of that entity may be considered to be Plan Assets unless
certain exceptions apply. In addition to those exceptions not applicable here, a
Plan's Assets will not include an undivided interest in each asset of an entity
in which such Plan makes an equity investment if Benefit Plan Investors (I.E.,
Plans and certain employee benefit plans not subject to ERISA) do not own 25% or
more in value of any class of equity securities issued by the entity. In
addition, the Plan Asset Regulations provide that the term "equity interest"
means any interest in an entity other than an instrument which is treated as
indebtedness under applicable local law and which has no "substantial equity
features." Under the Plan Asset Regulations, Plan Assets will be deemed to
include an interest in the instrument evidencing the equity interest of a Plan
(such as a Certificate or a Note with "substantial equity features"), and,
because of the factual nature of certain of the rules set forth in the Plan
Asset Regulations, Plan Assets may be deemed to include an interest in the
underlying assets of the entity in which a Plan acquires an interest (such as
the Trust Fund). Without regard to whether the Notes are characterized as equity
interests, the purchase, sale and holding of Notes by or on behalf of a Plan
could be considered to give rise to a prohibited transaction if the Issuer, the
applicable Trustee or any of their respective affiliates is or becomes a Party
in Interest with respect to such Plan. Neither Plans nor persons investing Plan
Assets should acquire or hold Securities in reliance upon the availability of
any exception under the Plan Asset Regulations.
Any person who has discretionary authority or control respecting the
management or disposition of Plan Assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Mortgage Assets and other assets included in a Trust Fund
constitute Plan Assets, then any party exercising management or discretionary
control regarding those assets, such as the Master Servicer, any Servicer, any
sub-servicer, the Trustee, the obligor under any credit enhancement mechanism,
or certain affiliates thereof may be deemed to be a Plan "fiduciary" and thus
subject to the fiduciary responsibility provisions and prohibited transaction
provisions of ERISA and the Code with respect to the investing Plan. In
addition, if the Mortgage Assets and other assets included in a Trust Fund
constitute Plan Assets, the purchase of Certificates by a Plan, as well as the
operation of the Trust Fund, may constitute or involve a prohibited transaction
under ERISA or the Code.
The Plan Asset Regulations provide that where a Plan acquires a
"guaranteed governmental mortgage pool certificate", the Plan's assets include
such certificate but do not solely by reason of the Plan's holdings of such
certificate include any of the mortgages underlying such certificate. The Plan
Asset Regulations include in the definition of a "guaranteed governmental
mortgage pool certificate" FHLMC Certificates, GNMA Certificates and FNMA
Certificates. Accordingly, even if such Agency Securities included in a Trust
Fund were deemed to be assets of Plan investors, the mortgages underlying such
Agency Securities would not be treated as assets of such Plans. Private Mortgage
Backed Securities are not "guaranteed governmental mortgage pool certificates"
within the meaning of the Plan Asset Regulations. Potential Plan investors
should consult their counsel and review the ERISA discussion herein and 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, as amended (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, holding and disposition of mortgage
pass-through securities 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
Securities.
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The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of Securities to be
eligible for exemptive relief thereunder. First, the acquisition of Securities
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 Securities evidencing rights and
interests that are not subordinated to the rights and interests evidenced by the
other Securities of the same Trust Fund. Third, the Securities 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., Moody's Investors Service, Inc., Duff & Phelps, Inc. or Fitch
IBCA, Inc. (collectively, the "Exemption Rating Agencies"). 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 Securities. Fifth,
the sum of all payments made to and retained by the Underwriters must represent
not more than reasonable compensation for underwriting the Securities; 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 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) securities in such other
investment pools must have been rated in one of the three highest categories of
one of the Exemption Rating Agencies for at least one year prior to the Plan's
acquisition of Securities; and (iii) securities 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 Securities.
A fiduciary of any Plan or other investor of Plan Assets contemplating
purchasing a Certificate or Note must make its own determination that the
general conditions set forth above will be satisfied with respect to such
Certificate or Note.
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,
acquisition or disposition in the secondary market of Securities 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 in connection with the direct or
indirect sale, exchange, transfer, holding, acquisition or disposition of a
Certificate or Note 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 Securities, 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 Securities in the initial issuance of Securities 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 Securities 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 Securities by or with Plan Assets and (iii) the holding of
Securities 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
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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 Securities 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 Securities by a Plan or the investment of
Plan Assets in Securities.
On July 21, 1997, the DOL amended the Exemption, which extends
exemptive relief to certain mortgage-backed and asset-backed securities
transactions using Funding Accounts for trusts issuing pass-through
certificates. With respect to the Securities, the amendment generally allows
Mortgage Loans supporting payments to Securityholders, and having a value equal
to no more than 25% of the total principal amount of the Securities being
offered by a Trust Fund, to be transferred to such Trust Fund within a period no
longer than 90 days or three months following the Closing Date ("Pre-Funding
Period") instead of requiring that all such Mortgage Loans be either identified
or transferred on or before the Closing Date. In general, the relief applies to
the purchase, sale and holding of Securities which otherwise qualify for the
Exemption, provided that the following general conditions are met:
(1) the ratio of the amount allocated to the Funding Account
to the total principal amount of the Securities being offered
("Pre-Funding Limit") must be less than or equal to 25%;
(2) all additional Mortgage Loans transferred to the related
Trust Fund after the Closing Date ("Subsequent Mortgage Loans") must
meet the same terms and conditions for eligibility as the original
Mortgage Loans used to create the Trust Fund, which terms and
conditions have been approved by one of the Exemption Rating Agencies;
(3) the transfer of such Subsequent Mortgage Loans to the
Trust Fund during the Pre-Funding Period must not result in the
Securities to be covered by the Exemptions receiving a lower credit
rating from an Exemption Rating Agency upon termination of the
Pre-Funding Period than the rating that was obtained at the time of the
initial issuance of the Securities by the Trust Fund;
(4) solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "Average Interest Rate")
for all of the Mortgage Loans and Subsequent Mortgage Loans in the
Trust Fund at the end of the Pre-Funding Period must not be more than
100 basis points lower than the Average Interest Rate for the Mortgage
Loans which were transferred to the Trust Fund on the Closing Date;
(5) either:
(i) the characteristics of the Subsequent Mortgage
Loans must be monitored by an insurer or other credit support provider
which is independent of the Depositor; or
(ii) an independent accountant retained by the
Depositor must provide the Depositor with a letter (with copies
provided to the Exemption Rating Agency rating the Securities, the
Underwriter and the Trustee) stating whether or not the characteristics
of the Subsequent Mortgage Loans conform to the characteristics
described in the Prospectus or Prospectus Supplement and/or Agreement.
In preparing such letter, the independent accountant must use the same
type of procedures as were applicable to the Mortgage Loans which were
transferred to the Trust Fund as of the Closing Date;
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(6) the Pre-Funding Period must end no later than three months
or 90 days after the Closing Date or earlier in certain circumstances
if the Funding Accounts falls below the minimum level specified in the
Agreement or an event of default occurs;
(7) amounts transferred to any Funding Accounts and/or
capitalized interest accounts used in connection with the pre-funding
may be invested only in investments which are permitted by the
Exemption Rating Agencies rating the Securities and must:
(i) be direct obligations of, or obligations fully
guaranteed as to timely payment of principal and interest by, the
United States or any agency or instrumentality thereof (provided that
such obligations are backed by the full faith and credit of the United
States); or
(ii) have been rated (or the obligor has been rated)
in one of the three highest generic rating categories by one of the
Exemption Rating Agencies;
(8) the Prospectus or Prospectus Supplement must describe the
duration of the Pre-Funding Period; and
(9) the Trustee (or any agent with which the Trustee contracts
to provide trust services) must be a substantial financial institution
or trust company experienced in trust activities and familiar with its
duties, responsibilities and liabilities with ERISA. The Trustee, as
legal owner of the Trust Fund, must enforce all the rights created in
favor of Securityholders of the Trust Fund, including employee benefit
plans subject to ERISA.
Before purchasing a Certificate or Note, a fiduciary of a Plan or other
investor of Plan Assets should itself confirm (a) that the Securities constitute
"certificates" for purposes of the Exemption and (b) that the specific and
general conditions set forth in the Exemption and the other requirements set
forth in the Exemption would be satisfied. In addition to making its own
determination as to the availability of the exemptive relief provided in the
Exemption, the fiduciary or other Plan investor should consider its general
fiduciary obligations under ERISA in determining whether to purchase any
Securities by or with Plan Assets.
Any fiduciary or other Plan investor which proposes to purchase
Securities 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 Securities 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 Securities evidencing interests in
Trust Funds which include Cooperative Loans and may not provide exemptive relief
for Securities 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 96-23, regarding transactions effected by "in-house
asset managers", 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 Securities may
contain additional information regarding the application of the Exemption, PTCE
83-1, or any other exemption, with respect to the Securities 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 Securities
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.
In addition to any exemption that may be available under PTCE 95-60 for
the purchase and holding of the Securities by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the related
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excise taxes imposed by the Code, for transactions involving an insurance
company general account. Pursuant to Section 401(c) of ERISA, the DOL published
proposed regulations ("Proposed 401(c) Regulations") on December 22, 1997,
however the required final regulations have not been issued as of the date
hereof. The Proposed 401(c) Regulations provide guidance for the purpose of
determining, in cases where insurance policies supported by an insurer's general
account are issued to or for the benefit of a Plan on or before December 31,
1998, which general account assets constitute Plan Assets. Section 401(c) of
ERISA generally provides that, until the date which is 18 months after the
Proposed 401(c) Regulations become final, no person shall be subject to
liability under Part 4 of Title I of ERISA and Section 4975 of the Code on the
basis of a claim that the assets of an insurance company general account
constitute Plan Assets, unless (i) as otherwise provided by the Secretary of
Labor in the Proposed 401(c) Regulations to prevent avoidance of the regulations
or (ii) an action is brought by the Secretary of Labor for certain breaches of
fiduciary duty which would also constitute a violation of federal or state
criminal law. Any assets of an insurance company general account which support
insurance policies issued to a Plan after December 31, 1998 or issued to Plans
on or before December 31, 1998 for which the insurance company does not comply
with the Proposed 401(c) Regulations may be treated as Plan Assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as Plan Assets of any Plan invested in
such separate account. Insurance companies contemplating the investment of
general account assets in the Securities should consult with their legal counsel
with respect to the applicability of Section 401(c) of ERISA, including the
general account's ability to continue to hold the Securities after the date
which is 18 months after the date the Proposed 401(c) Regulations become final.
REPRESENTATIONS FROM PLANS INVESTING IN NOTES WITH "SUBSTANTIAL EQUITY
FEATURES" OR CERTAIN SECURITIES. Because the exemptive relief afforded by the
Exemption (or any similar exemption that might be available) will not apply to
the purchase, sale or holding of certain Securities, such as Notes with
"substantial equity features," Subordinate Securities, REMIC Residual
Certificates, any Securities which are not rated in one of the three highest
generic rating categories by the Exemption Rating Agencies, transfers of any
such Securities to a Plan, to a trustee or other person acting on behalf of any
Plan, or to any other person investing Plan Assets to effect such acquisition
will not be registered by the Trustee unless the transferee provides the
Depositor, the Trustee and the Master Servicer with an opinion of counsel
satisfactory to the Depositor, the Trustee and the Master Servicer, which
opinion will not be at the expense of the Depositor, the Trustee or the Master
Servicer, that the purchase of such Securities by or on behalf of such Plan is
permissible under applicable law, will not constitute or result in any
non-exempt prohibited transaction under ERISA or Section 4975 of the Code and
will not subject the Depositor, the Trustee or the Master Servicer to any
obligation in addition to those undertaken in the related Agreement.
In lieu of such opinion of counsel, the transferee may provide a
certification substantially to the effect that the purchase of Securities by or
on behalf of such Plan is permissible under applicable law, will not constitute
or result in any non-exempt prohibited transaction under ERISA or Section 4975
of the Code and will not subject the Depositor, the Trustee or the Master
Servicer to any obligation in addition to those undertaken in the Agreement and
the following statements are correct: (i) the transferee is an insurance
company; (ii) the source of funds used to purchase such Securities is an
"insurance company general account" (as such term is defined in PTCE 95-60);
(iii) the conditions set forth in PTCE 95-60 have been satisfied; and (iv) there
is no Plan with respect to which the amount of such general account's reserves
and liabilities for contracts held by or on behalf of such Plan and all other
Plans maintained by the same employer (or any "affiliate" thereof, as defined in
PTCE 95-60) or by the same employee organization exceed 10% of the total of all
reserves and liabilities of such general account (as determined under PTCE
95-60) as of the date of the acquisition of such Securities.
An opinion of counsel or certification will not be required with
respect to the purchase of Securities registered through DTC. Any purchaser of a
Security registered through DTC will be deemed to have represented by such
purchase that either (a) such purchaser is not a Plan and is not purchasing such
Securities on behalf of, or with Plan Assets of, any Plan or (b) the purchase of
any such Security by or on behalf of, or with Plan Assets of, any Plan is
permissible under applicable law, will not result in any non-exempt prohibited
transaction under ERISA or Section 4975 of the Code and will not subject the
Depositor, the Trustee or the Master Servicer to any obligation in addition to
those undertaken in the related Agreement.
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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 Securities 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 Securities 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, Securities of any Series will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") so long as they are rated by a Rating Agency
in one of its two highest categories and, as such, will be legal investments for
persons, trusts, corporations, partnerships, associations, business trusts and
business entities (including, but not limited to, state-chartered savings banks,
commercial banks, savings and loan associations and insurance companies, as well
as trustees and state government employee retirement systems) created pursuant
to or existing under the laws of the United States or of any State (including
the District of Columbia and Puerto Rico) whose authorized investments are
subject to State regulation to the same extent that, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any agency or instrumentality thereof constitute legal investments for
such entities. Any Class of Securities that represents an interest in a Trust
Fund that includes junior mortgage loans will not constitute "mortgage related
securities" for purposes of SMMEA.
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 Securities 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
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or other outside party without internal analysis by the institution would be
unacceptable. There can be no assurance as to which Classes of the Securities 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
Securities. 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
Securities. Similar policy statements have been issued by regulators having
jurisdiction over other types of depository institutions.
Certain classes of Securities 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 Securities will be identified in the related Prospectus
Supplement. Prospective investors in such classes of Securities, 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 Securities or to purchase any Class of
Securities 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 Securities for legal investment or other
purposes, or as to the ability of particular investors to purchase any Class of
Securities under applicable legal investment restrictions. These uncertainties
may adversely affect the liquidity of any Class of Securities. 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 Securities 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 Securities offered hereby
will be passed upon for the Depositor and for the Underwriters by Thacher
Proffitt & Wood, New York, New York or Stroock & Stroock & Lavan LLP, 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, 9th Floor, New York, New York 10172. Its telephone
number is (212) 892-3000.
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 Securities 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 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
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payment would be funds obtained from the Seller of such Loan, or if applicable,
the Master Servicer or, the Servicer. See "Risk Factors" herein.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds
from the sale of each Series offered hereby and by the related Prospectus
Supplement to purchase the Mortgage Assets, to repay indebtedness which has been
incurred to obtain funds to acquire the Mortgage Assets, to establish the
reserve funds, if any, for the Series and to pay costs of structuring,
guaranteeing and issuing the Securities. If so specified in the related
Prospectus Supplement, Securities may be exchanged by the Depositor for Mortgage
Assets. The Depositor expects that it will make additional sales of securities
similar to the Securities 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 Securities 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 Securities 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 Securities 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 Securities 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 Securities.
If Underwriters are used in a sale of any Securities (other than in
connection with an underwriting on a best efforts basis), such Securities 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
Securities 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 Securities, the Underwriters may
receive compensation from the Depositor or from purchasers of the Securities in
the form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the Securities may be deemed to be
underwriters in connection with such Securities, and any discounts or
commissions received by them from the Depositor and any profit on the resale of
Securities by them may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended.
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It is anticipated that the underwriting agreement pertaining to the
sale of any Series of Securities 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 Securities 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 Securities of such Series.
The Depositor anticipates that the Securities offered hereby will be
sold primarily to institutional investors or sophisticated non-institutional
investors. Purchasers of Securities, 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 Securities. Holders of Securities 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 Agreements and
the Agreements generally provides a more complete definition of certain of the
terms. Reference should be made to the Agreements 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 Securities of the Series, as
specified in such Securities and the related Prospectus Supplement.
"Accrual Termination Date" means, with respect to a Class of Compound
Interest Securities, the Distribution Date on which all Securities of the
related Series with Final Scheduled Distribution Dates earlier than that of such
Class of Compound Interest Securities have been fully paid, or such other date
or period as may be specified in the related Prospectus Supplement.
"Additional Collateral" means marketable securities, insurance
policies, annuities, certificates of deposit, cash, accounts or other personal
property and, in the case of Additional Collateral owned by any guarantor, may
consist of real estate.
"Additional Collateral Loan" means a Mortgage Loan that, in addition to
being secured by the related Mortgaged Property, is secured by other collateral
owned by the related Mortgagors or are supported by third-party guarantees
secured by collateral owned by the related guarantors.
"Advance" means a cash advance by the Master Servicer or a Servicer in
respect of delinquent payments of principal of and interest on a Loan, and for
the other purposes specified herein and in the related Prospectus Supplement.
"Agency Securities" means mortgage pass-through securities issued or
guaranteed by GNMA, FNMA, FHLMC or other government agencies or
government-sponsored agencies.
"Agreement" means a Pooling and Servicing Agreement, Indenture, Owner
Trust Agreement or Servicing Agreement.
"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
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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 Securityholders 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.
"Business Day" means a day that, in the City of New York or in the city
or cities in which the corporate trust office of the Trustee are located, is
neither a legal holiday nor a day on which banking institutions are authorized
or obligated by law, regulation or executive order to be closed.
"Buy-Down Fund" means a custodial account, established by the Master
Servicer or the Servicer for a Buy-Down Loan, that meets the requirements set
forth herein.
"Buy-Down Loan" means a level payment Mortgage Loan for which funds
have been provided by a Person other than the mortgagor to reduce the
mortgagor's Scheduled Payment during the early years of such Mortgage Loan.
"Certificate Account" means, with respect to a Series, the account
established in the name of the Trustee for the deposit of remittances received
from the Master Servicer in respect of the Mortgage Assets in a Trust Fund.
"Certificateholder" or "Holder" means the Person in whose name a
Certificate is registered in the Certificate Register.
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"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 Securities of a Series.
"Closing Date" means, with respect to a Series, the date specified in
the related Prospectus Supplement as the date on which Securities 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 Security" means any Security of a Multiple Class
Series on which interest accrues and is added to the principal balance of such
Security periodically, but with respect to which no interest or principal will
be payable except during the period or periods specified in the related
Prospectus Supplement.
"Compound Value" means, with respect to a Class of Compound Interest
Securities, 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 Securities.
"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.
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"Cut-off Date" means the date designated in the Pooling and Servicing
Agreement or Indenture for a Series on or before which amounts due and payable
with respect to a Mortgage Asset will not inure to the benefit of
Securityholders 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 Securityholders on the next succeeding Distribution Date.
"Distribution Date" means, with respect to a Series or Class, each date
specified as a distribution date for such Series or Class in the related
Prospectus Supplement.
"Due Date" means each date, as specified in the related Prospectus
Supplement for a Series, on which any payment of principal or interest is due
and payable to the Trustee or its nominee on any Mortgage Asset.
"Eligible Account" means an account maintained with a federal or state
chartered depository institution (i) the short-term obligations of which are
rated by each Rating Agency in its highest rating at the time of any deposit
therein, or (ii) insured by the FDIC (to the limits established by such
Corporation), the uninsured deposits in which account are otherwise secured such
that, as evidenced by an opinion of counsel delivered to the Trustee prior to
the establishment of such account, the holders of the Securities 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 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 Agreement, as described in the related Prospectus Supplement
for a Series.
"Equity Certificates" means with respect to each Series of Notes where
the Issuer is an owner trust, the ownership interest of the Trust Fund.
"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.
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"Final Scheduled Distribution Date" means, with respect to a Class of a
Series, the date after which no Securities of such Class will remain outstanding
assuming timely payments or distributions are made on the Mortgage Assets in the
related Trust Fund.
"Financial 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.
"Floating Interest Period" means the period of time during which a
given Security Rate applies to a Class of Floating Interest Securities.
"Floating Interest Security" means any Security of a Multiple Class
Series which accrues interest at a Floating Rate.
"Floating Rate" means a Security 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 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 Securities 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.
"Indenture" means the agreement relating to a Series of Notes between
the Issuer and the Trustee.
"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.
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"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 Securities or a Class of Securities of such Series with respect to any
Distribution Date.
"Interest Weighted Securities" means a Class of Securities entitled to
a greater percentage of interest on the Loans underlying or comprising the
Mortgage Assets for the Series than the percentage of principal, if any, on such
Loans to which it is entitled.
"IRS" means the Internal Revenue Service.
"Issuer" means with respect to each Series of Notes, the Depositor or
an owner trust established by it for the purpose of issuing such Series of
Notes.
"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 Securities 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, plus in the case of a Loan secured by a junior
lien, the principal amount of the related Senior Lien, 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 Securities of such
Series in the related Prospectus Supplement.
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"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 Security of such
Series in the related Prospectus Supplement.
"Minimum Mortgage Rate" means the lifetime minimum Mortgage Rate during
the life of each ARM.
"Mortgage" means the mortgage, deed of trust or other instrument
securing a Mortgage Note.
"Mortgage Assets" means the Private Mortgage-Backed Securities, Agency
Securities or Loans, as the case may be, which are included in the Trust Fund
for such Series. A Mortgage Asset refers to a specific Private Mortgage-Backed
Security, Agency Security or Loan, as the case may be.
"Mortgage Loan" means a mortgage loan (including an interest therein)
secured by Mortgaged Property including Cooperative Loans and Condominium Loans.
"Mortgage Note" means the note or other evidence of indebtedness of a
Mortgagor under the Mortgage Loan.
"Mortgage Rate" means, unless otherwise indicated herein or in the
Prospectus Supplement, the interest rate borne by each Loan.
"Mortgaged Property" means the real property securing a Mortgage.
"Multifamily Loan" means any Loan secured by a Multifamily Property.
"Multifamily Property" means any property securing a Loan consisting of
multifamily residential rental property or cooperatively owned multifamily
property consisting of five or more dwelling units.
"Multiple Class Series" means a Series of Securities that may include
Floating Interest Securities, Compound Interest Securities and Planned
Amortization Securities, 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.
"Note Interest Rate" means, with respect to a Series of a single Class
of Notes, the rate of interest paid to the Noteholders in respect of the
Mortgage Assets and with respect to any Multiple Class Series, the per annum
rate at which interest accrues on the principal balance of the Notes of such
Series or a Class of such Series, which rate may be fixed or variable, as
specified in the related Prospectus Supplement.
"Noteholder" or "Holder" means the Person in whose name a Note is
registered in the Note Register.
"Notes" means the Mortgage-Backed Notes.
"OTS" means the Office of Thrift Supervision.
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"Owner Trust Agreement" means the agreement relating to a Series of
Notes between the Depositor and the Owner Trustee.
"Owner Trustee" means the owner trustee for each Series of Notes under
an Owner Trust Agreement, and its successors.
"Participation Security" means a certificate or note evidencing a
participation interest in a pool of Loans.
"Pass-Through Rate" means, with respect to a Series of a single Class
of Certificates, the rate of interest paid to the Certificateholders in respect
of the Mortgage Assets.
"Percentage Interest" means, with respect to a Security, the proportion
(expressed as a percentage) of the percentage amounts of all of the Securities
in the related Class represented by such Security, 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 of Certificates among the Depositor, the Master Servicer and the Trustee.
"Prepayment Assumption" means the prepayment standard or model used
with respect to the Securities 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 Security" means a Class of Securities 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.
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"Regular Interest" means a regular interest in a REMIC as described
herein under "Certain Federal income Tax Considerations--Tax Status as a REMIC."
"Reinvestment Income" means any interest or other earnings on funds or
accounts that are part of the Trust Fund for a Series.
"REMIC" means a real estate mortgage investment conduit under Section
860D of the Code.
"REMIC Administrator" means the Person, if any, specified in the
related Prospectus Supplement for a Series for which a REMIC election is made,
to serve as administrator of the Series.
"Remittance Date" means the calendar day or days of each month, as
specified in the related Prospectus Supplement for a Series, on which the
Servicer is required to withdraw funds from the related Servicer Account for
remittance to the Master Servicer.
"REO Property" means real property which secured a defaulted Loan which
has been acquired upon foreclosure, deed in lieu of foreclosure or repossession.
"Reserve Fund" means, with respect to a Series, any Reserve Fund
established pursuant to the Pooling and Servicing Agreement or Indenture.
"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.
"Sale and Servicing Agreement" means the sale and servicing agreement
relating to a Series of Notes among the Depositor, the Master Servicer and the
Trustee.
"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.
"Security Interest Rate" means Pass-Through Rate, Certificate Rate or
Note Interest Rate.
"Securityholder" or "Holder" means Certificateholder or Noteholder.
"Securities" means Certificates or Notes.
"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 Lien" means a lien which is senior to a related junior lien.
"Senior Securities" means a Class of Securities as to which the
Holders' rights to receive distributions of principal and interest are senior to
the rights of Holders of Subordinate Securities, to the extent specified in the
related Prospectus Supplement.
"Senior Securityholder" means the Holder of a Senior Security.
"Servicer" means the entity which has primary liability for servicing
Loans if other than the Master Servicer.
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"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 Agreement" means the Sale and Servicing Agreement or another
servicing agreement relating to a Series of Notes among the Depositor, the
Master Servicer and the Trustee.
"Servicing Fee" means the amount paid to the Master Servicer on a given
Distribution Date, generally determined on a loan-by-loan basis, and calculated
at a specified per annum rate.
"Single Family Property" means property securing a Loan consisting of
one- to four-family attached or detached residential housing, including
Cooperative Dwellings.
"Subordinate Securities" means a Class of Securities as to which the
rights of Holders to receive distributions of principal and interest are
subordinated to the rights of Holders of Senior Securities, to the extent and
under the circumstances specified in the related Prospectus Supplement.
"Subordinate Securityholder" means a Holder of a Subordinate Security.
"Subordinated Amount" means the amount, if any, specified in the
related Prospectus Supplement for a Series with a Class of Subordinated
Securities, that the Subordinate Securities are subordinated to the Senior
Securities of the same Series.
"Subordination Reserve Fund" means the subordination reserve fund, if
any, for a Series with a Class of Subordinate Securities, established pursuant
to the related Pooling and Servicing Agreement or Indenture.
"Trustee" means the trustee under a Pooling and Servicing Agreement or
the indenture trustee under an Indenture, and its successors.
"Trust Fund" means all property and assets held for the benefit of the
Securityholders by the Trustee under the related Agreement for a Series of
Securities 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.
113
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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 Securities 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............ $ 221,250
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 .......................................... $1,631,250
==========
INDEMNIFICATION OF DIRECTORS AND OFFICERS (ITEM 15 OF FORM S-3).
The Pooling and Servicing Agreement with respect to each series of
Certificates and the Servicing Agreement, Indenture and Owner Trust Agreement
with respect to each series of Notes will provide that no director, officer,
employee or agent of the Depositor is liable to the Trust Fund or the
Securityholders, 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 Agreement with respect to each
series of Certificates and the Servicing Agreement, Indenture and Owner Trust
Agreement with respect to each series of Notes will further provide that, with
the exceptions stated above, a director, officer, employee or agent of the
Depositor is entitled to be indemnified against any loss, liability or expense
incurred in connection with legal action relating to such Pooling and Servicing
Agreement or such Servicing Agreement, Indenture and Owner Trust Agreement and
related Securities 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.
<PAGE>
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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 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
<PAGE>
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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.
*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.
4.4 -- Form of Servicing Agreement, for a series consisting of
Mortgage-Backed Notes.
4.5 -- Form of Trust Agreement, for a series consisting of
Mortgage- Backed Notes.
4.6 -- Form of Indenture, for a series consisting of
Mortgage-Backed Notes.
5.1 -- Opinion of Thacher Proffitt & Wood regarding the
legality of the Securities.
5.2 -- Opinion of Stroock & Stroock & Lavan LLP regarding the
legality of the Securities.
8.1 -- Opinion of Thacher Proffitt & Wood as to certain tax
matters (included in Exhibit 5.1).
8.2 -- Opinion of Stroock & Stroock & Lavan LLP as to certain
tax matters (included in Exhibit 5.2).
23.1 -- Consent of Thacher Proffitt & Wood (included in Exhibit
5.1).
23.2 -- Consent of Stroock & Stroock & Lavan LLP (included in
Exhibit 5.2).
**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)
and incorporated herein by reference.
*** Filed as an exhibit to Registration Statement on Form S-3 (No. 333-39325)
and incorporated herein by reference.
<PAGE>
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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 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
<PAGE>
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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.
The Registrant hereby undertakes to file an application for the purpose
of determining the eligibility of the trustee to act under Subsection (a) of
Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Trust
Indenture Act.
<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 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 May 1, 1998.
DLJ MORTGAGE ACCEPTANCE CORP.
By: /s/ Steven L. Kantor
------------------------
Name: Steven L. Kantor
Title: Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
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 May 1, 1998
- --------------------------- (Principal Executive
Leon M. Pollack Officer)
/s/ Marjorie S. White * Secretary and Treasurer May 1, 1998
- --------------------------- (Principal Financial and
Marjorie S. White Accounting Officer)
/s/ David F. DeLucia * Director May 1, 1998
- ---------------------------
David F. DeLucia
/s/ Thomas E. Siegler * Director May 1, 1998
- ---------------------------
Thomas E. Siegler
/s/ Steven L. Kantor * Director and Senior Vice May 1, 1998
- --------------------------- President
Steven L. Kantor
*By: /s/ Steven L. Kantor
---------------------------
Steven L. Kantor
Attorney-in-fact
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
DLJ MORTGAGE ACCEPTANCE CORP.
Pursuant to the General Corporation Law
of the State of Delaware
FIRST: The name of the Corporation is DLJ Mortgage Acceptance Corp.
SECOND: The registered office of the Corporation in the State of
Delaware is located at Corporation Trust Center, 1209 Orange Street, Wilmington,
County of New Castle, Delaware 19801. The name and address of the Corporation's
registered agent is The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware 19801.
THIRD: The purpose of the Corporation is limited to:
(a) issuing and selling one or more series of certificates
("Certificates") evidencing beneficial interests in mortgage assets or issuing
or causing a trust on its behalf to issue one or more series of Notes ("Notes";
and together with the Certificates, the "Securities") representing indebtedness
secured by mortgage assets, investing in certain mortgage assets to be purchased
with the proceeds of Securities or in exchange for all or part of such
Securities and taking other actions related thereto, and (b) acting as settlor
or depositor of trusts formed to issue series of Securities and depositing
mortgage assets in, or pledging mortgage assets to, such trusts and investing in
or selling beneficial interest in such trusts.
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FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is one thousand (1,000), all of which shall be of the
par value of ten cents ($0.10) each, amounting in the aggregate to one hundred
dollars ($100.00).
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever.
SEVENTH: The following additional provisions are inserted for the
management of the business and for the conduct of the affairs of the
Corporation, and for the creation, definition, limitation and regulation of the
powers of the Corporation, the directors and the stockholders:
1. Election of directors need not be by ballot. The Board of Directors
shall have the power to make, alter, amend and repeal the By-Laws of
the Corporation.
2. Any director may be removed at any time, with or without cause, upon
the affirmative vote of the holders of a majority of the stock of the
Corporation at that time having voting power for the election of
directors.
3. In the event that any contract or other transaction to which this
Corporation is a party would be affected by the fact that any directors
or officers of this Corporation are directors, officers, creditors,
stockholders, partners, or otherwise interested in any other party to
such contract, or are parties to or are otherwise interested in such
contract or other transaction, then, in any such event, such contract
or other transaction shall not be affected by such fact if such
contract or other transaction shall be approved or ratified by the
affirmative vote of directors who are not so interested constituting a
majority of a quorum of directors present at a meeting of the Board of
Directors. In the absence of actual fraud,
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no director or officer shall be liable to account to the Corporation
for any profit realized by him from or through any such contract or
other transaction of the types described above in this paragraph
ratified or approved as aforesaid, by reason of his interest in any
such contract or other transaction.
Directors interested in any such contract or other transaction
of the types described in the foregoing paragraph may be counted when
present at meetings of the Board of Directors for the purpose of
determining the existence of a quorum to consider and vote on any such
contract or other transaction.
Any contract or other transaction that shall be approved or
ratified by the vote of the holders of a majority of the stock of the
Corporation at the time having voting power for the election of
directors present, in person or by proxy, at any annual or special
meeting of stockholders (provided that a lawful quorum of such
stockholders be there present in person or by proxy) shall, except as
otherwise provided by law, be as valid and as binding upon the
Corporation and upon all its stockholders as though it had been
approved or ratified by every stockholder of the Corporation.
4. The Board of Directors may, by resolution or resolutions, passed by
a majority of the whole board, designate one or more committees, each
committee to consist of two or more of the directors of the
Corporation, which to the extent provided in said resolution or
resolutions or in the By-Laws of the Corporation, shall have and may
exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of
the Corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as
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may be stated in the By-Laws of the Corporation or as may be determined
from time to time by resolution adopted by the Board of Directors.
5. The Board of Directors shall also have power to authorize and cause
to be executed and delivered mortgages and instruments of pledge, and
any other instruments creating liens, on the real and personal property
of the Corporation; to fix the times for the declaration and payment of
dividends; to set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose
and to abolish any such reserve; and to make and determine the use and
disposition of any surplus (whether capital, earned or other surplus)
or net profits over and above the capital of the Corporation, and in
its discretion, the Board of Directors may use and apply any such
surplus or net profits in purchasing or acquiring shares of its own
stock to such extent and in such manner and upon such terms as the
Board of Directors shall deem expedient. The shares of such stock so
purchased or acquired may be resold, except as otherwise provided by
law.
6. The business of the Corporation shall be managed by the Board of
Directors, except as otherwise provided by the General Corporation Law
of the State of Delaware or herein. The Board of Directors, in addition
to the powers and authority expressly conferred upon it herein, by law,
by the By-Laws and otherwise, is hereby empowered to exercise all such
powers as may be exercised by the Corporation; subject, nevertheless,
to the provisions of the laws of the State of Delaware, of this
Certificate of Incorporation, and of any amendments thereto, and to the
By-Laws.
<PAGE>
-5-
7. A director, or a member of any committee designated by the Board of
Directors pursuant to authority hereinbefore conferred, shall, in the
performance of his duties, be fully protected in relying in good faith
upon the books of account or reports made to the Corporation, its
stockholders, its Board of Directors or any such committee, by any of
its officials, or by an independent certified public accountant, or by
an appraiser selected with reasonable care by the Board of Directors or
by any such committee, or in relying in good faith upon other records
of the Corporation. Without prejudice to the generality of the
foregoing, a director shall be fully protected in relying in good faith
upon the books of account of the Corporation or statements prepared by
any of its officials as to the value and amount of the assets,
liabilities and/or net profits of the Corporation, or any other facts
pertinent to the existence and amount of surplus or other funds from
which dividends might properly be declared and paid.
8. Whenever under the provisions of the laws of the State of Delaware
or this Certificate of Incorporation the vote of the holders of Common
Stock at a meeting thereof is required or permitted to be taken for or
in connection with any corporate action, the meeting and vote of such
holders may be dispensed with and such actions may be effectively and
validly taken on the written consent of the holders of not less than a
majority of the shares of Common Stock then outstanding, provided that
in no case shall such written consent be by the holders of Common Stock
having less than the minimum percentage of the total vote required by
statute for the proposed corporate action, and provided, further, that
prompt notice shall be given to all stockholders of the taking of
corporate action without a meeting and by less than unanimous written
consent.
<PAGE>
-6-
9. The number of directors of the Corporation shall be as from time to
time fixed by, or in the manner provided in, the By-laws of the
Corporation. At least one director and one executive officer of the
Corporation (who may be the same person) will not be a director,
officer or employee of any direct or ultimate parent of the
Corporation.
10. The Corporation's assets will not be commingled with those of any
direct or ultimate parent to the Corporation.
11. The Corporation will maintain separate corporate records and books
of account from those of any direct or ultimate parent of the
Corporation.
EIGHTH: (a) The Corporation shall 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 proceedings, 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, officer, 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 proceedings 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, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the
<PAGE>
-7-
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall 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 he is or was a director,
officer, 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) 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 be
the best interests of the Corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty 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
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent
of the Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsection (a) or (b), or in
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.
<PAGE>
-8-
(d) Any indemnification under subsection (a) or (b) (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has set the
applicable standard of conduct set forth in subsections (a) and (b). Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, ever if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the Board of
Directors in the specific case upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
Corporation as authorized in this section.
(f) The indemnification provided by this section shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
(g) The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or
<PAGE>
-9-
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 any liability asserted against him and 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 liability under
the provisions of this section.
NINTH: (a) The name and address of the incorporator is Thomas E.
Siegler and his mailing address is 140 Broadway, 30th Floor, New York, New York
10005.
(b) The powers of the incorporator shall terminate upon the
filing of this Certificate of Incorporation. The names and addresses of the
persons who are to serve as directors of the Corporation until the first annual
meeting of stockholders or until their successors are elected and qualify are
set forth below:
<PAGE>
-10-
Name Address
---- -------
Thomas E. Siegler 39 Wildwood Drive
Dix Hills, NY 11746
Claire M. Power 210 W. 101 Street - #8B
New York, NY 10025
Paul J. Camilleri 62-91 60th Street
Ridgewood, NY 11385
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 12th day
of April, 1988.
/s/ Thomas E. Siegler (L.S.)
-------------------------------
<PAGE>
STATE OF NEW YORK )
: SS.:
COUNTY OF NEW YORK )
Thomas E. Siegler being duly sworn, says:
That he is the person described in and who executed the foregoing
Certificate of Incorporation under the General Corporation Law of Delaware and
that it is his act and deed and that the facts stated therein are true.
/s/ Thomas E. Siegler
-------------------------------
Subscribed and sworn to before
me this 12th day of April, 1988
/s/ Gail E. Corson
- -------------------------------
Exhibit 4.4
-----------
================================================================================
[NAME OF SERVICER],
as Servicer,
and
DLJ MORTGAGE ACCEPTANCE CORP.
as Company
----------------------
SERVICING AGREEMENT
Dated as of _______________
----------------------
________________Mortgage Loans
DLJ MBN Trust Series 19__-__
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions
Section 1.01. DEFINITIONS............................................... 1
Section 1.02. OTHER DEFINITIONAL PROVISIONS............................. 2
Section 1.03. INTEREST CALCULATIONS..................................... 2
ARTICLE II
Representations and Warranties
Section 2.01. REPRESENTATIONS AND WARRANTIES REGARDING THE SERVICER..... 3
Section 2.02. Representations and Warranties of the Company............. 4
Section 2.03. ENFORCEMENT OF REPRESENTATIONS AND WARRANTIES............. 4
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. THE SERVICER.............................................. 6
Section 3.02. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS.............. 7
Section 3.03. WITHDRAWALS FROM THE COLLECTION ACCOUNT................... 9
Section 3.04. MAINTENANCE OF HAZARD INSURANCE; PROPERTY PROTECTION
EXPENSES............................................. 11
Section 3.05. MODIFICATION AGREEMENTS................................... 12
Section 3.06. Trust Estate; Related Documents........................... 12
Section 3.07. REALIZATION UPON DEFAULTED MORTGAGE LOANS................. 13
Section 3.08. COMPANY AND INDENTURE TRUSTEE TO COOPERATE................ 14
Section 3.09. SERVICING COMPENSATION; PAYMENT OF CERTAIN EXPENSES BY
SERVICER.................................................. 15
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE......................... 16
Section 3.11. ANNUAL SERVICING REPORT................................... 16
Section 3.12. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION
REGARDING THE MORTGAGE LOANS......................... 16
Section 3.13. MAINTENANCE OF CERTAIN SERVICING INSURANCE POLICIES....... 17
Section 3.14. INFORMATION REQUIRED BY THE INTERNAL REVENUE SERVICE
GENERALLY AND REPORTS OF FORECLOSURES AND ABANDONMENTS
OF MORTGAGED PROPERTY................................ 17
Section 3.15. OPTIONAL REPURCHASE OF DEFAULTED MORTGAGE LOANS........... 17
i
<PAGE>
Page
----
ARTICLE IV
Servicing Certificate
Section 4.01. STATEMENTS TO SECURITYHOLDERS............................. 18
ARTICLE V
Distribution and Payment Accounts
Section 5.01. DISTRIBUTION ACCOUNT...................................... 20
Section 5.02. PAYMENT ACCOUNT........................................... 20
ARTICLE VI
The Servicer
Section 6.01. LIABILITY OF THE SERVICER................................. 22
Section 6.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SERVICER......................... 22
Section 6.03. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS........ 22
Section 6.04. SERVICER NOT TO RESIGN.................................... 23
Section 6.05. DELEGATION OF DUTIES...................................... 24
Section 6.06. SERVICER TO PAY INDENTURE TRUSTEE'S AND OWNER TRUSTEE'S
FEES AND EXPENSES; INDEMNIFICATION................... 24
ARTICLE VII
Default
Section 7.01. SERVICING DEFAULT......................................... 26
Section 7.02. INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR........ 28
Section 7.03. NOTIFICATION TO SECURITYHOLDERS........................... 29
ARTICLE VIII
Miscellaneous Provisions
Section 8.01. AMENDMENT................................................. 30
Section 8.02. GOVERNING LAW............................................. 30
ii
<PAGE>
Page
----
Section 8.03. NOTICES................................................... 30
Section 8.04. SEVERABILITY OF PROVISIONS................................ 30
Section 8.05. THIRD-PARTY BENEFICIARIES................................. 30
Section 8.06. COUNTERPARTS.............................................. 31
Section 8.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS.................. 31
Section 8.08. TERMINATION UPON PURCHASE BY THE SERVICER OR LIQUIDATION
OF ALL MORTGAGE LOANS................................ 31
Section 8.09. CERTAIN MATTERS AFFECTING THE INDENTURE TRUSTEE........... 31
[Section 8.10. AUTHORITY OF THE ADMINISTRATOR............................ 32
EXHIBIT A - MORTGAGE LOAN SCHEDULE...........................................A-1
EXHIBIT B - POWER OF ATTORNEY................................................B-1
EXHIBIT C - CERTIFICATE PURSUANT TO SECTION 3.08.............................C-1
EXHIBIT D - FORM OF REQUEST FOR RELEASE......................................D-1
Schedule 1 - Mortgage Insurance Component Schedule...........................S-1
iii
<PAGE>
This Servicing Agreement, dated as of _______________, between
[Name of Servicer], as Servicer (the "Servicer") and DLJ Mortgage Acceptance
Corp., as Company (the "Company"),
W I T N E S S E T H T H A T:
-----------------------------
WHEREAS, DLJ Mortgage Acceptance Corp., will create DLJ MBN
Trust Series 19__-__, an owner trust (the "Issuer") under Delaware law, and will
transfer the Mortgage Loans and all of its rights under the Mortgage Loan
Purchase Agreement to the Issuer,;
WHEREAS, pursuant to the terms of a Trust Agreement dated as
of _______________ (the "Owner Trust Agreement") between the Company, as
depositor, and ______________________, as owner trustee (the "Owner Trustee"),
the Company will sell the Mortgage Collateral to Issuer in exchange for the cash
proceeds of the Securities;
WHEREAS, pursuant to the terms of the Trust Agreement between
the Depositor and the Owner Trustee, the Issuer will issue and transfer to or at
the direction of the Depositor, the Mortgage-Backed Certificates, Series 199_-__
(the "Certificates");
WHEREAS, pursuant to the terms of an Indenture dated as of
_______________ (the "Indenture") between the Issuer and the Indenture Trustee,
the Issuer will issue and transfer to or at the direction of the Purchaser the
Mortgage-Backed Notes, Series 199_-__ (the "Notes"), consisting of the Notes and
secured by the Mortgage Collateral;
WHEREAS, pursuant to the terms of the Mortgage Loan Purchase
Agreement, the Company will acquire the Initial Loans; and
WHEREAS, pursuant to the terms of this Servicing Agreement,
the Servicer will service the Mortgage Loans directly or through one or more
Subservicers;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. DEFINITIONS. For all purposes of this Servicing
Agreement, except as otherwise expressly provided herein or unless the context
otherwise requires, capitalized terms not otherwise defined herein shall have
the meanings assigned to such terms in the Definitions contained in Appendix A
to the Indenture which is incorporated by reference herein. All other
capitalized terms used herein shall have the meanings specified herein.
<PAGE>
Section 1.02. OTHER DEFINITIONAL PROVISIONS. (a) All terms defined in
this Servicing Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein.
(b) As used in this Servicing Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Servicing Agreement or in any such certificate or other
document, and accounting terms partly defined in this Servicing Agreement or in
any such certificate or other document, to the extent not defined, shall have
the respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this
Servicing Agreement or in any such certificate or other document are
inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained in this Servicing Agreement or in any such
certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Servicing Agreement shall refer to this Servicing
Agreement as a whole and not to any particular provision of this Servicing
Agreement; Section and Exhibit references contained in this Servicing Agreement
are references to Sections and Exhibits in or to this Servicing Agreement unless
otherwise specified; and the term "including" shall mean "including without
limitation".
(d) The definitions contained in this Servicing Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
Section 1.03. INTEREST CALCULATIONS. All calculations of interest
hereunder that are made in respect of the Principal Balance of a Mortgage Loan
shall be made on a daily basis using a 365-day year. All calculations of
interest on the Securities shall be made on the basis of the actual number of
days in an Interest Period and a year assumed to consist of 360 days. The
calculation of the Servicing Fee shall be made on the basis of a 360-day year
consisting of twelve 30-day months. All dollar amounts calculated hereunder
shall be rounded to the nearest penny with one-half of one penny being rounded
down.
2
<PAGE>
ARTICLE II
Representations and Warranties
Section 2.01. REPRESENTATIONS AND WARRANTIES REGARDING THE SERVICER.
The Servicer represents and warrants to Company, the Issuer and for the benefit
of the Indenture Trustee, as pledgee of the Mortgage Collateral, and the
Securityholders, as of the Cut-Off Date, [the date of the Servicing Agreement],
the Closing Date [and any Deposit Date], that:
(i) The Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
[_______] and has the corporate power to own its assets and to transact
the business in which it is currently engaged. The Servicer is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the business
transacted by it or properties owned or leased by it requires such
qualification and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets, or
condition (financial or other) of the Servicer;
(ii) The Servicer has the power and authority to make,
execute, deliver and perform this Servicing Agreement and all of the
transactions contemplated under this Servicing Agreement, and has taken
all necessary corporate action to authorize the execu tion, delivery
and performance of this Servicing Agreement. When executed and
delivered, this Servicing Agreement will constitute the legal, valid
and binding obligation of the Servicer enforceable in accordance with
its terms, except as enforcement of such terms may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and by the availability of equitable
remedies;
(iii) The Servicer is not required to obtain the consent
of any other Person or any consent, license, approval or authorization
from, or registration or declaration with, any governmental authority,
bureau or agency in connection with the execution, delivery,
performance, validity or enforceability of this Servicing Agreement,
except for such consent, license, approval or authorization, or
registration or declaration, as shall have been obtained or filed, as
the case may be;
(iv) The execution and delivery of this Servicing
Agreement and the performance of the transactions contemplated hereby
by the Servicer will not violate any provision of any existing law or
regulation or any order or decree of any court applicable to the
Servicer or any provision of the Certificate of Incorporation or Bylaws
of the Servicer, or constitute a material breach of any mortgage,
indenture, contract or other agreement to which the Servicer is a party
or by which the Servicer may be bound; and
(v) No litigation or administrative proceeding of or
before any court, tribunal or governmental body is currently pending,
or to the knowledge of the Servicer threatened, against the Servicer or
any of its properties or with respect to this Servicing Agreement or
the Notes or the Certificates which in the opinion of the Servicer has
a
3
<PAGE>
reasonable likelihood of resulting in a material adverse effect on the
transactions contemplated by this Servicing Agreement.
