Registration No. __________
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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. Michael P. Braun, Esq.
Thacher Proffitt & Wood Stroock & Stroock & Lavan Brown & Wood LLP
Two World Trade Center 180 Maiden Lane One World Trade Center
New York, New York 10048 New York, New York 10038 New York, New York 10048
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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. |_|
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CALCULATION OF REGISTRATION FEE
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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)
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Mortgage Pass-Through Certificates and
Mortgage-Backed Notes, issued in series $4,000,000,000 100% $4,000,000,000 $1,112,000
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(1)1,431,735,474.33 aggregate principal amount of Mortgage Pass-Through
Certificates and Mortgage-Backed Notes registered by the Registrant under
Registration Statement No. 333-59691 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 $5,431,735,474.33.
(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.
333-59691). This Registration Statement, which is a new registration statement,
also constitutes a post-effective amendment to Registration Statement No.
333-59691. 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.
<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.
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Contents of Registration Statement
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Page
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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
</TABLE>
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION APRIL 8, 1999
PROSPECTUS
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
DLJ Mortgage Acceptance Corp.
Depositor
MORTGAGE PASS-THROUGH CERTIFICATES
MORTGAGE-BACKED NOTES
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 5 IN THIS
PROSPECTUS.
A certificate will represent an interest only in the trust created for that
series of certificates. A note will represent indebtedness only of the trust
created for that series of notes. A certificate or note will not represent an
interest in or an obligation of DLJ Mortgage Acceptance Corp., the master
servicer or any of their affiliates.
This prospectus may be used to offer and sell a series of certificates or notes
only if accompanied by the prospectus supplement for that series.
DLJ MORTGAGE ACCEPTANCE CORP. MAY PERIODICALLY ISSUE SECURITIES BACKED BY
MORTGAGE COLLATERAL AS DESCRIBED IN THIS PROSPECTUS AND IN THE ACCOMPANYING
PROSPECTUS SUPPLEMENT. THE SECURITIES WILL BE ISSUED IN SERIES, AND EACH SERIES
OF SECURITIES WILL REPRESENT INTERESTS IN, OR INDEBTEDNESS OF, A DIFFERENT TRUST
ESTABLISHED BY DLJ MORTGAGE ACCEPTANCE CORP.
EACH TRUST WILL CONSIST OF :
o mortgage pass-through certificates issued or guaranteed by
government agencies or government-sponsored agencies representing
interests in certain mortgage loans;
o private mortgage pass-through certificates representing interests
in certain mortgage loans;
o one or more pools of mortgage loans secured by residential
properties, which may include cooperative apartments, loans
secured by manufactured homes, or participation interests in such
loans, described in detail in the accompanying prospectus
supplement;
o related property and interests; and
o other property as described on the accompanying prospectus
supplement.
THE SECURITIES IN A SERIES:
o will consist of certificates or notes representing interests in,
or indebtedness of, a trust and will be paid ONLY from the assets
of that trust.
o The certificates or notes may consist of multiple classes of
certificates or notes, and, if so, each class may:
o receive a specified fixed or variable rate of interest;
o have a higher or lower priority relative to other classes
in the series with respect to distributions of principal
and/or interest from the trust and/or allocations of any
losses;
o represent interests in, or indebtedness of, only certain
of the trust assets;
o receive distributions of principal and/or interest at
specified times; and
o have a specified form of credit enhancement.
You can find specific information regarding each class of offered securities in
the related prospectus supplement.
The securities may be offered to the public through different methods as
described in "Methods of Distribution" in this prospectus. Donaldson, Lufkin &
Jenrette Securities Corporation, an affiliate of DLJ Mortgage Acceptance Corp.,
may act as agent or underwriter in connection with the sale of such securities.
This prospectus and the accompanying prospectus supplement may be used by
Donaldson, Lufkin & Jenrette Securities Corporation in secondary market
transactions in connection with the offer and sale of any securities. Donaldson,
Lufkin & Jenrette Securities Corporation may act as principal or agent in such
transactions and such sales will be made at prevailing market prices or
otherwise.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
______________, 1999
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the securities in two separate documents
that provide progressively more detail:
o this prospectus, which provides general information, some of
which may not apply to your series of securities; and
o the accompanying prospectus supplement, which describes the
specific terms of your series of securities.
IF THE TERMS OF A PARTICULAR SERIES OF SECURITIES VARY BETWEEN THIS PROSPECTUS
AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION
IN THE PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. We have not authorized anyone to provide you with different
information. We are not offering the securities in any state where the offer is
not permitted. We do not claim the accuracy of the information in this
prospectus or the accompanying prospectus supplement as of any date other than
the dates stated on their respective covers.
We include cross-references in this prospectus and the accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. The following Table of Contents and the Table of Contents
included in the accompanying prospectus supplement provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption "Index of Defined Terms" beginning on
page 97.
2
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TABLE OF CONTENTS
PAGE
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RISK FACTORS.......................................................................................................................5
DESCRIPTION OF THE SECURITIES......................................................................................................8
General .................................................................................................................8
Distributions on the Securities...........................................................................................8
Funding Account..........................................................................................................10
Optional Termination.....................................................................................................10
Book-Entry Registration..................................................................................................11
YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS...........................................................................................................11
Payment Delays...........................................................................................................11
Principal Prepayments....................................................................................................12
Timing of Reduction of Principal Balance.................................................................................12
Interest or Principal Weighted Securities................................................................................12
Funding Account..........................................................................................................12
Final Scheduled Distribution Date........................................................................................12
Prepayments and Weighted Average Life....................................................................................12
Other Factors Affecting Weighted Average Life............................................................................13
THE TRUST FUNDS...................................................................................................................15
General ................................................................................................................15
Private Mortgage-Backed Securities.......................................................................................16
The Agency Securities....................................................................................................17
The Mortgage Loans.......................................................................................................19
The Manufactured Home Loans..............................................................................................24
Collection Account and Certificate Account...............................................................................25
Other Funds or Accounts..................................................................................................26
LOAN UNDERWRITING PROCEDURES AND
STANDARDS................................................................................................................26
Underwriting Standards...................................................................................................26
Loss Experience..........................................................................................................29
Representations and Warranties...........................................................................................29
SERVICING OF LOANS................................................................................................................31
General ................................................................................................................31
Collection Procedures; Escrow Accounts...................................................................................32
Deposits to and Withdrawals from the Collection
Account.........................................................................................................32
Servicing Accounts.......................................................................................................34
Buy-Down Loans, GPM Loans and Other Subsidized
Loans...........................................................................................................34
Advances and Limitations Thereon.........................................................................................35
Maintenance of Insurance Policies and Other Servicing
Procedures......................................................................................................36
Presentation of Claims; Realization Upon Defaulted
Loans...........................................................................................................38
Enforcement of Due-On-Sale Clauses.......................................................................................39
Servicing Compensation and Payment of Expenses
...............................................................................................................39
Evidence as to Compliance................................................................................................40
Certain Matters Regarding the Master Servicer and the
Depositor.......................................................................................................40
CREDIT SUPPORT....................................................................................................................41
General ................................................................................................................41
Subordinate Securities; Subordination Reserve Fund.......................................................................42
Overcollateralization....................................................................................................43
Cross-Support Features...................................................................................................43
Insurance................................................................................................................43
Letter of Credit.........................................................................................................43
Financial Guarantee Insurance............................................................................................44
Reserve Funds............................................................................................................44
DESCRIPTION OF MORTGAGE AND OTHER INSURANCE.......................................................................................44
Mortgage Insurance on the Loans..........................................................................................44
Hazard Insurance on the Loans............................................................................................47
Bankruptcy Bond..........................................................................................................48
Repurchase Bond..........................................................................................................49
THE AGREEMENTS....................................................................................................................49
Assignment of Mortgage Assets............................................................................................49
Repurchase and Substitution of Loans.....................................................................................51
Reports to Securityholders...............................................................................................52
Investment of Funds......................................................................................................53
Event of Default and Rights Upon Events of Default.......................................................................54
The Owner Trustee........................................................................................................56
The Trustee..............................................................................................................56
Duties of the Trustee....................................................................................................56
Resignation of Trustee...................................................................................................57
Certificate Account......................................................................................................57
Expense Reserve Fund.....................................................................................................57
Amendment of Agreements..................................................................................................58
Voting Rights............................................................................................................59
REMIC Administrator......................................................................................................59
Termination..............................................................................................................59
CERTAIN LEGAL ASPECTS OF LOANS....................................................................................................59
General ................................................................................................................59
Cooperative Loans........................................................................................................60
Foreclosure on Mortgage..................................................................................................61
Realizing Upon Cooperative Loan Security.................................................................................63
Rights of Redemption.....................................................................................................64
Notice of Sale; Redemption Rights with Respect to
Manufactured Homes .............................................................................................64
Anti-Deficiency Legislation and Other Limitations on
Lenders.........................................................................................................64
Junior Mortgages.........................................................................................................66
Due-on-sale Clauses in Mortgage Loans....................................................................................67
Enforceability of Prepayment and Late Payment Fees
...............................................................................................................68
Equitable Limitations on Remedies........................................................................................68
Applicability of Usury Laws..............................................................................................68
Adjustable Interest Rate Loans...........................................................................................68
Environmental Legislation................................................................................................69
Manufactured Home Loans..................................................................................................70
Enforcement of Security Interests in
Manufactured Homes .............................................................................................72
Consumer Protection Laws with Respect to
Manufactured Homes..............................................................................................73
Transfer of Manufactured Homes...........................................................................................73
Formaldehyde Litigation with Respect to
Manufactured Home Loans ........................................................................................74
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES...........................................................................................74
General ................................................................................................................74
REMICs ................................................................................................................74
Notes ................................................................................................................88
STATE AND OTHER TAX CONSEQUENCES..................................................................................................89
ERISA CONSIDERATIONS..............................................................................................................89
LEGAL INVESTMENT..................................................................................................................94
LEGAL MATTERS.....................................................................................................................95
THE DEPOSITOR.....................................................................................................................95
USE OF PROCEEDS...................................................................................................................95
PLAN OF DISTRIBUTION..............................................................................................................96
INDEX OF DEFINED TERMS............................................................................................................97
</TABLE>
4
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RISK FACTORS
You should consider the following risk factors (in addition to the risk
factors in the prospectus supplement) in deciding whether to purchase any of the
securities.
LACK OF SECONDARY MARKETS MAY LIMIT A secondary market for the securities
YOUR ABILITY TO RESELL of any series may not develop. If a
YOUR SECURITIES secondary market does develop, it might
not continue or it might not be
sufficiently liquid to allow you to
resell any of your securities.
Donaldson, Lufkin & Jenrette Securities
Corporation (or one or more of its
affiliates) may decide to establish a
secondary market for a particular
series of securities. If so, the
prospectus supplement for that series
of securities will indicate this
intention. However, no such underwriter
will be obligated to do so. The
securities will not be listed on any
securities exchange.
THERE IS NO SOURCE OF PAYMENTS FOR YOUR When you buy a security, you will not
SECURITIES OTHER THAN PAYMENTS ON THE own an interest in DLJ Mortgage
MORTGAGE LOANS IN THE TRUST Acceptance Corp., the master servicer
or any of their affiliates. You will
own an interest in the trust in the
case of a series of certificates, or
you will be entitled to proceeds from
the trust established in the case of a
series of notes. Your payments come
only from assets in the Trust.
Therefore, the mortgagors' payments on
the mortgage loans included in the
Trust (and any credit enhancements)
will be the sole source of payments to
you. If those amounts are insufficient
to make required payments of interest
or principal to you, there is no other
source of payments. Moreover, no
governmental agency either guarantees
or insures payments on the securities
or any of the mortgage loans.
The master servicer and/or the
servicers will have limited
obligations. These will usually
include:
o the obligation under certain
circumstances to repurchase the
mortgage loans if there has
been a breach of
representations and warranties;
o advancing payments on the
mortgage loans when the
mortgagor is delinquent if the
applicable master servicer
believes the advance is
recoverable; and
o various servicing and/or
administrative obligations made
in the pooling and servicing
agreement.
YOU BEAR THE RISK OF CERTAIN MORTGAGOR Because your securities are backed by
DEFAULTS; CERTAIN OF THE MORTGAGE LOANS the mortgage loans, your investment may
MAY BE ESPECIALLY PRONE TO DEFAULTS be affected by a decline in real estate
values and changes in individual
mortgagor's financial conditions.
Investors should be aware that value of
the mortgaged properties may decline.
If the outstanding balance of a
mortgage loan and any secondary
financing on the underlying property is
greater than the value of the property,
there is an increased risk of
delinquency, foreclosure and losses
could be higher than those now
generally experienced in the mortgage
lending industry. To the extent your
securities are not covered by credit
enhancements, you will bear all of the
risks resulting from defaults by
mortgagors. In addition, certain types
of mortgage loans which have higher
than average rates of default may be
included in the trust that issues your
certificate or note. The following
types of loans may be included:
5
<PAGE>
o mortgage loans that are subject
to 'negative amortization'. The
principal balances of such
loans may be increased to
amounts greater than the value
of the underlying property.
This increases the likelihood
of default;
o mortgage loans that do not
fully amortize over their terms
to maturity which are sometimes
referred to as balloon loans.
Such loans involve a greater
degree of risk because the
ability of a mortgagor to make
this final payment typically
depends on the ability to
refinance the loan or sell the
related mortgaged property;
o mortgage loans that provide for
escalating or variable payments
by the mortgagor. The mortgagor
may have qualified for such
loans based on an income level
sufficient to make the initial
payments only. As the payments
increase, the likelihood of
default will increase; and
o mortgage loans that are
concentrated in certain
regions, States or zip code
areas of the United States.
Such geographic units may
experience weak economic
conditions and housing markets.
This may cause higher rates of
loss and delinquency.
See "Description of the Mortgage Pool" in the prospectus supplement to see if
any of these or other types of special risk loans are present in the mortgage
pool applicable to your securities.
CREDIT ENHANCEMENTS MAY BE LIMITED OR The prospectus supplement related to
REDUCED AND THIS MAY CAUSE YOUR your securities may specify that credit
SECURITIES TO BEAR MORE RISK OF enhancements will provide some
MORTGAGOR DEFAULTS protection to cover certain losses on
the underlying mortgage loans. The
forms of credit enhancement include
(but are not limited to) the following:
subordination of one or more classes of
securities to other classes of
securities in the same series
evidencing beneficial ownership in the
same pool of collateral or different
pools; having assets in the trust with
a greater amount of aggregate principal
balance than the aggregate principal
balance of the securities in a series:
an insurance policy on a particular
class of securities; a letter of
credit; a mortgage pool insurance
policy; a reserve fund; or any
combination thereof. See "Credit
Support" in this prospectus. See also
"Credit Enhancements" in the prospectus
supplement in order to see what forms
of credit enhancements apply to your
securities.
Regardless of the form of credit
enhancement, an investor should be
aware that:
o The amount of coverage is
usually limited;
o The amount of coverage will
usually be reduced over time
according to a schedule or
formula;
o The particular form of credit
enhancements may provide
coverage only to certain types
of losses on the mortgage
loans, and not to other types
of losses;
6
<PAGE>
o The particular form of credit
enhancements may provide
coverage only to certain
certificates or notes and not
other securities of the same
series; and
o If the applicable rating
agencies believe that the
rating on the securities will
not be adversely affected,
certain types of credit
enhancements may be reduced or
terminated. IF THE RATE OF
PREPAYMENTS ON THE MORTGAGE
LOANS IS DIFFERENT THAN
EXPECTED, YOUR YIELD MAY BE
CONSIDERABLY LOWER THAN
ANTICIPATED The yield to
maturity of your securities
will depend primarily on the
price you paid for your
securities and the rate of
principal payments on the
mortgage loans in the
applicable trust. The rate of
principal payments includes
scheduled payments of interest
and principal, prepayments,
liquidations dues to defaults
and repurchases. If the rate of
prepayments on the mortgage
loans related to your
securities is higher or lower
than anticipated, the yield to
maturity may be adversely
affected. The yield on some
types of securities are more
sensitive to variations in
prepayments than others. For
example, securities that
receive only payments of
interest are especially
sensitive to variations in the
rate of prepayments. If the
rate of prepayments is high or
if a redemption of the
securities or the underlying
mortgage loans occurs, the
holders of such securities may
not fully recoup their initial
investment. See "Yield,
Prepayment and Maturity
Considerations" in this
prospectus. See also "Risk
Factors" and "Yield, Prepayment
and Maturity Considerations" in
the prospectus supplement for
more information concerning the
prepayment risks pertaining to
your securities. THE REDEMPTION
OF THE SECURITIES OR THE
UNDERLYING MORTGAGE LOANS WILL
AFFECT YOUR YIELD DLJ Mortgage
Acceptance Corp., the master
servicer or another entity may
opt to repurchase all of the
assets of the trust if the
aggregate outstanding principal
balance of such assets is less
than a percentage of their
initial outstanding principal
amount specified in the
prospectus supplement. Such an
event will subject the trust
related to your securities to
early retirement and would
affect the average life and
yield of each class of
securities in such series. See
"Yield, Prepayment and Maturity
Considerations" in this
prospectus and in the
prospectus supplement.
7
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DESCRIPTION OF THE SECURITIES
GENERAL
The Mortgage Pass-Through Certificates (the "CERTIFICATES") and
Mortgage-Backed Notes (the "Notes", and together with the Certificates, the
"SECURITIES") will be issued in one or more series (each, a "SERIES"). Each
Series of Certificates will be issued pursuant to separate pooling and servicing
agreements (each, a "POOLING AND SERVICING AGREEMENT") among the Master Servicer
and the trustee (the "TRUSTEE") for the related Series identified in the related
Prospectus Supplement. Each Series of Notes will be issued pursuant to separate
indenture (each, an "INDENTURE") between the related issuer (the "ISSUER") and
the Trustee for the related Series identified in the related Prospectus
Supplement. The trust (a "TRUST FUND") for each Series of Notes will be created
pursuant to a trust agreement ("OWNER TRUST AGREEMENT") between the Depositor
and the trustee (the "OWNER TRUSTEE"). Each Series of Notes will be serviced
pursuant to a sale and servicing agreement ("SALE AND SERVICING AGREEMENT") or
other servicing agreement ("SERVICING AGREEMENT"; and each Pooling and Servicing
Agreement, Sale and Servicing Agreement, Indenture, Owner Trust Agreement, an
"AGREEMENT") among the Depositor, the Master Servicer and the 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 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 of Securities (each a
"CLASS"), one or more of which may consist of:
o compound interest securities ("COMPOUND INTEREST SECURITIES")
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 period specified in the related Prospectus
Supplement;
o floating rate securities ("FLOATING INTEREST SECURITIES")
which accrue interest at a rate which is subject to change
from time to time ( a "FLOATING RATE");
o interest weighted securities ("INTEREST WEIGHTED SECURITIES")
which are 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 entitiled; or
o principal weighted securities ("PRINCIPAL WEIGHTED
SECURITIES") which are entitled to a greater percentage of
principal 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 entitiled.
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 nationally recognized rating organization (each, 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 groups of individual Mortgage Assets which share similar
characteristics and are aggregated into one group ( an "ASSET GROUP") 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 ("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
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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 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. A "MULTIPLE CLASS SERIES" 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. 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 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 (the "ACCRUAL TERMINATION DATE"). 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 per annum interest
rate cap (the "MAXIMUM FLOATING RATE"), a per annum interest rate floor (the
"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 period of time during which
such Floating Rate applies ("FLOATING INTEREST PERIOD"), and the formula, index,
or other method by which the Floating Rate for each Floating Interest Period
will be determined.
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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
securities as to which the rights of Holders to receive distributions of
principal and interest are subordinated to the rights of Holders of other
classes of securities in the same Series (the "SENIOR SECURITIES"), to the
extent and under the circumstances specified in the related Prospectus
Supplement ("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 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 certificates issued under the
Owner Trust Agreement (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."
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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 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
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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.
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 "INTEREST ACCRUAL
PERIOD" is 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. 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
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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 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. "DEFERRED INTEREST" is 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. However, borrowers may pay
amounts in addition to their "SCHEDULED PAYMENTS" (i.e., 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) in order to avoid such
Negative Amortization and to increase tax
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deductible interest payments. To the extent that any of such Mortgage Loans
negatively amortize over their respective terms, future interest accruals are
computed on the higher outstanding principal balance of such mortgage loan and a
smaller portion of the Scheduled Payment is applied to principal than would be
required to amortize the unpaid principal over its remaining term. Accordingly,
the weighted average life of such Loans will increase. During a period of
declining interest rates, the portion of each Scheduled Payment in excess of the
scheduled interest and principal due will be applied to reduce the outstanding
principal balance of the related Loan, thereby resulting in accelerated
amortization of such Negatively Amortizing ARM. Any such acceleration in
amortization of the principal balance of any Negatively Amortizing ARM will
shorten the weighted average life of such Mortgage Loan. The application of
partial prepayments to reduce the outstanding principal balance of a Negatively
Amortizing ARM will tend to reduce the weighted average life of the mortgage
loan and will adversely affect the yield to Holders who purchased their
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 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
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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:
o the Mortgage Assets;
o amounts held from time to time in the Collection Account and
the Certificate Account established for such Series;
o the real property which secured a Loan (the "MORTGAGED
PROPERTY") 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;
o any reserve fund for such Series, if specified in the related
Prospectus Supplement;
o the Sub-Servicing Agreements, if any, relating to Loans in the
Trust Fund;
o any primary mortgage insurance policies relating to Loans in
the Trust Fund;
o any pool insurance policy, any special hazard insurance
policy, any bankruptcy bond or other credit support relating
to the Series;
o investments held in any fund or account or any 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 (a "GUARANTEED
INVESTMENT CONTRACT") and, if so specified in the Prospectus
Supplement, income from the reinvestment of such funds; and
o 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:
o Private Mortgage-Backed Securities;
o Mortgage Loans or participation interests therein and
Manufactured Home Loans or participation interests therein; or
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o 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 ("PRIVATE MORTGAGE-BACKED
SECURITIES") may consist of :
o mortgage pass-through certificates, evidencing an undivided
interest in a pool of Loans;
o collateralized mortgage obligations secured by Loans; or
o pass-through certificates representing beneficial interests in
Agency Securities.
Private Mortgage-Backed Securities will have been issued pursuant to a pooling
and servicing agreement, an indenture or similar agreement (a "PMBS AGREEMENT").
The seller/servicer of the underlying Loans will have entered into the PMBS
Agreement with the trustee under such PMBS Agreement (the "PMBS TRUSTEE"). The
PMBS Trustee or its agent, or a custodian, will possess the Loans underlying
such Private Mortgage-Backed Security. Loans underlying a Private
Mortgage-Backed Security will be serviced by a servicer (the "PMBS SERVICER")
directly or by one or more subservicers who may be subject to the supervision of
the PMBS Servicer. The PMBS Servicer will be a FNMA- or FHLMC-approved servicer
and, if FHA Loans underlie the Private Mortgage-Backed Securities, approved by
HUD as a 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,
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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:
o the aggregate approximate principal amount and type of the
Private Mortgage-Backed Securities to be included in the Trust
Fund;
o certain characteristics of the Loans which comprise the
underlying assets for the Private Mortgage-Backed Securities
including:
o the payment features of such Loans (i.e., whether
they are fixed rate or adjustable rate and whether
they provide for fixed level payments or other
payment features);
o the approximate aggregate principal balance, if
known, of underlying Loans insured or guaranteed by a
governmental entity;
o the servicing fee or range of servicing fees with
respect to the Loans; and
o the minimum and maximum stated maturities of the
underlying Loans at origination;
o the maximum original term-to-stated maturity of the Private
Mortgage-Backed Securities;
o the weighted average term-to-stated maturity of the Private
Mortgage-Backed Securities;
o the note interest rate, pass-through or certificate rate or
ranges thereof for the Private Mortgage-Backed Securities;
o the weighted average note interest rate, pass-through or
certificate rate of the Private Mortgage-Backed Securities;
o the PMBS Issuer, the PMBS Servicer (if other than the PMBS
Issuer) and the PMBS Trustee for such Private Mortgage-Backed
Securities;
o 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;
o 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
o the terms on which Loans may be substituted for those
originally underlying the Private Mortgage-Backed Securities.
THE AGENCY SECURITIES
All of the mortgage pass-through securities issued or guaranteed by
GNMA, FNMA, FHLMC or other government agencies or government-sponsored agencies
("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.
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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. The Government National Mortgage Association ("GNMA") is a
wholly-owned corporate instrumentality of the United States within HUD. Section
306(g) of Title III of the National Housing Act of 1934, as amended (the
"HOUSING ACT"), authorizes GNMA to guarantee the timely payment of the principal
of and interest on certificates representing interests in a pool of mortgages
(i) insured by the FHA, under the Housing Act or under Title V of the Housing
Act of 1949, or (ii) partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended, or under Chapter 37 of Title 38, United
States Code.
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which may
be required to be paid under any guarantee under this subsection." In order to
meet its obligations under any such guarantee, GNMA may, under Section 306(d) of
the Housing Act, borrow from the United States Treasury an amount that is at any
time sufficient to enable GNMA to perform its obligations under its guarantee.
See "Additional Information" for the availability of further information
regarding GNMA and GNMA Certificates.
GNMA CERTIFICATES. Unless otherwise specified in the related Prospectus
Supplement, each GNMA Certificate relating to a Series (which may be a "GNMA I
Certificate" or a "GNMA II Certificate" as referred to by GNMA) will be a "fully
modified pass-through" mortgage-backed certificate issued and serviced by a
mortgage banking company or other financial concern approved by GNMA, except
with respect to any stripped mortgage-backed securities guaranteed by GNMA or
any REMIC securities issued by GNMA. The characteristics of any GNMA
Certificates included in the Trust Fund for a Series of Certificates will be set
forth in the related Prospectus Supplement.
FHLMC. The Federal Home Loan Mortgage Corporation ("FHLMC") is a
corporate instrumentality of the United States created pursuant to Title III of
the Emergency Home Finance Act of 1970, as amended (the "FHLMC ACT"). FHLMC 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. The Federal National Mortgage Association ("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
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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." Mortgage Loans (including
an interest therein) or Manufactured Home Loans (including an interest therein)
that are conveyed to the Trust Fund for a Series is referred to herein as the
"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 fixed rate housing loans ("FHA LOANS") secured by the Federal
Housing Administration ("FHA"), a division of the United States Department of
Housing and Development ("HUD"), housing loans ("VA LOANS") partially guaranteed
by the Department of Veteran Affairs ("VA"), or housing loans ("CONVENTIONAL
LOANS") not insured or guaranteed by the FHA or the VA. The Mortgage Loans may
have fixed interest rates or adjustable interest rates and may provide for fixed
level payments or may be Additional Collateral Loans, GPM Loans, GEM Loans,
Balloon Loans, Buy-Down Loans, Bi-Weekly Loans or Mortgage Loans with other
payment characteristics as described below and under "Yield, Prepayment and
Maturity Considerations" herein or in the related Prospectus Supplement. ARMs
may have a feature which permits the borrower to convert the rate thereon to a
long-term fixed rate. The Mortgage Loans may be secured by mortgages or deeds of
trust or other similar security instruments creating a first lien or a junior
lien on Mortgaged Property. The Mortgage Loans may also include "COOPERATIVE
LOANS" made with respect to an individual housing unit in a building owned by a
cooperative ("COOPERATIVE DWELLING") 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 an
individual housing unit ("CONDOMINIUM UNIT") in 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 BUILDING")
together with such Condominium Unit's appurtenant interest in the common
elements. A "CONDOMINIUM" is 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. The "CONDOMINIUM ASSOCIATION" is the person or persons
appointed or elected by the Condominium Unit owners to govern the affairs of the
Condominium.
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
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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 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 Mortgage Loans which, 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 (the "ADDITIONAL COLLATERAL LOANS"). Such
collateral may consist of marketable securities, insurance policies, annuities,
certificates of deposit, cash accounts or other personal property, and in the
case of collateral owned by a guarantor, may consist of real estate (in each
case, "ADDITIONAL COLLATERAL"). 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:
o DLJdirect ACCOUNT POWERTM loans, under which the Additional
Collateral consists of eligible securities held in a DLJdirect
account and pledged by the Mortgagor to secure the Mortgage
Loan, or
o DLJdirect FAMILY POWERTM loans, under which the Additional
Collateral consists of eligible securities held in a DLJdirect
account and pledged by a family member of the Mortgagor to
secure the family members guaranty of the Mortgage Loan.
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Additional Collateral Loans may also include Mortgage Loans originated
under the Nest Egg Mortgage Loan ProgramSM, a mortgage loan origination program
of DLJ Mortgage Capital, Inc., an affiliate of the Depositor and the Nest Egg
Mortgage Company LLC (the "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;
(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.
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The Depositor will not require that a standard hazard or flood
insurance policy be maintained for any Cooperative Loan. Generally, the
cooperative itself is responsible for maintenance of hazard insurance for the
property owned by the cooperative and the tenant-stockholders of that
cooperative do not maintain individual hazard insurance policies. To the extent,
however, a cooperative and the related borrower on a Cooperative Note do not
maintain such insurance or do not maintain adequate coverage or any insurance
proceeds are not applied to the restoration of the damaged property, damage to
such borrower's Cooperative Dwelling or such cooperative's building could
significantly reduce the value of the collateral securing such Cooperative Note.
The initial "LOAN-TO-VALUE RATIO" of any Mortgage Loan represents the
ratio of the principal amount of the Mortgage Loan at origination, 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. The
"APPRAISED VALUE" is, unless otherwise specified in the related Prospectus
Supplement (i) with respect to a Mortgaged Property securing a Single Family or
Multifamily Property, the lesser of (x) the appraised value determined in an
appraisal obtained at origination of such Mortgage Loan, if any, or, if the
related Mortgaged Property has been appraised subsequent to origination, the
value determined in such subsequent appraisal and (y) the sales price for the
related Mortgaged Property (except in certain circumstances in which there has
been a subsequent appraisal); (ii) with respect to certain refinanced, modified
or converted Single Family or Multifamily Properties, the lesser of (x) the
appraised value of the related Mortgaged Property determined at origination or
in an appraisal, if any, obtained at the time of refinancing, modification or
conversion and (y) the sales price of the related Mortgage Property or, if the
Mortgage Loan is not a rate and term refinance Mortgage Loan and if the
Mortgaged Property was owned for a relatively short period of time prior to
refinancing, modification or conversion, the sum of the sales price of the
related Mortgaged Property plus the added value of any improvements; and (iii)
with respect to a Mortgaged Property securing a Manufactured Home Loan, the
least of the sale price, the appraised value, and the National Automobile
Dealer's Association book value plus prepaid taxes and hazard insurance
premiums.
Unless otherwise specified in the related Prospectus Supplement, with
respect to Buy-Down Loans, during the period (the "BUY-DOWN PERIOD") when the
borrower is not obligated to pay the full Scheduled Payment otherwise due on
such loan, each of the Buy-Down Loans will provide for Scheduled Payments based
on a hypothetical reduced interest rate (the "BUY-DOWN MORTGAGE RATE") that will
not have been more than 3% below the mortgage rate at origination, and for
annual increases in the Buy-Down Mortgage Rate during the Buy-Down Period that
will not exceed 1%. The Buy-Down Period will not exceed three years. Unless
specified otherwise in the related Prospectus Supplement, the maximum amount of
funds ("BUY-DOWN AMOUNTS") that may be contributed by the Servicer of the
related Buy-Down Loan is limited to 6% of the Appraised Value of the related
Mortgaged Property. This limitation does not apply to contributions from
immediate relatives or the employer of the mortgagor. Except as may be otherwise
indicated in the related Prospectus Supplement, the borrower under each Buy-Down
Loan will have been qualified at a mortgage rate which is not more than 3% per
annum below the current mortgage rate at origination. Accordingly, the repayment
of a Buy-Down Loan is dependent on the ability of the borrower to make larger
Scheduled Payments after the Buy-Down Amounts have been depleted and, for
certain Buy-Down Loans, while such Buy-Down Amounts are being depleted.
Unless otherwise specified in the related Prospectus Supplement, with
respect to loans secured by a Multifamily Property ("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"
or "ADJUSTABLE RATE MORTGAGE" Loans will provide for a fixed initial mortgage
rate for either the first six or twelve Scheduled Payments. Thereafter, the
interest rate borne by each Loan ( the "MORTGAGE RATE") is subject to periodic
adjustment based, subject to the applicable limitations, on changes in the
relevant index described in the applicable Prospectus Supplement ( the "INDEX"),
to a rate equal to the Index plus the Gross Margin, which is a fixed percentage
spread over the Index established contractually for each ARM, at the time of its
origination. An ARM may be convertible into a fixed-rate Mortgage Loan. To the
extent specified in the related Prospectus Supplement, any ARM so converted may
be subject to repurchase by the Seller, the Servicer or the Master Servicer.
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ARMs have features that can cause payment increases that some borrowers
may find difficult to make. However, each of the ARMs provides that its mortgage
rate may not be adjusted to a rate above the applicable lifetime mortgage rate
cap (the "MAXIMUM MORTGAGE RATE") or below the applicable lifetime minimum
mortgage rate (the "MINIMUM MORTGAGE RATE"), if any, for such ARM. In addition,
certain of the ARMs provide for limitations on the maximum amount by which their
mortgage rates may adjust for any single adjustment period (the "PERIODIC RATE
CAP"). Some ARMs are payable in self-amortizing payments of principal and
interest. Other ARMs ("NEGATIVELY AMORTIZING ARMS") instead provide for
limitations on changes in the Scheduled Payment on such ARMs to protect
borrowers from payment increases due to rising interest rates. Such limitations
can result in Scheduled Payments which are greater or less than the amount
necessary to amortize a Negatively Amortizing ARM by its original maturity at
the mortgage rate in effect during any particular adjustment period. In the
event that the Scheduled Payment is not sufficient to pay the interest accruing
on a Negatively Amortizing ARM, then the Deferred Interest is added to the
principal balance of such ARM causing the negative amortization thereof, and
will be repaid through future Scheduled Payments. If specified in the related
Prospectus Supplement, Negatively Amortizing ARMs may provide for the extension
of their original stated maturity to accommodate changes in their mortgage rate.
The relevant Prospectus Supplement will specify whether the ARMs comprising or
underlying the Mortgage Assets are Negatively Amortizing ARMs.
If applicable, the Prospectus Supplement for each Series will specify
the Index to be used with respect to any Mortgage Loans underlying such Series.
The related Prospectus Supplement for each Series will provide
information with respect to the Mortgage Loans as of the date designated in the
Pooling and Servicing Agreement or Indenture on or before which amounts due and
payable with respect to a Mortgage Asset will not inure to the benefit of
Securityholders of such Series (the "CUT-OFF DATE"), generally including, among
other things:
o the aggregate outstanding principal balance of the Mortgage
Loans;
o 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;
o the average outstanding principal balance of the Mortgage
Loans;
o the weighted average remaining term-to-stated maturity of the
Mortgage Loans and the range of remaining terms-to-stated
maturity;
o the range of Loan-to-Value Ratios of the Mortgage Loans;
o 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;
o the percentage of Mortgage Loans (by outstanding principal
balance as of the Cut-off Date) that are covered by primary
mortgage insurance policies;
o any pool insurance policy, special hazard insurance policy or
bankruptcy bond or other credit support relating to the
Mortgage Loans;
o the geographic distribution of the Mortgaged Properties
securing the Mortgage Loans;
o 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
o 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
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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 Securities and Exchange Commission (the "COMMISSION") within 15
days after the initial issuance of such Securities.
THE MANUFACTURED HOME LOANS
A manufactured home ("MANUFACTURED HOME") within the meaning of 42
United States Code, Section 5402(6), is "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." Loans secured by a Manufactured Home (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:
o the aggregate outstanding principal balance of the
Manufactured Home Loans comprising or underlying the Mortgage
Assets;
o the weighted average interest rate on the Manufactured Home
Loans;
o the average outstanding principal balance of the Manufactured
Home Loans;
o the weighted average remaining scheduled term to maturity of
the Manufactured Home Loans and the range
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of remaining scheduled terms to maturity;
o the range of Loan-to-Value Ratios of the Manufactured Home
Loans;
o 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;
o any pool insurance policy, special hazard insurance policy or
bankruptcy bond or other credit support relating to the
Manufactured Home Loans; and
o 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 (each, a "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 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 (the "SELLER") of the
Loans 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 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
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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 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
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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 such as:
o Mortgage Loans with payments similar to a Conventional Loan,
calculated on the basis of an assumed amortization term, but
providing for a payment of all outstanding principal and
interest to be made at the end of the term of such Mortgage
Loans ("BALLOON PAYMENT") at a specified term that is shorter
than such assumed amortization term ("BALLOON LOANS").
o level payment Mortgage Loans ("BUY-DOWN LOANs") for which
funds have been provided by 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 (a "PERSON") other than the mortgagor to
reduce the mortgagor's Scheduled Payment during the early
years of such Mortgage Loan.
o fixed rate, fully amortizing Mortgage Loans (unless specified
otherwise in the related Prospectus Supplement) for a Series
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 ("GEM LOANS").
o Mortgage Loans 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 ("GPM LOANS").
Each of these types of 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
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affordable residential rental property notwithstanding higher risks of default
and losses. The related Prospectus Supplement will specify the underwriting
standards applicable to such Mortgage Loans.
The underwriting standards applied by the Loan originator require that
the underwriting officers be satisfied that the value of the property being
financed, as indicated by an appraisal, currently supports and is anticipated to
support in the future the outstanding loan balance, and provides sufficient
value to mitigate the effects of adverse shifts in real estate values. Certain
states where the Mortgaged Properties may be located have "antideficiency" laws
requiring, in general, that lenders providing credit on Single Family Property
look solely to the property for repayment in the event of foreclosure. See
"Certain Legal Aspects of Loans" herein.
With respect to the underwriting standards applicable to any Mortgage
Loans, such underwriting standards generally include a set of specific criteria
pursuant to which the underwriting evaluation is made. However, the application
of such underwriting standards does not imply that each specific criterion was
satisfied individually. Rather, a Mortgage Loan will be considered to be
originated in accordance with a given set of underwriting standards if, based on
an overall qualitative evaluation, the loan is in substantial compliance with
such underwriting standards. For example, a Mortgage Loan may be considered to
comply with a set of underwriting standards, even if one or more specific
criteria included in such underwriting standards were not satisfied, if other
factors compensated for the criteria that were not satisfied or if the Mortgage
Loan is considered to be in substantial compliance with the underwriting
standards.
LOSS EXPERIENCE
The general appreciation of real estate values experienced in the past
has been a factor in limiting the general loss experience on Conventional Loans.
However, there can be no assurance that the past pattern of appreciation in
value of the real property securing such Loans will continue. Further, there is
no assurance that appreciation of real estate values generally will limit loss
experiences on non-traditional housing such as Multifamily Property,
Manufactured Homes or Cooperative Dwellings. Similarly, no assurance can be
given that the value of the Mortgaged Property (including Cooperative Dwellings)
securing a Loan has remained 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."
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:
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o 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;
o 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;
o 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;
o 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);
o the related Mortgaged Property is free from material damage
and at least in adequate repair;
o there are no delinquent tax or assessment liens against the
related Mortgaged Property;
o such Mortgage Loan is not more than 30 days' delinquent as to
any scheduled payment of principal and/or interest;
o 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
o 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:
o 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;
o as of the date of such transfer and assignment, the
Manufactured Home Loans are subject to no offsets, defenses or
counterclaims;
o 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;
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o 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;
o 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
o with respect to each Manufactured Home Loan, any required
hazard insurance policy was effective at the origination of
each Manufactured Home Loan and remained in effect on the date
of the transfer and assignment of the Manufactured Home Loan
from the Depositor and that all premiums due on such insurance
have been paid in full.
Upon the discovery of the breach of any representation or warranty made
by the Master Servicer in respect of a Loan that materially and adversely
affects the interest of the 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 (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:
o administer and supervise the performance by the Servicers of
their servicing responsibilities under their servicing
agreements ("SUB-SERVICING AGREEMENTS") with the Master
Servicer;
o maintain any standard or special hazard insurance policy,
primary mortgage insurance bankruptcy bond or pool insurance
policy required for the related Loans; and
o 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 (the "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
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either by (a) withholding the Servicing Fee from any scheduled payment of
interest prior to the deposit of such payment in the Collection Account for such
Series, (b) withdrawing the Servicing Fee from the Collection Account after the
entire Scheduled Payment has been deposited in the Collection Account, or (c)
requesting that the Trustee pay the Servicing Fee out of amounts in the
Certificate Account.
COLLECTION PROCEDURES; ESCROW ACCOUNTS
The Master Servicer will make reasonable efforts to collect all
payments required to be made under the Mortgage Loans and will, consistent with
the 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.
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. An
"ELIGIBLE ACCOUNT" will consist of :
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o an account maintained with a federal or state chartered
depository institution the short-term obligations of which are
rated by each Rating Agency in its highest rating at the time
of any deposit therein;
o an account 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;
o 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
o an account or accounts of a depository institution acceptable
to the Rating Agencies.
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" (i.e., the 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) 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 amounts paid by the insurer under any of the
insurance policies covering any Loan or Mortgaged Property ("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:
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(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;
(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.
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
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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 (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 cash
advances (each, an "ADVANCE") in respect of delinquent payments of principal of
and interest on a Loan. Unless otherwise specified in the related Prospectus
Supplement, neither the Master Servicer nor any Servicer will be obligated to
make Advances, and such obligation may be limited in amount, may be limited to
advances received from the Servicers, if any, or may not be activated until a
certain portion of a specified reserve fund is depleted. If the Master Servicer
is obligated to make Advances, a surety bond or other credit support may be
provided with respect to such obligation as described in the related Prospectus
Supplement. Advances are intended to provide liquidity and not to guarantee or
insure against losses. Accordingly, any funds advanced are recoverable by the
Servicer or the Master Servicer, as the case may be, out of amounts received on
particular Loans which represent late recoveries of principal or interest,
proceeds of insurance polices or Liquidation Proceeds respecting which any such
Advance was made. If an Advance is made and subsequently determined to be
nonrecoverable from late collections, proceeds of insurance polices or
Liquidation Proceeds from the related Loan, the Servicer or Master Servicer will
be entitled to reimbursement from other funds in the Certificate Account,
Collection Account or Servicing Account, as the case may be, or from a specified
reserve fund as applicable, to the extent specified in the related Prospectus
Supplement. With respect to any Multiple Class Series, so long as the related
Subordinate 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
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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 real
property that secured a defaulted Loan and that has been acquired upon
foreclosure, deed in lieu of foreclosure, or repossession ("REO PROPERTY"), 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 lesser 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 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.