The foregoing representations and warranties shall survive any
termination of the Servicer hereunder.
Section 2.02. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to the Servicer for the benefit of the
Indenture Trustee, as pledgee of the Mortgage Collateral, and the
Securityholders, as of the Cut-Off Date, the Closing Date and any Deposit Date,
that:
(i) The Company is a corporation in good standing under
the laws of the State of California;
(ii) The Company has full power, authority and legal
right to execute and deliver this Servicing Agreement and to perform
its obligations under this Servicing Agreement, and has taken all
necessary action to authorize the execution, delivery and performance
by it of this Servicing Agreement; and
(iii) The execution and delivery by the Company of this
Servicing Agreement and the performance by the Company of its
obligations under this Servicing Agreement will not violate any
provision of any law or regulation governing the Company or any order,
writ, judgment or decree of any court, arbitrator or governmental
authority or agency applicable to the Company or any of its assets.
Such execution, delivery, authentication and performance will not
require the authorization, consent or approval of, the giving of notice
to, the filing or registration with, or the taking of any other action
with respect to, any governmental authority or agency regulating the
activities of limited liability companies. Such execution, delivery,
authentication and performance will not conflict with, or result in a
breach or violation of, any mortgage, deed of trust, lease or other
agreement or instrument to which the Company is bound.
Section 2.03. ENFORCEMENT OF REPRESENTATIONS AND WARRANTIES. The
Servicer, on behalf of and subject to the direction of the Indenture Trustee, as
pledgee of the Mortgage Collateral, or the Credit Enhancer, shall enforce the
representations and warranties of the Seller pursuant to the Mortgage Loan
Purchase Agreement. Upon the discovery by the Seller, the Servicer, the
Indenture Trustee, the Credit Enhancer, the Company or any Custodian of a breach
of any of the representations and warranties made in the Mortgage Loan Purchase
Agreement, in respect of any Mortgage Loan which materially and adversely
affects the interests of the Securityholders or the Credit Enhancer, the party
discovering such breach shall give prompt written notice to the other parties
(any Custodian being so obligated under a Custodial Agreement). The Servicer
shall promptly notify the Seller of such breach and request that, pursuant to
the terms of the Mortgage Loan Purchase Agreement, the Seller either (i) cure
such breach in all material respects within 45 days (with respect to a breach of
the representations and warranties contained in Section 3.1(a) of the Mortgage
Loan Purchase Agreement) or 90 days (with respect to a breach of the
representations and warranties contained in Section 3.1(b) of the Mortgage Loan
Purchase
4
<PAGE>
Agreement) from the date the Seller was notified of such breach or (ii) purchase
such Mortgage Loan from the Company at the price and in the manner set forth in
Section 3.1(b) of the Mortgage Loan Purchase Agreement; PROVIDED that the Seller
shall, subject to the conditions set forth in the Mortgage Loan Purchase
Agreement, have the option to substitute an Eligible Substitute Mortgage Loan or
Loans for such Mortgage Loan. In the event that the Seller elects to substitute
one or more Eligible Substitute Mortgage Loans pursuant to Section 3.1(b) of the
Mortgage Loan Purchase Agreement, the Seller shall deliver to the Company with
respect to such Eligible Substitute Mortgage Loans, the original Mortgage Note,
the Mortgage, and such other documents and agreements as are required by the
Mortgage Loan Purchase Agreement. No substitution will be made in any calendar
month after the Determination Date for such month. Payments due with respect to
Eligible Substitute Mortgage Loans in the month of substitution shall not be
transferred to the Company and will be retained by the Servicer and remitted by
the Servicer to the Seller on the next succeeding Payment Date provided a
payment has been received by the Company for such month in respect of the
Mortgage Loan to be removed. The Servicer shall amend or cause to be amended the
Mortgage Loan Schedule to reflect the removal of such Mortgage Loan and the sub
stitution of the Eligible Substitute Mortgage Loans and the Servicer shall
promptly deliver the amended Mortgage Loan Schedule to the Owner Trustee and
Indenture Trustee.
It is understood and agreed that the obligation of the Seller to cure
such breach or purchase or substitute for such Mortgage Loan as to which such a
breach has occurred and is continuing shall constitute the sole remedy
respecting such breach available to the Company and the Indenture Trustee, as
pledgee of the Mortgage Collateral, against the Seller. In connection with the
pur chase of or substitution for any such Mortgage Loan by the Seller, the
Company shall assign to the Seller all of the right, title and interest in
respect of the Mortgage Loan Purchase Agreement applicable to such Mortgage
Loan. Upon receipt of the Repurchase Price, or upon completion of such
substitution, the applicable Custodian shall deliver the Mortgage Files to the
Servicer, together with all relevant endorsements and assignments.
5
<PAGE>
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. THE SERVICER. (a) The Servicer shall service and
administer the Mortgage Loans in the same manner as would prudent institutional
mortgage lenders servicing comparable mortgage loans for their own account in
the jurisdictions where the related Mortgaged Properties are located and in a
manner consistent with the terms of this Servicing Agreement and which shall be
normal and usual in its general mortgage servicing activities and shall have
full power and authority, acting alone or through a subservicer, to do any and
all things in connection with such servicing and administration which it may
deem necessary or desirable, it being understood, how ever, that the Servicer
shall at all times remain responsible to the Company, the Indenture Trustee, as
pledgee of the Mortgage Collateral, and the Securityholders for the performance
of its duties and obligations hereunder in accordance with the terms hereof and
the servicing standard set forth above. Without limiting the generality of the
foregoing, the Servicer shall continue, and is hereby authorized and empowered
by the Company and the Indenture Trustee, as pledgee of the Mortgage Collateral,
to execute and deliver, on behalf of itself, the Company, the Securityholders
and the Indenture Trustee or any of them, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge and all
other comparable instruments with respect to the Mortgage Loans and with respect
to the Mortgaged Properties. The Company, the Indenture Trustee and the
Custodian, as applicable, shall furnish the Servicer with any powers of attorney
and other documents necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties hereunder. On the Closing Date, the
Company shall deliver to the Servicer a power of attorney substantially in the
form of Exhibit B hereto.
If the Mortgage relating to a Mortgage Loan did not have a lien senior
on the related Mortgaged Property as of the Cut-Off Date, then the Servicer, in
such capacity, may not consent to the placing of a lien senior to that of the
Mortgage on the related Mortgaged Property. If the Mortgage relating to a
Mortgage Loan had a lien senior to the Mortgage Loan on the related Mort gaged
Property as of the Cut-Off Date, then the Servicer, in such capacity, may
consent to the refinancing of such senior lien; PROVIDED that (i) the resulting
Combined Loan-to-Value Ratio of such Mortgage Loan is no higher than the
Combined Loan-to-Value Ratio prior to such refinancing and (ii) the interest
rate for the loan evidencing the refinanced senior lien on the date of such
refinancing is no higher than the interest rate on the loan evidencing the
existing senior lien immediately prior to the date of such refinancing.
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Servicing Agreement) to the Company under this Servicing
Agreement is intended by the parties to be that of an independent contractor and
not that of a joint venturer, partner or agent.
(b) The Servicer has entered into Initial Subservicing Agreements with the
Initial Subservicers for the servicing and administration of the Mortgage Loans
and may enter into additional Sub servicing Agreements with Subservicers for the
servicing and administration of certain of the
6
<PAGE>
Mortgage Loans. References in this Servicing Agreement to actions taken or to be
taken by the Servicer in servicing the Mortgage Loans include actions taken or
to be taken by a Subservicer on behalf of the Servicer and any amount received
by such Subservicer in respect of a Mortgage Loan shall be deemed to have been
received by the Servicer whether or not actually received by the Servicer. Each
Subservicing Agreement will be upon such terms and conditions as are not
inconsistent with this Servicing Agreement and as the Servicer and the
Subservicer have agreed. With the approval of the Servicer, a Subservicer may
delegate its servicing obligations to third-party servicers, but such
Subservicers will remain obligated under the related Subservicing Agreements.
The Servicer and the Subservicer may enter into amendments to the related
Subservicing Agreements; PROVIDED, HOWEVER, that any such amendments shall be
consistent with and not violate the provisions of this Servicing Agreement. The
Servicer shall be entitled to terminate any Subservicing Agreement in accordance
with the terms and conditions thereof and without any limitation by virtue of
this Servicing Agreement; PROVIDED, HOWEVER, that in the event of termination of
any Subservicing Agreement by the Servicer or the Subservicer, the Servicer
shall either act as servicer of the related Mortgage Loan or enter into a
Subservicing Agreement with a successor Subservicer which will be bound by the
terms of the related Subservicing Agreement. The Servicer shall be entitled to
enter into any agreement with a Subservicer for indemnification of the Servicer
and nothing contained in this Servicing Agreement shall be deemed to limit or
modify such indemnification.
In the event that the rights, duties and obligations of the Servicer
are terminated hereunder, any successor to the Servicer in its sole discretion
may, to the extent permitted by applicable law, terminate the existing
Subservicing Agreement with any Subservicer in accordance with the terms of the
applicable Subservicing Agreement or assume the terminated Servicer's rights and
obligations under such subservicing arrangements which termination or assumption
will not violate the terms of such arrangements.
As part of its servicing activities hereunder, the Servicer, for the
benefit of the Company, shall use reasonable efforts to enforce the obligations
of each Subservicer under the related Subservicing Agreement, to the extent that
the non-performance of any such obligation would have material and adverse
effect on a Mortgage Loan. Such enforcement, including, without limitation, the
legal prosecution of claims, termination of Subservicing Agreements and the
pursuit of other appropriate remedies, shall be in such form and carried out to
such an extent and at such time as the Servicer, in its good faith business
judgment, would require were it the owner of the related Mortgage Loans. The
Servicer shall pay the costs of such enforcement at its own expense, and shall
be reimbursed therefor only (i) from a general recovery resulting from such
enforcement to the extent, if any, that such recovery exceeds all amounts due in
respect of the related Mortgage Loan or (ii) from a specific recovery of costs,
expenses or attorneys fees against the party against whom such enforcement is
directed.
Section 3.02. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS. (a) The
Servicer shall make reasonable efforts to collect all payments called for under
the terms and provisions of the Mortgage Loans, and shall, to the extent such
procedures shall be consistent with this Servicing Agreement, follow such
collection procedures as shall be normal and usual in its general mortgage
servicing activities. Consistent with the foregoing, and without limiting the
generality of the
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foregoing, the Servicer may in its discretion (i) waive any late payment charge,
penalty interest or other fees which may be collected in the ordinary course of
servicing such Mortgage Loan and (ii) arrange with a Mortgagor a schedule for
the payment of principal and interest due and unpaid; PROVIDED such arrangement
is consistent with the Servicer's policies with respect to home equity mortgage
loans; PROVIDED, FURTHER, that notwithstanding such arrangement such Mortgage
Loans will be included in the information regarding delinquent Mortgage Loans
set forth in the Servicing Certificate. The Servicer may also extend the Due
Date for payment due on a Mortgage Loan, PROVIDED, HOWEVER, that the Servicer
shall first determine that any such waiver or extension will not adversely
affect the lien of the related Mortgage. Consistent with the terms of this
Servicing Agreement, the Servicer may also waive, modify or vary any term of any
Mortgage Loan or consent to the postponement of strict compliance with any such
term or in any manner grant indulgence to any Mortgagor if in the Servicer's
determination such waiver, modification, post ponement or indulgence is not
materially adverse to the interests of the Securityholders or the Credit
Enhancer, PROVIDED, HOWEVER, that the Servicer may not modify or permit any
Subservicer to modify any Mortgage Loan (including without limitation any
modification that would change the Mortgage Rate, forgive the payment of any
principal or interest (unless in connection with the liquidation of the related
Mortgage Loan) or extend the final maturity date of such Mortgage Loan) unless
such Mortgage Loan is in default or, in the judgment of the Servicer, such
default is reasonably foreseeable.
(b) The Servicer shall establish an account (the "Collection Account")
in which the Servicer shall deposit or cause to be deposited any amounts
representing payments on and any collections in respect of the Mortgage Loans
received by it subsequent to the Cut-Off Date as to any Initial Loan or the
related Deposit Date as to any Additional Loan (other than in respect of the
payments referred to in the following paragraph) within __ Business Day[s]
following receipt thereof (or otherwise on or prior to the Closing Date),
including the following payments and collections received or made by it (without
duplication):
(i) all payments of principal of or interest on the
Mortgage Loans received by the Servicer from the respective
Subservicer, net of any portion of the interest thereof retained by the
Subservicer as Subservicing Fees;
(ii) the aggregate Repurchase Price of the Mortgage
Loans purchased by the Servicer pursuant to Section 3.15;
(iii) Net Liquidation Proceeds net of any related
Foreclosure Profit;
(iv) all proceeds of any Mortgage Loans repurchased by
the Seller pursuant to the Mortgage Loan Purchase Agreement, and all
Substitution Adjustment Amounts required to be deposited in connection
with the substitution of an Eligible Substitute Mortgage Loan pursuant
to the Mortgage Loan Purchase Agreement;
(v) insurance proceeds, other than Net Liquidation
Proceeds, resulting from any insurance policy maintained on a Mortgaged
Property; and
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(vi) amounts required to be paid by the Servicer
pursuant to Section 8.08.
PROVIDED, HOWEVER, that with respect to each Collection Period, the Servicer
shall be permitted to retain from payments in respect of interest on the
Mortgage Loans, the Servicing Fee for such Collection Period. The foregoing
requirements respecting deposits to the Collection Account are exclusive, it
being understood that, without limiting the generality of the foregoing, the
Servicer need not deposit in the Collection Account amounts representing
Foreclosure Profits, fees (including annual fees) or late charge penalties,
payable by Mortgagors, or amounts received by the Servicer for the accounts of
Mortgagors for application towards the payment of taxes, insurance premiums,
assessments and similar items. In the event any amount not required to be
deposited in the Collection Account is so deposited, the Servicer may at any
time withdraw such amount from the Collection Account, any provision herein to
the contrary notwithstanding. The Collection Account may contain funds that
belong to one or more trust funds created for the notes or certificates of other
series and may contain other funds respecting payments on mortgage loans
belonging to the Servicer or serviced or serviced by it on behalf of others.
Notwithstanding such commingling of funds, the Servicer shall keep records that
accurately reflect the funds on deposit in the Collection Account that have been
identified by it as being attributable to the Mortgage Loans and shall hold all
collections in the Collection Account to the extent they represent collections
on the Mortgage Loans for the benefit of the Company, the Indenture Trustee, the
Securityholders and the Credit Enhancer, as their interests may appear. The
Servicer shall remit all Foreclosure Profits to itself as additional servicing
compensation.
The Servicer may cause the institution maintaining the Collection
Account to invest any funds in the Collection Account in Eligible Investments
(including obligations of the Servicer or any of its Affiliates, if such
obligations otherwise qualify as Eligible Investments), which shall mature not
later than the Business Day next preceding the Payment Date and shall not be
sold or disposed of prior to its maturity. Except as provided above, all income
and gain realized from any such investment shall be for the benefit of the
Servicer and shall be subject to its withdrawal or order from time to time. The
amount of any losses incurred in respect of the principal amount of any such
investments shall be deposited in the Collection Account by the Servicer out of
its own funds immediately as realized.
(c) The Servicer will require each Subservicer to hold all funds
constituting collections on the Mortgage Loans, pending remittance thereof to
the Servicer, in one or more accounts meeting the requirements of an Eligible
Account, and invested in Eligible Investments, unless, all such collections are
remitted on a daily basis to the Servicer for deposit into the Collection
Account.
Section 3.03. WITHDRAWALS FROM THE COLLECTION ACCOUNT. The Servicer
shall, from time to time as provided herein, make withdrawals from the
Collection Account of amounts on deposit therein pursuant to Section 3.02 that
are attributable to the Mortgage Loans for the following purposes:
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(i) to deposit in the Distribution Account, on the
Business Day prior to each Payment Date, an amount equal to the
Security Collections required to be distributed on such Payment Date;
(ii) to the extent deposited to the Collection Account,
to reimburse itself or the related Subservicer for previously
unreimbursed expenses incurred in maintaining individual insurance
policies pursuant to Section 3.04, or Liquidation Expenses, paid
pursuant to Section 3.07 or otherwise reimbursable pursuant to the
terms of this Servicing Agreement (to the extent not payable pursuant
to Section 3.09), such withdrawal right being limited to amounts
received on particular Mortgage Loans (other than any Repurchase Price
in respect thereof) which represent late recoveries of the payments for
which such advances were made, or from related Liquidation Proceeds or
the proceeds of the purchase of such Mortgage Loan;
(iii) to pay to itself out of each payment received on
account of interest on a Mortgage Loan as contemplated by Section 3.09,
an amount equal to the related Servicing Fee (to the extent not
retained pursuant to Section 3.02), and to pay to any Subservicer any
Subservicing Fees not previously withheld by the Subservicer;
(iv) to the extent deposited in the Collection Account
to pay to itself as additional servicing compensation any interest or
investment income earned on funds deposited in the Collection Account
and Payment Account that it is entitled to withdraw pursuant to
Sections 3.02(b) and 5.01;
(v) to the extent deposited in the Collection Account,
to pay to itself as additional servicing compensation any Foreclosure
Profits;
(vi) to pay to itself or the Seller, with respect to any
Mortgage Loan or property acquired in respect thereof that has been
purchased or otherwise transferred to the Seller, the Servicer or other
entity, all amounts received thereon and not required to be distributed
to Securityholders as of the date on which the related Purchase Price
or Repur chase Price is determined;
(vii) to withdraw any other amount deposited in the
Collection Account that was not required to be deposited therein
pursuant to Section 3.02;
(viii) to pay to the Seller the amount, if any, deposited
in the Collection Account by the Indenture Trustee upon release thereof
from the Funding Account representing payments for Additional Loans;
and
(ix) after the occurrence of an Amortization Event, to
pay to the Seller, the Excluded Amount.
Since, in connection with withdrawals pursuant to clauses (iii), (iv), (vi) and
(vii), the Servicer's entitlement thereto is limited to collections or other
recoveries on the related Mortgage Loan, the
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Servicer shall keep and maintain separate accounting, on a Mortgage Loan by
Mortgage Loan basis, for the purpose of justifying any withdrawal from the
Collection Account pursuant to such clauses. Notwithstanding any other provision
of this Servicing Agreement, the Servicer shall be entitled to reimburse itself
for any previously unreimbursed expenses incurred pursuant to Section 3.07 or
otherwise reimbursable pursuant to the terms of this Servicing Agreement that
the Servicer determines to be otherwise nonrecoverable (except with respect to
any Mortgage Loan as to which the Repurchase Price has been paid), by withdrawal
from the Collection Account of amounts on deposit therein attributable to the
Mortgage Loans on any Business Day prior to the Payment Date succeeding the date
of such determination.
Section 3.04. MAINTENANCE OF HAZARD INSURANCE; PROPERTY PROTECTION
EXPENSES. The Servicer shall cause to be maintained for each Mortgage Loan
hazard insurance naming the Servicer or related Subservicer as loss payee
thereunder providing extended coverage in an amount which is at least equal to
the lesser of (i) the maximum insurable value of the improvements securing such
Mortgage Loan from time to time or (ii) the combined principal balance owing on
such Mortgage Loan and any mortgage loan senior to such Mortgage Loan from time
to time. The Servicer shall also cause to be maintained on property acquired
upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire
insurance with extended coverage in an amount which is at least equal to the
amount necessary to avoid the application of any co-insurance clause contained
in the related hazard insurance policy. Amounts collected by the Servicer under
any such policies (other than amounts to be applied to the restoration or repair
of the related Mortgaged Property or property thus acquired or amounts released
to the Mortgagor in accordance with the Servicer's normal servicing procedures)
shall be deposited in the Collection Account to the extent called for by Section
3.02. In cases in which any Mortgaged Property is located at any time during the
life of a Mortgage Loan in a federally designated flood area, the hazard
insurance to be maintained for the related Mortgage Loan shall include flood
insurance (to the extent available). All such flood insurance shall be in
amounts equal to the lesser of (i) the amount required to compensate for any
loss or damage to the Mortgaged Property on a replacement cost basis and (ii)
the maximum amount of such insurance available for the related Mortgaged
Property under the national flood insurance program (assuming that the area in
which such Mortgaged Property is located is participating in such program). The
Servicer shall be under no obligation to require that any Mortgagor maintain
earthquake or other additional insurance and shall be under no obligation itself
to maintain any such additional insurance on property acquired in respect of a
Mortgage Loan, other than pursuant to such applicable laws and regulations as
shall at any time be in force and as shall require such additional insurance. If
the Servicer shall obtain and maintain a blanket policy consistent with its
general mortgage servicing activities insuring against hazard losses on all of
the Mortgage Loans, it shall conclusively be deemed to have satisfied its
obligations as set forth in the first sentence of this Section 3.04, it being
understood and agreed that such policy may contain a deductible clause, in which
case the Servicer shall, in the event that there shall not have been maintained
on the related Mortgaged Property a policy complying with the first sentence of
this Section 3.04 and there shall have been a loss which would have been covered
by such policy, deposit in the Collection Account the amount not otherwise
payable under the blanket policy because of such deductible clause. Any such
deposit by the Servicer shall be made on the last Business Day of the Collection
Period in the month in which payments under any such policy would have been
deposited in the Collection Account. In connection with its activities
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as administrator and servicer of the Mortgage Loans, the Servicer agrees to
present, on behalf of itself, the Company, the Issuer, the Indenture Trustee and
the Securityholders, claims under any such blanket policy.
Section 3.05. MODIFICATION AGREEMENTS. The Servicer or the related
Subservicer, as the case may be, shall be entitled to (A) execute assumption
agreements, substitution agreements, and instruments of satisfaction or
cancellation or of partial or full release or discharge, or any other document
contemplated by this Servicing Agreement and other comparable instruments with
respect to the Mortgage Loans and with respect to the Mortgaged Properties
subject to the Mortgages (and the Company shall promptly execute any such
documents on request of the Servicer) and (B) approve the granting of an
easement thereon in favor of another Person, any alteration or demolition of the
related Mortgaged Property or other similar matters, if it has determined,
exercising its good faith business judgment in the same manner as it would if it
were the owner of the related Mortgage Loan, that the security for, and the
timely and full collectability of, such Mortgage Loan would not be adversely
affected thereby. A partial release pursuant to this Section 3.05 shall be
permitted only if the Combined Loan-to-Value Ratio for such Mortgage Loan after
such partial release does not exceed the Combined Loan-to-Value Ratio for such
Mortgage Loan as of the Cut-Off Date. Any fee collected by the Servicer or the
related Sub servicer for processing such request will be retained by the
Servicer or such Subservicer as additional servicing compensation.
Section 3.06. TRUST ESTATE; RELATED DOCUMENTS. (a) When required by the
provisions of this Servicing Agreement, the Company shall execute instruments to
release property from the terms of this Servicing Agreement, or convey the
Company's interest in the same, in a manner and under circumstances which are
not inconsistent with the provisions of this Servicing Agreement. No party
relying upon an instrument executed by the Company as provided in this Article
III shall be bound to ascertain the Company's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) If from time to time the Servicer shall deliver to the Company or
the related Custodian copies of any written assurance, assumption agreement or
substitution agreement or other similar agreement pursuant to Section 3.05, the
Company or the related Custodian shall check that each of such documents
purports to be an original executed copy (or a copy of the original executed
document if the original executed copy has been submitted for recording and has
not yet been returned) and, if so, shall file such documents, and upon receipt
of the original executed copy from the applicable recording office or receipt of
a copy thereof certified by the applicable recording office shall file such
originals or certified copies with the Related Documents. If any such documents
submitted by the Servicer do not meet the above qualifications, such documents
shall promptly be returned by the Company or the related Custodian to the
Servicer, with a direction to the Servicer to forward the correct documentation.
(c) Upon Company Request accompanied by an Officers' Certificate of the
Servicer pursuant to Section 3.09 of this Servicing Agreement to the effect that
a Mortgage Loan has been the subject of a final payment or a prepayment in full
and the related Mortgage Loan has been terminated or that substantially all
Liquidation Proceeds which have been determined by the
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Servicer in its reasonable judgment to be finally recoverable have been
recovered, and upon deposit to the Collection Account of such final monthly
payment, prepayment in full together with accrued and unpaid interest to the
date of such payment with respect to such Mortgage Loan or, if applicable,
Liquidation Proceeds, the Company shall promptly release the Related Documents
to the Servicer, along with such documents as the Servicer or the Mortgagor may
request as contemplated by the Servicing Agreement to evidence satisfaction and
discharge of such Mortgage Loan. If from time to time and as appropriate for the
servicing or foreclosure of any Mortgage Loan, the Servicer requests the Company
or the related Custodian to release the Related Documents and delivers to the
Company or the related Custodian a trust receipt reasonably satisfactory to the
Company or the related Custodian and signed by a Responsible Officer of the
Servicer, the Company or the related Custodian shall release the Related
Documents to the Servicer. If such Mortgage Loans shall be liquidated and the
Company or the related Custodian receives a certificate from the Servicer as
provided above, then, upon request of the Company or the related Custodian shall
release the trust receipt to the Servicer.
Section 3.07. REALIZATION UPON DEFAULTED MORTGAGE LOANS. With respect
to such of the Mortgage Loans as come into and continue in default, the Servicer
will decide whether to foreclose upon the Mortgaged Properties securing such
Mortgage Loans or write off the unpaid principal balance of the Mortgage Loans
as bad debt; PROVIDED that if the Servicer has actual knowledge that any
Mortgaged Property is affected by hazardous or toxic wastes or substances and
that the acquisition of such Mortgaged Property would not be commercially
reasonable, then the Servicer will not cause the Company to acquire title to
such Mortgaged Property in a foreclosure or similar proceeding. In connection
with such foreclosure or other conversion, the Servicer shall follow such
practices (including, in the case of any default on a related senior mortgage
loan, the advancing of funds to correct such default) and procedures as it shall
deem necessary or advisable and as shall be normal and usual in its general
mortgage servicing activities; PROVIDED that the Servicer shall not be liable in
any respect hereunder if the Servicer is acting in connection with any such
foreclosure or attempted foreclosure which is not completed or other conversion
in a manner that is consistent with the provisions of this Servicing Agreement.
The foregoing is subject to the proviso that the Servicer shall not be required
to expend its own funds in connection with any foreclosure or attempted
foreclosure which is not completed or towards the correction of any default on a
related senior mortgage loan or restoration of any property unless it shall
deter mine that such expenditure will increase Net Liquidation Proceeds. In the
event of a determination by the Servicer that any such expenditure previously
made pursuant to this Section 3.07 will not be reimbursable from Net Liquidation
Proceeds, the Servicer shall be entitled to reimbursement of its funds so
expended pursuant to Section 3.03.
Notwithstanding any provision of this Servicing Agreement, a Mortgage
Loan may be deemed to be finally liquidated if substantially all amounts
expected by the Servicer to be received in connection with the related defaulted
Mortgage Loan have been received; PROVIDED, HOWEVER, any subsequent collections
with respect to any such Mortgage Loan shall be deposited to the Collection
Account. For purposes of determining the amount of any Liquidation Proceeds or
Insurance Proceeds, or other unscheduled collections, the Servicer may take into
account minimal amounts of additional receipts expected to be received or any
estimated additional liquidation expenses expected to be incurred in connection
with the related defaulted Mortgage Loan.
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In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Company and the Indenture Trustee as their interests may
appear, or to their respective nominee on behalf of Securityholders.
Notwithstanding any such acquisition of title and cancellation of the related
Mortgage Loan, such Mortgaged Property shall (except as otherwise expressly
provided herein) be considered to be an outstanding Mortgage Loan held as an
asset of the Company until such time as such property shall be sold. Consistent
with the foregoing for purposes of all calculations hereunder, so long as such
Mortgaged Property shall be considered to be an outstanding Mortgage Loan it
shall be assumed that, notwithstanding that the indebtedness evidenced by the
related Mortgage Note shall have been discharged, such Mortgage Note in effect
at the time of any such acquisition of title before any adjustment thereto by
reason of any bankruptcy or similar proceeding or any moratorium or similar
waiver or grace period will remain in effect.
Any proceeds from foreclosure proceedings or the purchase or repurchase
of any Mortgage Loan pursuant to the terms of this Servicing Agreement, as well
as any recovery resulting from a collection of Liquidation Proceeds or Insurance
Proceeds, will be applied in the following order of priority: first, to
reimburse the Servicer or the related Subservicer in accordance with Section
3.07; second, to all Servicing Fees payable therefrom; third, to the extent of
accrued and unpaid interest on the related Mortgage Loan, at the Net Mortgage
Rate to the Due Date prior to the Payment Date on which such amounts are to be
deposited in the Payment Account; fourth, as a recovery of principal on the
Mortgage Loan; and fifth, to Foreclosure Profits.
Section 3.08. COMPANY AND INDENTURE TRUSTEE TO COOPERATE. On or before
each Payment Date, the Servicer will notify the Indenture Trustee or the
relevant Custodian, with a copy to the Company, of the termination of or the
payment in full and the termination of any Mortgage Loan during the preceding
Collection Period, which notification shall be by a certification in substan
tially the form attached hereto as Exhibit C (which certification shall include
a statement to the effect that all amounts received in connection with such
payment which are required to be deposited in the Collection Account pursuant to
Section 3.02 have been so deposited or credited) of a Servicing Officer. Upon
receipt of payment in full, the Servicer is authorized to execute, pursuant to
the authorization contained in Section 3.01, if the assignments of Mortgage have
been recorded as required under the Mortgage Loan Purchase Agreement, an
instrument of satisfaction regarding the related Mortgage, which instrument of
satisfaction shall be recorded by the Servicer if required by applicable law and
be delivered to the Person entitled thereto. It is understood and agreed that
any expenses incurred in connection with such instrument of satisfaction or
transfer shall be reimbursed from amounts deposited in the Collection Account.
From time to time and as appropriate for the servicing or foreclosure of any
Mortgage Loan, the Indenture Trustee or the relevant Custodian shall, upon
request of the Servicer and delivery to the Indenture Trustee or relevant
Custodian, with a copy to the Company, of a Request for Release, in the form
annexed hereto as Exhibit D, signed by a Servicing Officer, release or cause to
be released the related Mortgage File to the Servicer and the Company and
Indenture Trustee shall promptly execute such documents, in the forms provided
by the Servicer, as shall be necessary for the prosecution of any such
proceedings or the taking of other servicing actions. Such trust receipt shall
obligate the Servicer to return the Mortgage File to the Indenture Trustee or
the related Custodian (as specified in such receipt) when the need therefor by
the Servicer no longer exists unless the Mortgage Loan
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shall be liquidated, in which case, upon receipt of a certificate of a Servicing
Officer similar to that hereinabove specified, the trust receipt shall be
released to the Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
Mortgage Loan that is in default following recordation of the assignments of
Mortgage in accordance with the provisions of the Mortgage Loan Purchase
Agreement, the Company shall, if so requested in writing by the Servicer,
promptly execute an appropriate assignment in the form provided by the Servicer
to assign such Mortgage Loan for the purpose of collection to the Servicer (any
such assignment shall unambiguously indicate that the assignment is for the
purpose of collection only), and, upon such assignment, such assignee for
collection will thereupon bring all required actions in its own name and
otherwise enforce the terms of the Mortgage Loan and deposit or credit the Net
Liquidation Proceeds, exclusive of Foreclosure Profits, received with respect
thereto in the Collection Account. In the event that all delinquent payments due
under any such Mortgage Loan are paid by the Mortgagor and any other defaults
are cured then the assignee for collection shall promptly reassign such Mortgage
Loan to the Company and return all Related Documents to the place where the
related Mortgage File was being maintained.
In connection with the Company's obligation to cooperate as provided in
this Section 3.08 and all other provisions of this Servicing Agreement requiring
the Company to authorize or permit any actions to be taken with respect to the
Mortgage Loans, the Indenture Trustee, as pledgee of the Mortgage Collateral in
the Company, expressly agrees, on behalf of the Company, to take all such
actions on behalf of the Company and to promptly execute and return all
instruments reasonably required by the Servicer in connection therewith;
PROVIDED that if the Servicer shall request a signature of the Indenture
Trustee, on behalf of the Company, the Servicer will deliver to the Indenture
Trustee an Officer's Certificate stating that such signature is necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties under this Servicing Agreement.
Section 3.09. SERVICING COMPENSATION; PAYMENT OF CERTAIN EXPENSES BY
SERVICER. The Servicer shall be entitled to receive the Servicing Fee in
accordance with Section 3.03 as compen sation for its services in connection
with servicing the Mortgage Loans. Moreover, additional servicing compensation
in the form of late payment charges and certain other receipts not required to
be deposited in the Collection Account as specified in Section 3.02 shall be
retained by the Servicer. The Servicer shall be required to pay all expenses
incurred by it in connection with its activities hereunder (including payment of
all other fees and expenses not expressly stated hereunder to be for the account
of the Securityholders, including, without limitation, the fees and expenses of
the Administrator, Owner Trustee, Indenture Trustee and any Custodian) and shall
not be entitled to reimbursement therefor except as specifically provided
herein.
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE. (a) The Servicer will
deliver to the Company, the Issuer and the Indenture Trustee, with a copy to the
Credit Enhancer, on or before ________ of each year, beginning ________, ____,
an Officer's Certificate stating that (i) a review of the activities of the
Servicer during the preceding fiscal year and of its performance under this
Servicing Agreement has been made under such officer's supervision, (ii) to the
best of such officer's knowledge, based on such review, the Servicer has
fulfilled all its material
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obligations under this Servicing Agreement in all material respects throughout
such fiscal year, or, if there has been a material default in the fulfillment of
any such obligation, specifying each such default known to such officer and the
nature and status thereof and (iii) to the best of such officer's knowledge,
based on consultation with counsel, any continuation Uniform Commercial Code
financing statement or other Uniform Commercial Code financing statement during
the preceding fiscal year which the Servicer determined was necessary to be
filed was filed in order to continue protection of the interest of the Company
in the Mortgage Loans. In addition, the Servicer shall deliver or cause each
Subservicer to deliver to the Indenture Trustee, the Company, the Issuer, the
Depositor and the Credit Enhancer a copy of each certification, accountant's
report or other document upon which the foregoing Officer's Certificate is based
with respect to such Subservicer's performance.
(b) The Servicer shall deliver to the Company, the Issuer and the
Indenture Trustee, with a copy to the Credit Enhancer, promptly after having
obtained knowledge thereof, but in no event later than five Business Days
thereafter, written notice by means of an Officer's Certificate of any event
which with the giving of notice or the lapse of time or both, would become a
Servicer of Default.
Section 3.11. ANNUAL SERVICING REPORT. On or before ________ of each
year, beginning ________, ____, the Servicer at its expense shall cause a firm
of nationally recognized independent public accountants (who may also render
other services to the Servicer) to furnish a report to the Company, the Issuer,
the Indenture Trustee, the Depositor, the Credit Enhancer and each Rating Agency
to the effect that such firm has examined certain documents and records relating
to the servicing of mortgage loans by the Servicer during the most recent
calendar year then ended under servicing agreements (including this Servicing
Agreement) substantially similar to this Servicing Agreement and that such
examination, which has been conducted substantially in compliance with the audit
guide for audits of non-supervised mortgagees approved by the Department of
Housing and Urban Development for use by independent public accountants (to the
extent that the procedures in such audit guide are applicable to the servicing
obligations set forth in such agreements), has disclosed no items of
noncompliance with the provisions of this Servicing Agreement which, in the
opinion of such firm, are material, except for such items of non compliance as
shall be set forth in such report. In rendering such statement, such firm may
rely, as to matters relating to direct servicing of mortgage loans by
Subservicers, upon comparable statements for examinations conducted
substantially in the manner described above (rendered within one year of such
statement) of independent public accountants with respect to the related
Subservicer. For purposes of such statement, such firm may conclusively assume
that all servicing agreements among the Company and the Servicer relating to
home equity mortgage loans are substantially similar one to another except for
any such servicing agreement which, by its terms, specifically states otherwise.
Section 3.12. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
THE MORTGAGE LOANS. Whenever required by statute or regulation, the Servicer
shall provide to the Credit Enhancer, any Securityholder upon reasonable request
(or a regulator for a Securityholder) or the Indenture Trustee, reasonable
access to the documentation regarding the Mortgage Loans such access being
afforded without charge but only upon reasonable request and during normal
business
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hours at the offices of the Servicer. Nothing in this Section 3.12 shall
derogate from the obligation of the Servicer to observe any applicable law
prohibiting disclosure of information regarding the Mortgagors and the failure
of the Servicer to provide access as provided in this Section 3.12 as a result
of such obligation shall not constitute a breach of this Section 3.12.
Section 3.13. MAINTENANCE OF CERTAIN SERVICING INSURANCE POLICIES. The
Servicer shall during the term of its service as servicer maintain in force (i)
a policy or policies of insurance covering errors and omissions in the
performance of its obligations as servicer hereunder and (ii) a fidelity bond in
respect of its officers, employees or agents. Each such policy or policies and
bond shall be at least equal to the coverage that would be required by FNMA or
FHLMC, whichever is greater, for Persons performing servicing for mortgage loans
purchased by such entity.
Section 3.14. INFORMATION REQUIRED BY THE INTERNAL REVENUE SERVICE
GENERALLY AND REPORTS OF FORECLOSURES AND ABANDONMENTS OF MORTGAGED PROPERTY.
The Servicer shall prepare and deliver all federal and state information reports
when and as required by all applicable state and federal income tax laws. In
particular, with respect to the requirement under Section 6050J of the Code to
the effect that the Servicer or Subservicer shall make reports of foreclosures
and abandonments of any mortgaged property for each year beginning in ____, the
Servicer or Subservicer shall file reports relating to each instance occurring
during the previous calendar year in which the Servicer (i) on behalf of the
Company, acquires an interest in any Mortgaged Property through foreclosure or
other comparable conversion in full or partial satisfaction of a Mortgage Loan,
or (ii) knows or has reason to know that any Mortgaged Property has been
abandoned. The reports from the Servicer or Subservicer shall be in form and
substance sufficient to meet the reporting requirements imposed by Section 6050J
and Section 6050H (reports relating to mortgage interest received) of the Code.
Section 3.15. OPTIONAL REPURCHASE OF DEFAULTED MORTGAGE LOANS.
Notwithstanding any provision in Section 3.07 to the contrary, the Servicer may
repurchase any Mortgage Loan delinquent in payment for a period of 60 days or
longer for a price equal to the Repurchase Price.
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ARTICLE IV
Servicing Certificate
Section 4.01. STATEMENTS TO SECURITYHOLDERS. (a) With respect to each
Payment Date, the Servicer shall forward to the Indenture Trustee and the
Indenture Trustee pursuant to Section 3.26 of the Indenture shall forward or
cause to be forwarded by mail to each Certificateholder, Noteholder, the Credit
Enhancer, the Depositor, the Owner Trustee, the Certificate Paying Agent and
each Rating Agency, a statement setting forth the following information as to
the Notes and Certificates, to the extent applicable:
(i) the aggregate amount of (a) Security Interest
Collections with respect to the Notes and the Certificates, (b)
aggregate Security Principal Collections with respect to the Notes and
the Certificates and (c) Security Collections for the related
Collection Period with respect to the Notes and the Certificates;
(ii) the amount of such distribution to the
Securityholders of the Notes and the Certificates applied to reduce the
principal balance thereof and separately stating the portion thereof in
respect of the Accelerated Principal Distribution Amount and the amount
to be deposited in the Funding Account on such Payment Date;
(iii) the amount of such distribution to the
Securityholders of the Notes and the Certificates allocable to interest
and separately stating the portion thereof in respect of overdue
accrued interest;
(iv) the Credit Enhancement Draw Amount, if any, for such
Payment Date and the aggregate amount of prior draws thereunder not yet
reimbursed;
(v) the aggregate Principal Balance of (a) the ________
Loans, (b) the ______ Loans, (c) the _________ Loans, as of the end of
the preceding Collection Period and (d) all of the Mortgage Loans;
(vi) the number and aggregate Principal Balances of
Mortgage Loans (a) as to which the Minimum Monthly Payment is
delinquent for 30-59 days, 60-89 days, 90-179 days and 180 or more
days, respectively and (b) that have become REO, in each case as of the
end of the preceding Collection Period; PROVIDED, HOWEVER, that such
information will not be provided on the statements relating to the
first Payment Date;
(vii) the Weighted Average Net Mortgage Rate for the
related Collection Period and the Weighted Average Net Mortgage Rate
for (a) the ________ Loans, (b) the _______Loans and (c) the _________
Loans for the related Collection Period;
(viii) the Special Capital Distribution Amount and the
Required Special Capital Distribution Amount, in each case as the end
of the related Collection Period; and
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(ix) the aggregate amount of Additional Loans acquired
during the previous Collection Period with amounts in respect of Net
Principal Collections from the Funding Account;
(x) the aggregate Liquidation Loss Amounts with respect
to the related Collection Period, the amount of any remaining Carryover
Loss Amount with respect to the Notes and Certificates, respectively,
and the aggregate of the Liquidation Loss Amounts from all Collection
Periods to date expressed as a percentage of the sum of (a) the Cut-Off
Date Pool Balance and (b) the amount by which the Pool Balance as of
the latest date that the Additional Loans have been transferred to the
Company exceeds the Cut-Off Date Pool Balance;
(xi) any unpaid interest on the Notes and Certificates,
respectively, after such Distribution Date;
(xii) the aggregate Principal Balance of each Class of
Notes and of the Certificates after giving effect to the distribution
of principal on such Payment Date;
(xiii) the respective Security Percentage applicable to the
Notes and Certificates, after application of payments made on such
Payment Date; and
(xiv) the amount distributed pursuant to Section
3.05(a)(xi) of the Indenture on such Payment Date.
In the case of information furnished pursuant to clauses (ii) and (iii)
above, the amounts shall be expressed as an aggregate dollar amount per Note or
Certificate with a $1,000 denomination.
Prior to the close of business on the Business Day next succeeding each
Determination Date, the Servicer shall furnish a written statement to the
Company, the Owner Trustee, the Depositor, the Certificate Paying Agent and the
Indenture Trustee setting forth (i) all the foregoing information, (ii) the
aggregate amounts required to be withdrawn from the Collection Account and
deposited into the Payment Account on the Business Day preceding the Payment
Date pursuant to Section 3.03 and (iii) the amounts (A) withdrawn from the
Payment Account and deposited to the Funding Account pursuant to Section 8.02(b)
of the Indenture and (B) withdrawn from the Funding Account and deposited to the
Collection Account pursuant to Section 8.02(c)(i) of the Indenture. The
determination by the Servicer of such amounts shall, in the absence of obvious
error, be presumptively deemed to be correct for all purposes hereunder and the
Owner Trustee and Indenture Trustee shall be protected in relying upon the same
without any independent check or verification. In addition, upon the Company's
written request, the Servicer shall promptly furnish information reasonably
requested by the Company that is reasonably available to the Servicer to enable
the Company to perform its federal and state income tax reporting obligations.
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ARTICLE V
Distribution and Payment Accounts
Section 5.01. DISTRIBUTION ACCOUNT. The Servicer shall establish and
maintain a separate trust account (the "Distribution Account") titled "DLJ MBN
Trust Series 199_-_, [for the benefit of the Noteholders, the Certificateholders
and the Credit Enhancer pursuant to the Indenture, dated as of _______________,
between DLJ MBN Trust Series 199_-_ and [Name of Indenture Trustee]. The
Distribution Account shall be an Eligible Account. On the Business Day prior to
each Payment Date, (i) amounts deposited into the Distribution Account pursuant
to Section 3.03(i) hereof will be distributed by the Servicer in accordance with
Section ____ of the [Trust] Agreement, and (ii) the portion of such amounts then
distributable with respect to the Mortgage Collateral shall be deposited into
the Payment Account. [The Servicer shall invest or cause the institution
maintaining the Distribution Account to invest the funds in the Distribution
Account in Eligible Investments designated in the name of the [Servicer], which
shall mature not later than the Business Day next preceding the Payment Date
next following the date of such investment (except that (i) any investment in
the institution with which the Distribution Account is maintained may mature on
such Payment Date and (ii) any other investment may mature on such Payment Date
if the Servicer shall advance funds on such Payment Date to the Payment Account
in the amount payable on such investment on such Payment Date, pending receipt
thereof to the extent necessary to make distributions on the Securities) and
shall not be sold or disposed of prior to maturity. All income and gain realized
from any such investment shall be for the benefit of the Servicer and shall be
subject to its withdrawal or order from time to time. The amount of any losses
incurred in respect of any such investments shall be deposited in the
Distribution Account by the Servicer out of its own funds immediately as
realized.]
Section 5.02. PAYMENT ACCOUNT. The Indenture Trustee shall establish
and maintain a separate trust account (the "Payment Account") titled
"__________________________________, as Indenture Trustee, for the benefit of
the Noteholders, the Certificate Paying Agent and the Credit Enhancer pursuant
to the Indenture, dated as of _______________, between DLJ MBN Trust Series
199_-__ and __________________________________". The Payment Account shall be an
Eligible Account. On each Payment Date, amounts on deposit in the Payment
Account will be distributed by the Indenture Trustee in accordance with Section
3.05 of the Indenture. The Indenture Trustee shall, upon written request from
the Servicer, invest or cause the institution maintaining the Payment Account to
invest the funds in the Payment Account in Eligible Investments designated in
the name of the Indenture Trustee, which shall mature not later than the
Business Day next preceding the Payment Date next following the date of such
investment (except that (i) any investment in the institution with which the
Payment Account is maintained may mature on such Payment Date and (ii) any other
investment may mature on such Payment Date if the Indenture Trustee shall
advance funds on such Payment Date to the Payment Account in the amount payable
on such investment on such Payment Date, pending receipt thereof to the extent
necessary to make distributions on the Securities) and shall not be sold or
disposed of prior to maturity. All income and gain realized from any such
investment shall be for the benefit of the Servicer and shall be subject to its
withdrawal or order from time to time. The amount of any
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losses incurred in respect of any such investments shall be deposited in the
Payment Account by the Servicer out of its own funds immediately as realized.
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ARTICLE VI
The Servicer
Section 6.01. LIABILITY OF THE SERVICER. The Servicer shall be liable
in accordance herewith only to the extent of the obligations specifically
imposed upon and undertaken by the Servicer herein.
Section 6.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SERVICER. Any corporation into which the Servicer may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Servicer
shall be a party, or any corporation succeeding to the business of the Servicer,
shall be the successor of the Servicer, hereunder, without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
The Servicer may assign its rights and delegate its duties and
obligations under this Servicing Agreement; PROVIDED that the Person accepting
such assignment or delegation shall be a Person which is qualified to service
mortgage loans on behalf of FNMA or FHLMC, is reasonably satisfactory to the
Indenture Trustee (as pledgee of the Mortgage Collateral), the Company and the
Credit Enhancer, is willing to service the Mortgage Loans and executes and
delivers to the Indenture Trustee and the Company an agreement, in form and
substance reason ably satisfactory to the Credit Enhancer, the Indenture Trustee
and the Company, which contains an assumption by such Person of the due and
punctual performance and observance of each covenant and condition to be
performed or observed by the Servicer under this Servicing Agreement; PROVIDED
further that each Rating Agency's rating of the Securities in effect immediately
prior to such assignment and delegation will not be qualified, reduced, or
withdrawn as a result of such assignment and delegation (as evidenced by a
letter to such effect from each Rating Agency) or considered to be below
investment grade without taking into account the Credit Enhancement Instrument.
Section 6.03. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS.
Neither the Servicer nor any of the directors or officers or employees or agents
of the Servicer shall be under any liability to the Company, the Issuer, the
Owner Trustee, the Indenture Trustee or the Securityholders for any action taken
or for refraining from the taking of any action in good faith pursuant to this
Servicing Agreement, PROVIDED, HOWEVER, that this provision shall not protect
the Servicer or any such Person against any liability which would otherwise be
imposed by reason of its willful misfeasance, bad faith or gross negligence in
the performance of its duties hereunder or by reason of its reckless disregard
of its obligations and duties hereunder. The Servicer and any director or
officer or employee or agent of the Servicer may rely in good faith on any
document of any kind PRIMA FACIE properly executed and submitted by any Person
respecting any matters arising hereunder. The Servicer and any director or
officer or employee or agent of the Servicer shall be indemnified by the Company
and held harmless against any loss, liability or expense incurred in connection
with any legal action relating to this Servicing Agreement or the Securities,
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including any amount paid to the Owner Trustee or the Indenture Trustee pursuant
to Section 6.06(b), other than any loss, liability or expense related to any
specific Mortgage Loan or Mortgage Loans (except as any such loss, liability or
expense shall be otherwise reimbursable pursuant to this Servicing Agreement)
and any loss, liability or expense incurred by reason of its willful
misfeasance, bad faith or gross negligence in the performance of its duties
hereunder or by reason of its reckless disregard of its obligations and duties
hereunder. The Servicer shall not be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its duties to
service the Mortgage Loans in accordance with this Servicing Agreement, and
which in its opinion may involve it in any expense or liability; PROVIDED,
HOWEVER, that the Servicer may in its sole discretion undertake any such action
which it may deem necessary or desirable in respect of this Servicing Agreement,
and the rights and duties of the parties hereto and the interests of the
Securityholders hereunder. In such event, the reasonable legal expenses and
costs of such action and any liability resulting therefrom shall be expenses,
costs and liabilities of the Company, and the Servicer shall be entitled to be
reimbursed therefor. The Servicer's right to indemnity or reimbursement pursuant
to this Section 6.03 shall survive any resignation or termination of the
Servicer pursuant to Section 6.04 or 7.01 with respect to any losses, expenses,
costs or liabilities arising prior to such resignation or termination (or
arising from events that occurred prior to such resignation or termination).
Section 6.04. SERVICER NOT TO RESIGN. Subject to the provisions of
Section 6.02, the Servicer shall not resign from the obligations and duties
hereby imposed on it except (i) upon determination that the performance of its
obligations or duties hereunder are no longer permissible under applicable law
or are in material conflict by reason of applicable law with any other activi
ties carried on by it or its subsidiaries or Affiliates, the other activities of
the Servicer so causing such a conflict being of a type and nature carried on by
the Servicer or its subsidiaries or Affiliates at the date of this Servicing
Agreement or (ii) upon satisfaction of the following conditions: (a) the
Servicer has proposed a successor servicer to the Company, the Administrator and
the Indenture Trustee in writing and such proposed successor servicer is
reasonably acceptable to the Company, the Administrator, the Indenture Trustee
and the Credit Enhancer; (b) each Rating Agency shall have delivered a letter to
the Company, the Credit Enhancer and the Indenture Trustee prior to the
appointment of the successor servicer stating that the proposed appointment of
such successor servicer as Servicer hereunder will not result in the reduction
or withdrawal of the then current rating of the Securities; and (c) such
proposed successor servicer is reasonably acceptable to the Credit Enhancer, as
evidenced by a letter to the Company and the Indenture Trustee; PROVIDED,
HOWEVER, that no such resignation by the Servicer shall become effective until
such successor servicer or, in the case of (i) above, the Indenture Trustee, as
pledgee of the Mortgage Collateral, shall have assumed the Servicer's
responsibilities and obligations hereunder or the Indenture Trustee, as pledgee
of the Mortgage Collateral, shall have designated a successor servicer in
accordance with Section 7.02. Any such resignation shall not relieve the
Servicer of responsibility for any of the obligations specified in Sections 7.01
and 7.02 as obligations that survive the resignation or termination of the
Servicer. The Servicer shall have no claim (whether by subrogation or otherwise)
or other action against any Securityholder or the Credit Enhancer for any
amounts paid by the Servicer pursuant to any provision of this Servicing
Agreement. Any such determination permitting the resignation of the Servicer
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Indenture Trustee and the Credit Enhancer.
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Section 6.05. DELEGATION OF DUTIES. In the ordinary course of business,
the Servicer at any time may delegate any of its duties hereunder to any Person,
including any of its Affiliates, who agrees to conduct such duties in accordance
with standards comparable to those with which the Servicer complies pursuant to
Section 3.01. Such delegation shall not relieve the Servicer of its liabilities
and responsibilities with respect to such duties and shall not constitute a
resignation within the meaning of Section 6.04.
Section 6.06. SERVICER TO PAY INDENTURE TRUSTEE'S AND OWNER TRUSTEE'S
FEES AND EXPENSES; INDEMNIFICATION. (a) The Servicer covenants and agrees to pay
to the Owner Trustee, the Indenture Trustee and any co-trustee of the Indenture
Trustee from time to time, and the Owner Trustee, the Indenture Trustee and any
such co-trustee shall be entitled to, reasonable compensation (which shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust) for all services rendered by each of them in the execution of
the trusts created under the Trust Agreement and the Indenture and in the
exercise and performance of any of the powers and duties under the Trust
Agreement or the Indenture, as the case may be, of the Owner Trustee, the
Indenture Trustee and any co-trustee, and the Servicer will pay or reimburse the
Indenture Trustee and any co-trustee upon request for all reasonable expenses,
disbursements and advances incurred or made by the Indenture Trustee or any
co-trustee in accordance with any of the provisions of this Servicing Agreement
except any such expense, disbursement or advance as may arise from its
negligence or bad faith.
(b) The Servicer agrees to indemnify the Indenture Trustee and the
Owner Trustee for, and to hold the Indenture Trustee and the Owner Trustee, as
the case may be, harmless against, any loss, liability or expense incurred
without negligence or willful misconduct on its part, arising out of, or in
connection with, the acceptance and administration of the Company and the assets
thereof, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against any claim in connection with the exercise
or performance of any of its powers or duties under any Basic Document, provided
that:
(i) with respect to any such claim, the Indenture
Trustee or Owner Trustee, as the case may be, shall have given the
Servicer written notice thereof promptly after the Indenture Trustee or
Owner Trustee, as the case may be, shall have actual knowledge thereof;
(ii) while maintaining control over its own defense, the
Company, the Indenture Trustee or Owner Trustee, as the case may be,
shall cooperate and consult fully with the Servicer in preparing such
defense; and
(iii) notwithstanding anything in this Servicing
Agreement to the contrary, the Servicer shall not be liable for
settlement of any claim by the Indenture Trustee or the Owner Trustee,
as the case may be, entered into without the prior consent of the
Servicer, which consent shall not be unreasonably withheld.
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No termination of this Servicing Agreement shall affect the obligations created
by this Section 6.06 of the Servicer to indemnify the Indenture Trustee and the
Owner Trustee under the condi tions and to the extent set forth herein.
Notwithstanding the foregoing, the indemnification provided by the
Servicer in this Section 6.06(b) shall not pertain to any loss, liability or
expense of the Indenture Trustee or the Owner Trustee, including the costs and
expenses of defending itself against any claim, incurred in connection with any
actions taken by the Indenture Trustee or the Owner Trustee at the direction of
the Noteholders or Certificateholders, as the case may be, pursuant to the terms
of this Servicing Agreement.
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ARTICLE VII
Default
Section 7.01. SERVICING DEFAULT. If any one of the following events
("Servicing Default")shall occur and be continuing:
(i) Any failure by the Servicer to deposit in the
Collection Account, the Funding Account or Payment Account any deposit
required to be made under the terms of this Servicing Agreement which
continues unremedied for a period of five Business Days after the date
upon which written notice of such failure shall have been given to the
Servicer by the Company, the Issuer or the Indenture Trustee or to the
Servicer, the Company, the Issuer and the Indenture Trustee by the
Credit Enhancer; or
(ii) Failure on the part of the Servicer duly to observe
or perform in any material respect any other covenants or agreements of
the Servicer set forth in the Securi ties or in this Servicing
Agreement, which failure, in each case, materially and adversely
affects the interests of Securityholders or the Credit Enhancer and
which continues unremedied for a period of 45 days after the date on
which written notice of such failure, requiring the same to be
remedied, and stating that such notice is a "Notice of Default"
hereunder, shall have been given to the Servicer by the Company, the
Issuer or the Indenture Trustee or to the Servicer, the Company, the
Issuer and the Indenture Trustee by the Credit Enhancer; or
(iii) The entry against the Servicer of a decree or order
by a court or agency or supervisory authority having jurisdiction in
the premises for the appointment of a trustee, conservator, receiver or
liquidator in any insolvency, conservatorship, receivership,
readjustment of debt, marshalling of assets and liabilities or similar
proceed ings, or for the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for
a period of 60 consecutive days; or
(iv) The Servicer shall voluntarily go into liquidation,
consent to the appointment of a conservator, receiver, liquidator or
similar person in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to all or substantially all of its property,
or a decree or order of a court, agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator,
receiver, liquidator or similar person in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceed ings,
or for the winding-up or liquidation of its affairs, shall have been
entered against the Servicer and such decree or order shall have
remained in force undischarged, unbonded or unstayed for a period of 60
days; or the Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage
of any appli cable insolvency or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations; or
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(v) Any failure by the Seller (so long as the Seller is
the Servicer) or the Servicer, as the case may be, to pay when due any
amount payable by it under the terms of the Insurance Agreement which
continues unremedied for a period of three (3) Business Days after the
date upon which written notice of such failure shall have been given to
the Seller (so long as the Seller is the Servicer) or the Servicer, as
the case may be; or
(vi) Failure on the part of the Seller or the Servicer
to duly perform in any material respect any covenant or agreement set
forth in the Insurance Agreement, which failure in each case materially
and adversely affects the interests of the Credit Enhancer and
continues unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied,
shall have been given to the Depositor, the Indenture Trustee, the
Seller or the Servicer, as the case may be, by the Credit Enhancer.
then, and in every such case, other than that set forth in (vi) hereof, so long
as a Servicing Default shall not have been remedied by the Servicer, either the
Company, subject to the direction of the Indenture Trustee as pledgee of the
Mortgage Collateral, with the consent of the Credit Enhancer, or the Credit
Enhancer, by notice then given in writing to the Servicer (and to the Company
and the Issuer if given by the Credit Enhancer) and in the case of the event set
forth in (vi) hereof, the Credit Enhancer with the consent of Securityholders at
least 51% of the aggregate Principal Balance of the Notes and the Certificates
may terminate all of the rights and obligations of the Servicer as servicer
under this Servicing Agreement other than its right to receive servicing
compensation and expenses for servicing the Mortgage Loans hereunder during any
period prior to the date of such termination and the Company, subject to the
direction of the Indenture Trustee as pledgee of the Mortgage Collateral, with
the consent of the Credit Enhancer, or the Credit Enhancer may exercise any and
all other remedies available at law or equity. Any such notice to the Servicer
shall also be given to each Rating Agency, the Credit Enhancer, the Company and
the Issuer. On or after the receipt by the Servicer of such written notice, all
authority and power of the Servicer under this Servicing Agreement, whether with
respect to the Securities or the Mortgage Loans or otherwise, shall pass to and
be vested in the Company, subject to the direction of the Indenture Trustee as
pledgee of the Mortgage Collateral, pursuant to and under this Section 7.01;
and, without limitation, the Company is hereby authorized and empowered to
execute and deliver, on behalf of the Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorse ment of each
Mortgage Loan and related documents, or otherwise. The Servicer agrees to
cooperate with the Company in effecting the termination of the responsibilities
and rights of the Servicer hereunder, including, without limitation, the
transfer to the Indenture Trustee for the administration by it of all cash
amounts relating to the Mortgage Loans that shall at the time be held by the
Servicer and to be deposited by it in the Collection Account, or that have been
deposited by the Servicer in the Collection Account or thereafter received by
the Servicer with respect to the Mortgage Loans. All reasonable costs and
expenses (including, but not limited to, attorneys' fees) incurred in connection
with amending this Servicing Agreement to reflect such succession as Servicer
pursuant to this Section 7.01 shall be paid by the predecessor Servicer (or
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if the predecessor Servicer is the Indenture Trustee, the initial Servicer) upon
presentation of reasonable documentation of such costs and expenses.
Notwithstanding any termination of the activities of the Servicer
hereunder, the Servicer shall be entitled to receive, out of any late collection
of a payment on a Mortgage Loan which was due prior to the notice terminating
the Servicer's rights and obligations hereunder and received after such notice,
that portion to which the Servicer would have been entitled pursuant to Sections
3.03 and 3.09 as well as its Servicing Fee in respect thereof, and any other
amounts payable to the Servicer hereunder the entitlement to which arose prior
to the termination of its activities hereunder.
Notwithstanding the foregoing, a delay in or failure of performance
under Section 7.01(i) or under Section 7.01(ii) after the applicable grace
periods specified in such Sections, shall not constitute a Servicer Default if
such delay or failure could not be prevented by the exercise of reasonable
diligence by the Servicer and such delay or failure was caused by an act of God
or the public enemy, acts of declared or undeclared war, public disorder,
rebellion or sabotage, epidemics, landslides, lightning, fire, hurricanes,
earthquakes, floods or similar causes. The pre ceding sentence shall not relieve
the Servicer from using reasonable efforts to perform its respective obligations
in a timely manner in accordance with the terms of this Servicing Agreement and
the Servicer shall provide the Indenture Trustee, the Credit Enhancer and the
Securityholders with notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations. The Servicer shall
immediately notify the Indenture Trustee, the Credit Enhancer and the Owner
Trustee in writing of any Servicer Default.
Section 7.02. INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. (a)
On and after the time the Servicer receives a notice of termination pursuant to
Section 7.01 or sends a notice pursuant to Section 6.04, the Indenture Trustee
on behalf of the Noteholders shall be the successor in all respects to the
Servicer in its capacity as servicer under this Servicing Agreement and the
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof. Nothing in this Servicing Agreement or in
the Trust Agreement shall be construed to permit or require the Indenture
Trustee to (i) succeed to the responsibilities, duties and liabilities of the
initial Servicer in its capacity as Seller under the Mortgage Loan Purchase
Agreement, (ii) be responsible or accountable for any act or omission of the
Servicer prior to the issuance of a notice of termination hereunder, (iii)
require or obligate the Indenture Trustee, in its capacity as successor
Servicer, to purchase, repurchase or substitute any Mortgage Loan, (iv) fund any
losses on any Eligible Investment directed by any other Servicer, or (v) be
responsible for the representations and warranties of the Servicer. As
compensation therefor, the Indenture Trustee shall be entitled to such
compensation as the Servicer would have been entitled to hereunder if no such
notice of termination had been given. Notwithstanding the above, (i) if the
Indenture Trustee is unwilling to act as successor Servicer, or (ii) if the
Indenture Trustee is legally unable so to act, the Indenture Trustee on behalf
of the Mortgage Collateral holders may (in the situation described in clause
(i)) or shall (in the situation described in clause (ii)) appoint or petition a
court of competent jurisdiction to appoint any established housing and home
finance institution, bank or other mortgage loan or home equity loan servicer
having a net worth of not less than $10,000,000 as
28
<PAGE>
the successor to the Servicer hereunder in the assumption of all or any part of
the responsibilities, duties or liabilities of the Servicer hereunder; PROVIDED
that any such successor Servicer shall be acceptable to the Credit Enhancer, as
evidenced by the Credit Enhancer's prior written consent which consent shall not
be unreasonably withheld and provided further that the appointment of any such
successor Servicer will not result in the qualification, reduction or withdrawal
of the ratings assigned to the Securities by the Rating Agencies. Pending
appointment of a successor to the Servicer hereunder, unless the Indenture
Trustee is prohibited by law from so acting, the Indenture Trustee shall act in
such capacity as hereinabove provided. In connection with such appointment and
assumption, the successor shall be entitled to receive compensation out of
payments on Mortgage Loans in an amount equal to the compensation which the
Servicer would otherwise have received pursuant to Section 3.09 (or such lesser
compensation as the Indenture Trustee and such successor shall agree). The
appointment of a successor Servicer shall not affect any liability of the
predecessor Servicer which may have arisen under this Servicing Agreement prior
to its termination as Servicer (including, without limitation, the obligation to
purchase Mortgage Loans pursuant to Section 3.01, to pay any deductible under an
insurance policy pursuant to Section 3.04 or to indemnify the Indenture Trustee
pursuant to Section 6.06), nor shall any successor Servicer be liable for any
acts or omissions of the predecessor Servicer or for any breach by such Servicer
of any of its representations or warranties contained herein or in any related
document or agreement. The Indenture Trustee and such successor shall take such
action, consistent with this Servicing Agreement, as shall be necessary to
effectuate any such succession.
(b) Any successor, including the Indenture Trustee on behalf of the
Noteholders, to the Servicer as servicer shall during the term of its service as
servicer (i) continue to service and administer the Mortgage Loans for the
benefit of the Securityholders, (ii) maintain in force a policy or policies of
insurance covering errors and omissions in the performance of its obligations as
Servicer hereunder and a fidelity bond in respect of its officers, employees and
agents to the same extent as the Servicer is so required pursuant to Section
3.13.
(c) Any successor Servicer, including the Indenture Trustee on behalf
of the Mortgage Collateral holders, shall not be deemed in default or to have
breached its duties hereunder if the predecessor Servicer shall fail to deliver
any required deposit to the Collection Account or otherwise cooperate with any
required servicing transfer or succession hereunder.
Section 7.03. NOTIFICATION TO SECURITYHOLDERS. Upon any termination or
appointment of a successor to the Servicer pursuant to this Article VII or
Section 6.04, the Indenture Trustee shall give prompt written notice thereof to
the Securityholders, the Credit Enhancer, the Company, the Issuer and each
Rating Agency.
29
<PAGE>
ARTICLE VIII
Miscellaneous Provisions
Section 8.01. AMENDMENT. This Servicing Agreement may be amended from
time to time by the parties hereto, provided that any amendment be accompanied
by a letter from the Rating Agencies that the amendment will not result in the
downgrading or withdrawal of the rating then assigned to the Securities and the
consent of the Credit Enhancer and the Indenture Trustee.
Section 8.02. GOVERNING LAW. THIS SERVICING AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
Section 8.03. NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified mail, return receipt requested,
to (a) in the case of the Servicer, [Name and Address of Servicer], (b) in the
case of the Credit Enhancer, ________________, ________, ______________,
Attention: _________________, ___________________________, (c) in the case of
[Moody's, ___________, 4th Floor, 99 Church Street, New York, New York 10007],
(d) in the case of [Standard & Poor's, 26 Broadway, 15th Floor, New York, New
York 10004, Attention: Residential Mortgage Surveillance Group], (e) in the case
of the Owner Trustee, the Corporate Trust Office, and (f) in the case of the
Issuer, to DLJ MBN Trust Series 199_-__, c/o ______________________,
__________________, __________, ______________, Attention:
__________________________, with a copy to the Administrator at ______________
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party. [Any notice required or permitted to be
mailed to a Securityholder shall be given by first class mail, postage prepaid,
at the address of such Securityholder as shown in the Register. Any notice so
mailed within the time prescribed in this Servicing Agreement shall be
conclusively presumed to have been duly given, whether or not the Securityholder
receives such notice. Any notice or other document required to be delivered or
mailed by the Indenture Trustee to any Rating Agency shall be given on a
reasonable efforts basis and only as a matter of courtesy and accommodation and
the Indenture Trustee shall have no liability for failure to delivery such
notice or document to any Rating Agency.]
Section 8.04. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Servicing Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Servicing Agreement and shall in no way
affect the validity or enforceability of the other provisions of this Servicing
Agreement or of the Securities or the rights of the Securityholders thereof.
Section 8.05. THIRD-PARTY BENEFICIARIES. This Servicing Agreement will
inure to the benefit of and be binding upon the parties hereto, the
Securityholders, the Credit Enhancer, the Owner Trustee, the Indenture Trustee
and their respective successors and permitted assigns.
30
<PAGE>
Except as otherwise provided in this Servicing Agreement, no other Person will
have any right or obligation hereunder.
Section 8.06. COUNTERPARTS. This instrument may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 8.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
Section 8.08. TERMINATION UPON PURCHASE BY THE SERVICER OR LIQUIDATION
OF ALL MORTGAGE LOANS. The respective obligations and responsibilities of the
Servicer and the Company created hereby shall terminate upon the last action
required to be taken by the Issuer pursuant to the Trust Agreement and by the
Indenture Trustee pursuant to the Indenture following the earlier of:
(i) the date on or before which the Indenture or Trust
Agreement is terminated, or
(ii) the purchase by the Servicer from the Company of all
Mortgage Loans and all property acquired in respect of any Mortgage
Loan at a price equal to the greater of (a) 100% of the unpaid
Principal Balance of each Mortgage Loan, plus accrued and unpaid
interest thereon at the Weighted Average Net Mortgage Rate up to the
day preceding the Payment Date on which such amounts are to be
distributed to Securityholders, plus any amounts due and owing to the
Credit Enhancer under the Insurance Agreement and (b) the fair market
value of the Mortgage Loans as determined by two bids from competitive
participants in the adjustable home equity loan market.
The right of the Servicer to purchase the assets of the Company pursuant to
clause (ii) above is conditioned upon the Pool Balance as of the Final Scheduled
Payment Date being less than ten percent of the aggregate of the Cut-Off Date
Principal Balances of the Mortgage Loans. If such right is exercised by the
Servicer, the Servicer shall deposit the amount calculated pursuant to clause
(ii) above with the Indenture Trustee pursuant to Section 4.10 of the Indenture
and, upon the receipt of such deposit, the Indenture Trustee or relevant
Custodian shall release to the Servicer, the files pertaining to the Mortgage
Loans being purchased.
The Servicer, at its expense, shall prepare and deliver to the
Indenture Trustee and the Owner Trustee for execution, at the time the Mortgage
Loans are to be released to the Servicer, appropriate documents assigning each
such Mortgage Loan from the Company to the Servicer or the appropriate party.
Section 8.09. CERTAIN MATTERS AFFECTING THE INDENTURE TRUSTEE. For all
purposes of this Servicing Agreement, in the performance of any of its duties or
in the exercise of any of its powers hereunder, the Indenture Trustee shall be
subject to and entitled to the benefits of Article VI of the Indenture.
31
<PAGE>
[Section 8.10. AUTHORITY OF THE ADMINISTRATOR. Each of the parties to
this Agreement acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee, all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken, by
the Issuer or the Owner Trustee pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Admin istration
Agreement.]
32
<PAGE>
IN WITNESS WHEREOF, the Servicer and the Company have caused this
Servicing Agreement to be duly executed by their respective officers or
representatives all as of the day and year first above written.
[NAME OF SERVICER],
as Servicer
By_________________________________
Title:
DLJ MORTGAGE ACCEPTANCE CORP.
as Company
By_________________________________
Title:
<PAGE>
EXHIBIT D
FORM OF REQUEST FOR RELEASE
DATE:
TO:
RE: REQUEST FOR RELEASE OF DOCUMENTS
In connection with your administration of the Mortgage Collateral, we request
the release of the Mortgage File described below.
Servicing Agreement Dated:
Series #:
Account #:
Pool #:
Loan #:
Borrower Name(s):
Reason for Document Request: (circle one) Mortgage Loan
Prepaid in Full
Mortgage Loan Repurchased
"We hereby certify that all amounts received or to be received in connection
with such payments which are required to be deposited have been or will be so
deposited as provided in the Servicing Agreement."
- -------------------------------------
[Name of Servicer]
Authorized Signature
******************************************************************
TO CUSTODIAN/INDENTURE TRUSTEE: Please acknowledge this request, and check off
documents being enclosed with a copy of this form. You should retain this form
for your files in accordance with the terms of the Servicing Agreement.
Enclosed Documents: [ ] Promissory Note
[ ] Primary Insurance Policy
[ ] Mortgage or Deed of Trust
[ ] Assignment(s) of Mortgage or
Deed of Trust
[ ] Title Insurance Policy
[ ] Other: ___________________________
___________________________
Name
___________________________
Title
___________________________
Date
Exhibit 4.5
-----------
================================================================================
DLJ MORTGAGE ACCEPTANCE CORP.
as Depositor
and
----------------------,
as Owner Trustee
-----------------------------------------
TRUST AGREEMENT
Dated as of ________________
------------------------------------------
$_________ Mortgage-Backed Certificates,
Series 199_-__
================================================================================
<PAGE>
Table of Contents
Section Page
ARTICLE I
DEFINITIONS
............................................................................. 1
1.01. DEFINITIONS......................................................... 1
1.02. OTHER DEFINITIONAL PROVISIONS....................................... 1
ARTICLE II
ORGANIZATION
............................................................................. 3
2.01. NAME................................................................ 3
2.02. OFFICE.............................................................. 3
2.03. PURPOSES AND POWERS................................................. 3
2.04. APPOINTMENT OF OWNER TRUSTEE........................................ 3
2.05. INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE.................. 4
2.06. DECLARATION OF TRUST................................................ 4
2.07. LIABILITY OF THE HOLDER OF THE CERTIFICATES......................... 4
2.08. TITLE TO TRUST PROPERTY............................................. 4
2.09. SITUS OF TRUST...................................................... 5
2.10. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR..................... 5
2.11. PAYMENT OF TRUST FEES............................................... 6
ARTICLE III
CONVEYANCE OF THE MORTGAGE COLLATERAL;
CERTIFICATES
............................................................................. 7
3.01. CONVEYANCE OF THE MORTGAGE COLLATERAL............................... 7
3.02. INITIAL OWNERSHIP................................................... 7
3.03. THE CERTIFICATES.................................................... 7
3.04. AUTHENTICATION OF CERTIFICATES...................................... 7
3.05. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE OF
CERTIFICATES........................................................ 8
3.06. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES................... 9
3.07. PERSONS DEEMED CERTIFICATEHOLDERS................................... 10
3.08. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND ADDRESSES........... 10
3.09. MAINTENANCE OF OFFICE OR AGENCY..................................... 10
3.10. CERTIFICATE PAYING AGENT............................................ 10
3.11. OWNERSHIP........................................................... 12
i
<PAGE>
Section Page
- ------- ----
ARTICLE IV
AUTHORITY AND DUTIES OF OWNER TRUSTEE
............................................................................. 13
4.01. GENERAL AUTHORITY................................................... 13
4.02. GENERAL DUTIES...................................................... 13
4.03. ACTION UPON INSTRUCTION............................................. 13
4.04. NO DUTIES EXCEPT AS SPECIFIED UNDER SPECIFIED DOCUMENTS OR IN
INSTRUCTIONS........................................................ 14
4.05. RESTRICTIONS........................................................ 14
4.06. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN MATTERS.. 14
4.07. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN MATTERS........ 15
4.08. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO BANKRUPTCY............. 15
4.09. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER........................... 15
4.10. MAJORITY CONTROL.................................................... 16
ARTICLE V
APPLICATION OF TRUST FUNDS
............................................................................. 17
5.01. DISTRIBUTIONS....................................................... 17
5.02. METHOD OF PAYMENT................................................... 17
5.03. SIGNATURE ON RETURNS................................................ 17
5.04. STATEMENTS TO CERTIFICATEHOLDERS.................................... 18
5.05. TAX REPORTING; TAX ELECTIONS........................................ 18
ARTICLE VI
CONCERNING THE OWNER TRUSTEE
............................................................................. 19
6.01. ACCEPTANCE OF TRUSTS AND DUTIES..................................... 19
6.02. FURNISHING OF DOCUMENTS............................................. 20
6.03. REPRESENTATIONS AND WARRANTIES...................................... 20
6.04. RELIANCE; ADVICE OF COUNSEL......................................... 21
6.05. NOT ACTING IN INDIVIDUAL CAPACITY................................... 21
6.06. OWNER TRUSTEE NOT LIABLE FOR CERTIFICATES OR RELATED DOCUMENTS...... 21
6.07. OWNER TRUSTEE MAY OWN CERTIFICATES AND BONDS........................ 22
ARTICLE VII
COMPENSATION OF OWNER TRUSTEE
............................................................................. 23
ii
<PAGE>
Section Page
- ------- ----
7.01. OWNER TRUSTEE'S FEES AND EXPENSES................................... 23
7.02. INDEMNIFICATION..................................................... 23
ARTICLE VIII
TERMINATION OF TRUST AGREEMENT
............................................................................. 25
8.01. TERMINATION OF TRUST AGREEMENT...................................... 25
8.02. DISSOLUTION UPON BANKRUPTCY OF THE HOLDER OF THE DESIGNATED
CERTIFICATE......................................................... 26
ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
............................................................................. 27
9.01. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE.......................... 27
9.02. REPLACEMENT OF OWNER TRUSTEE........................................ 27
9.03. SUCCESSOR OWNER TRUSTEE............................................. 28
9.04. MERGER OR CONSOLIDATION OF OWNER TRUSTEE............................ 28
9.05. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE....................... 28
ARTICLE X
MISCELLANEOUS
............................................................................. 30
10.01. AMENDMENTS.......................................................... 30
10.02. NO LEGAL TITLE TO OWNER TRUST ESTATE................................ 31
10.03. LIMITATIONS ON RIGHTS OF OTHERS..................................... 31
10.04. NOTICES............................................................. 31
10.05. SEVERABILITY........................................................ 32
10.06. SEPARATE COUNTERPARTS............................................... 32
10.07. SUCCESSORS AND ASSIGNS.............................................. 32
10.08. NO PETITION......................................................... 32
10.9. NO RECOURSE......................................................... 32
10.10. HEADINGS............................................................ 33
10.11. GOVERNING LAW....................................................... 33
10.12. INTEGRATION......................................................... 33
Signatures .................................................................. 40
iii
<PAGE>
EXHIBIT
Exhibit A - Form of Certificate..............................................A-1
Exhibit B - Certificate of Trust of DLJ MBN Trust ...........................B-1
Exhibit C - Form of Certificate of Non-Foreign Status........................C-1
Exhibit D - Form of Investment Letter........................................D-1
Exhibit E - Form of Investment Letter
for Certificates.......................................E-1
iv
<PAGE>
This Trust Agreement, dated as of ________________ (as amended from
time to time, this "Trust Agreement"), between DLJ Mortgage Acceptance Corp., a
Delaware corporation, as Depositor (the "Depositor") and ______________________,
a Delaware ___________________, as Owner Trustee (the "Owner Trustee"),
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, the
Depositor and the Owner Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. For all purposes of this Trust Agreement,
except as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Indenture. All other capitalized terms used herein
shall have the meanings specified herein.
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Trust Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(b) As used in this Trust Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Trust Agreement or in any such certificate or other document,
and accounting terms partly defined in this Trust Agreement or in any such
certificate or other document to the extent not defined, shall have the
respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this Trust
Agreement or in any such certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Trust Agreement or in any such certificate or
other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Trust Agreement shall refer to this Trust Agreement as
a whole and not to any particular provision of this Trust Agreement; Section and
Exhibit references contained in this Trust Agreement are references to Sections
and Exhibits in or to this Trust Agreement unless otherwise specified; and the
term "including" shall mean "including without limitation".
<PAGE>
(d) The definitions contained in this Trust Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
2
<PAGE>
ARTICLE II
ORGANIZATION
Section 2.01. NAME. The trust created hereby (the "Trust") shall be
known as "DLJ MBN Trust Series 199_-_," in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
Section 2.02. OFFICE. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Certificateholders
and the Depositor.
Section 2.03. PURPOSES AND POWERS. The purpose of the Trust is to
engage in the following activities:
(i) to issue the Bonds pursuant to the Indenture and the
Certificates pursuant to this Trust Agreement and to sell the Bonds and
the Certificates;
(ii) to pay the organizational, start-up and transactional
expenses of the Trust;
(iii) to assign, grant, transfer, pledge and convey the
Mortgage Collateral pursuant to the Indenture and to hold, manage and
distribute to the Certificateholders pursuant to Section 5.01 any
portion of the Mortgage Collateral released from the Lien of, and
remitted to the Trust pursuant to the Indenture;
(iv) to enter into and perform its obligations under the Basic
Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith,
including, without limitation, to accept additional contributions of
equity that are not subject to the Lien of the Indenture; and
(vi) subject to compliance with the Basic Documents, to engage
in such other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of distributions
to the Certificateholders and the Bondholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Trust Agreement or the
Basic Documents [while any Bond is outstanding and without regard to the Bonds
and] [without the consent of __% of the Certificateholders].
Section 2.04. APPOINTMENT OF OWNER TRUSTEE. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
3
<PAGE>
Section 2.05. INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Trust,
as of the date hereof, the sum of $1. The Owner Trustee hereby acknowledges
receipt in trust from the Depositor, as of the date hereof, of the foregoing
contribution, which shall constitute the initial corpus of the Trust and shall
be deposited in the Certificate Distribution Account. The Owner Trustee also
acknowledges on behalf of the trust receipt of the Mortgage Collateral and a
Surety Bond assigned to the Trust pursuant to Section 3.01, which shall
constitute the Owner Trust Estate.
Section 2.06. DECLARATION OF TRUST. The Owner Trustee hereby declares
that it shall hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Certificateholders,
subject to the obligations of the Trust under the Basic Documents. It is the
intention of the parties hereto that the Trust constitute a business trust under
the Business Trust Statute and that this Trust Agreement constitute the
governing instrument of such business trust. It is the intention of the parties
hereto that, for income and franchise tax pur poses, the Trust shall be treated
as a corporation, with the assets of the corporation being the Owner Trust
Estate, the [equity interest in the corporation] being the Certificates and the
Bonds being debt of the corporation and the provisions of this Agreement shall
be interpreted to further this intention. Except as otherwise provided in this
Trust Agreement, the rights of the Certificateholders will be those of [equity
owners of the Trust] formed under the Delaware [corporation law]. The parties
agree that, unless otherwise required by appropriate tax authorities, the Trust
will file or cause to be filed annual or other necessary returns, reports and
other forms consistent with the characterization of the Trust as a corporation
for such tax purposes. Effective as of the date hereof, the Owner Trustee shall
have all rights, powers and duties set forth herein and in the Business Trust
Statute with respect to accomplishing the purposes of the Trust.
Section 2.07. LIABILITY OF THE HOLDER OF THE CERTIFICATES. (a) The
Holders of the Certificates shall be liable directly to and shall indemnify any
injured party for all losses, claims, damages, liabilities and expenses of the
Trust (including Expenses, to the extent not paid out of the Owner Trust Estate)
to the extent that the Holders of the Certificates would be liable if the Trust
were a corporation under [Delaware corporate law]; provided, however, that the
Holders of the Certificates shall not be liable for payments required to be made
on the Bonds or the Certificates, or for any losses incurred by a
Certificateholder in the capacity of an investor in the Certificates or a
Bondholder in the capacity of an investor in the Bonds. The Holders of the
Certificates shall be liable for any entity level taxes imposed on the Trust. In
addition, any third party creditors of the Trust, including the Credit Enhancer
(other than in connection with the obligations described in the preceding
sentence for which the Holders of the Certificates shall not be liable) shall be
deemed third party beneficiaries of this paragraph. The obligations of the
Holders of the Certificates under this paragraph shall be evidenced by the
Certificates.
(b) Subject to subsection (a) above, the Certificateholders shall be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the General Corporation Law
of the State of Delaware.
Section 2.08. TITLE TO TRUST PROPERTY. Legal title to the Owner Trust
Estate shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction
4
<PAGE>
requires title to any part of the Owner Trust Estate to be vested in a trustee
or trustees, in which case title shall be deemed to be vested in the Owner
Trustee, a co-trustee and/or a separate trustee, as the case may be.
Section 2.09. SITUS OF TRUST. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of Delaware or the
State of ________. The Trust shall not have any employees in any state other
than Delaware; provided, however, that nothing herein shall restrict or prohibit
the Owner Trustee from having employees within or without the State of Delaware
or taking actions outside the State of Delaware in order to comply with Section
2.03. Payments will be received by the Trust only in Delaware, New York or
________, and payments will be made by the Trust only from Delaware, New York or
________. The only office of the Trust will be at the Corporate Trust Office in
Delaware.
Section 2.10. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The
Depositor hereby represents and warrants to the Owner Trustee that:
(i) The Depositor is duly organized and validly existing
as a corporation in good standing under the laws of the State of
California, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such
business is presently conducted.
(ii) The Depositor is duly qualified to do business as a
foreign corporation in good standing and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or
lease of its property or the conduct of its business shall require such
qualifications and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets or
condition (financial or other) of the Depositor.
(iii) The Depositor has the power and authority to execute
and deliver this Trust Agreement and to carry out its terms; the
Depositor has full power and authority to sell and assign the property
to be sold and assigned to and deposited with the Trust as part of the
Trust and the Depositor has duly authorized such sale and assignment
and deposit to the Trust by all necessary corporate action; and the
execution, delivery and performance of this Trust Agreement have been
duly authorized by the Depositor by all necessary corporate action.
(iv) The consummation of the transactions contemplated by
this Trust Agreement and the fulfillment of the terms hereof do not
conflict with, result in any breach of any of the terms and provisions
of, or constitute (with or without notice or lapse of time) a default
under, the articles of incorporation or bylaws of the Depositor, or any
indenture, agreement or other instrument to which the Depositor is a
party or by which it is bound; nor result in the creation or imposition
of any Lien upon any of its properties pursuant to the terms of any
such indenture, agreement or other instrument (other than pursuant to
the Basic Documents); nor violate any law or, to the best of the
Depositor's knowledge, any order, rule or regulation applicable to the
Depositor of any court or of any federal or state
5
<PAGE>
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Depositor or its
properties.
Section 2.11. PAYMENT OF TRUST FEES. The Owner Trustee shall cause the
Administrator (i) to pay the Trust's fees and expenses incurred with respect to
the performance of the Trust's duties under the Indenture from amounts received
pursuant to Section 3.05(x) under the Indenture and (ii) to notify the
Certificate Paying Agent of such fees and expenses incurred thereunder.
6
<PAGE>
ARTICLE III
CONVEYANCE OF THE MORTGAGE COLLATERAL;
CERTIFICATES
Section 3.01. CONVEYANCE OF THE MORTGAGE COLLATERAL. The Depositor,
concurrently with the execution and delivery hereof, does hereby transfer,
convey, sell and assign to the Trust, on behalf of the Holders of the Bonds and
the Certificates and the Credit Enhancer, without recourse, all its right, title
and interest in and to the Mortgage Collateral. The Depositor will also provide
the Trust with a Surety Bond.
The parties hereto intend that the transaction set forth herein be a
sale by the Depositor to the Trust of all of its right, title and interest in
and to the Mortgage Collateral. In the event that the transaction set forth
herein is not deemed to be a sale, the Depositor hereby grants to the Trust a
security interest in all of its right, title and interest in, to and under the
Owner Trust Estate, all distributions thereon and all proceeds thereof; and this
Trust Agreement shall constitute a security agreement under applicable law.
Section 3.02. INITIAL OWNERSHIP. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.05 and until the conveyance
of the Mortgage Collateral pursuant to Section 3.01 and the issuance of the
Certificates, the Depositor shall be the sole Certificateholder.
Section 3.03. THE CERTIFICATES. The Certificates shall be issued in
minimum denominations of $[250,000] and in integral multiples of $10,000 in
excess thereof; except for one Certificate that may not be in an integral
multiple of $10,000; provided, however, that the Designated Certificate issued
pursuant to Section 3.11 may be issued in the amount of $_________. The
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of an authorized officer of the Owner Trustee and authenticated in the
manner provided in Section 3.04. Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust, shall be validly issued
and entitled to the benefit of this Trust Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
authentication and delivery of such Certificates or did not hold such offices at
the date of authentication and delivery of such Certificates. A Person shall
become a Certificateholder and shall be entitled to the rights and subject to
the obligations of a Certificateholder hereunder upon such Person's acceptance
of a Certificate duly registered in such Person's name, pursuant to Section
3.05.
A transferee of a Certificate shall become a Certificateholder and
shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Certificate
duly registered in such transferee's name pursuant to and upon satisfaction of
the conditions set forth in Section 3.05.
Section 3.04. AUTHENTICATION OF CERTIFICATES. Concurrently with the
acquisition of the Mortgage Collateral by the Trust, the Owner Trustee shall
cause the Certificates in an aggregate
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principal amount equal to the Initial Principal Balance of the Certificates to
be executed on behalf of the Trust, authenticated and delivered to or upon the
written order of the Depositor, signed by its chairman of the board, its
president or any vice president, without further corporate action by the
Depositor, in authorized denominations. No Certificate shall entitle its holder
to any benefit under this Trust Agreement or be valid for any purpose unless
there shall appear on such Certificate a certificate of authentication
substantially in the form set forth in Exhibit A, executed by the Owner Trustee
or ____________________, by manual signature; such authentication shall
constitute conclusive evidence that such Certificate shall have been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication.
Section 3.05. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE
OF CERTIFICATES. The Certificate Registrar shall keep or cause to be kept, at
the office or agency maintained pursuant to Section 3.09, a Certificate Register
in which, subject to such reasonable regulations as it may prescribe, the [Owner
Trustee] shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. _____________________________
shall be the initial Certificate Registrar. If the Certificate Registrar resigns
or is removed, the Owner Trustee shall appoint a successor Certificate
Registrar.
Subject to satisfaction of the conditions set forth below and to the
provisions of Section 3.11 with respect to the Designated Certificate, upon
surrender for registration of transfer of any Certificate at the office or
agency maintained pursuant to Section 3.09, the Owner Trustee shall execute,
authenticate and deliver (or shall cause __________________________________ as
its authenticating agent to authenticate and deliver) in the name of the
designated transferee or transferees, one or more new Certificates in authorized
denominations of a like aggregate amount dated the date of authentication by the
Owner Trustee or any authenticating agent. At the option of a Holder,
Certificates may be exchanged for other Certificates of authorized denominations
of a like aggregate amount upon surrender of the Certificates to be exchanged at
the office or agency maintained pursuant to Section 3.09.
Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Certificate Registrar duly executed by the Holder or such
Holder's attorney duly authorized in writing. Each Certificate surrendered for
registration of transfer or exchange shall be cancelled and subsequently
disposed of by the Certificate Registrar in accordance with its customary
practice.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar 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.
No Person shall become a Certificateholder until it shall establish its
non-foreign status by submitting to the Certificate Paying Agent an IRS Form W-9
and the Certificate of Non-Foreign Status set forth in Exhibit C hereto.
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No transfer of a Certificate shall be made unless such transfer is
exempt from the registration requirements of the Securities Act and any
applicable state securities laws or is made in accordance with said Act and
laws. In the event of any such transfer, the Certificate Registrar or the
Depositor shall prior to such transfer require the transferee to execute (i) (a)
an investment letter (in substantially the form attached hereto as Exhibit D) in
form and substance reasonably satisfactory to the Certificate Registrar and the
Depositor certifying to the Trust, the Owner Trustee, the Certificate Registrar
and the Depositor that such transferee is a "qualified institutional buyer"
under Rule 144A under the Securities Act, or (b) solely with respect to the
Designated Certificate, an investment letter (in substantially the form attached
hereto as Exhibit E), acceptable to and in form and substance reasonably
satisfactory to the Certificate Registrar and the Depositor, which investment
letters shall not be an expense of the Trust, the Owner Trustee, the Certificate
Registrar, the Servicer or the Depositor and (ii) the Certificate of Non-Foreign
Status (in substantially the form attached hereto as Exhibit C) acceptable to
and in form and substance reasonably satisfactory to the Certificate Registrar
and the Depositor, which certificate shall not be an expense of the Trust, the
Owner Trustee, the Certificate Registrar or the Depositor. The Holder of a
Certificate desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trust, the Owner Trustee, the Certificate Registrar, the Servicer
and the Depositor against any liability that may result if the transfer is not
so exempt or is not made in accordance with such federal and state laws.
No transfer of a Certificate shall be made unless the Certificate
Registrar shall have received either (i) a representation letter from the
proposed transferee of such Certificate to the effect that such proposed
transferee is not an employee benefit plan subject to the fiduciary
responsibility provisions of ERISA, or Section 4975 of the Code, or a Person
acting on behalf of any such plan or using the assets of any such plan, which
representation letter shall not be an expense of the Trust, Owner Trustee, the
Certificate Registrar, the Servicer or the Depositor or (ii) in the case of any
such certificate presented for registration in the name of an employee benefit
plan subject to the fiduciary responsibility provisions of ERISA, or Section
4975 of the Code (or comparable provisions of any subsequent enactments), or a
trustee of any such plan, or any other Person who is using the assets of any
such plan to effect such acquisition, an Opinion of Counsel, in form and
substance reasonably satisfactory to, and addressed and delivered to, the Trust,
the Certificate Registrar and the Depositor, to the effect that the purchase or
holding of such Certificate will not result in the assets of the Owner Trust
Estate being deemed to be "plan assets" and subject to the fiduciary
responsibility provisions of ERISA or the prohibited transaction provisions of
the Code, will not constitute or result in a prohibited transaction within the
meaning of Section 406 or Section 407 of ERISA or Section 4975 of the Code, and
will not subject the Trust, the Owner Trustee, the Certificate Registrar or the
Depositor to any obligation or liability (including obligations or liabilities
under ERISA or Section 4975 of the Code) in addition to those explicitly
undertaken in this Trust Agreement which Opinion of Counsel shall not be an
expense of the Trust, the Owner Trustee, the Certificate Registrar or Depositor.
Section 3.06. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If (a)
any mutilated Certificate shall be surrendered to the Certificate Registrar, or
if the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there shall be delivered
to the Certificate Registrar and the Owner Trustee such security or indemnity
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as may be required by them to save each of them harmless, then in the absence of
notice to the Certificate Registrar or the Owner Trustee that such Certificate
has been acquired by a bona fide purchaser, the Owner Trustee shall execute on
behalf of the Trust and the Owner Trustee or ________________, as the Trust's
authenticating agent, shall authenticate and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate
of like tenor and denomination. In connection with the issuance of any new
Certificate under this Section 3.06, the Owner Trustee or the Certificate
Registrar may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith. Any duplicate
Certificate issued pursuant to this Section 3.06 shall constitute conclusive
evidence of ownership in the Trust, as if originally issued, whether or not the
lost, stolen or destroyed Certificate shall be found at any time.
Section 3.07. PERSONS DEEMED CERTIFICATEHOLDERS. Prior to due
presentation of a Certificate for registration of transfer, the Owner Trustee,
the Certificate Registrar or any Certificate Paying Agent may treat the Person
in whose name any Certificate is registered in the Certificate Register as the
owner of such Certificate for the purpose of receiving distributions pursuant to
Section 5.02 and for all other purposes whatsoever, and none of the Trust, the
Owner Trustee, the Certificate Registrar or any Paying Agent shall be bound by
any notice to the contrary.
Section 3.08. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND
ADDRESSES. The Certificate Registrar shall furnish or cause to be furnished to
the Depositor or the Owner Trustee, within 15 days after receipt by the
Certificate Registrar of a written request therefor from the Depositor or the
Owner Trustee, a list, in such form as the Depositor or the Owner Trustee, as
the case may be, may reasonably require, of the names and addresses of the
Certificateholders as of the most recent Record Date. Each Holder, by receiving
and holding a Certificate, shall be deemed to have agreed not to hold any of the
Trust, the Depositor, the Holder of the Designated Certificate, the Certificate
Registrar or the Owner Trustee accountable by reason of the disclosure of its
name and address, regardless of the source from which such information was
derived.