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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 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 (a "QUALIFIED INSURER").
Primary insurance policies will be required with respect to
Manufactured Home Loans only to the extent described in the related Prospectus
Supplement. If primary mortgage insurance is to be maintained with respect to
Manufactured Home Loans, the Master Servicer will be required to maintain such
insurance as described above. For further information regarding the extent of
coverage under a primary mortgage insurance policy, see "Description of Mortgage
and Other Insurance--Mortgage Insurance on the Loans."
FHA INSURANCE AND VA GUARANTEES. To the extent specified in the related
Prospectus Supplement, all or a portion of the Loans may be insured by the FHA
or guaranteed by the VA. The Master Servicer will be required to take such steps
as are reasonably necessary to keep such insurance and guarantees in full force
and effect. See "Description of Mortgage and Other Insurance--Mortgage Insurance
on the Loans."
POOL INSURANCE POLICY. If so specified in the related Prospectus
Supplement, the Master Servicer will be obligated to use its best reasonable
efforts to maintain a pool insurance policy with respect to the Loans in the
amount and with the coverage described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the pool
insurance policy will provide for a fixed premium rate on the declining
aggregate outstanding principal balance of the Loans. The Master Servicer will
be obligated to pay the premiums for such pool insurance policy on a timely
basis.
The Prospectus Supplement will identify the pool insurer for the
related Series of 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
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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 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 three 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
three 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.
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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
(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
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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 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.
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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.
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 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
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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 Holders of the Subordinate
Securities (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 Holders of Senior Securities (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 federal
bankruptcy code, 11 United States Code 101 et seq., and regulations promulgated
thereunder (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 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.
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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 be 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.
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.
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FINANCIAL GUARANTEE INSURANCE
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.
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
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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 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
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by HUD, and may not exceed specified percentages of the lesser of the appraised
value of the property and the sales price, less seller paid closing costs for
the property, up to certain specified maximums. In addition, FHA imposes initial
investment minimums and other requirements on mortgage loans insured under the
Section 203(b) and Section 234 programs.
Under Section 235, assistance payments are paid by HUD to the mortgagee
on behalf of eligible mortgagors for as long as the mortgagors continue to be
eligible for the payments. To be eligible, a mortgagor must be part of a family,
have income within the limits prescribed by HUD at the time of initial
occupancy, occupy the property and meet requirements for recertification at
least annually.
The regulations governing these programs provide that insurance
benefits are payable either (i) upon foreclosure (or other acquisition of
possession) and conveyance of the mortgaged premises to HUD or (ii) upon
assignment of the defaulted mortgage loan to HUD. The FHA insurance that may be
provided under these programs upon the conveyance of the home to HUD is equal to
100% of the outstanding principal balance of the mortgage loan, plus accrued
interest, as described below, and certain additional costs and expenses. When
entitlement to insurance benefits results from assignment of the mortgage loan
to HUD, the insurance payment is computed as of the date of the assignment and
includes the unpaid principal amount of the mortgage loan plus mortgage interest
accrued and unpaid to the assignment date.
When entitlement to insurance benefits results from foreclosure (or
other acquisition of possession) and conveyance, the insurance payment is equal
to the unpaid principal amount of the mortgage loan, adjusted to reimburse the
mortgagee for certain tax, insurance and similar payments made by it and to
deduct certain amounts received or retained by the mortgagee after default, plus
reimbursement not to exceed two-thirds of the mortgagee's foreclosure costs. Any
FHA insurance relating to Loans underlying a Series of 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
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Mortgage Loan immediately prior to the sale of the Mortgaged Property, (ii) the
amount of the accumulated unpaid interest on such Mortgage Loan to the date of
claim settlement at the contractual rate of interest and (iii) advances made by
the insured as described above less certain payments. An "approved sale" is (i)
a sale of the Mortgaged Property acquired by the insured because of a default by
the borrower to which the pool insurer has given prior approval, (ii) a
foreclosure or trustee's sale of the Mortgaged Property at a price exceeding the
maximum amount specified by the pool insurer, (iii) the acquisition of the
Mortgaged Property under the primary mortgage insurance policy by the mortgage
insurer or (iv) the acquisition of the Mortgaged Property by the pool insurer.
As a condition precedent to the payment of any loss, the insured must
provide the pool insurer with good and merchantable title to the Mortgaged
Property. If any Mortgaged Property securing a defaulted Mortgage Loan is
damaged and the proceeds, if any, from the related standard hazard insurance
policy or the applicable special hazard insurance policy, if any, are
insufficient to restore the damaged Mortgaged Property to a condition sufficient
to permit recovery under the pool insurance policy, the Master Servicer will not
be required to expend its own funds to restore the damaged property unless it
determines (i) that such restoration will increase the proceeds to the
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
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Other Servicing Procedures."
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.
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
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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 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.
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ASSIGNMENT OF MORTGAGE LOANS. In addition, the Depositor will, as to
each Mortgage Loan, deliver or cause to be delivered to the Trustee, or, as
specified in the related Prospectus Supplement, the Custodian, the note or other
evidence of indebtedness of a mortgagor under the Mortgage Loan (the "MORTGAGE
NOTE") endorsed without recourse to the order of the Trustee or in blank, the
original mortgage, deed of trust or other instrument securing a Mortgage Note
("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
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 the Depositor
and the Trustee concerning the Manufactured Home Loans. Such representations and
warranties will include:
o that the information contained in the Loan Schedule provides
an accurate listing of the Manufactured Home
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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;
o 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);
o 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;
o 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
o 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 certificate or note evidencing a
participation interest in a pool of Loans (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:
o that the information contained in the Participation Security
Schedule is true and correct in all material respects;
o that, immediately prior to the conveyance of the Participation
Securities, the Depositor had good title to and was sole owner
of the Participation Security;
o that there has been no other sale by it of such Participation
Security and
o that such Participation Security is not subject to any
existing lien, charge, security interest or other encumbrance
(other than any Retained Interests).
REPURCHASE AND SUBSTITUTION OF LOANS
Unless otherwise provided in the related Prospectus Supplement, if any
document in the Loan file delivered by the Depositor to the Trustee, 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
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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:
o 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);
o an interest rate not lower than and not more than 1% of the
interest rate of the Deleted Loan;
o have a Loan-to-Value Ratio at the time of substitution no
higher than that of the Deleted Loan at the time of
substitution;
o have a remaining term to maturity not greater than (and not
more than one year less than) that of the Deleted Loan; and
o 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.
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
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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;
(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 ("ELIGIBLE INVESTMENTS") acceptable to each Rating
Agency rating such Series, which may include, without limitation:
o 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;
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o 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;
o 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;
o money market funds or mutual funds organized under the
Investment Company Act of 1940 rated in the highest rating
category by each Rating Agency;
o 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
o 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 ("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.
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;
o 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;
o 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
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Notes by the Holders of Securities of such Series evidencing
at least 25% of the Voting Rights of the Securities; and
o certain events in insolvency, readjustment of debt, marshaling
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.
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
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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 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
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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:
o by the Depositor, if the Trustee ceases to be eligible to
continue as such under the related Pooling and Servicing
Agreement or Indenture;
o if the Trustee becomes insolvent;
o 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
o 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.
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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:
o to cure any ambiguity;
o to correct or supplement any provision therein which may be
defective or inconsistent with any other provision therein;
o 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
o to comply with any requirements imposed by the Code; provided
that such amendment (other than pursuant to the preceding
clause) 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:
o reduce the amount or delay the timing of payments on any
Certificate without the consent of the Holder of such
Certificate;
o adversely affect the REMIC status, if a REMIC election or
elections have been made, for the related Trust Fund of a
Series; or
o 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:
o to cure any ambiguity;
o to correct, modify or supplement any provision therein which
may be defective or inconsistent with any other provision
therein; or
o 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:
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o reduce the amount of or delay the timing of, payments received
on any Note without the consent of the holder of such Note;
o adversely affect in any material respect the interests of the
holders of any Class of Notes in a manner other than as
described in the preceding clause, 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
o 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 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 from state
to state), 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.
GENERAL
The Mortgage Loans (other than Cooperative 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 and may have first, second or third priority. Manufactured Housing
Contracts evidence both the obligation of the obligor to repay the loan
evidenced thereby and grant a security interest in the related Manufactured
Homes to secure repayment of such loan. However, as Manufactured Homes have
become larger and often have been attached to their sites without any apparent
intention by the borrowers to move them, courts in many states have held that
Manufactured Homes may, under certain circumstances become subject to real
estate title and recording laws. See "-- Manufactured Home Loans" below. In some
states, the filing of a mortgage, deed of trust or deed to secure
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debt creates a lien or title interest upon the real property encumbered by the
mortgage, deed of trust or deed to secure debt. However, in other states, the
mortgage or deed of trust conveys legal title to the property respectively, to
the mortgagee or to a trustee for the benefit of the mortgagee subject to a
condition subsequent (i.e., the payment of the indebtedness secured thereby).The
lien created by the mortgage or deed of trust is not prior to the lien for real
estate taxes and assessments and 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 certain states, three parties may be involved in a mortgage
financing when title to the property is held by a land trustee who is the land
trustee under a land trust agreement of which the borrower is the beneficiary;
at origination of a mortgage loan, the land trustee, as fee owner of the
property, executes the mortgage and the borrower executes (1) a separate
undertaking to make payments on the mortgage note and (2) an assignment of
leases and rents. Although a deed of trust is similar to a mortgage, a deed of
trust has three parties: the trustor, who is the borrower/homeowner, the
beneficiary, who is the lender, and a third-party grantee called the trustee.
Under a deed of trust, the borrower grants the property, irrevocably until the
debt is paid, in trust, 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 trustee's authority under a deed of trust, the grantee's
authority under a deed to secure debt and the mortgagee's authority under a
mortgage are governed by the law of the state in which the real property is
located, the express provisions of the deed of trust, mortgage, or the deed to
secure debt, and, in certain 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 include Cooperative Loans. Each debt
instrument (a "COOPERATIVE NOTE") evidencing a Cooperative Loan will be secured
by a security interest in shares issued by the related corporation (a
"COOPERATIVE") that owns the related apartment building, which is a corporation
entitled to be treated as a housing cooperative under federal tax law, and in
the related proprietary lease or occupancy agreement granting exclusive rights
to occupy a specific dwelling unit in the Cooperative's building. The security
agreement will create a lien upon, or grant a security interest in, the
Cooperative shares and proprietary leases or occupancy agreements, the priority
of which will depend on, among other things, the terms of the particular
security agreement as well as the order of recordation and/or filing 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 in which the Cooperative is located.
Such a lien or security interest is not, in general, prior to liens in favor of
the cooperative corporation for unpaid assessments or common charges. Such a
lien or security interest is not prior to the lien for real estate taxes and
assessments and other charges imposed under governmental police powers.
Unless otherwise specified in the related Prospectus Supplement, all
Cooperative buildings relating to the Cooperative Loans are located in the State
of New York. Generally, each Cooperative owns in fee or has a leasehold interest
in all the real property and owns in fee or leases 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, other governmental
impositions and hazard and liability insurance. If there is an underlying
mortgage (or mortgages) on the Cooperative's building 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 mortgagor or lessee, as the case may be, is also
responsible for fulfilling such mortgage or rental obligations. An underlying
mortgage loan is ordinarily obtained by the Cooperative in connection with
either the construction or purchase of the Cooperative's building or the
obtaining of capital by the Cooperative. The interest of the occupant under
proprietary leases or occupancy agreements as to which that Cooperative is the
landlord is generally subordinate to the interest of the holder of an underlying
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 an underlying
mortgage, the mortgagee holding an underlying 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 landlord's
interest under the land lease could terminate it and all subordinate proprietary
leases and occupancy agreements. In addition, an underlying 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. In either event,
a foreclosure by the holder of an underlying mortgage or the termination of the
underlying lease could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of Cooperative shares or, in the case of the Mortgage Loans,
the collateral
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securing the Cooperative Loans.
Each Cooperative is owned by shareholders (referred to as
tenant-stockholders) who, through ownership of stock or shares in the
Cooperative, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific dwellings. Generally, a tenant-stockholder
of a Cooperative must make a monthly rental payment to the Cooperative pursuant
to the proprietary lease, which rental payment represents such
tenant-stockholder's pro rata share of the Cooperative's payments for its
underlying mortgage, real property taxes, maintenance expenses and other capital
or ordinary expenses. An ownership interest in a Cooperative and accompanying
occupancy rights may be financed through a Cooperative Loan evidenced by a
Cooperative Note and secured by an assignment of and a security interest in the
occupancy agreement or proprietary lease and a security interest in the related
Cooperative shares. The lender generally 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 Cooperative 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 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 MORTGAGE LOANS
Although a deed of trust or a deed to secure debt may also be
foreclosed by judicial action, foreclosure of a deed of trust or a deed to
secure debt is generally accomplished by a non-judicial trustee's or grantee's,
as applicable, sale under a specific provision in the deed of trust or deed to
secure debt which authorizes the trustee or grantee, as applicable, to sell the
property upon any default by the borrower under the terms of the note or deed of
trust or deed to secure debt. In addition to any notice requirements contained
in a deed of trust or a deed to secure debt, in some states, prior to a sale the
trustee, or grantee, as applicable, 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 notice of default and notice of sale. In addition, in some states, prior
to such sale, the trustee or grantee, as applicable, must provide notice to any
other individual having an interest of record 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 or deed to secure debt is not
reinstated within a specified period, 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 a specified manner prior to the date of trustee's sale. 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 of record 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
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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.
Foreclosure of a mortgage generally is accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure may occasionally result from difficulties in locating and
serving necessary parties, including borrowers located outside the jurisdiction
in which the mortgaged property is located. If the mortgagee's right to
foreclose is contested, the legal proceedings necessary to resolve the issue can
be time-consuming. 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 the case of foreclosure under 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 or grantee, as applicable, is generally 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.
Rather, it is common for the lender to purchase the property from the trustee or
referee, or grantee, as applicable, for a credit bid less than or equal to the
unpaid 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 unless the lender purchases the property 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. In the same states, there
is a statutory minimum purchase price which the lender may offer for the
property and generally, state law controls the amount of foreclosure costs and
expenses, including attorneys' fees, which may be recovered by a lender.
Thereafter, subject to the right of the borrower in some states to remain in
possession during the redemption period, 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 and, in some
states, the lender may be entitled to a deficiency judgment. In some cases, a
deficiency judgment may be pursued in lieu of foreclosure. 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 by a junior
mortgagee triggers the enforcement of a "due-on-sale" clause in a senior
mortgage, the junior mortgagee may be required to pay the full amount of the
senior mortgages to the senior mortgagees. Accordingly, with respect to those
Mortgage Loans which are junior mortgage loans, if the lender purchases the
property, the lender's title will be subject to all senior liens and claims and
certain governmental liens. The proceeds received by the referee or trustee from
the sale are applied first to the costs, fees and expenses of sale and then in
satisfaction of the indebtedness secured by the mortgage or deed of trust under
which the sale was conducted. Any remaining proceeds are generally payable to
the holders of junior mortgages or deeds of trust and other liens and claims in
order of their priority, whether or not the borrower is in default. Any
additional proceeds are generally payable to the mortgagor or trustor. The
payment of the proceeds to the holders of junior mortgages may occur in the
foreclosure action of the senior mortgagee or may require the institution of
separate legal proceedings.
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
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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 owned by the tenant-stockholder, together with
the rights of the tenant-stockholder under the proprietary lease or occupancy
agreement, are pledged to the lender and, 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's building incurred by such
tenant-stockholder. Generally, 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, together with any lender protection provisions contained in the
proprietary lease or occupancy agreement, 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 notice of and 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 shares and the
proprietary lease or occupancy agreement allocated to the dwelling, 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 amount realized upon the sale of
the collateral below the outstanding principal balance of the Cooperative Loan
and accrued and unpaid interest thereon.
Recognition agreements also generally provide that in the event the
lender succeeds to the tenant-shareholder's shares and proprietary lease or
occupancy agreement as the result of realizing upon its collateral for a
Cooperative Loan, the lender must obtain the approval or consent of the board of
directors of the Cooperative as required by the proprietary lease before
transferring the Cooperative shares and/or assigning the proprietary lease. Such
approval or consent is usually based on the prospective purchaser's income and
net worth, among other factors, and may significantly reduce the number of
potential purchasers, which could limit the ability of the lender to sell and
realize upon the value of the collateral. Generally, the lender is not limited
in any rights it may have to dispossess the tenant-stockholder.
Because of the nature of Cooperative Loans, lenders do not require
either the tenant-stockholder (i.e., the borrower) or the Cooperative to obtain
title insurance of any type. Consequently, the existence of any prior liens or
other imperfections of title affecting the Cooperative's building or real estate
also may adversely affect the marketability of the shares allocated to the
cooperative dwelling unit in the event of foreclosure.
In New York, foreclosure on the Cooperative shares is
accomplished 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 and the sale price. Generally, a sale conducted according to the
usual practice of banks selling similar collateral in the same area
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
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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 borrower and foreclosed junior
lienors or other parties are given a statutory period (generally ranging from
six months to two years) 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.
NOTICE OF SALE; REDEMPTION RIGHTS WITH RESPECT TO MANUFACTURED HOMES
While state laws do not usually require notice to be given to debtors
prior to repossession, many states require delivery of a notice of default and
notice of the debtor's right to cure defaults before repossession. The law in
most states also requires that the debtor be given notice of sale prior to the
resale of the home so that the owner may redeem at or before resale. In
addition, the sale must comply with the requirements of the UCC.
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 grantee under a deed to secure debt. In some states (including California),
statutes limit the right of the beneficiary, mortgagee or grantee 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. In
the case of a Mortgage Loan secured by a property owned by a trust where the
Mortgage Note is executed on behalf of the trust, a deficiency judgment against
the trust following foreclosure or sale under a deed of trust or deed to secure
debt, even if obtainable under applicable law, may be of little value to the
beneficiary, grantee or mortgagee, if there are no trust assets against which
such deficiency judgment may be executed. Some state statutes require the
beneficiary, grantee or mortgagee to exhaust the security afforded under a deed
of trust, deed to secure debt or mortgage by foreclosure in an attempt to
satisfy the full debt before bringing a personal action against the borrower. In
certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security; however
in some of these states, the lender, following judgment on such personal action,
may be deemed to have elected a remedy and may be precluded from exercising
remedies with respect to the security. Consequently, the practical effect of the
election requirement, in those states permitting such election, is that lenders
will usually proceed against the security first rather than bringing a personal
action against the borrower. Finally, in certain other states, statutory
provisions limit any deficiency judgment against the former borrower following a
foreclosure 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, grantee, 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
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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 CREDITOR'S RIGHTS. In
addition to laws limiting or prohibiting deficiency judgments, numerous other
federal and state 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, under the federal bankruptcy law,
all actions against the debtor, the debtor's property and any co-debtor are
automatically stayed upon the filing of a bankruptcy petition. Moreover, a court
with federal bankruptcy jurisdiction may permit a debtor through its Chapter 11
or 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 mortgage loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of the debtor's petition. Some
courts with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a
mortgage loan default by permitting the borrower to pay arrearages over a number
of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan secured by property which is not the principal
residence of the debtor may be modified. These courts have allowed modifications
that include reducing the amount of each monthly payment, changing the rate of
interest, altering the repayment schedule, forgiving all or a portion of the
debt 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
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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 mortgage 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 well as
rescission rights if the appropriate disclosures were not given as required. See
"Loan Underwriting Procedures and Standards--Representations and Warranties."
LEASEHOLD CONSIDERATIONS
Mortgage Loans may contain Leasehold Mortgages which are each secured by a lien
on the related Mortgagor's leasehold interest in the related Mortgaged Property.
Mortgage loans secured by a lien on the borrower's leasehold interest under a
ground lease are subject to certain risks not associated with mortgage loans
secured by a lien on the fee estate of the borrower. The most significant of
these risks is that if the borrower's leasehold were to be terminated (for
example, as a result of a lease default or the bankruptcy of the ground lessor
or the borrower/ground lessee), the leasehold mortgagee would be left without
its security. IN THE CASE OF EACH MORTGAGE LOAN SECURED BY A LIEN ON THE RELATED
MORTGAGOR'S LEASEHOLD INTEREST UNDER A GROUND LEASE, SUCH GROUND LEASE CONTAINS
PROVISIONS PROTECTIVE OF THE LEASEHOLD MORTGAGEE, SUCH AS A PROVISION THAT
REQUIRES THE GROUND LESSOR TO GIVE THE LEASEHOLD MORTGAGEE NOTICES OF LESSEE
DEFAULTS AND AN OPPORTUNITY TO CURE THEM, A PROVISION THAT PERMITS THE LEASEHOLD
ESTATE TO BE ASSIGNED TO THE LEASEHOLD MORTGAGEE OR THE PURCHASER AT A
FORECLOSURE SALE AND THEREAFTER TO BE ASSIGNED BY THE LEASEHOLD MORTGAGEE OR
SUCH PURCHASER AT A FORECLOSURE SALE TO ANY FINANCIALLY RESPONSIBLE THIRD PARTY
THAT EXECUTES AN AGREEMENT OBLIGATING ITSELF TO COMPLY WITH THE TERMS AND
CONDITIONS OF THE GROUND LEASE AND A PROVISION THAT GIVES THE LEASEHOLD
MORTGAGEE THE RIGHT TO ENTER INTO A NEW GROUND LEASE WITH THE GROUND LESSOR ON
THE SAME TERMS AND CONDITIONS AS THE OLD GROUND LEASE UPON ANY TERMINATION OF
THE OLD GROUND LEASE.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "RELIEF ACT"), a Mortgagor who enters military service after the
origination of such Mortgagor's Mortgage Loan (including a Mortgagor who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such Mortgagor's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
Mortgagors who are members of the Air Force, Army, Marines, Navy, National
Guard, Reserves, Coast Guard, and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to Mortgagors
who enter military service (including reservists who are called to active duty)
after origination of the related Mortgage Loan, no information can be provided
as to the number of loans that may be affected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of the Master Servicer to collect full amounts of interest on certain of
the Mortgage Loans. Any shortfall in interest collections resulting from the
application of the Relief Act or similar legislation or regulations, which would
not be recoverable from the related Mortgage Loans, would result in a reduction
of the amounts distributable to the holders of the related Certificates, and
would not be covered by Advances and may not be covered by the applicable form
of credit enhancement provided in connection with the related series of
Certificates. In addition, the Relief Act imposes limitations that would impair
the ability of the Master Servicer to foreclose on an affected Mortgage Loan
during the Mortgagor's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter. Thus, in the
event that the Relief Act or similar legislation or regulations applies to any
Mortgage Loan which goes into default, there may be delays in payment and losses
on the related Certificates in connection therewith. Any other interest
shortfalls, deferrals or forgiveness of payments on the Mortgage Loans resulting
from similar legislation or regulations may result in delays in payments or
losses to Securityholders of the related series.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES
Some of the Mortgage Loans may be secured by junior mortgages, deeds of
trust or deeds to secure debt, which are junior to senior mortgages, deeds of
trust or deeds to secure debt which are not part of the Trust Fund. The rights
of the Securityholders, as the holders of a junior mortgage, are subordinate to
those of the mortgagee under the senior mortgage, including the prior rights of
the senior mortgagee to receive hazard insurance and condemnation proceeds and
to cause the property securing the Mortgage Loan to be sold upon default of the
mortgagor, which may extinguish the junior mortgagee's lien unless the junior
mortgagee asserts its subordinate interest in the property in foreclosure
litigation and, in certain cases,
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either reinitiates or satisfies the defaulted senior loan or loans. A junior
mortgagee may satisfy a defaulted senior loan in full or, in some states, may
cure such default and bring the senior loan current thereby reinstating the
senior loan, in either event usually adding the amounts expended to the balance
due on the junior loan. In most states, absent a provision in the mortgage or
deed of trust, no notice of default is required to be given to a junior
mortgagee. Where applicable law or the terms of the senior mortgage or deed of
trust do not require notice of default to the junior mortgagee, the lack of any
such notice may prevent the junior mortgagee from exercising any right to
reinstate the loan which applicable law may provide.
The standard form of the mortgage or deed of trust used by most
institutional lenders confers on the mortgagee the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with condemnation proceedings, and to apply such proceeds and awards
to any indebtedness secured by the mortgage or deed of trust, in such order as
the mortgagee may determine. Thus, in the event improvements on the property are
damaged or destroyed by fire or other casualty, or in the event the property is
taken by condemnation, the mortgagee or beneficiary under underlying senior
mortgages will have the prior right to collect any insurance proceeds payable
under a hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the senior
mortgages. Proceeds in excess of the amount of senior mortgage indebtedness, in
most cases, may be applied to the indebtedness of junior mortgages in the order
of their priority.
Another provision sometimes found in the form of the mortgage or deed
of trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which are prior to the mortgage
or deed of trust, to provide and maintain fire insurance on the property, to
maintain and repair the property and not to commit or permit any waste thereof,
and to appear in and defend any action or proceeding purporting to affect the
property or the rights of the mortgagee under the mortgage. Upon a failure of
the mortgagor to perform any of these obligations, the mortgagee or beneficiary
is given the right under certain mortgages or deeds of trust to perform the
obligation itself, at its election, with the mortgagor agreeing to reimburse the
mortgagee for any sums expended by the mortgagee on behalf of the mortgagor. All
sums so expended by a senior mortgagee become part of the indebtedness secured
by the senior mortgage.
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 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.
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 without the prior consent of mortgagee. 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.
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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 addition to
limitations imposed by FHA Regulations with respect to contacts partially
insured by the FHA pursuant to Title I, in certain states, there are or may be
specific limitations upon the late charges that a lender may collect from a
borrower for delinquent payments. 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. In addition, the enforceability of provisions
that provide for prepayment fees or penalties upon an involuntary prepayment is
unclear under the laws of many states. Most conventional single-family mortgage
loans may be prepaid in full or in part without penalty. The regulations of the
Federal Home Loan Bank Board, as succeeded by the Office of Thrift Supervision
("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.
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.
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 impose
interest rate limits by adopting, before April 1, 1983, a law, or constitutional
provision, which expressly rejects an application of the federal law. In
addition, even where Title V is not so rejected, any state is authorized by the
law to adopt a provision limiting discount points or other charges on mortgage
loans covered by Title V. Certain states have taken action to reimpose interest
rate limits or to limit discount points or other charges.
Usury limits apply to junior mortgage loans in many states.
ADJUSTABLE INTEREST RATE LOANS
Alternative mortgage instruments, including adjustable rate mortgage
loans and adjustable rate cooperative loans, and early ownership mortgage loans,
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
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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
Under the CERCLA, and under state law in certain states, a secured
party which takes a deed-in-lieu of foreclosure, purchases a mortgaged property
at a foreclosure sale, or operates a mortgaged property may become liable in
certain circumstances for the costs of cleaning up hazardous substances
regardless of whether they have contaminated the property. CERCLA imposes
strict, as well as joint and several, liability on several classes of
potentially responsible parties, including current owners and operators of the
property who did not cause or contribute to the contamination. Furthermore,
liability under CERCLA is not limited to the original or unamortized principal
balance of a loan or to the value of the property securing a loan. Lenders may
be held liable under CERCLA as owners or operators unless they qualify for the
secured creditor exemption to CERCLA. This exemption exempts from the definition
of owners and operators those who, without participating in the management of a
facility, hold indicia of ownership primarily to protect a security interest in
the facility.
The Asset Conservation, Lender Liability and Deposit Insurance Act of
1996 (the "CONSERVATION ACT") amended, among other things, the provisions of
CERCLA with respect to lender liability and the secured creditor exemption. The
Conservation Act offers substantial protection to lenders by defining the
activities in which a lender can engage and still have the benefit of the
secured creditor exemption. In order for a lender to be deemed to have
participated in the management of a mortgaged property, the lender must actually
participate in the operational affairs of the mortgaged property. The
Conservation Act provides that merely having the capacity to influence, or
unexercised right to control operations does not constitute participation in
management. A lender will lose the protection of the secured creditor exemption
only if it exercises decision-making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or assumes
day-to-day management of substantially all of the operational functions of the
mortgaged property. The Conservation Act also provides that a lender will
continue to have the benefit of the secured creditor exemption even if it
forecloses on a mortgaged property, purchases it at a foreclosure sale or
accepts a deed-in-lieu of foreclosure provided that the lender seeks to sell the
mortgaged property at the earliest practicable commercially reasonable time on
commercially reasonable terms.
Other federal and state laws in certain circumstances may impose
liability on a secured party which takes a deed-in- lieu of foreclosure,
purchases a mortgaged property at a foreclosure sale, or operates a mortgaged
property on which contaminants other than CERCLA hazardous substances are
present, including petroleum, agricultural chemicals, hazardous wastes,
asbestos, radon, and lead-based paint. Such cleanup costs may be substantial. It
is possible that such cleanup costs could become a liability of a Trust and
reduce the amounts otherwise distributable to the holders of the related series
of Certificates. Moreover, certain federal statutes and certain states by
statute impose a lien for any cleanup costs incurred by such state on the
property that is the subject of such cleanup costs (an "ENVIRONMENTAL LIEN").
All subsequent liens on such property generally are subordinated to such an
Environmental Lien and, in some states, even prior recorded liens are
subordinated to Environmental Liens. In the latter states, the security interest
of the Trustee in a related parcel of real property that is subject to such an
Environmental Lien could be adversely affected.
Traditionally, many residential mortgage lenders have not taken steps
to evaluate whether contaminants are present with respect to any mortgaged
property prior to the origination of the mortgage loan or prior to foreclosure
or accepting a deed-in-lieu of foreclosure. Accordingly, the Depositor has not
made and will not make such evaluations prior to the origination of the Secured
Loans. Neither the Depositor nor any replacement Servicer will be required by
any Agreement to undertake any such evaluations prior to foreclosure or
accepting a deed-in-lieu of foreclosure. The Depositor does not make any
representations or warranties or assume any liability with respect to the
absence or effect of contaminants on any related real property or any casualty
resulting from the presence or effect of contaminants. However, the Depositor
will not be obligated to foreclose on related real property or accept a
deed-in-lieu of foreclosure if it knows or reasonably believes that there are
material contaminated conditions on such property. A failure so to foreclose may
reduce the amounts otherwise available to Securityholders of the related series.
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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.
NEGATIVE AMORTIZATION LOANS
A recent case decided by the United States Court of Appeals, First
Circuit, held that state restrictions on the compounding of interest are not
preempted by the provisions of the Depository Institutions Deregulation and
Monetary Control Act of 1980 ("DIDMC") and as a result, a mortgage loan that
provided for negative amortization violated New Hampshire's requirement that
first mortgage loans provide for computation of interest on a simple interest
basis. The holding was limited to the effect of DIDMC on state laws regarding
the compounding of interest and the court did not address the applicability of
the Alternative Mortgage Transaction Parity Act of 1982, which authorizes a
lender to make residential mortgage loans that provide for negative
amortization. As a result, the enforceability of compound interest on mortgage
loans that provide for negative amortization is unclear. The First Circuit's
decision is binding authority only on Federal District Courts in Maine, New
Hampshire, Massachusetts, Rhode Island and Puerto Rico.
MANUFACTURED HOME LOANS
Except as set forth below, under the laws of most states, manufactured
housing constitutes personal property and is subject to the motor vehicle
registration laws of the state or other jurisdiction in which the unit is
located. In the few states in which certificates of title are not required for
manufactured homes, security interests are perfected by the filing of a
financing statement under Article 9 of the UCC, which has been adopted by all
states. Such financing statements are effective for five years and must be
renewed prior to the end of each five year period. The certificate of title laws
adopted by the majority of states provide that ownership of motor vehicles and
manufactured housing shall be evidenced by a certificate of title issued by the
motor vehicles department (or a similar entity) of such state. In the states
that have enacted certificate of title laws, a security interest in a unit of
manufactured housing, so long as it is not attached to land in so permanent a
fashion as to become a fixture, is generally perfected by the recording of such
interest on the certificate of title to the unit in the appropriate motor
vehicle registration office or by delivery of the required documents and payment
of a fee to such office, depending on state law.
The Master Servicer will be required under the related agreement to
effect such notation or delivery of the required documents and fees, and to
obtain possession of the certificate of title, as appropriate under the laws of
the state in which any Manufactured Home is registered. In the event the Master
Servicer fails, due to clerical errors or otherwise, to effect such notation or
delivery, or files the security interest under the wrong law (for example, under
a motor vehicle title statute rather than under the UCC, in a few states), the
Trustee may not have a first priority perfected security interest in the
Manufactured Home securing payments on a Manufactured Home Loan. As Manufactured
Homes have become larger and often have been attached to their sites without any
apparent intention by the borrowers to move them, courts in many states have
held that Manufactured Homes may, under certain circumstances, 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 of 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. Substantially all of the Manufactured Home Loans will contain
provisions in their loan documents prohibiting the obligor from permanently
attaching the Manufactured Home to its site. So long as the obligor 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
that is prior to the security interest originally retained by the seller and
transferred to the Depositor.
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The Depositor will assign or cause to be assigned a security interest
in the Manufactured Homes to the Trustee, on behalf of the Securityholders.
Unless otherwise specified in the related Prospectus Supplement, neither the
Depositor, the Master Servicer nor the Trustee will amend the certificates of
title (or file UCC-3 statements) to identify the Trustee, on behalf of the
Securityholders, as the new secured party, and neither the Depositor nor the
Master Servicer will deliver the certificates of title to the Trustee or note
thereon the interest of the Trustee. Accordingly, the Depositor or the Seller
will continue to be named as the secured party on the certificates of title
relating to the Manufactured Homes. In most states, such 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 Depositor'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
(or the filing of a UCC-3 statement), such assignment of the security interest
in the Manufactured Home might not be held to be effective or such security
interest may not be perfected and in the absence of such notation or delivery to
the Trustee, the assignment of the security interest in the Manufactured Home
may not be effective against creditors of the Depositor or Seller or a trustee
in bankruptcy of the Depositor or Seller.
In the absence of fraud, forgery, permanent affixation of the
Manufactured Home to its site, or administrative error by state recording
officials, the notation of the lien of the Depositor on the certificate of title
or delivery of the required documents and fees would be sufficient to protect
the Trustee against the rights of subsequent purchasers of a Manufactured Home
or subsequent lenders who take a security interest in the Manufactured Home. If
there are any Manufactured Homes as to which the Depositor has failed to perfect
or cause to be perfected the security interest assigned to the Trust Fund, such
security interest would be subordinate to, among others, subsequent purchasers
for value of such Manufactured Home and holders of perfected security interests
in such Manufactured Home. There also exists a risk in not identifying the
Trustee, on behalf of the Securityholders, as the new secured party on the
certificate of title that, through fraud or negligence, the security interest of
the Trustee could be released.
In the event that the owner of a Manufactured Home moves such house 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 re-registers the Manufactured Home in the
new state. If the owner were to relocate a Manufactured Home to another state
and re-register the Manufactured Home in such state, and if the Depositor did
not take steps to re-perfect its 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 re-register a
Manufactured Home; accordingly, the Depositor must surrender possession if it
holds the certificate of title to such Manufactured Home or, in the case of
Manufactured Homes registered in states that provide for notation of lien, the
Depositor would receive notice of surrender if the security interest in the
Manufactured Home is noted on the certificate of title. Accordingly, the
Depositor would have the opportunity to re-perfect its security interest in the
Manufactured Home in the state of relocation. In states that do not require a
certificate of title for registration of a Manufactured Home, re-registration
could defeat perfection. In the ordinary course of servicing the manufactured
housing loans, the Master Servicer takes steps to effect such re-perfection upon
receipt of notice of re-registration or information from the obligor as to
relocation. Similarly, when an obligor under a manufactured housing conditional
sales contract sells a Manufactured Home, the obligee must surrender possession
of the certificate of title or it will receive notice as a result of its lien
noted thereon and accordingly will have an opportunity to require satisfaction
of the related manufactured housing conditional sales contract before release of
the lien. Under each related agreement, the Master Servicer will be obligated to
take such steps, at the Master Servicer's expense, as are necessary to maintain
perfection of security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home and liens for personal property taxes take priority even over
a prior perfected security interest therein. The Depositor will obtain the
representation of the Seller 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 Noteholders in the event
such a lien arises.
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ENFORCEMENT OF SECURITY INTERESTS IN MANUFACTURED HOMES
Repossession of a manufactured home is governed by state law. A few
states have enacted legislation that requires that the debtor be given an
opportunity to cure its default (typically 30 days to bring the account current)
before repossession can commence. So long as a manufactured home has not become
so attached to real estate that it would be treated as a part of the real estate
under the law of the state where it is located, repossession of such home in the
event of a default by the obligor will generally be governed by the UCC (except
in Louisiana). Article 9 of the UCC provides the statutory framework for the
repossession of manufactured housing units. While the UCC as adopted by the
various states may vary in certain small particulars, the general repossession
procedure established by the UCC is as follows:
(i) Except in those states where the debtor must receive
notice of the right to cure a default, repossession can commence
immediately upon default without prior notice. Repossession may be
effected either through self-help (peaceable retaking without court
order), voluntary repossession or through judicial process
(repossession pursuant to court-issued writ of replevin). The self-help
and/or voluntary repossession methods are more commonly employed, and
are accomplished simply by retaking possession of the manufactured
home. In cases in which the debtor objects or raises a defense to
repossession, a court order must be obtained from the appropriate state
court, and the manufactured home must then be repossessed in accordance
with that order. Whether the method employed is self-help, voluntary
repossession or judicial repossession, the repossession can be
accomplished either by an actual physical removal of the manufactured
home to a secure location for refurbishment and resale or by removing
the occupants and their belongings from the manufactured home and
maintaining possession of the manufactured home on the location where
the occupants were residing. Various factors may affect whether the
manufactured home is physically removed or left on location, such as
the nature and term of any lease of the site on which it is located and
the condition of the unit. In many cases, leaving the manufactured home
on location is preferable, in the event that the home is already
constructed, in order to avoid the cost of removing the structure.
However, in cases where the home is not moved, expenses for site
rentals will usually be incurred.
(ii) Once repossession has been achieved, preparation for the
subsequent disposition of the manufactured home can commence. Such
disposition may be by public or private sale provided the method,
manner, time, place and terms of the sale are commercially reasonable.
(iii) Sale proceeds will be applied first to repossession
expenses (including expenses incurred in repossessing, storing,
preparing for sale, refurbishing and selling costs) and then to
satisfaction of the indebtedness. While some states impose prohibitions
or limitations on deficiency judgments if the net proceeds from resale
do not cover the full amount of the indebtedness, the remainder may be
sought from the debtor in the form of a deficiency judgment in those
states that do not prohibit or limit such judgments. The deficiency
judgment is a personal judgment against the debtor for the deficiency.
Occasionally, after resale of a manufactured home and payment of all
expenses and indebtedness, there is a surplus of funds. In such event,
the UCC requires the party suing for the deficiency judgment to remit
the surplus to the debtor. Because the defaulting owner of a
manufactured home generally has very little capital or income available
following repossession, a deficiency judgment is generally not sought
or, if obtained, will be settled at a significant discount in light of
the defaulting owner's limited financial condition.
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
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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.
CONSUMER PROTECTION LAWS WITH RESPECT TO MANUFACTURED HOMES
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include the
federal Truth-in-Lending Act, Regulation "Z", the Equal Credit Opportunity Act,
Regulation "B", the Fair Credit Reporting Act and related statutes. These laws
can impose specific statutory liabilities upon creditors who fail to comply with
their provisions. In some cases, this liability may affect an assignee's ability
to enforce the related contract.
Manufactured Home loan documents often contain provisions requiring the
obligor to pay late charges if payments are not timely made. In certain cases,
federal and state law may specifically limit the amount of late charges that may
be collected. Unless otherwise provided in the related Prospectus Supplement,
under the related agreement, late charges will be retained by the Master
Servicer as additional servicing compensation and any inability to collect these
amounts will not affect payments to Noteholders.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided to
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. For the most part, courts have upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale by
the creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC RULE") has the effect of subjecting a seller (and certain
related creditors and their assignees) in a consumer credit transaction and any
assignee of the creditor to all claims and defenses that the debtor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by a debtor on the contract, and the
holder of the contract may also be unable to collect amounts still due
thereunder.
Most of the Manufactured Home Loans in a Trust Fund will be subject to
the requirements of the FTC Rule. Accordingly, the Trustee, as holder of the
Manufactured Home Loan, will be subject to any claims or defenses that the
purchaser of the related Manufactured Home may assert against the seller of the
Manufactured Home, subject to a maximum liability equal to the amounts paid by
the obligor on the Manufactured Home Loan. If an obligor is successful in
asserting any such claim or defense, and if the Seller had or should have had
knowledge of such claim or defense, the Master Servicer will have the right to
require the Seller to repurchase the Manufactured Home Loan because of a breach
of its Seller's representation and warranty that no claims or defenses exist
that would affect the obligor's obligation to make the required payments under
the Manufactured Home Loan. The Seller would then have the right to require the
originating dealer to repurchase the Manufactured Home Loan from it and might
also have the right to recover from the dealer any losses suffered by the Seller
with respect to which the dealer would have been primarily liable to the
obligor.
TRANSFER OF MANUFACTURED HOMES
Generally, Manufactured Home loan documents contain provisions
prohibiting the sale or transfer of the related manufactured homes without the
consent of the obligee on the contract and permitting the acceleration of the
maturity of such contracts by the obligee on the contract upon any such sale or
transfer to which consent has not been given. Unless otherwise provided in the
related Prospectus Supplement, the Master Servicer will, to the extent it has
knowledge of such conveyance or proposed conveyance, exercise or cause to be
exercised its rights to accelerate the maturity of the related Manufactured Home
Loans through enforcement of due-on-sale clauses, subject to applicable state
law. In certain cases, the transfer may be made by a delinquent obligor in order
to avoid a repossession proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home as to which the Master
Servicer desires to accelerate the maturity of the related Loan, the Master
Servicer's ability to do so will depend on the enforceability under state law of
the related due-on-sale clause. The Garn-St Germain Act preempts, subject to
certain exceptions and conditions, state laws prohibiting enforcement of
due-on-sale clauses applicable to the Manufactured Homes. Consequently, in some
cases the Master Servicer may be prohibited from enforcing a due-on-sale clause
in respect of certain Manufactured Homes.
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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.