Section 3.09. MAINTENANCE OF OFFICE OR AGENCY. The Owner Trustee on
behalf of the Trust, shall maintain in the Borough of Manhattan, The City of New
York, an office or offices or agency or agencies where Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Owner Trustee in respect of the Certifi cates and the
Basic Documents may be served. The Owner Trustee initially designates the
Corporate Trust Office of the Owner Trustee as its office for such purposes. The
Owner Trustee shall give prompt written notice to the Depositor, the Holder of
the Designated Certificate and the Certificateholders of any change in the
location of the Certificate Register or any such office or agency.
Section 3.10. CERTIFICATE PAYING AGENT. (a) The Certificate Paying
Agent shall make distributions to Certificateholders from the Certificate
Distribution Account on behalf of the Trust in accordance with the provisions of
the Certificates and Section 5.01 hereof from payments remitted to the
Certificate Paying Agent by the Indenture Trustee pursuant to Section 3.05 of
the Indenture. The Trust hereby appoints __________________ as Certificate
Paying Agent and
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_________________ hereby accepts such appointment and further agrees that it
will be bound by the provisions of this Trust Agreement relating to the
Certificate Paying Agent and shall:
(i) hold all sums held by it for the payment of amounts
due with respect to the Certificates in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons
or otherwise disposed of as herein provided;
(ii) give the Owner Trustee notice of any default by the
Trust of which it has actual knowledge in the making of any payment
required to be made with respect to the Certificates;
(iii) at any time during the continuance of any such
default, upon the written request of the Owner Trustee forthwith pay to
the Owner Trustee on behalf of the Trust all sums so held in Trust by
such Certificate Paying Agent;
(iv) immediately resign as Certificate Paying Agent and
forthwith pay to the Owner Trustee on behalf of the Trust all sums held
by it in trust for the payment of Certificates if at any time it ceases
to meet the standards required to be met by the Certificate Paying
Agent at the time of its appointment;
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any
Certificates of any applicable withholding taxes imposed thereon and
with respect to any applicable reporting requirements in connection
therewith; and
(vi) deliver to the Owner Trustee a copy of the report
to Certificateholders prepared with respect to each Payment Date by the
Servicer pursuant to Section 4.01 of the Servicing Agreement.
(b) On the second LIBOR Business Day immediately preceding (i) the
Closing Date in the case of the first Interest Period and (ii) the first day of
each succeeding Interest Period, the Certificate Paying Agent shall determine
LIBOR and the Certificate Rate for such Interest Period and shall inform the
Servicer and the Depositor at their respective facsimile numbers given to the
Certificate Paying Agent in writing thereof.
(c) The Trust may revoke such power and remove the Certificate Paying
Agent if the Administrator determines in its sole discretion that the
Certificate Paying Agent shall have failed to perform its obligations under this
Trust Agreement in any material respect. __________________ shall be permitted
to resign as Certificate Paying Agent upon 30 days written notice to the Owner
Trustee; provided ________________ is also resigning as Paying Agent under the
Indenture at such time. In the event that ___________________ shall no longer be
the Certificate Paying Agent under this Trust Agreement and Paying Agent under
the Indenture, the Administrator shall appoint a successor to act as Certificate
Paying Agent (which shall be a bank or trust company) and which shall also be
the successor Paying Agent under the Indenture. The Administrator shall cause
such successor Certificate Paying Agent or any additional
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Certificate Paying Agent appointed by the Administrator to execute and deliver
to the Owner Trustee an instrument to the effect set forth in this Section 3.10
as it relates to the Certificate Paying Agent. The Certificate Paying Agent
shall return all unclaimed funds to the Trust and upon removal of a Certificate
Paying Agent such Certificate Paying Agent shall also return all funds in its
possession to the Trust. The provisions of Sections 6.01, 6.03, 6.04 and 7.01
shall apply to the Certificate Paying Agent to the extent applicable. Any
reference in this Agreement to the Certificate Paying Agent shall include any
co-paying agent unless the context requires otherwise.
(d) The Certificate Paying Agent shall establish and maintain with
itself a trust account (the "Certificate Distribution Account") in which the
Certificate Paying Agent shall, deposit, on the same day as it is received from
the Indenture Trustee, each remittance received by the Certificate Paying Agent
with respect to payments made pursuant to the Indenture. The Certificate Paying
Agent shall make all distributions of principal of and interest on the
Certificates, from moneys on deposit in the Certificate Distribution Account.
[Section 3.11. OWNERSHIP. The Certificates shall, for income and
franchise tax purposes, be treated as the equity interest of the Trust. The
Certificates shall not be transferred unless (a) the transferee shall be an
Affiliate of the Seller, unless the prior written consent of the Credit Enhancer
is obtained, which will not be unreasonably withheld, (b) the applicable
provisions of Section 3.05 are satisfied, (c) the Certificate Registrar receives
an Opinion of Counsel to the effect that the transfer of the Certificates shall
not cause the Trust to be subject to an entity level tax and (d) the Rating
Agencies shall consent to such transfer.]
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ARTICLE IV
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 4.01. GENERAL AUTHORITY. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is to be
a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is to be a party and any
amendment or other agreement or instrument described herein, in each case, in
such form as the Administrator shall approve, as evidenced conclusively by the
Owner Trustee's execution thereof. In addition to the foregoing, the Owner
Trustee is authorized, but shall not be obligated, to take all actions required
of the Trust pursuant to the Basic Documents. The Owner Trustee is further
authorized from time to time to take such action as the Administrator directs
with respect to the Basic Documents.
Section 4.02. GENERAL DUTIES. It shall be the duty of the Owner Trustee
to discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Trust Agreement and the Basic Documents to which the Trust is
a party and to administer the Trust in the interest of the Certificateholders,
subject to the Basic Documents and in accordance with the provisions of this
Trust Agreement. Notwithstanding the foregoing, the Owner Trustee shall be
deemed to have discharged its duties and responsibilities hereunder and under
the Basic Documents to the extent the Administrator has agreed in the
Administration Agreement to perform such acts or to discharge such duties of the
Owner Trustee or the Trust hereunder or under any Basic Document, and the Owner
Trustee shall not be held liable for the default or failure of the Administrator
to carry out its obligations under the Administration Agreement.
Section 4.03. ACTION UPON INSTRUCTION. (a) Subject to Article IV and in
accordance with the terms of the Basic Documents, the Certificateholders may by
written instruction direct the Owner Trustee in the management of the Trust.
Such direction may be exercised at any time by written instruction of the
Certificateholders pursuant to Article IV.
(b) Notwithstanding the foregoing, the Owner Trustee shall not be
required to take any action hereunder or under any Basic Document if the Owner
Trustee shall have reasonably determined, or shall have been advised by counsel,
that such action is likely to result in liability on the part of the Owner
Trustee or is contrary to the terms hereof or of any Basic Document or is
otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Trust Agreement or
under any Basic Document, or in the event that the Owner Trustee is unsure as to
the application of any provision of this Trust Agreement or any Basic Document
or any such provision is ambiguous as to its application, or is, or appears to
be, in conflict with any other applicable provision, or in the event that this
Trust Agreement permits any determination by the Owner Trustee or is silent or
is incomplete as to the course of action that the Owner Trustee is required to
take with respect to a particular set of facts, the Owner Trustee shall promptly
give notice (in such form as shall be appropriate under the circumstances) to
the Certificateholders (with a copy to the Credit Enhancer) requesting
instruction
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as to the course of action to be adopted, and to the extent the Owner Trustee
acts in good faith in accordance with any written instruction of the
Certificateholders received, the Owner Trustee shall not be liable on account of
such action to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action not inconsistent with this Trust Agreement or the Basic
Documents, as it shall deem to be in the best interests of the
Certificateholders, and the Owner Trustee shall have no liability to any Person
for such action or inaction.
Section 4.04. NO DUTIES EXCEPT AS SPECIFIED UNDER SPECIFIED DOCUMENTS
OR IN INSTRUCTIONS. The Owner Trustee shall not have any duty or obligation to
manage, make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Trust Agreement, (ii) in accordance with the Basic
Documents and (iii) in accordance with any document or instruction delivered to
the Owner Trustee pursuant to Section 4.03; and no implied duties or obligations
shall be read into this Trust Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Securities and Exchange Commission filing
for the Trust or to record this Trust Agreement or any Basic Document. The Owner
Trustee nevertheless agrees that it will, at its own cost and expense, promptly
take all action as may be necessary to discharge any liens on any part of the
Owner Trust Estate that result from actions by, or claims against, the Owner
Trustee that are not related to the ownership or the administration of the Owner
Trust Estate.
Section 4.05. RESTRICTIONS. (a) The Owner Trustee shall not take any
action (x) that is inconsistent with the purposes of the Trust set forth in
Section 2.03 or (y) that, to the actual knowledge of the Owner Trustee, would
result in the Trust becoming taxable as a corporation for federal income tax
purposes. The Certificateholders shall not direct the Owner Trustee to take
action that would violate the provisions of this Section 4.06.
(b) The Owner Trustee shall not convey or transfer any of the Trust's
properties or assets, including those included in the Trust Estate, to any
person unless (a) it shall have received an Opinion of Counsel to the effect
that such transaction will not have any material adverse tax consequence to the
Trust or any Certificateholder and (b) such conveyance or transfer shall not
violate the provisions of Section 3.16(b) of the Indenture.
Section 4.06. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT TO
CERTAIN MATTERS. With respect to the following matters, the Owner Trustee shall
not take action unless at least 30 days before the taking of such action, the
Owner Trustee shall have notified the Certificateholders in writing of the
proposed action and the Certificateholders shall not have notified the Owner
Trustee
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in writing prior to the 30th day after such notice is given that such
Certificateholders have withheld consent or provided alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except claims
or lawsuits brought in connection with the collection of cash distributions due
and owing under the Mortgage Collateral) and the compromise of any action, claim
or lawsuit brought by or against the Trust (except with respect to the
aforementioned claims or lawsuits for collection of cash distributions due and
owing under the Mortgage Collateral);
(b) the election by the Trust to file an amendment to the Certificate
of Trust (unless such amendment is required to be filed under the Business Trust
Statute);
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Bondholder is required;
(d) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Bondholder is not required and such
amendment materially adversely affects the interest of the Certificateholders;
(e) the amendment, change or modification of the Administration
Agreement, except to cure any ambiguity or to amend or supplement any provision
in a manner or add any provision that would not materially adversely affect the
interests of the Certificateholders; or
(f) the appointment pursuant to the Indenture of a successor Bond
Registrar, Paying Agent or Indenture Trustee or pursuant to this Trust Agreement
of a successor Certificate Registrar or Certificate Paying Agent or the consent
to the assignment by the Bond Registrar, Paying Agent, Indenture Trustee,
Certificate Registrar or Certificate Paying Agent of its obligations under the
Indenture or this Trust Agreement, as applicable.
Section 4.07. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN
MATTERS. The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders, and with the consent of the Credit Enhancer, to (a)
remove the Administrator under the Administration Agreement pursuant to Section
8 thereof, (b) appoint a successor Administrator pursuant to Section 8 of the
Administration Agreement, (c) remove the Servicer under the Servicing Agreement
pursuant to Sections 7.01 and 8.05 thereof or (d) except as expressly provided
in the Basic Documents, sell the Mortgage Collateral after the termination of
the Indenture. The Owner Trustee shall take the actions referred to in the
preceding sentence only upon written instructions signed by the
Certificateholders and with the consent of the Credit Enhancer.
Section 4.08. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO BANKRUPTCY.
The Owner Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Certificateholders and with the consent of the Credit Enhancer and the delivery
to the Owner Trustee by each such Certificateholder of a certificate certifying
that such Certificateholder reasonably believes that the Trust is insolvent.
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Section 4.09. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER. The
Certificateholders shall not direct the Owner Trustee to take or to refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Trust Agreement or any of the Basic
Documents or would be contrary to Section 2.03, nor shall the Owner Trustee be
obligated to follow any such direction, if given.
Section 4.10. MAJORITY CONTROL. Except as expressly provided herein,
any action that may be taken by the Certificateholders under this Trust
Agreement may be taken by the Holders of Certificates evidencing not less than a
majority of the outstanding Principal Balance of the Certificates. Except as
expressly provided herein, any written notice of the Certificateholders
delivered pursuant to this Trust Agreement shall be effective if signed by
Holders of Certificates evidencing not less than a majority of the outstanding
Principal Balance of the Certificates at the time of the delivery of such
notice.
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ARTICLE V
APPLICATION OF TRUST FUNDS
Section 5.01. DISTRIBUTIONS. (a) On each Payment Date, the Certificate
Paying Agent shall distribute to the Certificateholders all funds on deposit in
the Certificate Distribution Account and available therefor (as provided in
Section 3.05 of the Indenture), as principal and the Certif icate Distribution
Amount for such Payment Date. All distributions made pursuant to this Section
shall be made on a pro rata basis to the Certificateholders based on the
Certificate Principal Balances thereof; provided however that any amount on
deposit in the Certificate Distribution Account relating to a payment to the
Certificate Paying Agent pursuant to Section 3.05(xi) of the Indenture shall be
distributed solely to the Designated Certificate.
(b) In the event that any withholding tax is imposed on the
distributions (or allocations of income) to a Certificateholder, such tax shall
reduce the amount otherwise distributable to the Certificateholder in accordance
with this Section 5.01. The Certificate Paying Agent is hereby authorized and
directed to retain or cause to be retained from amounts otherwise distributable
to the Certificateholders sufficient funds for the payment of any tax that is
legally owed by the Trust (but such authorization shall not prevent the Owner
Trustee from contesting any such tax in appropriate proceedings, and withholding
payment of such tax, if permitted by law, pending the outcome of such
proceedings). The amount of any withholding tax imposed with respect to a
Certificateholder shall be treated as cash distributed to such Certificateholder
at the time it is withheld by the Certificate Paying Agent and remitted to the
appropriate taxing authority. If there is a possibility that withholding tax is
payable with respect to a distribution (such as a distribution to a non-U.S.
Certificateholder), the Certificate Paying Agent may in its sole discretion
withhold such amounts in accordance with this paragraph (b).
(c) All calculations of the Certificate Distribution Amount on the
Certificates shall be made on the basis of the actual number of days in an
Interest Period and a year assumed to consist of 360 days.
(d) Distributions to Certificateholders shall be subordinated to the
creditors of the Trust, including the Bondholders.
Section 5.02. METHOD OF PAYMENT. Subject to Section 8.01(c),
distributions required to be made to Certificateholders on any Payment Date as
provided in Section 5.01 shall be made to each Certificateholder of record on
the preceding Record Date either by, in the case of any Certificateholder owning
Certificates having denominations aggregating at least $1,000,000, wire
transfer, in immediately available funds, to the account of such Holder at a
bank or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Payment Date or,
if not, by check mailed to such Certificateholder at the address of such Holder
appearing in the Certificate Register.
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Section 5.03. SIGNATURE ON RETURNS. The Owner Trustee shall sign on
behalf of the Trust the tax returns of the Trust.
Section 5.04. STATEMENTS TO CERTIFICATEHOLDERS. On each Payment Date,
the Certificate Paying Agent shall send to each Certificateholder the statement
or statements provided to the Owner Trustee and the Certificate Paying Agent by
the Servicer pursuant to Section 4.01 of the Servicing Agreement with respect to
such Distribution Date.
Section 5.05. TAX REPORTING; TAX ELECTIONS. The Holder of the
Certificate shall cause the Trust to file federal and state income tax returns
and information statements as a corporation for each of its taxable years.
Within 90 days after the end of each calendar year, the Holder of the Designated
Certificate shall cause the Trust to provide to each Certificateholder an
Internal Revenue Service "K-1" or any successor schedule and supplemental
information, if required by law, to enable each Certificateholder to file its
federal and state income tax returns. The Holder of the Designated Certificate
may from time to time make and revoke such tax elections with respect to the
Trust as it deems necessary or desirable in its sole discretion to carry out the
business of the Trust or the purposes of this Trust Agreement if permitted by
applicable law. Notwithstanding the foregoing, an election under Section 754 of
the Code shall not be made without the written consent of a majority in interest
of the Holders of the Certificates. The Holder of the Designated Certificate
shall serve as tax matters partner for the Trust.
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ARTICLE VI
CONCERNING THE OWNER TRUSTEE
Section 6.01. ACCEPTANCE OF TRUSTS AND DUTIES. The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this Trust Agreement. The
Owner Trustee and the Certificate Paying Agent also agree to disburse all moneys
actually received by it constituting part of the Owner Trust Estate upon the
terms of the Basic Documents and this Trust Agreement. The Owner Trustee shall
not be answerable or accountable hereunder or under any Basic Document under any
circumstances, except (i) for its own willful misconduct, negligence or bad
faith or negligent failure to act or (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 6.03 expressly made by the Owner
Trustee. In particular, but not by way of limitation (and subject to the
exceptions set forth in the preceding sentence):
(a) The Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Administrator or the Certificateholders;
(b) No provision of this Trust Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights, duties or powers
hereunder or under any Basic Document if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured or provided to it;
(c) Under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Bonds;
(d) The Owner Trustee shall not be responsible for or in respect of the
validity or sufficiency of this Trust Agreement or for the due execution hereof
by the Depositor or the Holder of the Designated Certificate or for the form,
character, genuineness, sufficiency, value or validity of any of the Owner Trust
Estate, or for or in respect of the validity or sufficiency of the Basic
Documents, the Bonds, the Certificates, other than the certificate of
authentication on the Certificates, if executed by the Owner Trustee and the
Owner Trustee shall in no event assume or incur any liability, duty, or
obligation to any Bondholder or to any Certificateholder, other than as
expressly provided for herein or expressly agreed to in the Basic Documents;
(e) The execution, delivery, authentication and performance by it of
this Trust Agreement will not require the authorization, consent or approval of,
the giving of notice to, the filing or registration with, or the taking of any
other action with respect to, any governmental authority or agency;
(f) The Owner Trustee shall not be liable for the default or misconduct
of the Administrator, the Holder of the Designated Certificate, the Depositor,
Indenture Trustee or the Servicer under any of the Basic Documents or otherwise
and the Owner Trustee shall have no
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obligation or liability to perform the obligations of the Trust under this Trust
Agreement or the Basic Documents that are required to be performed by the
Administrator under the Administration Agreement, the Indenture Trustee under
the Indenture or the Seller under the Mortgage Loan Purchase Agreement; and
(g) The Owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it or duties imposed by this Trust Agreement, or
to institute, conduct or defend any litigation under this Trust Agreement or
otherwise or in relation to this Trust Agreement or any Basic Document, at the
request, order or direction of any of the Certificateholders, unless such
Certificateholders have offered to the Owner Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be
incurred by the Owner Trustee therein or thereby. The right of the Owner Trustee
to perform any discretionary act enumerated in this Trust Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee shall not
be answerable for other than its negligence or willful misconduct in the
performance of any such act.
Section 6.02. FURNISHING OF DOCUMENTS. The Owner Trustee shall furnish
to the Securityholders promptly upon receipt of a written reasonable request
therefor, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Trust under the Basic Documents.
Section 6.03. REPRESENTATIONS AND WARRANTIES. The Owner Trustee hereby
represents and warrants to the Depositor, for the benefit of the
Certificateholders, that:
(a) It is a banking corporation duly organized and validly existing in
good standing under the laws of the State of Delaware. It has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Trust Agreement.
(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Trust Agreement, and this Trust Agreement
will be executed and delivered by one of its officers who is duly authorized to
execute and deliver this Trust Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this Trust
Agreement, nor the consummation by it of the transactions contemplated hereby
nor compliance by it with any of the terms or provisions hereof will contravene
any federal or Delaware law, governmental rule or regulation governing the
banking or trust powers of the Owner Trustee or any judgment or order binding on
it, or constitute any default under its charter documents or bylaws or any
indenture, mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound.
(d) This Trust Agreement, assuming due authorization, execution and
delivery by the Owner Trustee and the Depositor, constitutes a valid, legal and
binding obligation of the Owner Trustee, enforceable against it in accordance
with the terms hereof subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the enforcement of
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creditors' rights generally and to general principles of equity, regardless of
whether such enforcement is considered in a proceeding in equity or at law;
(e) The Owner Trustee is not in default with respect to any order or
decree of any court or any order, regulation or demand of any Federal, state,
municipal or governmental agency, which default might have consequences that
would materially and adversely affect the condition (financial or other) or
operations of the Owner Trustee or its properties or might have consequences
that would materially adversely affect its performance hereunder;
(f) No litigation is pending or, to the best of the Owner Trustee's
knowledge, threatened against the Owner Trustee which would prohibit its
entering into this Trust Agreement or performing its obligations under this
Trust Agreement;
Section 6.04. RELIANCE; ADVICE OF COUNSEL. (a) The Owner Trustee shall
incur no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond, or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of determination of which is not specifically
prescribed herein, the Owner Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or other authorized officers of the relevant party, as to such fact or matter
and such certificate shall constitute full protection to the Owner Trustee for
any action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Trust Agreement or the
Basic Documents, the Owner Trustee (i) may act directly or through its agents,
attorneys, custodians or nominees (including persons acting under a power of
attorney) pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents,
attorneys , custodians or nominees (including persons acting under a power of
attorney) if such persons have been selected by the Owner Trustee with
reasonable care, and (ii) may consult with counsel, accountants and other
skilled persons to be selected with reasonable care and employed by it. The
Owner Trustee shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such Persons and not contrary to this Trust
Agreement or any Basic Document.
Section 6.05. NOT ACTING IN INDIVIDUAL CAPACITY. Except as provided in
this Article VII, in accepting the trusts hereby created ______________________
acts solely as Owner Trustee hereunder and not in its individual capacity, and
all Persons having any claim against the Owner Trustee by reason of the
transactions contemplated by this Trust Agreement or any Basic Document shall
look only to the Owner Trust Estate for payment or satisfaction thereof.
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Section 6.06. OWNER TRUSTEE NOT LIABLE FOR CERTIFICATES OR RELATED
DOCUMENTS. The recitals contained herein and in the Certificates (other than the
signatures of the Owner Trustee on the Certificates) shall be taken as the
statements of the Depositor, and the Owner Trustee assumes no responsibility for
the correctness thereof. The Owner Trustee makes no representations as to the
validity or sufficiency of this Trust Agreement, of any Basic Document or of the
Certificates (other than the signatures of the Owner Trustee on the
Certificates) or the Bonds, or of any Related Documents. The Owner Trustee shall
at no time have any responsibility or liability with respect to the sufficiency
of the Owner Trust Estate or its ability to generate the payments to be
distributed to Certificateholders under this Trust Agreement or the Bondholders
under the Indenture, including, the compliance by the Depositor or the Seller
with any warranty or representation made under any Basic Document or in any
related document or the accuracy of any such warranty or representation, or any
action of the Administrator, the Certificate Paying Agent, the Certificate
Registrar or the Indenture Trustee taken in the name of the Owner Trustee.
Section 6.07. OWNER TRUSTEE MAY OWN CERTIFICATES AND BONDS. The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of Certificates or Bonds and may deal with the Depositor, the Seller, the
Certificate Paying Agent, the Certificate Registrar, the Administrator and the
Indenture Trustee in transactions with the same rights as it would have if it
were not Owner Trustee.
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ARTICLE VII
COMPENSATION OF OWNER TRUSTEE
Section 7.01. OWNER TRUSTEE'S FEES AND EXPENSES. The Owner Trustee
shall receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof, and the Owner Trustee shall be
reimbursed for its reasonable expenses hereunder and under the Basic Documents,
including the reasonable compensation, expenses and disbursements of such
agents, representatives, experts and counsel as the Owner Trustee may reasonably
employ in connection with the exercise and performance of its rights and its
duties hereunder and under the Basic Documents pursuant to Section 3.08 of the
Servicing Agreement.
Section 7.02. INDEMNIFICATION. The Holder of the Designated Certificate
shall indemnify, defend and hold harmless the Owner Trustee and its successors,
assigns, agents and servants (collectively, the "Indemnified Parties") from and
against, any and all liabilities, obligations, losses, damages, taxes, claims,
actions and suits, and any and all reasonable costs, expenses and disbursements
(including reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by, or
asserted against the Owner Trustee or any Indemnified Party in any way relating
to or arising out of this Trust Agreement, the Basic Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee hereunder, provided, that:
(i) the Holder of the Designated Certificate shall not
be liable for or required to indemnify an Indemnified Party from and
against Expenses arising or resulting from the Owner Trustee's willful
misconduct, negligence or bad faith or as a result of any inaccuracy of
a rep resentation or warranty contained in Section 6.03 expressly made
by the Owner Trustee;
(ii) with respect to any such claim, the Indemnified
Party shall have given the Holder of the Designated Certificate written
notice thereof promptly after the Indemnified Party shall have actual
knowledge thereof;
(iii) while maintaining control over its own defense, the
Holder of the Designated Certificate shall consult with the Indemnified
Party in preparing such defense; and
(iv) notwithstanding anything in this Agreement to the
contrary, the Holder of the Designated Certificate shall not be liable
for settlement of any claim by an Indemnified Party entered into
without the prior consent of the Holder of the Designated Certificate
which consent shall not be unreasonably withheld.
The indemnities contained in this Section shall survive the resignation
or termination of the Owner Trustee or the termination of this Trust Agreement.
In the event of any claim, action or proceeding for which indemnity will be
sought pursuant to this Section, the Owner Trustee's choice of legal counsel, if
other than the legal counsel retained by the Owner Trustee in connection
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with the execution and delivery of this Trust Agreement, shall be subject to the
approval of the Holder of the Designated Certificate, which approval shall not
be unreasonably withheld. In addition, upon written notice to the Owner Trustee
and with the consent of the Owner Trustee which consent shall not be
unreasonably withheld, the Holder of the Designated Certificate has the right to
assume the defense of any claim, action or proceeding against the Owner Trustee.
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ARTICLE VIII
TERMINATION OF TRUST AGREEMENT
Section 8.01. TERMINATION OF TRUST AGREEMENT. (a) This Trust Agreement
(other than Article VIII) and the Trust shall terminate and be of no further
force or effect upon the earliest of (i) upon the final distribution of all
moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture and this Trust Agreement, (ii) the Payment Date
in ____________, (iii) at the time provided in Section 8.02 or (iv) purchase by
the Servicer of all Mortgage Loans pursuant to Section 8.08 of the Servicing
Agreement. The bankruptcy, liquidation, dissolution, death or incapacity of any
Certificateholder, other than the Holder of the Designated Certificate as
described in Section 8.02, shall not (x) operate to terminate this Trust
Agreement or the Trust or (y) entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or the Owner Trust Estate or (z) otherwise affect the rights, obliga tions
and liabilities of the parties hereto.
(b) Except as provided in Section 8.01(a), none of the Depositor, the
Holder of the Designated Certificate or any other Certificateholder shall be
entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the Payment Date
upon which Certificateholders shall surrender their Certificates to the
Certificate Paying Agent for payment of the final distribution and cancellation,
shall be given by the Certificate Paying Agent by letter to Certificateholders
and the Credit Enhancer mailed within five Business Days of receipt of notice of
such termination from the Administrator, stating (i) the Payment Date upon or
with respect to which final payment of the Certificates shall be made upon
presentation and surrender of the Certificates at the office of the Certificate
Paying Agent therein designated, (ii) the amount of any such final payment and
(iii) that the Record Date otherwise applicable to such Payment Date is not
applicable, payments being made only upon presentation and surrender of the
Certificates at the office of the Certificate Payment Agent therein specified.
The Certificate Paying Agent shall give such notice to the Owner Trustee and the
Certificate Registrar at the time such notice is given to Certificateholders.
Upon presentation and surrender of the Certificates, the Certificate Paying
Agent shall cause to be distributed to Certificateholders amounts distributable
on such Payment Date pursuant to Section 5.01.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above mentioned written notice, the Certificate Paying Agent shall give a
second written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. Subject to applicable laws with respect to escheat of funds, if within
one year following the Payment Date on which final payment of the Certificates
was to have been made pursuant to Section 3.03 of the Indenture, all the
Certificates shall not have been surrendered for cancellation, the Certificate
Paying Agent may take appropriate steps, or may appoint an agent to take
appropriate steps, to contact the remaining Certificateholders concerning
surrender of their Certif-
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icates, and the cost thereof shall be paid out of the funds and other assets
that shall remain subject to this Trust Agreement. Any funds remaining in the
Certificate Distribution Account after exhaustion of such remedies shall be
distributed by the Certificate Paying Agent to the Holder of the Designated
Certificate.
(d) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be cancelled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810(c) of the Business Trust Statute.
Section 8.02. DISSOLUTION UPON BANKRUPTCY OF THE HOLDER OF THE
DESIGNATED CERTIFICATE. In the event that an Insolvency Event shall occur with
respect to the Holder of the Designated Certificate, this Trust Agreement and
the Trust shall be terminated in accordance with Section 8.01, 90 days after the
date of such Insolvency Event, unless, before the end of such 90- day period,
the Owner Trustee shall have received written instructions from (a) if no Credit
Enhancer Default shall have occurred and be continuing, Holders of Certificates
(other than the Holder of the Designated Certificate) representing more than 50%
of the Principal Balance of the Certificates (not including the Principal
Balance of the Designated Certificate), to the effect that such Holders
disapprove of the termination of the Trust or (b) if a Credit Enhancer Default
shall have occurred and be continuing, (i) each of the Holders of Certificates
and (ii) each of the Holders of the Bonds, to the effect that such Holders
disapprove of the termination of the Trust. Promptly after the occurrence of any
Insolvency Event with respect to the Holder of the Designated Certificate (A)
the Holder of the Designated Certificate shall give the Indenture Trustee, the
Credit Enhancer and the Owner Trustee written notice of such Insolvency Event,
(B) the Owner Trustee shall, upon the receipt of such written notice from the
Holder of the Designated Certificate, give prompt written notice to the
Certificateholders of the occurrence of such event and (C) the Indenture Trustee
shall give prompt written notice of such event to the Bondholders; provided,
however, that any failure to give a notice required by this sentence shall not
prevent or delay, in any manner, a termination of the Trust pursuant to the
first sentence of this Section 8.02. Upon a termination pursuant to this
Section, the Owner Trustee shall direct the Indenture Trustee promptly to sell
the assets of the Trust (other than the Payment Account) in a commercially
reasonable manner and on commercially reasonable terms. The proceeds of any such
sale of the assets of the Trust shall be deposited to the Payment Account for
distribution in accordance with Section 5.04(b) of the Indenture.
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ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 9.01. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate trust
powers; having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal or state authorities; and
having (or having a parent that has) a rating of at least Baa3 by [Moody's]. If
such corporation shall publish reports of condition at least annually pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purpose of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Owner Trustee shall cease to be eligible in accordance with
the provisions of this Section 9.01, the Owner Trustee shall resign immediately
in the manner and with the effect specified in Section 9.02.
Section 9.02. REPLACEMENT OF OWNER TRUSTEE. The Owner Trustee may at
any time resign and be discharged from the trusts hereby created by giving 30
days prior written notice thereof to the Administrator, the Credit Enhancer and
the Depositor. Upon receiving such notice of resignation, the Administrator
shall promptly appoint a successor Owner Trustee with the consent of the Credit
Enhancer which will not be unreasonably withheld, by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Owner Trustee and to the successor Owner Trustee. If no successor Owner Trustee
shall have been so appointed and have accepted appointment within 30 days after
the giving of such notice of resignation, the resigning Owner Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 9.01 and shall fail to resign after
written request therefor by the Administrator, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Administrator may remove the Owner
Trustee. If the Administrator shall remove the Owner Trustee under the authority
of the immediately preceding sentence, the Administrator shall promptly appoint
a successor Owner Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee, and shall pay all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until accep tance of appointment by the successor Owner
Trustee pursuant to Section 9.03 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Administrator shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
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Section 9.03. SUCCESSOR OWNER TRUSTEE. Any successor Owner Trustee
appointed pursuant to Section 9.02 shall execute, acknowledge and deliver to the
Administrator and to its predecessor Owner Trustee an instrument accepting such
appointment under this Trust Agreement, and thereupon the resignation or removal
of the predecessor Owner Trustee shall become effective, and such successor
Owner Trustee, without any further act, deed or conveyance, shall become fully
vested with all the rights, powers, duties and obligations of its predecessor
under this Trust Agreement, with like effect as if originally named as Owner
Trustee. The predecessor Owner Trustee shall upon payment of its fees and
expenses deliver to the successor Owner Trustee all documents and statements and
monies held by it under this Trust Agreement; and the Administrator and the
predecessor Owner Trustee shall execute and deliver such instruments and do such
other things as may reasonably be required for fully and certainly vesting and
confirming in the successor Owner Trustee all such rights, powers, duties and
obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section 9.03 unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 9.01.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section 9.03, the Administrator shall mail notice thereof to all
Certificateholders, the Indenture Trustee, the Bondholders and the Rating
Agencies. If the Administrator shall fail to mail such notice within 10 days
after acceptance of such appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Administrator.
Section 9.04. MERGER OR CONSOLIDATION OF OWNER TRUSTEE. Any Person into
which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any Person
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, without
the execution or filing of any instrument or any further act on the part of any
of the parties hereto, anything herein to the contrary notwithstanding;
provided, that such Person shall be eligible pursuant to Section 9.01 and,
provided, further, that the Owner Trustee shall mail notice of such merger or
consolidation to the Rating Agencies.
Section 9.05. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
Notwithstanding any other provisions of this Trust Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Owner Trust Estate may at the time be located, the Administrator and
the Owner Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the
Administrator and Owner Trustee to act as co-trustee, jointly with the Owner
Trustee, or as separate trustee or trustees, of all or any part of the Owner
Trust Estate, and to vest in such Person, in such capacity, such title to the
Trust or any part thereof and, subject to the other provisions of this Section,
such powers, duties, obligations, rights and trusts as the Administrator and the
Owner Trustee may consider necessary or desirable. If the Administrator shall
not have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Owner Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee under this Trust Agreement shall
be
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required to meet the terms of eligibility as a successor Owner Trustee pursuant
to Section 9.01 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 9.03.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(a) All rights, powers, duties and obligations conferred or imposed
upon the Owner Trustee shall be conferred upon and exercised or performed by the
Owner Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are
to be performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Owner Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the direction of
the Owner Trustee;
(b) No trustee under this Trust Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Trust Agreement;
and
(c) The Administrator and the Owner Trustee acting jointly may at any
time accept the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Trust
Agreement and the conditions of this Article. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Owner Trustee or separately, as may be provided therein,
subject to all the provisions of this Trust Agreement, specifically including
every provision of this Trust Agreement relating to the conduct of, affecting
the liability of, or affording protection to, the Owner Trustee. Each such
instrument shall be filed with the Owner Trustee and a copy thereof given to the
Administrator.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Trust Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor co-trustee or separate trustee.
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ARTICLE X
MISCELLANEOUS
Section 10.01. AMENDMENTS. (a) This Trust Agreement may be amended from
time to time by the parties hereto as specified in this Section [, provided that
any amendment, except as provided in subparagraph (e) below, be accompanied by
an Opinion of Counsel to the Owner Trustee to the effect that such amendment (i)
complies with the provisions of this Section and (ii) will not cause the Trust
to be subject to an entity level tax].
(b) If the purpose of the amendment (as detailed therein) is to correct
any mistake, eliminate any inconsistency, cure any ambiguity or deal with any
matter not covered (i.e. to give effect to the intent of the parties and, if
applicable, to the expectations of the Holders), it shall not be necessary to
obtain the consent of any Holders, but the Owner Trustee shall be furnished with
(A) a letter from the Rating Agencies that the amendment will not result in the
downgrading or withdrawal of the rating then assigned to any Security and (B) an
Opinion of Counsel to the effect that such action will not adversely affect in
any material respect the interests of any Holders, and the consent of the Credit
Enhancer shall be obtained.
(c) If the purpose of the amendment is to prevent the imposition of any
federal or state taxes at any time that any Security is outstanding (i.e.
technical in nature), it shall not be necessary to obtain the consent of any
Holder, but the Owner Trustee shall be furnished with an Opinion of Counsel that
such amendment is necessary or helpful to prevent the imposition of such taxes
and is not materially adverse to any Holder and the consent of the Credit
Enhancer shall be obtained.
(d) If the purpose of the amendment is to add or eliminate or change
any provision of the Trust Agreement other than as contemplated in (b) and (c)
above, the amendment shall require (A) an Opinion of Counsel to the effect that
such action will not adversely affect in any material respect the interests of
any Holders and (B) either (a) a letter from the Rating Agency that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any security or (b) the consent of Holders of Certificates
evidencing a majority of the Principal Balance of the Certificates and the
Indenture Trustee; provided, however, that no such amendment shall (i) reduce in
any manner the amount of, or delay the timing of, payments received that are
required to be distributed on any Certificate without the consent of the related
Certificateholder and the Credit Enhancer, or (ii) reduce the aforesaid
percentage of Certificates the Holders of which are required to consent to any
such amendment, without the consent of the Holders of all such Certificates then
outstanding.
(e) If the purpose of the amendment is to provide for the holding of
any of the Certificates in book-entry form, it shall require the consent of
Holders of all such Certificates then outstanding; provided, that the Opinion of
Counsel specified in subparagraph (a) above shall not be required.
(f) If the purpose of the amendment is to provide for the issuance of
additional certificates representing an interest in the Trust, it shall not be
necessary to obtain the consent of
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any Holder, but the Owner Trustee shall be furnished with (A) an Opinion of
Counsel to the effect that such action will not adversely affect in any material
respect the interests of any Holders and (B) a letter from the Rating Agencies
that the amendment will not result in the downgrading or withdrawal of the
rating then assigned to any Security and the consent of the Credit Enhancer
shall be obtained.
(g) Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee, the
Credit Enhancer and each of the Rating Agencies. It shall not be necessary for
the consent of Certificateholders or the Indenture Trustee pursuant to this
Section 10.01 to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents (and any other consents of
Certificateholders provided for in this Trust Agreement or in any other Basic
Document) and of evidencing the authorization of the execution thereof by
Certificateholders shall be subject to such reasonable requirements as the Owner
Trustee may prescribe.
(h) In connection with the execution of any amendment to any agreement
to which the Trust is a party, other than this Trust Agreement, the Owner
Trustee shall be entitled to receive and conclusively rely upon an Opinion of
Counsel to the effect that such amendment is authorized or permitted by the
documents subject to such amendment and that all conditions precedent in the
Basic Documents for the execution and delivery thereof by the Trust or the Owner
Trustee, as the case may be, have been satisfied.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State of the State of Delaware.
Section 10.02. NO LEGAL TITLE TO OWNER TRUST ESTATE. The
Certificateholders shall not have legal title to any part of the Owner Trust
Estate. The Certificateholders shall be entitled to receive distributions with
respect to their undivided beneficial interest therein only in accordance with
Articles V and IX. No transfer, by operation of law or otherwise, of any right,
title or interest of the Certificateholders to and in their ownership interest
in the Owner Trust Estate shall operate to terminate this Trust Agreement or the
trusts hereunder or entitle any transferee to an accounting or to the transfer
to it of legal title to any part of the Owner Trust Estate
Section 10.03. LIMITATIONS ON RIGHTS OF OTHERS. Except for Section
2.07, the provisions of this Trust Agreement are solely for the benefit of the
Owner Trustee, the Depositor, the Holder of the Designated Certificate, the
Certificateholders, the Administrator, the Credit Enhancer and, to the extent
expressly provided herein, the Indenture Trustee and the Bondholders, and
nothing in this Trust Agreement (other than Section 2.07), whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Owner Trust Estate or under or in respect of this
Trust Agreement or any covenants, conditions or provisions contained herein.
31
<PAGE>
Section 10.04. NOTICES. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt , if to the Owner Trustee, addressed to the Corporate
Trust Office; if to the Depositor, addressed to DLJ Mortgage Acceptance Corp.,
277 Park Avenue, New York, New York 10172; Attention: _________________; if to
the Credit Enhancer, addressed to ___________, Attention: _________________, if
to the Rating Agencies, addressed to ________________________ Attention:
__________or, as to each party, at such other address as shall be designated by
such party in a written notice to each other party.
(b) Any notice required or permitted to be given to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Trust Agreement shall be conclusively presumed to have
been duly given, whether or not the Certificateholder receives such notice.
(c) A copy of any notice delivered to the Owner Trustee or the Trust
shall also be delivered to the Depositor and the Administrator.
Section 10.05. SEVERABILITY. Any provision of this Trust Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 10.06. SEPARATE COUNTERPARTS. This Trust Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
Section 10.07. SUCCESSORS AND ASSIGNS. All representations, warranties,
covenants and agreements contained herein shall be binding upon, and inure to
the benefit of, each of the Depositor, the Owner Trustee and its successors and
each Certificateholder and its successors and permitted assigns, all as herein
provided and the Credit Enhancer. Any request, notice, direction, consent,
waiver or other instrument or action by a Certificateholder shall bind the
successors and assigns of such Certificateholder.
[Section 10.08. NO PETITION. The Owner Trustee, by entering into this
Trust Agreement and each Certificateholder, by accepting a Certificate, hereby
covenant and agree that they will not at any time institute against the
Depositor or the Trust, or join in any institution against the Depositor or the
Trust of, any bankruptcy proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations to the
Certificates, the Bonds, this Trust Agreement or any of the Basic Documents.]
Section 10.9. NO RECOURSE. Each Certificateholder by accepting a
Certificate acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Depositor, the Holder of the Designated
32
<PAGE>
Certificate, the Seller, the Administrator, the Owner Trustee, the Indenture
Trustee or any Affiliate thereof and no recourse may be had against such parties
or their assets, except as may be expressly set forth or contemplated in this
Trust Agreement, the Certificates or the Basic Documents.
Section 10.10. HEADINGS. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
Section 10.11. GOVERNING LAW. THIS TRUST AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.12. INTEGRATION. This Trust Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understanding pertaining thereto.
33
<PAGE>
IN WITNESS WHEREOF, the Depositor and the Owner Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
DLJ MORTGAGE ACCEPTANCE CORP.
By:________________________________________
Name:
Title:
______________________, not in its individual
capacity but solely as Owner Trustee,
By:________________________________________
Name:
Title:
Acknowledged and Agreed:
___________________________________________
__________, as Certificate
Registrar and Certificate
Paying Agent
By:________________________________________
Name:
Title:
34
<PAGE>
EXHIBIT A
[Form of Certificate]
[Face]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 3.05 OF THE TRUST AGREEMENT REFERRED TO HEREIN.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFI CATE REGISTRAR
SHALL HAVE RECEIVED EITHER (I) A REPRESENTATION LETTER FROM THE TRANSFEREE OF
THIS CERTIFICATE TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR A PERSON ACTING
ON BEHALF OF ANY SUCH PLAN OR USING THE ASSETS OF ANY SUCH PLAN, OR (II) IF THIS
CERTIFICATE IS PRESENTED FOR REGISTRATION IN THE NAME OF A PLAN SUBJECT TO THE
FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA, OR SECTION 4975 OF THE CODE (OR
COMPARABLE PROVISIONS OF ANY SUBSEQUENT ENACTMENTS), OR A TRUSTEE OF ANY SUCH
PLAN, OR ANY OTHER PERSON WHO IS USING THE ASSETS OF ANY SUCH PLAN TO EFFECT
SUCH ACQUISITION, AN OPINION OF COUNSEL TO THE EFFECT THAT THE PURCHASE OR
HOLDING OF THIS CERTIFICATE WILL NOT RESULT IN THE ASSETS OF THE OWNER TRUST
ESTATE BEING DEEMED TO BE "PLAN ASSETS" AND SUBJECT TO THE FIDUCIARY
RESPONSIBILITY PROVISIONS OF ERISA OR THE PROHIBITED TRANSACTION PROVISIONS OF
THE CODE, WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION WITHIN THE
MEANING OF SECTION 406 OR SECTION 407 OF ERISA OR SECTION 4975 OF THE CODE, AND
WILL NOT SUBJECT THE OWNER TRUSTEE OR THE DEPOSITOR TO ANY OBLIGATION OR
LIABILITY.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFI
CATE REGISTRAR SHALL HAVE RECEIVED A CERTIFICATE OF NON-FOREIGN
STATUS CERTIFYING AS TO THE TRANSFEREE'S STATUS AS A U.S. PERSON OR
CORPORATION UNDER U.S. LAW.
<PAGE>
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE SELLER,
THE DEPOSITOR, THE SERVICER, THE INDENTURE TRUSTEE, OR THE OWNER TRUSTEE OR ANY
OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS EXPRESSLY PROVIDED IN THE TRUST
AGREEMENT OR THE BASIC DOCUMENTS.
A-2
<PAGE>
Certificate No.
Original principal amount ("Denomination") of this
Certificate: $_________
Aggregate Denominations of all Certificates: $
Pass-Through Rate: Floating
Cut-Off Date:
First Payment Date
___________, ____
CUSIP NO. __________
DLJ MBN Trust Series 199_-_
Evidencing a fractional undivided equity interest in the Owner Trust
Estate, the property of which consists primarily of the Mortgage Collateral in
_________________________, a corporation sold by
DLJ MORTGAGE ACCEPTANCE CORP., AS DEPOSITOR
This certifies that [name of Holder] is the registered owner of the
Percentage Interest represented hereby in the DLJ MBN Trust Series 199_-_ (the
"Trust").
The Trust was created pursuant to an Trust Agreement dated as of
________________ (as amended and supplemented from time to time, the "Trust
Agreement") between the Depositor and ______________________, as owner trustee
(as amended and supplemented from time to time, the "Owner Trustee", which term
includes any successor entity under the Trust Agreement), a summary of certain
of the pertinent provisions of which is set forth hereinafter. This Certificate
is issued under and is subject to the terms, provisions and conditions of the
Trust Agreement, to which Trust Agreement the Holder of this Certificate by
virtue of the acceptance hereof assents and by which such Holder is bound.
This Certificate is one of a duly authorized issue of Mortgage-Backed
Certificates, Series 199_-__ (herein called the "Certificates") issued under the
Trust Agreement to which reference is hereby made for a statement of the
respective rights thereunder of the Depositor, the Owner Trustee and the Holders
of the Certificates and the terms upon which the Certificates are executed and
delivered. All terms used in this Certificate which are defined in the Trust
Agreement shall have the meanings assigned to them in the Trust Agreement. The
Owner Trust Estate consists of the Mortgage Collateral in the DLJ MBN Trust
Series 199_-____ and a Surety Bond. The rights
A-3
<PAGE>
of the Holders of the Certificates are subordinated to the rights of the Holders
of the Bonds, as set forth in the [Indenture].
There will be distributed on the [twentieth] day of each month or, if
such [twentieth] day is not a Business Day, the next Business Day (each, a
"Payment Date"), commencing in _____________, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such Payment Date (the "Record Date"), such
Certificateholder's Percentage Interest (obtained by dividing the Denomination
of this Certificate by the aggregate Denominations of all Certificates) in the
amount to be distributed to Certificateholders on such Payment Date.
The Certificateholder, by its acceptance of this Certificate, agrees
that it will look solely to the funds on deposit in the Payment Account that
have been released from the Lien of the Indenture for payment hereunder and that
neither the Owner Trustee in its individual capacity nor the Depositor is
personally liable to the Certificateholders for any amount payable under this
Certificate or the Trust Agreement or, except as expressly provided in the Trust
Agreement, subject to any liability under the Trust Agreement.
The Holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate are subordinated to the
rights of the Bondholders as described in the Indenture, dated as of _________,
____, between the Trust and __________________________________, as Indenture
Trustee (the "Indenture").
It is the intent of the Depositor and the Certificateholders that, for
purposes of federal income, state and local income and single business tax and
any other income taxes, the Trust will be treated as a corporation. The
Depositor and each Certificateholder, by acceptance of a Certificate, agree to
treat, and to take no action inconsistent with the treatment of, the
Certificates for such tax purposes as an equity interest in a corporation.
Each Certificateholder, by its acceptance of a Certificate, covenants
and agrees that such Certificateholder will not at any time institute against
the Depositor, or join in any institution against the Depositor or the Trust of,
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Certificates, the Bonds, the Trust Agreement or any of the Basic Documents.
Distributions on this Certificate will be made as provided in the Trust
Agreement by the Certificate Paying Agent by wire transfer or check mailed to
the Certificateholder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon. Except as otherwise provided in the Trust Agreement and notwithstanding
the above, the final distribution on this Certificate will be made after due
notice by the Certificate Paying Agent of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
maintained by the Certificate Registrar for that purpose by the Trust in the
Borough of Manhattan, The City of New York.
A-4
<PAGE>
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, or an authenticating
agent by manual signature, this Certificate shall not entitle the Holder hereof
to any benefit under the Trust Agreement or be valid for any purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
A-5
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Certificate to be duly executed.
DLJ MBN TRUST SERIES 19__-_
by _____________________, not in its individual
capacity but solely as Owner Trustee
Dated: _________________
Authorized Signatory
Certificate of Authentication
This is one of the Certificates referred to in the within mentioned Trust
Agreement.
______________________,
not in its individual capacity
but solely as Owner Trustee
By:______________________________
Authorized Signatory
or __________________________________,
as Authenticating Agent of the Trust
By:______________________________
Authorized Signatory
A-6
<PAGE>
[REVERSE OF CERTIFICATE]
The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Seller, the Servicer, the Indenture Trustee, the Owner
Trustee or any Affiliates of any of them and no recourse may be had against such
parties or their assets, except as expressly set forth or contemplated herein or
in the Trust Agreement or the Basic Documents. In addition, this Certificate is
not guaranteed by any governmental agency or instrumentality and is limited in
right of payment to certain collections and recoveries with respect to the
Mortgage Collateral, all as more specifically set forth herein. A copy of the
Trust Agreement may be examined by any Certificateholder upon written request
during normal business hours at the principal office of the Depositor and at
such other places, if any, designated by the Depositor.
The Trust Agreement permits the amendment thereof as specified below,
provided that any amendment be accompanied by the consent of the Credit Enhancer
and an Opinion of Counsel to the Owner Trustee to the effect that such amendment
complies with the provisions of the Trust Agreement and will not cause the Trust
to be subject to an entity level tax. If the purpose of the amendment is to
correct any mistake, eliminate any inconsistency, cure any ambiguity or deal
with any matter not covered, it shall not be necessary to obtain the consent of
any Holder, but the Owner Trustee shall be furnished with a letter from the
Rating Agencies that the amendment will not result in the downgrading or
withdrawal of the rating then assigned to any Security. If the pur pose of the
amendment is to prevent the imposition of any federal or state taxes at any time
that any Security is outstanding, it shall not be necessary to obtain the
consent of the any Holder, but the Owner Trustee shall be furnished with an
Opinion of Counsel that such amendment is necessary or helpful to prevent the
imposition of such taxes and is not materially adverse to any Holder. If the
purpose of the amendment is to add or eliminate or change any provision of the
Trust Agreement, other than as specified in the preceding two sentences, the
amendment shall require either (a) a letter from the Rating Agencies that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any Security or (b) the consent of Holders of the Certificates
evidencing a majority of the Percentage Interests of the Certificates and the
Indenture Trustee; PROVIDED, HOWEVER, that no such amendment shall (i) reduce in
any manner the amount of, or delay the time of, payments received that are
required to be distributed on any Certificate without the consent of the related
Certificateholder, or (ii) reduce the aforesaid percentage of Certificates the
Holders of which are required to consent to any such amendment without the
consent of the Holders of all such Certificates then outstanding.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Trust in the Borough of Manhattan, The City of New York, accompanied by a
written instrument of transfer in form satisfactory to the Certificate Registrar
duly executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized denominations
evidencing the same aggregate interest in the Trust will be issued to the
designated transferee. The initial Certificate Registrar appointed under the
Trust Agreement is __________________________________.
A-7
<PAGE>
Except as provided in the Trust Agreement, the Certificates are
issuable only in minimum denominations of $10,000 and in integral multiples of
$10,000 in excess thereof, except for one Certificate that may not be in an
integral multiple of $10,000. As provided in the Trust Agreement and subject to
certain limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
denomination, as requested by the Holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but the
Owner Trustee or the Certificate Registrar may require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Owner Trustee, the Certificate Paying Agent, the Certificate
Registrar and any agent of the Owner Trustee, the Certificate Paying Agent, or
the Certificate Registrar may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and none of the Owner Trustee,
the Certificate Paying Agent, the Certificate Registrar or any such agent shall
be affected by any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate (i) upon the final distribution of all
moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture and the Trust Agreement, (ii) the Payment Date
in ____________, or (iii) upon the bankruptcy or insolvency of the Holder of the
Designated Certificate and the satisfaction of other conditions specified in
Section 8.02 of the Trust Agreement.
A-8
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
________________________________________________________________________________
to transfer said Certificate on the books of the Certificate Registrar, with
full power of substitution in the premises.
Dated:
___________________________________________*/
Signature Guaranteed:
____________________________*/
- -----------------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-9
<PAGE>
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the information of the
Certificate Paying Agent:
Distribution shall be made by wire transfer in immediately available
funds to ______________________________________________
________________________________________________________________________________
for the account of ________________________________________, account number
______________, or, if mailed by check, to ______________.
Applicable statements should be mailed to__________________.
______________________________
Signature of assignee or agent
(for authorization of wire
transfer only)
A-10
<PAGE>
EXHIBIT B
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
DLJ MBN TRUST SERIES 199_-_
THIS Certificate of Trust of DLJ MBN Trust Series 199_-_ (the
"Trust"), dated ___________, ____, is being duly executed and filed by
______________________, a Delaware banking corporation, as trustee, to form a
business trust under the Delaware Business Trust Act (12 DEL. CODE, ss. 3801 ET
SEQ.).
1. NAME. The name of the business trust formed hereby is DLJ
MBN Trust Series 199_-_.
2. DELAWARE TRUSTEE. The name and business address of the
trustee of the Trust in the State of Delaware is ______________________,
__________________, __________, ______________, Attention:
______________________________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of
the Trust, has executed this Certificate of Trust as of the date first above
written.
----------------------,
not in its individual capacity but solely as
owner trustee under a Trust Agreement dated
as of _________, ____,
By:
________________________________
Name:
Title:
B-1
<PAGE>
EXHIBIT C
[FORM OF RULE 144A INVESTMENT REPRESENTATION]
Description of Rule 144A Securities, including numbers:
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
The undersigned seller, as registered holder (the "Seller"),
intends to transfer the Rule 144A Securities described above to the undersigned
buyer (the "Buyer").
1. In connection with such transfer and in accordance with the
agreements pursuant to which the Rule 144A Securities were issued, the Seller
hereby certifies the following facts: Neither the Seller nor anyone acting on
its behalf has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any other
similar security to, or solicited any offer to buy or accept a transfer, pledge
or other disposition of the Rule 144A Securities, any interest in the Rule 144A
Securities or any other similar security from, or otherwise approached or
negotiated with respect to the Rule 144A Securities, any interest in the Rule
144A Securities or any other similar security with, any person in any manner, or
made any general solicitation by means of general advertising or in any other
manner, or taken any other action, that would constitute a distribution of the
Rule 144A Securities under the Securities Act of 1933, as amended (the "1933
Act"), or that would render the disposition of the Rule 144A Securities a
violation of Section 5 of the 1933 Act or require registration pursuant thereto,
and that the Seller has not offered the Rule 144A Securities to any person other
than the Buyer or another "qualified institutional buyer" as defined in Rule
144A under the 1933 Act.
2. The Buyer warrants and represents to, and covenants with,
the Owner Trustee and the Depositor (as defined in the Trust Agreement (the
"Agreement"), dated as of _________, ____ between DLJ Mortgage Acceptance Corp.,
as Depositor and ______________________, as Owner Trustee pursuant to Section
3.05 of the Agreement and __________________________________ as indenture
trustee, as follows:
a. The Buyer understands that the Rule 144A
Securities have not been registered under the 1933 Act or the
securities laws of any state.
b. The Buyer considers itself a substantial,
sophisticated institutional investor having such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of investment in the Rule 144A
Securities.
C-1
<PAGE>
c. The Buyer has been furnished with all information
regarding the Rule 144A Securities that it has requested from the
Seller, the Indenture Trustee, the Owner Trustee or the Servicer.
d. Neither the Buyer nor anyone acting on its behalf
has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any
other similar security to, or solicited any offer to buy or accept a
transfer, pledge or other disposition of the Rule 144A Securities, any
interest in the Rule 144A Securities or any other similar security
from, or otherwise approached or negotiated with respect to the Rule
144A Securities, any interest in the Rule 144A Securities or any other
similar security with, any person in any manner, or made any general
solicitation by means of general advertising or in any other manner, or
taken any other action, that would constitute a distribution of the
Rule 144A Securities under the 1933 Act or that would render the
disposition of the Rule 144A Securities a violation of Section 5 of the
1933 Act or require registration pursuant thereto, nor will it act, nor
has it authorized or will it authorize any person to act, in such
manner with respect to the Rule 144A Securities.
e. The Buyer is a "qualified institutional buyer" as
that term is defined in Rule 144A under the 1933 Act and has completed
either of the forms of certification to that effect attached hereto as
Annex 1 or Annex 2. The Buyer is aware that the sale to it is being
made in reliance on Rule 144A. The Buyer is acquiring the Rule 144A
Securities for its own account or the accounts of other qualified
institutional buyers, understands that such Rule 144A Securities may be
resold, pledged or transferred only (i) to a person reasonably believed
to be a qualified institutional buyer that purchases for its own
account or for the account of a qualified institutional buyer to whom
notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A, or (ii) pursuant to another exemption from
registration under the 1933 Act.
[3. The Buyer warrants and represents to, and covenants with,
the Seller, the Indenture Trustee, Owner Trustee, Servicer and the Depositor
that either (1) the Buyer is (A) not an employee benefit plan (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), or a plan (within the meaning of Section 4975(e)(1) of
the Internal Revenue Code of 1986 ("Code")), which (in either case) is subject
to ERISA or Section 4975 of the Code (both a "Plan"), and (B) is not directly or
indirectly purchasing the Rule 144A Securities on behalf of, as investment
manager of, as named fiduciary of, as trustee of, or with "plan assets" of a
Plan, or (2) the Buyer understands that registration of transfer of any Rule
144A Securities to any Plan, or to any Person acting on behalf of any Plan, will
not be made unless such Plan delivers an opinion of its counsel, addressed and
satisfactory to the Certificate Registrar and the Depositor, to the effect that
the purchase and holding of the Rule 144A Securities by, on behalf of or with
"plan assets" of any Plan would not constitute or result in a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code, and would
not subject the Depositor, the Servicer, the Indenture Trustee or the Trust to
any obligation or liability (including liabilities under ERISA or Section 4975
of the Code) in addition to those undertaken in the Agreement or any other
liability.]
C-2
<PAGE>
4. This document may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same document.
IN WITNESS WHEREOF, each of the parties has executed this
document as of the date set forth below.
______________________________ ____________________________________
Print Name of Seller Print Name of Buyer
By:___________________________ By:_________________________________
Name: Name:
Title: Title:
Taxpayer Identification: Taxpayer Identification:
No.___________________________ No._________________________________
Date:_________________________ Date:_______________________________
C-3
<PAGE>
ANNEX 1 TO EXHIBIT C
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers Other Than Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the Rule
144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.
2. In connection with purchases by the Buyer, the Buyer is a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested on a
discretionary basis $______________________1 in securities (except for the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule 144A) and (ii)
the Buyer satisfies the criteria in the category marked below.
___ CORPORATION, ETC. The Buyer is a corporation (other than a bank,
savings and loan association or similar institution), Massachusetts
or similar business trust, partnership, or charitable organization
described in Section 501(c)(3) of the Internal Revenue Code.
___ BANK. The Buyer (a) is a national bank or banking institution
organized under the laws of any State, territory or the District of
Columbia, the business of which is substantially confined to
banking and is supervised by the State or territorial banking
commission or similar official or is a foreign bank or equivalent
institution, and (b) has an audited net worth of at least
$25,000,000 as demonstrated in its latest annual financial
statements, A COPY OF WHICH IS ATTACHED HERETO.
- --------
1 Buyer must own and/or invest on a discretionary basis at least $100,000,000 in
securities unless Buyer is a dealer, and, in that case, Buyer must own and/or
invest on a discretionary basis at least $10,000,000 in securities.
C-4
<PAGE>
___ SAVINGS AND LOAN. The Buyer (a) is a savings and loan association,
building and loan association, cooperative bank, homestead
association or similar institution, which is supervised and
examined by a State or Federal authority having supervision over
any such institutions or is a foreign savings and loan association
or equivalent institution and (b) has an audited net worth of at
least $25,000,000 as demonstrated in its latest annual financial
statements.
___ BROKER-DEALER. The Buyer is a dealer registered pursuant to Section
15 of the Securities Exchange Act of 1934.
___ INSURANCE COMPANY. The Buyer is an insurance company whose primary
and predominant business activity is the writing of insurance or
the reinsuring of risks underwritten by insurance companies and
which is subject to supervision by the insurance commissioner or a
similar official or agency of a State or territory or the District
of Columbia.
___ STATE OR LOCAL PLAN. The Buyer is a plan established and maintained
by a State, its political subdivisions, or any agency or
instrumentality of the State or its political subdivisions, for the
benefit of its employees.
___ ERISA PLAN. The Buyer is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security Act
of 1974.
___ INVESTMENT ADVISER. The Buyer is an investment adviser registered
under the Investment Advisers Act of 1940.
___ SBIC. The Buyer is a Small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1958.
___ BUSINESS DEVELOPMENT COMPANY. The Buyer is a business development
company as defined in Section 202(a)(22) of the Investment Advisers
Act of 1940.
___ TRUST FUND. The Buyer is a trust fund whose trustee is a bank or
trust company and whose participants are exclusively (a) plans
established and maintained by a State, its political subdivisions,
or any agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees, or (b) employee
benefit plans within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, but is not a trust fund
that includes as participants individual retirement accounts or
H.R. 10 plans.
3. The term "SECURITIES" as used herein DOES NOT INCLUDE (i) securities
of issuers that are affiliated with the Buyer, (ii) securities that are part of
an unsold allotment to or subscription by the Buyer, if the Buyer is a dealer,
(iii) bank deposit notes and certificates of deposit, (iv) loan
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participations, (v) repurchase agreements, (vi) securities owned but subject to
a repurchase agreement and (vii) currency, interest rate and commodity swaps.
4. For purposes of determining the aggregate amount of securities owned
and/or invested on a discretionary basis by the Buyer, the Buyer used the cost
of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities Exchange Act of 1934.
5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.
___ ___ Will the Buyer be purchasing the Rule 144A
Yes No Securities only for the Buyer's own account?
6. If the answer to the foregoing question is "no", the Buyer
agrees that, in connection with any purchase of securities sold to the Buyer for
the account of a third party (including any separate account) in reliance on
Rule 144A, the Buyer will only purchase for the account of a third party that at
the time is a "qualified institutional buyer" within the meaning of Rule 144A.
In addition, the Buyer agrees that the Buyer will not purchase securities for a
third party unless the Buyer has obtained a current representation letter from
such third party or taken other appropriate steps contemplated by Rule 144A to
conclude that such third party independently meets the definition of "qualified
institutional buyer" set forth in Rule 144A.
7. The Buyer will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice is given, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification as of the date of such
purchase.
________________________________________
Print Name of Buyer
By: ____________________________________
Name:
Title:
Date:___________________________________
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ANNEX 2 TO EXHIBIT C
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers That Are Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the Rule
144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief
Financial Officer or Senior Vice President of the Buyer or, if the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the Adviser.
2. In connection with purchases by Buyer, the Buyer is a "qualified
institutional buyer" as defined in SEC Rule 144A because (i) the Buyer is an
investment company registered under the Investment Company Act of 1940, and (ii)
as marked below, the Buyer alone, or the Buyer's Family of Investment Companies,
owned at least $100,000,000 in securities (other than the excluded securities
referred to below) as of the end of the Buyer's most recent fiscal year. For
purposes of determining the amount of securities owned by the Buyer or the
Buyer's Family of Investment Companies, the cost of such securities was used.
____ The Buyer owned $___________________ in securities (other than the
excluded securities referred to below) as of the end of the Buyer's
most recent fiscal year (such amount being calculated in accordance
with Rule 144A).
____ The Buyer is part of a Family of Investment Companies which owned in
the aggregate $______________ in securities (other than the excluded
securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule
144A).
3. The term "FAMILY OF INVESTMENT COMPANIES" as used herein means two
or more registered investment companies (or series thereof) that have the same
investment adviser or investment advisers that are affiliated (by virtue of
being majority owned subsidiaries of the same parent or because one investment
adviser is a majority owned subsidiary of the other).
4. The term "SECURITIES" as used herein does not include (i) securities
of issuers that are affiliated with the Buyer or are part of the Buyer's Family
of Investment Companies, (ii) bank deposit notes and certificates of deposit,
(iii) loan participations, (iv) repurchase agreements, (v) securities owned but
subject to a repurchase agreement and (vi) currency, interest rate and commodity
swaps.
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5. The Buyer is familiar with Rule 144A and understands that each of
the parties to which this certification is made are relying and will continue to
rely on the statements made herein because one or more sales to the Buyer will
be in reliance on Rule 144A. In addition, the Buyer will only purchase for the
Buyer's own account.
6. The undersigned will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice, the Buyer's purchase of Rule 144A Securities will constitute
a reaffirmation of this certification by the undersigned as of the date of such
purchase.
________________________________________
Print Name of Buyer
By:_____________________________________
Name:________________________________
Title:_______________________________
IF AN ADVISER:
________________________________________
Print Name of Buyer
Date:___________________________________
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EXHIBIT D
CERTIFICATE OF NON-FOREIGN STATUS
This Certificate of Non-Foreign Status ("certificate") is delivered
pursuant to Section 3.03 of the Trust Agreement, dated as of _________, ____
(the "Trust Agreement"), between DLJ Mortgage Acceptance Corp., as depositor and
______________________, as Owner Trustee, in connection with the acquisition of,
transfer to or possession by the undersigned, whether as beneficial owner (the
"Beneficial Owner"), or nominee on behalf of the Beneficial Owner of the
Mortgage-Backed Certificates, Series 199_-__ (the "Certificate"). Capitalized
terms used but not defined in this certificate have the respective meanings
given them in the Trust Agreement.
Each holder must complete Part I, Part II (if the holder is a nominee), and in
all cases sign and otherwise complete Part III.
In addition, each holder shall submit with the Certificate an IRS Form W-9
relating to such holder.
To confirm to the Trust that the provisions of Sections 871, 881 or 1446 of the
Internal Revenue Code (relating to withholding tax on foreign partners) do not
apply in respect of the Certificate held by the undersigned, the undersigned
hereby certifies:
Part I - Complete Either A or B
A. Individual as Beneficial Owner
1. I am (The Beneficial Owner is ) not a non-resident
alien for purposes of U.S. income taxation;
2. My (The Beneficial Owner's) name and home address
are:
_____________________________
_____________________________
_____________________________; and
3. My (The Beneficial Owner's) U.S. taxpayer
identification number (Social Security Number) is
__________________ .
B. Corporate, Partnership or Other Entity as Beneficial Owner
1. __________________ (Name of the Beneficial Owner) is
not a foreign corporation, foreign partnership,
foreign trust or foreign estate (as those terms are
defined in the Code and Treasury Regulations;
2. The Beneficial Owner's office address and place of
incorporation (if applicable) is
__________________________; and
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3. The Beneficial Owner's U.S. employer identification
number is _______________.
Part II - Nominees
If the undersigned is the nominee for the Beneficial Owner, the
undersigned certifies that this certificate has been made in reliance upon
information contained in:
_____ an IRS Form W-9
_____ a form such as this or substantially similar
provided to the undersigned by an appropriate person and (i) the undersigned
agrees to notify the Trust at least thirty (30) days prior to the date that the
form relied upon becomes obsolete, and (ii) in connection with change in
Beneficial Owners, the undersigned agrees to submit a new Certificate of
Non-Foreign Status to the Trust promptly after such change.
Part III - Declaration
The undersigned, as the Beneficial Owner or a nominee thereof, agrees
to notify the Trust within sixty (60) days of the date that the Beneficial Owner
becomes a foreign person. The undersigned understands that this certificate may
be disclosed to the Internal Revenue Service by the Trust and any false
statement contained therein could be punishable by fines, imprisonment or both.
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Under penalties of perjury, I declare that I have examined this
certificate and to the best of my knowledge and belief it is true, correct and
complete and will further declare that I will inform the Trust of any change in
the information provided above, and, if applicable, I further declare that I
have the authority* to sign this document.
__________________________________
Name
__________________________________
Title (if applicable)
__________________________________
Signature and Date
*Note: If signed pursuant to a power of attorney, the power of attorney must
accompany this certificate.
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EXHIBIT E
FORM OF INVESTMENT LETTER [NON-RULE 144A]
[DATE]
[Certificate Registrar]
Re: DLJ MBN Trust Series 199_-_
Mortgage-Backed Certificates,
Series 199_-__, (the "Certificates")
------------------------------------
Ladies and Gentlemen:
In connection with our acquisition of the above-captioned Certificates,
we certify that (a) we understand that the Certificates are not being registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and are being transferred to us in a transaction that is exempt
from the registration requirements of the Act and any such laws, (b) we are an
"accredited investor," as defined in Regulation D under the Act, and have such
knowledge and experience in financial and business matters that we are capable
of evaluating the merits and risks of investments in the Certificates, (c) we
have had the opportunity to ask questions of and receive answers from the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or a
plan that is subject to Section 4975 of the Internal Revenue Code of 1986, as
amended, nor are we acting on behalf of any such plan, (e) we are acquiring the
Certificates for investment for our own account and not with a view to any
distribution of such Certificates (but without prejudice to our right at all
times to sell or otherwise dispose of the Certificates in accordance with clause
(g) below), (f) we have not offered or sold any Certificates to, or solicited
offers to buy any Certificates from, any person, or otherwise approached or
negotiated with any person with respect thereto, or taken any other action which
would result in a violation of Section 5 of the Act, and (g) we will not sell,
transfer or otherwise dispose of any Certificates unless (1) such sale, transfer
or other disposition is made pursuant to an effective registration statement
under the Act or is exempt from such registration requirements, and if
requested, we will at our expense provide an opinion of counsel satisfactory to
the addressees of this certificate that such sale, transfer or other disposition
may be made pursuant to an exemption from the Act, (2) the purchaser or
transferee of such Certificate has executed and delivered to you a certificate
to substantially the same effect as this certificate, and (3) the purchaser or
transferee has otherwise complied with any conditions for transfer set forth in
the Trust Agreement.
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Very truly yours,
[TRANSFEREE]
By:___________________________
Authorized Officer
F-2
EXHIBIT 4.6
DLJ MBN TRUST SERIES 199_ - __
Issuer
AND
[Name of Indenture Trustee]
INDENTURE TRUSTEE
-----------------------------------------
INDENTURE
Dated as of _____ __, 199_
------------------------------------------
MORTGAGE-BACKED NOTES
-------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I
Definitions
<S> <C> <C>
1.01. DEFINITIONS.............................................................................. 2
1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT........................................ 2
1.03. RULES OF CONSTRUCTION.................................................................... 2
ARTICLE II
Original Issuance of Notes
2.01. FORM..................................................................................... 4
2.02. EXECUTION, AUTHENTICATION AND DELIVERY................................................... 4
ARTICLE III
Covenants
3.01. COLLECTION OF PAYMENTS WITH RESPECT TO THE MORTGAGE LOANS................................ 5
3.02. MAINTENANCE OF OFFICE OR AGENCY.......................................................... 5
3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT..................................... 5
3.04. EXISTENCE................................................................................ 6
3.05. PAYMENT OF PRINCIPAL AND INTEREST; DEFAULTED INTEREST.................................... 6
3.06. PROTECTION OF TRUST ESTATE............................................................... 8
3.07. OPINIONS AS TO TRUST ESTATE.............................................................. 9
3.08. PERFORMANCE OF OBLIGATIONS; SERVICING AGREEMENT.......................................... 10
3.09. NEGATIVE COVENANTS....................................................................... 10
3.10. ANNUAL STATEMENT AS TO COMPLIANCE........................................................ 11
3.11. RECORDING OF ASSIGNMENTS................................................................. 11
3.12. REPRESENTATIONS AND WARRANTIES CONCERNING THE MORTGAGE LOANS............................. 11
3.13. AMENDMENTS TO SERVICING AGREEMENT........................................................ 11
3.14. MASTER SERVICER AS AGENT AND BAILEE OF THE MORTGAGE LOANS HOLDER......................... 12
3.15. INVESTMENT COMPANY ACT................................................................... 12
3.16. ISSUER MAY CONSOLIDATE, ETC.............................................................. 12
3.17. SUCCESSOR OR TRANSFEREE.................................................................. 14
3.18. NO OTHER BUSINESS........................................................................ 14
3.19. NO BORROWING............................................................................. 14
3.20. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES........................................ 14
3.21. CAPITAL EXPENDITURES..................................................................... 14
3.22. [Reserved]............................................................................... 14
3.23. RESTRICTED PAYMENTS...................................................................... 14
</TABLE>
i
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<TABLE>
<CAPTION>
<S> <C> <C>
3.24. NOTICE OF EVENTS OF DEFAULT.............................................................. 15
3.25. FURTHER INSTRUMENTS AND ACTS............................................................. 15
3.26. STATEMENTS TO NOTEHOLDERS................................................................ 15
3.27. DETERMINATION OF NOTE INTEREST RATE...................................................... 15
3.28. PAYMENTS UNDER THE CREDIT ENHANCEMENT INSTRUMENT......................................... 15
3.29. REPLACEMENT CREDIT ENHANCEMENT INSTRUMENT................................................ 16
ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
4.01. THE NOTES................................................................................ 17
4.02. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE OF NOTES;
APPOINTMENT OF CERTIFICATE REGISTRAR..................................................... 17
4.03. MUTILATED, DESTROYED, LOST OR STOLEN NOTES............................................... 18
4.04. PERSONS DEEMED OWNERS.................................................................... 19
4.05. CANCELLATION............................................................................. 19
4.06. BOOK-ENTRY NOTES......................................................................... 19
4.07. NOTICES TO DEPOSITORY.................................................................... 20
4.08. DEFINITIVE NOTES......................................................................... 20
4.09. TAX TREATMENT............................................................................ 21
4.10. SATISFACTION AND DISCHARGE OF INDENTURE.................................................. 21
4.11. APPLICATION OF TRUST MONEY............................................................... 22
4.12. SUBROGATION AND COOPERATION.............................................................. 22
4.13. REPAYMENT OF MONIES HELD BY PAYING AGENT................................................. 23
4.14. TEMPORARY NOTES.......................................................................... 23
ARTICLE V
DEFAULT AND REMEDIES
5.01. EVENTS OF DEFAULT........................................................................ 24
5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT....................................... 24
5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY INDENTURE
TRUSTEE.................................................................................. 25
5.04. REMEDIES; PRIORITIES..................................................................... 27
5.05. OPTIONAL PRESERVATION OF THE TRUST ESTATE................................................ 28
5.06. LIMITATION OF SUITS...................................................................... 29
5.07. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL AND INTEREST
5.08. RESTORATION OF RIGHTS AND REMEDIES....................................................... 29
5.09. RIGHTS AND REMEDIES CUMULATIVE........................................................... 30
5.10. DELAY OR OMISSION NOT A WAIVER........................................................... 30
5.11. CONTROL BY NOTEHOLDERS................................................................... 30
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
5.12. WAIVER OF PAST DEFAULTS.................................................................. 31
5.13. UNDERTAKING FOR COSTS.................................................................... 31
5.14. WAIVER OF STAY OR EXTENSION LAWS......................................................... 31
5.15. SALE OF TRUST ESTATE..................................................................... 31
5.16. ACTION ON NOTES.......................................................................... 33
ARTICLE VI
THE INDENTURE TRUSTEE
6.01. DUTIES OF INDENTURE TRUSTEE.............................................................. 35
6.02. RIGHTS OF INDENTURE TRUSTEE.............................................................. 36
6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE................................................... 36
6.04. INDENTURE TRUSTEE'S DISCLAIMER........................................................... 36
6.05. NOTICE OF EVENT OF DEFAULT............................................................... 37
6.06. REPORTS BY INDENTURE TRUSTEE TO HOLDERS.................................................. 37
6.07. COMPENSATION AND INDEMNITY............................................................... 37
6.08. REPLACEMENT OF INDENTURE TRUSTEE......................................................... 37
6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER.................................................... 38
6.10. APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE TRUSTEE........................ 39
6.11. ELIGIBILITY; DISQUALIFICATION............................................................ 40
6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER......................................... 40
6.13. REPRESENTATION AND WARRANTY.............................................................. 40
6.14. DIRECTIONS TO INDENTURE TRUSTEE.......................................................... 41
6.15. NO CONSENT TO CERTAIN ACTS OF DEPOSITOR.................................................. 41
6.16. INDENTURE TRUSTEE MAY OWN SECURITIES..................................................... 41
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES OF
NOTEHOLDERS.............................................................................. 42
7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO NOTEHOLDERS............................... 42
7.03. REPORTS BY ISSUER........................................................................ 42
7.04. REPORTS BY INDENTURE TRUSTEE............................................................. 43
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
8.01. COLLECTION OF MONEY...................................................................... 44
8.02. TRUST ACCOUNTS........................................................................... 44
8.03. OFFICER'S CERTIFICATE.................................................................... 45
8.04. TERMINATION UPON DISTRIBUTION TO NOTEHOLDERS............................................. 45
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
8.05. RELEASE OF TRUST ESTATE.................................................................. 45
8.06. SURRENDER OF NOTES UPON FINAL PAYMENT.................................................... 46
ARTICLE IX
SUPPLEMENTAL INDENTURES
9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS................................... 47
9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS...................................... 48
9.03. EXECUTION OF SUPPLEMENTAL INDENTURES..................................................... 49
9.04. EFFECT OF SUPPLEMENTAL INDENTURE......................................................... 50
9.05. CONFORMITY WITH TRUST INDENTURE ACT...................................................... 50
9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES............................................ 50
ARTICLE X
MISCELLANEOUS
10.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC................................................ 51
10.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE......................................... 52
10.03. ACTS OF NOTEHOLDERS...................................................................... 53
10.04. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER, CREDIT ENHANCER AND RATING
AGENCIES................................................................................. 54
10.05. NOTICES TO NOTEHOLDERS; WAIVER........................................................... 54
10.06. ALTERNATE PAYMENT AND NOTICE PROVISIONS.................................................. 55
10.07. CONFLICT WITH TRUST INDENTURE ACT........................................................ 55
10.08. EFFECT OF HEADINGS....................................................................... 55
10.09. SUCCESSORS AND ASSIGNS................................................................... 55
10.10. SEPARABILITY............................................................................. 55
10.11. BENEFITS OF INDENTURE.................................................................... 56
10.12. LEGAL HOLIDAYS........................................................................... 56
10.13. GOVERNING LAW............................................................................ 56
10.14. COUNTERPARTS............................................................................. 56
10.15. RECORDING OF INDENTURE................................................................... 56
10.16. ISSUER OBLIGATION........................................................................ 56
10.17. NO PETITION.............................................................................. 57
10.18. INSPECTION............................................................................... 57
10.19. AUTHORITY OF THE ADMINISTRATOR........................................................... 57
</TABLE>
Signatures and Seals ...................................................... 81
Acknowledgments ........................................................... 82
iv
<PAGE>
EXHIBITS
Exhibit A - Form of Notes
Appendix A Definitions
v
<PAGE>
This Indenture, dated as of _______________, between DLJ MBN
Trust Series 199_ -__, a Delaware business trust, as Issuer (the "Issuer"), and
____________________________, a ____________________________, as Indenture
Trustee (the
"Indenture Trustee"),
WITNESSETH THAT:
Each party hereto agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders of the Issuer's
Series 199_-_ Mortgage-Backed Notes (the
"Notes").
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the
Closing Date, as trustee for the benefit of the Holders of the Notes, all of the
Issuer's right, title and interest in and to whether now existing or hereafter
created by (a) the Mortgage Loans and the proceeds thereof, (b) all funds on
deposit in the Funding Account, including all income from the investment and
reinvestment of funds therein, (c) all funds on deposit from time to time in the
Collection Account allocable to the Mortgage Loans excluding any investment
income from such funds; (d) all funds on deposit from time to time in the
Payment Account and in all proceeds thereof; (e) the Policy and (f) all present
and future claims, demands, causes and chooses in action in respect of any or
all of the foregoing and all payments on or under, and all proceeds of every
kind and nature whatsoever in respect of, any or all of the foregoing and all
payments on or under, and all proceeds of every kind and nature whatsoever in
the conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, checks, deposit accounts, rights to payment of any and every kind,
and other forms of obligations and receivables, instruments and other property
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing (collectively, the "Trust Estate" or the "Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, and to
secure compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as trustee on behalf of the Holders of
the Notes, acknowledges such Grant, accepts the trust under this Indenture in
accordance with the provisions hereof and agrees to perform its duties as
Indenture Trustee as required herein.
1
<PAGE>
ARTICLE I
Definitions
Section 1.01. DEFINITIONS. For all purposes of this Indenture, except
as otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in the Definitions attached hereto as Appendix A which is
incorporated by reference herein. All other capitalized terms used herein shall
have the meanings specified herein.
Section 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the Trust Indenture Act (the
"TIA"), the provision is incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the following
meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Indenture Trustee.
"obligor" on the indenture securities means the Issuer and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by
such definitions.
Section 1.03. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
2
<PAGE>
(v) words in the singular include the plural and words
in the plural include the singular; and
(vi) any agreement, instrument or statute defined or
referred to herein or in any instrument or certificate delivered in
connection herewith means such agreement, instru ment or statute as
from time to time amended, modified or supplemented and includes (in
the case of agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a Person
are also to its permitted successors and assigns.
3
<PAGE>
ARTICLE II
Original Issuance of Notes
Section 2.01. FORM. The Notes, together with the Indenture Trustee's
certificate of authentication, shall be in substantially the form set forth in
Exhibit A, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the Authorized Officers executing such Notes, as
evidenced by their execution of such Notes.
The terms of the Notes set forth in Exhibit A are part of the terms of
this Indenture.
Section 2.02. EXECUTION, AUTHENTICATION AND DELIVERY. The Notes shall
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes
or did not hold such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Request authenticate and
deliver Notes for original issue in an aggregate initial principal amount of
$___________.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes and the Notes shall be issuable in the
minimum initial Security Balances of $100,000 and in integral multiples of
$1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
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ARTICLE III
Covenants
Section 3.01. COLLECTION OF PAYMENTS WITH RESPECT TO THE MORTGAGE
LOANS. The Indenture Trustee shall establish and maintain with itself a trust
account (the "Payment Account") in which the Indenture Trustee shall, subject to
the terms of this paragraph, deposit, on the same day as it is received from the
Master Servicer, each remittance received by the Indenture Trustee with respect
to the Mortgage Loans. The Indenture Trustee shall make all payments of
principal of and interest on the Notes, subject to Section 3.03 as provided in
Section 3.05 herein from monies on deposit in the Payment Account.
Section 3.02. MAINTENANCE OF OFFICE OR AGENCY. The Issuer will maintain
in the [Borough of Manhattan, The City of New York,] an office or agency where,
subject to satisfaction of conditions set forth herein, Notes may be surrendered
for registration of transfer or exchange, and where notices and demands to or
upon the Issuer in respect of the Notes and this Indenture may be served. The
Issuer hereby initially appoints the Indenture Trustee to serve as its agent for
the foregoing purposes. If at any time the Issuer shall fail to maintain any
such office or agency or shall fail to furnish the Indenture Trustee with the
address thereof, such surrenders, notices and demands may be made or served at
the Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee
as its agent to receive all such surrenders, notices and demands.
Section 3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT. (a)
As provided in Section 3.01, all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the Payment
Account pursuant to Section 3.01 shall be made on behalf of the Issuer by the
Indenture Trustee or by the Paying Agent, and no amounts so withdrawn from the
Payment Account for payments of Notes shall be paid over to the Issuer except as
provided in this Section 3.03.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts
due with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by
the Issuer of which it has actual knowledge in the making of any
payment required to be made with respect to the Notes;
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(iii) at any time during the continuance of any such
default, upon the written request of the Indenture Trustee, forthwith
pay to the Indenture Trustee all sums so held
in trust by such Paying Agent;
(iv) immediately resign as Paying Agent and forthwith
pay to the Indenture Trustee all sums held by it in trust for the
payment of Notes if at any time it ceases to meet the standards
required to be met by a Paying Agent at the time of its appointment;
and
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any Notes of
any applicable withholding taxes imposed thereon and with respect to
any applicable reporting requirements in connection
therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Request direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for one year
after such amount has become due and payable shall be discharged from such trust
and be paid to the Issuer on Issuer Request; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Inden ture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and direction of the Issuer cause to be published once, in
an Authorized Newspaper published in the English language, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The Indenture
Trustee may also adopt and employ, at the expense and direction of the Issuer,
any other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in monies due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Paying Agent, at the last address of
record for each such Holder).
Section 3.04. EXISTENCE. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the State
of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other state or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect
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the validity and enforceability of this Indenture, the Notes, the Mortgage Loans
and each other instrument or agreement included in the Trust Estate.
Section 3.05. PAYMENT OF PRINCIPAL AND INTEREST; DEFAULTED INTEREST.
(a) On each Payment Date from amounts on deposit in the Payment Account after
making (x) any deposit to the Funding Account pursuant to Section 8.02(b) and
(y) any deposits to the Payment Account pursuant to Section 8.02(c)(ii) and
Section 8.02(c)(i)(2), the Indenture Trustee shall pay to the Noteholders, the
Certificate Paying Agent, on behalf of the Certificateholders, and to other
Persons the amounts to which they are entitled as set forth below:
(i) To the Noteholders the sum of (a) one month's
interest at the Note Interest Rate on the Security Balances of Notes
immediately prior to such Payment Date and (b) any previously accrued
and unpaid interest for prior Payment Dates;
(ii) if such Payment Date is after the Funding Period,
to the Noteholders, as principal on the Notes, the applicable Security
Percentage of the Principal Collection Distribution Amount and if such
Payment Date is the first Payment Date following the end of the Funding
Period (if ending due to an Amortization Event) or the Payment Date on
which the Funding Period ends, to the Noteholders as principal on the
Notes the applicable Security Percentage of the amount deposited from
the Funding Account in respect of Security Principal Collections;
(iii) to the Noteholders, as principal on the Notes, from
the amount remaining on deposit in the Payment Account, up to the
applicable Security Percentage of Liquidation
Loss Amounts for the related Collection Period;
(iv) to the Noteholders, as principal on the Notes, from
the amount remaining on deposit in the Payment Account, up to the
applicable Security Percentage of Carryover
Loss Amounts;
(v) to the Credit Enhancer, in the amount of the
premium for the Credit Enhancement Instrument and for any Additional
Credit Enhancement Instrument;
(vi) to the Credit Enhancer, to reimburse it for prior
draws made on the Credit Enhancement Instrument and on any Additional
Credit Enhancement Instrument (with
interest thereon as provided in the Insurance Agreement);
(vii) to the Noteholders, as principal on the Notes based
on the Security Balances from Security Interest Collections, up to the
Special Capital Distribution Amount for such Payment Date;
(viii) to the Credit Enhancer, any other amounts owed to
the Credit Enhancer pursuant to the Insurance Agreement;
(ix) [Reserved];
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(x) to reimburse the Administrator for expenditures
made on behalf of the Issuer with respect to the performance of its
duties under the Indenture; and
(xi) any remaining amount, to the Certificate Paying
Agent, on behalf of the Certificates.
PROVIDED, HOWEVER, in the event that on a Payment Date a Credit Enhancer Default
shall have occurred and be continuing then the priorities of distributions
described above will be adjusted such that payments of the Certificate
Distribution Amount and all other amounts to be paid to the Certificate Paying
Agent will not be paid until the full amount of interest and principal in
accordance with clauses (i), (x) and (ii) through (iv) above that are due on the
Notes on such Payment Date have been paid and PROVIDED, FURTHER, that on the
Final Scheduled Payment Date or other final Payment Date, the amount to be paid
pursuant to clause (ii) above shall be equal to the Security Balances of the
Securities immediately prior to such Payment Date.
On each Payment Date, the Certificate Paying Agent shall deposit in the
Certificate Distribution Account all amounts it received pursuant to this
Section 3.05 for the purpose of distributing such funds to the
Certificateholders.
The amounts paid to Noteholders shall be paid to each Class in
accordance with the Class Percentage as set forth in paragraph (b) below.
Interest will accrue on the Notes during an Interest Period on the basis of the
actual number of days in such Interest Period and a year
assumed to consist of 360 days.
[Any installment of interest or principal, if any, payable on any Note
or Certificate that is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall, if such Holder holds Notes or Certificates of an
aggregate initial Principal Balance of at least $1,000,000, be paid to each
Holder of record on the preceding Record Date, by wire transfer to an account
specified in writing by such Holder reasonably satisfactory to the Indenture
Trustee as of the preceding Record Date or in all other cases or if no such
instructions have been delivered to the Indenture Trustee, by check to such
Noteholder mailed to such Holder's address as it appears in the Note Register
the amount required to be distributed to such Holder on such Payment Date
pursuant to such Holder's Securities; PROVIDED, HOWEVER, that the Indenture
Trustee shall not pay to such Holders any amount required to be withheld from a
payment to such Holder by the Code.]
(b) The principal of each Note shall be due and payable in full on the
Final Scheduled Payment Date for such Note as provided in the form of Note set
forth in Exhibit A. All principal payments on each Class of Notes shall be made
to the Noteholders of such Class entitled thereto in accordance with the
Percentage Interests represented by such Notes. Upon notice to the Indenture
Trustee by the Issuer, the Indenture Trustee shall notify the Person in whose
name a Note is registered at the close of business on the Record Date preceding
the Final Scheduled Payment Date or other final Payment Date. Such notice shall
be mailed no later than five Business Days prior to such Final Scheduled Payment
Date or other final Payment Date and shall specify that payment of the principal
amount and any interest due with respect to such Note at the Final Scheduled
Payment Date or other final Payment Date will be payable only upon presentation
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and surrender of such Note and shall specify the place where such Note may be
presented and surrendered for such final payment.
Section 3.06. PROTECTION OF TRUST ESTATE. (a) The Issuer will
from time to time execute and deliver all such supplements and amendments hereto
and all such financing statements, continuation statements, instruments of
further assurance and other instruments, and will take such other action
necessary or advisable to:
(i) maintain or preserve the lien and security interest
(and the priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
(ii) perfect, publish notice of or protect the validity
of any Grant made or to be made by this Indenture;
(iii) cause the Issuer to enforce any of the Mortgage
Loans; or
(iv) preserve and defend title to the Trust Estate and
the rights of the Indenture Trustee and the Noteholders in such Trust
Estate against the claims of all persons and
parties.
(b) Except as otherwise provided in this Indenture, the Indenture
Trustee shall not remove any portion of the Trust Estate that consists of money
or is evidenced by an instrument, certificate or other writing from the
jurisdiction in which it was held at the date of the most recent Opinion of
Counsel delivered pursuant to Section 3.07 (or from the jurisdiction in which it
was held as described in the Opinion of Counsel delivered at the Closing Date
pursuant to Section 3.07(a), if no Opinion of Counsel has yet been delivered
pursuant to Section 3.07(b) unless the Trustee shall have first received an
Opinion of Counsel to the effect that the lien and security interest created by
this Indenture with respect to such property will continue to be maintained
after giving effect to such action or actions.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pur
suant to this Section 3.06.
Section 3.07. OPINIONS AS TO TRUST ESTATE. (a) On the Closing Date, the
Issuer shall furnish to the Indenture Trustee and the Owner Trustee an Opinion
of Counsel either stating that, in the opinion of such counsel, such action has
been taken with respect to the recording and filing of this Indenture, any
indentures supplemental hereto, and any other requisite documents, and with
respect to the execution and filing of any financing statements and continuation
statements, as are necessary to perfect and make effective the lien and security
interest in the Mortgage Loans and reciting the details of such action, or
stating that, in the opinion of such counsel, no such action is necessary to
make such lien and security interest effective.
(b) On or before ___________ in each calendar year, beginning in ____,
the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel at the
expense of the Issuer either stating
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that, in the opinion of such counsel, such action has been taken with respect to
the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and with
respect to the execution and filing of any financing statements and continuation
statements as is necessary to maintain the lien and security interest in the
Mortgage Loans and reciting the details of such action or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest. Such Opinion of Counsel shall also describe the recording,
filing, re-recording and refiling of this Indenture, any indentures supplemental
hereto and any other requisite documents and the execution and filing of any
financing statements and continuation statements that will, in the opinion of
such counsel, be required to maintain the lien and security interest in the
Mortgage Loans until December 31 in the following calendar year.
Section 3.08. PERFORMANCE OF OBLIGATIONS; SERVICING AGREEMENT. (a)
The Issuer will punctually perform and observe all of its obligations and
agreements contained in this Indenture, the Basic Documents and in the
instruments and agreements included in the Trust Estate.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially, the
Issuer has contracted with the Administrator to assist the Issuer in performing
its duties under this Indenture.
(c) The Issuer will not take any action or permit any action to be
taken by others which would release any Person from any of such Person's
covenants or obligations under any of the documents relating to the Mortgage
Loans or under any instrument included in the Trust Estate, or which would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity or effectiveness of, any of the documents relating to
the Mortgage Loans or any such instrument, except such actions as the Master
Servicer is expressly permitted to take in the Servicing Agreement. The
Indenture Trustee, as pledgee of the Mortgage Loans, shall be able to exercise
the rights Issuer and the Mortgage Loans holder, to direct the actions of the
Master Servicer.
(d) The Issuer shall at all times retain an Administrator (approved by
the Credit Enhancer under the Administration Agreement) and may enter into
contracts with other Persons for the performance of the Issuer's obligations
hereunder, and performance of such obligations by such Persons shall be deemed
to be performance of such obligations by the Issuer.
Section 3.09. NEGATIVE COVENANTS. So long as any Notes are
Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture,
sell, transfer, exchange or otherwise dispose of the Trust Estate,
unless directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such
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payments under the Code) or assert any claim against any present or
former Noteholder by reason of the payment of the taxes levied or
assessed upon any part of the Trust Estate;
(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations with
respect to the Notes under this Indenture except as may be expressly
permitted hereby, (B) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance (other than the lien of this
Indenture) to be created on or extend to or other wise arise upon or
burden the Trust Estate or any part thereof or any interest therein or
the proceeds thereof or (C) permit the lien of this Indenture not to
constitute a valid first priority security interest in the Trust
Estate; or
(iv) waive or impair, or fail to assert rights under,
the Mortgage Loans, or impair or cause to be impaired the Company's or
the Issuer's interest in the Mortgage Loans, the Mortgage Loan Purchase
Agreement or in any Basic Document, if any such action would materially
and adversely affect the interests of the Noteholders.