FORMALDEHYDE LITIGATION WITH RESPECT TO MANUFACTURED HOME LOANS
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 with Respect to Manufactured Homes", the holder of any Loan
secured by a Manufactured Home with respect to which a formaldehyde claim has
been successfully asserted may be liable to the obligor for the amount paid by
the obligor on the related Loan and may be unable to collect amounts still due
under the Loan. The successful assertion of such claim constitutes a breach of a
representation or warranty of the Seller, and the related Trust Fund would
suffer a loss only to the extent that (i) the Seller breached its obligation to
repurchase the Loan in the event an obligor is successful in asserting such a
claim, and (ii) the Seller, the Depositor or the Trustee were unsuccessful in
asserting any claim of contribution or subrogation on behalf of the Noteholders
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
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,
Brown & Wood LLP 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 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 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
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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 or certain assets of 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 if such
Certificates are offered thereby. 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.
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. 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. In addition, the REMIC
Regular Certificates will be "qualified mortgages" within the meaning of Section
860G(a)(3) of the Code if transferred to a REMIC on such REMICs startup day in
exchange for regular or residual interests in such REMIC.
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 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.
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TIERED REMIC STRUCTURES
For certain Series of REMIC Certificates, two or more separate
elections may be made to treat designated portions of the related Trust Fund as
REMICs ("TIERED REMICS") for federal income tax purposes. Upon the issuance of
any such Series of REMIC Certificates, Counsel to the Depositor will deliver its
opinion generally to the effect that, assuming compliance with all provisions of
the related Pooling and Servicing Agreement, the Tiered REMICs will each qualify
as a REMIC and the REMIC Certificates issued by the Tiered REMICs will be
considered to evidence ownership of REMIC regular interests or REMIC residual
interests in the related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will
be "real estate assets" within the meaning of Section 856(c)(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.
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
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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.
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 prepayment assumption, if any, described in 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
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stated redemption price. The original issue discount accruing during any accrual
period, computed as described above, will be allocated ratably to each day
during the accrual period to determine the daily portion of original issue
discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases
such Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of the REMIC Regular
Certificate's "adjusted issue price," in proportion to the ratio such excess
bears to the aggregate original issue discount remaining to be accrued on such
REMIC Regular Certificate. The adjusted issue price of a REMIC Regular
Certificate on any given day equals (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 payments of amounts included in the stated
redemption price 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
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discount is also used in calculating the accrual of market discount. Because the
regulations referred to in this paragraph have not been issued, it is not
possible to predict what effect such regulations might have on the tax treatment
of a REMIC Regular Certificate purchased at a discount in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or
other periodic distributions throughout their term, the effect of these rules
may be to require market discount to be includible in income at a rate that is
not significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry 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 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.
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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 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
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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."
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.
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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
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
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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 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
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gain or loss recognized from the sale of a REMIC Certificate by a bank or thrift
institution to which such section applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for the taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
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
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using the "applicable Federal rate" for obligations whose term ends on the close
of the last quarter in which excess inclusions are expected to accrue with
respect to the REMIC Residual Certificate, which rate is computed and published
monthly by the IRS) of the total anticipated excess inclusions with respect to
such REMIC Residual Certificate for periods after the transfer and (ii) the
highest marginal federal income tax rate applicable to corporations. The
anticipated excess inclusions must be determined as of the date that the REMIC
Residual Certificate is transferred and must be based on events that have
occurred up to the time of such transfer, the Prepayment Assumption and any
required or permitted clean up calls or required qualified liquidation provided
for in the REMIC's organizational documents. Such a tax would be generally
imposed on the transferor of the REMIC Residual Certificate, except that where
such transfer is through an agent for a disqualified organization, the tax would
instead be imposed on such agent. However, a transferor of a REMIC Residual
Certificate would in no event be liable for such tax with respect to a transfer
if the transferee furnishes to the transferor an affidavit that the transferee
is not a disqualified organization, and, as of the time of the transfer, the
transferor did not have actual knowledge that such affidavit was false.
Moreover, an entity will not qualify as a REMIC unless there are reasonable
arrangements designed to ensure that (i) residual interests in such entity are
not held by disqualified organizations and (ii) information necessary for the
application of the tax described herein will be made available. Restrictions on
the transfer of REMIC Residual Certificates and certain other provisions that
are intended to meet this requirement will be included in the related Pooling
and Servicing Agreement, and will be discussed more fully in any Prospectus
Supplement relating to the offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalty of perjury that such social security number is that of the record
holder or (ii) a statement under penalty of perjury that such record holder is
not a disqualified organization. For 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, 1999,
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 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.
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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, 1999. For these purposes, "UNITED STATES PERSON" means a citizen or
resident of the United States, a corporation or partnership or entity treated as
a partnership or corporation for United States Federal income tax purposes
created or organized in, or under the laws of, the United States, any state
thereof or the District of Columbia (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.
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
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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
Employee Retirement Income Security Act of 1974, as amended ("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", 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, regulatory 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,
regulatory 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 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 several exceptions not applicable to an entity
like the Trust Fund, 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. 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. 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.
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
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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. "Securities" potentially covered by the Exemptions would include
Certificates, Notes that are treated as "equity interests" under the Plan Asset
Regulations, and interests issued by a Trust Fund that elects to be treated as a
REMIC or FASIT.
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
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 a 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.
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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 of
Securities in the secondary market by a Plan or an entity investing Plan Assets
and (iii) the holding of Securities by a Plan or an entity investing 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(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the Trust Funds. The
Depositor expects that the specific conditions of the Exemption required for
this purpose will be satisfied with respect to the Securities so that the
Exemption would provide an exemption from the restrictions imposed by Sections
406(a) and (b) and 407(a) 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 would 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 to extend 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 Exemption 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
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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) in order to ensure that the characteristics of the
Subsequent Mortgage Loans are substantially similar to those of the
Original Mortgage Loans:
(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;
(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 certain permitted investments:
(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 as a fiduciary under 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
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Code, including the prohibited transaction restrictions imposed by ERISA and the
related 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 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 Subordinate Securities or any Securities which are not rated
in one of the three highest generic rating categories by the Exemption Rating
Agencies, transfers of any Securities which would cause the assets of the Trust
Fund to be deemed Plan Assets the purchase, holding or transfer of which would
not be covered by the Exemption or PTCE 83-1, 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
that 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 Sections I and III of 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.
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."
93
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CONSULTATION WITH COUNSEL. Any fiduciary of a Plan or other Plan
investor that proposes to acquire or hold Securities on behalf of a Plan 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 availability of the Exemption, 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.
On April 23, 1998, the Federal Financial Institutions Examination
Council issued a revised supervisory policy statement (the "1998 POLICY
STATEMENT") applicable to all depository institutions, setting forth guidelines
for investments in "high-risk mortgage securities." The 1998 Policy Statement
was adopted by the Federal Reserve Board, the Office of the Comptroller of the
Currency, the FDIC, the National Credit Union Administration (the "NCUA") and
the OTS with an effective date of May 26, 1998. The 1998 Policy Statement
rescinded a 1992 policy statement that had required, prior to purchase, a
depository institution to determine whether a mortgage derivative product that
it was considering acquiring was high-risk, and, if so, required that the
proposed acquisition would reduce the institution's overall interest rate risk.
The 1998 Policy Statement eliminates constraints on investing in certain
"high-risk" mortgage derivative products and substitutes broader guidelines for
evaluating and monitoring investment risk.
The OTS has issued Thrift Bulletin 13a, entitled "Management of
Interest Rate Risk, Investment Securities, and Derivatives Activities" ("TB
13A"), which is effective as of December 1, 1998 and applies to thrift
institutions regulated by the OTS. One of the primary purposes of TB 13a is to
require thrift institutions, prior to taking any investment position to conduct
(i) a pre-purchase portfolio sensitivity analysis for any "significant
transaction" involving securities or financial derivatives, and (ii) a
pre-purchase price sensitivity analysis of any "complex security" or financial
derivative. For the purposes of TB 13a, "complex security" includes, among other
things, any collateralized mortgage obligation or REMIC security, other than any
"plain vanilla" mortgage pass-through security (that is, securities that are
part of a single class of securities in the related pool that are non-callable
and do not have any special features). One or more classes of Certificates
offered hereby and by the related Prospectus Supplement may be viewed as
"complex securities". The OTS recommends that while a thrift institution should
conduct its own in-house pre-acquisition analysis, it may rely on an analysis
conducted by an independent third-party as long as management understands the
analysis and its key assumptions. Further, TB 13a recommends that the use of
"complex securities with high price sensitivity" be limited to transactions and
strategies that lower a thrift institution's portfolio interest rate risk. TB
13a warns that investment in complex securities by thrift institutions
94
<PAGE>
that do not have adequate risk measurement, monitoring and control systems may
be viewed by OTS examiners as an unsafe and unsound practice.
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, Brown & Wood LLP, New York, New York or
Stroock & Stroock & Lavan LLP, New York, New York.
THE DEPOSITOR
DLJ Mortgage Acceptance Corp. (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 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.
95
<PAGE>
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.
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.
96
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INDEX OF DEFINED TERMS
1998 Policy Statement.........................................................94
Accrual Termination Date.......................................................9
Additional Collateral.........................................................20
Additional Collateral Loans...................................................20
Adjustable Rate Mortgage......................................................22
Advance .....................................................................35
Agency Securities.............................................................17
Agreement......................................................................8
Appraised Value...............................................................22
ARMs .....................................................................22
Asset Group....................................................................8
Available Distribution Amount..................................................8
Average Interest Rate.........................................................91
Balloon Loans.................................................................28
Balloon Payment...............................................................28
Bankruptcy Code...............................................................42
Bi-Weekly Loans...............................................................22
Business Day..................................................................33
Buy-Down Amounts..............................................................22
Buy-Down Fund.................................................................34
Buy-Down Loan.................................................................28
Buy-Down Mortgage Rate........................................................22
Buy-Down Period...............................................................22
CERCLA .....................................................................28
Certificate Account...........................................................57
Certificate Register...........................................................9
Certificateholders............................................................11
Certificateowners.............................................................11
Certificates...................................................................8
Class ......................................................................8
Closing Date..................................................................76
Code .....................................................................74
Collection Account............................................................25
Commission....................................................................24
Committee Report..............................................................76
Compound Interest Securities...................................................8
Compound Value.................................................................9
Condominium...................................................................19
Condominium Association.......................................................19
Condominium Building..........................................................19
Condominium Loans.............................................................19
Condominium Unit..............................................................19
Conservation Act..............................................................69
Contributions Tax.............................................................85
Conventional Loans............................................................19
Cooperative...................................................................60
Cooperative Dwelling..........................................................19
Cooperative Loans.............................................................19
Cooperative Note..............................................................60
Counsel to the Depositor......................................................74
CPR .....................................................................13
Crime Control Act.............................................................70
Cut-off Date..................................................................23
Debt Service Coverage Ratio...................................................27
Deferred Interest.............................................................13
Definitive Security...........................................................11
Deleted Loan..................................................................51
Depositor.....................................................................95
Designated Seller Transaction.................................................21
DIDMC .....................................................................70
Distribution Date..............................................................8
DLJ .....................................................................90
DOL .....................................................................89
DOL Regulations...............................................................89
DTC .....................................................................11
Eligible Account..............................................................32
Eligible Investments..........................................................53
Eligible Reserve Fund Investments.............................................54
Environmental Lien............................................................69
Equity Certificates...........................................................10
ERISA .....................................................................89
ERISA Plans...................................................................89
Escrow Accounts...............................................................32
Event of Default..............................................................55
Exemption.....................................................................90
Exemption Rating Agencies.....................................................90
Expense Reserve Fund..........................................................57
FDIC .....................................................................26
FHA .....................................................................19
FHA Loans.....................................................................19
FHLMC .....................................................................18
Final Scheduled Distribution Date.............................................12
Final Withholding Regulations.................................................87
Financial Guarantee Insurance.................................................44
FIRREA .....................................................................27
Floating Interest Period.......................................................9
Floating Interest Securities...................................................8
Floating Rate..................................................................8
FNMA .....................................................................18
Freddie Mac Act...............................................................18
FTC Rule .....................................................................73
Funding Account...............................................................10
Garn-St Germain Act...........................................................67
GEM Loans.....................................................................28
GNMA .....................................................................18
GPM Fund .....................................................................35
GPM Loans.....................................................................28
Guaranteed Investment Contract................................................15
High Cost Loans...............................................................66
Holders .....................................................................11
Housing Act...................................................................18
HUD .....................................................................19
Indenture......................................................................8
Index .....................................................................22
Indirect Participants.........................................................11
Insurance Proceeds............................................................33
Interest Accrual Period.......................................................12
Interest Weighted Securities...................................................8
IRAs .....................................................................89
IRS .....................................................................38
Issue Premium.................................................................81
Issuer ......................................................................8
97
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L/C Bank .....................................................................43
L/C Percentage................................................................43
Liquidation Expenses..........................................................33
Liquidation Proceeds..........................................................33
Loan Schedule.................................................................50
Loan-to-Value Ratio...........................................................22
Loans .....................................................................19
Manufactured Home.............................................................24
Manufactured Home Loans.......................................................24
Mark-to-Market Regulations....................................................83
Master Servicer...............................................................31
Maximum Floating Rate..........................................................9
Maximum Mortgage Rate.........................................................23
Minimum Floating Rate..........................................................9
Minimum Mortgage Rate.........................................................23
Mortgage .....................................................................50
Mortgage Assets...............................................................15
Mortgage Certificate Schedule.................................................49
Mortgage Loan Schedule........................................................50
Mortgage Loans................................................................19
Mortgage Note.................................................................50
Mortgage Rate.................................................................22
Mortgaged Property............................................................15
Multifamily Loans.............................................................22
Multifamily Property..........................................................19
Multiple Class Series..........................................................9
NCUA .....................................................................94
Nest Egg Mortgage Loans(sm)...................................................21
Net Operating Income..........................................................27
Note Register..................................................................9
Noteholders...................................................................11
Noteowners....................................................................11
Notes ......................................................................8
OID Regulations...............................................................75
OTS .....................................................................94
OTS" .....................................................................68
Owner Trust Agreement..........................................................8
Owner Trustee..................................................................8
Participants..................................................................11
Participation Security........................................................51
Participation Security Schedule...............................................51
Parties In Interest...........................................................89
Percentage Interest............................................................9
Periodic Rate Cap.............................................................23
Person .....................................................................28
Plan Asset Regulations........................................................89
Plan Assets...................................................................89
Plans .....................................................................89
PMBS Agreement................................................................16
PMBS Issuer...................................................................16
PMBS Servicer.................................................................16
PMBS Trustee..................................................................16
Pooling and Servicing Agreement................................................8
Pre-Funding Limit.............................................................91
Pre-Funding Period............................................................91
Prepayment Assumption.........................................................76
Primary Insurer...............................................................45
Principal Weighted Securities..................................................8
Private Mortgage-Backed Securities............................................16
Prohibited Transaction Tax....................................................85
Proposed 401(c) Regulations...................................................93
PTCE .....................................................................92
PTCE 83-1.....................................................................92
Qualified Insurer.............................................................37
Qualified Retirement Plans....................................................89
Qualified Substitute Mortgage Loan............................................51
Rating Agency..................................................................8
Relief Act....................................................................66
REMIC .....................................................................74
REMIC Certificates............................................................74
REMIC Provisions..............................................................74
REMIC Regular Certificates....................................................75
REMIC Regulations.............................................................75
REMIC Residual Certificates...................................................75
REO Property..................................................................36
Restricted Group..............................................................90
Retained Interests............................................................15
RICO .....................................................................70
RTC .....................................................................26
Rules .....................................................................11
Sale and Servicing Agreement...................................................8
Scheduled Payments ...........................................................13
Securities.....................................................................8
Security Register..............................................................9
Securityholders...............................................................11
Securityowner.................................................................11
Seller .....................................................................26
Senior Liens..................................................................19
Senior Securities.............................................................10
Senior Securityholders........................................................42
Series ......................................................................8
Servicers.....................................................................31
Servicing Account.............................................................34
Servicing Advances............................................................34
Servicing Agreement............................................................8
Servicing Fee.................................................................31
Single Family Property........................................................19
SMMEA .....................................................................94
SPA .....................................................................13
Sub-Servicing Agreements......................................................31
Subordinate Securities........................................................10
Subordinate Securityholders...................................................42
Subordination Reserve Fund....................................................42
Subsequent Mortgage Loans.....................................................91
Subsidy Fund..................................................................35
Tax Exempt Investor...........................................................93
Tax-Favored Plans.............................................................89
TB 13a .....................................................................94
Tiered REMICs.................................................................76
Title V .....................................................................68
Title VIII....................................................................68
Trust Fund.....................................................................8
Trustee ......................................................................8
UBTI .....................................................................93
UCC .....................................................................63
Underwriters..................................................................96
United States person..........................................................88
VA Loans .....................................................................19
<PAGE>
SUBJECT TO COMPLETION DATED APRIL ___, 1999
[VERSION 1]
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus
supplement is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED ______ ___, ____)
____________________ SERIES ____-_
DLJ MORTGAGE ACCEPTANCE CORP.
Depositor
[NAME OF MASTER SERVICER]
Master Servicer
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES ____-_
$_______________
(Approximate)
- -------------------------------------------------------------------------------
The certificates represent obligations of the trust only and do not represent an
interest in or obligation of DLJ Mortgage Acceptance Corp., seller, master
servicer, trustee or any of their affiliates.
This prospectus supplement may be used to offer and sell the certificates only
if accompanied by the prospectus.
- -------------------------------------------------------------------------------
THE TRUST WILL ISSUE:
o [Four] classes of senior Class A Certificates.
o One class of senior principal-only Class P Certificates.
o One class of senior interest-only Class X Certificates.
o One class of senior residual Class A-R Certificates.
o Six classes of Class B Certificates, which are subordinate to, and provide
credit enhancement for the senior certificates. Each class of Class B
Certificates is also subordinated to each class of Class B Certificates, if
any, with a lower numerical designation.
THE CERTIFICATES:
o Represent ownership interests in a trust, whose assets are primarily a pool
of fixed rate, first lien residential mortgage loans.
o Currently have no trading market and will not be listed on any exchange.
o Offered under this prospectus and prospectus supplement are listed under
the heading "Offered Certificates" in the table on page S-_.
RISKS:
o The yield to investors on each class of certificates will be sensitive to
the rate and timing of principal payments on the mortgage loans which may
vary over time.
o Net interest shortfalls from prepayments on mortgage loans and losses from
liquidations of defaulted mortgage loans will adversely affect the yield to
investors in the related certificates, and the investors in the related
subordinate certificates in particular.
o REVIEW THE INFORMATION IN "RISK FACTORS" ON PAGE S-_ IN THIS PROSPECTUS
SUPPLEMENT AND PAGE _ IN THE PROSPECTUS.
[The Underwriter], as underwriter, will buy the offered certificates from DLJ
Mortgage Acceptance Corp. at a price equal to ____% of their face value. DLJ
Mortgage Acceptance Corp. will pay the expenses related to the issuance of the
certificates from these proceeds. The underwriter will sell the offered
certificates purchased by it from time to time in negotiated transactions at
varying prices determined at the time of sale.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[NAME OF UNDERWRITER]
_________ ____, _____
<PAGE>
[IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
We provide information to you about the offered certificates in two separate
documents that progressively provide more detail:
o the prospectus, which provides general information, some of which may not
apply to your series of certificates; and
o this prospectus supplement, which describes the specific terms of your
series of certificates.
IF THE DESCRIPTION OF YOUR CERTIFICATES IN THIS PROSPECTUS SUPPLEMENT DIFFERS
FROM THE RELATED DESCRIPTION IN THE PROSPECTUS, YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement and the prospectus are defined under the caption "Index of
Defined Terms" beginning on page S-___ in this prospectus supplement and on page
___ in the prospectus.]
S-2
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT
---------------------
SUMMARY INFORMATION..........................................................S-
RISK FACTORS.................................................................S-
THE MORTGAGE POOL............................................................S-
THE SELLER...................................................................S-
SERVICING OF MORTGAGE LOANS..................................................S-
DESCRIPTION OF THE CERTIFICATES..............................................S-
YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS..........................................................S-
CREDIT ENHANCEMENT...........................................................S-
USE OF PROCEEDS..............................................................S-
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES............................................................S-
ERISA CONSIDERATIONS.........................................................S-
METHOD OF DISTRIBUTION.......................................................S-
LEGAL MATTERS................................................................S-
RATINGS......................................................................S-
INDEX OF DEFINED TERMS.......................................................S-
Page
----
PROSPECTUS
----------
ADDITIONAL INFORMATION.......................................................
PROSPECTUS SUPPLEMENT........................................................
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE..................................................
SUMMARY OF THE PROSPECTUS....................................................
RISK FACTORS.................................................................
DESCRIPTION OF THE SECURITIES................................................
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 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.........................................................
INDEX OF DEFINED TERMS.......................................................
S-3
<PAGE>
SUMMARY INFORMATION
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS SUPPLEMENT AND
DOES NOT CONTAIN ALL OF THE INFORMATION TO MAKE YOUR INVESTMENT DECISION. PLEASE
READ THIS ENTIRE PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS CAREFULLY
FOR ADDITIONAL INFORMATION ABOUT THE OFFERED CERTIFICATES.
MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES ____-_
INITIAL PASS- INITIAL RATING OF
CLASS THROUGH CERTIFICATES(2)
PRINCIPAL RATE (PER ____ ____
CLASS BALANCE(1) ANNUM) RATING RATING
_________________________________________ _______ _______
OFFERED
CERTIFICATES
[A-1 $ % AAA AAA]
[A-2 % AAA AAA]
[A-3 % AAA AAA]
[A-4 % AAA AAA]
P (3) AAAr AAA
X (4) % AAAr AAA
A-R % AAA AAA
B-1 % N/A AA
B-2 % N/A A
B-3 % N/A BBB
NON-OFFERED
CERTIFICATES
B-4 $ % N/A BB
B-5 % N/A B
B-6 % N/A N/A
________________________
(1) This amount is subject to a variance of 5%.
(2) A description of the ratings of the offered certificates is set forth under
the heading "Ratings" in this prospectus supplement.
(3) These certificates are principal only certificates and do not bear
interest.
(4) These certificates are interest only certificates, will have no principal
balance and will bear interest on their related notional amount. The
initial Class X Certificates notional amount will be approximately
$________.
The trust will issue the offered certificates, other than the Class A-R
Certificates, in book-entry form through the facilities of The Depository Trust
Company. The Class A-R Certificates will be physical certificates. SEE
"DESCRIPTION OF THE CERTIFICATES--GENERAL" AND "--BOOK-ENTRY REGISTRATION" IN
THIS PROSPECTUS SUPPLEMENT FOR MORE DETAIL.
DEPOSITOR
o DLJ Mortgage Acceptance Corp.
o The depositor maintains its principal office at 277 Park Avenue, 9th Floor,
New York, New York 10172. Its telephone number is (212) 892-3000.
SEE "THE DEPOSITOR" IN THE PROSPECTUS FOR MORE DETAIL.
SELLER
o [Name of Seller] will sell the mortgage loans to the depositor.
MASTER SERVICER
o [Name of Master Servicer] will initially service all of the mortgage loans
directly. Prior to contracting with any subservicer for the servicing of
any of the mortgage loans, [Name of Master Servicer], as master servicer,
will obtain any required servicing certifications from the rating agencies.
SEE "THE SELLER" IN THIS PROSPECTUS SUPPLEMENT FOR
MORE DETAIL.
TRUSTEE
o [Name of Trustee].
S-4
<PAGE>
CUT-OFF DATE
o _____ 1, ____.
CLOSING DATE
o _____ __, ____.
DETERMINATION DATE
o With respect to the mortgage loans, the ____ day of each month or if such
day is not a business day, the next business day.
DISTRIBUTION DATE
o Beginning on _____ 25, ____ and thereafter on the 25th day of each month or
if such day is not a business day, the next business day.
o The first distribution date will be in _____ _____.
RECORD DATE
o The last business day of the month preceding the month of a distribution
date.
DESIGNATIONS
o REGULAR CERTIFICATES--All classes of certificates other than the Class A-R
Certificates.
o RESIDUAL CERTIFICATES--Class A-R Certificates.
o SENIOR CERTIFICATES--[Class A-1, Class A-2, Class A-3, Class A-4,] Class
PO, Class X and Class A-R Certificates.
o CLASS B OR SUBORDINATE CERTIFICATES--Class B-1, Class B-2, Class B-3, Class
B-4, Class B-5 and Class B-6 Certificates.
o FIXED RATE CERTIFICATES--All classes of certificates.
o PHYSICAL CERTIFICATES--Class A-R, Class B-4, Class B-5 and Class B-6
Certificates.
o BOOK-ENTRY CERTIFICATES--All classes of certificates other than the
Physical Certificates.
THE MORTGAGE POOL
On _____ __, ____, the trust will acquire a pool of mortgage loans. As of _____
1, ____, the mortgage pool consists of approximately _____ mortgage loans, with
an aggregate principal balance of approximately $_____. All of the mortgage
loans are secured by residential properties and each is set to mature within __
to __ years of the date it was originated.
SEE "DESCRIPTION OF THE MORTGAGE POOL" IN THIS PROSPECTUS SUPPLEMENT FOR MORE
DETAIL.
PRIORITY OF DISTRIBUTIONS
Funds available from payments and other amounts received on the mortgage loans
on any distribution date will be distributed to the holders of the certificates
in the following order:
(i) to interest on the interest-bearing senior certificates in the
order described in this prospectus supplement under "Description of the
Certificates--Distributions of Principal";
(ii) to principal of the senior certificates entitled to principal;
(iii) to any deferred amounts payable on the related Class P
Certificates; and
(iii) to interest on and principal of each class of subordinate
certificates, in order of their numerical class designations, beginning
with the Class B-1 Certificates.
SEE "DESCRIPTION OF THE CERTIFICATES--PRIORITY OF DISTRIBUTIONS AMONG
CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT FOR MORE DETAIL.
INTEREST DISTRIBUTIONS
Interest accrues on the interest-bearing certificates during the calendar month
prior to a distribution date.
S-5
<PAGE>
On each distribution date, you will be entitled to the following:
o interest at the pass-through rate that accrued during the related accrual
period.
o interest due on a prior distribution date that was not paid.
Your interest entitlement may be reduced as a result of prepayments on the
mortgage loans and certain types of losses on the mortgage loans.
The Class P Certificates do not receive interest distributions.
SEE "DESCRIPTION OF THE CERTIFICATES--DISTRIBUTIONS OF INTEREST" IN THIS
PROSPECTUS SUPPLEMENT FOR MORE DETAIL.
PRINCIPAL DISTRIBUTIONS
Principal distributions are payable on each distribution date. Shortfalls in
available funds may result in a class receiving less than what is due. The
calculation of the amount a class is entitled to receive on each distribution
date is described in this prospectus supplement under "Description of the
Certificates--Distributions of Principal."
The Class X Certificates do not receive principal distributions.
SEE "DESCRIPTION OF THE CERTIFICATES--DISTRIBUTIONS OF PRINCIPAL" IN THIS
PROSPECTUS SUPPLEMENT FOR MORE DETAIL.
CREDIT ENHANCEMENT
Credit enhancement in the form of subordination should reduce delays in
distributions and losses on certain classes of certificates. The subordination
feature will support the classes of certificates in varying degrees.
There are two types of subordination in this transaction:
1. The senior certificates will receive distributions of interest and
principal prior to distributions of interest and principal to the
subordinate certificates. Also, on each distribution date each class of
subordinate certificates will receive its interest and principal
distribution before any other class of subordinate certificate with a
higher numerical class designation; and
2. Losses resulting from the liquidation of defaulted mortgage loans (other
than certain excess losses resulting from special hazards, mortgagor fraud
or mortgagor bankruptcy) will be allocated to the subordinate certificates
in reverse order of numerical class designation, until the respective class
balance has been reduced to zero.
SEE "DESCRIPTION OF THE CERTIFICATES--PRIORITY OF DISTRIBUTIONS AMONG
CERTIFICATES" AND "--ALLOCATION OF LOSSES; SUBORDINATION" IN THIS PROSPECTUS
SUPPLEMENT FOR MORE DETAIL.
OPTIONAL TERMINATION
If the aggregate principal balance of the mortgage loans declines below __% of
the total pool principal balance as of [the cut-off date], then the depositor
may purchase all of the mortgage loans and the related properties in the trust.
If the depositor purchases all of the mortgage loans, you will receive a final
distribution and then the trust will be terminated.
SEE "DESCRIPTION OF THE CERTIFICATES--OPTIONAL TERMINATION" IN THIS PROSPECTUS
SUPPLEMENT FOR MORE DETAIL.
ADVANCES
If the master servicer reasonably believes that cash advances can be recovered
from a delinquent mortgagor then such master servicer will make cash advances to
the trust to cover related delinquent mortgage loan payments. Advances are
intended to maintain a regular flow of scheduled interest and principal payments
on the certificates, and not to guarantee or insure against losses.
SEE "DESCRIPTION OF THE CERTIFICATES--ADVANCES" IN THIS PROSPECTUS SUPPLEMENT
FOR MORE DETAIL.
S-6
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the trust will be treated as a real estate
mortgage investment conduit. The real estate mortgage investment conduit will
issue the several classes of certificates, other than the Class A-R
Certificates, which will represent regular interests in the real estate mortgage
investment conduit. The Class A-R Certificates will represent ownership of the
residual interest in the real estate mortgage investment conduit.
SEE "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND
IN THE PROSPECTUS FOR MORE DETAIL.
ERISA CONSIDERATIONS
The fiduciary responsibility provisions of the Employee Retirement Income
Security Act of 1974 and Section 4975 of the Internal Revenue Code of 1986 can
limit investments by certain pension and other employee benefit plans. For
example, the acquisition of certificates by certain plans may be considered a
"prohibited transaction" under the Employee Retirement Income Security Act of
1974; however, certain exemptions from the prohibited transactions rules could
apply. If you are a fiduciary of a pension or other employee benefit plan that
is subject to the Employee Retirement Income Security Act of 1974 or to Section
4975 of the Internal Revenue Code of 1986, you should consult with your counsel
regarding the applicability of the provisions of ERISA and the Code before
purchasing a Certificate.
Subject to the considerations and conditions described under "ERISA
Considerations" in this prospectus supplement and prospectus, it is expected
that pension or employee benefit plans subject to ERISA or Section 4975 of the
Code may purchase the senior certificates other than the Class A-R Certificates.
SEE "ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS
FOR MORE DETAIL.
LEGAL INVESTMENT
The senior certificates will be "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984, as long as they are rated
in one of the two highest rating categories by at least one nationally
recognized statistical rating organization. The Class B-1, Class B-2 and Class
B-3 Certificates will not be rated in one of the two highest rating categories
by a nationally recognized statistical rating organization and therefore will
not be "mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984.
SEE "LEGAL INVESTMENT" IN THE PROSPECTUS FOR MORE DETAIL.
RATINGS
The trust will not issue the offered certificates unless they have been assigned
the ratings designated on page S-__.
A rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by either rating agency.
SEE "RATINGS" IN THIS PROSPECTUS SUPPLEMENT FOR MORE DETAIL.
S-7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS PRIOR TO ANY
PURCHASE OF CERTIFICATES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION SET
FORTH UNDER "RISK FACTORS" IN THE PROSPECTUS.
[APPROPRIATE RISK FACTORS AS NECESSARY. POSSIBLE RISK FACTORS BASED ON
THIS FORM INCLUDE THE FOLLOWING:
PREPAYMENTS ON MORTGAGE LOANS MAY
ADVERSELY AFFECT YOUR YIELD The rate of principal distributions
and yield to maturity on your
certificates will be directly related
to the rate of principal payments on
the mortgage loans. Mortgagors may
prepay a mortgage loan at any time.
The rate of principal payments on the
mortgage loans will be affected by
factors including:
o the amortization schedules of the
mortgage loans;
o the rate of prepayments (including
partial prepayments and prepayments
resulting from refinancing) by
mortgagors;
o liquidations of defaulted mortgage
loans by the master servicer;
o repurchases of mortgage loans by the
seller as a result of defective
documentation or breaches of
representations and warranties; and
o the optional purchase by the
depositor of all of the mortgage
loans in connection with the
termination of the trust.
The rate of principal payments on
pools of mortgage loans is influenced
by a variety of economic, geographic,
social and other factors. For example,
if mortgage rates for similar mortgage
loans fall below the mortgage rates on
the mortgage loans, the prepayment
rate would generally be expected to
increase. Conversely, if mortgage
rates on similar mortgage loans rise
above the mortgage rates on the
mortgage loans, the prepayment rate
would generally be expected to
decrease.
EACH CLASS OF OFFERED CERTIFICATES HAS
DIFFERENT PREPAYMENT AND YIELD
CONSIDERATIONS We cannot predict the rate at which
mortgagors will repay their mortgage
loans. Please consider the following:
S-8
<PAGE>
o If you are purchasing a Certificate
at a discount, your yield may be
lower than expected if principal
payments on the Mortgage Loans occur
at a slower rate than you expected.
o If you are purchasing a certificate
at a premium, your yield may be
lower than expected if principal
payments on the Mortgage Loans occur
at a faster rate than you expected.
o The earlier a payment of principal
occurs, the greater the impact on
your yield. For example, if you
purchase a certificate at a premium,
although the average rate of
principal payments is consistent
with your expectations, if the rate
of principal payments occurs
initially at a rate higher than
expected, which would adversely
impact your yield, a subsequent
reduction in the rate of principal
payments will not offset any adverse
yield effect.
SEE "CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS" IN THIS PROSPECTUS
SUPPLEMENT FOR MORE DETAIL.
RISKS OF HOLDING SENIOR CERTIFICATES
CLASS A CERTIFICATES The Class A Certificates are subject
to various priorities for payment of
principal as described herein.
Distributions of principal on the
Class A Certificates having an earlier
priority of payment will be affected
by the rates of prepayment of the
mortgage loans early in the life of
the mortgage pool. Those classes of
Class A Certificates with a later
priority of payment will be affected
by the rates of prepayment of the
mortgage loans experienced both before
and after the commencement of
principal distributions on such
classes, and will be more likely to be
affected by losses on the mortgage
loans not covered by the credit
enhancement.
SEE "DESCRIPTION OF THE
CERTIFICATES--PRINCIPAL DISTRIBUTIONS
ON THE SENIOR CERTIFICATES" IN THIS
PROSPECTUS SUPPLEMENT.
CLASS A-2 CERTIFICATES
o Because the Class A-2 Certificates
are not entitled to receive any
distributions of interest prior to
the time described herein under
"Description of the
Certificates--Principal
Distributions on the Senior
Certificates" such certificates will
likely experience greater price and
yield volatility than would mortgage
pass-through certificates that are
S-9
<PAGE>
otherwise similar but which are
entitled to current distributions of
interest. Investors should consider
whether such volatility is suitable to
their investment needs.
CLASS A-3 CERTIFICATES o It is not expected that the Class
A-3 Certificates will receive any
distributions of principal until the
distribution date in ____________.
Until the distribution date in
____________, the Class A-3
Certificates may receive a portion
of principal prepayments that is
smaller than its pro rata share of
principal prepayments.
CLASS A-4 CERTIFICATES o The Class A-4 Certificates will
receive a portion of principal
payments AFTER certain other classes
of Class A Certificates have
received principal payments.
Therefore, an investor's yield on
such certificates will be sensitive
to the rate and timing of such
distributions and such certificates
would not be an appropriate
investment for any investor
requiring a distribution of a
particular amount of principal or
interest on a specific date or
dates. IN ADDITION TO THE
CONSIDERATIONS SET FORTH ABOVE,
INVESTORS IN THE CLASS A-4
CERTIFICATES SHOULD BE AWARE THAT
SUCH CERTIFICATES MAY NOT BE AN
APPROPRIATE INVESTMENT FOR ALL
PROSPECTIVE INVESTORS.
o Investors in the Class A-4
Certificates should be aware that
such certificates have a later
priority of payment with respect to
principal in relation to some of the
other classes of Class A
Certificates. Therefore, such
certificates are particularly
sensitive to the rate and timing of
principal prepayments.
CLASS P CERTIFICATES o The Class P Certificates will
receive a portion of the principal
payments only on the mortgage loans
that have net mortgage rates lower
than ____%. Therefore, the yield on
the Class P Certificates is
extremely sensitive to the rate and
timing of principal prepayments and
defaults on the mortgage loans that
have net mortgage rates lower than
____%.
o Investors in the Class P
Certificates should be aware that
mortgage loans with lower mortgage
rates are less likely to be prepaid
than mortgage loans with higher
mortgage rates. If prepayments of
principal on the mortgage loans that
have net mortgage rates lower than
____% occur at a rate slower than an
S-10
<PAGE>
investor assumed at the time of
purchase, the investor's yield will be
adversely affected.
CLASS X CERTIFICATES o The Class X Certificates will
receive a portion of the interest
payments only from mortgage loans
that have net mortgage rates higher
than ____%. Therefore, the yield on
the Class X Certificates will be
extremely sensitive to the rate and
timing of principal prepayments and
defaults on the mortgage loans that
have net mortgage rates higher than
____%.
o Investors in the Class X
Certificates should be aware that
mortgage loans with higher mortgage
rates are more likely to be prepaid
than mortgage loans with lower
mortgage rates. If the mortgage
loans that have net mortgage rates
higher than ____% are prepaid at a
rate faster than an investor assumed
at the time of purchase, the yield
to investors in the Class X
Certificates will be adversely
affected. Investors in the Class X
Certificates should fully consider
the risk that a rapid rate of
prepayments on the mortgage loans
that have net mortgage rates higher
than ____% could result in the
failure of such investors to fully
recover their investments.]
RSKS OF HOLDING SUBORDINATE CERTIFICATES The protections afforded the senior
certificates in this transaction
create risks for the subordinate
certificates. Before purchasing
subordinate certificates, you should
consider the following factors that
may negatively impact your yield:
o Because the subordinate certificates
receive distributions after the
senior certificates, there is a
greater likelihood that one or more
classes of subordinate certificates
will not receive the distributions
to which they are entitled on any
distribution sate.
o If principal payments on the
mortgage loans are used to make
interest payments on the
certificates (because, for example,
other mortgage loans have
defaulted), the aggregate class
balance of the certificates will
exceed the aggregate principal
balance of the mortgage loans. The
class of subordinate certificates
outstanding at that time with the
highest numerical class designation
will be reduced, without a
corresponding distribution, by the
amount of such excess.
S-11
<PAGE>
o If the master servicer determines
not to advance a delinquent payment
because such amount is not
recoverable from a mortgagor, there
will be a shortfall in distributions
on the certificates which will
initially impact the subordinate
certificates.
o The subordinate certificates are not
entitled to a proportionate share of
principal prepayments on the
mortgage loans until the beginning
of the _____ year after the closing
date.
o Losses resulting from the
liquidation of defaulted mortgage
loans (other than certain excess
losses resulting from special
hazards, mortgagor fraud or
mortgagor bankruptcy) will be
allocated to the subordinate
certificates in reverse order of
numerical class designation, until
the respective class balance has
been reduced to zero. A loss
allocation results in a reduction in
a class balance without a
corresponding distribution of cash
to the holder. Also, the lower class
balance will result in less interest
accruing on the certificate.
o The earlier in the transaction that
a loss on a mortgage loan occurs,
the greater the impact on yield.
o The risks presented in this section
are more severe for the classes of
subordinate certificates with higher
numerical class designations. No
class of subordinate certificates
will receive a distribution on any
distribution date prior to the class
or classes of subordinate
certificates with a lower numerical
class designation receiving its
distribution. With limited
exceptions, losses on the mortgage
loans are allocated to the class of
subordinate certificates then
outstanding with the highest
numerical class designation. In
addition, if losses on the mortgage
loans exceed certain levels, certain
classes of subordinate certificates
with higher numerical class
designations will not receive a
principal distribution. The amounts
that these classes would otherwise
receive will be distributed to the
related classes of subordinate
certificates with lower numerical
class designations.
SEE "DESCRIPTION OF THE CERTIFICATES"
AND "CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS" IN THIS PROSPECTUS
SUPPLEMENT FOR MORE DETAIL.
LIMITED SOURCE OF PAYMENTS--NO The mortgage loans are the sole source
of distributions
S-12
<PAGE>
RECOURSE TO THE DEPOSITOR, THE SELLER, for the certificates. The certificates
THE MASTER SERVICER OR THE TRUSTEE do not represent an interest in or
obligation of the depositor, the
seller, the master servicer, the
trustee or any of their affiliates,
except for the limited obligations of
the seller with respect to certain
breaches of their respective
representations and warranties and of
the master servicer with respect to
their servicing obligations. Neither
the certificates nor the mortgage
loans will be guaranteed by or insured
by any governmental agency or
instrumentality, the depositor, the
seller, the master servicer, the
trustee or any of its affiliates.
Consequently, if payments on the
mortgage loans are insufficient to
make all payments required on the
certificates you may incur a loss on
your investment.
LIMITED LIQUIDITY The underwriter intends to make a
market for the purchase and sale of
the offered certificates after their
initial issuance but has no obligation
to do so. There is currently no
secondary market for the offered
certificates. We cannot give you any
assurance that such a secondary market
will develop or, if it develops, that
it will continue. Consequently, you
may not be able to sell your offered
certificates readily or at prices that
will enable you to realize your
desired yield. The market values of
the offered certificates are likely to
fluctuate; these fluctuations may be
significant and could result in
significant losses to you.
The secondary markets for mortgage
backed securities have experienced
periods of illiquidity and can be
expected to do so in the future.
Illiquidity can have a severely
adverse effect on the prices of
securities that are especially
sensitive to prepayment, credit or
interest rate risk, or that have been
structured to meet the investment
requirements of limited categories of
investors.
[GEOGRAPHIC CONCENTRATION Approximately ___% of the mortgage
loans, by principal balance as of
_____ __, ____, are secured by
properties located in California. If
the California residential real estate
market should 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 increase, as
compared to such rates in a stable or
improving real estate market. Also,
California is more susceptible to
certain types of uninsurable hazards,
such as earthquakes, brush fires,
floods, mudslides and other natural
disasters. If any such disaster
occurs, the rates of delinquency,
foreclosure,
S-13
<PAGE>
bankruptcy and loss on the Mortgage
Loans may increase.]
CONSEQUENCES OF OWNING BOOK-ENTRY
CERTIFICATES LIMIT ON LIQUIDITY OF CERTIFICATES.
Issuance of the book-entry
certificates in book-entry form may
reduce the liquidity of such
certificates in the secondary trading
market since investors may be
unwilling to purchase certificates for
which they cannot obtain physical
certificates.