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE. The Issuer will
deliver to the Indenture Trustee, within 120 days after the end of each fiscal
year of the Issuer (commencing with the fiscal year ____), an Officer's
Certificate stating, as to the Authorized Officer signing such
Officer's Certificate, that:
(i) a review of the activities of the Issuer during
such year and of its performance under this Indenture has been made
under such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge,
based on such review, the Issuer has complied with all conditions and
covenants under this Indenture throughout such year, or, if there has
been a default in its compliance with any such condition or covenant,
specifying each such default known to such Authorized Officer and the
nature and status thereof.
Section 3.11. RECORDING OF ASSIGNMENTS. The Company shall cause the to
exercise its right under the Mortgage Loan Purchase Agreement with respect to
the obligation of the Seller to submit or cause to be submitted for recording
all Assignments of Mortgages on or prior to ______________ with respect to the
Initial Loans and within 60 days following the related Deposit
Date with respect to any Additional Loans.
Section 3.12. REPRESENTATIONS AND WARRANTIES CONCERNING THE MORTGAGE
LOANS. The Indenture Trustee, as pledgee of the Mortgage Loans, has the benefit
of the representations and warranties made by the Seller in Section [____] and
Section [____] of the Mortgage Loan Purchase Agreement concerning the Mortgage
Loans and the right to enforce the remedies against the Seller provided in such
Section [____] or Section [____] to the same extent as though such
representations and warranties were made directly to the Indenture Trustee.
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Section 3.13. AMENDMENTS TO SERVICING AGREEMENT. The Issuer covenants
with the Inden ture Trustee that it will not enter into any amendment or
supplement to the Servicing Agreement in accordance with Section 8.01 of the
Servicing Agreement without the prior written consent of the Indenture Trustee.
The Indenture Trustee, as pledgee of the Mortgage Loans, may, in its discretion,
decline to enter into or consent to any such supplement or amendment if its own
rights, duties or immunities shall be adversely affected.
Section 3.14. MASTER SERVICER AS AGENT AND BAILEE OF THE MORTGAGE LOANS
HOLDER. Solely for purposes of perfection under Section 9-305 of the Uniform
Commercial Code or other similar applicable law, rule or regulation of the state
in which such property is held by the Master Servicer, the Indenture Trustee
hereby acknowledges that the Master Servicer is acting as agent and bailee of
the Mortgage Loans holder in holding amounts on deposit in the Collection
Account pursuant to Section 3.02 of the Servicing Agreement, as well as its
agent and bailee in holding any Related Documents released to the Master
Servicer pursuant to Section 3.06(c) of the Servicing Agreement, and any other
items constituting a part of the Trust Estate which from time to time come into
the possession of the Master Servicer. It is intended that, by the Master
Servicer's acceptance of such agency pursuant to Section 3.02 of the Servicing
Agreement, the Trustee, as a secured party of the Mortgage Loans, will be deemed
to have possession of such Related Documents, such monies and such other items
for purposes of Section 9-305 of the Uniform Commercial Code of the state in
which such property is held by the Master Servicer.
Section 3.15. INVESTMENT COMPANY ACT. The Issuer shall not become an
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section 3.15
if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.
Section 3.16. ISSUER MAY CONSOLIDATE, ETC. (a) The Issuer shall
not consolidate or merge with or into any other Person, unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any state or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form reasonably satisfactory to the Indenture Trustee, the due and
punctual payment of the principal of and interest on all Notes and to
the Certificate Paying Agent, on behalf of the Certificateholders and
the performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein;
(ii) immediately after giving effect to such
transaction, no Event of Default shall have occurred and be continuing;
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(iii) the Rating Agencies shall have notified the Issuer
that such transaction shall not cause the rating of the Notes [or the
Certificates] to be reduced, suspended or withdrawn or to be considered
by either Rating Agency to be below investment grade without taking
into account the Credit Enhancement Instrument;
(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will not have any material
adverse tax consequence to the Issuer, any Noteholder or any
Certificateholder;
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
and
(vi) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that such consolidation or merger and such supplemental indenture
comply with this Article III and that all conditions precedent herein
provided for relating to such transaction have been complied with
(including any filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer
the properties and assets of the Issuer the conveyance or transfer of
which is hereby restricted shall (A) be a United States citizen or a
Person organized and existing under the laws of the United States of
America or any state, (B) expressly assumes, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form satisfactory to the Indenture Trustee, the due and punctual
payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein, (C) expressly agrees by means of such supplemental
indenture that all right, title and interest so conveyed or trans
ferred shall be subject and subordinate to the rights of Holders of the
Notes, (D) unless otherwise provided in such supplemental indenture,
expressly agrees to indemnify, defend and hold harmless the Issuer
against and from any loss, liability or expense arising under or
related to this Indenture and the Notes and (E) expressly agrees by
means of such supplemental indenture that such Person (or if a group of
Persons, then one specified Person) shall make all filings with the
Commission (and any other appropriate Person) required by the Exchange
Act in connection with the Notes;
(ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing;
(iii) the Rating Agencies shall have notified the Issuer
that such transaction shall not cause the rating of the Notes or the
Certificates to be reduced, suspended or withdrawn;
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(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will not have any material
adverse tax consequence to the Issuer or any Noteholder;
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
and
(vi) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that such conveyance or transfer and such supplemental indenture comply
with this Article III and that all conditions precedent herein provided
for relating to such transaction have been complied with (including any
filing required by the Exchange Act).
Section 3.17. SUCCESSOR OR TRANSFEREE. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.16(a), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person
had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.16(b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the part
of the Issuer with respect to the Notes immediately upon the delivery of written
notice to the Indenture Trustee of such conveyance or
transfer.
Section 3.18. NO OTHER BUSINESS. The Issuer shall not engage in any
business other than financing, purchasing, owning and selling and managing the
Mortgage Loans and the issuance of the Notes and Certificates in the manner
contemplated by this Indenture and the Basic Documents and all activities
incidental thereto.
Section 3.19. NO BORROWING. The Issuer shall not issue, incur,
assume, guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
Section 3.20. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES. Except
as contemplated by this Indenture or the Basic Documents, the Issuer shall not
make any loan or advance or credit to, or guarantee (directly or indirectly or
by an instrument having the effect of assuring another's payment or performance
on any obligation or capability of so doing or otherwise), endorse or otherwise
become contingently liable, directly or indirectly, in connection with the
obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or
agree contingently to do so) any stock, obligations, assets or securities of, or
any other interest in, or make any capital contribution to, any other Person.
Section 3.21. CAPITAL EXPENDITURES. The Issuer shall not make any
expenditure (by long- term or operating lease or otherwise) for capital assets
(either realty or personalty).
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Section 3.22. [Reserved]
Section 3.23. RESTRICTED PAYMENTS. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer, (ii) redeem, purchase, retire or otherwise acquire for
value any such ownership or equity interest or security or (iii) set aside or
otherwise segregate any amounts for any such purpose; PROVIDED, HOWEVER, that
the Issuer may make, or cause to be made, (x) distributions to the Owner Trustee
and the Certificateholders as contemplated by, and to the extent funds are
available for such purpose under the Trust Agreement, (y) payments to the Master
Servicer pursuant to the terms of the Servicing Agreement and (z) payments to
the Indenture Trustee pursuant to Section 1(a)(ii) of the Administration
Agreement. The Issuer will not, directly or indirectly, make payments to or
distributions from the Collection Account except in accordance with this
Indenture and the Basic Documents.
Section 3.24. NOTICE OF EVENTS OF DEFAULT. The Issuer shall give
the Indenture Trustee the Credit Enhancer and the Rating Agencies prompt written
notice of each Event of Default hereunder and under the Trust Agreement.
Section 3.25. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
Section 3.26. STATEMENTS TO NOTEHOLDERS. The Indenture Trustee and the
Certificate Registrar shall forward by mail to each Noteholder and
Certificateholder, respectively, the State ment delivered to it pursuant to
Section 4.01 of the Servicing Agreement.
Section 3.27. DETERMINATION OF NOTE INTEREST RATE. On the second LIBOR
Business Day immediately preceding (i) the Closing Date in the case of the first
Interest Period and (ii) the first day of each succeeding Interest Period, the
Indenture Trustee shall determine LIBOR and the Note Interest Rate for such
Interest Period and shall inform the Issuer, the Master Servicer and the
Depositor at their respective facsimile numbers given to the Indenture Trustee
in writing thereof.
Section 3.28. PAYMENTS UNDER THE CREDIT ENHANCEMENT INSTRUMENT.
(a) On any Payment Date, other than a Dissolution Payment Date, the Indenture
Trustee on behalf of the Noteholders, and in its capacity as Certificate Paying
Agent on behalf of the Certificateholders shall make a draw on the Credit
Enhancement Instrument in an amount if any equal to the sum of (x) the amount by
which the interest accrued at the Note Interest Rate on the Security Balance of
the Notes exceeds the amount on deposit in the Payment Account available to be
distributed therefor on such Payment Date and (y) the Guaranteed Principal
Payment Amount (the "Credit Enhancement Draw Amount").
(b) The Indenture Trustee shall submit, if a Credit Enhancement Draw
Amount is specified in any Statement to Holders prepared by the Master Servicer
pursuant to Section 4.01
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of the Servicing Agreement, the Notice for Payment (as defined in the Credit
Enhancement Instrument) in the amount of the Credit Enhancement Draw Amount to
the Credit Enhancer no later than 2:00 P.M., New York City time, on the second
Business Day prior to the applicable Payment Date. Upon receipt of such Credit
Enhancement Draw Amount in accordance with the terms of the Credit Enhancement
Instrument, the Indenture Trustee shall deposit such Credit Enhancement Draw
Amount in the Payment Account for distribution to Holders (and the Certificate
Paying Agent on behalf of the Certificates) pursuant to Section 3.05.
In addition, a draw may be made under the Credit Enhancement Instrument
in respect of any Avoided Payment (as defined in and pursuant to the terms and
conditions of the Credit Enhancement Instrument) and the Indenture Trustee shall
submit a Notice for Payment with respect thereto together with the other
documents required to be delivered to the Credit Enhancer pursuant to the Credit
Enhancement Instrument in connection with a draw in respect of any Avoided
Payment.
(c) In the event that any Additional Credit Enhancement Instruments are
issued pursuant to Section 4.01 and Section 2.02(B) of the Insurance Agreement,
the Indenture Trustee shall be authorized to make draws thereon subject to the
terms and conditions therein.
Section 3.29. REPLACEMENT CREDIT ENHANCEMENT INSTRUMENT. In the event
of a Credit Enhancer Default or if the claims paying ability rating of the
Credit Enhancer is downgraded and such downgrade results in a downgrading of the
then current rating of the Securities (in each case, a "Replacement Event"), the
Issuer, at its expense, in accordance with and upon satisfaction of the
conditions set forth in the Credit Enhancement Instrument, including, without
limitation, payment in full of all amounts owed to the Credit Enhancer, may, but
shall not be required to, substitute a new surety bond or surety bonds for the
existing Credit Enhancement Instrument or may arrange for any other form of
credit enhancement; PROVIDED, HOWEVER, that in each case the Notes shall be
rated no lower than the rating assigned by each Rating Agency to the Notes
immediately prior to such Replacement Event and the timing and mechanism for
drawing on such new credit enhancement shall be reasonably acceptable to the
Indenture Trustee and provided further that the premiums under the proposed
credit enhancement shall not exceed such premiums under the existing Credit
Enhancement Instrument. It shall be a condition to substitution of any new
credit enhancement that there be delivered to the Indenture Trustee (i) an
Opinion of Counsel, acceptable in form to the Indenture Trustee, from counsel to
the provider of such new credit enhancement with respect to the enforceability
thereof and such other matters as the Indenture Trustee may require and (ii) an
Opinion of Counsel to the effect that such substitution would not (a) adversely
affect in any material respect the tax status of the Notes or (b) cause the
Issuer to be subject to a tax at the entity level. Upon receipt of the items
referred to above and payment of all amounts owing to the Credit Enhancer and
the taking of physical possession of the new credit enhancement, the Indenture
Trustee shall, within five Business Days following receipt of such items and
such taking of physical possession, deliver the replaced Credit Enhancement
Instrument to the Credit Enhancer. In the event of any such replacement the
Issuer shall give written notice thereof to the Rating Agencies.
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ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
Section 4.01. THE NOTES. The Notes shall be registered in the name
of a nominee desig nated by the Depository. Beneficial Owners will hold
interests in the Notes through the book- entry facilities of the Depository in
minimum initial Principal Balances of $1,000 and integral multiples of $1,000 in
excess thereof.
The Indenture Trustee may for all purposes (including the making of
payments due on the Notes) deal with the Depository as the authorized
representative of the Beneficial Owners with respect to the Notes for the
purposes of exercising the rights of Holders of Notes hereunder. Except as
provided in the next succeeding paragraph of this Section 4.01, the rights of
Beneficial Owners with respect to the Notes shall be limited to those
established by law and agreements between such Beneficial Owners and the
Depository and Depository Participants. Except as provided in Section 4.08,
Beneficial Owners shall not be entitled to definitive certificates for the Notes
as to which they are the Beneficial Owners. Requests and directions from, and
votes of, the Depository as Holder of the Notes shall not be deemed inconsistent
if they are made with respect to different Beneficial Owners. The Indenture
Trustee may establish a reasonable record date in connection with solicitations
of consents from or voting by Noteholders and give notice to the Depository of
such record date. Without the consent of the Issuer and the Indenture Trustee,
no Note may be transferred by the Depository except to a successor Depository
that agrees to hold such Note for the account of the Beneficial Owners.
In the event the Depository Trust Company resigns or is removed as
Depository, the Indenture Trustee with the approval of the Issuer may appoint a
successor Depository. If no successor Depository has been appointed within 30
days of the effective date of the Depository's resignation or removal, each
Beneficial Owner shall be entitled to certificates representing the Notes it
beneficially owns in the manner prescribed in Section 4.08.
The Notes shall, on original issue, be executed on behalf of the Issuer
by the Owner Trustee, not in its individual capacity but solely as Owner
Trustee, authenticated by the Note Registrar and delivered by the Indenture
Trustee to or upon the order of the Issuer.
Section 4.02. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE
OF NOTES; APPOINTMENT OF CERTIFICATE REGISTRAR. The Issuer shall cause to be
kept at its Corporate Trust Office a Note Register in which, subject to such
reasonable regulations as it may prescribe, the Note Registrar shall provide for
the registration of Notes and of transfers and exchanges of Notes
as herein provided.
Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Note at the Corporate Trust
Office, the Indenture Trustee shall execute and the Note Registrar shall
authenticate and deliver, in the name of the designated transferee or
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transferees, one or more new Notes in authorized initial Security Balances
evidencing the same aggregate Percentage Interests.
Subject to the foregoing, at the option of the Noteholders, Notes may
be exchanged for other Notes of like tenor or, in each case in authorized
initial Principal Balances evidencing the same aggregate Percentage Interests
upon surrender of the Notes to be exchanged at the Corporate Trust Office of the
Note Registrar. Whenever any Notes are so surrendered for exchange, the
Indenture Trustee shall execute and the Note Registrar shall authenticate and
deliver the Notes which the Noteholder making the exchange is entitled to
receive. Each Note presented or sur rendered for registration of transfer or
exchange shall (if so required by the Note Registrar) be duly endorsed by, or be
accompanied by a written instrument of transfer in form reasonably satisfactory
to the Note Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing with such signature guaranteed by a commercial bank or
trust company located or having a correspondent located in the city of New York.
Notes delivered upon any such transfer or exchange will evidence the same
obligations, and will be entitled to the same rights and privileges, as the
Notes surrendered.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of
Notes.
All Notes surrendered for registration of transfer and exchange shall
be cancelled by the Note Registrar and delivered to the Indenture Trustee for
subsequent destruction without liability
on the part of either.
The Issuer hereby appoints __________________________________ as
Certificate Registrar to keep at its Corporate Trust Office a Certificate
Register pursuant to Section 3.09 of the Trust Agreement in which, subject to
such reasonable regulations as it may prescribe, the Certificate Registrar shall
provide for the registration of Certificates and of transfers and
exchanges thereof pursuant to Section 3.05 of the Trust Agreement.
__________________________________ hereby accepts such appointment.
Section 4.03. MUTILATED, DESTROYED, LOST OR STOLEN NOTES. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer and the Indenture Trustee
harmless, then, in the absence of notice to the Issuer, the Note Registrar or
the Indenture Trustee that such Note has been acquired by a bona fide purchaser,
and provided that the requirements of Section 8-405 of the UCC are met, the
Issuer shall execute, and upon its request the Indenture Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Note, a replacement Note of the same Class; provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, instead
of issuing a replacement Note, the Issuer may pay such
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destroyed, lost or stolen Note when so due or payable without surrender thereof.
If, after the delivery of such replacement Note or payment of a destroyed, lost
or stolen Note pursuant to the proviso to the preceding sentence, a bona fide
purchaser of the original Note in lieu of which such replacement Note was issued
presents for payment such original Note, the Issuer and the Indenture Trustee
shall be entitled to recover such replacement Note (or such payment) from the
Person to whom it was delivered or any Person taking such replacement Note from
such Person to whom such replacement Note was delivered or any assignee of such
Person, except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage, cost
or expense incurred by the Issuer or the Indenture Trustee in connection
therewith.
Upon the issuance of any replacement Note under this Section 4.03, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 4.03 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 4.04. PERSONS DEEMED OWNERS. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and interest, if any,
on such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and neither the Issuer, the Indenture Trustee nor any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
Section 4.05. CANCELLATION. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly cancelled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly cancelled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes cancelled as provided in this Section 4.05, except as expressly
permitted by this Indenture. All cancelled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Request that they be destroyed
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or returned to it; provided however, that such Issuer Request is timely and the
Notes have not been previously disposed of by the Indenture Trustee.
Section 4.06. BOOK-ENTRY NOTES. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to The Depository Trust Company, the initial Depository, by, or on
behalf of, the Issuer. Such Notes shall initially be registered on the Note
Register in the name of Cede & Co., the nominee of the initial Depository, and
no Beneficial Owner will receive a Definitive Note representing such Beneficial
Owner's interest in such Note, except as provided in Section 4.08. Unless and
until definitive, fully registered Notes (the "Definitive Notes") have been
issued to Beneficial Owners pursuant to Section 4.08:
(i) the provisions of this Section 4.06 shall be in
full force and effect;
(ii) the Note Registrar and the Indenture Trustee shall
be entitled to deal with the Depository for all purposes of this
Indenture (including the payment of principal of and interest on the
Notes and the giving of instructions or directions hereunder) as the
sole holder of the Notes, and shall have no obligation to the Owners of
Notes;
(iii) to the extent that the provisions of this Section
4.06 conflict with any other provisions of this Indenture, the
provisions of this Section 4.06 shall control;
(iv) the rights of Beneficial Owners shall be exercised
only through the Depository and shall be limited to those established
by law and agreements between such Owners of Notes and the Depository
and/or the Depository Participants. Unless and until Definitive Notes
are issued pursuant to Section 4.08, the initial Depository will make
book-entry transfers among the Depository Participants and receive and
transmit payments of principal of and interest on the Notes to such
Depository Participants; and
(v) whenever this Indenture requires or permits actions
to be taken based upon instructions or directions of Holders of Notes
evidencing a specified percentage of the Security Balances of the
Notes, the Depository shall be deemed to represent such percentage only
to the extent that it has received instructions to such effect from
Beneficial Owners and/or Depository Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to the
Indenture Trustee.
Section 4.07. NOTICES TO DEPOSITORY. Whenever a notice or other
communication to the Note Holders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Beneficial Owners pursuant to
Section 4.08, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Depository, and shall have no obligation to the Beneficial Owners.
Section 4.08. DEFINITIVE NOTES. If (i) the Administrator advises the
Indenture Trustee in writing that the Depository is no longer willing or able to
properly discharge its responsibilities
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with respect to the Notes and the Administrator is unable to locate a qualified
successor, (ii) the Administrator at its option advises the Indenture Trustee in
writing that it elects to terminate the book-entry system through the Depository
or (iii) after the occurrence of an Event of Default, Owners of Notes
representing beneficial interests aggregating at least a majority of the
Security Balances of the Notes advise the Depository in writing that the
continuation of a book-entry system through the Depository is no longer in the
best interests of the Beneficial Owners, then the Depository shall notify all
Beneficial Owners and the Indenture Trustee of the occurrence of any such event
and of the availability of Definitive Notes to Beneficial Owners requesting the
same. Upon surrender to the Indenture Trustee of the typewritten Notes
representing the Book-Entry Notes by the Depository, accompanied by registration
instructions, the Issuer shall execute and the Indenture Trustee shall
authenticate the Definitive Notes in accordance with the instructions of the
Depository. None of the Issuer, the Note Registrar or the Indenture Trustee
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize the
Holders of the Definitive Notes as Noteholders.
Section 4.09. TAX TREATMENT. The Issuer has entered into this
Indenture, and the Notes will be issued, with the intention that, for federal,
state and local income, single business and franchise tax purposes, the Notes
will qualify as indebtedness of the Issuer. The Issuer, by entering into this
Indenture, and each Noteholder, by its acceptance of its Note (and each Bene
ficial Owner by its acceptance of an interest in the applicable Book-Entry
Note), agree to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
Section 4.10. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.03, 3.04, 3.06, 3.09,
3.16, 3.18 and 3.19, (v) the rights, obligations and immunities of the Indenture
Trustee hereunder (including the rights of the Indenture Trustee under Section
6.07 and the obligations of the Indenture Trustee under Section 4.11) and (vi)
the rights of Noteholders as beneficiaries hereof with respect to the property
so deposited with the Indenture Trustee payable to all or any of them, and the
Indenture Trustee, on demand of and at the expense of the Issuer, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture
with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have
been replaced or paid as provided in Section 4.03 and (ii) Notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to the
Issuer or discharged from such trust, as provided in Section 3.03) have
been delivered to the Indenture Trustee for cancellation; or
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(2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation
a. have become due and payable,
b. will become due and payable at the Final Scheduled
Payment Date within one year, or
c. have been called for early redemption pursuant to
Section 5.02.
and the Issuer, in the case of a. or b. above, has irrevocably
deposited or caused to be irrevocably deposited with the Indenture
Trustee cash or direct obligations of or obligations guaranteed by the
United States of America (which will mature prior to the date such
amounts are payable), in trust for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such Notes
and Certificates then outstanding not theretofore delivered to the
Indenture Trustee for cancellation when due on the Final Scheduled
Payment Date;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder and under the Insurance Agreement by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee and the
Credit Enhancer an Officer's Certificate, an Opinion of Counsel and
each meeting the applicable requirements of Section 10.01 each stating
that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with
and, if the Opinion of Counsel relates to a deposit made in connection
with Section 4.10(A)(2)b. above, such opinion shall further be to the
effect that such deposit will not have any material adverse tax
consequences to the Issuer, any Noteholders or any Certificateholders.
Section 4.11. APPLICATION OF TRUST MONEY. All monies deposited with the
Indenture Trustee pursuant to Section 4.10 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent or
Certificate Paying Agent, as the Indenture Trustee may determine, to the Holders
of Securities, of all sums due and to become due thereon for principal and
interest; but such monies need not be segregated from other funds except to the
extent required herein or required by law.
Section 4.12. SUBROGATION AND COOPERATION. (a) The Issuer and the
Indenture Trustee acknowledge that (i) to the extent the Credit Enhancer makes
payments under the Credit Enhancement Instrument on account of principal of or
interest on the Notes, the Credit Enhancer will be fully subrogated to the
rights of such Holders to receive such principal and interest from the Issuer,
and (ii) the Credit Enhancer shall be paid such principal and interest but only
from the sources and in the manner provided herein and in the Insurance
Agreement for the payment of such principal and interest.
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The Indenture Trustee shall cooperate in all respects with any
reasonable request by the Credit Enhancer for action to preserve or enforce the
Credit Enhancer's rights or interest under this Indenture or the Insurance
Agreement without limiting the rights of the Noteholders as otherwise set forth
in the Indenture, including, without limitation, upon the occurrence and
continuance of a default under the Insurance Agreement, a request to take any
one or more of the following actions:
(i) institute Proceedings for the collection of all
amounts then payable on the Notes, or under this Indenture in respect
to the Notes and all amounts payable under the Insurance Agreement
enforce any judgment obtained and collect from the Issuer monies
adjudged due;
(ii) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private Sales
called and conducted in any manner permitted by law;
(iii) file or record all Assignments that have not
previously been recorded;
(iv) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture; and
(v) exercise any remedies of a secured party under the
Uniform Commercial Code and take any other appropriate action to
protect and enforce the rights and remedies
of the Credit Enhancer hereunder.
Section 4.13. REPAYMENT OF MONIES HELD BY PAYING AGENT. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all monies then held by any Administrator other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.05 and thereupon such Paying Agent shall be released from all
further liability with respect to such monies.
Section 4.14. TEMPORARY NOTES. Pending the preparation of any
Definitive Notes, the Issuer may execute and upon its written direction, the
Indenture Trustee may authenticate and make available for delivery, temporary
Notes that are printed, lithographed, typewritten, photocopied or otherwise
produced, in any denomination, substantially of the tenor of the Definitive
Notes in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause Definitive Notes
to be prepared without unreasonable delay. After the preparation of the
Definitive Notes, the temporary Notes shall be exchangeable for Definitive Notes
upon surrender of the temporary Notes at the office or agency of the Indenture
Trustee, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Notes, the Issuer shall execute and the Indenture Trustee
shall authenticate and make available for delivery, in exchange therefor,
Definitive Notes of authorized
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denominations and of like tenor and aggregate principal amount. Until so
exchanged, such temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as Definitive Notes.
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ARTICLE V
DEFAULT AND REMEDIES
Section 5.01. EVENTS OF DEFAULT. "Event of Default," wherever used
herein, shall have the meaning provided in Article I; provided, however, that no
Event of Default will occur under clause (i) or clause (ii) of the definition of
"Event of Default" if the Issuer fails to make payments of principal of and
interest on the Notes so long as the Credit Enhancer makes payments sufficient
therefore under the Credit Enhancement Instrument.
The Issuer shall deliver to the Indenture Trustee and the Credit
Enhancer, within five days after learning of the occurrence of an Event of
Default, written notice in the form of an Officer's Certificate of any event
which with the giving of notice and the lapse of time would become an Event of
Default under clause (iii) of the definition of "Event of Default", its status
and what action the Issuer is taking or proposes to take with respect thereto.
Section 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an
Event of Default should occur and be continuing or if the Master Servicer shall
purchase all of the Mortgage Loans pursuant to Section 8.08 of the Servicing
Agreement, then and in every such case the Indenture Trustee or the Holders of
Notes representing not less than a majority of the Security Balances of all
Notes may declare the Notes to be immediately due and payable, by a notice in
writing to the Issuer (and to the Indenture Trustee if given by Noteholders),
and upon any such declaration the unpaid principal amount of such Class of
Notes, together with accrued and unpaid interest thereon through the date of
acceleration, shall become immediately due and payable. Unless the prior written
consent of the Credit Enhancer shall have been obtained by the Indenture
Trustee, the Payment Date upon which such accelerated payment is due and payable
shall not be a Payment Date under the Credit Enhancement Instrument and the
Indenture Trustee shall not be authorized under Section 3.29 to make a draw
therefor.
At any time after such declaration of acceleration of maturity with
respect to an Event of Default has been made and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee as
hereinafter in this Article V provided, the Holders of Notes representing a
majority of the Security Balances of all Notes, by written notice to the Issuer
and the Indenture Trustee, may waive the related Event of Default and rescind
and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the
Indenture Trustee a sum sufficient to pay:
(A) all payments of principal of and interest on the
Notes and all other amounts that would then be due hereunder
or upon the Notes if the Event of Default giving rise to such
acceleration had not occurred; and
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(B) all sums paid or advanced by the Indenture
Trustee hereunder and the reasonable compensation, expenses,
disbursements and advances of the
Indenture Trustee and its agents and counsel; and
(ii) all Events of Default, other than the nonpayment of
the principal of the Notes that has become due solely by such
acceleration, have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
Section 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
INDENTURE TRUSTEE. (a) The Issuer covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and payable, and
such default continues for a period of five days, or (ii) default is made in the
payment of the principal of or any installment of the principal of any Note when
the same becomes due and payable, the Issue shall, upon demand of the Indenture
Trustee, pay to it, for the benefit of the Holders of Notes and of the Credit
Enhancer, the whole amount then due and payable on the Notes for principal and
interest, with interest upon the overdue principal, and in addition thereto such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, subject to the provisions of Section 10.17 hereof may institute a
Proceeding for the collection of the sums so due and unpaid, and may prosecute
such Proceeding to judgment or final decree, and may enforce the same against
the Issuer or other obligor upon the Notes and collect in the manner provided by
law out of the property of the Issuer or other obligor the Notes, wherever
situated, the monies adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee subject to the provisions of Section 10.17 hereof may, as more
particularly provided in Section 5.04, in its discretion, proceed to protect and
enforce its rights and the rights of the Noteholders and the Credit Enhancer, by
such appropriate Proceedings as the Indenture Trustee shall deem most effective
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy or legal or
equitable right vested in the Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Trust Estate, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other
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comparable judicial Proceedings relative to the Issuer or other obligor upon the
Notes, or to the creditors or property of the Issuer or such other obligor, the
Indenture Trustee, irrespective of whether the principal of any Notes shall then
be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Indenture Trustee shall have made any demand
pursuant to the provisions of this Section, shall be entitled and empowered, by
intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Indenture Trustee
(including any claim for reasonable compensation to the Indenture
Trustee and each predecessor Indenture Trustee, and their respective
agents, attorneys and counsel, and for reimbursement of all expenses
and liabilities incurred, and all advances made, by the Indenture
Trustee and each predecessor Indenture Trustee, except as a result of
negligence or bad faith) and of the Noteholders allowed in such
Proceedings;
(ii) unless prohibited by applicable law and
regulations, to vote on behalf of the Holders of Notes in any election
of a trustee, a standby trustee or Person performing
similar functions in any such Proceedings;
(iii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders and of the
Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Indenture Trustee or the Holders of Notes allowed in any
judicial proceedings relative to the Issuer, its creditors and its
property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any Note
holder in any such proceeding except, as aforesaid, to vote for the election of
a trustee in bankruptcy or similar Person.
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(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary to
make any Noteholder a party to any such Proceedings.
Section 5.04. REMEDIES; PRIORITIES. (a) If an Event of Default
shall have occurred and be continuing, the Indenture Trustee subject to the
provisions of Section 10.17 hereof may do one or more of the following (subject
to Section 5.05):
(i) institute Proceedings in its own name and as
trustee of an express trust for the collection of all amounts then
payable on the Notes or under this Indenture with respect thereto,
whether by declaration or otherwise, and all amounts payable under the
Insurance Agreement, enforce any judgment obtained, and collect from
the Issuer and any other obligor upon such Notes monies adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture with respect to the
Trust Estate;
(iii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect and enforce the
rights and remedies of the Indenture Trustee, the Holders of the Notes
and the Credit Enhancer; and
(iv) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private sales
called and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Trust Estate following an Event of Default, unless (A) the
Indenture Trustee obtains the consent of the Holders of 100% of the aggregate
Principal Balances of the Notes and the Credit Enhancer, which consent will not
be unreasonably withheld, (B) the proceeds of such sale or liquidation
distributable to Holders are sufficient to discharge in full all amounts then
due and unpaid upon the Notes for principal and interest and to reimburse the
Credit Enhancer for any amounts drawn under the Credit Enhancement Instrument
and any other amounts due the Credit Enhancer under the Insurance Agreement or
(C) the Indenture Trustee determines that the Mortgage Loans will not continue
to provide sufficient funds for the payment of principal of and interest on the
Notes as they would have become due if the Notes had not been declared due and
payable, and the Indenture Trustee obtains the consent of the Credit Enhancer,
which consent will not be unreasonably withheld, and of the Holders of a
majority of the aggregate Principal Balances of
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the Notes. In determining such sufficiency or insufficiency with respect to
clause (B) and (C), the Indenture Trustee may, but need not, obtain and rely
upon an opinion of an Independent investment banking or accounting firm of
national reputation as to the feasibility of such proposed action and as to the
sufficiency of the Trust Estate for such purpose. Notwithstanding the fore
going, so long as an Event of Servicer Termination has not occurred, any Sale of
the Trust Estate shall be made subject to the continued Servicing of the
Mortgage Loans by the Master Servicer as provided in the Servicing Agreement.
(b) If the Indenture Trustee collects any money or property pursuant
to this Article V, it shall pay out the money or property in the following
order:
FIRST: to the Indenture Trustee for amounts due under Section
6.07;
SECOND: to each Class of Noteholders for amounts due and
unpaid on the related Class Notes for interest and to each
Noteholder of such Class in each case, ratably, without
preference or priority of any kind, according to the amounts
due and payable on such Class of Notes for interest from
amounts available in the Trust Estate for such Noteholders;
THIRD: to Holders of each Class of Notes for amounts due and
unpaid on the related Class of Notes for principal, from
amounts available in the Trust Estate for such Noteholders,
and to each Noteholder of such Class in each case ratably,
without preference or priority of any kind, according to the
amounts due and payable on such Class of Notes for principal,
until the Security Balances of each Class of Notes is reduced
to zero;
FOURTH: to the Issuer for amounts required to be distributed
to the Certificateholders in respect of interest and principal
pursuant to the Trust Agreement;
FIFTH: To the payment of all amounts due and owing to the
Credit Enhancer under the Insurance Agreement;
SIXTH: to the Issuer for amounts due under Article VIII of
the Trust Agreement; and
SEVENTH: to the payment of the remainder, if any to the
Issuer or any other person legally entitled thereto.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 5.04. At least 15 days before
such record date, the Indenture Trustee shall mail to each Noteholder a notice
that states the record date, the payment date and
the amount to be paid.
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Section 5.05. OPTIONAL PRESERVATION OF THE TRUST ESTATE. If the Notes
have been declared to be due and payable under Section 5.02 following an Event
of Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not, elect to take and maintain
possession of the Trust Estate. It is the desire of the parties hereto and the
Noteholders that there be at all times sufficient funds for the payment of
principal of and interest on the Notes and other obligations of the Issuer
including payment to the Credit Enhancer, and the Indenture Trustee shall take
such desire into account when determining whether or not to take and maintain
possession of the Trust Estate. In determining whether to take and maintain
possession of the Trust Estate, the Indenture Trustee may, but need not, obtain
and rely upon an opinion of an Independent investment banking or accounting firm
of national reputation as to the feasibility of such proposed action and as to
the sufficiency of the Trust Estate for such purpose.
Section 5.06. LIMITATION OF SUITS. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless and subject to the provisions of Section 10.17 hereof:
(i) such Holder has previously given written notice to
the Indenture Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Security
Balances of the Notes have made written request to the Indenture
Trustee to institute such Proceeding in respect of such Event of
Default in its own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt
of such notice, request and offer of indemnity has failed to institute
such Proceedings; and
(v) no direction inconsistent with such written request
has been given to the Indenture Trustee during such 60-day period by
the Holders of a majority of the Security
Balances of the Notes.
It is understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority
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of the Security Balances of the Notes, the Indenture Trustee in its sole
discretion may determine what action, if any, shall be taken, notwithstanding
any other provisions of this Indenture.
Section 5.07. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST. Notwithstanding any other provisions in this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.
Section 5.08. RESTORATION OF RIGHTS AND REMEDIES. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had been
instituted.
Section 5.09. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.10. DELAY OR OMISSION NOT A WAIVER. No delay or omission of
the Indenture Trustee or any Holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article V or by law to the Indenture
Trustee or to the Noteholders may be exercised from time to time, and as often
as may be deemed expedient, by the Indenture Trustee or by the Noteholders, as
the case may be.
Section 5.11. CONTROL BY NOTEHOLDERS. The Holders of a majority of the
Security Balances of Notes shall have the right to direct the time, method and
place of conducting any Proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exer cising any trust or power conferred on
the Indenture Trustee; provided that:
(i) such direction shall not be in conflict with any
rule of law or with this Indenture;
(ii) subject to the express terms of Section 5.04, any
direction to the Indenture Trustee to sell or liquidate the Trust
Estate shall be by Holders of Notes representing not
less than 100% of the Security Balances of Notes;
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(iii) if the conditions set forth in Section 5.05 have
been satisfied and the Indenture Trustee elects to retain the Trust
Estate pursuant to such Section, then any direction to the Indenture
Trustee by Holders of Notes representing less than 100% of the Security
Balances of Notes to sell or liquidate the Trust Estate shall be of no
force and effect; and
(iv) the Indenture Trustee may take any other action
deemed proper by the Indenture Trustee that is not inconsistent with
such direction.
Notwithstanding the rights of Noteholders set forth in this Section, subject to
Section 6.01, the Indenture Trustee need not take any action that it determines
might involve it in liability or might materially adversely affect the rights of
any Noteholders not consenting to such action.
Section 5.12. WAIVER OF PAST DEFAULTS. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.02, the
Holders of Notes of not less than a majority of the Security Balances of the
Notes may waive any past Event of Default and its consequences except an Event
of Default (a) with respect to payment of principal of or interest on any of the
Notes or (b) in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of the Holder of each Note or (c) the
waiver of which would materially and adversely affect the interests of the
Credit Enhancer or modify its obligation under the Credit Enhancement
Instrument. In the case of any such waiver, the Issuer, the Indenture Trustee
and the Holders of the Notes shall be restored to their former positions and
rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other Event of Default or impair any right consequent thereto.
Upon any such waiver, any Event of Default arising therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent thereto.
Section 5.13. UNDERTAKING FOR COSTS. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the Security
Balances of the Notes or (c) any suit instituted by any Noteholder for the
enforcement of the payment of principal of or interest on any Note on or after
the respective due dates expressed in such Note and in this Indenture.
Section 5.14. WAIVER OF STAY OR EXTENSION LAWS. The Issuer
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead or in any manner
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whatsoever, claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Indenture; and the Issuer (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and covenants that it shall not hinder, delay or impede the
execution of any power herein granted to the Indenture Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
Section 5.15. SALE OF TRUST ESTATE. (a) The power to effect any sale or
other disposition (a "Sale") of any portion of the Trust Estate pursuant to
Section 5.04 is expressly subject to the provisions of Section 5.05 and this
Section 5.15. The power to effect any such Sale shall not be exhausted by any
one or more Sales as to any portion of the Trust Estate remaining unsold, but
shall continue unimpaired until the entire Trust Estate shall have been sold or
all amounts payable on the Notes and under this Indenture and under the
Insurance Agreement shall have been paid. The Indenture Trustee may from time to
time postpone any public Sale by public announcement made at the time and place
of such Sale. The Indenture Trustee hereby expressly waives its right to any
amount fixed by law as compensation for any Sale.
(b) The Indenture Trustee shall not in any private Sale sell the Trust
Estate, or any portion thereof, unless
(1) the Holders of all Notes and the Credit Enhancer consent
to or direct the Indenture Trustee to make, such Sale, or
(2) the proceeds of such Sale would be not less than the
entire amount which would be payable to the Noteholders under the Notes and the
Credit Enhancer in respect of amounts drawn under the Credit Enhancement
Instrument and any other amounts due the Credit Enhancer under the Insurance
Agreement, in full payment thereof in accordance with Section
5.02, on the Payment Date next succeeding the date of such Sale, or
(3) The Indenture Trustee determines, in its sole discretion,
that the conditions for retention of the Trust Estate set forth in Section 5.05
cannot be satisfied (in making any such determination, the Indenture Trustee may
rely upon an opinion of an Independent investment banking firm obtained and
delivered as provided in Section 5.05), and the Credit Enhancer consents to such
Sale, which consent will not be unreasonably withheld and the Holders
representing at least 66-2/3% of the Security Balances of the Notes consent to
such Sale.
The purchase by the Indenture Trustee of all or any portion of the Trust Estate
at a private Sale shall not be deemed a Sale or other disposition thereof for
purposes of this Section 5.15(b).
(c) Unless the Holders and the Credit Enhancer have otherwise consented
or directed the Indenture Trustee, at any public Sale of all or any portion of
the Trust Estate at which a minimum bid equal to or greater than the amount
described in paragraph (2) of subsection (b) of this Section 5.15 has not been
established by the Indenture Trustee and no Person bids an amount equal to or
greater than such amount, the Indenture Trustee shall bid an amount at least
$1.00 more than the highest other bid.
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(d) In connection with a Sale of all or any portion of the Trust Estate
(1) any Holder or Holders of Notes may bid for and with the
consent of the Credit Enhancer purchase the property offered for sale, and upon
compliance with the terms of sale may hold, retain and possess and dispose of
such property, without further accountability, and may, in paying the purchase
money therefor, deliver any Notes or claims for interest thereon in lieu of cash
up to the amount which shall, upon distribution of the net proceeds of such
sale, be payable thereon, and such Notes, in case the amounts so payable thereon
shall be less than the amount due thereon, shall be returned to the Holders
thereof after being appropriately stamped to show such partial payment;
(2) the Indenture Trustee may bid for and acquire the property
offered for Sale in connection with any Sale thereof, and, subject to any
requirements of, and to the extent permitted by, applicable law in connection
therewith, may purchase all or any portion of the Trust Estate in a private
sale, and, in lieu of paying cash therefor, may make settlement for the purchase
price by crediting the gross Sale price against the sum of (A) the amount which
would be distributable to the Holders of the Notes and Holders of Certificates
and amounts owing to the Credit Enhancer as a result of such Sale in accordance
with Section 5.04(b) on the Payment Date next succeeding the date of such Sale
and (B) the expenses of the Sale and of any Proceedings in connection therewith
which are reimbursable to it, without being required to produce the Notes in
order to complete any such Sale or in order for the net Sale price to be
credited against such Notes, and any property so acquired by the Indenture
Trustee shall be held and dealt with by it in accordance with the provisions of
this Indenture;
(3) the Indenture Trustee shall execute and deliver an
appropriate instrument of conveyance transferring its interest in any portion of
the Trust Estate in connection with a Sale thereof;
(4) the Indenture Trustee is hereby irrevocably appointed the
agent and attorney-in-fact of the Issuer to transfer and convey its interest in
any portion of the Trust Estate in connection with a Sale thereof, and to take
all action necessary to effect such Sale; and
(5) no purchaser or transferee at such a Sale shall be bound
to ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any monies.
Section 5.16. ACTION ON NOTES. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Trust Estate
or upon any of the assets of the Issuer. Any money or property collected by the
Indenture Trustee shall be applied in accordance with Section 5.04(b).
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Section 5.17. PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS. (a)
Promptly following a request from the Indenture Trustee to do so and at the
Administrator's expense, the Issuer in its capacity as holder of the Mortgage
Loans, shall take all such lawful action as the Indenture Trustee may request to
cause the Issuer to compel or secure the performance and observance by the
Seller and the Master Servicer, as applicable, of each of their obligations to
the Issuer under or in connection with the Mortgage Loan Purchase Agreement and
the Servicing Agreement, and to exercise any and all rights, remedies, powers
and privileges lawfully available to the Issuer under or in connection with the
Mortgage Loan Purchase Agreement and the Servicing Agreement to the extent and
in the manner directed by the Indenture Trustee, as pledgee of the Mortgage
Loans, including the transmission of notices of default on the part of the
Seller or the Master Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Master Servicer of each of their obligations under the Mortgage
Loan Purchase Agreement and the Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee, as pledgee of the Mortgage Loans, subject to the rights of
the Credit Enhancer under the Servicing Agreement may, and at the direction
(which direction shall be in writing or by telephone (confirmed in writing
promptly thereafter)) of the Holders of 66-2/3% of the Security Balances of the
Notes shall, exercise all rights, remedies, powers, privileges and claims of the
Issuer against the Seller or the Master Servicer under or in connection with the
Mortgage Loan Purchase Agreement and the Servicing Agreement, including the
right or power to take any action to compel or secure performance or observance
by the Seller or the Master Servicer, as the case may be, of each of their
obligations to the Issuer thereunder and to give any consent, request, notice,
direction, approval, extension or waiver under the Mortgage Loan Purchase
Agreement and the Servicing Agreement, as the case may be, and any right of the
Issuer to take such action shall not be suspended.
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ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. DUTIES OF INDENTURE TRUSTEE. (a) If an Event of Default
has occurred and is continuing, the Indenture Trustee shall exercise the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set forth in this
Indenture and no implied covenants or obligations shall be read into
this Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Indenture Trustee and
conforming to the requirements of this Indenture; however, the
Indenture Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer unless it
is proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in
accordance with a direction received by it (A) pursuant to Section 5.11
or (B) from the Credit Enhancer, which it is entitled to give under any
of the Basic Documents.
(d) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(e) Money held in trust by the Indenture Trustee need not be segregated
from other funds except to the extent required by law or the terms of this
Indenture or the Trust Agreement.
(f) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder
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or in the exercise of any of its rights or powers, if it shall have reasonable
grounds to believe that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably
assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section
and to the provisions of the TIA.
Section 6.02. RIGHTS OF INDENTURE TRUSTEE. (a) The Indenture Trustee
may rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Indenture Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on an Officer's Certificate or Opinion of
Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct does
not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
Section 6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Administrator, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
Section 6.04. INDENTURE TRUSTEE'S DISCLAIMER. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Issuer's use of the proceeds from the Notes, and it shall not be responsible for
any statement of the Issuer in the Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Indenture
Trustee's certificate of authentication.
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Section 6.05. NOTICE OF EVENT OF DEFAULT. If an Event of Default occurs
and is continuing and if it is known to a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall give notice thereof to the Credit Enhancer.
The Trustee shall mail to each Noteholder notice of the Event of Default within
90 days after it occurs. Except in the case of an Event of Default in payment of
principal of or interest on any Note, the Indenture Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Noteholders.
Section 6.06. REPORTS BY INDENTURE TRUSTEE TO HOLDERS. The Indenture
Trustee shall deliver to each Noteholder such information as may be required to
enable such holder to prepare its federal and state income tax returns. In
addition, upon the Issuer's written request, the Indenture Trustee shall
promptly furnish information reasonably requested by the Issuer that is
reasonably available to the Indenture Trustee to enable the Issuer to perform
its federal and state income tax reporting obligations.
Section 6.07. COMPENSATION AND INDEMNITY. The Issuer shall or shall
cause the Administrator to pay to the Indenture Trustee on each Payment Date
reasonable compensation for its services. The Indenture Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Issuer shall or shall cause the Administrator to reimburse the
Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by
it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Indenture Trustee's agents, counsel,
accountants and experts. The Issuer shall or shall cause the Administrator to
indemnify the Indenture Trustee against any and all loss, liability or expense
(including attorneys' fees) incurred by it in connection with the administration
of this trust and the performance of its duties hereunder. The Indenture Trustee
shall notify the Issuer and the Administrator promptly of any claim for which it
may seek indemnity. Failure by the Indenture Trustee to so notify the Issuer and
the Administrator shall not relieve the Issuer or the Administrator of its
obligations hereunder. The Issuer shall or shall cause the Administrator to
defend any such claim, and the Indenture Trustee may have separate counsel and
the Issuer shall or shall cause the Administrator to pay the fees and expenses
of such counsel. Neither the Issuer nor the Administrator need reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Indenture Trustee through the Indenture Trustee's own willful misconduct,
negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section 6.07 shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of an Event of Default
specified in Section 5.01(iv) or (v) with respect to the Issuer, the expenses
are intended to constitute expenses of administration under Title 11 of the
United States Code or any other applicable federal or state bankruptcy,
insolvency or similar law.
Section 6.08. REPLACEMENT OF INDENTURE TRUSTEE. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee
may resign at any time by so notifying the Issuer and the Credit Enhancer.