LIMIT ON ABILITY TO TRANSFER OR
PLEDGE. Since transactions in the
book-entry certificates can be
effected only through The Depository
Trust Company, participating
organizations, indirect participants
and certain banks, your ability to
transfer or pledge a book-entry
certificate to persons or entities
that do not participate in The
Depository Trust Company system or
otherwise to take actions in respect
of such certificates, may be limited
due to lack of a physical certificate
representing the book-entry
certificates.
DELAYS IN DISTRIBUTIONS. You may
experience some delay in the receipt
of distributions on the book-entry
certificates since the distributions
will be forwarded by the trustee to
The Depository Trust Company for The
Depository Trust Company to credit the
accounts of its participants which
will thereafter credit them to your
account either directly or indirectly
through indirect participants, as
applicable.
SEE "DESCRIPTION OF THE CERTIFICATES--
BOOK-ENTRY REGISTRATION" IN THIS
PROSPECTUS SUPPLEMENT FOR MORE DETAIL.
S-14
<PAGE>
THE MORTGAGE POOL
GENERAL
DLJ Mortgage Acceptance Corp. (the "Depositor") will acquire _____
mortgage loans with an aggregate Stated Principal Balance as of the Cut-off Date
of approximately $ (the "Mortgage Loans") from [the Seller] (the "Seller")
pursuant to a Mortgage Loan Purchase Agreement dated as of ______, __ ____ (the
"_________________").
Pursuant to a Pooling and Servicing Agreement dated as of _____ 1, ____
among the Depositor, [the Trustee], as Trustee (the "Trustee"), and [the Master
Servicer], as the Master Servicer (the "Agreement"), the Depositor will cause
the Mortgage Loans and the Depositor's rights under the Mortgage Loan Purchase
Agreements to be assigned to the Trustee for the benefit of the holders of the
Certificates (the "Certificateholders").
Under the Agreement, the Seller will make certain representations and
warranties relating to the characteristics of the applicable Mortgage Loans, as
further described in the Prospectus under "Loan Underwriting Procedures and
Standards--Representations and Warranties". Such representations and warranties
relating to the Mortgage Loans will generally be made by the Seller as of the
Closing Date. In the event of a breach of any representation or warranty in
respect of a Mortgage Loan that materially and adversely affects the interests
of the Certificateholders in such Mortgage Loan, the Seller will be obligated,
in accordance with the Agreement, to cure such breach, to repurchase such
Mortgage Loan at an amount equal to the sum of (i) the unpaid principal balance
of the Mortgage Loan on the date of such purchase, and (ii) accrued interest
thereon at the applicable Net Rate from the date through which interest was last
paid by the Mortgagor to the date of such purchase (the "Purchase Price"), or to
substitute a Replacement Mortgage Loan for such Mortgage Loan; however, such
substitution is permitted only within two years of the Closing Date and may not
be made unless an opinion of counsel is provided to the effect that such
substitution will not disqualify the REMIC or result in a prohibited transaction
under the Code. The Depositor will make no representations or warranties with
respect to the Mortgage Loans and will have no obligation to repurchase or
substitute Mortgage Loans with deficient documentation or which are otherwise
defective. The Seller is selling the Mortgage Loans without recourse and will
have no obligations with respect to the Mortgage Loans in its capacity as Seller
other than the cure, repurchase or substitution obligations described above. The
obligations of the Master Servicer, with respect to the Certificates is limited
to its contractual servicing obligations under the Agreement.
Certain information with respect to the Mortgage Loans to be included in
the mortgage pool (the "Mortgage Pool") is set forth below. Prior to the
__________, ___ (the "Closing Date"), Mortgage Loans may be removed from the
Mortgage Pool and other Mortgage Loans may be substituted therefor. The
Depositor believes that the information set forth herein with respect to the
Mortgage Pool as presently constituted is representative of the characteristics
of the Mortgage Pool as it will be constituted at the Closing Date, although
certain characteristics of the Mortgage Loans in the Mortgage Pool may vary.
Unless otherwise indicated, information presented below expressed as a
percentage (other than rates of interest) are approximate percentages based on
the Stated Principal Balances of the Mortgage Loans as of the Cut-off Date.
As of the Cut-off Date, the aggregate Stated Principal Balance of the
Mortgage Loans is expected to be approximately $ (the "Cut-off Date Pool
Principal Balance"). The Mortgage Loans provide for the amortization of the
amount financed over a series of substantially equal monthly payments. All of
the Mortgage Loans provide for payments due on the first day of each month (the
"Due Date"). The Mortgage Loans to be included in the Mortgage Pool were
originated or acquired by the Seller in the normal course of its business and
substantially in accordance with the underwriting criteria specified herein. At
origination,
S-15
<PAGE>
the Mortgage Loans had stated terms to maturity which ranged from ___ to ___
years. Scheduled monthly payments made by the Mortgagors on the Mortgage Loans
("Scheduled Payments") either earlier or later than the scheduled Due Dates
thereof will not affect the amortization schedule or the relative application of
such payments to principal and interest. [Each Mortgage Loan is prepayable at
anytime without penalty.]
Each Mortgage Loan was originated on or after __________________.
The latest stated maturity date of any Mortgage Loan is _______________,
and the earliest stated maturity date of any Mortgage Loan is ________________.
[As of the Cut-off Date, no Mortgage Loan will be delinquent more than
30 days.
No Mortgage Loan is subject to a buydown agreement. No Mortgage Loan
provides for deferred interest or negative amortization.]
All of the Mortgage Loans as of the Cut-off Date had a Loan-to-Value
Ratio at origination of 95% or less. Except for Mortgage Loans, representing
approximately % of the Cut-off Date Principal Balance, each Mortgage Loan with a
Loan-to-Value Ratio at origination of greater than 80% will be covered by a
primary mortgage guaranty insurance policy issued by a mortgage insurance
company acceptable to the Federal National Mortgage Association ("FNMA"), the
Federal Home Loan Mortgage Corporation ("FHLMC") or any nationally recognized
statistical rating organization, which policy provides coverage of a portion of
the original principal balance of the related Mortgage Loan equal to the product
of the original principal balance thereof and a fraction, the numerator of which
is the excess of the original principal balance of the related Mortgage Loan
over 75% of the lesser of the appraised value and selling price of the related
Mortgaged Property and the denominator of which is the original principal
balance of the related Mortgage Loan, plus accrued interest thereon and related
foreclosure expenses. No such primary mortgage guaranty insurance policy will be
required with respect to any such Mortgage Loan after the date on which the
related Loan-to-Value Ratio is 80% or less or, based on a new appraisal, the
principal balance of such Mortgage Loan represents 80% or less of the new
appraised value. See "-- Underwriting Standards" herein.
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is a
fraction, expressed as a percentage, the numerator of which is the principal
balance of the related Mortgage Loan at the date of determination and the
denominator of which is (a) in the case of a purchase, the lesser of the selling
price of the Mortgaged Property and its appraised value determined in an
appraisal obtained by the originator at origination of such Mortgage Loan, or
(b) in the case of a refinance, the appraised value of the Mortgaged Property at
the time of such refinance. No assurance can be given that the value of any
Mortgaged Property has remained or will remain at the level that existed on the
appraisal or sales date. If residential real estate values generally or in a
particular geographic area decline, the Loan-to-Value Ratios might not be a
reliable indicator of the rates of delinquencies, foreclosures and losses that
could occur with respect to such Mortgage Loans.
The following information sets forth in tabular format certain
information, as of the Cut-off Date, as to the Mortgage Loans. Other than with
respect to rates of interest, percentages (approximate) are stated by Stated
Principal Balance of the Mortgage Loans as of the Cut-off Date and have been
rounded in order to total 100%.
S-16
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS (1)
- --------------------------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL
ORIGINAL LOAN-TO-VALUE MORTGAGE BALANCE PERCENT OF
RATIOS (%) LOANS OUTSTANDING MORTGAGE POOL
- -------------------------- -------------- ---------------- -----------------
.......................... ----------- ----------- ------------
Total................. =========== =========== ============
__________________
(1) The weighted average original Loan-to-Value Ratio of the Mortgage Loans is
expected to be approximately ____%.
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES (1)
- -------------------------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL
CURRENT MORTGAGE LOAN MORTGAGE BALANCE PERCENT OF
PRINCIPAL BALANCES($) LOANS OUTSTANDING MORTGAGE POOL
- -------------------------- -------------- ---------------- -----------------
.......................... ----------- ----------- ------------
Total................. =========== =========== ============
_______________________
(1) As of the Cut-off Date, the average current Mortgage Loan principal balance
is expected to be approximately $_____________.
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<PAGE>
MORTGAGE RATES (1)
- --------------------------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
MORTGAGE RATES(%) LOANS OUTSTANDING MORTGAGE POOL
- -------------------------- -------------- ---------------- -----------------
.......................... ----------- ----------- ------------
Total................. =========== =========== ============
_______________________
(1) As of the Cut-off Date, the average current Mortgage Rate of the Mortgage
Loans is expected to be approximately ____%.
OCCUPANCY TYPES (1)
- -------------------------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
OCCUPANCY TYPE LOANS OUTSTANDING MORTGAGE POOL
- -------------------------- -------------- ---------------- -----------------
Primary .................
Secondary ............... ----------- ----------- ------------
Total................. =========== =========== ============
_______________________
(1) Based upon representations of the related Mortgagors at the time of
origination.
ORIGINAL TERMS TO MATURITY (1)
- --------------------------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL
ORIGINAL TERM TO MORTGAGE BALANCE PERCENT OF
MATURITY LOANS OUTSTANDING MORTGAGE POOL
- -------------------------- -------------- ---------------- -----------------
........................
........................ ----------- ----------- ------------
Total................ =========== =========== ============
____________________
(1) As of the Cut-off Date, the weighted average remaining term to maturity of
the Mortgage Loans is expected to be approximately _____ months.
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<PAGE>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES (1)
- -------------------------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
STATE LOANS OUTSTANDING MORTGAGE POOL
- -------------------------- -------------- ---------------- -----------------
[Add rows as needed]....
........................ ----------- ----------- ------------
Total................ =========== =========== ============
____________________
(1) Other includes ____ other states and the District of Columbia with under
___% concentrations individually. No more than approximately ___% of the
Mortgage Loans will be secured by Mortgaged Properties located in any one
postal zip code area.
PURPOSE OF MORTGAGE LOANS
- -------------------------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
LOAN PURPOSE LOANS OUTSTANDING MORTGAGE POOL
- -------------------------- -------------- ---------------- -----------------
Rate/Term Refinance......
Purchase.................
Cash-out Refinance ...... ----------- ----------- ------------
Total................ =========== =========== ============
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS
- -------------------------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
TYPE OF PROGRAM LOANS OUTSTANDING MORTGAGE POOL
- -------------------------- -------------- ---------------- -----------------
Full or Alternative......
Reduced (Limited)........ ----------- ----------- ------------
Total................ =========== =========== ============
TYPES OF MORTGAGED PROPERTIES
- -------------------------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
TYPE OF PROGRAM LOANS OUTSTANDING MORTGAGE POOL
- -------------------------- -------------- ---------------- -----------------
Single Family.............
PUD.......................
Condominium...............
Duplex.................... ----------- ----------- ------------
Total.............. =========== =========== ============
S-19
<PAGE>
UNDERWRITING STANDARDS
The Depositor acquired the Mortgage Loans from [the Seller] pursuant to
the Mortgage Loan Purchase Agreement. The Mortgage Loans have either been
originated by [the Seller] or purchased by [the Seller] from various banks,
savings and loan associations, mortgage bankers (which may or may not be
affiliated with the Seller) and other mortgage loan originators, generally in
accordance with the underwriting criteria described herein. The information set
forth in the following paragraphs has been provided by the Seller. None of the
Depositor, the Underwriter, the Trustee or any of their respective affiliates
has made or will make any representation as to the accuracy or completeness of
the information provided herein.
[Disclosure as appropriate.]
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<PAGE>
THE SELLER
[Disclosure as appropriate. Disclosure may include the following:
The following table sets forth certain information regarding the
Seller's delinquency statistics for its one- to-four family residential mortgage
portfolio for the periods presented (excluding mortgage loans held for sale or
investment):
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------------------
1995 1996 1997 1998
--------------------- -------------------- --------------------- ---------------------
Number Percent of Number Percent of Number Percent of Number Percent of
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 Seller's
portfolio set forth in the foregoing tables. The statistics shown above
represent the delinquency experience for the Seller's 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 Seller's 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 Seller's portfolio includes mortgage loans underwritten pursuant to
guidelines not necessarily representative of those applicable to the Mortgage
Loans. It should be noted that 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 Seller. 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 OF MORTGAGE LOANS
[Disclosure as appropriate. Servicing of the Mortgage Loans disclosure may
include the following:
GENERAL
Pursuant to the Agreement, [Name of Master Servicer] will act as Master
Servicer of the Mortgage Loans. The Master Servicer will be responsible for
servicing the Mortgage Loans serviced by it in accordance with the terms of the
Agreement, employing that degree of skill and care which it employs in servicing
mortgage loans comparable to such Mortgage Loans serviced by it for itself or
others. The Master Servicer will not have any servicing obligations with respect
to the Mortgage Loans not serviced by it.
The Master Servicer will make reasonable efforts to collect or cause to
be collected all payments called for under the terms and provisions of the
Mortgage Loans serviced by it and, to the extent such procedures are consistent
with the Agreement, will follow collection procedures as are followed with
respect to the mortgage loans comparable to such Mortgage Loans in the local
areas where each Mortgaged Property is located. Pursuant to the Agreement, the
Master Servicer will establish and maintain, or cause to be
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<PAGE>
established and maintained, one or more accounts (each, a "Collection Account"),
into which deposits will be made on a daily basis of payments and collections on
the Mortgage Loans serviced by it or its primary servicers (net of the related
servicing compensation). Funds credited to a Collection Account may be invested
for the benefit and at the risk of the Master Servicer or its primary servicers
in Permitted Investments, as defined in the Agreement, that are scheduled to
mature on or prior to the business day preceding the next Distribution Date.
The Agreement prohibits the resignation of the Master Servicer, except
upon a determination that its duties thereunder are no longer permitted under
applicable law. No such resignation will be effective until a successor has
assumed such servicing obligations in the manner provided in the Agreement.
In accordance with the Agreement, the Master Servicer may contract with
subservicers to perform some or all of its servicing duties. Notwithstanding any
such servicing arrangement, the Master Servicer will remain liable for its
servicing duties and obligations under the Agreement as if such Master Servicer
alone were servicing the Mortgage Loans.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Expense Fees with respect to the Mortgage Loans are payable out of
the interest payments on each Mortgage Loan. The Expense Fees will vary from
Mortgage Loan to Mortgage Loan. The rate at which the Expense Fees accrue (the
"Expense Fee Rate") is expected to range from % to % per annum of the Stated
Principal Balance of the related Mortgage Loan. As of the Cut-off Date, the
weighted average Expense Fee Rate is expected to equal approximately %. The
Expense Fees consist of (a) servicing compensation payable to the Master
Servicer in respect of its servicing activities concerning the Mortgage Loans
serviced by it (each, a "Servicing Fee") and (b) fees payable to the Trustee in
respect of its activities as trustee under the Agreement (the "Excess Servicing
Fee"). The Servicing Fee payable to the Master Servicer will be % per annum of
the Stated Principal Balance of each Mortgage Loan.. The Excess Servicing Fee
payable to the Master Servicer will range from % to % per annum, subject to a
maximum of % per annum, of the Stated Principal Balance of each Mortgage Loan.
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 Agreement and such amounts will be paid by the Master
Servicer, out of its Servicing Fee. The amount of the Servicing Fee is subject
to adjustment with respect to prepaid Mortgage Loans, as described herein under
"Adjustment to Servicing Fee in Connection with Certain Prepaid Mortgage Loans".
The Master Servicer will also be entitled to receive late payment fees,
prepayment penalty fees, assumption fees and other similar charges. The Master
Servicer will be entitled to receive all reinvestment income earned on amounts
on deposit in the related Collection Account.
The "Net Rate" of a Mortgage Loan is the Mortgage Rate thereof minus the
related Expense Fee Rate. The "Mortgage Rate" of a Mortgage Loan is the rate at
which interest accrues thereon in accordance with the terms of the related
Mortgage Note.
[Portfolio History of the Master Servicer]
[Year 2000 Considerations]
ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH CERTAIN PREPAID MORTGAGE LOANS
When a principal prepayment in full (a "Payoff") 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 ("Curtailments") are
generally applied as of the day of receipt, with a resulting reduction in
interest payable for the month
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<PAGE>
during which the Curtailment is made. With respect to Payoffs and Curtailments
in respect of the Mortgage Loans, the Master Servicer is obligated to remit to
the Trust Fund an amount equal to the lesser of (a) any shortfall in interest
collections resulting from the timing of Payoffs and Curtailments made during
the calendar month preceding a Distribution Date, and (b) the monthly Servicing
Fee (exclusive of the related subservicing fee, if any) otherwise payable to
such Master Servicer in connection with such Distribution Date. If shortfalls in
interest as a result of Payoffs and Curtailments during the Prepayment Periods
applicable to a Distribution Date exceed the amount of the Servicing Fee and
other amounts described above available to cover such shortfall for such
Distribution Date (collectively, "Compensating Interest"), the amount of
interest available to be distributed to Certificateholders will be reduced by
the amount of such excess. See "Description of the Certificates--Distributions
of Interest" herein.
ADVANCES
Subject to the following limitations, the Master Servicer will be
required to advance prior to each Distribution Date, from its own funds or
amounts received with respect to the Mortgage Loans that do not constitute
Available Funds for such Distribution Date, an amount equal to the aggregate of
payments of principal of and interest on the Mortgage Loans (net of the
Servicing Fee and the subservicing fee or the Excess Servicing Fee, if
applicable) which were due on the related Due Date and which were delinquent on
the related Determination Date (any such advance, an "Advance").
Advances are intended to maintain a regular flow of scheduled interest
and principal payments on the Certificates rather than to guarantee or insure
against losses. The Master Servicer is obligated to make Advances with respect
to delinquent payments of principal of or interest on each Mortgage Loan to the
extent that such Advances are, in its reasonable judgment, recoverable from
future payments and collections or insurance payments or proceeds of liquidation
of the related Mortgage Loan. Subject to the foregoing, advances will be made
through the liquidation of the related Mortgaged Property. If the Master
Servicer determines on any Determination Date to make an Advance, such Advance
will be included with the distribution to Certificateholders on the related
Distribution Date. Any failure by the Master Servicer to make an Advance as
required under the Agreement will constitute an Event of Default under the
Agreement subject to grace periods specified therein. If the Master Servicer is
terminated as a result of the occurrence of an Event of Default, the Trustee or
the successor servicer will be obligated to make any such Advance, in accordance
with the terms of the Agreement. For a discussion of other Events of Default
under the Agreement and the rights of the Trustee upon any Event of Default, see
"The Agreements--Event of Default and Rights Upon Events of Default" in the
Prospectus.
OPTIONAL PURCHASE OF DEFAULTED LOANS
The Master Servicer may, at its option, purchase from the Trust Fund any
Mortgage Loan serviced by it which is delinquent 91 days or more. Any such
purchase shall be at a price equal to 100% of the Stated Principal Balance of
such Mortgage Loan plus accrued interest thereon at the applicable Mortgage Rate
from the date through which interest was last paid by the related Mortgagor or
advanced to the first day of the month in which such amount is to be
distributed.
SPECIAL SERVICING AGREEMENTS
The Agreement will permit the Master Servicer to enter into a special
servicing agreement with an unaffiliated holder of Subordinate Certificates.
Pursuant to such an agreement, such holder may instruct the Master Servicer, to
commence or delay foreclosure proceedings with respect to delinquent Mortgage
Loans being serviced or master serviced by it. Such commencement or delay at
such holder's direction will be taken by the Master Servicer, only after such
holder deposits a specified amount of cash with the Master Servicer.
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<PAGE>
Such cash will be available for payment to related Certificateholders if
Liquidation Proceeds are less than they otherwise may have been had the Master
Servicer acted pursuant to its normal servicing procedures.
VOTING RIGHTS
Voting rights of the Trust Fund in general will be allocated 1% to the
Class X Certificates with the balance allocated among the other Classes of
Certificates based upon their respective Class Principal Balances.]
S-24
<PAGE>
DESCRIPTION OF THE CERTIFICATES
[Contents of this section will vary depending on the transaction structure.]
GENERAL
The Certificates will be issued pursuant to the Agreement. Set forth
below are summaries of the specific terms and provisions pursuant to which the
Certificates will be issued. The following summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Agreement. When particular provisions or terms used in
the Agreement are referred to, the actual provisions (including definitions of
terms) are incorporated by reference.
The Mortgage Pass-Through Certificates, Series ____-_ will consist of
the [Class A-1, Class A-2, Class A-3, Class A-4,] Class P, Class X and Class R
Certificates (collectively, the "Senior Certificates") and the Class B-1, Class
B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates (collectively,
the "Subordinate Certificates"). The Senior Certificates and the Subordinate
Certificates are collectively referred to herein as the "Certificates." Only the
Senior Certificates and the Class B-1, Class B-2 and Class B-3 Certificates
(collectively, the "Offered Certificates") are offered hereby. The Classes of
Offered Certificates will have the respective initial Class Principal Balances
or initial Notional Amounts (subject to the permitted variance) and Pass-Through
Rates set forth or described on page S-__ hereof.
The Class Principal Balance of any Class of Certificates as of any
Distribution Date is the initial Class Principal Balance thereof (A) reduced by
the sum of (i) all amounts previously distributed to holders of Certificates of
such Class as payments of principal, (ii) the amount of Realized Losses
(including Excess Losses) allocated to such Class and (iii) in the case of any
Subordinate Certificate any amounts allocated to such Class in reduction of its
Class Principal Balance in respect of payment of Class PO Deferred Amounts, as
described below under "--Allocation of Losses" and (B) in the case of the
Accrual Certificates, increased by all interest accrued and added to the Class
Principal Balance thereof prior to such Distribution Date. The Class X
Certificates do not have a principal balance and are not entitled to any
distributions in respect of principal of the Mortgage Loans.
The Senior Certificates will evidence in the aggregate an initial
beneficial ownership interest of approximately ___% of the Mortgage Loans as of
the Closing Date. The Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and
Class B-6 Certificates as of the Closing Date, represent an initial beneficial
ownership of interest of ___%, ___%, ___%, ___%, ___% and ___%, respectively, in
the Mortgage Loans.
The Book-Entry Certificates will be issuable in book-entry form only.
The Physical Certificates will be issued in fully registered certificated form.
The Class A-R Certificates will be issued as a single certificate with a dollar
denomination of $100.
REMIC STRUCTURE
For federal income tax purposes, the Trust Fund will be treated as a
REMIC. The assets of the REMIC will generally consist of the Mortgage Loans.
BOOK-ENTRY CERTIFICATES
Each Class of Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate initial Class Principal Balance of each
such Class of Certificates and which will be held by a nominee of The Depository
Trust Company (together with any successor depository selected by the
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<PAGE>
Depositor, the "Depository"). Beneficial interests in the Book-Entry
Certificates will be held indirectly by investors through the book-entry
facilities of the Depository, as described herein. Investors in the Book-Entry
Certificates, other than the Class X Certificates, may hold such beneficial
interests in the Book-Entry Certificates in minimum denominations representing
an original principal amount of $25,000 and multiples of $1 in excess thereof.
Investors in the Class A-4 Certificates may hold such beneficial interests in
the Book- Entry Certificates in minimum denominations representing an original
principal amount of not less than $1,000 and multiples of $1 in excess thereof.
Investors in the Class X Certificates may hold such beneficial interests in the
Book-Entry Certificates in minimum denominations representing an original
notional amount of not less than $100,000 and multiples of $1 in excess thereof.
The Depositor has been informed by the Depository that its nominee will be CEDE
& Co. ("CEDE"). Accordingly, CEDE is expected to be the holder of record of the
Book-Entry Certificates. Except as described below, no person acquiring a
Book-Entry Certificate (each, a "beneficial owner") will be entitled to receive
a physical certificate representing such Certificate (a "Definitive
Certificate").
Unless and until Definitive Certificates are issued, it is anticipated
that the only "Certificateholder" of the Book-Entry Certificates will be CEDE,
as nominee of the Depository. Beneficial owners of the Book- Entry Certificates
will not be Certificateholders, as that term is used in the Agreement.
Beneficial owners are only permitted to exercise the rights of
Certificateholders indirectly through Participants (as defined in the
Prospectus) and the Depository. Monthly and annual reports on the Trust Fund
provided to CEDE, as nominee of the Depository, may be made available to
beneficial owners upon request, in accordance with the rules, regulations and
procedures creating and affecting the Depository, and to the Participants to
whose Depository accounts the Book-Entry Certificates of such beneficial owners
are credited.
For a description of the procedures generally applicable to the
Book-Entry Certificates, see "Description of the Securities-Book--Entry
Registration" in the Prospectus.
Definitive Certificates will be issued to beneficial owners of
Book-Entry Certificates, or their nominees, rather than to the Depository, only
if (a) the Depository or the Depositor advises the Trustee in writing that the
Depository is no longer willing, qualified or able to discharge properly its
responsibilities as nominee and depository with respect to the Book-Entry
Certificates and the Depositor or the Trustee is unable to locate a qualified
successor; (b) the Depositor, at its sole option, in writing that it elects to
terminate the book-entry system through the Depository; or (c) after the
occurrence of an Event of Default beneficial owners of any Class of Book-Entry
Certificates representing not less than 51 % of the related aggregate Class
Principal Balance advise the Trustee and the Depository through the Participants
in writing that the continuation of a book-entry system through the Depository
(or a successor thereto) is no longer in the best interests of the beneficial
owners.
The Depository management is aware that some computer applications,
systems and the like for processing data ("Systems") that are dependent upon
calendar dates, including dates before, on, and after January 1, 2000, may
encounter "Year 2000 problems." The Depository has informed its Participants and
other members of the financial community (the "Industry") that it has developed
and is implementing a program so that its Systems, as the same relate to the
timely payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries, and settlement of trades within the
Depository ("DTC Services"), continue to function appropriately. This program
includes a technical assessment and a remediation plan, each of which is
complete. Additionally, the Depository's plan includes a testing phase, which is
expected to be completed within appropriate time frames.
However, the Depository's ability to perform properly its services is
also dependent upon other parties, including but not limited to issuers and
their agents, as well as third party vendors from whom the Depository licenses
software and hardware, and third party vendors on whom the Depository relies for
information of the provision of services, including telecommunication and
electrical utility service providers,
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<PAGE>
among others. The Depository has informed the Industry that it is contacting
(and will continue to contact) third party vendors from whom the Depository
acquires services to: (i) impress upon them the importance of such services
being year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, the Depository is in the process of developing such contingency plans
as it deems appropriate.
According to the Depository, the foregoing information with respect to
the Depository has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability of Definitive
Certificates. Upon surrender by the Depository of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue the Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
PAYMENTS ON MORTGAGE LOANS; ACCOUNTS
On or prior to the Closing Date, the Trustee will establish an account
(the "Certificate Account"), which shall be maintained with the Trustee in trust
for the benefit of the Certificateholders. On or prior to each Distribution
Date, as specified in the Agreement, the Master Servicer will withdraw from the
Collection Account the aggregate Available Funds on deposit in such Collection
Account for such Distribution Date and will deposit such amounts in the
Certificate Account. See "The Trust Funds--Collection Account and Certificate
Account" in the Prospectus.
DISTRIBUTIONS
Distributions on the Certificates will be made by the Trustee on the
____ day of each month, or if such day is not a business day, on the first
business day thereafter, commencing in ___________ ____ (each, a "Distribution
Date"), to the persons in whose names such Certificates are registered at the
close of business on the last business day of the month preceding the month of
such Distribution Date (the "Record Date").
Distributions on each Distribution Date will be made by check mailed to
the address of the person entitled thereto as it appears on the applicable
certificate register or, in the case of a Certificateholder who holds 100% of a
Class of Certificates or who holds a Class X Certificate or who holds
Certificates with an aggregate initial certificate balance of $1,000,000 or more
and who has so notified the Trustee in writing in accordance with the Agreement,
by wire transfer in immediately available funds to the account of such
Certificateholder at a bank or other depository institution having appropriate
wire transfer facilities; PROVIDED, HOWEVER, that the final distribution in
retirement of the Certificates will be made only upon presentment and surrender
of such Certificates at the Corporate Trust Office of the Trustee.
PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES
Distributions will in general be made to the extent of the Available
Funds in the order and priority as follows: (1) first, to the Class P
Certificates, a certain portion of the principal received in respect of each
Class P Mortgage Loan, as described in "--Distributions of Principal" herein;
(2) second, to the Senior Certificates entitled to interest, accrued and unpaid
interest, as described in " --Interest" herein; (3) third, to the Senior
Certificates entitled to principal (other than the Class P Certificates),
principal in the order described for the Senior Certificates as set forth in "
- --Distributions of Principal -- Senior Principal Distribution Amount"; (4)
fourth, to the Class P Certificates, any Class PO Deferred Amounts; (5) fifth,
to
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<PAGE>
each Class of Subordinate Certificates, interest and then principal in
increasing order of numerical Class designation, with both interest and
principal being paid to one Class before any payments are made to the next
Class; and (6) sixth, to the Class A-R Certificates, the remainder (which is
expected to be zero) of all
Available Funds.
Distributions of interest and principal to the Senior Certificates will
be based on payments received or advanced with respect to the Mortgage Loans.
"Available Funds" with respect to any Distribution Date and the Mortgage
Loans will be equal to the sum of (i) all scheduled installments of interest
(net of the related Expense Fees) and principal due on the Due Date in the month
in which such Distribution Date occurs and received prior to the related
Determination Date, together with any Advances in respect thereof; (ii) all
proceeds of any primary mortgage guaranty insurance policies and any other
insurance policies with respect to the Mortgage Loans, to the extent such
proceeds are not applied to the restoration of the related Mortgaged Property or
released to the Mortgagor in accordance with the Master Servicer's normal
servicing procedures (collectively, "Insurance Proceeds") and all other cash
amounts received and retained in connection with the liquidation of defaulted
Mortgage Loans, by foreclosure or otherwise ("Liquidation Proceeds") during the
month preceding the month of such Distribution Date (in each case, net of
unreimbursed expenses incurred in connection with a liquidation or foreclosure
and unreimbursed Advances, if any); (iii) all partial or full prepayments
received during the related Prepayment Period applicable to such Distribution
Date; (iv) amounts received with respect to such Distribution Date as the
Substitution Adjustment Amount or Purchase Price in respect of a Deleted
Mortgage Loan or a Mortgage Loan repurchased by the Seller or the Master
Servicer as of such Distribution Date, reduced by amounts in reimbursement for
Advances previously made and other amounts as to which the Master Servicer is
entitled to be reimbursed pursuant to the Agreement; and (v) the total, to the
extent not previously distributed and to the extent received by the Master
Servicer, any amounts payable as Compensating Interest by the Master Servicer on
such Distribution Date relating to such Mortgage Loans.
DISTRIBUTIONS OF INTEREST
The pass-through rate for each interest-bearing Class of Offered
Certificates for each Distribution Date (the "Pass-Through Rate") is as set
forth or described on page S-___ hereof.
The Class A-2 Certificates are "Accrual Certificates". Interest will
accrue on each of the Accrual Certificates during each Interest Accrual Period
at a per annum rate of ____%. However, such interest will not be distributed on
the Accrual Certificates until the earlier of (a) the related Senior Credit
Support Depletion Date and (b) the Distribution Date on which the Class
Principal Balance of the Class A-1 Certificates has been reduced to zero (the
"Class A-2 Accrual Termination Date"). Interest so accrued and unpaid will be
added to the Class Principal Balance of the Accrual Certificates on the related
Distribution Date.
The interest payable to the Class X Certificates is based on the
weighted average of the Stripped Interest Rates (as defined herein) of the
Mortgage Loans having Net Rates in excess of ___% per annum (the "Premium Rate
Mortgage Loans").
The Notional Amount of the Class X Certificates with respect to any
Distribution Date will equal the product of (x) the aggregate Stated Principal
Balance, as of the second preceding Due Date after giving effect to Scheduled
Payments for such Due Date, whether or not received, or with respect to the
initial Distribution Date, as of the Cut-off Date, of the Premium Rate Mortgage
Loans and (y) a fraction, the numerator of which is the weighted average of the
Stripped Interest Rates (as defined below) for the Premium Rate Mortgage Loans
as of such Due Date and the denominator of which is ____%.
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The "Stripped Interest Rate" means for any Premium Rate Mortgage Loan,
the excess, if any, of the Net Rate for such Mortgage Loan over ____%.
On each Distribution Date, to the extent of funds available therefor,
each interest-bearing Class of Certificates will be entitled to receive an
amount (or, in the case of the Accrual Certificates, have such interest added to
its Class Principal Balance until the Class A-2 Accrual Termination Date)
allocable to interest (as to each such Class, the "Interest Distribution
Amount") with respect to the related Interest Accrual Period. The Interest
Distribution Amount for any interest-bearing Class will be equal to the sum of
(i) interest at the applicable Pass-Through Rate on the related Class Principal
Balance or Notional Amount, as the case may be, and (ii) the sum of the amounts,
if any, by which the amount described in clause (i) above on each prior
Distribution Date exceeded the amount actually distributed as interest on such
prior Distribution Dates and not subsequently distributed. The Class P
Certificates will not bear interest.
With respect to each Distribution Date, the "Interest Accrual Period"
for each interest-bearing Class of Certificates will be the calendar month
preceding the month of such Distribution Date.
The interest entitlement described above for each interest-bearing Class
of Certificates will be reduced by "Net Interest Shortfalls" experienced by the
related Mortgage Loans or, with respect to the Subordinate Certificates, the
related Mortgage Loans, for such Distribution Date.
With respect to any Distribution Date, the "Net Interest Shortfall" is
equal to the sum of (i) the amount of interest which would otherwise have been
received with respect to any Mortgage Loan that was the subject of (x) a Relief
Act Reduction or (y) a Special Hazard Loss, Fraud Loss, Debt Service Reduction
or Deficient Valuation, after the exhaustion of the respective amounts of
coverage provided by the Subordinate Certificates for such types of losses and
(ii) any Net Prepayment Interest Shortfalls. Net Interest Shortfalls on any
Distribution Date will be allocated pro rata among all Classes of Certificates
entitled to receive distributions of interest on such Distribution Date, based
on the amount of interest each such Class of Certificates would otherwise be
entitled to receive on such Distribution Date before taking into account any
reduction in such amounts resulting from such Net Interest Shortfalls. The
amount the Subordinate Certificates would otherwise be entitled to receive from
the Mortgage Loans before taking into account any such reduction will be based
upon the amount of interest accruing at the applicable Pass-Through Rate on such
Class' proportionate share (based upon Class Principal Balance) of the aggregate
Stated Principal Balance of such Mortgage Loans. A "Relief Act Reduction" is a
reduction in the amount of monthly interest payment on a Mortgage Loan pursuant
to the Soldiers' and Sailors' Civil Relief Act of 1940. See "Certain Legal
Aspects of Loans--Anti-Deficiency Legislation and Other Limitations on
Lenders--Soldiers' and Sailors' Civil Relief Act" in the Prospectus. With
respect to any Distribution Date, the "Net Prepayment Interest Shortfall" is the
amount by which the aggregate of Prepayment Interest Shortfalls during the
applicable Prepayment Period applicable to such Distribution Date exceeds the
available Compensating Interest for such period. A "Prepayment Interest
Shortfall" is the amount by which interest paid by a borrower in connection with
a prepayment of principal on a Mortgage Loan is less than one month's interest
at the related Mortgage Rate (net of the related Servicing Fee) on the Stated
Principal Balance of such Mortgage Loan.
Accrued interest to be distributed or added to principal, as the case
may be, on any Distribution Date will be calculated, in the case of each
interest-bearing Class of Certificates, on the basis of the related Class
Principal Balance or Notional Amount, as applicable, immediately prior to such
Distribution Date. Interest will be calculated and payable on the basis of a
360-day year divided into twelve 30-day months.
In the event that, on a particular Distribution Date, Available Funds
applied in the order described above under "--Priority of Distributions Among
Certificates" are not sufficient to make a full distribution or addition to
principal, as the case may be, of the interest entitlement on the Certificates,
interest will be
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<PAGE>
distributed or added to principal, as the case may be, on each Class of
Certificates of equal priority based on the amount of interest each such Class
would otherwise have been entitled to receive or accrete in the absence of such
shortfall. Any such unpaid amount will be carried forward and added to the
amount holders of each such Class of Certificates will be entitled to receive or
accrete on the next Distribution Date. Such a shortfall could occur, for
example, if losses realized on the Mortgage Loans were exceptionally high or
were concentrated in a particular month. Any such unpaid amount will not bear
interest.
DISTRIBUTIONS OF PRINCIPAL
GENERAL. On each Distribution Date, Certificateholders will be entitled
to receive principal distributions from the Available Funds to the extent and in
the priority described herein. See "--Priority of Distributions Among
Certificates" herein.
For any Distribution Date, the "Principal Payment Amount" is the sum
with respect to the Mortgage Loans of (i) scheduled principal payments on the
Mortgage Loans due on the related Due Date, (ii) the principal portion of
repurchase proceeds received with respect to any Mortgage Loan which was
repurchased as permitted or required by the Agreement during the calendar month
preceding the month of the Distribution Date and (iii) any other unscheduled
payments of principal which were received on the Mortgage Loans during the
preceding calendar month, other than Payoffs, Curtailments or Liquidation
Principal (as defined below). For any Distribution Date, the "Principal
Prepayment Amount" is the sum with respect to the Mortgage Loans of all Payoffs
and Curtailments relating to the Mortgage Loans which were received during the
related Prepayment Period.
With respect to each Distribution Date and each Payoff, the related
"Prepayment Period" will be the calendar month preceding the month in which the
related Distribution Date occurs. With respect to each Distribution Date and
each Curtailment, the related "Prepayment Period" will be the month preceding
the month in which the related Distribution Date occurs.
"Liquidation Principal" is the principal portion of Liquidation Proceeds
received with respect to each Mortgage Loan which became a Liquidated Mortgage
Loan (but not in excess of the principal balance thereof) during the calendar
month preceding the month of the Distribution Date, exclusive of the portion
thereof attributable to the applicable Class P Principal Distribution Amount. A
"Liquidated Mortgage Loan" is a defaulted Mortgage Loan as to which the Master
Servicer has determined that all amounts which it expects to recover from or on
account of such Mortgage Loan, whether from Insurance Proceeds, Liquidation
Proceeds or otherwise have been recovered.
The Class X Certificates will not be entitled to receive any
distributions of principal.
CLASS A-2 ACCRUAL AMOUNT. On each Distribution Date up to and including
the Class A-2 Accrual Termination Date, the amount of accrued interest on the
Class A-2 Certificates added to the Class Principal Balance thereof (the "Class
A-2 Accrual Amount") will be distributed as principal in the following order of
priority:
(i) to the Class A-1 Certificates, until the Class Principal Balance
thereof has been reduced to zero; and
(ii) to the Class A-2 Certificates, until the Class Principal
Balance thereof has been reduced to zero.
SENIOR PRINCIPAL DISTRIBUTION AMOUNT. On each Distribution Date, to the
extent of Available Funds therefor, up to the amount of the related Senior
Principal Distribution Amount for such Certificate Group
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<PAGE>
for such Distribution Date, will be distributed as principal to the following
Classes of Senior Certificates in the following order of priority:
(i) to the Class A-R Certificates, until the Class Principal Balance
thereof has been reduced to zero;
(ii) to the Class A-3 Certificates, the Class A-3 Lockout Principal
Distribution Amount, until the Class Principal Balance thereof has been
reduced to zero;
(iii) sequentially, to the Class A-1, Class A-2 and Class A-4
Certificates, in that order, until the respective Class Principal
Balance thereof is reduced to zero; and
(iv) to the Class A-3 Certificates, any remaining portion of such
Senior Principal Distribution Amount, until the Class Principal Balance
thereof is reduced to zero.
Notwithstanding the foregoing, on each Distribution Date on and after
the Senior Credit Support Depletion Date, the Senior Principal Distribution
Amount will be distributed, concurrently, as principal to the Senior
Certificates (other than the Class P Certificates and the Class X Certificates)
pro rata, in accordance with their respective Class Principal Balances
immediately prior to such Distribution Date.
The "Senior Credit Support Depletion Date" is the date on which the
aggregate Class Principal Balance of the Subordinate Certificates has been
reduced to zero.
The "Senior Principal Distribution Amount" for any Distribution Date
will equal the sum of (i) the related Senior Percentage of the Principal Payment
Amount (exclusive of the portion thereof attributable to the Class P Principal
Distribution Amount), (ii) the related Senior Prepayment Percentage of the
Principal Prepayment Amount (exclusive of the portion thereof attributable to
the Class P Principal Distribution Amount), and (iii) the Senior Liquidation
Amount.
The "Senior Liquidation Amount" is the aggregate, for each Mortgage Loan
which became a Liquidated Mortgage Loan during the calendar month preceding the
month of the Distribution Date, of the lesser of (i) the Senior Percentage of
the Stated Principal Balance of such Mortgage Loan (exclusive of the related
Class P Fraction thereof, if applicable) and (ii) the Senior Prepayment
Percentage of the Liquidation Principal with respect to such Mortgage Loan.
"Stated Principal Balance" means, as to any Mortgage Loan and Due Date,
the unpaid principal balance of such Mortgage Loan as of such Due Date, as
specified in the amortization schedule at the time relating thereto (before any
adjustment to such amortization schedule by reason of any moratorium or similar
waiver or grace period), after giving effect to any previous partial principal
prepayments and Liquidation Proceeds received and to the payment of principal
due on such Due Date and irrespective of any delinquency in payment by the
related Mortgagor.
The "Senior Percentage" for any Distribution Date is the percentage
equivalent of a fraction the numerator of which is the aggregate Class Principal
Balance of the Classes of Senior Certificates (other than the Class P
Certificates) immediately prior to such date and the denominator of which is the
aggregate Stated Principal Balance of the Mortgage Loans (less the Class P
Principal Balance), in each case immediately prior to the Distribution Date;
PROVIDED, HOWEVER, in no event will the Senior Percentage exceed 100%. The
"Subordinate Percentage" for any Distribution Date will be calculated as the
difference between 100% and the related Senior Percentage for such date.
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<PAGE>
The Senior Prepayment Percentage for any Distribution Date occurring
during the five years beginning on the first Distribution Date will equal 100%.
Thereafter, such Senior Prepayment Percentage will, except as described below,
be subject to gradual reduction as described in the following paragraph. This
disproportionate allocation of certain unscheduled payments in respect of
principal will have the effect of accelerating the amortization of the Senior
Certificates while, in the absence of Realized Losses, increasing the interest
in the aggregate Stated Principal Balance evidenced by the Subordinate
Certificates. Increasing the respective interest of the Subordinate Certificates
relative to that of the Senior Certificates is intended to preserve the
availability of the subordination provided by the Subordinate Certificates.
The Senior Prepayment Percentage for any Distribution Date occurring on
or after the fifth anniversary of the first Distribution Date will be as
follows: for any Distribution Date in the first year thereafter, the Senior
Percentage plus 70% of the Subordinate Percentage for such Distribution Date;
for any Distribution Date in the second year thereafter, the Senior Percentage
plus 60% of the Subordinate Percentage for such Distribution Date; for any
Distribution Date in the third year thereafter, the Senior Percentage plus 40%
of the Subordinate Percentage for such Distribution Date; for any Distribution
Date in the fourth year thereafter, the Senior Percentage 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 of
the foregoing Distribution Dates the Senior Percentage exceeds the initial
Senior Percentage for the Senior Certificates, in which case the Senior
Prepayment Percentage for such Distribution Date will once again equal 100%).
Notwithstanding the foregoing no decrease in the reduction to the Senior
Prepayment Percentage for the Senior Certificates as described above will occur
if as of the first Distribution Date as to which any such decrease applies (i)
the outstanding principal balance of the Mortgage Loans, delinquent 60 days or
more (averaged over the preceding six month period), as a percentage of the
aggregate principal balance of the Class Principal Balance of the Subordinate
Certificates as of such Distribution Date is equal to or greater than 50% or
(ii) cumulative Realized Losses with respect to the Mortgage Loans exceed (a)
with respect to the Distribution Date on the fifth anniversary of the first
Distribution Date, 30% of the aggregate principal balance the Class Principal
Balance of the Subordinate Certificates as of the Closing Date (an "Original
Subordinate Principal Balance"), (b) with respect to the Distribution Date on
the sixth anniversary of the first Distribution Date, 35% of such Original
Subordinate Principal Balance, (c) with respect to the Distribution Date on the
seventh anniversary of the first Distribution Date, 40% of such Original
Subordinate Principal Balance, (d) with respect to the Distribution Date on the
eighth anniversary of the first Distribution Date, 45% of such Original
Subordinate Principal Balance and (e) with respect to the Distribution Date on
the ninth anniversary of the first Distribution Date, 50% of such Original
Subordinate Principal Balance.
If on any Distribution Date the allocation to the Class of Senior
Certificates then entitled to distributions of Payoffs and Curtailments and
other amounts in the percentage required above would reduce the outstanding
Class Principal Balance of such Class below zero, the distribution to such Class
of Certificates of the Senior Prepayment Percentage of such amounts for such
Distribution Date will be limited to the percentage necessary to reduce the
related Class Principal Balance to zero.
CLASS A-3 LOCKOUT PRINCIPAL DISTRIBUTION AMOUNT. The "Class A-3 Lockout
Principal Distribution Amount" for any Distribution Date will equal the sum of
(i) the Class A-3 Adjusted Percentage of the Principal Payment Amount (exclusive
of the portion thereof attributable to the Class P Principal Distribution
Amount), (ii) the Class A-3 Prepayment Percentage of the Principal Prepayment
Amount (exclusive of the portion thereof attributable to the Class P Principal
Distribution Amount) and (iii) the Class A-3 Liquidation Amount (as defined
below).
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<PAGE>
The "Class A-3 Adjusted Percentage" will equal (i) 0% for any
Distribution Date occurring prior to the Distribution Date in _____ ____ and
(ii) the Class A-3 Percentage (as defined below) for any Distribution Date
occurring on or after the Distribution Date in _____ ____.
The "Class A-3 Percentage" for any Distribution Date is equal the lesser
of (a) 100% and (b) the Class Principal Balance of the Class A-3 Certificates
divided by the aggregate Stated Principal Balance of the Mortgage Loans (less
the Class P Principal Balance), in each case immediately prior to the
Distribution Date. The Class A-3 Percentage as of the Closing Date will be
approximately %.
The "Class A-3 Liquidation Amount" is the aggregate, for each Mortgage
Loan which became a Liquidated Mortgage Loan during the calendar month preceding
the month of the Distribution Date, of the lesser of (i) the Class A-3
Percentage of the Stated Principal Balance of such Mortgage Loan (exclusive of
the Class P Fraction thereof, with respect to any Class P Mortgage Loan) and
(ii) the Class A-3 Percentage on any Distribution Date occurring prior to the
fifth anniversary of the first Distribution Date, and the Class A-3 Prepayment
Percentage on the fifth anniversary of the first Distribution Date and each
Distribution Date thereafter, in each case, of the Liquidation Principal with
respect to such Mortgage Loan.
The "Class A-3 Prepayment Percentage" for any Distribution Date will
equal the product of (a) the Class A-3 Percentage and (b) the Step Down
Percentage.
The "Step Down Percentage" for any Distribution Date will be the
percentage indicated below:
[Distribution Date Occurring in Step Down Percentage
- ------------------------------- --------------------
April 1999 through March 2004.......................... 0%
April 2004 through March 2005.......................... 30%
April 2005 through March 2006.......................... 40%
April 2006 through March 2007.......................... 60%
April 2007 through March 2008.......................... 80%
April 2008 and thereafter.............................. 100%]
SUBORDINATE PRINCIPAL DISTRIBUTION AMOUNT. On each Distribution Date, to
the extent of Available Funds therefor, up to the amount of the Subordinate
Principal Distribution Amount for such Distribution Date, will be distributed as
principal of the Subordinate Certificates. Except as provided in the following
paragraph, each Class of Subordinate Certificates will be entitled to receive
its pro rata share (based upon its respective Class Principal Balance) of such
Subordinate Principal Distribution Amount, in each case to the extent of the
amount available from Available Funds for distribution of principal of such
Class. Distributions of principal of the Subordinate Certificates will be made
on each Distribution Date sequentially to the Classes of Subordinate
Certificates in the order of their numerical Class designation (beginning with
the Class with the lowest numerical Class designation) until each such Class of
Subordinate Certificates has received its respective pro rata share of the
Subordinate Principal Distribution Amount for such Distribution Date.
With respect to each Class of Subordinate Certificates, if on any
Distribution Date the related Subordination Level of such Class is less than
such percentage as of the Closing Date, no distributions of Payoffs and
Curtailments will be made to any Class or Classes of Subordinate Certificates
junior to such Class (the "Restricted Classes") and the amount otherwise
distributable to the Restricted Classes in respect of such Payoffs and
Curtailments will be allocated among the remaining Classes of Subordinate
Certificates, pro rata, based upon their respective Class Principal Balances.
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<PAGE>
The "Subordination Level" on any Distribution Date with respect to any
Class of Subordinate Certificates is the percentage obtained by dividing the sum
of the Class Principal Balances of all Classes of Certificates which are
subordinate in right of payment to such Class by the sum of the Class Principal
Balances of all Classes of Certificates, in each case immediately prior to such
Distribution Date.
The "Subordinate Principal Distribution Amount" for any Distribution
Date and the Subordinate Certificates will equal (A) the sum of (i) the
Subordinate Percentage for the Subordinate Certificates of the Principal Payment
Amount for the Mortgage Loans (exclusive of the portion thereof attributable to
the Class P Principal Distribution Amount), (ii) the Subordinate Prepayment
Percentage of the Principal Prepayment Amount for the Mortgage Loans (exclusive
of the portion thereof attributable to the Class P Principal Distribution
Amount) and (iii) the Subordinate Liquidation Amount for the Mortgage Loans less
the Class PO Deferred Amounts required to be paid to the Class P Certificates on
such Distribution Date.
Any reduction to a Subordinate Principal Distribution Amount described
above shall first offset amounts in respect of the related Principal Payment
Amounts, second the related Subordinate Liquidation Amounts and then the related
Principal Prepayment Amounts.
The "Subordinate Liquidation Amount" will equal the excess, if any, of
the aggregate Liquidation Principal of all Mortgage Loans which became
Liquidated Mortgage Loans during the calendar month preceding the month of such
Distribution Date over the sum of the related Senior Liquidation Amount for such
Distribution Date.
CLASS P PRINCIPAL DISTRIBUTION AMOUNT. On each Distribution Date, the
Class P Certificates will receive a portion of the Available Funds attributable
to principal received on or in respect of any Mortgage Loan with a Net Rate of
less than ____% per annum (a "Class P Mortgage Loan"), equal to the amount of
such principal so attributable multiplied by a fraction, the numerator of which
is ____% minus the Net Rate on such Class P Mortgage Loan and the denominator of
which is ____% (the "Class P Fraction"). The aggregate of the amounts payable to
the Class P Certificates described in this paragraph are referred to herein as
the "Class P Principal Distribution Amount".
RESIDUAL CERTIFICATES. The Class A-R Certificates will remain
outstanding for so long as the Trust Fund shall exist, whether or not they are
receiving current distributions of principal or interest. In addition to
distributions of interest and principal as described above, on each Distribution
Date the holders of the Class A-R Certificates will be entitled to receive
Available Funds remaining after payment of interest and principal on the Senior
Certificates, Class PO Deferred Amounts on the Class P Certificates and interest
and principal on the Subordinate Certificates for such Distribution Date, as
described above. It is not anticipated that there will be any significant
amounts remaining for any such distribution.
ALLOCATION OF LOSSES
On each Distribution Date, the applicable Class P Fraction of any
Realized Loss, including any Excess Loss, on a Class P Mortgage Loan will be
allocated to the related Class P Certificates until the Class Principal Balance
thereof is reduced to zero The amount of any such Realized Loss, other than an
Excess Loss, allocated on or prior to the Senior Credit Support Depletion Date
will be treated as a Class PO Deferred Amount. To the extent funds are available
on such Distribution Date or on any future Distribution Date from amounts that
would otherwise be allocable to the Subordinate Principal Distribution Amount,
Class PO Deferred Amounts will be paid on the related Class P Certificates prior
to distributions of principal on the Subordinate Certificates. See "--Priority
of Distributions Among Certificates". Any distribution in respect of unpaid
Class PO Deferred Amounts will not further reduce the Class Principal Balance of
the Class P Certificates. The Class PO Deferred Amounts will not bear interest.
The Class Principal Balance of the Class of Subordinate Certificates then
outstanding with the highest numerical Class designation will be reduced
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<PAGE>
by the amount of any payments in respect of Class PO Deferred Amounts. After the
Senior Credit Support Depletion Date, no new Class PO Deferred Amounts will be
created in respect of the related Class P
Certificates.
On each Distribution Date, any Realized Loss (other than the Class P
Fraction thereof, if applicable), other than any Excess Loss, will be allocated
first to the Subordinate Certificates, in decreasing order of their numerical
Class designations (beginning with the Class of Subordinate Certificates then
outstanding with the highest numerical Class designation), in each case until
the Class Principal Balance of the respective Class of Certificates has been
reduced to zero, and then to the Senior Certificates (other than the Class X and
Class P Certificates) pro rata, based upon their respective Class Certificate
Balances.
On each Distribution Date, Excess Losses (other than the Class P
Fraction thereof, if applicable) will be allocated pro rata among the Classes of
Senior Certificates (other than the Class X and Class P Certificates) based upon
their respective Class Principal Balances.
Because principal distributions are paid to certain Classes of Senior
Certificates before other Classes of Senior Certificates, holders of such Senior
Certificates that are entitled to receive principal later bear a greater risk of
being allocated Realized Losses on the Mortgage Loans than holders of Classes
that are entitled to receive principal earlier.
On each Distribution Date, if the aggregate Class Principal Balance of
all Senior Certificates exceeds the aggregate Stated Principal Balance of the
Mortgage Loans (after giving effect to distributions of principal and the
allocation of all losses to the Senior Certificates on such Distribution Date),
such excess will be deemed a principal loss and will be allocated to the most
junior Class of Subordinate Certificates then outstanding.
In general, a "Realized Loss" means, with respect to a Liquidated
Mortgage Loan, the amount by which the remaining unpaid principal balance of the
Mortgage Loan exceeds the amount of Liquidation Proceeds applied to the
principal balance of the related Mortgage Loan. "Excess Losses" are (i) Special
Hazard Losses in excess of the Special Hazard Loss Coverage Amount, (ii)
Bankruptcy Losses in excess of the applicable Bankruptcy Loss Coverage Amount,
and (iii) Fraud Losses in excess of the applicable Fraud Loss Coverage Amount.
"Special Hazard Losses" are Realized Losses in respect of Special Hazard
Mortgage Loans. "Bankruptcy Losses" are losses that are incurred as a result of
Debt Service Reductions and Deficient Valuations. "Fraud Losses" are Realized
Losses sustained by reason of a default arising from fraud, dishonesty or
misrepresentation. See "Credit Enhancement--Subordination of Certain Classes"
herein.
A "Special Hazard Mortgage Loan" is a Liquidated Mortgage Loan as to
which the ability to recover the full amount due thereunder was substantially
impaired by a hazard not insured against under a standard hazard insurance
policy of the type described in the Prospectus under "Description of Mortgage
and Other Insurance--Hazard Insurance on the Loans". See "Credit
Enhancement--Subordination of Certain Classes" herein.
OPTIONAL TERMINATION
The Depositor will have the right to repurchase all remaining Mortgage
Loans and REO Properties in the Trust Fund and thereby effect early retirement
of the Certificates, subject to the aggregate Stated Principal Balance of such
Mortgage Loans and REO Properties at the time of repurchase being less than --%
of the aggregate Stated Principal Balance of the Mortgage Loans as of the
Cut-off Date. In the event the Depositor exercises such option, the purchase
price distributed with respect to each Certificate will be 100% of its then
outstanding principal balance plus any Class PO Deferred Amounts in the case of
the Class P Certificates and, in the case of an interest-bearing Certificate,
any unpaid accrued interest on such Class
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<PAGE>
Principal Balance or Notional Amount, as applicable, at the applicable
Pass-Through Rate (in each case subject to reduction as provided in the
Agreement if the purchase price is based in part on the appraised value of any
REO Properties and such appraised value is less than the Stated Principal
Balance of the related Mortgage Loans). Distributions on the Certificates in
respect of any such optional termination will first be paid to the Senior
Certificates and then to the Subordinate Certificates. The proceeds from any
such distribution may not be sufficient to distribute the full amount to which
each Class of Certificates is entitled if the purchase price is based in part on
the appraised value of any REO Property and such appraised value is less than
the Stated Principal Balance of the related Mortgage Loan.
THE TRUSTEE
[The Trustee] will be the Trustee under the Agreement. The Depositor
and the Master Servicer 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.
RESTRICTIONS ON TRANSFER OF THE CLASS A-R CERTIFICATES
The Class A-R Certificates will be subject to the restrictions on
transfer described in the Prospectus under "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Residual Certificates--Tax and
Restrictions on Transfers of REMIC Residual Certificates to Certain
Organizations". The Agreement provides that the Class A-R Certificates (in
addition to certain other Classes of Certificates) may not be acquired by an
ERISA Plan. See "ERISA Considerations" herein. Each Class A-R Certificate will
contain a legend describing the foregoing restrictions.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The effective yields to the holders of the interest-bearing Certificates
will be lower than the yields otherwise produced by the applicable rate at which
interest is passed through to such holders and the purchase price of such
Certificates because monthly distributions will not be payable to such holders
until the ____ day (or, if either such day is not a business day, the following
business day) of the month following the month in which interest accrues on the
Mortgage Loans (without any additional distribution of interest or earnings
thereon in respect of such delay).
Delinquencies on the Mortgage Loans which are not advanced by or on
behalf of the Master Servicer (because amounts, if advanced, would be
nonrecoverable), will adversely affect the yield on the Certificates. Because of
the priority of distributions, shortfalls resulting from delinquencies not so
advanced will be borne first by the Subordinate Certificates in the reverse
order of their numerical Class designations, and then by the Senior
Certificates. If, as a result of such shortfalls, the aggregate of the Class
Principal Balances of the Senior Certificates exceeds the aggregate Stated
Principal Balances of the Mortgage Loans, the Class Principal Balance of the
Subordinate Certificates then outstanding with the highest numerical Class
designation will be reduced by the amount of such excess.
Net Interest Shortfalls will adversely affect the yields on the related
interest-bearing Classes of Certificates. Any Net Interest Shortfall allocated
to the Class A-2 Certificates will reduce the Class A-2 Accrual Amount, thereby
reducing the amount of funds available for distribution of principal to the
Classes of Senior Certificates entitled to receive such distributions.
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The likelihood that Mortgage Loans will become delinquent and the rate
of any subsequent foreclosures may be affected by a number of factors related to
the Mortgagor's personal circumstances, including, for example, unemployment or
change in employment (or in the case of self-employed Mortgagors relying on
commission income, fluctuations in income), marital separation and a Mortgagor's
equity in the related Mortgaged Property. In addition, delinquency and
foreclosure experience may be sensitive to adverse economic conditions, either
nationally or regionally, may exhibit seasonal variations and may be influenced
by the level of interest rates as they affect real estate sales activity.
Regional economic conditions (including declining real estate values) may
particularly affect delinquency and foreclosure experience on the Mortgage Loans
to the extent that the related Mortgaged Properties are concentrated in certain
geographic areas.
Net Interest Shortfalls will adversely affect the yields on the Offered
Certificates to which they relate. In addition, although all losses initially
will be borne by the Subordinate Certificates in decreasing order of their
numerical Class designations (either directly or through distributions in
respect of Class PO Deferred Amounts on the Class P Certificates), Excess Losses
on the Mortgage Loans will be borne by all Classes of the Senior Certificates on
a pro rata basis. Moreover, since the Subordinate Principal Distribution Amount
for each Distribution Date will be reduced by the amount of any distributions on
such Distribution Date in respect of Class PO Deferred Amounts, the amount
distributable as principal on each such Distribution Date to each Class of
Subordinate Certificates then entitled to a distribution of principal will be
less than it otherwise would be in the absence of such Class PO Deferred
Amounts. As a result, the yields on the Offered Certificates will depend on the
rate and timing of Realized Losses, including Excess Losses. Excess Losses could
occur at a time when one or more Classes of Subordinate Certificates are still
outstanding and otherwise available to absorb other types of Realized Losses.
See "Description of the Certificates--Allocation of Losses" herein.
PREPAYMENT CONSIDERATIONS AND RISKS
The rate of principal payments on the Offered Certificates, the
aggregate amount of distributions on the Offered Certificates and the yields to
maturity of the Offered Certificates will be related to the rate and timing of
payments of principal on the Mortgage Loans. The rate of principal payments on
the Mortgage Loans will in turn be affected by the amortization schedules of the
Mortgage Loans and by the rate of principal prepayments (including for this
purpose prepayments resulting from refinancing, liquidations of the Mortgage
Loans due to defaults, casualties, condemnations and repurchases by the Seller
or Master Servicer). [The Mortgage Loans may be prepaid by the Mortgagors at any
time without a prepayment penalty.] The Mortgage Loans are subject to the
"due-on-sale" provisions included therein. However, the Master Servicer may
choose not to accelerate a Mortgage Loan upon the conveyance of the related
Mortgaged Property if the Master Servicer would make a similar decision with
respect to a comparable mortgage loan held for its own account. See "The
Mortgage Pool" herein.
Prepayments, liquidations and purchases of the Mortgage Loans (including
any optional purchase by the Master Servicer of a defaulted Mortgage Loan and
any optional repurchase of the remaining Mortgage Loans in connection with the
termination of the Trust Fund, in each case as described herein) will result in
distributions on the Offered Certificates of principal amounts which would
otherwise be distributed over the remaining terms of the Mortgage Loans. Since
the rate of payment of principal on the Mortgage Loans will depend on future
events and a variety of other factors, no assurance can be given as to such rate
or the rate of principal prepayments. The extent to which the yield to maturity
of a Class of Offered Certificates may vary from the anticipated yield will
depend upon the degree to which such Offered Certificate is purchased at a
discount or premium, and the degree to which the timing of payments thereon is
sensitive to prepayments, liquidations and purchases of the Mortgage Loans.
Further, an investor should consider the risk that, in the case of the Class P
Certificates and any other Offered Certificate purchased at a discount, a slower
than anticipated rate of principal payments (including prepayments) on the
Mortgage Loans could result in an actual yield to such investor that is lower
than the anticipated yield and, in the case of the Class X
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Certificates and any other Offered Certificate purchased at a premium, a faster
than anticipated rate of principal payments on the Mortgage Loans could result
in an actual yield to such investor that is lower than the anticipated yield.
Investors in the Class X Certificates should carefully consider the risk that a
rapid rate of principal prepayments on the Mortgage Loans could result in the
failure of such investors to recover their initial investments.
The rate of principal payments (including prepayments) on pools of
mortgage loans may vary significantly over time and may be influenced by a
variety of economic, geographic, social and other factors, including changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity
in the mortgaged properties and servicing decisions (including the decision
whether or not to exercise its fights under any "due-on-sale" clause). In
general, if prevailing interest rates were to fall significantly below the
Mortgage Rates on the Mortgage Loans, the Mortgage Loans could be subject to
higher prepayment rates than if prevailing interest rates were to remain at or
above the Mortgage Rates on the Mortgage Loans. Conversely, if prevailing
interest rates were to rise significantly, the rate of prepayments on the
Mortgage Loans would generally be expected to decrease. No assurances can be
given as to the rate of prepayments on the Mortgage Loans in stable or changing
interest rate environments.
As described herein under "Description of the Certificates--
Distributions of Principal", the applicable Senior Prepayment Percentage of the
Principal Prepayment Amount (exclusive of the portion thereof attributable to
the Class P Principal Distribution Amount) will be initially distributed to the
Senior Certificates (other than the Class P Certificates). This may result in
all (or a disproportionate percentage) of such principal prepayments being
distributed to holders of the Senior Certificates (other than the Class P
Certificates) and none (or less than their pro rata share) of such principal
prepayments being distributed to holders of the Subordinate Certificates during
the periods of time described in the definition of "Senior Prepayment
Percentage". The Class A-3 Certificates generally will not receive any
distributions of principal for the first five years after the Closing Date.
The timing of changes in the rate of prepayments on the Mortgage Loans
may significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with an investor's expectation.
In general, the earlier a prepayment of principal on the Mortgage Loans, the
greater the effect on an investor's yield to maturity. The effect on an
investor's yield as a result of principal payments occurring at a rate higher
(or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Offered Certificates may not be offset
by a subsequent like decrease (or increase) in the rate of principal payments.
STRUCTURING ASSUMPTIONS
Unless otherwise specified, the information in the tables in this
Prospectus Supplement has been prepared on the basis of the following assumed
characteristics of the Mortgage Loans and the following additional assumptions
(collectively, the "Structuring Assumptions"):
(i) that the Mortgage Loans have with the following characteristics:
<TABLE>
<CAPTION>
Amortized Remaining Remaining Term to
Unpaid Principal Term to Maturity Maturity Loan Age
Balance Mortgage Rate Net Rate (in Months) (in Months) (in Months)
------- ------------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
</TABLE>
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<PAGE>
(ii) the Mortgage Loans prepay at the specified constant Prepayment Assumption
described below for the related Class of Certificates, (iii) no defaults in the
payment by the Mortgagor of principal of and interest on the Mortgage Loans are
experienced, (iv) scheduled payments on the Mortgage Loans are received on the
first day of each month commencing in the calendar month following the Closing
Date and are computed prior to giving effect to prepayments received on the last
day of the prior month, (v) prepayments are allocated as described herein
without giving effect to loss and delinquency tests, (vi) there are no Net
Interest Shortfalls and prepayments represent prepayments in full of the
Mortgage Loans and are received on the last day of each month, commencing in the
calendar month of the Closing Date, (vii) the scheduled monthly payment for each
Mortgage Loan has been calculated based on the assumed mortgage loan
characteristics described in item (i) above such that the Mortgage Loans will
amortize in amounts sufficient to repay the principal balances of such assumed
mortgage loans by its respective amortizing remaining term, (viii) the initial
Class Principal Balance or Notional Amount, as applicable, of each Class of
Certificates is as set forth under "Summary Information" herein, (ix) interest
accrues on each interest-bearing Class of Certificates at the applicable
interest rate set forth or described under "Summary Information" herein, (x)
distributions are received in cash on the ____ day of each month commencing in
the calendar month following the Closing Date, (xi) the closing date of the sale
of the Offered Certificates is _____ ___, ____, (xii) the Seller is not required
to repurchase or substitute for any Mortgage Loan, (xiii) the Depositor does not
exercise any option to repurchase the Mortgage Loans described herein under
"Description of the Certificates--Optional Termination" and (xiv) no Class of
Subordinate Certificates becomes a Restricted Class. While it is assumed that
each Mortgage Loan prepays at the specified constant Prepayment Assumption, this
is not likely to be the case. Moreover, discrepancies will exist between the
characteristics of the actual Mortgage Loans which will be delivered to the
Trustee and characteristics of the Mortgage Loans assumed in preparing the
tables herein.
[Prepayments of mortgage loans commonly are measured relative to a
prepayment standard or model. The prepayment model used in this Prospectus
Supplement (the "Prepayment Assumption") represents an assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of mortgage loans. A 100% Prepayment Assumption assumes a constant
prepayment rate ("CPR") of 4.0% per annum of the then outstanding principal
balance of the Mortgage Loans, such mortgage loans in the first month of the
life of the mortgage loans and an additional 1.09090909% (precisely 12/11) per
annum in each month thereafter until the eleventh month. Beginning in the
twelfth month and in each month thereafter during the life of the mortgage
loans, a 100% Prepayment Assumption assumes a CPR of 16% per annum each month.
As used in the table below, a 50% Prepayment Assumption assumes prepayment rates
equal to 50% of the related Prepayment Assumption. Correspondingly, a 200%
Prepayment Assumption assumes prepayment rates equal to 200% of the related
Prepayment Assumption, and so forth. The Prepayment Assumption does not purport
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans.]
The sensitivity tables below indicate the sensitivity of the pre-tax
corporate bond equivalent yields to maturity of certain Classes of Certificates
to various constant Prepayment Assumptions. The yields set forth in the tables
were calculated by determining the monthly discount rates that, when applied to
the assumed stream of cash flows to be paid on the applicable Class of
Certificates, would cause the discounted present value of such assumed stream of
cash flows to equal the assumed purchase price of such Classes and converting
such monthly rates to corporate bond equivalent rates. Such calculations do not
take into account variations that may occur in the interest rates at which
investors may be able to reinvest funds received by them as distributions on
certain Classes of Certificates and consequently do not purport to reflect the
return on any investment in any such Class of Certificates when such
reinvestment rates are considered.
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<PAGE>
SENSITIVITY OF THE CLASS P CERTIFICATES
THE CLASS P CERTIFICATES WILL BE "PRINCIPAL ONLY" CERTIFICATES AND WILL
NOT BEAR INTEREST. AS INDICATED IN THE TABLE BELOW, A LOW RATE OF PRINCIPAL
PAYMENTS (INCLUDING PREPAYMENTS) OF THE CLASS P MORTGAGE LOANS WILL HAVE A
NEGATIVE EFFECT ON THE YIELD TO INVESTORS IN THE CLASS P CERTIFICATES.
As described above under "Description of the Certificates--Distributions
of Principal", the Class P Principal Distribution Amount for the Class P
Certificates is calculated by reference to the principal payments (including
prepayments) on the Class P Mortgage Loans. The Class P Mortgage Loans will have
lower Net Rates (and lower Mortgage Rates) than the other Mortgage Loans. In
general, mortgage loans with higher mortgage rates tend to prepay at higher
rates than mortgage loans with relatively lower mortgage rates in response to a
given reduction in market interest rates. As a result, the Class P Mortgage
Loans may prepay at lower rates, thereby reducing the rate of payment of
principal and the resulting yield of the Class P Certificates.
The information set forth in the following table has been prepared on
the basis of the Structuring Assumptions and on the assumption that the
aggregate purchase price of the Class P Certificates (expressed as a percentage
of initial Class Principal Balance) is ______%.
SENSITIVITY OF THE CLASS P CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELD TO MATURITY)
CPR
--------------------------------------------------------
0% 8% 12% 16% 24%
-------- ---------- ----------- --------- --------
It is highly unlikely that all of the Mortgage Loans will have the
characteristics assumed or that the Mortgage Loans will prepay at any constant
rate until maturity or that all of the Mortgage Loans will prepay at the same
rate or time. As a result of these factors, the pre-tax yield on the Class P
Certificates is likely to differ from those shown in the table above, even if
all of the applicable Mortgage Loans prepay at the indicated percentages of the
Prepayment Assumption. No representation is made as to the actual rate of
principal payments on the Class P Mortgage Loans for any period or over the life
of the Certificates or as to the yield on the Class P Certificates. Investors
must make their own decisions as to the appropriate prepayment assumptions to be
used in deciding whether to purchase a Class of Class P Certificates.
SENSITIVITY OF THE CLASS X CERTIFICATES
AS INDICATED IN THE TABLE BELOW, THE YIELDS TO INVESTORS ON THE CLASS X
CERTIFICATES WILL BE SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) OF THE PREMIUM RATE MORTGAGE LOANS, PARTICULARLY THOSE WITH HIGH
NET RATES. THE MORTGAGE LOANS GENERALLY CAN BE PREPAID AT ANY TIME. ON THE BASIS
OF THE ASSUMPTIONS DESCRIBED BELOW, THE YIELD TO MATURITY ON THE CLASS X
CERTIFICATES WOULD BE APPROXIMATELY 0% IF PREPAYMENTS WERE TO OCCUR AT A
CONSTANT RATE OF APPROXIMATELY % OF THE CPR. IF THE ACTUAL PREPAYMENT RATE OF
THE MORTGAGE LOANS WERE TO EXCEED THE APPLICABLE LEVEL FOR AS LITTLE AS ONE
MONTH WHILE EQUALING SUCH LEVEL FOR THE REMAINING MONTHS, THE INVESTORS IN THE
CLASS X CERTIFICATES WOULD NOT FULLY RECOUP THEIR INITIAL INVESTMENTS.
As described above under "Description of the Certificates--Distribution
of Interest", the Pass- Through Rate of the Class X Certificates in effect from
time to time is calculated by reference to the Net Rates of the Premium Rate
Mortgage Loans. In general, mortgage loans with higher mortgage rates tend to
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<PAGE>
prepay at higher rates than mortgage loans with relatively lower mortgage rates
in response to a given change in market interest rates. As a result, the Premium
Rate Mortgage Loans may prepay at higher rates, thereby reducing the
Pass-Through Rate and Notional Amount of the Class X Certificates.
The information set forth in the following table has been prepared on
the basis of the Structuring Assumptions (which assume no Realized Losses), and
on the assumption that the purchase prices (expressed as a percentage of initial
Notional Amount) of the Notional Amount Certificates is ____%, not including
interest. However, accrued interest has been added to such price in calculating
the yields set forth in the table below.
SENSITIVITY OF THE CLASS X CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
CPR
--------------------------------------------------------
0% 8% 12% 16% 24%
-------- ---------- ----------- --------- --------
--------------------------------------------------------
It is highly unlikely that all of the Mortgage Loans will have the
characteristics assumed or that the Mortgage Loans will prepay at any constant
rate until maturity or that all of the Mortgage Loans will prepay at the same
rate or time. As a result of these factors, the pre-tax yield on the Class X
Certificates is likely to differ from those shown in the table above, even if
all of the Mortgage Loans prepay at the indicated percentages of the Prepayment
Assumption. No representation is made as to the actual rate of principal
payments on the Mortgage Loans for any period or over the lives of the Class X
Certificates or as to the yield on the Class X Certificates. Investors must make
their own decisions as to the appropriate prepayment assumptions to be used in
deciding whether to purchase the Class X Certificates.
WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES
The weighted average life of any Class of Certificates is determined by
(a) multiplying the amount of the reduction, if any, of the Class Principal
Balance of such Certificate on each Distribution Date by the number of years
from the date of issuance to such Distribution Date, (b) summing the results and
(c) dividing the sum by the aggregate amount of the reductions in Class
Principal Balance of such Class referred to in clause (a).
For a discussion of the factors which may influence the rate of payments
(including prepayments) of the Mortgage Loans, see "--Prepayment Considerations
and Risks" herein and "Yield, Prepayment and Maturity Considerations" in the
Prospectus.
In general, the weighted average lives of the Offered Certificates will
be shortened if the level of prepayments of principal of the Mortgage Loans
increases. However, the weighted average lives of the Offered Certificates will
depend upon a variety of other factors, including the timing of changes in such
rate of principal payments and the priority sequence of distributions of
principal of the Classes of Certificates. See "Description of the
Certificates--Distribution of Principal" herein.
The interaction of the foregoing factors may have different effects on
various Classes of Offered Certificates and the effects on any Class may vary at
different times during the life of such Class. Accordingly, no assurance can be
given as to the weighted average life of any Class of Offered Certificates.
Further, to the extent the prices of the Offered Certificates represent
discounts or premiums to their respective original Class Principal Balances,
variability in the weighted average lives of such Classes of Offered
Certificates will result in variability in the related yields to maturity. For
an example of how the
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weighted average lives of the Classes of Offered Certificates may be affected at
various constant Prepayment Assumptions, see "--Decrement Tables" below.
DECREMENT TABLES
The following tables indicate the percentages of the initial Class
Principal Balances of the Classes of Offered Certificates (other than the Class
X Certificates) that would be outstanding after each of the dates shown at
various constant Prepayment Assumptions and the corresponding weighted average
lives of such Classes. The tables have been prepared on the basis of the
Structuring Assumptions. It is not likely that (i) all of the Mortgage Loans
will have the characteristics assumed, (ii) all of the Mortgage Loans will
prepay at the constant Prepayment Assumption specified in the tables or at any
constant rate or (iii) all of the Mortgage Loans will prepay at the same rate.
Moreover, the diverse remaining terms to maturity of the Mortgage Loans could
produce slower or faster principal distributions than indicated in the tables at
the specified constant Prepayment Assumptions, even if the weighted average
remaining term to maturity of the Mortgage Loans is consistent with the
remaining terms to maturity of the Mortgage Loan specified in the Structuring
Assumptions.
[Decrement Tables]
LAST SCHEDULED DISTRIBUTION DATE
The Last Scheduled Distribution Date for the Certificates is the
Distribution Date in , which is the Distribution Date in the month after the
scheduled maturity date for the latest maturing Mortgage Loan. Since the rate of
distributions in reduction of the Class Principal Balance or Notional Amount of
each Class of Offered Certificates will depend on the rate of payment (including
prepayments) of the Mortgage Loans, the Class Principal Balance or Notional
Amount of any such Class could be reduced to zero significantly earlier or later
than the Last Scheduled Distribution Date. The rate of payments on the Mortgage
Loans will depend on their particular characteristics, as well as on prevailing
interest rates from time to time and other economic factors, and no assurance
can be given as to the actual payment experience of the Mortgage Loans. See
"--Prepayment Considerations and Risks" and "--Weighted Average Lives of the
Offered Certificates" herein and "Yield, Prepayment and Maturity Considerations"
in the Prospectus.
THE SUBORDINATE CERTIFICATES
The weighted average lives of, and the yields to maturity on the
Subordinate Certificates, in descending order of their numerical Class
designations, will be sensitive to the rate and timing of mortgagor defaults and
the severity of ensuing losses on the Mortgage Loans. If the actual rate and
severity of losses on the Mortgage Loans are higher than those assumed by a
holder of a Subordinate Certificate, the actual yield to maturity of such
Certificate may be lower than the yield expected by such holder based on such
assumption. The timing of losses on the Mortgage Loans will also affect an
investor's actual yield to maturity, even if the rate of defaults and severity
of losses over the life of the Mortgage Loans are consistent with an investor's
expectations. In general, the earlier a loss occurs, the greater the effect on
an investor's yield to maturity. Realized Losses on the Mortgage Loans will
reduce the Class Principal Balance of the applicable Class of Subordinate
Certificates to the extent of any losses allocated thereto (as described under
"Description of the Certificates--Allocation of Losses"), without the receipt of
cash attributable to such reduction. In addition, shortfalls in cash available
for distributions on the Subordinate Certificates will result in a reduction in
the Class Principal Balance of the Class of Subordinate Certificates then
outstanding with the highest numerical Class designation after giving effect to
all distributions and allocations of losses, as described herein under
"Description of the Certificates--Allocation of Losses". As a result of such
reductions, less interest will accrue on such Class or Classes of Subordinate
Certificates than otherwise would be the case. The yield to maturity of the
Subordinate Certificates will also be affected by the
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<PAGE>
disproportionate allocation of the Principal Prepayment Amount to the Senior
Certificates, Net Interest Shortfalls and other cash shortfalls in Available
Funds and distributions of funds to the holders of the Class P Certificates
otherwise available for distributions on the Subordinate Certificates to the
extent of reimbursement for Class PO Deferred Amounts. See "Description of the
Certificates--Allocation of
Losses"
herein.
If on any Distribution Date the related Subordination Level for any
Class of Subordinate Certificates is less than such percentage as of the Closing
Date, all Payoffs and Curtailments, available for distribution on the
Subordinate Certificates will be allocated solely to such Class and all other
Classes of Subordinate Certificates with lower numerical Class designations,
thereby accelerating the amortization thereof relative to that of the Restricted
Classes and reducing the weighted average lives of such Classes of Subordinate
Certificates receiving such distributions. Accelerating the amortization of the
Classes of Subordinate Certificates with lower numerical Class designations
relative to the other Classes of Subordinate Certificates is intended to
preserve the availability of the subordination provided by such other Classes.
ADDITIONAL INFORMATION
The Depositor intends to file certain additional yield tables and other
computational materials with respect to one or more Classes of Offered
Certificates with the Commission in a report on Form 8-K. Such tables and
materials were prepared by the Underwriter at the request of certain prospective
investors, based on assumptions provided by, and satisfying the special
requirements of, such prospective investors. Such tables and assumptions may be
based on assumptions that differ from the Structuring Assumptions. Accordingly,
such tables and other materials may not be relevant to or appropriate for
investors other than those specifically requesting them.
S-43
<PAGE>
CREDIT ENHANCEMENT
SUBORDINATION OF CERTAIN CLASSES
The subordination of the Subordinate Certificates to the Senior
Certificates and the further subordination within the Subordinate Certificates
is intended to provide holders of Certificates with a higher relative payment
priority protection against Realized Losses other than Excess Losses. In
addition, the Subordinate Certificates will provide limited protection against
Special Hazard Losses, and against Bankruptcy Losses and Fraud Losses on the
Mortgage Loans up to the applicable Special Hazard Loss Coverage Amount,
Bankruptcy Loss Coverage Amount and Fraud Loss Coverage Amount, respectively, as
described below.
The Subordinate Certificates will provide protection to the Senior
Certificates of higher relative priority against (1) Bankruptcy Losses on the
Mortgage Loans in an initial amount expected to be up to approximately $ (the
"Bankruptcy Loss Coverage Amount"), (ii) Fraud Losses on the Mortgage Loans in
an initial amount expected to be up to approximately $ (the "Fraud Loss Coverage
Amount") and (iii) Special Hazard Losses on the Mortgage Loans in an initial
amount expected to be approximately $ (the "Special Hazard Loss Coverage
Amount").
The Special Hazard Loss Coverage Amounts will be reduced, from time to
time, to an amount equal on any Distribution Date to the lesser of (a) the
greatest of (i) 1% of the aggregate of the principal balances of the Mortgage
Loans, (ii) twice the principal balance of the largest Mortgage Loan and (iii)
the aggregate principal balances of the Mortgage Loans secured by Mortgaged
Properties located in the single California postal zip code area having the
highest aggregate principal balance of any such zip code area and (b) such
Special Hazard Loss Coverage Amount as of the Closing Date less the amount, if
any, of Special Hazard Losses allocated to the Certificates since the Closing
Date. All principal balances for the purpose of this definition will be
calculated as of the first day of the month preceding such Distribution Date
after giving effect to scheduled installments of principal and interest on the
Mortgage Loans then due, whether or not paid.
The Fraud Loss Coverage Amounts will be reduced, from time to time, by
the amount of Fraud Losses on Mortgage Loans allocated to the related
Certificates. In addition, on each anniversary of the Cutoff Date, the Fraud
Loss Coverage Amounts will be reduced as follows: (a) on the first, second,
third and fourth anniversaries of the Cut-off Date, to an amount equal to the
lesser of (i) 1% of the then current Stated Principal Balances of the Mortgage
Loans and (ii) the excess of such Fraud Loss Coverage Amount as of the preceding
anniversary of the Cut-off Date (or, in the case of the first such anniversary,
as of the Cut-off Date) over the cumulative amount of Fraud Losses allocated to
the Certificates since such preceding anniversary or the Cut-off Date, as the
case may be, and (b) on the fifth anniversary of the Cut-off Date, to zero.
The Bankruptcy Loss Coverage Amount will be reduced, from time to time,
by the amount of Bankruptcy Losses on Mortgage Loans allocated to the related
Certificates.
The amount of coverage provided by the Subordinate Certificates for
Special Hazard Losses, Bankruptcy Losses and Fraud Losses as described above may
be canceled or reduced from time to time for each of the risks covered, provided
that the then current ratings of the Certificates assigned by the Rating
Agencies are not adversely affected thereby. In addition, a reserve fund or
other form of credit enhancement may be substituted for the protection provided
by the Subordinate Certificates for Special Hazard Losses, Bankruptcy Losses and
Fraud Losses.
As used herein, a "Deficient Valuation" is a bankruptcy proceeding
whereby the bankruptcy court may establish the value of the Mortgaged Property
at an amount less than the then outstanding principal
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balance of the Mortgage Loan secured by such Mortgaged Property or may reduce
the outstanding principal balance of a Mortgage Loan. In the case of a reduction
in the value of the related Mortgaged Property, the amount of the secured debt
could be reduced to such value, and the holder of such Mortgage Loan thus would
become an unsecured creditor to the extent the outstanding principal balance of
such Mortgage Loan exceeds the value so assigned to the Mortgaged Property by
the bankruptcy court. In addition, certain other modifications of the terms of a
Mortgage Loan can result from a bankruptcy proceeding, including the reduction
(a "Debt Service Reduction") of the amount of the monthly payment on the related
Mortgage Loan. Notwithstanding the foregoing, no such occurrence shall be
considered a Debt Service Reduction or Deficient Valuation so long as the Master
Servicer is pursuing any other remedies that may be available with respect to
the related Mortgage Loan and (i) such Mortgage Loan is not in default with
respect to payment due thereunder or (ii) scheduled monthly payments of
principal and interest are being advanced by the Master Servicer without giving
effect to any Debt Service Reduction or Deficient Valuation.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Offered
Certificates against the purchase price of the Mortgage Loans.