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The Holders of a majority of Security Balances of the Notes may remove the
Indenture Trustee by so notifying the Indenture Trustee and the Credit Enhancer
and may appoint a successor Indenture Trustee. The Issuer shall remove the
Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section
6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or
insolvent;
(iii) a receiver or other public officer takes charge of
the Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of
acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture
Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Issuer. Thereupon, the
resignation or removal of the retiring Indenture Trustee shall become effective,
and the successor Indenture Trustee shall have all the rights, powers and duties
of the Indenture Trustee under this Indenture. The successor Indenture Trustee
shall mail a notice of its succession to Noteholders. The retiring Indenture
Trustee shall promptly transfer all property held by it as Indenture Trustee to
the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority of Security Balances
of the Notes may petition any court of competent jurisdiction
for the appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's and the Administrator's obligations under Section
6.07 shall continue for the benefit of the retiring Indenture Trustee.
Section 6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided, that
such corporation or banking association shall be otherwise qualified and
eligible under Section 6.11. The Indenture Trustee shall provide the Rating
Agencies prior written notice of any such transaction.
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In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
Section 6.10. APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE
TRUSTEE. (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meet ing any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Noteholders,
such title to the Trust Estate, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Indenture Trustee may consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 6.11 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred
or imposed upon the Indenture Trustee shall be conferred or imposed
upon and exercised or performed by the Indenture Trustee and such
separate trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act separately
without the Indenture Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular
act or acts are to be performed the Indenture Trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of
title to the Trust Estate or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Indenture
Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove
any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given
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to each of them. Every instrument appointing any separate trustee or co-trustee
shall refer to this Agreement and the conditions of this Article VI. Each
separate trustee and co-trustee, upon its acceptance of the trusts conferred,
shall be vested with the estates or property specified in its instrument of
appointment, either jointly with the Indenture Trustee or separately, as may be
provided therein, subject to all the provisions of this Indenture, specifically
including every provision of this Indenture relating to the conduct of,
affecting the liability of, or affording protection to, the Indenture Trustee.
Every such instrument shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 6.11. ELIGIBILITY; DISQUALIFICATION. The Indenture Trustee
shall at all times satisfy the requirements of TIA ss. 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least [$50,000,000] as
set forth in its most recent published annual report of condition and it or its
parent shall have a long-term debt rating of [Baa3] or better by [Moody's]. The
Indenture Trustee shall comply with TIA ss. 310(b), including the optional
provision permitted by the second sentence of TIA ss. 310(b)(9); provided,
however, that there shall be excluded from the operation of TIA ss. 310(b)(1)
any indenture or indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
Section 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER. The
Indenture Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). An Indenture Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated.
Section 6.13. REPRESENTATION AND WARRANTY. The Indenture Trustee
hereby represents that:
(i) The Indenture Trustee is duly organized and validly
existing as a corporation in good standing under the laws of the State
of ___________, with power and authority to own its properties and to
conduct its business as such properties are currently owned and
such business is presently conducted.
(ii) The Indenture Trustee has the power and authority to
execute and deliver this Indenture and to carry out its terms; and the
execution, delivery and performance of this Indenture have been duly
authorized by the Indenture Trustee by all necessary corporate action.
(iii) The consummation of the transactions contemplated by
this Indenture and the fulfillment of the terms hereof do not conflict
with, result in any breach of any of the
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terms and provisions of, or constitute (with or without notice or lapse
of time) a default under, the articles of incorporation or bylaws of
the Indenture Trustee or any agreement or other instrument to which the
Indenture Trustee is a party or by which it is bound
(iv) To the Indenture Trustee's best knowledge, there are no
proceedings or investigations pending or threatened before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Indenture Trustee or its
properties: (A) asserting the invalidity of this Indenture (B) seeking
to prevent the consummation of any of the transactions contemplated by
this Indenture or (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Indenture
Trustee of its obligations under, or the validity or enforceability of,
this Indenture.
Section 6.14. DIRECTIONS TO INDENTURE TRUSTEE. The Indenture Trustee is
hereby directed:
(a) to accept the pledge of the Mortgage Loans and hold the assets of
the Trust in trust for the Noteholders;
(b) to issue, execute and deliver the Notes substantially in the form
prescribed by Exhibit A in accordance with the terms of this Indenture; and
(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
[Section 6.15. NO CONSENT TO CERTAIN ACTS OF DEPOSITOR. The Indenture
Trustee shall not consent to any action proposed to be taken by the Depositor
pursuant to Article [---------] of the Depositor's Restated Certificate of
Incorporation.]
Section 6.16. INDENTURE TRUSTEE MAY OWN SECURITIES. The Indenture
Trustee, in its individual or any other capacity may become the owner or pledgee
of Securities with the same rights it would have if it were not Indenture
Trustee.
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ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES
OF NOTEHOLDERS. The Issuer will furnish or cause to be furnished to the
Indenture Trustee (a) not more than five days after each Record Date, a list, in
such form as the Indenture Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of such Record Date, (b) at such other
times as the Indenture Trustee and the Credit Enhancer may request in writing,
within 30 days after receipt by the Issuer of any such request, a list of
similar form and content as of a date not more than 10 days prior to the time
such list is furnished; provided, however, that so long as the Indenture Trustee
is the Note Registrar, no such list shall be required to be furnished.
Section 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
NOTEHOLDERS. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 and the names and addresses of Holders of Notes received by the
Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may
destroy any list furnished to it as provided in such Section 7.01 upon receipt
of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA ss. 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA ss. 312(c).
Section 7.03. REPORTS BY ISSUER. (a) The Issuer shall:
(i) file with the Indenture Trustee, within 15 days
after the Issuer is required to file the same with the Commission,
copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as
the Commission may from time to time by rules and regulations
prescribe) that the Issuer may be required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) file with the Indenture Trustee, and the Commission
in accordance with rules and regulations prescribed from time to time
by the Commission such additional information, documents and reports
with respect to compliance by the Issuer with the conditions and
covenants of this Indenture as may be required from time to time by
such rules and regulations; and
(iii) supply to the Indenture Trustee (and the Indenture
Trustee shall transmit by mail to all Noteholders described in TIA ss.
313(c)) such summaries of any information, documents and reports
required to be filed by the Issuer pursuant to clauses (i) and (ii) of
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this Section 7.03(a) and by rules and regulations prescribed from time
to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
Section 7.04. REPORTS BY INDENTURE TRUSTEE. If required by TIA ss.
313(a), within 60 days after each January 1 beginning with January 1, 199_, the
Indenture Trustee shall mail to each Noteholder as required by TIA ss. 313(c)
and to the Credit Enhancer a brief report dated as of such date that complies
with TIA ss. 313(a). The Indenture Trustee also shall comply with TIA ss.
313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any stock
exchange.
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ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. COLLECTION OF MONEY. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Trust Estate, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
Section 8.02. TRUST ACCOUNTS. (a) On or prior to the Closing Date, the
Issuer shall cause the Indenture Trustee to establish and maintain, in the name
of the Indenture Trustee, for the benefit of the Noteholders and the Certificate
Paying Agent, on behalf of the Certificateholders and the Credit Enhancer, the
Payment Account as provided in Section 3.01 of this Indenture.
(b) All monies deposited from time to time in the Payment Account
pursuant to the Servicing Agreement and all deposits therein pursuant to this
Indenture are for the benefit of the Noteholders and the Certificate Paying
Agent, on behalf of the Certificateholders and all investments made with such
monies including all income or other gain from such investments are for the
benefit of the Master Servicer as provided by the Servicing Agreement.
On each Payment Date during the Funding Period the Indenture Trustee
shall withdraw Net Principal Collections from the Payment Account and deposit
Net Principal Collections to the Funding Account.
On each Payment Date, the Indenture Trustee shall distribute all
amounts on deposit in the Payment Account (after giving effect to the withdrawal
referred to in the preceding paragraph) to Noteholders in respect of the Notes
and in its capacity as Certificate Paying Agent to Certificateholders in the
order of priority set forth in Section 3.05 (except as otherwise provided in
Section 5.04(b).
The Master Servicer may direct the Indenture Trustee to invest any
funds in the Payment Account in Eligible Investments maturing no later than the
Business Day preceding each Payment Date and shall not be sold or disposed of
prior to the maturity. Unless otherwise instructed by the Master Servicer, the
Indenture Trustee shall invest all funds in the Payment Account in Eligible
Investments.
(c) On or before the Closing Date the Issuer shall open, at the
Corporate Trust Office, an account which shall be the "Funding Account". The
Master Servicer may direct the Indenture
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Trustee to invest any funds in the Funding Account in Eligible Investments
maturing no later than the Business Day preceding each Payment Date and shall
not be sold or disposed of prior to the maturity. Unless otherwise instructed by
the Master Servicer, the Indenture Trustee shall invest all funds in the Payment
Account in its Corporate Trust Short Term Investment Fund so long as it is an
Eligible Investment. During the Funding Period, any amounts received by the
Indenture Trustee in respect of Net Principal Collections for deposit in the
Funding Account, together with any Eligible Investments in which such monies are
or will be invested or reinvested during the term of the Notes, shall be held by
the Indenture Trustee in the Funding Account as part of the Trust Estate,
subject to disbursement and withdrawal as herein provided: Amounts on deposit in
the Funding Account in respect of Net Principal Collections may be withdrawn on
each Deposit Date and (1) paid to the Issuer in payment for Additional Loans by
the deposit of such amount to the Collection Account and (2) at the end of the
Funding Period any amounts remaining in the Funding Account after the withdrawal
called for by clause (1) shall be deposited in the Payment Account to be
included in the payment of principal on the Payment Date that is the last day of
the Funding Period.
(d) (i) Any investment in the institution with which the Funding
Account is maintained may mature on such Payment Date and (ii) any other
investment may mature on such Payment Date if the Indenture Trustee shall
advance funds on such Payment Date to the Funding Account in the amount payable
on such investment on such Payment Date, pending receipt thereof to the extent
necessary to make distributions on the Notes and the Certificates) and shall not
be sold or disposed of prior to maturity.
Section 8.03. OFFICER'S CERTIFICATE. The Indenture Trustee shall
receive at least [seven] days notice when requested by the Issuer to take any
action pursuant to Section 8.05(a), accompanied by copies of any instruments to
be executed, and the Indenture Trustee shall also require, as a condition to
such action, an Officer's Certificate, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with.
Section 8.04. TERMINATION UPON DISTRIBUTION TO NOTEHOLDERS. This
Indenture and the respective obligations and responsibilities of the Issuer and
the Indenture Trustee created hereby shall terminate upon the distribution to
Noteholders, Certificate Paying Agent, on behalf of the Certificateholders and
the Indenture Trustee of all amounts required to be distributed pursuant to
Article III; provided, however, that in no event shall the trust created hereby
continue beyond the expiration of 21 years from the death of the survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof.
Section 8.05. RELEASE OF TRUST ESTATE. (a) Subject to the payment of
its fees and expenses, the Indenture Trustee may, and when required by the
provisions of this Indenture shall, execute instruments to release property from
the lien of this Indenture, or convey the Indenture Trustee's interest in the
same, in a manner and under circumstances that are not inconsistent with the
provisions of this Indenture. No party relying upon an instrument executed by
the Indenture
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Trustee as provided in Article VIII hereunder shall be bound to ascertain the
Indenture Trustee's authority, inquire into the satisfaction of any conditions
precedent, or see to the application of any
monies.
(b) The Indenture Trustee shall, at such time as (i) there are no Notes
Outstanding, (ii) all sums due the Indenture Trustee pursuant to this Indenture
have been paid, and (iii) all sums due the Credit Enhancer have been paid,
release any remaining portion of the Trust Estate that secured the Notes from
the lien of this Indenture.
[(c) The Indenture Trustee shall release property from the lien of this
Indenture pursuant to this Section 8.05 only upon receipt of an request from the
Issuer accompanied by an
[Officers'
Certificate], [an Opinion of Counsel,] and a letter from the Credit Enhancer,
stating that the Credit Enhancer has no objection to such request from the
Issuer.]
Section 8.06. SURRENDER OF NOTES UPON FINAL PAYMENT. By acceptance of
any Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Noteholder's receipt of the final payment
thereon.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
(a) Without the consent of the Holders of any Notes but with the consent of the
Credit Enhancer and prior notice to the Rating Agencies and the Credit Enhancer,
the Issuer and the Indenture Trustee, when authorized by an Issuer Request, at
any time and from time to time, may enter into one or more indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any
property at any time subject to the lien of this Indenture, or better
to assure, convey and confirm unto the Indenture Trustee any property
subject or required to be subjected to the lien of this Indenture, or
to subject to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Holders of the Notes, or to surrender any right or power
herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture that may be
inconsistent with any other provision herein or in any supplemental
indenture
(vi) to make any other provisions with respect to matters
or questions arising under this Indenture or in any supplemental
indenture; provided, that such action shall not materially and
adversely affect the interests of the Holders of the Notes;
(vii) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI; or
(viii) to modify, eliminate or add to the provisions of
this Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA;
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provided, however, that no such indenture supplements shall be entered into
unless the Indenture Trustee shall have received an Opinion of Counsel that
entering into such indenture supplement will not have any material adverse tax
consequences to the Noteholders.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Request, may, also without the consent of any of the Holders of the Notes but
with the consent of the Credit Enhancer and prior notice to the Rating Agencies
and the Credit Enhancer, enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Notes under this Indenture; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel, (i)
adversely affect in any material respect the interests of any Noteholder or (ii)
cause the Issuer to be subject to an entity level tax.
Section 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS. The
Issuer and the Indenture Trustee, when authorized by an Issuer Request, also
may, with prior notice to the Rating Agencies and, with the written consent of
the Credit Enhancer and with the consent of the Holders of not less than a
majority of the Security Balances of each Class of Notes affected thereby, by
Act of such Holders delivered to the Issuer and the Indenture Trustee, enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each Note
affected thereby:
(i) change the date of payment of any installment of
principal of or interest on any Note, or reduce the principal amount
thereof or the interest rate thereon, change the provisions of this
Indenture relating to the application of collections on, or the
proceeds of the sale of, the Trust Estate to payment of principal of or
interest on the Notes, or change any place of payment where, or the
coin or currency in which, any Note or the interest thereon is payable,
or impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates
thereof;
(ii) reduce the percentage of the Security Balances of
the Notes, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture;
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(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding" or modify or alter the exception
in the definition of the term "Holder";
(iv) reduce the percentage of the Security Balances of
the Notes required to direct the Indenture Trustee to direct the Issuer
to sell or liquidate the Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section 9.02 except to
increase any percentage specified herein or to provide that certain
additional provisions of this Indenture or the Basic Documents cannot
be modified or waived without the consent of the Holder of each
Note affected thereby;
(vi) modify any of the provisions of this Indenture in
such manner as to affect the calculation of the amount of any payment
of interest or principal due on any Note on any Payment Date (including
the calculation of any of the individual components of such
calculation); or
(vii) permit the creation of any lien ranking prior to or
on a parity with the lien of this Indenture with respect to any part of
the Trust Estate or, except as otherwise permitted or contemplated
herein, terminate the lien of this Indenture on any property at any
time subject hereto or deprive the Holder of any Note of the security
provided by the lien of this Indenture; and provided, further, that
such action shall not, as evidenced by an Opinion of Counsel, cause the
Issuer to be subject to an entity level tax.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section
9.02 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall
approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee of
any supplemental indenture pursuant to this Section 9.02, the Indenture Trustee
shall mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
Section 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or
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permitted by this Indenture. The Indenture Trustee may, but shall not be
obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
Section 9.04. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the Notes
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 9.05. CONFORMITY WITH TRUST INDENTURE ACT. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
Section 9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Inden ture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
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ARTICLE X
MISCELLANEOUS
Section 10.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC. (a) Upon any
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture, the Issuer shall furnish to the Indenture
Trustee and to the Credit Enhancer (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and (ii) an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with, except that, in the case of any such application or request
as to which the furnishing of such documents is specifically required by any
provision of this Indenture, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with;
(4) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with; and
(5) if the Signer of such Certificate or Opinion is required
to be Independent, the Statement required by the definition of the term
"Independent".
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Issuer shall, in addition to any obligation imposed in Section 10.01(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee an Officer's
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such deposit) to the Issuer
of the Collateral or other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters
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described in clause (i) above, the Issuer shall also deliver to the Indenture
Trustee an Independent Certificate as to the same matters, if the fair value to
the Issuer of the securities to be so deposited and of all other such securities
made the basis of any such withdrawal or release since the commencement of the
then-current fiscal year of the Issuer, as set forth in the certificates
delivered pursuant to clause (i) above and this clause (ii), is 10% or more of
the Security Balances of the Notes, but such a certificate need not be furnished
with respect to any securities so deposited, if the fair value thereof to the
Issuer as set forth in the related Officer's Certificate is less than $25,000 or
less than one percent of the Security Balances of the Notes.
(iii) Whenever any property or securities are to be
released from the lien of this Indenture, the Issuer shall also furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
each person signing such certificate as to the fair value (within 90 days of
such release) of the property or securities proposed to be released and stating
that in the opinion of such person the proposed release will not impair the
security under this Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters described in clause (iii) above, the Issuer
shall also furnish to the Indenture Trustee an Independent Certificate as to the
same matters if the fair value of the property or securities and of all other
property, other than property as contemplated by clause (v) below or securities
released from the lien of this Indenture since the commencement of the
then-current calendar year, as set forth in the certificates required by clause
(iii) above and this clause (iv), equals 10% or more of the Security Balances of
the Notes, but such certificate need not be furnished in the case of any release
of property or securities if the fair value thereof as set forth in the related
Officer's Certificate is less than $25,000 or less than one percent of the then
Security Balances of the Notes.
(v) Notwithstanding any provision of this Indenture, the
Issuer may, without compliance with the requirements of the other provisions of
this Section 10.01, (A) collect, sell or otherwise dispose of the Mortgage Loans
as and to the extent permitted or required by the Basic Documents or (B) make
cash payments out of the Payment Account as and to the extent permitted or
required by the Basic Documents [, so long as the Issuer shall deliver to the
Indenture Trustee every six months, commencing _____________, an Officer's
Certificate of the Issuer stating that all the dispositions of Collateral
described in clauses (A) or (B) above that occurred during the preceding six
calendar months were in the ordinary course of the Issuer's business and that
the proceeds thereof were applied in accordance with the Basic Documents].
Section 10.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
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Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Seller, the Issuer or the Administrator, stating that the information with
respect to such factual matters is in the possession of the Seller, the Issuer
or the Administrator, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
Section 10.03. ACTS OF NOTEHOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments are delivered to the Indenture Trustee, and, where it
is hereby expressly required, to the Issuer. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Noteholders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
6.01) conclusive in favor of the Indenture Trustee and the Issuer, if made in
the manner provided in this Section 10.03.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Registrar.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration
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thereof or in exchange therefor or in lieu thereof, in respect of anything done,
omitted or suffered to be done by the Indenture Trustee or the Issuer in
reliance thereon, whether or not notation of
such action is made upon such Note.
Section 10.04. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER, CREDIT
ENHANCER AND RATING AGENCIES. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Note holders or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Noteholders is to be
made upon, given or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the
Issuer shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Indenture Trustee at the
Corporate Trust Office. The Indenture Trustee shall promptly transmit
any notice received by it from the Noteholders to the Issuer, or
(ii) the Issuer by the Indenture Trustee or by any
Noteholder shall be sufficient for every purpose hereunder if in
writing and mailed first-class, postage prepaid to the Issuer addressed
to: DLJ MBN Trust Series 199_ - ______, in care of [Name of Owner
Trustee] _________________, __________, ______________, Attention of
_________________________________________ with a copy to the
Administrator at ________________ Attention: __________
__________________________, or at any other address previously
furnished in writing to the Indenture Trustee by the Issuer or the
Administrator. The Issuer shall promptly transmit any notice received
by it from the Noteholders to the Indenture Trustee, or
(iii) the Credit Enhancer by the Issuer, the Indenture
Trustee or by any Noteholders shall be sufficient for every purpose
hereunder to in writing and mailed, first-class postage pre-paid, or
personally delivered or telecopied to: [Name of Credit Enhancer],
________________, ________, _______________, Attention:
_________________, ___________________________, Telephone
______________. Telecopier ______________. The Credit Enhancer shall
promptly transmit any notice received by it from the Issuer, the
Indenture Trustee or the Noteholders to the Issuer or Indenture
Trustee, as the case may be.
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally delivered
or mailed by certified mail, return receipt requested, to (i) in the case of
[Moody's], at the following address: [Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007] and (ii) in
the case of [Standard & Poor's], at the following address: [Standard & Poor's
Ratings Group, 26 Broadway (15th Floor), New York, New York 10004, Attention of
Asset Backed Surveillance Department]; or as to each of the foregoing, at such
other address as shall be designated by written notice to the other parties.
Section 10.05. NOTICES TO NOTEHOLDERS; WAIVER. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein
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expressly provided) if in writing and mailed, first-class, postage prepaid to
each Noteholder affected by such event, at such Person's as it appears on the
Note Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Noteholders is given by mail, neither the failure to mail such notice nor any
defect in any notice so mailed to any particular Noteholder shall affect the
sufficiency of such notice with respect to other Noteholders, and any notice
that is mailed in the manner herein provided shall conclusively be presumed to
have been duly given regardless of whether such notice is in fact actually
received.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any
circumstance constitute an Event of Default.
Section 10.06. ALTERNATE PAYMENT AND NOTICE PROVISIONS. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the Issuer
may enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Indenture Trustee or any Administrator to such Holder,
that is different from the methods provided for in this Indenture for such
payments or notices. The Issuer shall furnish to the Indenture Trustee a copy of
each such agreement and the Indenture Trustee shall cause payments to be made
and notices to be given in accordance with such agreements.
Section 10.07. CONFLICT WITH TRUST INDENTURE ACT. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 10.08. EFFECT OF HEADINGS. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
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Section 10.09. SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co- trustees and agents.
Section 10.10. SEPARABILITY. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.11. BENEFITS OF INDENTURE. The Credit Enhancer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture. Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, and the Noteholders, and any other party secured hereunder, and any
other Person with an ownership interest in any part of the Trust Estate, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 10.12. LEGAL HOLIDAYS. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
Section 10.13. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.14. COUNTERPARTS. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 10.15. RECORDING OF INDENTURE. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee under this Indenture.
Section 10.16. ISSUER OBLIGATION. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent,
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officer, director, employee or agent of the Indenture Trustee or the Owner
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign
of the Indenture Trustee or the Owner Trustee in its individual capacity, except
as any such Person may have expressly agreed (it being understood that the
Indenture Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such partner, owner or beneficiary
shall be fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity. For all purposes of this Indenture, in
the performance of any duties or obligations of the Issuer hereunder, the Owner
Trustee shall be subject to, and entitled to the benefits of, the terms and
provisions of Article VI, VII and VIII of the Trust Agreement.
Section 10.17. NO PETITION. The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Depositor or the
Issuer, or join in any institution against the Depositor or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents.
Section 10.18. INSPECTION. The Issuer agrees that, on reasonable prior
notice, it shall permit any representative of the Indenture Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by Independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees, and Independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested. The Indenture
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder.
Section 10.19. AUTHORITY OF THE ADMINISTRATOR. Each of the parties to
this Indenture acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee, all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken, by
the Issuer or the Owner Trustee pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Administration
Agreement.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and
year first above written.
DLJ MBN Trust Series 199_ - _____,
as Issuer
By:
----------------------------------------------------
not in its individual capacity
but solely as Owner Trustee
By:
----------------------------------------------------
Name:
Title:
,
-------------------------------------------------------
as Indenture Trustee, as Certificate Paying Agent and as
Note Registrar
By:
----------------------------------------------------
Name: ----------------------------------------------
Title:----------------------------------------------
- ---------------------------------
hereby accepts the appointment as
Certificate Paying Agent pursuant to
Section 3.03 hereof and as Certificate
Registrar pursuant to Section 4.02
hereof.
- ---------------------------------
By:------------------------------
Title:---------------------------
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STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say,
that he resides at ______________, __________________ _____, that he is the of
the Owner Trustee, one of the corpo rations described in and which executed the
above instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation; and that he signed his name
thereto by like order.
---------------------------
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say,
that he resides at ______________, that he is the ______________ of
________________, as Indenture Trustee, one of the corporations described in and
which executed the above instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
---------------------------
Notary Public
[NOTARIAL SEAL]
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say,
that he resides at , that he is an ________________ of _______________, as
Indenture Trustee, one of the corporations described in and which executed the
above instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation; and that he signed his name
thereto by like order.
---------------------------
Notary Public
[NOTARIAL SEAL]
<PAGE>
APPENDIX A
DEFINITIONS
ADJUSTABLE RATE MORTGAGE LOAN: A Mortgage Loan with a Mortgage
Rate that is subject to periodic adjustment calculated on the basis of the
Index, plus an applicable Gross Margin. Each Adjustable Rate Mortgage Loan is
secured by a first lien on the related Mortgaged Property.
ADJUSTMENT DATE: As to each Adjustable Rate Mortgage Loan,
each date set forth in the related Mortgage Note on which an adjustment to the
interest rate on such Mortgage Loan becomes effective.
ADMINISTRATIVE FEE: The amount of the fee payable to the Owner
Trustee together with the amount of the premium payable to the Note Insurer,
which will accrue at ______% per annum based on the Note Principal Balance of
the Notes.
ADVANCE: As to any Mortgage Loan, any advance made by the
Master Servicer, pursuant to Section 4.04 of the Servicing Agreement.
AFFILIATE: With respect to any Person, any other Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" means the power to direct the management
and policies of a Person, directly or indirectly, whether through ownership of
voting securities, by contract or otherwise and "controlling" and "controlled"
shall have meanings correlative to the foregoing.
APPRAISED VALUE: The appraised value of a Mortgaged Property
based upon the lesser of (i) the appraisal made at the time of the origination
of the related Mortgage Loan, or (ii) the sales price of such Mortgaged Property
at such time of origination. With respect to a Mortgage Loan the proceeds of
which were used to refinance an existing mortgage loan, the appraised value of
the Mortgaged Property based upon the appraisal (as reviewed and approved by the
Seller) obtained at the time of refinancing.
ASSIGNMENT OF MORTGAGE: An assignment of Mortgage, notice of
transfer or equivalent instrument, in recordable form, which is sufficient under
the laws of the jurisdiction wherein the related Mortgaged Property is located
to reflect of record the sale of the Mortgage, which assignment, notice of
transfer or equivalent instrument may be in the form of one or more blanket
assignments covering Mortgages secured by Mortgaged Properties located in the
same county, if permitted by law.
AUTHORIZED NEWSPAPER: A newspaper of general circulation in
the Borough of Manhattan, The City of New York, printed in the English language
and customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays.
A-1
<PAGE>
AUTHORIZED OFFICER: With respect to the Issuer, any officer of
the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identi fied on the list of Authorized Officers
delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as
such list may be modified or supplemented from time to time thereafter).
AVAILABLE FUNDS: As to any Payment Date, an amount equal to
the amount on deposit in the Payment Account on such Payment Date and available
for distribution to the Noteholders (minus, if the Notes have been declared due
and payable following an Event of Default on such Payment Date, any amounts owed
to the Indenture Trustee by the Issuer pursuant to Section 6.07 of the
Indenture).
AVAILABLE FUNDS CAP CARRY-FORWARD AMOUNT: With respect to the
Notes and any Payment Date, an amount equal to the sum of (x) the amount, if
any, by which (a) the lesser of (1) the amount payable if clause (i) of the
definition of Note Interest Rate is used to calculate interest and (2) the
amount payable if the Maximum Note Interest Rate is used to calculate interest
exceeds (b) the amount payable if clause (ii) of the definition of Note Interest
Rate is used to calculate interest and (y) the interest accrued during the prior
Interest Period on the amount of any Available Funds Cap Carry-Forward Amount
immediately prior to such Payment Date, calculated on the basis of a 360-day
year and the actual number of days elapsed and using the Note Interest Rate
applicable to such Payment Date minus (z) the aggregate of all amounts
distributed to the Noteholders on all prior Payment Dates pursuant to Section
3.05(v) of the Indenture.
AVAILABLE FUNDS INTEREST RATE: As to any Payment Date, a per
annum rate equal to the lesser of (x) the fraction, expressed as a percentage,
the numerator of which is (i) an amount equal to (A) 1/12 of the aggregate
Principal Balance of the then outstanding Mortgage Loans times the weighted
average of the Expense Adjusted Mortgage Rates on the then outstanding Mortgage
Loans minus (B) the Administrative Fee for such Payment Date, and the
denominator of which is (ii) an amount equal to (A) the then outstanding
aggregate Note Principal Balance of the Notes multiplied by (B) the actual
number of days elapsed in the related Interest Period divided by 360 and (y) the
Maximum Note Interest Rate.
BANKRUPTCY CODE: The Bankruptcy Code of 1978, as amended.
BASIC DOCUMENTS: The Trust Agreement, the Certificate of
Trust, the Indenture, the Mortgage Loan Purchase Agreement, the Insurance
Agreement, the Servicing Agreement, and the other documents and certificates
delivered in connection with any of the above.
BENEFICIAL OWNER: With respect to any Note, the Person who is
the beneficial owner of such Note as reflected on the books of the Depository or
on the books of a Person maintaining an account with such Depository (directly
as a Depository Participant or indirectly through a Depository Participant, in
accordance with the rules of such Depository).
BOOK-ENTRY NOTES: Beneficial interests in the Notes, ownership
and transfers of which shall be made through book entries by the Depository as
described in Section 4.06 of the Indenture.
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BUSINESS DAY: Any day other than (i) a Saturday or a Sunday or
(ii) a day on which banking institutions in the City of New York, Delaware or
California or in the city in which the corporate trust offices of the Indenture
Trustee or the Note Insurer are located, are required or authorized by law to be
closed.
BUSINESS TRUST STATUTE: Chapter 38 of Title 12 of the
Delaware Code, 12 DEL. Code ss.ss.3801 ET SEQ., as the same may be amended from
time to time.
CASH LIQUIDATION: As to any defaulted Mortgage Loan other than
a Mortgage Loan as to which an REO Acquisition occurred, a determination by the
Master Servicer that it has received all Insurance Proceeds, Liquidation
Proceeds and other payments or cash recoveries which the Master Servicer
reasonably and in good faith expects to be finally recoverable with respect to
such Mortgage Loan.
CERTIFICATE DISTRIBUTION ACCOUNT: The account or accounts
created and maintained pursuant to Section 3.10(d) of the Trust Agreement. The
Certificate Distribution Account shall be an Eligible Account.
CERTIFICATE PAYING AGENT: The meaning specified in Section
3.10 of the Trust Agreement.
CERTIFICATE PERCENTAGE INTEREST: With respect to each
Certificate, the Certificate Percentage Interest on the face thereof.
CERTIFICATE REGISTER: The register maintained by the
Certificate Registrar in which the Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges of Certificates.
CERTIFICATE REGISTRAR: Initially, the Indenture Trustee, in
its capacity as Certificate Registrar, or any successor to the Indenture Trustee
in such capacity.
CERTIFICATE OF TRUST: The Certificate of Trust filed for the
Trust pursuant to Section 3810(a) of the Business Trust Statute.
CERTIFICATES: The Southern Pacific Secured Assets Corp.,
Mortgage-Backed Certificates, Series 199_-_, evidencing the beneficial ownership
interest in the Issuer and executed by the Owner Trustee in substantially the
form set forth in Exhibit A to the Trust Agreement.
CERTIFICATEHOLDER: The Person in whose name a Certificate is
registered in the Certificate Register. Owners of Certificates that have been
pledged in good faith may be regarded as Holders if the pledgee establishes to
the satisfaction of the Indenture Trustee or the Owner Trustee, as the case may
be, the pledgee's right so to act with respect to such Certificates and that the
pledgee is not the Issuer, any other obligor upon the Certificates or any
Affiliate of any of the foregoing Persons.
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CLOSING DATE: ______ __, 199_.
CODE: The Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
COLLATERAL: The meaning specified in the Granting Clause of
the Indenture.
COLLECTION ACCOUNT: The account or accounts created and
maintained pursuant to Section 3.06(d) of the Servicing Agreement. The
Collection Account shall be an Eligible Account.
COMBINED LOAN-TO-VALUE RATIO: With respect to any Mortgage
Loan and any date, the percentage equivalent of a fraction, the numerator of
which is the Cut-Off Date Principal Balance of such Mortgage Loan and the
denominator of which is the outstanding principal balance as of the date of the
origination of such Mortgage Loan of any mortgage loan or mortgage loans that
are secured by liens on the Mortgaged Property that are senior or subordinate to
the Mortgage and the denominator of which is the Appraised Value of the related
Mortgaged Property.
COMPENSATING INTEREST: With respect to any Determination Date,
an amount equal to the lesser of (i) the aggregate amount of Prepayment Interest
Shortfall for the related Prepayment Period and (ii) the Servicing Fee for such
Determination Date.
CONVERTED MORTGAGE LOAN: Any Convertible Mortgage Loan with
respect to which the interest rate borne by such Mortgage Loan has been
converted from an adjustable interest rate to a fixed interest rate.
CONVERTIBLE MORTGAGE LOAN: Any Adjustable Rate Mortgage Loan
which by its terms grants to the related Mortgagor the option to convert the
interest rate borne by such Mortgage Loan from an adjustable interest rate to a
fixed interest rate.
CONVERTING MORTGAGE LOAN: Any Convertible Mortgage Loan with
respect to which the related Mortgagor has given notice of his intent to convert
from an adjustable interest rate to a fixed interest rate and prior to the
conversion of such Mortgage Loan.
CORPORATE TRUST OFFICE: With respect to the Indenture Trustee,
Certificate Registrar, Certificate Paying Agent and Paying Agent, the principal
corporate trust office of the Indenture Trustee and Note Registrar at which at
any particular time its corporate trust business shall be administered, which
office at the date of the execution of this instrument is located at
____________, __________, ______, __________ _____, Attention: ________ ___
______, except that for purposes of Section 4.02 of the Indenture and Section
3.09 of the Trust Agreement, such term shall include the Indenture Trustee's
office or agency at _______________, ________, ________ _____, Attention:
___________ _________. With respect to the Owner Trustee, the principal
corporate trust office of the Owner Trustee at which at any particular time its
corporate trust business shall be administered, which office at the date of the
execution of this Trust Agreement is located at ________________________, ______
____________,
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________________________, __________, ________ _____, Attention:
___________________.
CUT-OFF DATE: With respect to the Mortgage Loans, ______ 1,
199_.
CUT-OFF DATE PRINCIPAL BALANCE: With respect to any Mortgage
Loan, the unpaid principal balance thereof as of the opening of business on the
last day of the related Due Period immediately prior to the Cut-Off Date.
DEBT SERVICE REDUCTION: With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction constituting a Deficient Valuation or any reduction that results in a
permanent forgiveness of principal.
DEFAULT: Any occurrence which is or with notice or the lapse
of time or both would become an Event of Default.
DEFICIENCY AMOUNT: The meaning provided in the Note Insurance
Policy.
DEFICIENT VALUATION: With respect to any Mortgage Loan, a
valuation by a court of competent jurisdiction of the Mortgaged Property in an
amount less than the then outstanding indebtedness under the Mortgage Loan, or
any reduction in the amount of principal to be paid in connection with any
scheduled Monthly Payment that constitutes a permanent forgiveness of principal,
which valuation or reduction results from a proceeding under the Bankruptcy
Code.
DEFINITIVE NOTES: The meaning specified in Section 4.06 of
the Indenture.
DELETED MORTGAGE LOAN: A Mortgage Loan replaced or to be
replaced with an Eligible Substitute Mortgage Loan.
DEPOSITOR: Southern Pacific Secured Assets Corp., a
California corporation, or its successor in interest.
DEPOSITORY OR DEPOSITORY AGENCY: The Depository Trust Company
or a successor appointed by the Indenture Trustee with the approval of the
Depositor. Any successor to the Depository shall be an organization registered
as a "clearing agency" pursuant to Section 17A of the Exchange Act and the
regulations of the Securities and Exchange Commission thereunder.
DEPOSITORY PARTICIPANT: A Person for whom, from time to time,
the Depository effects book-entry transfers and pledges of securities deposited
with the Depository.
DETERMINATION DATE: With respect to any Payment Date, the 15th
of the related month, or if the 15th day of such month is not a Business Day,
the immediately preceding Business Day.
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DUE DATE: The first day of the month of the related Payment
Date.
DUE PERIOD: With respect to any Mortgage Loan and Due Date,
the period commencing on the second day of the month preceding the month of such
Payment Date (or, with respect to the first Due Period, the day following the
Cut-Off Date) and ending on the related Due Date.
ELIGIBLE ACCOUNT: An account that is any of the following: (i)
maintained with a depository institution the short term deposits of which have
been rated by each Rating Agency in its highest rating available, or (ii) an
account or accounts in a depository institution in which such accounts are fully
insured to the limits established by the FDIC, PROVIDED that any deposits not so
insured shall, to the extent acceptable to the Note Insurer and each Rating
Agency, as evidenced in writing, be maintained such that (as evidenced by an
Opinion of Counsel delivered to the Indenture Trustee, the Note Insurer and each
Rating Agency) the Indenture Trustee have a claim with respect to the funds in
such account or a perfected first security interest against any collateral
(which shall be limited to Eligible Investments) securing such funds that is
superior to claims of any other depositors or creditors of the depository
institution with which such account is maintained, or (iii) in the case of the
Collection Account, either (A) a trust account or accounts maintained at the
Corporate Trust Department of the Indenture Trustee or (B) an account or
accounts maintained at the Corporate Trust Department of the Indenture Trustee,
as long as its short term debt obligations are rated P-1 by Moody's and A-1 by
Standard & Poor's or better and its long term debt obligations are rated A2 by
Moody's and A by Standard & Poor's or better, or (iv) in the case of the
Collection Account and the Payment Account, a trust account or accounts
maintained in the corporate trust division of the Indenture Trustee, or (v) an
account or accounts of a depository institution acceptable to each Rating Agency
as evidenced in writing by each Rating Agency that use of any such account as
the Collection Account or the Payment Account will not reduce the rating
assigned to any of the Securities by such Rating Agency below investment grade
without taking into account the Note Insurance Policy and acceptable to the Note
Insurer as evidenced in writing.
ELIGIBLE INVESTMENTS: One or more of the following:
(i) direct obligations of, and obligations fully
guaranteed by, the United States of America, the Federal Home Mortgage
Corporation, the Federal National Mortgage Association, the Federal
Home Loan Banks or any agency or instrumentality of the United States
of America the obligations of which are backed by the full faith and
credit of the United States of America;
(ii) (A) demand and time deposits in, certificates of
deposit of, banker's acceptances issued by or federal funds sold by any
depository institution or trust company (including the Indenture
Trustee or its agent acting in their respective commercial capacities)
incorporated under the laws of the United States of America or any
State thereof and subject to supervision and examination by federal
and/or state authorities, so long as at the time of such investment or
contractual commitment providing for such investment, such depository
institution or trust company has a short term unsecured debt
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rating in the highest available rating category of each of the Rating
Agencies and provided that each such investment has an original
maturity of no more than 365 days, and (B) any other demand or time
deposit or deposit which is fully insured by the Federal Deposit
Insurance Corporation;
(iii) repurchase obligations with a term not to exceed 30
days with respect to any security described in clause (i) above and
entered into with a depository institution or trust company (acting as
a principal) rated "A" or higher by S&P and A2 or higher by Moody's;
provided, however, that collateral transferred pursuant to such
repurchase obligation must (A) be valued weekly at current market price
plus accrued interest, (B) pursuant to such valuation, equal, at all
times, 105% of the cash transferred by the Indenture Trustee in
exchange for such collateral and (C) be delivered to the Indenture
Trustee or, if the Indenture Trustee is supplying the collateral, an
agent for the Indenture Trustee, in such a manner as to accomplish
perfection of a security interest in the collateral by possession of
certificated securities.
(iv) securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the United
States of America or any State thereof which has a long term unsecured
debt rating in the highest available rating category of each of the
Rating Agencies at the time of such investment;
(v) commercial paper having an original maturity of less
than 365 days and issued by an institution having a short term
unsecured debt rating in the highest available rating category of each
of the Rating Agencies at the time of such investment;
(vi) a guaranteed investment contract approved by each of
the Rating Agencies and the Note Insurer and issued by an insurance
company or other corporation having a long term unsecured debt rating
in the highest available rating category of each of the Rating Agencies
at the time of such investment;
(vii) money market funds having ratings in the highest
available long-term rating category of each of the Rating Agencies at
the time of such investment; any such money market funds which provide
for demand withdrawals being conclusively deemed to satisfy any
maturity requirement for Eligible Investments set forth in the
Indenture; and
(viii) any investment approved in writing by each of the
Rating Agencies and the Note Insurer.
The Indenture Trustee may purchase from or sell to itself or an affiliate, as
principal or agent, the Eligible Investments listed above.
PROVIDED, HOWEVER, that each such instrument shall be acquired in an arm's
length transaction and no such instrument shall be an Eligible Investment if it
represents, either (1) the right to receive only interest payments with respect
to the underlying debt instrument or (2) the right to receive both principal and
interest payments derived from obligations underlying such instrument and the
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principal and interest payments with respect to such instrument provide a yield
to maturity greater than 120% of the yield to maturity at par of such underlying
obligations; PROVIDED FURTHER, HOWEVER, that each such instrument acquired shall
not be acquired at a price in excess of par.
ELIGIBLE SUBSTITUTE MORTGAGE LOAN: A Mortgage Loan substituted
by the Seller for a Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed in an Officer's Certificate delivered to the
Indenture Trustee, (i) have an outstanding principal balance, after deduction of
the principal portion of the monthly payment due in the month of substitution
(or in the case of a substitution of more than one Mortgage Loan for a Deleted
Mortgage Loan, an aggregate outstanding principal balance, after such
deduction), not in excess of the outstanding principal balance of the Deleted
Mortgage Loan (the amount of any shortfall to be deposited by the Seller in the
Collection Account in the month of substitution); (ii) comply with each
representation and warranty set forth in clauses (ii) through (lxxvii) of
Section 3.1(b) of the Mortgage Loan Purchase Agreement other than clauses (ii),
(iii), (v)-(xi), (xiii)-(xiv), (l), (lxvi), (lxviii), (lxxi)-(lxxiii); (iii)
have a Mortgage Rate and Gross Margin no lower than and not more than 1% per
annum higher than the Mortgage Rate and Gross Margin, respectively, of the
Deleted Mortgage Loan as of the date of substitution; (iv) have a Combined
Loan-to-Value Ratio at the time of substitution no higher than that of the
Deleted Mortgage Loan at the time of substitution; (v) have a remaining term to
stated maturity not greater than (and not more than one year less than) that of
the Deleted Mortgage Loan and (vi) not be 30 days or more delinquent.
ERISA: The Employee Retirement Income Security Act of 1974,
as amended.
EVENT OF DEFAULT: With respect to the Indenture, any one of
the following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) a default in (a) the payment of the Interest Payment
Amount or the Principal Payment Amount with respect to a Payment Date
on such Payment Date or (b) the Subordination Increase Amount or the
Available Funds Cap Carry-Forward Amount, but only, with respect to
clause (b), to the extent funds are available to make such payment as
provided in the Indenture; or
(ii) the failure by the Issuer on the Final Scheduled
Payment Date to reduce the Note Principal Balance to zero; or
(iii) there occurs a default in the observance or
performance of any covenant or agreement of the Issuer made in the
Indenture, or any representation or warranty of the Issuer made in the
Indenture or in any certificate or other writing delivered pursuant
hereto or in connection herewith proving to have been incorrect in any
material respect as of the time when the same shall have been made, and
such default shall continue or not be cured, or the circumstance or
condition in respect of which such representation or warranty was
incorrect shall not have been eliminated or otherwise cured, for a
period of 30 days after there shall have been given, by registered or
certified mail, to the Issuer
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by the Indenture Trustee or to the Issuer and the Indenture Trustee by
the Note Insurer, or if a Note Insurer Default exists the Holders of at
least 25% of the Outstanding Amount of the Notes, a written notice
specifying such default or incorrect representation or warranty and
requiring it to be remedied and stating that such notice is a notice of
default hereunder; or
(iv) there occurs the filing of a decree or order for
relief by a court having jurisdiction in the premises in respect of the
Issuer or any substantial part of the Trust Estate in an involuntary
case under any applicable federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Issuer or for any substantial part of the Trust Estate,
or ordering the winding-up or liquidation of the Issuer's affairs, and
such decree or order shall remain unstayed and in effect for a period
of 60 consecutive days; or
(v) there occurs the commencement by the Issuer of a
voluntary case under any applicable federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or the
consent by the Issuer to the entry of an order for relief in an
involuntary case under any such law, or the consent by the Issuer to
the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Issuer or for any substantial part of the assets of the Trust Estate,
or the making by the Issuer of any general assignment for the benefit
of creditors, or the failure by the Issuer generally to pay its debts
as such debts become due, or the taking of any action by the Issuer in
furtherance of any of the foregoing.
EVENT OF SERVICER TERMINATION: With respect to the Servicing
Agreement, a Servicing Default as defined in Section 6.01 of the Servicing
Agreement.
EXCESS SUBORDINATION AMOUNT: With respect to any Payment Date,
the excess, if any, of (a) the Subordination Amount that would apply on such
Payment Date after taking into account all distributions to be made on such
Payment Date (exclusive of any reductions thereto attributable to Subordination
Reduction Amounts on such Payment Date) over (b) the Required Subordination
Amount for such Payment Date.
EXCHANGE ACT: The Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
EXPENSE ADJUSTED MORTGAGE RATE: For any Mortgage Loan, the
rate equal to the then applicable Mortgage Rate thereon minus the sum of (i) the
Minimum Spread and (ii) the Servicing Fee Rate and (iii) the Indenture Trustee
Fee Rate.
EXPENSES: The meaning specified in Section 7.02 of the Trust
Agreement.
FDIC: The Federal Deposit Insurance Corporation or any
successor thereto.
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FHLMC: The Federal Home Loan Mortgage Corporation, or any
successor thereto.
FINAL SCHEDULED PAYMENT DATE: The Payment Date occurring in
_________ 202_.
FIXED RATE MORTGAGE LOAN: Any Mortgage Loan with a fixed rate
of interest.
FNMA: The Federal National Mortgage Association, or any
successor thereto.
FORECLOSURE PROFIT: With respect to a Liquidated Mortgage
Loan, the amount, if any, by which (i) the aggregate of its Net Liquidation
Proceeds exceeds (ii) the related Principal Balance (plus accrued and unpaid
interest thereon at the applicable Mortgage Rate from the date interest was last
paid through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Mortgage Loan immediately prior to the final recovery of its
Liquidation Proceeds.
GRANT: Pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to the Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of such collateral or other agreement or
instrument and all other moneys payable thereunder, to give and receive notices
and other communications, to make waivers or other agreements, to exercise all
rights and options, to bring proceedings in the name of the granting party or
otherwise, and generally to do and receive anything that the granting party is
or may be entitled to do or receive thereunder or with respect thereto.
GROSS MARGIN: With respect to any Adjustable Rate Mortgage
Loan, the percentage set forth as the "Gross Margin" for such Mortgage Loan on
the Mortgage Loan Schedule, as adjusted from time to time in accordance with the
terms of the Servicing Agreement.
INDEMNIFIED PARTY: The meaning specified in Section 7.02 of
the Trust Agreement.
INDENTURE: The indenture dated as of ______ 1, 199_, between
the Issuer, as debtor, and the Indenture Trustee, as Indenture Trustee.
INDENTURE TRUSTEE: _________________________________________,
a national banking association, and its successors and assigns or any successor
indenture trustee appointed pursuant to the terms of the Indenture.
INDENTURE TRUSTEE FEE: With respect to each Mortgage Loan and
any Payment Date the product of (i) the Indenture Trustee Fee Rate divided by 12
and (ii) the Principal Balance of such Mortgage Loans as of such date.
INDENTURE TRUSTEE FEE RATE: _____% per annum.
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INDEPENDENT: When used with respect to any specified Person,
the Person (i) is in fact independent of the Issuer, any other obligor on the
Notes, the Seller, the Issuer, the Depositor and any Affiliate of any of the
foregoing Persons, (ii) does not have any direct financial interest or any
material indirect financial interest in the Issuer, any such other obligor, the
Seller, the Issuer, the Depositor or any Affiliate of any of the foregoing
Persons and (iii) is not connected with the Issuer, any such other obligor, the
Seller, the Issuer, the Depositor or any Affiliate of any of the foregoing
Persons as an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions.
INDEPENDENT CERTIFICATE: A certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 10.01 of the
Indenture, made by an Independent appraiser or other expert appointed by an
Issuer Order and approved by the Indenture Trustee in the exercise of reasonable
care, and such opinion or certificate shall state that the signer has read the
definition of "Independent" in this Indenture and that the signer is Independent
within the meaning thereof.
INDEX: With respect to any Adjustable Rate Mortgage Loan,
index for the adjustment of the Mortgage Rate set forth as such on the related
Mortgage Note.
INITIAL NOTE PRINCIPAL BALANCE: With respect to the Notes,
$______________.
INITIAL SUBSERVICER: _____________, a __________ corporation.
INSOLVENCY EVENT: With respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation of
such Person's affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (b) the commencement by such
Person of a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by such Person to the
entry of an order for relief in an involuntary case under any such law, or the
consent by such Person to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or the making by such
Person of any general assignment for the benefit of creditors, or the failure by
such Person generally to pay its debts as such debts become due or the admission
by such Person in writing (as to which the Indenture Trustee shall have notice)
of its inability to pay its debts generally, or the adoption by the Board of
Directors or managing member of such Person of a resolution which authorizes
action by such Person in furtherance of any of the foregoing.
INSURANCE AGREEMENT: The insurance and reimbursement agreement
dated as of _____ 1, 199_, among the Master Servicer, the Seller, the Depositor,
the Issuer, Indenture Trustee and the Note Insurer, including any amendments and
supplements thereto.
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INSURANCE PROCEEDS: Proceeds paid by any insurer (other than
the Note Insurer) pursuant to any insurance policy covering a Mortgage Loan
which are required to be remitted to the Master Servicer, or amounts required to
be paid by the Master Servicer pursuant to the Servicing Agreement, net of any
component thereof (i) covering any expenses incurred by or on behalf of the
Master Servicer in connection with obtaining such proceeds, (ii) that is applied
to the restoration or repair of the related Mortgaged Property, (iii) released
to the Mortgagor in accordance with the Master Servicer's normal servicing
procedures or (iv) required to be paid to any holder of a mortgage senior to
such Mortgage Loan.
INSURED PAYMENT: Shall have the meaning set forth in the Note
Insurance Policy.
INTEREST DETERMINATION DATE: With respect to any Interest
Period, the second London Business Day preceding the commencement of such
Interest Period.
INTEREST PAYMENT AMOUNT: With respect to any Payment Date, an
amount equal to interest accrued during the related Interest Period on the Note
Principal Balance thereof at the then-applicable Note Interest Rate, minus any
Prepayment Interest Shortfalls and Relief Act Shortfalls to the extent not
covered by the Master Servicer by Compensating Interest for such Payment Date.
INTEREST PERIOD: With respect to any Payment Date other than
the first Payment Date, the period beginning on the preceding Payment Date and
ending on the day preceding such Payment Date, and in the case of the first
Payment Date, the period beginning on the Closing Date and ending on the day
preceding the first Payment Date.
INTEREST RATE ADJUSTMENT DATE: With respect to each Mortgage
Loan, the date or dates on which the Mortgage Rate is adjusted in accordance
with the related Mortgage Note.
ISSUER: The Southern Pacific MBN Trust Series 199_-1, a
Delaware business trust, or its successor in interest.
ISSUER REQUEST: A written order or request signed in the name
of the Issuer by any one of its Authorized Officers and approved in writing by
the Note Insurer, so long as no Note Insurer Default exists and delivered to the
Indenture Trustee.
LIBOR BUSINESS DAY: Any day other than (i) a Saturday or a
Sunday or (ii) a day on which banking institutions in the State of New York,
Delaware or California, or in the city of London, England are required or
authorized by law to be closed.
LIEN: Any mortgage, deed of trust, pledge, conveyance,
hypothecation, assignment, participation, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority right or interest or other security
agreement or preferential arrangement of any kind or nature whatsoever,
including, without limitation, any conditional sale or other title retention
agree ment, any financing lease having substantially the same economic effect as
any of the foregoing
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and the filing of any financing statement under the UCC (other than any such
financing statement filed for informational purposes only) or comparable law of
any jurisdiction to evidence any of the foregoing; PROVIDED, HOWEVER, that any
assignment pursuant to Section 6.02 of the Servicing Agreement shall not be
deemed to constitute a Lien.
LIFETIME RATE CAP: With respect to each Mortgage Loan with
respect to which the related Mortgage Note provides for a lifetime rate cap, the
maximum Mortgage Rate permitted over the life of such Mortgage Loan under the
terms of such Mortgage Note, as set forth on the Mortgage Loan Schedule and
initially as set forth on Exhibit A to the Servicing Agreement.
LIQUIDATED MORTGAGE LOAN: With respect to any Payment Date,
any Mortgage Loan in respect of which the Master Servicer has determined, in
accordance with the servicing procedures specified in the Servicing Agreement,
as of the end of the related Prepayment Period that substantially all
Liquidation Proceeds which it reasonably expects to recover with respect to the
disposition of the related REO Property have been recovered.
LIQUIDATION EXPENSES: Out-of-pocket expenses (exclusive of
overhead) which are incurred by or on behalf of the Master Servicer in
connection with the liquidation of any Mortgage Loan and not recovered under any
insurance policy, such expenses including, without limitation, legal fees and
expenses, any unreimbursed amount expended (including, without limitation,
amounts advanced to correct defaults on any mortgage loan which is senior to
such Mortgage Loan and amounts advanced to keep current or pay off a mortgage
loan that is senior to such Mortgage Loan) respecting the related Mortgage Loan
and any related and unreimbursed expenditures for real estate property taxes or
for property restoration, preservation or insurance against casualty loss or
damage.
LIQUIDATION PROCEEDS: Proceeds (including Insurance Proceeds
but not including amounts drawn under the Note Insurance Policy) received in
connection with the liquidation of any Mortgage Loan or related REO Property,
whether through trustee's sale, foreclosure sale or otherwise.
LOAN YEAR: With respect to any Mortgage Loan, the one year
period commencing on the day succeeding the origination of such Mortgage Loan
and ending on the anniversary date of such Mortgage Loan, and each annual period
thereafter.
LONDON BUSINESS DAY: Any day on which banks in the City of
London, England are open and conducting transactions in United States dollars.
LOST NOTE AFFIDAVIT: With respect to any Mortgage Loan as to
which the original Mortgage Note has been permanently lost or destroyed and has
not been replaced, an affidavit from the Seller certifying that the original
Mortgage Note has been lost, misplaced or destroyed (together with a copy of the
related Mortgage Note).
MASTER SERVICER: _______________________, a __________
corporation, and its successors and assigns.
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MASTER SERVICING FEE: With respect to each Mortgage Loan and
any Payment Date the product of (i) the Master Servicing Fee Rate divided by 12
and (ii) the Principal Balance of such Mortgage Loans as of such date.
MASTER SERVICING FEE RATE: With respect to each Mortgage
Loan, ____% per annum.
MAXIMUM NOTE INTEREST RATE: With respect to any Payment Date,
the per annum rate equal to the fraction, expressed as a percentage, the
numerator of which is (i) an amount equal to (A) 1/12 of the aggregate Principal
Balance of the then outstanding Mortgage Loans times the weighted average of the
Expense Adjusted Maximum Mortgage Rates on the then outstanding Mortgage Loans
minus (B) the Administrative Fee for such Payment Date, and the denominator of
which is (ii) an amount equal to (A) the aggregate Note Principal Balance of the
Notes multiplied by (B) the actual number of days elapsed in the related
Interest Period divided by 360.
MAXIMUM MORTGAGE RATE: With respect to each Adjustable Rate
Mortgage Loan, the maximum Mortgage Rate.
MINIMUM MORTGAGE RATE: With respect to each Adjustable Rate
Mortgage Loan, the minimum Mortgage Rate.
MINIMUM SPREAD: ____% per annum.
MONTHLY PAYMENT: With respect to any Mortgage Loan (including
any REO Property) and any Due Date, the payment of principal and interest due
thereon in accordance with the amortization schedule at the time applicable
thereto (after adjustment, if any, for partial Prepayments and for Deficient
Valuations occurring prior to such Due Date but before any adjustment to such
amortization schedule by reason of any bankruptcy, other than a Deficient
Valuation, or similar proceeding or any moratorium or similar waiver or grace
period).
MOODY'S: Moody's Investors Service, Inc. or its successor in
interest.
MORTGAGE: The mortgage, deed of trust or other instrument
creating a first or second lien on an estate in fee simple interest in real
property securing a Mortgage Loan.
MORTGAGE FILE: The file containing the Related Documents
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to the Mortgage Loan Purchase
Agreement or the Servicing Agreement.
MORTGAGE LOAN PURCHASE AGREEMENT: The Mortgage Loan Purchase
Agreement, dated as of the Cut-Off Date, between the Seller, as seller, and the
Purchaser, as purchaser, with respect to the Mortgage Loans, dated as of ______
1, 199_.
MORTGAGE LOAN SCHEDULE: With respect to any date, the schedule
of Mortgage Loans held by the Issuer on such date. The initial schedule of
Mortgage Loans as of the Cut-Off
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Date is the schedule set forth in Exhibit A of the Servicing Agreement, which
schedule sets forth as to each Mortgage Loan
(i) the loan number and name of the Mortgagor;
(ii) the street address, city, state and zip code of the
Mortgaged Property;
(iii) the Mortgage Rate;
(iv) the Maximum Rate;
(v) the maturity date;
(vi) the original principal balance;
(vii) the first payment date;
(viii) the type of Mortgaged Property;
(ix) the Monthly Payment in effect as of the Cut-Off Date;
(x) the Cut-off Date Principal Balance;
(xi) the occupancy status;
(xii) the purpose of the Mortgage Loan;
(xiii) the Appraised Value of the Mortgaged Property;
(xiv) the original term to maturity;
(xv) the paid-through date of the Mortgage Loan;
(xvi) the Loan-to-Value Ratio; and
(xvii) whether or not the Mortgage Loan was underwritten
pursuant to a limited documentation program.
The Mortgage Loan Schedule shall also set forth the total of
the amounts described under (ix) above for all of the Mortgage Loans.
MORTGAGE LOANS: At any time, collectively, all Mortgage Loans
that have been sold to the Depositor under the Mortgage Loan Purchase Agreement
or substituted for pursuant to Section 2.1 and 3.1 of the Mortgage Loan Purchase
Agreement and transferred and conveyed to
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the Issuer, in each case together with the Related Documents, and that remain
subject to the terms thereof.
MORTGAGE NOTE: The note or other evidence of the indebtedness
of a Mortgagor under a Mortgage Loan.
MORTGAGE RATE: With respect to any Mortgage Loan, the annual
rate at which interest accrues on such Mortgage Loan.
MORTGAGED PROPERTY: The underlying property, including real
property and improvements thereon, securing a Mortgage Loan.
MORTGAGOR: The obligor or obligors under a Mortgage Note.
NET LIQUIDATION PROCEEDS: With respect to any Liquidated
Mortgage Loan, Liquidation Proceeds net of Liquidation Expenses.
NET MONTHLY EXCESS CASHFLOW: For any Payment Date, the amount
of Available Funds and any Insured Payment remaining after distributions
pursuant to clauses (i) through (iii) of Section 3.05 of the Indenture (minus
any Insured Payment and any Subordination Reduction Amount).
NET MORTGAGE RATE: With respect to any Mortgage Loan and any
day, the related Mortgage Rate less the sum of the related Servicing Fee Rate,
the Administrative Fee Rate and the Indenture Trustee Fee Rate.
NONRECOVERABLE ADVANCE: Any advance (i) which was previously
made or is proposed to be made by the Master Servicer; and (ii) which, in the
good faith judgment of the Master Servicer, will not or, in the case of a
proposed advance, would not, be ultimately recoverable by the Master Servicer
from Liquidation Proceeds, Insurance Proceeds or future payments on any Mortgage
Loan.
NOTE INSURANCE POLICY: The bond guaranty insurance policy
number 21885, issued by the Note Insurer to the Indenture Trustee for the
benefit of the Noteholders.
NOTE INSURER: MBIA Insurance Corporation, a New York insurance
company, any successor thereto or any replacement bond insurer substituted
pursuant to Section 3.29 of the Indenture.
NOTE INSURER DEFAULT: The existence and continuance of any of
the following: (a) a failure by the Note Insurer to make a payment required
under the Note Insurance Policy in accordance with its terms; or (b)(i) the Note
Insurer (A) files any petition or commences any case or proceeding under any
provision or chapter of the Bankruptcy Code or any other similar federal or
state law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (B) makes a general assignment for the benefit of its creditors,
or (C) has an order for relief entered
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against it under the Bankruptcy Code or any other similar federal or state law
relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or (ii) a court of competent
jurisdiction, the New York Department of Insurance or other competent regulatory
authority enters a final and nonappealable order, judgment or decree (A)
appointing a custodian, trustee, agent or receiver for the Note Insurer or for
all or any material portion of its property or (B) authorizing the taking of
possession by a custodian, trustee, agent or receiver of the Note Insurer (or
the taking of possession of all or any material portion of the property of the
Note Insurer).
NOTE INTEREST RATE: With respect to each Payment Date after
the first Payment Date, a floating rate equal to the lesser of (i) with respect
to each Payment Date up to and including the Payment Date in _________ 200_,
One-Month LIBOR plus ____%, and with respect to each Payment Date thereafter,
One-Month LIBOR plus ____% and (ii) the Available Funds Interest Rate with
respect to such Payment Date. The Note Interest Rate for the first Payment Date
will equal ____% per annum.
NOTE OWNER: The Beneficial Owner of a Note.
NOTE PERCENTAGE: With respect to any Payment Date and any
Note, the ratio expressed as a percentage of the Note Principal Balance of such
Note to the aggregate Note Principal Balance of all Notes immediately prior to
such Payment Date.
NOTE PRINCIPAL BALANCE: With respect to any Note, the initial
Note Principal Balance thereof minus all amounts distributed in respect of
principal with respect to such Note.
NOTE REGISTER: The register maintained by the Note Registrar
in which the Note Registrar shall provide for the registration of Notes and of
transfers and exchanges of Notes.
NOTE REGISTRAR: The Indenture Trustee, in its capacity as
Note Registrar.
NOTEHOLDER: The Person in whose name a Note is registered in
the Note Register, except that, any Note registered in the name of the
Depositor, the Issuer or the Indenture Trustee or any Affiliate of any of them
shall be deemed not to be outstanding and the registered holder will not be
considered a Noteholder or holder for purposes of giving any request, demand,
authorization, direction, notice, consent or waiver under the Indenture or the
Trust Agreement provided that, in determining whether the Indenture Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes that the Indenture Trustee or
the Owner Trustee knows to be so owned shall be so disregarded. Owners of Notes
that have been pledged in good faith may be regarded as Holders if the pledgee
establishes to the satisfaction of the Indenture Trustee or the Owner Trustee
the pledgee's right so to act with respect to such Notes and that the pledgee is
not the Issuer, any other obligor upon the Notes or any Affiliate of any of the
foregoing Persons. Any bonds on which payments are made under the Note Insurance
Policy shall be deemed Outstanding until the Note Insurer has been reimbursed
with respect thereto and the Note Insurer shall be deemed the Noteholder thereof
to the extent of such unreimbursed payment.
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NOTES: The Notes designated as the "Notes" in the Indenture.
OFFICER'S CERTIFICATE: With respect to the Master Servicer, a
certificate signed by the President, Managing Director, a Director, a Vice
President or an Assistant Vice President, of the Master Servicer and delivered
to the Indenture Trustee. With respect to the Issuer, a certificate signed by
any Authorized Officer of the Issuer, under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 10.01 of the
Indenture, and delivered to the Indenture Trustee. Unless otherwise specified,
any reference in the Indenture to an Officer's Certificate shall be to an
Officer's Certificate of any Authorized Officer of the Issuer.
ONE-MONTH LIBOR: With respect to any Interest Period, the rate
determined by the Indenture Trustee on the related Interest Determination Date
on the basis of the offered rates of the Reference Banks for one-month United
States dollar deposits, as such rates appear on the Reuters Screen LIBO Page, as
of 11:00 a.m. (London time) on such Interest Determination Date. On each
Interest Determination Date, One-Month LIBOR for the related Interest Period
will be established by the Indenture Trustee as follows:
(i) If on such Interest Determination Date two or more
Reference Banks provide such offered quotations,
One-Month LIBOR for the related Interest Period shall
be the arithmetic mean of such offered quotations
(rounded upwards if necessary to the nearest whole
multiple of 1/16%).
(ii) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations,
One-Month LIBOR for the related Interest Period shall
be the higher of (i) One-Month LIBOR as determined on
the previous Interest Determination Date and (ii) the
Reserve Interest Rate.
OPINION OF COUNSEL: A written opinion of counsel acceptable to
Note Insurer who may be in-house counsel for the Master Servicer if acceptable
to the Indenture Trustee, the Note Insurer and the Rating Agencies or counsel
for the Depositor, as the case may be.
ORIGINAL SPECIFIED SUBORDINATION AMOUNT: An amount equal to
____% of the aggregate Principal Balance of the Mortgage Loans as of the Cut-Off
Date.
ORIGINAL VALUE: Except in the case of a refinance Mortgage
Loan, the lesser of the Appraised Value or sales price of Mortgaged Property at
the time a Mortgage Loan is closed, and for a refinance Mortgage Loan, the
Original Value is the value of such property set forth in an appraisal
acceptable to the Master Servicer.
OUTSTANDING: With respect to the Notes, as of the date of
determination, all Notes theretofore executed, authenticated and delivered under
this Indenture except:
(i) Notes theretofore cancelled by the Note Registrar or delivered
to the Indenture Trustee for cancellation; and
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(ii) Notes in exchange for or in lieu of which other
Notes have been executed, authenticated and delivered pursuant to the
Indenture unless proof satisfactory to the Indenture Trustee is
presented that any such Notes are held by a holder in due course;
all Notes that have been paid with funds provided under the Note Insurance
Policy shall be deemed to be Outstanding until the Note Insurer has been
reimbursed with respect thereto.
OWNER TRUST : The Southern Pacific MBN Trust Series 199_-1 to
be created pursuant to the Trust Agreement.
OWNER TRUST ESTATE: The corpus of the Issuer created by the
Trust Agreement which consists of items in Section 2.01 of the Trust Agreement.
OWNER TRUSTEE: ________________________ and its successors
and assigns or any successor owner trustee appointed pursuant to the terms of
the Trust Agreement.
OWNER TRUSTEE FEE:
OWNER TRUSTEE FEE RATE: ______% per annum.
PAYING AGENT: Any paying agent or co-paying agent appointed
pursuant to Section 3.03 of the Indenture, which initially shall be the
Indenture Trustee.
PAYMENT ACCOUNT: The account established by the Indenture
Trustee pursuant to Section 8.02 of the Indenture and Section 4.03 of the
Servicing Agreement. The Payment Account shall be an Eligible Account.
PAYMENT DATE: The 25th day of each month, or if such day is
not a Business Day, then the next Business Day.
PERCENTAGE INTEREST: With respect to any Note, the percentage
obtained by dividing the Note Principal Balance of such Note by the aggregate of
the Note Principal Balances of all Notes. With respect to any Certificate, the
percentage on the face thereof.
PERSON: Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
POOL BALANCE: With respect to any date, the aggregate of the
Principal Balances of all Mortgage Loans as of such date.
PREFERENCE AMOUNT: Any amount previously distributed to an
Owner on the Notes that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy
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pursuant to the United States Bankruptcy Code (11 U.S.C.), as amended from time
to time, in accordance with a final nonappealable order of a court having
competent jurisdiction.
PREMIUM AMOUNT: The amount of premium due to the Note Insurer
in accordance with the terms of the Insurance Agreement.
PREPAYMENT INTEREST SHORTFALL: As to any Payment Date and any
Mortgage Loan (other than a Mortgage Loan relating to an REO Property) that was
the subject of (a) a Principal Prepayment in full during the related Prepayment
Period, an amount equal to the excess of interest accrued during the related
Prepayment Period at the Net Mortgage Rate on the Principal Balance of such
Mortgage Loan over the amount of interest (adjusted to the Net Mortgage Rate)
paid by the Mortgagor for such Prepayment Period to the date of such Principal
Prepayment in full or (b) a partial Prepayment during the prior calendar month,
an amount equal to interest accrued during the related Prepayment Period at the
Net Mortgage Rate on the amount of such partial Prepayment.
PREPAYMENT PERIOD: As to any Payment Date, the calendar month
preceding the month of distribution.
PRIMARY INSURANCE POLICY: Each primary policy of mortgage
guaranty insurance issued by a Qualified Insurer or any replacement policy
therefor.
PRINCIPAL BALANCE: With respect to any Mortgage Loan or
related REO Property, at any given time, (i) the Cut-off Date Principal Balance
of the Mortgage Loan, minus (ii) the sum of (a) the principal portion of the
Monthly Payments due with respect to such Mortgage Loan or REO Property during
each Due Period ending prior to the most recent Payment Date which were received
or with respect to which an Advance was made, and (b) all Principal Prepayments
with respect to such Mortgage Loan or REO Property, and all Insurance Proceeds,
Liquidation Proceeds and REO Proceeds, to the extent applied by the Master
Servicer as recoveries of principal in accordance with the Servicing Agreement
with respect to such Mortgage Loan or REO Property, and (c) any Realized Loss
with respect thereto for any previous Payment Date.
PRINCIPAL PAYMENT AMOUNT: With respect to any Payment Date (a)
other than the Final Scheduled Payment Date, and the first Payment Date
following any acceleration of the Notes following an Event of Default, the
lesser of (a) the sum of the Available Funds remaining after distributions
pursuant to clause (i) of Section 3.05 of the Indenture and any portion of any
Insured Payment for such Payment Date representing a Subordination Deficit and
(b) the sum of:
(1) the principal portion of all Monthly Payments
received during the related Due Period or advanced on
each Mortgage Loan;
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(2) the Principal Balance of any Mortgage Loan
repurchased during the related Prepayment Period (or
deemed to have been so repurchased) pursuant to the
Mortgage Loan Purchase Agreement or Section 3.18 of
the Servicing Agreement and the amount of any
Substitution Adjustment Amounts during the related
Prepayment Period;
(3) the principal portion of all other unscheduled
collections (including, without limitation, Principal
Prepayments in full, partial Prepayments, Insurance
Proceeds, Liquidation Proceeds and REO Proceeds)
received during the related Prepayment Period to the
extent applied by the Master Servicer as payments or
recoveries of principal of the related Mortgage Loan;
(4) any Insured Payment made with respect to any
Subordination Deficit; and
MINUS
(5) the amount of any Subordination Reduction Amount
for such Payment Date;
and (b) with respect to the Final Scheduled Payment Date, and the first Payment
Date following any acceleration of the Notes following an Event of Default, the
amount necessary to reduce the Note Principal Balance to zero.
PRINCIPAL PREPAYMENT: Any payment of principal made by the
Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due
Date and which is not accompanied by an amount of interest representing
scheduled interest due on any date or dates in any month or months subsequent to
the month of prepayment.
PROCEEDING: Any suit in equity, action at law or other
judicial or administrative proceeding.
PURCHASE PRICE: The meaning specified in Section 2.2(a) of
the Mortgage Loan Purchase Agreement.
PURCHASER: Southern Pacific Secured Assets Corp., a
California corporation, and its successors and assigns.
QUALIFIED INSURER: A mortgage guaranty insurance company duly
qualified as such under the laws of the state of its principal place of business
and each state having jurisdiction over such insurer in connection with the
insurance policy issued by such insurer, duly authorized and licensed in such
states to transact a mortgage guaranty insurance business in such states and to
write the insurance provided by the insurance policy issued by it, approved as
an insurer by the Master Servicer and as a FNMA-approved mortgage insurer.
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RATING AGENCY: Any nationally recognized statistical rating
organization, or its successor, that rated the Notes at the request of the
Depositor at the time of the initial issuance of the Notes. Initially, Moody's
or Standard & Poor's. If such organization or a successor is no longer in
existence, "Rating Agency" shall be such nationally recognized statistical
rating organization, or other comparable Person, designated by the Note Insurer
so long as no Note Insurer Default exists, notice of which designation shall be
given to the Indenture Trustee. References herein to the highest short term
unsecured rating category of a Rating Agency shall mean A-1 or better in the
case of Standard & Poor's and P-1 or better in the case of Moody's and in the
case of any other Rating Agency shall mean such equivalent ratings. References
herein to the highest long-term rating category of a Rating Agency shall mean
"AAA" in the case of Standard & Poor's and "Aaa" in the case of Moody's and in
the case of any other Rating Agency, such equivalent rating.
REALIZED LOSS: With respect to each Mortgage Loan (or REO
Property) as to which a Cash Liquidation or REO Disposition has occurred, an
amount (not less than zero) equal to (i) the Principal Balance of the Mortgage
Loan (or REO Property) as of the date of Cash Liquidation or REO Disposition,
plus (ii) interest (and REO Imputed Interest, if any) at the Net Mortgage Rate
from the Due Date as to which interest was last paid or advanced to Noteholders
up to the last day of the month in which the Cash Liquidation (or REO
Disposition) occurred on the Principal Balance of such Mortgage Loan (or REO
Property) outstanding during each Due Period that such interest was not paid or
advanced, minus (iii) the proceeds, if any, received during the month in which
such Cash Liquidation (or REO Disposition) occurred, to the extent applied as
recoveries of interest at the Net Mortgage Rate and to principal of the Mortgage
Loan, net of the portion thereof reimbursable to the Master Servicer or any
Subservicer with respect to related Advances or expenses as to which the Master
Servicer or Subservicer is entitled to reimbursement thereunder but which have
not been previously reimbursed. With respect to each Mortgage Loan which has
become the subject of a Deficient Valuation, the difference between the
principal balance of the Mortgage Loan outstanding immediately prior to such
Deficient Valuation and the principal balance of the Mortgage Loan as reduced by
the Deficient Valuation. With respect to each Mortgage Loan which has become the
object of a Debt Service Reduction, the amount of such Debt Service Reduction.
RECORD DATE: With respect to the Notes and any Payment Date,
the last day of the calendar month preceding such Payment Date.
REFERENCE BANKS: Bankers Trust Company, Barclay's Bank PLC,
The Bank of Tokyo and National Westminster Bank PLC and their successors in
interest; PROVIDED that if any of the foregoing banks are not suitable to serve
as a Reference Bank, then any leading banks selected by the Indenture Trustee
which are engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
not controlling, under the control of or under common control with the Company
or any Affiliate thereof, (iii) whose quotations appear on the Reuters Screen
LIBO Page on the relevant Interest Determination Date and (iv) which have been
designated as such by the Indenture Trustee.
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REGISTERED HOLDER: The Person in whose name a Note is
registered in the Note Register on the applicable Record Date.
RELATED DOCUMENTS: With respect to each Mortgage Loan, the
documents specified in Section 2.1(b) of the Mortgage Loan Purchase Agreement
and any documents required to be added to such documents pursuant to the
Mortgage Loan Purchase Agreement, the Trust Agree ment, Indenture or the
Servicing Agreement.
RELIEF ACT: The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
RELIEF ACT SHORTFALL: For any Payment Date, As to any Payment
Date and any Mortgage Loan (other than a Mortgage Loan relating to an REO
Property) any shortfalls relating to the Relief Act or similar legislation or
regulations.
REO ACQUISITION: The acquisition by the Master Servicer on
behalf of the Indenture Trustee for the benefit of the Noteholders of any REO
Property pursuant to Section 3.13 of the Servicing Agreement.
REO DISPOSITION: As to any REO Property, a determination by
the Master Servicer that it has received substantially all Insurance Proceeds,
Liquidation Proceeds, REO Proceeds and other payments and recoveries (including
proceeds of a final sale) which the Master Servicer expects to be finally
recoverable from the sale or other disposition of the REO Property.
REO IMPUTED INTEREST: As to any REO Property, for any period,
an amount equivalent to interest (at the Net Mortgage Rate that would have been
applicable to the related Mortgage Loan had it been outstanding) on the unpaid
principal balance of the Mortgage Loan as of the date of acquisition thereof for
such period.
REO PROCEEDS: Proceeds, net of expenses, received in respect
of any REO Property (including, without limitation, proceeds from the rental of
the related Mortgaged Property) which proceeds are required to be deposited into
the Collection Account only upon the related REO Disposition.
REO PROPERTY: A Mortgaged Property that is acquired by the
Issuer in foreclosure or by deed in lieu of foreclosure.
REPURCHASE EVENT: With respect to any Mortgage Loan, either
(i) a discovery that, as of the Closing Date the related Mortgage was not a
valid lien on the related Mortgaged Property subject only to (A) the lien of any
prior mortgage indicated on the Mortgage Loan Schedule, (B) the lien of real
property taxes and assessments not yet due and payable, (C) covenants,
conditions, and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage and such other
permissible title exceptions as are permitted and (D) other matters to which
like properties are commonly subject which do not materially adversely affect
the value, use, enjoyment or marketability of the related Mortgaged Property or
(ii) with respect to any Mortgage Loan as to which the Seller delivers an
affidavit
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certifying that the original Mortgage Note has been lost or destroyed, a
subsequent default on such Mortgage Loan if the enforcement thereof or of the
related Mortgage is materially and adversely affected by the absence of such
original Mortgage Note.
REPURCHASE PRICE: With respect to any Mortgage Loan required
to be repurchased on any date pursuant to the Mortgage Loan Purchase Agreement
or purchased by the Master Servicer pursuant to the Servicing Agreement, an
amount equal to the sum, without duplication, of (i) 100% of the Principal
Balance thereof (without reduction for any amounts charged off) and (ii) unpaid
accrued interest at the Mortgage Rate on the outstanding principal balance
thereof from the Due Date to which interest was last paid by the Mortgagor to
the first day of the month following the month of purchase plus (iii) the amount
of Advances and any unreimbursed Servicing Advances or unreimbursed Advances
made with respect to such Mortgage Loan plus (iv) any other amounts owed to the
Master Servicer or the Subservicer pursuant to Section 3.07 of the Servicing
Agreement not included in clause (iii) of this definition.
REQUIRED SUBORDINATION AMOUNT: With respect to any Payment
Date occurring from the initial Payment Date and ending on the later of (i) the
date on which the aggregate Principal Balance of the Mortgage Loans is 50% of
the initial aggregate Principal Balance of the Mortgage Loans and (ii) the 30th
Payment Date, the greater of:
(a) the Original Specified Subordination Amount; and
(b) two times the excess of (1) 50% of the aggregate Principal Balance
of the Mortgage Loans which are 91 or more days delinquent (including Mortgage
Loans in foreclosure and REO Properties) as of such date over (2) two times the
current Net Monthly Excess Cash Flow for such Payment Date; and
with respect to any Payment Date thereafter, the greatest of:
(a) the lesser of (1) the Original Specified Subordination Amount and
(2) two times ____% times the aggregate Note Principal Balance as of such
Payment Date;
(b) two times the excess of (A) 50% of the aggregate Principal Balance
of the Mortgage Loans which are 91 or more days delinquent (including Mortgage
Loans in foreclosure and REO Properties) as of such date over (B) two times the
current Net Monthly Excess Cash Flow for such Payment Date;
(c) 0.5% of the Cut-Off Date Principal Balance of the Mortgage Loans;
and
(d) an amount equal to the outstanding balance of the four largest
Mortgage Loans as of the Cut-Off Date;
PROVIDED, HOWEVER, that if (x) a Servicer Default has occurred and is continuing
as of such Payment Date, and such Servicer Default has not been waived by the
Note Insurer or (y) a claim
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has been made on the Note Insurance Policy by the Indenture Trustee, the
Required Subordination Amount shall not decrease on any Payment Date.
RESERVE INTEREST RATE: With respect to any Interest
Determination Date, the rate per annum that the Indenture Trustee determines to
be either (i) the arithmetic mean (rounded upwards if necessary to the nearest
whole multiple of 1/16%) of the three-month United States dollar lending rates
which New York City banks selected by the Indenture Trustee are quoting on the
relevant Interest Determination Date to the principal London offices of leading
banks in the London interbank market or (ii) in the event that the Indenture
Trustee can determine no such arithmetic mean, the lowest three-month United
States dollar lending rate which New York City banks selected by the Indenture
Trustee are quoting on such Interest Determination Date to leading European
banks.
RESPONSIBLE OFFICER: With respect to the Indenture Trustee,
any officer of the Indenture Trustee with direct responsibility for the
administration of the Trust Agreement and also, with respect to a particular
matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
SECURITIES ACT: The Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
SECURITY: Any of the Certificates or Notes.
SECURITYHOLDER or HOLDER: Any Noteholder or a
Certificateholder.
SECURITY INSTRUMENT: A written instrument creating a valid
first lien on a Mortgaged Property securing a Mortgage Note, which may be any
applicable form of mortgage, deed of trust, deed to secure debt or security
deed, including any riders or addenda thereto.
SELLER: _______________________, a __________ corporation,
and its successors and assigns.
SERVICING ACCOUNT: The separate trust account created and
maintained by the Master Servicer or each Subservicer with respect to the
Mortgage Loans or REO Property, which shall be an Eligible Account, for
collection of taxes, assessments, insurance premiums and comparable items as
described in Section 3.08 of the Servicing Agreement.
SERVICING ADVANCES: All customary, reasonable and necessary
"out of pocket" costs and expenses incurred in connection with a default,
delinquency or other unanticipated event in the performance by the Master
Servicer of its servicing obligations, including, without duplication, but not
limited to, the cost of (i) the preservation, restoration and protection of a
Mortgaged Property, (ii) any enforcement or judicial proceedings, including
foreclosures, (iii) the management and liquidation of any REO Property and (iv)
compliance with the obligations under Sections 3.10, 3.11, 3.13 of the Servicing
Agreement.
A-25
<PAGE>
SERVICING AGREEMENT: The Servicing Agreement dated as of
______ 1, 199_, between the Master Servicer and the Issuer.
SERVICING CERTIFICATE: A certificate completed and executed
by a Servicing Officer on behalf of the Master Servicer in accordance with
Section 4.01 of the Servicing Agreement.
SERVICING DEFAULT: The meaning assigned in Section 6.01 of
the Servicing Agreement.
SERVICING FEE: With respect to any Mortgage Loan, the sum of
the related Master Servicing Fee and the related Subservicing Fee.
SERVICING FEE RATE: With respect to any Mortgage Loan, the
sum of the related Master Servicing Fee Rate and the Subservicing Fee Rate.
SERVICING OFFICER: Any officer of the Master Servicer involved
in, or responsible for, the administration and servicing of the Mortgage Loans
whose name and specimen signature appear on a list of servicing officers
furnished to the Indenture Trustee (with a copy to the Note Insurer) by the
Master Servicer, as such list may be amended from time to time.
SINGLE NOTE: A Note in the amount of $1,000.
STANDARD & POOR'S: Standard & Poor's Ratings Service, or its
successor in interest.
SUBORDINATION AMOUNT: As of any Payment Date, the excess, if
any, of (x) the sum of the aggregate Principal Balances of the Mortgage Loans as
of the close of business on the last day of the related Due Period as of such
Payment Date over (y) the Note Principal Balance of the Notes as of such Payment
Date (and following the making of all distributions on such Payment Date)
SUBORDINATION DEFICIT: With respect to any Payment Date, the
amount, if any, by which (x) the aggregate Note Principal Balance of the Notes
as of such Payment Date, and following the making of all distributions to be
made on such Payment Date (except for any payment to be made as to principal
from proceeds of the Note Insurance Policy), exceeds (y) the aggregate Principal
Balances of the Mortgage Loans as of the close of business on the preceding Due
Date on such Payment Date.
SUBORDINATION INCREASE AMOUNT: With respect to any Payment
Date, the amount of any Net Monthly Excess Cashflow (including any Subordination
Reduction Amount) available in the Payment Account to increase the Subordination
Amount up to the Required Subordination Amount.
SUBORDINATION REDUCTION AMOUNT: With respect to any Payment
Date, an amount equal to the lesser of (a) the Excess Subordination Amount and
(b) the principal collections received by the Master Servicer with respect to
the prior Due Period.
A-26
<PAGE>
SUBSERVICER: Any Person with whom the Master Servicer has
entered into a Subservicing Agreement as a Subservicer by the Master Servicer
and acceptable to the Note Insurer and the Indenture Trustee, including the
Initial Subservicers.
SUBSERVICING ACCOUNT: An Eligible Account established or
maintained by a Sub servicer as provided for in Section 3.06(e) of the Servicing
Agreement.
SUBSERVICING AGREEMENT: The written contract between the
Master Servicer and any Subservicer relating to servicing and administration of
certain Mortgage Loans as provided in Section 3.02 of the Servicing Agreement.
SUBSERVICING FEE: With respect to each Mortgage Loan and any
date of determination, the product of (i) the Subservicing Fee Rate divided by
12 and (ii) the Principal Balance of such Mortgage Loans as of such date.
SUBSERVICING FEE RATE: For any date of determination, ____%
per annum.
SUBSTITUTION ADJUSTMENT AMOUNT: With respect to any Eligible
Substitute Mortgage Loan, the amount as defined in Section 2.03 of the Servicing
Agreement.
TELERATE SCREEN PAGE 3750: The display designated as page 3750
on the Telerate Service (or such other page as may replace page 3750 on that
service for the purpose of displaying London interbank offered rates of major
banks). If such rate does not appear on such page (or such other page as may
replace that page on that service, or if such service is no longer offered, such
other service for displaying One-Month LIBOR or comparable rates as may be
selected by the Issuer after consultation with the Indenture Trustee), the rate
will be the Reference Bank Rate.
TREASURY REGULATIONS: Regulations, including proposed or
temporary Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
TRUST AGREEMENT: The Trust Agreement dated as of ______ 1,
199_ between the Owner Trustee and the Depositor.
TRUST ESTATE: The meaning specified in the Granting Clause of
the Indenture.
TRUST INDENTURE ACT OR TIA: The Trust Indenture Act of 1939,
as amended from time to time, as in effect on any relevant date.
UCC: The Uniform Commercial Code, as amended from time to
time, as in effect in any specified jurisdiction.
WEIGHTED AVERAGE NET MORTGAGE RATE: With respect to the
Mortgage Loans in the aggregate, and any Due Date, the average of the Net
Mortgage Rate for each Mortgage Loan as
A-27
<PAGE>
of the last day of the related Due Period weighted on the basis of the related
Principal Balances outstanding as of the last day of the related Due Period for
each Mortgage Loan as determined by the Master Servicer in accordance with the
Master Servicer's normal servicing procedures.
A-28
Exhibit 5.1
-----------
[Letterhead of Thacher Proffitt & Wood]
May 1, 1998
DLJ Mortgage Acceptance Corp.
277 Park Avenue
New York, New York 10172
Re: DLJ Mortgage Acceptance Corp.
Mortgage Pass-Through Certificates and
Mortgage-Backed Notes Registration Statement on Form S-3
--------------------------------------------------------
Ladies and Gentlemen:
We are counsel to DLJ Mortgage Acceptance Corp., a Delaware corporation
(the "Registrant") in connection with the registration under the Securities Act
of 1933, as amended (the "Act"), of Mortgage Pass-Through Certificates (the
"Certificates") and Mortgage-Backed Notes (the "Notes"; and together with the
Certificates, the "Securities") and the related preparation and filing of a
Registration Statement on Form S-3 (the "Registration Statement"). The
Certificates are issuable in series under separate pooling and servicing
agreements (each such agreement, a "Pooling and Servicing Agreement"), among the
Registrant, a master servicer to be identified in the prospectus supplement for
such series of Certificates and a trustee to be identified in the prospectus
supplement for such series of Certificates. The Notes are issuable in series
under indentures (each such agreement, an "Indenture"; a Pooling and Servicing
Agreement or an Indenture, an "Agreement"), between an issuer and an indenture
trustee, to be identified in the prospectus supplement for such series of Notes.
Each Agreement will be substantially in the form filed as an Exhibit to the
Registration Statement.
<PAGE>
DLJ Mortgage Acceptance Corp.
May 1, 1998 Page 2.
In connection with rendering this opinion letter, we have examined the
forms of the Agreements incorporated by reference in the Registration Statement,
the Registration Statement and such records and other documents as we have
deemed necessary. As to matters of fact, we have examined and relied upon
representations or certifications of officers of the Registrant or public
officials. We have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures, the legal capacity of natural
persons and the conformity to the originals of all documents. We have assumed
that all parties, other than the Registrant, had the corporate power and
authority to enter into and perform all obligations thereunder and, as to such
parties, we also have assumed the enforceability of such documents.
In rendering this opinion letter, we express no opinion as to the laws
of any jurisdiction other than the laws of the State of New York and the
corporate laws of the State of Delaware, nor do we express any opinion, either
implicitly or otherwise, on any issue not expressly addressed below. In
rendering this opinion letter, we have not passed upon and do not pass upon the
application of "doing business" or the securities laws of any jurisdiction. This
opinion letter is further subject to the qualification that enforceability may
be limited by (i) bankruptcy, insolvency, liquidation, receivership, moratorium,
reorganization or other laws affecting the enforcement of the rights of
creditors generally and (ii) general principles of equity, whether enforcement
is sought in a proceeding in equity or at law.
Based on the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a series of Certificates
has been duly authorized by all necessary action and duly executed and delivered
by the parties thereto, such Pooling and Servicing Agreement will be a legal and
valid obligation of the Registrant.
2. When an Indenture for a series of Notes has been duly authorized by
all necessary action and duly executed and delivered by the parties thereto,
such Indenture will be a legal and valid obligation of the applicable issuer.
3. When a Pooling and Servicing Agreement for a series of Certificates
has been duly authorized by all necessary action and duly executed and delivered
by the parties thereto, and when the Certificates of such series have been duly
executed and authenticated in accordance with the provisions of that Pooling and
Servicing Agreement, and issued and sold as contemplated in the Registration
Statement and the prospectus and prospectus supplement delivered in connection
therewith, such Certificates will be legally and validly issued and outstanding,
fully paid and non-assessable, and the holders of such Certificates will be
entitled to the benefits of that Pooling and Servicing Agreement.
<PAGE>
DLJ Mortgage Acceptance Corp.
May 1, 1998 Page 3.
4. When an Indenture for a series of Notes has been duly authorized by
all necessary action and duly executed and delivered by the parties thereto, and
when the Notes of such series have been duly executed and authenticated in
accordance with the provisions of that Indenture, and issued and sold as
contemplated in the Registration Statement and the prospectus and prospectus
supplement delivered in connection therewith, such Notes will be legally and
validly issued and outstanding, fully paid and non-assessable, and the holders
of such Notes will be entitled to the benefits of that Indenture.
5. The description of federal income tax consequences appearing under
the heading "Certain Federal Income Tax Consequences" in the prospectus
contained in the Registration Statement, while not purporting to discuss all
possible federal income tax consequences of an investment in Securities, is
accurate with respect to those tax consequences that are discussed.
We hereby consent to the filing of this opinion letter as an Exhibit to
the Registration Statement, and to the use of our name in the prospectus and
prospectus supplements included in the Registration Statement under the heading
"Legal Matters", and in the prospectus included in the Registration Statement
under the heading "Certain Federal Income Tax Consequences", without admitting
that we are "experts" within the meaning of the Act, and the rules and
regulations thereunder, with respect to any part of the Registration Statement,
including this Exhibit.
Very truly yours,
THACHER PROFFITT & WOOD
By /s/ Thacher Proffitt & Wood
Exhibit 5.2
-----------
[Letterhead of Stroock & Stroock & Lavan LLP]
May 1, 1998
DLJ Mortgage Acceptance Corp.
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
We have acted as counsel to DLJ Mortgage Acceptance Corp., a Delaware
corporation (the "Company") in connection with the preparation of a registration
statement on Form S-3 (the "Registration Statement") relating to the proposed
offering from time to time in one or more series (each, a "Series") by one or
more trusts of Mortgage-Backed Notes (the "Notes") and Mortgage Pass-Through
Certificates (the "Certificates," and, together with the Notes, the
"Securities"). The Registration Statement will be filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"). As set forth in the Registration Statement, each Series of
Securities is to be issued under and pursuant to the terms of a separate pooling
and servicing agreement, or sale and servicing agreement, trust agreement and
indenture (each, an "Agreement") among two or more of the Company, a master
servicer to be identified in the prospectus supplement relating to a Series of
Securities (the "Master Servicer"), the issuer of a Series of Securities and one
or more independent trustees (each, a "Trustee") to be identified in the
prospectus supplement for such Series of Securities.
As such counsel, we have examined copies of the Certificate of Incorporation and
By-Laws of the Company, the Registration Statement, the base Prospectus and form
of Prospectus Supplement included therein, the form of each Agreement, and
originals or copies of such other corporate minutes, records, agreements and
other instruments of the Company, certificates of public officials and other
documents and have made such examinations of law, as we have deemed necessary to
form the basis for the opinions hereinafter expressed. In our examination of
such materials, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all copies submitted to us. As to various questions of
fact material to such opinion, we have relied, to the extent we deemed
appropriate, upon
<PAGE>
representations, statements and certificates of officers and representatives of
the Company and others.
Attorneys involved in the preparation of this opinion are admitted to practice
law in the State of New York and we do not express any opinion herein concerning
any law other than the federal laws of the United States of America, the laws of
the State of New York and the General Corporation Law of the State of Delaware.
Based upon and subject to the foregoing, we are of the opinion that:
1. When the issuance, execution and delivery of each Series of Notes
have been authorized by all necessary corporate action of the Company in
accordance with the provisions of the related indenture, and when such Notes
have been duly executed and delivered, authenticated by the Trustee and sold as
described in the Registration Statement, assuming that the terms of such Notes
are otherwise in compliance with applicable law at such time, such Notes will
constitute valid and binding obligations of the issuer thereof in accordance
with their terms and the terms of such indenture. This opinion is subject to the
effect of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar
laws relating to or affecting creditors' rights generally and court decisions
with respect thereto and we express no opinion with respect to the application
of equitable principles or remedies in any proceeding, whether at law or in
equity.
2. When the issuance, execution and delivery of each Series of
Certificates have been authorized by all necessary corporate action of the
Company in accordance with the provisions of the related Agreement or
Agreements, and when such Certificates have been duly executed and delivered,
authenticated by the Trustee and sold as described in the Registration
Statement, assuming that the terms of such Certificates are otherwise in
compliance with applicable law at such time, such Certificates will be legally
issued, fully paid and non-assessable.
3. The statements set forth in the base Prospectus under the heading
"Certain Federal Income Tax Considerations," to the extent they constitute
maters of law or legal conclusions with respect thereto, are correct.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the references to this firm under the caption
"Certain Federal Income Tax Consequences" and "Legal Matters" in the prospectus
which forms a part of the Registration Statement. In giving such consent, we do
not admit hereby that we come within the category of persons whose consent is
required under Section 7 of the Act or the Rules and Regulations of the
Commission thereunder.
Very truly yours,
/s/ STROOCK & STROOCK & LAVAN LLP
- ---------------------------------
STROOCK & STROOCK & LAVAN LLP