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Trust Fund will be treated as a
REMIC. The assets of the REMIC will consist of the Mortgage Loans and all other
property in the Trust Fund. The REMIC will issue the Regular Certificates, which
will be designated as the regular interests in the REMIC. The Class A-R
Certificates will represent the beneficial ownership of the residual interest in
the REMIC. See "Description of the Certificates--REMIC Structure" herein.
The Regular Certificates generally will be treated as debt instruments
issued by the REMIC for federal income tax purposes. Income on the Regular
Certificates must be reported under an accrual method of accounting.
The Class P Certificates will be treated for federal income tax purposes
as having been issued with an amount of OID equal to the difference between
their principal balance and their issue price. Although the tax treatment is not
entirely certain, Class X Certificates will be treated as having been issued
with OID for federal income tax purposes equal to the excess of all expected
payments of interest on such Certificates over their issue price. Although
unclear, a holder of a Class X Certificate may be entitled to deduct a loss to
the extent that its remaining basis exceeds the maximum amount of future
payments to which such Certificateholder would be entitled if there were no
further prepayments of the Mortgage Loans. The remaining Classes of Regular
Certificates, depending on their respective issue prices (as described in the
Prospectus under "Certain Federal Income Tax Consequences"), may be treated as
having been issued with OID for federal income tax purposes. For purposes of
determining the amount and rate of accrual of OID and market discount, the Trust
Fund intends to assume that there will be prepayments on the Mortgage Loans at
___% CPR. No representation is made as to whether the Mortgage Loans will prepay
at the foregoing rate or any other rate. See "Yield, Prepayment and Maturity
Considerations" herein and "Certain Federal Income Tax Consequences" in the
Prospectus. Computing accruals of OID in the manner described in the Prospectus
may (depending on the actual rate of prepayments during the accrual period)
result in the accrual of negative amounts of OID on the Certificates issued with
OID in an accrual period. Holders will be entitled to offset negative accruals
of OID only against future OID accrual on such Certificates.
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 Regular
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 Regular Certificates.
If the holders of any Regular Certificates are treated as holding such
Certificates at a premium, such holders should consult their tax advisors
regarding the election to amortize bond premium and the method to be employed.
As is described more fully under "Certain Federal Income Tax
Consequences" in the Prospectus, the Offered Certificates will represent
qualifying assets under Sections 856(c)(4)(A) and 7701(a)(19)(C) of the Code,
and net interest income attributable to the Offered Certificates will be
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code, to the extent the assets of the
Trust Fund are assets described in such sections. The Regular Certificates will
represent qualifying assets under Section 860G(a)(3) if acquired by a REMIC
within the prescribed time periods of the Code.
The holders of the Residual Certificates must include the taxable income
of the REMIC in their federal taxable income. The resulting tax liability of the
holders may exceed cash distributions to such holders during certain periods.
All or a portion of the taxable income from a Residual Certificate recognized by
a holder may be treated as "excess inclusion" income, which, with limited
exceptions, is subject to U.S. federal income tax.
The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting Section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess inclusion
income from REMIC residual certificates that have "significant value" within the
meaning
S-46
<PAGE>
of the REMIC Regulations, effective for taxable years beginning after December
31, 1995, except with respect to residual certificates continuously held by a
thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum taxable
income for such residual holder is determined without regard to the special rule
that taxable income cannot be less than excess inclusions. Second, a residual
holder's alternative minimum taxable income for a tax year cannot be less than
the excess inclusions for the year. Third, the amount of any alternative minimum
tax net operating loss deductions must be computed without regard to any excess
inclusions. These rules are effective for tax years beginning after December 31,
1986, unless a residual holder elects to have such rules apply only to tax years
beginning after August 20, 1996.
Furthermore, the Small Business Job Protection Act of 1996, as part of
the repeal of the bad debt reserve method for thrift institutions, repealed the
application of Code Section 593(d) to any taxable year beginning after December
31, 1995.
Also, purchasers of a Residual Certificate should consider carefully the
tax consequences of an investment in Residual Certificates discussed in the
Prospectus and should consult their own tax advisors with respect to those
consequences. See "Certain Federal Income Tax Consequences--Taxation of Owners
of REMIC Residual Certificates" in the Prospectus. Specifically, prospective
holders of Residual Certificates should consult their tax advisors regarding
whether, at the time of acquisition, a Residual Certificate will be treated as a
"noneconomic" residual interest, a "non- significant value" residual interest
and a "tax avoidance potential" residual interest. See "Certain Federal Income
Tax Consequences--Taxation of Owners of REMIC Residual Certificates--Noneconomic
REMIC Residual Certificates", "Certain Federal Income Tax Consequences--Taxation
of Owners of REMIC Residual Certificates--Mark-to-Market Rules", "--Excess
Inclusions" and "--Foreign Investors in REMIC Certificates" in the Prospectus.
Additionally, for information regarding Prohibited Transactions and Treatment of
Realized Losses, see "Certain Federal Income Tax Consequences--Taxation of
Owners of REMIC Residual Certificates--Prohibited Transactions and Other
Possible REMIC Taxes" and "--Taxation of Owners of REMIC Regular
Certificates--Realized Losses" in the Prospectus.
ERISA CONSIDERATIONS
Any plan fiduciary which proposes to cause a Plan (as defined below) to
acquire any of the Offered Certificates should consult with its counsel with
respect to the potential consequences under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and/or the Code, of the Plan's
acquisition and ownership of such Certificates. See "ERISA Considerations" in
the Prospectus. Section 406 of ERISA and Section 4975 of the Code prohibits
Parties in Interest with respect to an employee benefit plan subject to ERISA
and/or to Section 4975 of the Code (a "Plan") from engaging in certain
transactions involving such Plan and its assets unless a statutory, regulatory
or administrative exemption applies to the transaction. Section 4975 of the Code
imposes certain excise taxes on prohibited transactions involving Plans and
other arrangements (including, but not limited to, individual retirement
accounts) described under that Section; ERISA authorizes the imposition of civil
penalties for prohibited transactions involving Plans not subject to the
requirements of Section 4975 of the Code.
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets of
such plans may generally be invested in the Offered Certificates without regard
to the ERISA considerations described herein and in the Prospectus, subject to
the provisions of other applicable federal and state law. Any such plan that is
qualified and exempt from taxation under Sections 401 (a) and 501 (a) of the
Code may nonetheless be subject to the prohibited transaction rules set forth in
Section 503 of the Code.
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<PAGE>
Except as noted above, investments by Plans are subject to ERISA's
general fiduciary requirements, including the requirement of investment prudence
and diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary that decides to
invest the assets of a Plan in the Offered Certificates should consider, among
other factors, the extreme sensitivity of the investment to the rate of
principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor has granted an individual administrative
exemption to the Underwriter (Prohibited Transaction Exemption 90-83, as amended
(the "Exemption")), from certain of the prohibited transaction rules of ERISA
and the related excise tax provisions of Section 4975 of the Code with respect
to the initial purchase, the holding and the subsequent resale by Plans of
certificates in pass-through trusts that consist of certain receivables, loans
and other obligations that meet the conditions and requirements of the
Exemption. The Exemption applies to mortgage loans such as the Mortgage Loans in
the Trust Fund.
For a general description of the Exemption and the conditions that must
be satisfied for the Exemption to apply, see "ERISA Considerations" in the
Prospectus.
It is expected that the Exemption will apply to the acquisition and
holding by Plans of the Senior Certificates (other than the Class A-R
Certificates) and that all conditions of the Exemption other than those within
the control of the investors will be met. In addition, as of the date hereof,
there is no single Mortgagor that is the obligor on five percent (5%) of the
Mortgage Loans included in the Trust Fund by aggregate unamortized principal
balance of the assets of the Trust Fund.
BECAUSE THE CHARACTERISTICS OF THE CLASS B-1, CLASS B-2 AND CLASS B-3
CERTIFICATES WILL NOT MEET THE REQUIREMENTS OF PTCE 83-1 (AS DESCRIBED IN THE
PROSPECTUS) OR THE EXEMPTION AND MAY NOT MEET THE REQUIREMENTS OF ANY OTHER
ISSUED EXEMPTION UNDER ERISA, THE PURCHASE AND HOLDING OF THE CLASS B-1, CLASS
B-2 AND CLASS B-3 CERTIFICATES BY A PLAN OR BY INDIVIDUAL RETIREMENT ACCOUNTS OR
OTHER PLANS SUBJECT TO SECTION 4975 OF THE CODE MAY RESULT IN PROHIBITED
TRANSACTIONS OR THE IMPOSITION OF EXCISE TAXES OR CIVIL PENALTIES. CONSEQUENTLY,
TRANSFERS OF THE CLASS B-1, CLASS B-2 AND CLASS B-3 CERTIFICATES WILL NOT BE
REGISTERED BY THE TRUSTEE UNLESS THE TRUSTEE RECEIVES: (I) A REPRESENTATION FROM
THE TRANSFEREE OF SUCH CERTIFICATE, ACCEPTABLE TO AND IN FORM AND SUBSTANCE
SATISFACTORY TO THE TRUSTEE, TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN
EMPLOYEE BENEFIT PLAN SUBJECT TO SECTION 406 OF ERISA OR A PLAN OR ARRANGEMENT
SUBJECT TO SECTION 4975 OF THE CODE, NOR A PERSON ACTING ON BEHALF OF ANY SUCH
PLAN OR ARRANGEMENT NOR USING THE ASSETS OF ANY SUCH PLAN OR ARRANGEMENT TO
EFFECT SUCH TRANSFER; (II) IF THE PURCHASER IS AN INSURANCE COMPANY, A
REPRESENTATION THAT THE PURCHASER IS AN INSURANCE COMPANY WHICH IS PURCHASING
SUCH CERTIFICATES WITH FUNDS CONTAINED IN AN "INSURANCE COMPANY GENERAL ACCOUNT"
(AS SUCH TERM IS DEFINED IN SECTION V(E) OF PROHIBITED TRANSACTION CLASS
EXEMPTION 95-60 ("PTCE 95-60")) AND THAT THE PURCHASE AND HOLDING OF SUCH
CERTIFICATES ARE COVERED UNDER SECTIONS I AND III OF PTCE 95-60, OR (III) AN
OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE THAT THE PURCHASE OR HOLDING OF
SUCH CERTIFICATE BY A PLAN, ANY PERSON ACTING ON BEHALF OF A PLAN OR USING SUCH
PLAN'S ASSETS, WILL NOT RESULT IN THE ASSETS OF THE TRUST FUND BEING DEEMED TO
BE "PLAN ASSETS" AND SUBJECT TO THE PROHIBITED TRANSACTION REQUIREMENTS OF ERISA
AND THE CODE AND WILL NOT SUBJECT THE TRUSTEE TO ANY OBLIGATION IN ADDITION TO
THOSE UNDERTAKEN IN THE AGREEMENT. SUCH REPRESENTATION AS DESCRIBED ABOVE SHALL
BE DEEMED TO HAVE BEEN MADE TO THE TRUSTEE BY THE TRANSFEREE'S ACCEPTANCE OF A
CLASS B-1, CLASS B-2 OR CLASS B-3 CERTIFICATE. IN THE EVENT THAT SUCH
REPRESENTATION IS VIOLATED, OR ANY ATTEMPT TO TRANSFER TO A PLAN OR PERSON
ACTING ON BEHALF OF A PLAN OR USING SUCH A PLAN'S ASSETS IS ATTEMPTED WITHOUT
SUCH OPINION OF COUNSEL, SUCH ATTEMPTED TRANSFER OR ACQUISITION SHALL BE VOID
AND OF NO EFFECT.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the Exemption,
and the potential consequences in their specific circumstances, prior to making
an investment in the Offered Certificates. Moreover, each Plan fiduciary should
determine whether under the general fiduciary standards of investment prudence
and diversification,
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<PAGE>
an investment in the Offered Certificates is appropriate for the Plan, taking
into account the overall investment policy of the Plan and the composition of
the Plan's investment portfolio.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
agreement (the "Underwriting Agreement") between the Depositor and Donaldson,
Lufkin & Jenrette Securities Corporation (the "Underwriter"), an affiliate of
the Depositor, the Depositor has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase from the Depositor, the Offered Certificates.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Offered Certificates is
subject to, among other things, the receipt of certain legal opinions and to the
conditions, among others, that no stop order suspending the effectiveness of the
Depositor's Registration Statement shall be in effect, and that no proceedings
for such purpose shall be pending before or threatened by the Securities and
Exchange Commission.
The distribution of the Offered Certificates by the Underwriter will be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined, in each case, at the time of sale. The
proceeds to the Depositor from the sale of the Offered Certificates will be
approximately % of the initial aggregate Class Principal Balance of the Offered
Certificates, plus accrued interest, before deducting expenses payable by the
Depositor. The Underwriter may effect such transactions by selling its
Certificates to or through dealers, and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriter for whom they act as agent. In connection with the sale of the
Offered Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of an underwriting discount. The
Underwriter and any dealers that participate with the Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended.
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, as amended, or contribute to payments required to be made in respect
thereof.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue or will
provide investors with a sufficient level of liquidity. The primary source of
information available to investors concerning the Offered Certificates will be
monthly statements discussed in the Prospectus under "The Agreements--Reports to
Securityholders", which will include information as to the outstanding principal
balance of the Offered Certificates and the status of the applicable form of
credit enhancement. There can be no assurance that any additional information
regarding the Offered Certificates will be available through any other source.
In addition, the Depositor is not aware of any source through which price
information about the Offered Certificates may adversely affect the liquidity of
the Offered Certificates, even if a secondary market for the Offered
Certificates becomes available.
LEGAL MATTERS
The validity of the Certificates, including certain federal income tax
consequences with respect thereto, will be passed upon for the Depositor by
Thacher Proffitt & Wood, New York, New York. Thacher Proffitt & Wood will pass
upon certain legal matters on behalf of the Underwriter.
S-49
<PAGE>
RATINGS
[It is a condition of the issuance of the Offered Certificates that they
receive from [S&P and DCR] as indicated:
RATING AGENCY
-------------
CLASS [S&P] [DCR]
- ---------------------------- ----------- ----------
A-1......................... AAA AAA
A-2......................... AAA AAA
A-3......................... AAA AAA
A-4......................... AAA AAA
P........................... AAAr AAA
X........................... AAAr AAA
A-R......................... AAA AAA
B-1......................... __ AA
B-2......................... __ A
B-3......................... __ BBB
The ratings assigned by DCR to mortgage pass-through certificates
address the likelihood of the receipt by certificateholders of all distributions
to which they are entitled under the transaction structure. DCR's ratings
reflect its analysis of the riskiness of the mortgage loans and its analysis of
the structure of the transaction as set forth in the operative documents. DCR's
ratings do not address the effect on the certificates' yield attributable to
prepayments or recoveries on the underlying mortgage loans. Further, the ratings
on the Class X Certificates do not address whether investors will recoup their
initial investment. The rating assigned by DCR to the Class P Certificates only
addresses the return of its stated principal balance. The rating assigned by DCR
to the Class A-R Certificates only addresses the return of its Class Certificate
Balance and interest thereon at its stated Pass-Through Rate.
The ratings assigned by S&P to mortgage pass-through certificates
address the likelihood of the receipt of all distributions on the mortgage loans
by the related Certificateholders under the agreements pursuant to which such
certificates are issued. S&P's ratings take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on such mortgage pool is adequate to make payments
required by such certificates. S&P's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. The "r" symbol is appended to the rating by S&P of those
Certificates that S&P believes may experience high volatility or high
variability in expected returns due to non-credit risks. The absence of any "r"
symbol in the ratings of the other Offered Certificates should not be taken as
an indication that such Certificates will exhibit no volatility or variability
in total return.
The ratings of the Rating Agencies do not address the possibility that,
as a result of principal prepayments, Certificateholders may receive a lower
than anticipated yield. Further, the ratings on the Class X Certificates do not
address whether investors will recoup their initial investment.]
The ratings assigned to the Offered Certificates should be evaluated
independently from similar ratings on other types of securities. A rating is not
a recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the Rating Agencies.
The Depositor has not requested a rating of the Offered Certificates by
any rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the
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<PAGE>
Offered Certificates or, if it does, what rating would be assigned by such other
rating agency. The rating assigned by such other rating agency to the Offered
Certificates could be lower than the respective ratings assigned by the Rating
Agencies.
S-51
<PAGE>
[INDEX OF DEFINED TERMS]
S-52
<PAGE>
______________________
Series ____-_
DLJ MORTGAGE ACCEPTANCE CORP.
Depositor
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES ____-_
$_____________________
(Approximate)
_____________________
PROSPECTUS SUPPLEMENT
_____________________
[NAME OF UNDERWRITER]
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the Series ____-_ Mortgage Pass-Through Certificates in any
state where the offer is not permitted.
We do not claim that the information in this prospectus supplement and
prospectus is accurate as of any date other than the dates stated on the
respective covers.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the Series ____-_ Mortgage Pass-Through Certificates and with
respect to their unsold allotments or subscriptions. In addition, all dealers
selling the Series ____-_ Mortgage Pass-Through Certificates will be required to
deliver a prospectus supplement and prospectus for ninety days following the
date of this prospectus supplement.
______________ _______, ____
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus
supplement is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION DATED APRIL ___, 1999
[VERSION 2]
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED ______ ___, ____)
DLJ MBN TRUST SERIES _____-____
DLJ MORTGAGE ACCEPTANCE CORP.
Depositor
[NAME OF MASTER SERVICER]
Master Servicer
MORTGAGE-BACKED NOTES, SERIES ______-_____
$
(Approximate)
- --------------------------------------------------------------------------------
The notes represent obligations of the trust only and do not represent an
interest in or obligation of DLJ Mortgage Acceptance Corp., the seller, the
master servicer, the trustee or any of their affiliates.
This prospectus supplement may be used to offer and sell the notes only if
accompanied by the prospectus.
- --------------------------------------------------------------------------------
THE TRUST WILL ISSUE:
o [One] class of Senior Class A Notes.
o [Three classes of Class M Notes, which are subordinate to, and provide
credit enhancement for the senior notes. Each class of Class M Notes is
also subordinated to each class of Class M Notes, if any, with a lower
numerical designation.]
THE NOTES:
o Represent indebtedness of a trust, whose assets are primarily a pool of
fixed rate, first lien residential mortgage loans.
o Currently have no trading market and will not be listed on any exchange.
o Offered pursuant to this prospectus and prospectus supplement are listed
under the heading "Offered Notes" in the table on page S-_.
RISKS:
o The yield to investors on the notes will be sensitive to the rate and
timing of principal payments on the mortgage loans which may vary over
time.
o Net interest shortfalls from prepayments on mortgage loans and losses from
liquidations of defaulted mortgage loans will adversely affect the yield to
investors in the notes, and the investors in the equity certificates in
particular.
o REVIEW THE INFORMATION IN "RISK FACTORS" ON PAGE S-_ IN THIS PROSPECTUS
SUPPLEMENT AND PAGE _ IN THE PROSPECTUS.
[The Underwriter], as underwriter, will buy the offered notes from DLJ Mortgage
Acceptance Corp. at a price equal to ___% of their face value. DLJ Mortgage
Acceptance Corp. will pay the expenses related to the issuance of the notes from
these proceeds. The underwriter will sell the offered notes purchased by it from
time to time in negotiated transactions at varying prices to be determined at
the time of sale.
If the terms of your series of notes vary between this prospectus supplement and
the prospectus, you should rely on the information in this prospectus
supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[NAME OF UNDERWRITER]
___________ _______, _______
<PAGE>
[IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
We provide information to you about the offered notes in two separate documents
that progressively provide more detail:
o the prospectus, which provides general information, some of which may not
apply to your series of notes; and
o this prospectus supplement, which describes the specific terms of your
series of notes.
IF THE DESCRIPTION OF YOUR NOTES IN THIS PROSPECTUS SUPPLEMENT DIFFERS FROM THE
RELATED DESCRIPTION IN THE PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN
THIS PROSPECTUS SUPPLEMENT.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement and the prospectus are defined under the caption "Index of
Defined Terms" beginning on page S-___ in this prospectus supplement and on page
___ in the prospectus.]
S-2
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT
---------------------
SUMMARY INFORMATION..........................................................S-
RISK FACTORS.................................................................S-
THE MORTGAGE POOL............................................................S-
DESCRIPTION OF THE NOTES.....................................................S-
YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS..........................................................S-
CREDIT ENHANCEMENT...........................................................S-
USE OF PROCEEDS..............................................................S-
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES............................................................S-
ERISA CONSIDERATIONS.........................................................S-
METHOD OF DISTRIBUTION.......................................................S-
LEGAL MATTERS................................................................S-
RATINGS......................................................................S-
Page
----
PROSPECTUS
----------
ADDITIONAL INFORMATION.......................................................
PROSPECTUS SUPPLEMENT........................................................
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE..................................................
SUMMARY OF THE PROSPECTUS....................................................
RISK FACTORS.................................................................
DESCRIPTION OF THE SECURITIES................................................
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 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.........................................................
INDEX OF DEFINED TERMS.......................................................
S-3
<PAGE>
SUMMARY INFORMATION
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS SUPPLEMENT AND
DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING YOUR
INVESTMENT DECISION. PLEASE READ THIS ENTIRE PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS CAREFULLY FOR ADDITIONAL INFORMATION ABOUT THE OFFERED
NOTES.
MORTGAGE-BACKED NOTES,
SERIES ____-_
INITIAL NOTE INITIAL RATING OF
CLASS INTEREST OFFERED NOTES(2)
PRINCIPAL RATE (PER ______ ______
CLASS BALANCE(1) ANNUM) RATING RATING
- ----------------------------------------- --------- --------
OFFERED
NOTES
[Class A $ % AAA AAA]
[Class M-1 $ % AA AA]
[Class M-2 $ % A A]
[Class M-3 $ % N/A BBB]
___________________________
(1) This amount is subject to a variance of 5%.
(2) A description of the ratings of the offered notes is set forth under the
heading "Ratings" in this prospectus supplement.
The trust will issue the offered notes in book-entry form through the facilities
of The Depository Trust Company. SEE "DESCRIPTION OF THE NOTES--GENERAL" AND
"--REGISTRATION" IN THIS PROSPECTUS SUPPLEMENT FOR MORE DETAIL.
DEPOSITOR
o DLJ Mortgage Acceptance Corp.
o The depositor maintains its principal office at 277 Park Avenue, 9th Floor,
New York, New York 10172. Its telephone number is (212) 892-3000.
SEE "THE DEPOSITOR" IN THE PROSPECTUS FOR MORE DETAIL.
SELLER
o [Name of Seller] will sell the loans to the depositor.
MASTER SERVICER
o [Name of Master Servicer] will initially service all of the mortgage loans
directly. Prior to contracting with any subservicer for the servicing of
any of the mortgage loans, [Name of Master Servicer], as master servicer,
will obtain any required servicing certifications from the rating agencies.
SEE "THE SELLER" IN THIS PROSPECTUS SUPPLEMENT FOR MORE DETAIL.
ISSUER
o DLJ MBN Trust ____________-_________.
OWNER TRUSTEE
o [Name of Owner Trustee].
INDENTURE TRUSTEE
o [Name of Indenture Trustee].
CUT-OFF DATE
o _____ 1, ____.
CLOSING DATE
o _____ __, ___.
DETERMINATION DATE
o With respect to the mortgage loans, the ____ day of each month or if such
day is not a business day, the next business day.
S-4
<PAGE>
DISTRIBUTION DATE
o Beginning on _______ ____, ____ and thereafter on the ____ day of each
month or if such day is not a business day, the next business day.
o The first distribution date will be in _____ ____.
RECORD DATE
o The last business day of the month preceding the month of a distribution
date.
THE MORTGAGE POOL
On _____ __, ____, the trust will acquire a pool of mortgage loans. As of _____
1, ____, the mortgage pool consists of approximately _____ mortgage loans, with
an aggregate principal balance of approximately $_____. All of the mortgage
loans are secured by residential properties and each is set to mature within __
to __ years of the date it was originated.
SEE "DESCRIPTION OF THE MORTGAGE POOL" IN THIS PROSPECTUS SUPPLEMENT FOR MORE
DETAIL.
PRIORITY OF DISTRIBUTIONS
Funds available from payments and other amounts received on the mortgage loans
on any distribution date will be distributed to the holders of the notes in the
following order:
(i) to interest on the notes;
(ii) to principal of the notes; and
(iii) to principal of the notes in respect of specified amounts of
certain losses; and
(iv) to addition principal of the notes if the level of
overcollateralization falls below what is required;
SEE "DESCRIPTION OF THE NOTES" IN THIS PROSPECTUS SUPPLEMENT FOR MORE DETAIL.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the notes consists of:
[SUBORDINATION
The rights of the holders of the Class M-1 Notes, the Class M-2 Notes, the Class
M-3 Notes to receive distributions will be subordinated, to the extent described
herein, to the rights of the holders of the Class A Notes.
In addition, the rights of the holders of such subordinate notes with higher
numerical class designations will be subordinated to the rights of holders of
subordinate notes with lower numerical class designations, to the extent
described herein.
Subordination is intended to enhance the likelihood of regular distributions on
the more senior notes in respect of interest and principal and to afford such
notes protection against realized losses on the mortgage loans as described
below.]
ALLOCATION OF LOSSES
Except as described below, if subordinate notes remain outstanding, losses on
the mortgage loans will be allocated first to the class of subordinate notes
with the lowest payment priority, and the other classes of notes will not bear
any portion of such losses. If none of the subordinate notes remain outstanding,
losses on mortgage loans will generally be allocated to the Class A Notes.
OVERCOLLATERALIZATION. Although the aggregate principal balance of the mortgage
loans is $______________, the issuer is issuing only $______________ aggregate
principal amount of notes. The excess amount of such aggregate principal balance
of the mortgage loans represents overcollateralization, which may absorb
specified amounts of certain losses on the mortgage loans, if not covered by
excess interest. If the level of overcollateralization falls below what is
required, the excess interest described above will also be paid to the notes as
principal. This will reduce the principal balance of the notes faster than the
S-5
<PAGE>
principal balance of the mortgage loans so that the required level of
overcollateralization is reached.
OPTIONAL REDEMPTION
If the aggregate principal balance of the mortgage loans declines below __% of
the total pool principal balance as of _________, ____, then the depositor may
purchase all of the mortgage loans and the related properties in the trust. If
the depositor purchases all of the mortgage loans, you will receive a final
distribution and then the trust will be terminated.
SEE "DESCRIPTION OF THE NOTES--OPTIONAL REDEMPTION" IN THIS PROSPECTUS
SUPPLEMENT FOR MORE DETAIL.
EQUITY CERTIFICATES
$__________ Trust Certificates, Series _____-___. The certificates will be
issued pursuant to the Owner Trust Agreement, and will represent the beneficial
ownership interest in the issuer. The certificates are not offered under this
prospectus supplement.
TAX STATUS
For federal income tax purposes, the notes will be treated as debt. The trust
itself will not be subject to tax.
SEE "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND
IN THE PROSPECTUS FOR MORE DETAIL.
ERISA CONSIDERATIONS
Subject to important considerations, the notes may be eligible for purchase by
persons investing assets of employee benefit plans or individual retirement
accounts. Plans should consult with their legal advisors before investing in the
notes.
SEE "ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS
FOR MORE DETAIL.
LEGAL INVESTMENT
The [Class A] and [Class M-1 Notes] will be "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"), as
long as they are rated in one of the two highest rating categories by at least
one nationally recognized statistical rating organization and, as such, will be
legal investments for certain entities to the extent provided in SMMEA and
applicable state laws. [The Class M-2 Notes and the Class M-3 Notes will not
constitute "mortgage related securities" for purposes of SMMEA.] See "Legal
Investment" herein and in the prospectus.
SEE "LEGAL INVESTMENT" IN THE PROSPECTUS FOR MORE DETAIL.
RATINGS
The trust will not issue the offered notes unless they have been assigned the
ratings designated on page S-__.
A rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by either rating agency.
SEE "RATINGS" IN THIS PROSPECTUS SUPPLEMENT FOR MORE DETAIL.
S-6
<PAGE>
S-7
<PAGE>
RISK FACTORS
The offered notes are not suitable investments for all investors. In
particular, you should not purchase the offered notes unless you understand and
are able to bear the prepayment, credit, liquidity and market risks associated
with such securities.
The offered notes are complex securities. You should possess, either
alone or together with an investment advisor, the expertise necessary to
evaluate the information contained in this prospectus and the accompanying
prospectus supplement in the context of your financial situation.
You should carefully consider, among other things, the following
factors in connection with the purchase of the offered notes:
[Appropriate Risk Factors as necessary. Possible Risk Factors based on present
disclosure include the following:
PREPAYMENTS ON MORTGAGE LOANS The rate of principal distributions and yield
ADVERSELY AFFECT YIELD to maturity on your notes will be directly
related to the rate of principal payments on
the mortgage loans. Mortgagors may prepay a
mortgage loan at any time. The rate of
principal payments, among other factors, on
the mortgage loans will be affected by the
following:
o the amortization schedules of the
mortgage loans;
o the rate of prepayments (including
partial prepayments and prepayments
resulting from refinancing) by
mortgagors;
o liquidations of defaulted mortgage
loans by the master servicer;
o repurchases of mortgage loans by
the seller as a result of defective
documentation or breaches of
representations and warranties; and
o the optional purchase by the
depositor of all of the mortgage
loans in connection with the MAY
termination of the trust.
S-8
<PAGE>
The rate of principal payments on pools of
mortgage loans is influenced by a variety of
economic, geographic, social and other
factors. For example, if mortgage rates for
similar mortgage loans fall below the
mortgage rates on the mortgage loans, the
prepayment rate would generally be expected
to increase. Conversely, if mortgage rates on
similar mortgage loans rise above the
mortgage rates on the mortgage loans, the
prepayment rate would generally be expected
to decrease.
We cannot predict the rate at which
mortgagors will repay their mortgage loans.
Please consider the following:
o If you are purchasing a note at a
discount, your yield may be lower
than expected if principal payments
on the mortgage loans occur at a
slower rate than you expected.
o If you are purchasing a note at a
premium, your yield may be lower
than expected if principal payments
on the mortgage loans occur at a
faster rate than you expected.
o The earlier a payment of principal
occurs, the greater the impact on
your yield. For example, if you
purchase a note at a premium,
although the average rate of
principal payments is consistent
with your expectations, if the rate
of principal payments occurs
initially at a rate higher than
expected, which would adversely
impact your yield, a subsequent
reduction in the rate of principal
payments will not offset any
adverse yield effect.
SEE "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT
FOR MORE DETAIL.
LIMITED SOURCE OF PAYMENTS--NO The mortgage loans are the sole source of
RECOURSE TO THE DEPOSITOR, THE distributions for the notes. The notes do not
SELLER, THE MASTER SERVICER OR represent an interest in or obligation of the
THE TRUSTEE depositor, the seller, the master servicer,
the trustee or any of their affiliates,
except for the limited obligations of the
seller with respect to certain breaches of
their respective representations and
warranties and of the master servicer with
respect to their servicing obligations.
Neither the notes nor the mortgage loans will
be guaranteed by or insured by any
governmental agency or instrumentality, the
depositor, the seller, the master servicer,
the trustee or any of its affiliates.
Consequently, if payments on the mortgage
loans are insufficient to make all payments
required on the notes you may incur a loss on
your investment.
S-9
<PAGE>
LIMITED LIQUIDITY The underwriter intends to make a market for
the purchase and sale of the offered notes
after their initial issuance but has no
obligation to do so. There is currently no
secondary market for the offered notes. We
cannot give you any assurance that such a
secondary market will develop or, if it
develops, that it will continue.
Consequently, you may not be able to sell
your offered notes readily or at prices that
will enable you to realize your desired
yield. The market values of the offered notes
are likely to fluctuate; these fluctuations
may be significant and could result in
significant losses to you.
The secondary markets for mortgage backed
securities have experienced periods of
illiquidity and can be expected to do so in
the future. Illiquidity can have a severely
adverse effect on the prices of securities
that are especially sensitive to prepayment,
credit or interest rate risk, or that have
been structured to meet the investment
requirements of limited categories of
investors.
[GEOGRAPHIC CONCENTRATION Approximately ___% of the mortgage loans, by
principal balance as of _____ __, ____, are
secured by properties located in California.
If the California residential real estate
market should 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 increase, as
compared to such rates in a stable or
improving real estate market. Also,
California is more susceptible to certain
types of uninsurable hazards, such as
earthquakes, brush fires, floods, mudslides
and other natural disasters. If any such
disaster occurs, the rates of delinquency,
foreclosure, bankruptcy and loss on the
Mortgage Loans may increase.]
S-10
<PAGE>
CONSEQUENCES OF OWNING BOOK- LIMIT ON LIQUIDITY OF NOTES. Issuance of the
ENTRY NOTES book-entry notes in book-entry form may
reduce the liquidity of such notes in the
secondary trading market since investors may
be unwilling to purchase notes for which they
cannot obtain physical notes.
LIMIT ON ABILITY TO TRANSFER OR PLEDGE. Since
transactions in the book-entry notes can be
effected only through The Depository Trust
Company, participating organizations,
indirect participants and certain banks, your
ability to transfer or pledge a book-entry
note to persons or entities that do not
participate in The Depository Trust Company
system or otherwise to take actions in
respect of such notes, may be limited due to
lack of a physical note representing the
book-entry notes.
DELAYS IN DISTRIBUTIONS. You may experience
some delay in the receipt of distributions on
the book-entry notes since the distributions
will be forwarded by the trustee to The
Depository Trust Company for The Depository
Trust Company to credit the accounts of its
participants which will thereafter credit
them to your account either directly or
indirectly through indirect participants, as
applicable.
SEE "DESCRIPTION OF THE NOTES--REGISTRATION"
IN THIS PROSPECTUS SUPPLEMENT FOR MORE
DETAIL.
ANY CREDIT ENHANCEMENT WILL BE With respect to each series of offered notes,
LIMITED; THE FAILURE OF CREDIT credit enhancement will be provided in
ENHANCEMENT TO COVER LOSSES ON limited amounts to cover certain types of
THE TRUST FUND ASSETS MAY losses on the underlying mortgage loans.
RESULT IN LOSSES ALLOCATED TO THE Credit enhancement will be provided in one or
OFFERED NOTES more of the forms referred to herein,
including: subordination of any subordinate
securities of the same series; a financial
guaranty insurance policy; a letter of
credit; a mortgage pool insurance policy;
overcollateralization; a reserve fund; or any
combination thereof. See "Credit Support" in
the prospectus. Regardless of the form of
credit enhancement provided, the amount of
coverage will be limited in amount and in
most cases will be subject to periodic
reduction in accordance with a schedule or
formula. Furthermore, such credit
enhancements may provide only very limited
coverage as to certain types of losses or
risks, and may provide no coverage as to
certain other types of losses or risks. In
the event losses exceed the amount of
coverage provided by any credit enhancement
or losses of a type not covered by any credit
enhancement occur, such losses will be borne
by the holders of the related Offered notes
(or certain classes thereof).
S-11
<PAGE>
[THE CLASS M NOTES WILL BE The weighted average lives of, and the yields
PARTICULARLY SENSITIVE TO LOSSES to maturity on, the Class M-1, Class M-2 and
ON THE MORTGAGE LOANS Class M-3 Notes will be progressively more
sensitive, in increasing order of their
numerical class designations, to the rate and
timing of mortgagor defaults and the severity
of ensuing losses on the mortgage loans. If
the actual rate and severity of losses on the
mortgage loans is higher than those assumed
by an investor in one of the Class M-1, Class
M-2 or Class M-3 Notes, the actual yield to
maturity of such note may be lower than the
yield anticipated by such holder based on
such assumption. The timing of losses on the
mortgage loans will also affect an investor's
actual yield to maturity, even if the rate of
defaults and severity of losses over the life
of the mortgage pool are consistent with an
investor's expectations. In general, the
earlier a loss occurs, the greater the effect
on an investor's yield to maturity. Losses on
the mortgage loans in any due period, to the
extent they exceed the overcollateralized
amount following payments of principal on the
related payment date, will reduce the note
principal balance of the class of notes then
outstanding with the highest numerical class
designation. As a result of such reductions,
less interest will accrue on such class of
subordinate notes than would otherwise be the
case.]
[THE CLASS M NOTES WILL Unless the note principal balance of the
GENERALLY NOT BE ENTITLED TO Class A Notes has been reduced to zero, the
RECEIVE PRINCIPAL PAYMENTS Class M-1, Class M-2 and Class M-3 Notes will
UNTIL ALL PRINCIPAL PAYMENTS not be entitled to any principal payments
HAVE BEEN MADE ON THE CLASS until _________ ____ or a later period as
A NOTES WHICH MAY LEAD TO A described herein. As a result, the weighted
GREATER RISK OF LOSS WITH average lives of such notes will be longer
RESPECT TO SUCH NOTES than would otherwise be the case if payments
of principal were allocated among all of the
notes at the same time. As a result of the
longer weighted average lives of such Notes,
the holders of such notes have a greater risk
of suffering a loss on their investments.
Further, because such notes might not receive
any principal if certain delinquency levels
occur, it is possible for the such notes to
receive no principal payments even if no
losses have occurred on the mortgage pool].
S-12
<PAGE>
THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of approximately _____ conventional,
one- to four-family, fixed-rate Mortgage Loans (the "Mortgage Loans") secured by
first liens on residential real properties (the "Mortgaged Properties") and
having an aggregate principal balance as of ________ __, ____ (the "Cut-off
Date") of approximately $___________. The Mortgage Loans have original terms to
maturity of not greater than [30] years. References to percentages of the
Mortgage Loans, unless otherwise noted, are calculated based on the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date.
The Mortgage Loans to be included in the Mortgage Pool will be
acquired by the Depositor on the Closing Date from [Name of Seller] ( the
"Seller"). See "--Underwriting Standards; Representations" below and "The
Seller" herein.
The Mortgage Loans generally have scheduled monthly payments due (with
respect to each Mortgage Loan, a "Due Date") on the first day of the month .
Each Mortgage Loan will contain a customary "due-on-sale" clause or will be
assumable by a creditworthy purchaser of the related Mortgaged Property.
No Mortgage Loan is subject to a buydown agreement.
Approximately ____% of the Mortgage Loans are balloon loans (the
"Balloon Loans"). Each Balloon Loan is a Fixed Rate Mortgage Loan that amortizes
over ___ months, but the final payment (the "Balloon Payment") on each Balloon
Loan is due and payable on the ___ month. The amount of the Balloon Payment on
each Balloon Loan is substantially in excess of the amount of the scheduled
monthly payment on such Balloon Loan for the period prior to the Due Date of
such Balloon Payment.
The average principal balance of the Mortgage Loans at origination was
approximately $_______. No Mortgage Loan had a principal balance at origination
greater than approximately $________ or less than approximately $______. The
average principal balance of the Mortgage Loans as of the Cut-off Date was
approximately $_______.
The Mortgage Loans had Mortgage Rates as of the Cut-off Date ranging
from approximately ______% per annum to approximately _____% per annum, and the
weighted average Mortgage Rate was approximately ______% per annum. The weighted
average loan-to-value ratio of the Mortgage Loans at origination was
approximately _____%. At origination, no Mortgage Loan will have a loan-to-value
ratio greater than approximately _____% or less than approximately ____%.
The weighted average remaining term to maturity of the Mortgage Loans
will be approximately ___ years and __ months as of the Cut-off Date. None of
the Mortgage Loans will have a first Due Date prior to _______ ____ or after
___________ ____, or will have a remaining term to maturity of less than __
years or greater than __ years as of the Cut-off Date. The latest maturity date
of any Mortgage Loan is ___________ _____.
S-13
<PAGE>
The Mortgage Loans are expected to have the following characteristics
as of the Cut-off Date (the sum in any column may not equal the total indicated
due to rounding):
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AT ORIGINATION
% OF
NUMBER AGGREGATE ORIGINAL AGGREGATE ORIGINAL
RANGE ($) OF LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------- -------- ------------------ ------------------
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
Total ......................
.
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RANGE ($) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------- -------- ----------------- ----------------
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
Total ......................
..
S-14
<PAGE>
MORTGAGE RATES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MORTGAGE RATE (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------- -------- ----------------- -----------------
.............................
.............................
.............................
.............................
.............................
Total...............
ORIGINAL LOAN-TO-VALUE RATIOS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN-TO-VALUE RATIO (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------------- -------- ----------------- ----------------
.............................
.............................
.............................
.............................
Total...............
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOCATION OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------- -------- ----------------- ----------------
.............................
.............................
.............................
.............................
.............................
Total...............
MORTGAGED PROPERTY TYPES OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
PROPERTY TYPE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------- -------- ----------------- ----------------
.............................
.............................
.............................
.............................
.............................
.............................
Total...............
S-15
<PAGE>
MORTGAGED PROPERTY OCCUPANCY STATUS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
OCCUPANCY STATUS OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ---------------- -------- ----------------- ----------------
.............................
.............................
Total...............
The occupancy status of a Mortgaged Property is as represented by the
mortgagor in its loan application.
LOAN PURPOSE OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN PURPOSE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------ -------- ----------------- -----------------
.............................
.............................
.............................
Total...............
LOAN PROGRAMS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN PROGRAM OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------ -------- ----------------- ----------------
.............................
.............................
.............................
Total...............
RISK CATEGORIES OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RISK CATEGORIES OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------- -------- ----------------- ----------------
.............................
.............................
.............................
.............................
.............................
Total...............
UNDERWRITING STANDARDS; REPRESENTATIONS
The Mortgage Loans will be acquired by the Depositor on the Closing Date
from the Seller. The information set forth below with regard to the Seller's
underwriting standards has been provided to the Depositor or compiled from
information provided to the Depositor by the Seller. With respect to the
information regarding the Seller's underwriting standards, none of the Issuer,
the Depositor, the Master Servicer, the Owner Trustee, the Indenture Trustee or
any of their respective affiliates has made or will make any representation as
to the accuracy or completeness of such information.
S-16
<PAGE>
[Discussion of the Seller's Underwriting Standards used to originate
the Mortgage Loans.]
REPRESENTATIONS
The Seller will make representations and warranties as of the Closing
Date with respect to the Mortgage Loans, and will be obligated to repurchase any
such Mortgage Loan in respect of which a material breach of the representations
and warranties it has made has occurred (other than those breaches which have
been cured). For a discussion of the representations and warranties made and the
repurchase obligation, see "Loan Underwriting Procedures and
Standards--Representations and Warranties" in the Prospectus.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as constituted as of
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 Depositor deems such removal
necessary or desirable, and may be prepaid at any time. A limited number of
other mortgage loans may be included in the Mortgage Pool prior to the issuance
of the Notes unless including such mortgage loans would materially alter the
characteristics of the Mortgage Pool as described herein. The Depositor believes
that the information set forth herein will be 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 may vary.
S-17
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
DLJ MBN Trust Series ____-__, Mortgage-Backed Notes, Series ____-__ (the
"Notes") will consist of [four classes of notes, designated as (i) the Class A
Notes and (ii) the Class M-1 Notes, the Class M-2 Notes and the Class M-3 Notes
(collectively, the "Subordinate Notes")]. The Notes will be issued by DLJ MBN
Trust Series ____-__ (the "Issuer") pursuant to an indenture, dated as of
________ __, ____ (the "Indenture"), between the Issuer and the Indenture
Trustee. Only the Notes are offered hereby. Trust Certificates, Series ____-__
(the "Equity Certificates") will be issued pursuant to a trust agreement, dated
as of ________ __, ____ (the "Owner Trust Agreement"), between the Depositor and
the Owner Trustee, and will represent the beneficial ownership interest in the
Issuer. The Equity Certificates are not being offered hereby and will be
delivered on the Closing Date to the ____________, as partial consideration for
the conveyance of the Mortgage Loans by ____________ to the Depositor.
Distributions on the Offered Notes will be made on the_____ of each
month, or, if such day is not a business day, on the next succeeding business
day, beginning in _______ ____ (each, a "Distribution Date").
The Notes represent non-recourse debt obligations of the Issuer secured
by a trust estate (the "Trust Estate"), which consists primarily of a segregated
pool (the "Mortgage Pool") of conventional, one- to four-family, fixed-rate
first lien mortgage loans (the "Mortgage Loans") having an aggregate principal
balance as of _________ __, ____ (the "Cut-off Date") of approximately
$___________. Proceeds of the Trust Estate will be the sole source of payments
on the Notes.
The Class A Notes, the Class M-1 Notes, the Class M-2 Notes and the
Class M-3 Notes will have an aggregate initial Note Balance of approximately
$___________, approximately $_________, approximately $__________ and
approximately $__________, respectively, in each case subject to a permitted
variance of plus or minus 5%. The Note Interest Rates on the Notes are
adjustable, subject to the Maximum Note Interest Rate and the Available Interest
Rate, and will be calculated for each Payment Date as described under "--Note
Interest Rate" herein. The "Final Maturity Date" of the Notes is the Payment
Date occurring in _______ ____.
The Notes will be issued, maintained and transferred on the book-entry
records of DTC and its Participants in minimum denominations of $[10,000] and
integral multiples of $[1.00] in excess thereof.
The Notes will initially be represented by one or more global notes
registered in the name of the nominee of DTC (together with any successor
clearing agency selected by the Depositor, the "Clearing Agency"), except as
provided below. The Depositor has been informed by DTC that DTC's nominee will
be CEDE & Co. ("CEDE"). No person acquiring an interest in any class of the
Notes (a "Note Owner") will be entitled to receive a note representing such
person's interest, except as set forth below under "--Definitive Notes". Unless
and until Definitive Notes are issued under the limited circumstances described
herein, all references to actions by Noteholders with respect to the Notes shall
refer to actions taken by DTC upon instructions from its Participants (as
defined below), and all references herein to payments, notices, reports and
statements to Noteholders with respect to the Notes shall refer to payments,
notices, reports and statements to DTC or CEDE, as the registered holder of the
Notes, for payment to Note Owners in accordance with DTC procedures. See
"--Registration" and "--Definitive Notes" herein.
Any Definitive Notes will be transferable and exchangeable at the
offices of the Indenture Trustee. No service charge will be imposed for any
registration of transfer or exchange, but the Indenture Trustee may
S-18
<PAGE>
require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
All payments to holders of the Notes, other than the final payment on
any class of Notes, will be made by or on behalf of the Indenture Trustee to the
persons in whose names such Notes are registered at the close of business on
each Record Date. The "Record Date" for each Payment Date (i) with respect to
the Notes (other than any Definitive Notes) will be the close of business on the
business day immediately preceding such Payment Date or (ii) with respect to the
Definitive Notes will be the close of business on the last business day of the
month preceding the month in which such Payment Date occurs. Such payments will
be made either (a) by check mailed to the address of each such Noteholder as it
appears in the Note Register or (b) upon written request to the Indenture
Trustee at least five business days prior to the relevant Record Date by any
holder of Notes having an aggregate initial Note Balance that is in excess of
the lesser of (i) $5,000,000 or (ii) two-thirds of the initial aggregate Note
Balance of such class of Notes, by wire transfer in immediately available funds
to the account of such Noteholder specified in the request. The final payment on
any class of Notes will be made in like manner, but only upon presentment and
surrender of such Notes at the corporate trust office of the Indenture Trustee
or such other location specified in the notice to Noteholders of such final
payment.
REGISTRATION
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and to facilitate the
clearance and settlement of securities transactions between Participants through
electronic book entries, thereby eliminating the need for physical movement of
notes. Participants include securities brokers and dealers (including [Name of
Underwriter]), banks, trust companies and clearing corporations. Indirect access
to the DTC system is also available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly ("Indirect Participants").
Note Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, the Notes may do so only through Participants and Indirect Participants. In
addition, Note Owners will receive all payments of principal of and interest on
the Notes from the Indenture Trustee through DTC and DTC Participants. The
Indenture Trustee will forward payments to DTC in same day funds and DTC will
forward such payments to Participants in next day funds settled through the New
York Clearing House. Each Participant will be responsible for disbursing such
payments to Indirect Participants or to Note Owners. Unless and until Definitive
Notes are issued, it is anticipated that the only holder of the Notes will be
CEDE, as nominee of DTC. Note Owners will not be recognized by the Indenture
Trustee as Noteholders, as such term is used in the Indenture, and Note Owners
will be permitted to exercise the rights of Noteholders only indirectly through
DTC and its 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 Notes among Participants and to receive and transmit payments of principal
of, and interest on, the Notes. Participants and Indirect Participants with
which Note Owners have accounts with respect to the Notes similarly are required
to make book-entry transfers and receive and transmit such payments on behalf of
their respective Note Owners. Accordingly, although Note Owners will not possess
Definitive Notes, the Rules provide a mechanism by which Note Owners through
their Participants and Indirect Participants will receive payments and will be
able to transfer their interest.
S-19
<PAGE>
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and on behalf of certain banks, the ability of a
Note Owner to pledge Notes to persons or entities that do not participate in the
DTC system, or to otherwise act with respect to such Notes, may be limited due
to the absence of physical notes for the Notes. In addition, under a book-entry
format, Note Owners may experience delays in their receipt of payments since
payment will be made by the Indenture Trustee to CEDE, as nominee for DTC.
Under the Rules, DTC will take action permitted to be taken by a
Noteholder under the Indenture only at the direction of one or more Participants
to whose DTC account the Notes are credited. Cedel or the Euroclear Operator (as
defined herein), as the case may be, will take any other action permitted to be
taken by a Noteholder under the Indenture on behalf of a Cedel Participant (as
defined herein) or Euroclear Participant (as defined herein) only in accordance
with its relevant rules and procedures and subject to the ability of the
Relevant Depositary (as defined herein) to effect such actions on its behalf
through DTC. Additionally, under the Rules, DTC will take such actions with
respect to specified Voting Rights only at the direction of and on behalf of
Participants whose holdings of Notes evidence such specified Voting Rights. DTC
may take conflicting actions with respect to Voting Rights to the extent that
Participants whose holdings of Notes evidence such Voting Rights, authorize
divergent action.
DTC management is aware that some computer applications, systems and
similar items for processing data ("Systems") that are dependent upon calendar
dates, including dates before, on and after January 1, 2000, may encounter "Year
2000 problems". DTC has informed its Participants and other members of the
financial community (collectively, the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries and settlement of trades within DTC ("DTC
Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including but not limited to, issuers and their
agents, as well as third party vendors from whom DTC licenses software and
hardware, and third party vendors on which DTC relies for information or the
provision of services, including telecommunication and electrical utility
service providers, among others. DTC has informed the Industry that it is
contacting (and will continue to contact) third party vendors from whom DTC
acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, DTC is in the process of developing such contingency plans as it deems
appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
The Issuer, the Depositor, the Master Servicer, the Seller, the Owner
Trustee, the Indenture Trustee and their respective affiliates will have no
liability for any actions taken by DTC or its nominee or Cedel or Euroclear,
including, without limitation, actions for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Notes held
by CEDE, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
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DEFINITIVE NOTES
Definitive Notes will be issued to Note Owners or their nominees, rather
than to DTC or its nominee, only if (i) the Depositor advises the Indenture
Trustee in writing that DTC is no longer willing or able to discharge properly
its responsibilities as Clearing Agency with respect to the Notes and the
Depositor is unable to locate a qualified successor, (ii) the Depositor, at its
option, advises the Indenture Trustee in writing that it elects to terminate the
book-entry system through DTC, or (iii) after the occurrence of an Event of
Default (as defined herein), Note Owners representing in the aggregate not less
than 51% of the Voting Rights of the Notes advise the Indenture Trustee and DTC
through Participants, in writing, that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the Note Owners' best
interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Indenture Trustee is required to notify all Note Owners through
Participants of the availability of Definitive Notes. Upon surrender by DTC of
the definitive notes representing the Notes and receipt of instructions for re-
registration, the Indenture Trustee will reissue the Notes as Definitive Notes
issued in the respective principal amounts owned by individual Note Owners, and
thereafter the Indenture Trustee will recognize the holders of such Definitive
Notes as Noteholders under the Indenture. Such Definitive Notes will be issued
in minimum denominations of $10,000, except that any beneficial ownership
represented by a Note in an amount less than $10,000 immediately prior to the
issuance of a Definitive Note shall be issued in a minimum denomination equal to
the amount represented by such Note.
BOOK-ENTRY FACILITIES
Note Owners may elect to hold their interests in the Notes through DTC
in the United States or through Cedel or Euroclear in Europe, if they are
participants of such systems, or indirectly through organizations which are
participants in such systems. The Notes of each class will be issued in one or
more notes which equal the aggregate Note Balance of such class and will
initially be registered in the name of Cede, the nominee of DTC. Cedel and
Euroclear will hold omnibus positions on behalf of their participants through
customers' securities accounts in Cedel's and Euroclear's names on the books of
their respective depositaries which in turn will hold such positions in
customers' securities accounts in the depositaries' names on the books of DTC.
Citibank will act as depositary for Cedel and Chase will act as depositary for
Euroclear (in such capacities, individually the "Relevant Depositary" and
collectively the "European Depositaries").
Because of time zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear Participants or Cedel Participants on such business day. Cash received
in Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or Euroclear Participant to a Participant will be received with
value on the DTC settlement date but will be available in the relevant Cedel or
Euroclear cash account only as of the business day following settlement in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected
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in DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by the Relevant Depositary; however, such cross
market transactions will require delivery of instructions to the relevant
European international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). The relevant European international clearing system will, if
the transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of notes. Transactions may be settled in Cedel in any of 28 currencies,
including United States dollars. Cedel provides to its Cedel Participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing. Cedel
interfaces with domestic markets in several countries. As a professional
depository, Cedel is subject to regulation by the Luxembourg Monetary Institute.
Cedel participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Indirect access to Cedel
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Cedel
Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
notes and any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 32 currencies, including United States
dollars. Euroclear includes various other services, including securities lending
and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific notes to specific securities clearance accounts. The
Euroclear
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Operator acts under the Terms and Conditions only on behalf of Euroclear
Participants, and has no record of or relationship with persons holding through
Euroclear Participants.
Payments with respect to Notes held through Cedel or Euroclear will be
credited to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such payments will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among participants of DTC,
Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time. See
Annex I hereto.
NOTE INTEREST RATES
The Note Interest Rate on the Class A Notes will be a rate per annum
equal to the lesser of (i) One- Month LIBOR plus ____%, in the case of each
Payment Date through and including the Payment Date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note Balance, or
One- Month LIBOR plus ____%, in the case of any Payment Date thereafter, (ii)
the Available Interest Rate for such Payment Date and (iii) _____% per annum
(the "Maximum Note Interest Rate").
The Note Interest Rate on the Class M-1 Notes will be a rate per annum
equal to the lesser of (i) One-Month LIBOR plus ____%, in the case of each
Payment Date through and including the Payment Date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note Balance, or
One-Month LIBOR plus ____%, in the case of any Payment Date thereafter, (ii) the
Available Interest Rate for such Payment Date and (iii) the Maximum Note
Interest Rate.
The Note Interest Rate on the Class M-2 Notes will be a rate per annum
equal to the lesser of (i) One-Month LIBOR plus ____%, in the case of each
Payment Date through and including the Payment Date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note Balance, or
One-Month LIBOR plus ____%, in the case of any Payment Date thereafter, (ii) the
Available Interest Rate for such Payment Date and (iii) the Maximum Note
Interest Rate.
The Note Interest Rate on the Class M-3 Notes will be a rate per annum
equal to the lesser of (i) One-Month LIBOR plus ____%, in the case of each
Payment Date through and including the Payment Date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note Balance, or
One-Month LIBOR plus _____%, in the case of any Payment Date thereafter, (ii)
the Available Interest Rate for such Payment Date and (iii) the Maximum Note
Interest Rate.
See "--Calculation of One-Month LIBOR" herein.
With respect to any class of Notes and any Payment Date, the lesser of
the rate described for such class in clause (i) above and the Maximum Note
Interest Rate is referred to herein as the "Note Accrual Rate" for such class
and such Payment Date. The "Available Interest Rate" for any Payment Date is a
rate per annum equal to the fraction, expressed as a percentage, the numerator
of which is (i) the Current Interest Payment Amount for such Payment Date, and
the denominator of which is (ii) the aggregate Note Balance of the Notes
immediately prior to such Payment Date multiplied by the actual number of days
elapsed in the related Interest Accrual Period and divided by 360.
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The Note Interest Rate and the Note Accrual Rate for the Notes for the
current related Interest Accrual Period, to the extent it has been determined,
and for the immediately preceding Interest Accrual Period may be obtained by
telephoning the Indenture Trustee at __________.
INTEREST PAYMENTS ON THE NOTES
To the extent of the Current Interest Payment Amount, in the priorities
set forth below, the holders of each class of Notes will be entitled to receive
on each Payment Date interest payments in an amount equal to the Interest
Payment Amount for such class. On each Payment Date, the Current Interest
Payment Amount will be distributed in the following order of priority:
FIRST, to the holders of the Class A Notes, the Interest Payment Amount
for such Notes;
SECOND, to the extent of the Current Interest Payment Amount remaining
after payment of the Interest Payment Amount for the Class A Notes, to
the holders of the Class M-1 Notes, the Interest Payment Amount for such
Notes;
THIRD, to the extent of the Current Interest Payment Amount remaining
after payment of the Interest Payment Amounts for the Class A Notes and
the Class M-1 Notes, to the holders of the Class M-2 Notes, the Interest
Payment Amount for such Notes; and
FOURTH, to the extent of the Current Interest Payment Amount remaining
after payment of the Interest Payment Amounts for the Class A Notes, the
Class M-1 Notes and the Class M-2 Notes, to the holders of the Class M-3
Notes, the Interest Payment Amount for such Notes.
The "Current Interest Payment Amount" for any Payment Date is an amount
equal to interest collections or advances on the Mortgage Loans during the
related Due Period (net of the Master Servicing Fee and the Indenture Trustee
Fee).
The "Interest Payment Amount" for the Notes of any class on any Payment
Date is equal to interest accrued during the related Interest Accrual Period on
the Note Balance of such Notes immediately prior to such Payment Date at the
then-applicable Note Interest Rate for such class.
With respect to any Payment Date, to the extent that the aggregate of
the Interest Payment Amounts for the Notes is limited by the Current Interest
Payment Amount for the related Due Period, the holders of certain classes of
Notes may receive an Interest Payment Amount calculated at the Available
Interest Rate rather than at the applicable Note Accrual Rate for such classes
and such Payment Date. With respect to any class of Notes and any Payment Date,
any shortfall in payment of interest represented by the excess, if any, of the
Interest Payment Amount that would be payable on such class at the applicable
Note Accrual Rate over the Interest Payment Amount actually paid on such class
at the Available Interest Rate, together with any such shortfall in payment of
interest remaining unpaid from previous Payment Dates plus interest accrued
thereon at the related Note Accrual Rate, is referred to as an "Interest Carry
Forward Amount". The Interest Carry Forward Amount, if any, for any class of the
Notes for any Payment Date is payable to the extent of available funds remaining
after certain other payments on the Notes on such Payment Date, but before any
payments on the Equity Certificates on such Payment Date. See
"--Overcollateralization Provisions" herein.
The "Interest Accrual Period" for any Payment Date is the period
commencing on the Payment Date of the month immediately preceding the month in
which such Payment Date occurs (or, in the case of the first period, commencing
on the Closing Date) and ending on the day preceding such Payment Date. All
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payments of interest on the Notes will be based on a 360-day year and the actual
number of days in the applicable Interest Accrual Period.
The Note Balance of a Note outstanding at any time represents the then
maximum amount that the holder thereof is entitled to receive as payments
allocable to principal from the cash flow on the Mortgage Loans and the other
assets in the Trust Estate. The "Note Balance" of any class of Notes as of any
date of determination is equal to the initial Note Balance thereof reduced by
the aggregate of (a) all amounts allocable to principal previously distributed
with respect to such Note and (b) any reductions in the Note Balance thereof
deemed to have occurred in connection with allocations of Realized Losses in the
manner described herein.
CALCULATION OF ONE-MONTH LIBOR
With respect to each Interest Accrual Period, on the second business day
preceding such Interest Accrual Period, (each such date, an "Interest
Determination Date"), the Indenture Trustee will determine One-Month LIBOR for
the next Interest Accrual Period. "One Month LIBOR" means, as of any Interest
Determination Date, the London interbank offered rate for one-month U.S. dollar
deposits which appears on Telerate Page 3750 (as defined herein) as of 11:00
a.m. (London time) on such date. If such rate does not appear on Telerate Page
3750, the rate for that day will be determined on the basis of the offered rates
of the Reference Banks (as defined herein) for one-month U.S. dollar deposits,
as of 11:00 a.m. (London time) on such Interest Determination Date. The
Indenture Trustee will request the principal London office of each of the
Reference Banks to provide a quotation of its rate. If on such Interest
Determination Date two or more Reference Banks provide such offered quotations,
One-Month LIBOR for the related Interest Accrual Period shall be the arithmetic
mean of such offered quotations (rounded upwards if necessary to the nearest
whole multiple of 0.0625%). If on such Interest Determination Date fewer than
two Reference Banks provide such offered quotations, One-Month LIBOR for the
related Interest Accrual Period shall be the higher of (x) One-Month LIBOR as
determined on the previous Interest Determination Date and (y) the Reserve
Interest Rate (as defined herein).
As used in this section, "business day" means a day on which banks are
open for dealing in foreign currency and exchange in London and New York City;
"Telerate Page 3750" means the display page currently so designated on the Dow
Jones Telerate Capital Markets Report (or such other page as may replace that
page on that service for the purpose of displaying comparable rates or prices);
"Reference Banks" means leading banks selected by the Indenture Trustee and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market (i) with an established place of business in London, (ii) which have been
designated as such by the Indenture Trustee and (iii) not controlling,
controlled by, or under common control with, the Depositor or the Issuer; and
"Reserve Interest Rate" shall be 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 0.0625%) of the one-month U.S. 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 one-month
U.S. dollar lending rate which New York City banks selected by the Indenture
Trustee are quoting on such Interest Determination Date to leading European
banks.
The establishment of One-Month LIBOR on each Interest Determination Date
by the Indenture Trustee and the Indenture Trustee's calculation of the rate of
interest applicable to the Notes for the related Interest Accrual Period shall
(in the absence of manifest error) be final and binding.
PRINCIPAL PAYMENTS ON THE NOTES
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On each Payment Date, the Principal Payment Amount will be distributed
to the holders of the Notes then entitled to payments of principal. The
"Principal Payment Amount" for any Payment Date, other than the Final Maturity
Date and the Payment Date immediately following the acceleration of the Notes
due to an Event of Default, will be the lesser of:
(a) the excess of the Available Payment Amount over the aggregate of
the Interest Payment Amounts for the Notes; and
(b) THE SUM OF:
(i) the principal portion of all scheduled monthly payments
on the Mortgage Loans due during the related Due Period, whether
or not received on or prior to the related Determination Date;
(ii) the principal portion of all proceeds received during
the related Prepayment Period in respect of the repurchase of a
Mortgage Loan (or, in the case of a substitution, certain
amounts representing a principal adjustment) as contemplated in
the Servicing Agreements;
(iii) the principal portion of all other unscheduled
collections, including insurance proceeds, liquidation proceeds
and all full and partial principal prepayments, received during
the related Prepayment Period, to the extent applied as
recoveries of principal on the Mortgage Loans;
(iv) the principal portion of any Realized Losses incurred
or deemed to have been incurred on any Mortgage Loans in the
calendar month preceding such Payment Date to the extent covered
by Net Monthly Excess Cashflow (as defined herein) for such
Payment Date; and
(v) the amount of any Overcollateralization Increase Amount
(as defined herein) for such Payment Date;
MINUS
(vi) the amount of any Overcollateralization Reduction
Amount (as defined herein) for such Payment Date.
The "Principal Payment Amount" for the Final Maturity Date or the Payment Date
immediately following the acceleration of the Notes due to an Event of Default
will equal the amount necessary to reduce the Note Balance of any Notes
outstanding to zero. In no event will the Principal Payment Amount with respect
to any Payment Date be (x) less than zero or (y) greater than the
then-outstanding aggregate Note Balance of the Notes. The Principal Payment
Amount for the first Payment Date will include approximately $_________
collected by the Servicers in respect of prepayments on the Mortgage Loans
during the _________ ____ Prepayment Period.
On each Payment Date (a) prior to the Stepdown Date or (b) on which a
Trigger Event is in effect, the Principal Payment Amount shall be distributed:
first, to the Class A Notes, until the Note Balance thereof has been reduced to
zero; second, to the Class M-1 Notes, until the Note Balance thereof has been
reduced to zero; third, to the Class M-2 Notes, until the Note Balance thereof
has been reduced to zero; and fourth, to the Class M-3 Notes, until the Note
Balance thereof has been reduced to zero.
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On each Payment Date (a) on or after the Stepdown Date and (b) on which
a Trigger Event is not in effect, the holders of the Class A Notes and the
Subordinate Notes shall be entitled to receive payments in respect of principal
to the extent of the Principal Payment Amount in the following amounts and order
of priority:
FIRST, the lesser of (x) the Principal Payment Amount and (y) the Class
A Principal Payment Amount, shall be distributed to the holders of the
Class A Notes, until the Note Balance thereof has been reduced to zero;
SECOND, the lesser of (x) the excess of (i) the Principal Payment Amount
over (ii) the amount distributed to the holders of the Class A Notes
pursuant to clause FIRST above and (y) the Class M-1 Principal Payment
Amount, shall be distributed to the holders of the Class M-1 Notes,
until the Note Balance thereof has been reduced to zero;
THIRD, the lesser of (x) the excess of (i) the Principal Payment Amount
over (ii) the sum of the amounts distributed to the holders of the Class
A Notes pursuant to clause FIRST above and to the holders of the Class
M-1 Notes pursuant to clause SECOND above and (y) the Class M-2
Principal Payment Amount, shall be distributed to the holders of the
Class M-2 Notes, until the Note Balance thereof has been reduced to
zero; and
FOURTH, the lesser of (x) the excess of (i) the Principal Payment Amount
over (ii) the sum of the amounts distributed to the holders of the Class
A Notes pursuant to clause FIRST above, to the holders of the Class M-1
Notes pursuant to clause SECOND above and to the holders of the Class
M-2 Notes pursuant to clause THIRD above and (y) the Class M-3 Principal
Payment Amount, shall be distributed to the holders of the Class M-3
Notes, until the Note Balance thereof has been reduced to zero.
On the Final Maturity Date or the Payment Date immediately following the
acceleration of the Notes due to any Event of Default principal will be payable
on each class of Notes in an amount equal to the Note Balance thereof on such
Payment Date. On the Final Maturity Date or the Payment Date immediately
following the acceleration of the Notes due to any Event of Default, amounts in
respect of accrued interest, Interest Carry Forward Amounts and Allocated
Realized Loss Amounts will also be payable on each class of Notes in the
priorities set forth in the Indenture. There can be no assurance, however, that
sufficient funds will be available on any such date to retire the Note Balances
and pay such other amounts.
The allocation of payments in respect of principal to the Class A Notes
on each Payment Date (a) prior to the Stepdown Date or (b) on which a Trigger
Event has occurred, will have the effect of accelerating the amortization of the
Class A Notes while, in the absence of Realized Losses, increasing the
respective percentage interest in the principal balance of the Mortgage Loans
evidenced by the Subordinate Notes and the Overcollateralized Amount. Increasing
the respective percentage interest in the Trust Estate of the Subordinate Notes
and the Overcollateralized Amount relative to that of the Class A Notes is
intended to preserve the availability of the subordination provided by the
Subordinate Notes and the Overcollateralized Amount.
The "Available Payment Amount" for any Payment Date is equal to the sum,
net of amounts reimbursable therefrom to the Master Servicer, the Servicers, the
Indenture Trustee or the Owner Trustee, of (i) the aggregate amount of scheduled
monthly payments on the Mortgage Loans due on the related Due Date and received
on or prior to the related Determination Date, after deduction of the Master
Servicing Fee and the Indenture Trustee Fee, (ii) certain unscheduled payments
in respect of the Mortgage Loans, including
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prepayments, insurance proceeds, liquidation proceeds and proceeds from
repurchases of and substitutions for the Mortgage Loans occurring during the
preceding calendar month and (iii) all P&I Advances with respect to the Mortgage
Loans received for such Payment Date. The holders of the Equity Certificates
will be entitled to all Prepayment Charges received on the Mortgage Loans and
such amounts will not be available for distribution on the Notes.
The "Class A Principal Payment Amount" for any Payment Date on or after
the Stepdown Date and on which a Trigger Event is not in effect, is an amount
equal to the excess of (x) the Note Balance of the Class A Notes immediately
prior to such Payment Date over (y) the lesser of (A) the product of (i) -----%
and (ii) the aggregate principal balance of the Mortgage Loans as of the last
day of the related Due Period and (B) the aggregate principal balance of the
Mortgage Loans as of the last day of the related Due Period minus $_________.
The "Class M-1 Principal Payment Amount" for any Payment Date on or
after the Stepdown Date and on which a Trigger Event is not in effect, is an
amount equal to the excess of (x) the sum of (i) the Note Balance of the Class A
Notes (after taking into account the payment of the Class A Principal Payment
Amount on such Payment Date) and (ii) the Note Balance of the Class M-1 Notes
immediately prior to such Payment Date over (y) the lesser of (A) the product of
(i) _____% and (ii) the aggregate principal balance of the Mortgage Loans as of
the last day of the related Due Period and (B) the aggregate principal balance
of the Mortgage Loans as of the last day of the related Due Period minus
$_________.
The "Class M-2 Principal Payment Amount" for any Payment Date on or
after the Stepdown Date and on which a Trigger Event is not in effect, is an
amount equal to the excess of (x) the sum of (i) the Note Balance of the Class A
Notes (after taking into account the payment of the Class A Principal Payment
Amount on such Payment Date), (ii) the Note Balance of the Class M-1 Notes
(after taking into account the payment of the Class M-1 Principal Payment Amount
on such Payment Date) and (iii) the Note Balance of the Class M-2 Notes
immediately prior to such Payment Date over (y) the lesser of (A) the product of
(i) _____% and (ii) the aggregate principal balance of the Mortgage Loans as of
the last day of the related Due Period and (B) the aggregate principal balance
of the Mortgage Loans as of the last day of the related Due Period minus
$__________.
The "Class M-3 Principal Payment Amount" for any Payment Date on or
after the Stepdown Date and on which a Trigger Event is not in effect, is an
amount equal to the excess of (x) the sum of (i) the Note Balance of the Class A
Notes (after taking into account the payment of the Class A Principal Payment
Amount on such Payment Date), (ii) the Note Balance of the Class M-1 Notes
(after taking into account the payment of the Class M-1 Principal Payment Amount
on such Payment Date), (iii) the Note Balance of the Class M-2 Notes (after
taking into account the payment of the Class M-2 Principal Payment Amount on
such date) and (iv) the Note Balance of the Class M-3 Notes immediately prior to
such Payment Date over (y) the lesser of (A) the product of (i) _____% and (ii)
the aggregate principal balance of the Mortgage Loans as of the last day of the
related Due Period and (B) the aggregate principal balance of the Mortgage Loans
as of the last day of the related Due Period minus $__________.
The "Stepdown Date" for any Payment Date is the later to occur of (x)
the Payment Date occurring in _______ ____ and (y) the first Payment Date on
which the Credit Enhancement Percentage (calculated for this purpose only after
taking into account payments of principal on the Mortgage Loans, but prior to
any payment of the Principal Payment Amount to the Notes then entitled to
payments of principal on such Payment Date) is greater than or equal to _____%.
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With respect to any Payment Date, a "Trigger Event" is in effect if the
percentage obtained by dividing (x) the principal amount of Mortgage Loans
delinquent 60 days or more by (y) the aggregate principal balance of the
Mortgage Loans, in each case, as of the last day of the previous calendar month,
exceeds the lesser of (i) _____% of the Credit Enhancement Percentage and (ii)
______%.
The "Credit Enhancement Percentage" for any Payment Date is the
percentage obtained by dividing (x) the sum of the Overcollateralized Amount and
the aggregate Note Balance of the Subordinate Notes by (y) the aggregate
principal balance of the Mortgage Loans, calculated after taking into account
payments of principal on the Mortgage Loans and payment of the Principal Payment
Amount to the Notes on such Payment Date.
CREDIT ENHANCEMENT
The Credit Enhancement provided for the benefit of the holders of the
Notes consists of subordination, as described below, and overcollateralization,
as described under "--Overcollateralization Provisions" herein.
The rights of the holders of the Subordinate Notes and the Equity
Certificates to receive payments will be subordinated, to the extent described
herein, to the rights of the holders of the Class A Notes. This subordination is
intended to enhance the likelihood of regular receipt by the holders of the
Class A Notes of the full amount of interest and principal to which they are
entitled and to afford such holders protection against Realized Losses.
The protection afforded to the holders of the Class A Notes by means of
the subordination of the Subordinate Notes and the Equity Certificates will be
accomplished by (i) the preferential right of the holders of the Class A Notes
to receive on any Payment Date, prior to payment on the Subordinate Notes and
the Equity Certificates, payments in respect of interest and principal, subject
to available funds, and (ii) if necessary, the right of the holders of the Class
A Notes to receive future payments of amounts that would otherwise be payable to
the holders of the Subordinate Notes and the Equity Certificates.
In addition, the rights of the holders of Subordinate Notes with lower
numerical class designations will be senior to the rights of holders of
Subordinate Notes with higher numerical class designations, and the rights of
the holders of all of the Subordinate Notes to receive payments in respect of
the Mortgage Loans will be senior to the rights of the holders of the Equity
Certificates, in each case to the extent described herein. This subordination is
intended to enhance the likelihood of regular receipt by the holders of
Subordinate Notes with lower numerical class designations relative to the
holders of Subordinate Notes with higher numerical class designations (and by
the holders of all of the Subordinate Notes relative to the holders of the
Equity Certificates) of the full amount of interest and principal to which they
are entitled and to afford such holders protection against Realized Losses, as
described under "--Allocation of Realized Losses" herein.
OVERCOLLATERALIZATION PROVISIONS
The weighted average Mortgage Rate for the Mortgage Loans (adjusted to
reflect the Master Servicing Fee and the Indenture Trustee Fee payable from
interest received or advanced on the Mortgage Loans) is generally expected to be
higher than the weighted average of the Note Interest Rates on the Notes, thus
generating excess interest collections which, in the absence of Realized Losses,
will not be necessary to fund interest payments on the Notes. The Indenture
requires that, on each Payment Date, the Net Monthly Excess Cashflow, if any, be
applied on such Payment Date as an accelerated payment of principal on class
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<PAGE>
or classes of Notes then entitled to receive payments in respect of principal,
but only to the limited extent hereafter described. The "Net Monthly Excess
Cashflow" for any Payment Date is equal to the sum of (a) any
Overcollateralization Reduction Amount and (b) the excess of (x) the Available
Payment Amount for such Payment Date over (y) the sum for such Payment Date of
the aggregate of the Interest Payment Amounts payable to the holders of the
Notes and the sum of the amounts described in clauses (b)(i) through (iii) of
the definition of Principal Payment Amount.
With respect to any Payment Date, any Net Monthly Excess Cashflow (or,
in the case of clause FIRST below, the Net Monthly Excess Cashflow exclusive of
any Overcollateralization Reduction Amount) shall be paid as follows:
FIRST, to the holders of the class or classes of Notes then entitled to
receive payments in respect of principal, in an amount equal to the
principal portion of any Realized Losses incurred or deemed to have been
incurred on the Mortgage Loans;
SECOND, to the holders of the class or classes of Notes then entitled to
receive payments in respect of principal, in an amount equal to the
Overcollateralization Increase Amount;
THIRD, to the holders of the Class A Notes, in an amount equal to the
Interest Carry Forward Amount for such Notes;
FOURTH, to the holders of the Class M-1 Notes, in an amount equal to the
Interest Carry Forward Amount for such Notes;
FIFTH, to the holders of the Class M-1 Notes, in an amount equal to the
Allocated Realized Loss Amount for such Notes;
SIXTH, to the holders of the Class M-2 Notes, in an amount equal to the
Interest Carry Forward Amount for such Notes;
SEVENTH, to the holders of the Class M-2 Notes, in an amount equal to
the Allocated Realized Loss Amount for such Notes;
EIGHTH, to the holders of the Class M-3 Notes, in an amount equal to the
Interest Carry Forward Amount for such Notes;
NINTH, to the holders of the Class M-3 Notes, in an amount equal to the
Allocated Realized Loss Amount for such Notes; and
TENTH, to the holders of the Equity Certificates as provided in the
Indenture.
With respect to any Payment Date, the excess, if any, of (a) the
aggregate principal balance of the Mortgage Loans immediately following such
Payment Date over (b) the Note Balance of the Notes, after taking into account
the payment of the amounts described in clauses (b)(i) through (iv) of the
definition of Principal Payment Amount on such Payment Date, is the
"Overcollateralized Amount" for the Notes as of such Payment Date. As of the
Closing Date, the aggregate principal balance of the Mortgage Loans as of the
Cut-off Date will exceed the aggregate Note Balance of the Notes by an amount
equal to approximately $_________. Such amount represents approximately ____% of
the aggregate principal balance of the
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<PAGE>
Mortgage Loans as of the Cut-off Date, which is the initial amount of
overcollateralization required to be provided by the Mortgage Pool under the
Indenture. Under the Indenture, the Overcollateralized Amount is required to be
maintained at the "Required Overcollateralized Amount". In the event that
Realized Losses are incurred on the Mortgage Loans, such Realized Losses may
result in an overcollateralization deficiency since such Realized Losses will
reduce the principal balance of the Mortgage Loans without a corresponding
reduction to the aggregate Note Balance of the Notes. In such event, the
Indenture requires the payment from Net Monthly Excess Cashflow, subject to
available funds, of an amount equal to any such overcollateralization
deficiency, which shall constitute a principal payment on the Notes in reduction
of the Note Balances thereof. This has the effect of accelerating the
amortization of the Notes relative to the amortization of the Mortgage Loans,
and of increasing the Overcollateralized Amount. With respect to the Notes and
any Payment Date, any amount of Net Monthly Excess Cashflow actually applied as
an accelerated payment of principal to the extent the Required
Overcollateralized Amount exceeds the Overcollateralized Amount as of such
Payment Date is the "Overcollateralization Increase Amount".
On and after the Stepdown Date and provided that a Trigger Event is not
in effect, the Required Overcollateralized Amount may be permitted to decrease
("step down") below the initial $_________ level to a level equal to
approximately ____% of the then current aggregate outstanding principal balance
of the Mortgage Loans (after giving effect to principal payments to be
distributed on such Payment Date), subject to a floor of $_________. In the
event that the Required Overcollateralized Amount is permitted to step down on
any Payment Date, the Indenture provides that a portion of the principal which
would otherwise be distributed to the holders of the Notes on such Payment Date
shall be distributed to the holders of the Equity Certificates, subject to the
priorities set forth above. With respect to each such Payment Date, the
Principal Payment Amount will be reduced by the amount by which the
Overcollateralized Amount exceeds the Required Overcollateralized Amount (the
"Overcollateralization Reduction Amount") after taking into account all other
payments to be made on such Payment Date, which amount shall be distributed as
Net Monthly Excess Cashflow pursuant to the priorities set forth above. This has
the effect of decelerating the amortization of the Notes relative to the
amortization of the Mortgage Loans, and of reducing the Overcollateralized
Amount. However, if on any Payment Date a Trigger Event is in effect, the
Required Overcollateralized Amount will not be permitted to step down on such
Payment Date.
ALLOCATION OF LOSSES; SUBORDINATION
With respect to any defaulted Mortgage Loan that is finally liquidated
through foreclosure sale, disposition of the related Mortgaged Property (if
acquired by deed in lieu of foreclosure) or otherwise, the amount of loss
realized, if any, will equal the portion of the unpaid 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 Servicers for P&I
Advances, servicing advances and Servicing Fees) towards interest and principal
owing on the Mortgage Loan. Such amount of loss realized and any Bankruptcy
Losses are referred to herein as "Realized Losses".
Any Realized Loss on the Mortgage Loans will be allocated on any Payment
Date, first, to Net Monthly Excess Cashflow, second, to the Overcollateralized
Amount, third, to the Class M-3 Notes, fourth, to the Class M-2 Notes, and
fifth, to the Class M-1 Notes. With respect to any class of Subordinate Notes
and any Payment Date, the sum of (i) any such Realized Loss allocated to such
class of Subordinate Notes on such Payment Date and (ii) any Allocated Realized
Loss Amount for such class remaining unpaid from previous Payment Dates plus
accrued interest thereon at the Note Accrual Rate for such class is referred to
as an "Allocated Realized Loss Amount". The Indenture does not permit the
allocation of Realized Losses to the Class A Notes. Investors in the Class A
Notes should note that although Realized Losses cannot be
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<PAGE>
allocated to such Notes, under certain loss scenarios there will not be enough
principal and interest collected on the Mortgage Loans to pay the Class A Notes
all interest and principal amounts to which they are then
entitled.
Once Realized Losses have been allocated to the Subordinate Notes, such
Realized Losses will not be reinstated thereafter. However, Allocated Realized
Loss Amounts may be paid to the holders of such classes of Notes, after certain
distributions to the holders of the Class A Notes and Subordinate Notes with
lower numerical class designations, but before the Equity Certificates are
entitled to any distributions.
Any allocation of a Realized Loss to a Note will be made by reducing the
Note Balance thereof by the amount so allocated on the Payment Date in the month
following the calendar month in which such Realized Loss was incurred.
Notwithstanding anything to the contrary described herein, in no event will the
Note Balance of any Note be reduced more than once in respect of any particular
amount both (i) allocable to such Notes in respect of Realized Losses and (ii)
payable as principal to the holder of such Notes from Net Monthly Excess
Cashflow.
A "Bankruptcy Loss" is a Deficient Valuation or a Debt Service
Reduction. With respect to any Mortgage Loan, a "Deficient Valuation" is a
valuation by a court of competent jurisdiction of the Mortgaged Property in an
amount less than the then outstanding indebtedness under the Mortgage Loan,
which valuation results from a proceeding initiated under the United States
Bankruptcy Code. A "Debt Service Reduction" is any reduction in the amount which
a mortgagor is obligated to pay on a monthly basis with respect to a Mortgage
Loan as a result of any proceeding initiated under the United States Bankruptcy
Code, other than a reduction attributable to a Deficient Valuation.
P&I ADVANCES
Subject to the following limitations, the Master Servicer will be
obligated to advance or cause to be advanced on or before each Payment Date its
own funds, or funds in the Certificate Account that are not included in the
Available Payment Amount for such Payment Date, in an amount equal to the
aggregate of all payments of principal and interest, net of the Master Servicing
Fee, that were due during the related Due Period on the Mortgage Loans serviced
by the Master Servicer and that were delinquent on the related Determination
Date, plus certain amounts representing assumed payments not covered by any
current net income on the Mortgaged Properties acquired by foreclosure or deed
in lieu of foreclosure (any such advance, a "P&I Advance").
P&I 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 or liquidation proceeds. The purpose of making such P&I
Advances is to maintain a regular cash flow to the Noteholders, rather than to
guarantee or insure against losses. The Master Servicer will not be required to
make any P&I Advances with respect to reductions in the amount of the monthly
payments on the Mortgage Loans due to bankruptcy proceedings or the application
of the Relief Act.
All P&I Advances will be reimbursable to the Master Servicer from late
collections, insurance proceeds and liquidation proceeds from the Mortgage Loan
as to which such unreimbursed P&I Advance was made. In addition, any P&I
Advances previously made in respect of any Mortgage Loan that are deemed by the
Master Servicer to be nonrecoverable from related late collections, insurance
proceeds or liquidation proceeds may be reimbursed to the Master Servicer out of
any funds in the Certificate Account prior to the payments on the Notes. In the
event that the Master Servicer fails in its obligation to make any
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<PAGE>
required advance, the Indenture Trustee will be obligated to make such advance,
in each such case to the extent required in the Servicing Agreement.
S-33
<PAGE>
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL PREPAYMENT CONSIDERATIONS
The rate of principal payments on the Notes, the aggregate amount of
payments on the Notes and the yield to maturity of the Notes will be related to
the rate and timing of payments of principal on the Mortgage Loans. The rate of
principal payments on the Mortgage Loans will in turn be affected by the
amortization schedules of such Mortgage Loans and by the rate of principal
prepayments thereon (including for this purpose, payments resulting from
refinancings, liquidations of the Mortgage Loans due to defaults, casualties,
condemnations and repurchases, whether optional or required, by the Depositor,
the Seller or the majority holder of the Equity Certificates, as the case may
be). The Mortgage Loans generally may be prepaid by the mortgagors at any time.
Prepayments, liquidations and repurchases of the Mortgage Loans will
result in payments in respect of principal to the holders of the class or
classes of Notes then entitled to receive such payments that otherwise would be
distributed over the remaining terms of the Mortgage Loans. See "Yield,
Prepayment and Maturity Considerations" in the Prospectus. Since the rates of
payment of principal on the Mortgage Loans will depend on future events and 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 rate of principal prepayments. The extent to which the yield
to maturity of any class of Notes may vary from the anticipated yield will
depend upon the degree to which such Notes are purchased at a discount or
premium and the degree to which the timing of payments thereon is sensitive to
prepayments on the Mortgage Loans. Further, an investor should consider, in the
case of any such Note purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans could result in an
actual yield to such investor that is lower than the anticipated yield and, in
the case of any such Note purchased at a premium, the risk that a faster than
anticipated rate of principal payments could result in an actual yield to such
investor that is lower than the anticipated yield. In general, the earlier a
prepayment of principal is made on the Mortgage Loans, the greater the effect on
the yield to maturity of the Notes. As a result, the effect on an investor's
yield of principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of such Notes would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments.
It is highly unlikely that the Mortgage Loans will prepay at any
constant rate until maturity or that all of the Mortgage Loans will prepay at
the same rate. Moreover, the timing of prepayments on the Mortgage Loans may
significantly affect the actual yield to maturity on the Notes, even if the
average rate of principal payments experienced over time is consistent with an
investor's expectation.
The rate of payments (including prepayments) on pools of mortgage loans
is influenced by a variety of economic, geographic, social and other factors. If
prevailing mortgage rates fall significantly below the Mortgage Rates on the
Mortgage Loans, the rate of prepayment (and refinancing) would be expected to
increase. Conversely, if prevailing mortgage rates rise significantly above the
Mortgage Rates on the Mortgage Loans, the rate of prepayment on the Mortgage
Loans would be expected to decrease. Other factors affecting prepayment of
mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions. There can be no certainty as to the rate of prepayments on the
Mortgage Loans during any period or over the life of the Notes. See "Yield,
Prepayment and Maturity Considerations" in the Prospectus.
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<PAGE>
Because principal payments are paid to certain classes of Notes before
other such classes, holders of classes of Notes having a later priority of
payment bear a greater risk of losses (because such Notes will represent an
increasing percentage of the Trust Estate during the period prior to the
commencement of payments of principal thereon) than holders of classes having
earlier priorities for payment of principal. As described under "Description of
the Notes--Principal Payments on the Notes" herein, prior to the Stepdown Date
(as defined herein), all principal payments on the Mortgage Loans will be
allocated to the Class A Notes. Thereafter, as further described herein, subject
to certain delinquency triggers described herein, all principal payments on the
Mortgage Loans will be allocated among all classes of the Notes then outstanding
as described under "Description of the Notes--Principal Payments on the Notes"
herein.
In general, defaults on mortgage loans are expected to occur with
greater frequency in their early years. In addition, default rates may be higher
for mortgage loans used to refinance an existing mortgage loan. In the event of
a mortgagor's default on a Mortgage Loan, there can be no assurance that
recourse will be available beyond the specific Mortgaged Property pledged as
security for repayment. See "The Mortgage Pool--Underwriting Standards;
Representations" herein.
SPECIAL YIELD CONSIDERATIONS
The Note Interest Rate for each class of the Notes adjusts monthly based
on One-Month LIBOR as described under "Description of the Notes--Calculation of
One-Month LIBOR" herein, subject to the Maximum Note Interest Rate and the
Available Interest Rate. Because of the application of the Maximum Note Interest
Rate and the Available Interest Rate, increases in the Note Interest Rate on the
Notes may be limited for extended periods or indefinitely in a rising interest
rate environment. The interest due on the Mortgage Loans during any Due Period
may not equal the amount of interest that would accrue at One- Month LIBOR plus
the applicable spread on the Notes during the related Interest Accrual Period.
As a result of the foregoing as well as other factors such as the prepayment
behavior of the Mortgage Pool, relative increases in One-Month LIBOR or relative
decreases in the weighted average of the Mortgage Rates on the Mortgage Loans
(i) could cause the Current Interest Payment Amount generated by the Mortgage
Pool to be less than the aggregate of the Interest Payment Amounts that would
otherwise be payable on the Notes, leading one or more classes of Notes to incur
Interest Carry Forward Amounts, or (ii) could cause the Maximum Note Interest
Rate to apply to one or more classes of Notes.
As described under "Description of the Notes--Allocation of Losses;
Subordination", amounts otherwise distributable to holders of the Subordinate
Notes may be made available to protect the holders of the Class A Notes against
interruptions in payments due to certain mortgagor delinquencies, to the extent
not covered by P&I Advances. Such delinquencies may affect the yield to
investors on such classes of Subordinate Notes and, even if subsequently cured,
will affect the timing of the receipt of payments by the holders of such classes
of Subordinate Notes. In addition, a larger than expected rate of delinquencies
or losses will affect the rate of principal payments on each class of
Subordinate Notes. See "Description of the Notes--Principal Payments on the
Notes" herein.
WEIGHTED AVERAGE LIVES
Weighted average life refers to the amount of time that will elapse from
the date of issuance of a security until each dollar of principal of such
security will be repaid to the investor. The weighted average life of each class
of Notes will be influenced by the rate at which principal on the Mortgage Loans
is paid, which may be in the form of scheduled payments or prepayments
(including repurchases and prepayments
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<PAGE>
of principal by the borrower as well as amounts received by virtue of
condemnation, insurance or foreclosure with respect to the Mortgage Loans), and
the timing thereof.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement (the
"Prepayment Assumption") assumes a prepayment rate for the Mortgage Loans of __%
CPR. The Constant Prepayment Rate model ("CPR") assumes that the outstanding
principal balance of a pool of mortgage loans prepays at a specified constant
annual rate or CPR. In generating monthly cash flows, this rate is converted to
an equivalent constant monthly rate. To assume __% CPR or any other CPR
percentage is to assume that the stated percentage of the outstanding principal
balance of the pool is prepaid over the course of a year. No representation is
made that the Mortgage Loans will prepay at __% CPR or any other rate.
The tables following the next paragraph indicate the percentage of the
initial Note Balance of the Notes that would be outstanding after each of the
dates shown at various percentages of the Prepayment Assumption and the
corresponding weighted average lives of such Notes. The tables are based on the
following assumptions (the "Modeling Assumptions"): (i) the Mortgage Pool
consists of __ Mortgage Loans with the characteristics set forth below, (ii)
payments on such Notes are received, in cash, on the _____ day of each month,
commencing in _______ ____, (iii) the Mortgage Loans prepay at the percentages
of the Prepayment Assumption indicated, (iv) no defaults or delinquencies occur
in the payment by mortgagors of principal and interest on the Mortgage Loans,
(v) none of the majority holder of the Equity Certificates, the Seller, the
Master Servicer or any other person purchases from the Trust Estate any Mortgage
Loan or redeems the Notes pursuant to any obligation or option under the
Indenture, the Servicing Agreements or any other agreement except as indicated
in footnote two in the tables below, and no partial early redemption of the
Notes occurs with respect to the ___________ Mortgage Loans, (vi) scheduled
monthly payments on the Mortgage Loans are received on the first day of each
month commencing in _______ ____, and are computed prior to giving effect to any
prepayments received in the prior month, (vii) prepayments representing payment
in full of individual Mortgage Loans are received on the last day of each month
commencing in ________ ____, and include 30 days' interest thereon, (viii) the
scheduled monthly payment for each Mortgage Loan is calculated based on its
principal balance, Mortgage Rate, original term to stated maturity and remaining
term to stated maturity such that the Mortgage Loan will amortize in amounts
sufficient to repay the remaining principal balance of such Mortgage Loan by its
remaining term to stated maturity, (ix) the Notes are purchased on ________ __,
____ and (x) the Master Servicing Fee Rate is as set forth in the Assumed
Mortgage Loan Characteristics table below and the Master Servicing Fee is
payable monthly and the Indenture Trustee Fee Rate is equal to ______% per annum
and the Indenture Trustee Fee is paid monthly.
<TABLE>
<CAPTION>
ASSUMED MORTGAGE LOAN CHARACTERISTICS
ORIGINAL
PRINCIPAL BALANCE TERM REMAINING TERM
AS OF THE MORTGAGE TO MATURITY TO MATURITY MASTER SERVICING FEE RATE
CUT-OFF DATE RATE (%) (MONTHS) (MONTHS) (%)
------------ -------- ----------- --------- ---
<S> <C> <C> <C> <C>
</TABLE>
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<PAGE>
There will be discrepancies between the characteristics of the actual
Mortgage Loans and the characteristics assumed in preparing the tables. Any such
discrepancy may have an effect upon the percentages of the initial Note Balance
outstanding (and the weighted average lives) of the Notes set forth in the
tables. In addition, since the actual Mortgage Loans included in the Mortgage
Pool will have characteristics that differ from those assumed in preparing the
tables set forth below and since it is not likely the level of One-Month LIBOR
will remain constant as assumed, the Notes may mature earlier or later than
indicated by the tables. In addition, as described under "Description of the
Notes--Principal Payments on the Notes" herein, the occurrence of the Stepdown
Date or a Trigger Event (each as defined herein) will have the effect of
accelerating or decelerating the amortization of the Notes, affecting the
weighted average lives of the Notes. Based on the foregoing assumptions, the
tables indicate the weighted average lives of the Notes and set forth the
percentages of the initial Note Balance of such Notes that would be outstanding
after each of the Payment Dates shown, at various percentages of the Prepayment
Assumption. Neither the prepayment model used herein nor any other prepayment
model or assumption purports to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
mortgage loans, including the Mortgage Loans included in the Mortgage Pool.
Variations in the prepayment experience and the balance of the Mortgage Loans
that prepay may increase or decrease the percentages of initial Note Balances
(and weighted average lives) shown in the following tables. Such variations may
occur even if the average prepayment experience of all the Mortgage Loans equals
any of the specified percentages of the Prepayment Assumption.
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<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL NOTE BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A NOTES CLASS M-1 NOTES
---------------------------------- ----------------------------------
PAYMENT DATE 0% 15% 28% 35% 45% 0% 15% 28% 35% 45%
- ------------ -------------------------- ------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date..........
......................
......................
......................
......................
Weighted Average
Life
in Years(1).........
Weighted Average
Life
in Years(2).........
</TABLE>
<TABLE>
<CAPTION>
CLASS M-2 NOTES CLASS M-3 NOTES
----------------------------------- ----------------------------------
0% 15% 28% 35% 45% 0% 15% 28% 35% 45%
----------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PAYMENT DATE
- ------------
Closing Date..........
......................
......................
......................
......................
Weighted Average
Life
in Years(1).........
Weighted Average
Life
in Years(2).........
</TABLE>
___________________
(1) The weighted average life of a Note is determined by (a) multiplying the
amount of each payment of principal by the number of years from the date
of issuance of the Note to the related Payment Date, (b) adding the
results and (c) dividing the sum by the initial Note Balance of the
Notes.
(2) Calculated pursuant to footnote one but assumes the majority holder of
the Equity Certificates exercises its option to redeem the Notes when
the aggregate Note Balance has been reduced to less than 20% of the
initial aggregate Note Balance. See "The Indenture and Owner Trust
Agreement--Redemption" herein.
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<PAGE>
There is no assurance that prepayments of the Mortgage Loans will
conform to any of the levels of the Prepayment Assumption indicated in the
tables above, or to any other level, or that the actual weighted average lives
of the Notes will conform to any of the weighted average lives set forth in the
tables above. Furthermore, the information contained in the tables with respect
to the weighted average lives of the Notes is not necessarily indicative of the
weighted average lives that might be calculated or projected under different or
varying prepayment or Index level assumptions.
The characteristics of the Mortgage Loans will differ from those assumed
in preparing the tables above. In addition, it is unlikely that any Mortgage
Loan will prepay at any constant percentage until maturity, that all of the
Mortgage Loans will prepay at the same rate or at any level for any period of
time. The timing of changes in the rate of prepayments may significantly affect
the actual yield to maturity to investors, even if the average rate of principal
prepayments is consistent with the expectations of investors.
YIELD SENSITIVITY OF THE SUBORDINATE NOTES
If on any Payment Date, the Overcollateralized Amount and the Note
Balances of the Class M-3 Notes and the Class M-2 Notes have been reduced to
zero, the yield to maturity on the Class M-1 Notes will become extremely
sensitive to losses on the Mortgage Loans (and the timing thereof) that are
covered by subordination, because the entire amount of any Realized Losses (to
the extent not covered by Net Monthly Excess Cashflow) will be allocated to the
Class M-1 Notes. If on any Payment Date, the Overcollateralized Amount and the
Note Balance of the Class M-3 Notes have been reduced to zero, the yield to
maturity on the Class M-2 Notes will become extremely sensitive to losses on the
Mortgage Loans (and the timing thereof) that are covered by subordination,
because the entire amount of any Realized Losses (to the extent not covered by
Net Monthly Excess Cashflow) will be allocated to the Class M-2 Notes. If on any
Payment Date, the Overcollateralized Amount has been reduced to zero, the yield
to maturity on the Class M-3 Notes will become extremely sensitive to losses on
the Mortgage Loans (and the timing thereof) that are covered by subordination,
because the entire amount of any Realized Losses (to the extent not covered by
Net Monthly Excess Cashflow) will be allocated to the Class M-3 Notes. Once
Realized Losses have been allocated to the Subordinate Notes, such Realized
Losses will not be reinstated thereafter. However, Allocated Realized Loss
Amounts may be paid to the holders of such classes of Notes, after certain
distributions to the holders of the Class A Notes and Subordinate Notes with
lower numerical class designations, but before the Equity Certificates are
entitled to any distributions. See "Description of the
Notes--Overcollateralization Provisions" herein.
Investors in the Subordinate Notes should fully consider the risk that
Realized Losses on the Mortgage Loans could result in the failure of such
investors to fully recover their investments. For additional considerations
relating to the yield on the Subordinate Notes, see "Yield, Prepayment and
Maturity Considerations" in the Prospectus.
THE ISSUER
DLJ MBN Trust Series ____-__ is a business trust formed under the laws
of the State of Delaware pursuant to the Owner Trust Agreement, dated as of
________ __, ____, between the Depositor and the Owner Trustee for the
transactions described in this Prospectus Supplement. The Owner 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 and holding the Mortgage Loans and the
proceeds therefrom, (ii) issuing the Notes and the Equity Certificates, (iii)
making payments on the Notes and the Equity 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
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Issuer is not expected to have any significant assets other than the Trust
Estate pledged as collateral to secure the Notes. The assets of the Issuer will
consist of the Mortgage Loans pledged to secure the Notes. The Issuer's
principal offices are in __________, ________, in care of ________________, as
Owner Trustee.
THE SELLER
The Seller, in its capacity as mortgage loan seller, will sell the
Mortgage Loans to the Depositor pursuant to a Mortgage Loan Purchase Agreement,
dated as of _________ __, ____, between the Seller and the Depositor.
[Seller portfolio history as necessary. Seller portfolio disclosure may include
the following:
The following table sets forth certain information regarding the
Seller's delinquency statistics for its one- to-four family residential mortgage
portfolio for the periods presented (excluding mortgage loans held for sale or
investment):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------------------------------------
1995 1996 1997 1998
--------------------------------------------------------------------------------------------
Number Percent of Number Percent of Number Percent of Number Percent of
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 Seller's
portfolio set forth in the foregoing tables. The statistics shown above
represent the delinquency experience for the Seller's 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 Seller's 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 Seller's portfolio includes mortgage loans underwritten pursuant to
guidelines not necessarily representative of those applicable to the Mortgage
Loans. It should be noted that 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 Seller. 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.]
THE OWNER TRUSTEE
_________________ is the Owner Trustee under the Owner Trust Agreement.
The Owner Trustee is a _________ banking corporation and its principal offices
are located in _____________.
Neither the Owner Trustee nor any director, officer or employee of the
Owner Trustee will be under any liability to the Issuer or the Noteholders under
the Owner Trust Agreement under any circumstances, except for the Owner
Trustee's own misconduct, gross negligence, bad faith or grossly negligent
failure to act or in the case of the inaccuracy of certain representations made
by the Owner Trustee in the Owner Trust
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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 Owner Trust Agreement.
The principal compensation to be paid to the Owner Trustee in respect of
its obligations under the Owner Trust Agreement will have been paid by or on
behalf of the Issuer on or prior to the Closing Date.
THE INDENTURE TRUSTEE
____________________, a ____________ banking association, will act as
Indenture Trustee for the Notes pursuant to the Indenture. The Indenture
Trustee's offices for notices under the Indenture are located at
______________________________ and its telephone number is ______________.
The principal compensation to be paid to the Indenture Trustee in
respect of its obligations under the Indenture (the "Indenture Trustee Fee")
will be equal to (i) accrued interest at ________% per annum (the "Indenture
Trustee Fee Rate") on the Scheduled Principal Balance of each Mortgage Loan,
payable monthly, and (ii) any interest or other income earned on funds held in
the Certificate Account (to the extent not payable as compensation to the
related Servicer) as provided in the Indenture. The "Scheduled 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 (x) the principal portion of all monthly payments due on
or before the date of determination, whether or not received, (y) all amounts
allocable to unscheduled principal that were received prior to the calendar
month in which the date of determination occurs, and (z) any Bankruptcy Loss
occurring out of a Deficient Valuation that was incurred prior to the calendar
month in which the date of determination occurs.
The Indenture will provide that the Indenture Trustee may withdraw funds
from the Certificate Account (i) to reimburse itself for all reasonable
out-of-pocket expenses incurred or made by it, including costs of collection and
including reasonable compensation and expenses, disbursements and advances of
its agents, counsel, accountants and experts and (ii) to reimburse the Owner
Trustee for all reasonable out-of pocket expenses incurred or made by the Owner
Trustee for all services rendered by the Owner Trustee it in the Owner Trustee's
execution of the trust created under the Owner Trust Agreement and in the
exercise and performance of any of the Owner Trustee's powers and duties under
the Owner Trust Agreement. Under the Indenture, the Issuer (from the assets of
the Trust Estate) shall indemnify the Indenture Trustee against any and all
loss, liability or expense (including reasonable attorneys' fees) incurred by
the Indenture Trustee in connection with the administration of the Trust Estate
and the performance of the Indenture Trustee's duties hereunder. The Issuer is
not required, however, to 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 SERVICING AGREEMENT
The following summary describes certain terms of the Servicing
Agreement, dated as of _________ __, ____ (the "Servicing Agreement"), among
the Issuer, the Indenture Trustee 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. The
Depositor will provide to a prospective or actual Noteholder without charge, on
written request, a copy
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(without exhibits) of the Servicing Agreement. Requests should be addressed to
the DLJ Mortgage Acceptance Corp., 277 Park Avenue, 9th Floor, New York, New
York 10172.
[Discussion of servicing disclosure as necessary. Servicing disclosure may
include the following:
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
__________________ (the "Master Servicer") is the Master Servicer under
the Servicing Agreements. The Master Servicer is a ____________ corporation. The
Master Servicer's principal offices are located in _______________.
The principal compensation to be paid to the Master Servicer in respect
of its obligations under the Servicing Agreement (the "Master Servicing Fee")
will be equal to accrued interest at the Master Servicing Fee Rate on the
Scheduled Principal Balance of each Mortgage Loan, payable monthly. The "Master
Servicing Fee Rate" is equal to (i) ____% per annum in the case of each
____-____ Mortgage Loan and (ii) ____% per annum in the case of each other
Mortgage Loan. As additional servicing compensation, the Master Servicer is
entitled to retain all assumption fees and late payment charges in respect of
Mortgage Loans, to the extent collected from mortgagors, together with any
interest or other income earned on funds held in the Certificate Account (to the
extent not payable as compensation to the Indenture Trustee) and any escrow
accounts in respect of Mortgage Loans serviced by it.
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
preceding monthly payment up to the date of such prepayment, instead of for a
full month. When a partial principal prepayment is made on a Mortgage Loan, the
mortgagor is not charged interest on the amount of such prepayment for the month
in which such prepayment is made. The Master Servicer is obligated to pay from
its own funds ("Compensating Interest") only those interest shortfalls
attributable to full and partial prepayments by the mortgagors on the Mortgage
Loans ("Prepayment Interest Shortfall"), but only to the extent of the aggregate
Master Servicing Fee for the related Due Period. The Master Servicer is
obligated to pay certain insurance premiums and certain ongoing expenses
associated with the Mortgage Pool in respect of Mortgage Loans and incurred by
the Master Servicer in connection with its responsibilities under the Servicing
Agreement and is entitled to reimbursement therefor as provided in the Servicing
Agreement. With respect to the Mortgage Loans serviced by _________, _________
will also be entitled to reimbursement of servicing advances and principal and
interest advances made by it as servicer of such Mortgage Loans prior to the
Cut-off Date. See "Servicing of Loans--Servicing Compensation and Payment of
Expenses" in the Prospectus for information regarding expenses payable by the
Servicer.
[Portfolio History of the Master Servicer]
[Year 2000 Considerations]
SALE OF DEFAULTED MORTGAGE LOANS
If consent to the operation of the provisions described below shall have
been given by the Master Servicer (unless the Directing Holder, as defined
below, is the Seller or an affiliate thereof, in which case such consent shall
not be required), then with respect to any Mortgage Loan that is delinquent in
excess of the number of days provided in the Servicing Agreement, (i) the holder
of a majority in Percentage Interest of the Equity Certificates (the "Directing
Holder") may direct the Master Servicer to commence foreclosure and (ii) prior
to commencement of foreclosure of any Mortgage Loan, the Master Servicer will
notify the
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Directing Holder of such proposed foreclosure in order to permit the Directing
Holder the right to instruct the Master Servicer to delay the proposed
foreclosure. In the case of the exercise by the Directing Holder of the right to
direct the Master Servicer pursuant to either clause (i) or clause (ii) above,
the Directing Holder will provide to the Master Servicer an appraisal of the
related Mortgaged Property (the "Loan Appraisal"). Within two business days of
instructing the Master Servicer to commence or delay foreclosure, the Directing
Holder will deposit in a segregated account maintained with the related Servicer
(the related "Collateral Account") for the benefit of the Noteholders an amount
equal to ___% of the Valuation (as defined below) of the related Mortgage Loan
plus three months' interest at the related Mortgage Rate. While foreclosure is
delayed pursuant to the direction of the Directing Holder, the Directing Holder
may direct the related Servicer to proceed with foreclosure at anytime.
With respect to any election by the Directing Holder to delay
foreclosure, the "Valuation" of any Mortgage Loan shall be the greater of the
outstanding principal balance thereof and the fair market value thereof as
provided in the related Loan Appraisal. With respect to any election by the
Directing Holder to commence foreclosure, the "Valuation" of any Mortgage Loan
shall equal the outstanding principal balance thereof.
Upon the liquidation of the related Mortgage Loan or the disposition of
the related Mortgaged Property in accordance with the requirements set forth in
the related Servicing Agreement, the related Servicer will calculate the amount,
if any, by which the Valuation exceeds the actual sales price obtained for the
related Mortgage Loan or the Mortgaged Property, as the case may be, and the
related Servicer will withdraw the amount of such excess from the Collateral
Account and deposit such amount into the related Certificate Account. If the
amount realized pursuant to the above-described procedures exceeds the
Valuation, the related Servicer will deposit immediately upon realization from
such proceeds such excess into the Certificate Account. The related Servicer
shall apply all such amounts as additional liquidation proceeds pursuant to the
related Servicing Agreement. If any election to delay foreclosure is to be
extended for a period in excess of three months from the Directing Holder's
direction to the related Servicer to delay foreclosure, the Directing Holder
will be required to deposit in the Collateral Account in advance the amount of
each additional month's interest at the related Mortgage Rate. If the
above-described procedures do not result in the Mortgage Loan being brought
current within six months of the Directing Holder's direction to the related
Servicer to delay foreclosure, the Directing Holder will be required to either
(i) purchase the Mortgage Loan for a purchase price equal to the fair market
value thereof as shown on the Loan Appraisal or (ii) allow the related Servicer
to proceed with the commencement of foreclosure. Should the Directing Holder
elect to purchase the Mortgage Loan, the related Servicer will first apply funds
on deposit in the related Collateral Account towards such purchase price; any
shortage will be paid by the Directing Holder and any excess will be returned to
it.
With respect to any Mortgage Loan as to which the Directing Holder has
directed the related Servicer to commence foreclosure or to delay foreclosure,
such Servicer may withdraw from the Collateral Account from time to time amounts
necessary to reimburse such Servicer for all P&I Advances and servicing advances
in accordance with the related Servicing Agreement. In the event that the
related Mortgage Loan is brought current, the amounts so withdrawn from the
Collateral Account by the related Servicer as reimbursement for P&I Advances or
servicing advances shall be redeposited therein by the related Servicer and such
Servicer shall be reimbursed as provided in the related Servicing Agreement.
Following foreclosure, liquidation, disposition or the bringing current of the
related Mortgage Loan, as applicable, all amounts remaining in the Collateral
Account will be released to the Directing Holder. In the event that amounts on
deposit in the Collateral Account are insufficient to cover the withdrawals that
the related Servicer is entitled to make for P&I Advances, servicing advances or
for deposit into the Certificate Account, the Directing Holder will be obligated
to pay such amounts to the related Servicer for deposit into the
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Collateral Account. The Directing Holder may direct that amounts on deposit in
the Collateral Account be invested in Permitted Investments. Interest or other
income earned on funds in the Collateral Account will be paid to the Directing
Holder and the amount of any loss on such funds will be immediately deposited
into the Collateral Account by the Directing Holder when realized. The Directing
Holder will grant to the related Servicer for the benefit of the Noteholders a
security interest in the Collateral Account, all amounts deposited therein or
invested in Permitted Investments, and all proceeds of the foregoing.
Notwithstanding the foregoing, the provisions described above shall not
be operative in the case of the Mortgage Loans serviced by ___________.
SERVICER EVENTS OF DEFAULT
In addition to those Events of Default (as defined in the Prospectus)
pertaining to the servicing of the Mortgage Loans and described under "The
Agreements--Event of Default and Rights Upon Event of Default" in the
Prospectus, upon the occurrence of certain loss triggers with respect to the
Mortgage Loans, the Master Servicer may be removed as servicer of the Mortgage
Loans serviced by it in accordance with the terms of the Servicing Agreement. If
the Master Servicer is removed in connection with an Event of Default applicable
to the Master Servicer under the terms of the Servicing Agreement, the Owner
Trustee will become the successor Servicer of the Mortgage Loans serviced by
such terminated Servicer.
THE INDENTURE AND OWNER TRUST AGREEMENT
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 Owner Trust Agreement and
Indenture. Whenever particular defined terms of the Indenture are referred to,
such defined terms are thereby incorporated herein by reference. The Depositor
will provide to a prospective or actual Noteholder without charge, on written
request, a copy (without exhibits) of the Indenture and the Owner Trust
Agreement. Requests should be addressed to DLJ Mortgage Acceptance Corp., 277
Park Avenue, 9th Floor, New York, New York 10172.
GENERAL
The Notes will be issued pursuant to the Indenture, a form of which is
filed as an exhibit to the Registration Statement. A Current Report on Form 8-K
relating to the Notes containing a copy of the Indenture and the Owner Trust
Agreement as executed will be filed by the Depositor with the Securities and
Exchange Commission within fifteen days of the initial issuance of the Notes.
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the Trust Estate, the terms and conditions of
the Indenture and the Owner Trust Agreement and the Notes. The Notes will be
transferable and exchangeable at the corporate trust offices of the Indenture
Trustee, located in ---------------.
ASSIGNMENT OF MORTGAGE LOANS
On or prior to the date the Notes are issued, the Seller will convey
each Mortgage Loan to __________, who in turn will convey each such Mortgage
Loan to the Depositor, who in turn will convey each Mortgage Loan to the Issuer.
At the time of issuance of the Notes, the Issuer will pledge all of its
right, title and interest in and to the Mortgage Loans, including all principal
and interest due on each such Mortgage Loan after the Cut-off
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Dates, without recourse, to the Indenture Trustee pursuant to the Indenture as
collateral for the Notes; provided, however, that the Seller will reserve and
retain all its right, title and interest in and to principal and interest due on
such Mortgage Loan on or prior to the Cut-off Date (whether or not received on
or prior to the Cut-off Date), and to prepayments received prior to the Cut-off
Date. The Indenture Trustee, concurrently with such assignment, will
authenticate and deliver the Notes at the direction of the Issuer in exchange
for, among other things, the Mortgage Loans.
The Indenture will require the Issuer to deliver to the Indenture
Trustee or to a custodian with respect to each Mortgage Loan (i) the mortgage
note endorsed without recourse to the Indenture Trustee, (ii) the original
mortgage with evidence of recording indicated thereon and (iii) an assignment of
the mortgage in recordable form to the Indenture Trustee. Such assignments of
Mortgage Loans are required to be recorded by or on behalf of the Seller, at the
expense of the Seller, in the appropriate offices for real property records.
EVENTS OF DEFAULT
Notwithstanding the Prospectus, an "Event of Default" under the
Indenture with respect to the Notes is as follows: (a) the failure of the Issuer
to pay the Interest Payment Amount, the Principal Payment Amount or any
Overcollateralization Increase Amount on any Payment Date, in each case to the
extent that funds are available on such Payment Date to make such payments,
which continues unremedied for a period of five days; (b) the failure by the
Issuer on the Final Maturity Date to reduce the Note Balances of any Notes then
outstanding to zero; (c) a default in the observance or performance of any
covenant or agreement of the Issuer in the Indenture and the continuation of any
such default for a period of thirty days after notice to the Issuer by the
Indenture Trustee or by the holders of at least 25% of the Voting Rights of the
Notes; (d) any representation or warranty made by the Issuer in the Indenture or
in any certificate or other writing delivered pursuant thereto having been
incorrect in any material respect as of the time made, and the circumstance in
respect of which such representation or warranty being incorrect not having been
cured within thirty days after notice thereof is given to the Issuer by the
Indenture Trustee or by the holders of at least 25% of the Voting Rights of the
Notes; or (e) certain events of bankruptcy, insolvency, receivership or
reorganization of the Issuer.
Notwithstanding, the Prospectus, if an Event of Default occurs and is
continuing, the Indenture Trustee or the holders of a majority of the Voting
Rights may declare the Note Balance of all the Notes 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 Voting Rights.
If following an Event of Default, the Notes have been declared to be due
and payable, the Indenture Trustee may, in its discretion, notwithstanding such
acceleration, elect to maintain possession of the collateral securing the Notes
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 as they would
have become due if there had not been such a declaration. In addition, the
Indenture Trustee may not sell or otherwise liquidate the collateral securing
the Notes following an Event of Default, unless (a) the holders of 100% of the
then aggregate outstanding Voting Rights 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 at their respective Note Accrual Rates, on the
outstanding Notes at the date of such sale or (c) the Indenture 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 Indenture Trustee obtains
the consent of the holders of 66 2/3% of the then aggregate outstanding Voting
Rights.
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In the event that the Indenture Trustee liquidates the collateral in
connection with an Event of Default, the Indenture provides that the Indenture
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 Indenture 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 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 will have any right under the Indenture to institute any
proceeding with respect to such Indenture unless (a) such holder previously has
given to the Indenture Trustee written notice of default and the continuance
thereof, (b) the holders of Notes of any class evidencing not less than 25% of
the aggregate outstanding Note Balance constituting such class (i) have made
written request upon the Indenture Trustee to institute such proceeding in its
own name as Indenture Trustee thereunder and (ii) have offered to the Indenture
Trustee reasonable indemnity, (c) the Indenture Trustee has neglected or refused
to institute any such proceeding for 60 days after receipt of such request and
indemnity and (d) 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 Note Balance of such class. However, the Indenture Trustee will
be under no obligation to exercise any of the trusts or powers vested in it by
the Indenture or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the holders of
Notes covered by such Indenture, unless such holders have offered to the
Indenture Trustee reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred therein or thereby.
VOTING RIGHTS
At all times, 100% of all Voting Rights will be allocated among the
holders of the Class A Notes (or, after the Class A Notes have been paid in
full, the class of Subordinate Notes then outstanding with the lowest numerical
class designation) in proportion to the then outstanding Note Balances of their
respective Notes.
OPTIONAL REDEMPTION
At its option, the majority holder of the Equity Certificates may redeem
the Notes, in whole but not in part, on any Payment Date on or after the Payment
Date on which the aggregate Note Balance is reduced to less than ___% of the
aggregate initial Note Balance. Any such redemption will be paid in cash at a
price equal to the sum of (w) 100% of the aggregate Note Balance then
outstanding, (x) the aggregate of any Allocated Realized Loss Amounts on the
Notes remaining unpaid immediately prior to such Payment Date, (y) the aggregate
of the Interest Payment Amounts on the Notes for such Payment Date and (z) the
aggregate of any Interest Carry Forward Amounts for such Payment Date. Upon any
such redemption, the remaining assets in the Trust Estate shall be released from
the lien of the Indenture.
For purposes of payments on the Notes and Equity Certificates on the
Payment Date of such redemption, such redemption price shall be applied by the
Indenture Trustee as a final liquidation of each of such Mortgage Loans and
properties. The redemption price relating to any such properties, at their then
fair market value, may result in a shortfall in payment to, and/or the
allocation of Realized Losses to, one or more classes of the Notes. Furthermore,
the Master Servicing Fee and the Indenture Trustee Fee, as well
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as expenses and reimbursements permitted to be paid from the assets of the Trust
Estate under the Indenture or the applicable Servicing Agreement, in each case
to the extent payable or reimbursable with respect to such Mortgage Loans, will
be payable from the amount received in respect of such redemption price and
therefore, as provided in the Indenture, will be excluded from the Available
Payment Amount for the Payment Date of such redemption.
In no event will the trust created by the Indenture continue beyond the
expiration of 21 years from the death of the survivor of the persons named in
the Indenture. See "Description of the Securities--Termination" in the
Prospectus.
FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Notes, Thacher Proffitt & Wood, counsel to the
Depositor, will deliver its opinion generally to the effect that based on the
application of existing law and assuming compliance with the Owner Trust
Agreement, for federal income tax purposes, (a) the Notes will be characterized
as indebtedness and not as representing an ownership interest in the Trust
Estate or an equity interest in the Issuer or the Depositor and (b) the Issuer
will not be (i) classified as an association taxable as a corporation for
federal income tax purposes, (ii) a "publicly traded partnership" as defined in
Treasury Regulation Section 1.7704 or (iii) a "taxable mortgage pool" within the
meaning of Section 7701(i) of the Code. The Notes will not be treated as having
been issued with "original issue discount" (as defined in the Prospectus). The
prepayment assumption that will be used in determining the rate of amortization
of market discount and premium, if any, for federal income tax purposes will be
based on the assumption that 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" in the
Prospectus.
The Notes will not be treated as assets described in Section
7701(a)(19)(C) of the Code or "real estate assets" under Section 856(c)(4)(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 "Certain 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.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated ________ __, ____ (the "Underwriting Agreement"), the Depositor
has agreed to sell, and [Name of Underwriter] (the "Underwriter") has agreed to
purchase the Notes. The Underwriter is obligated to purchase all Notes of the
respective classes offered hereby if it purchases any. The Underwriter is an
affiliate of the Depositor.
The Notes will be purchased from the Depositor by the Underwriter and
will be offered by the Underwriter to the public from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the Depositor from the sale of the Notes, before deducting
expenses payable by the Depositor, will be approximately ___% of the aggregate
initial Note Balance of the Notes. In connection with the purchase and sale of
the Notes, the Underwriter may be deemed to have received compensation from the
Depositor in the form of underwriting discounts.
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The Offered notes are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's right to reject any order in
whole or in part and to withdraw, cancel or modify the offer without notice. It
is expected that delivery of the Offered notes will be made through the
facilities of DTC on or about the Closing Date.
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriter against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended, or will contribute to payments the
Underwriter may be required to make in respect thereof.
There can be no assurance that a secondary market for the Notes will
develop or, if it does develop, that it will continue. The primary source of
information available to investors concerning the Notes will be the monthly
statements discussed in the Prospectus under "The Agreements--Reports to
Securityholders", which will include information as to the outstanding principal
balance of the Notes and the status of the applicable form of credit
enhancement. There can be no assurance that any additional information regarding
the Notes will be available through any other source. In addition, the Depositor
is not aware of any source through which price information about the Notes will
be generally available on an ongoing basis. The limited nature of such
information regarding the Notes may adversely affect the liquidity of the Notes,
even if a secondary market for the Notes becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Notes will be passed upon for the
Depositor and the Underwriter by Thacher Proffitt & Wood, New York, New York.
RATINGS
It is a condition of the issuance of the Notes that the Class A Notes be
rated "AAA" by _____________ ("____") and "AAA" by _______________ ("_____"),
that the Class M-1 Notes be rated at least "AA" by ____ and at least "AA" by
____, that the Class M-2 Notes be rated at least "A" by ____ and at least "A" by
_____ and that the Class M-3 Notes be rated at least "BBB" by _____.
The ratings of _____ and _____ assigned to the Notes address the
likelihood of the receipt by Noteholders of all payments to which such
Noteholders are entitled, other than payments of interest to the extent of any
Interest Carry Forward Amounts. The rating process addresses structural and
legal aspects associated with the Notes, including the nature of the underlying
mortgage loans. The ratings assigned to the Notes do not represent any
assessment of the likelihood that principal prepayments will be made by the
mortgagors or the degree to which the rate of such prepayments will differ from
that originally anticipated. The ratings do not address the possibility that
Noteholders might suffer a lower than anticipated yield due to non-credit
events.
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 any other security rating. In the event that the ratings
initially assigned to the Notes are subsequently lowered for any reason, no
person or entity is obligated to provide any additional credit support or credit
enhancement with respect to the Notes.
The Depositor has not requested that any rating agency rate the Notes
other than as stated above. However, there can be no assurance as to whether any
other rating agency will rate the Notes, or, if it does,
S-48
<PAGE>
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 as stated above.
LEGAL INVESTMENT
The Class A Notes and the Class M-1 Notes will constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA") for so long as they are rated not lower than the second
highest rating category by a Rating Agency (as defined in the Prospectus) 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. Certain states
have enacted legislation which overrides the preemption provisions of SMMEA. The
Class M-2 Notes and the Class M-3 Notes will not constitute "mortgage related
securities" for purposes of SMMEA.
The Depositor makes no representations as to the proper characterization
of the Notes for legal investment or other purposes, or as to the ability of
particular investors to purchase the Notes under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of the
Notes. 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 legal advisors in
determining whether and to what extent the Notes constitute a legal investment
or are subject to investment, capital or other restrictions.
See "Legal Investment" in the Prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA") and Section 4975 of the Code impose certain requirements on employee
benefit plans and certain other retirement plans and arrangements (including,
but not limited to, individual retirement accounts and annuities), as well as on
collective investment funds and certain separate and general accounts of
insurance companies in which such plans or arrangements are invested (all of
which are hereinafter referred to as a "Plan") and on persons who are
fiduciaries with respect to such Plans. ERISA and the Code prohibit certain
transactions involving the assets of a Plan and "disqualified persons" (within
the meaning of the Code) and Parties in Interest (within the meaning of ERISA)
(together, "Parties in Interest") who have certain specified relationships to
the Plan. Accordingly, prior to making an investment in the Notes, investing
Plans should determine whether the Issuer, the Depositor, the Seller, the Trust
Estate, the Underwriter, any other underwriter, the Owner Trustee, the Indenture
Trustee, the Master Servicer, the Servicers, any other servicer, any
administrator, any provider of credit support, or any insurer or any of their
affiliates is a Party in Interest with respect to such Plan and, if so, whether
such transaction is subject to one or more statutory, regulatory or
administrative exemptions. Additionally, an investment of the assets of a Plan
in securities may cause the assets included in the Trust Estate to be deemed
"Plan Assets" of such Plan, and any person with certain specified relationships
to the Trust Estate to be deemed a Party in Interest with respect to such
investing Plan. The U.S. Department of Labor (the "DOL") has promulgated
regulations at 29 C.F.R. Section 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 Section 4975 of the Code. Under the Plan Asset Regulations, generally,
when a Plan acquires an "equity interest" in another entity (such as the Trust
Estate), the underlying assets of that entity may be considered to be Plan
Assets. 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
S-49
<PAGE>
"substantial equity features." Although not entirely free from doubt, it is
believed that, as of the date hereof, the Notes will be treated as debt
obligations without significant equity features for the purposes of the Plan
Asset Regulations. Because of the factual nature of certain of the
above-described provisions of ERISA, the Code and the Plan Asset Regulations,
Plans or persons investing Plan Assets should carefully consider whether such an
investment might constitute or give rise to a prohibited transaction under ERISA
or the Code. Any Plan fiduciary which proposes to cause a Plan to acquire any of
the Notes should consult with its counsel with respect to the potential
consequences under ERISA and the Code of the Plan's acquisition and ownership of
such Notes.
S-50
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered DLJ
Mortgage Acceptance Corp., DLJ Trust Series ____-__, Mortgage-Backed Notes,
Series ____-__, [Class A, Class M-1, Class M-2 and Class M-3 Notes] (the "Global
Securities") will be available only in book-entry form. Investors in the Global
Securities may hold such Global Securities through any of DTC, Cedel or
Euroclear. The Global Securities will be traceable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors through Cedel and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of Cedel and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be conducted
according to DTC's rules and procedures applicable to U.S. corporate debt
obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, Cedel and Euroclear will
hold positions on behalf of their participants through their Relevant Depositary
which in turn will hold such positions in their accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
<PAGE>
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
loan asset-backed notes issues in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC, SELLER AND CEDEL OR EUROCLEAR PARTICIPANTS. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the Relevant Depositary, as the case may be, to receive
the Global Securities against payment. Payment will include interest accrued on
the Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
Relevant Depositary to the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (I.E., the trade fails), the Cedel or Euroclear cash debt
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their account one day later. As an
alternative, if Cedel or Euroclear has extended a line of credit to them, Cedel
Participants or Euroclear Participants can elect not to preposition funds and
allow that credit line to be drawn upon to finance settlement. Under this
procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although the result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds. Since the settlement is taking
place during New York business hours, DTC Participants can employ their usual
procedures for crediting Global Securities to the respective European Depositary
for the benefit of Cedel Participants or Euroclear Participants. The sale
proceeds will be available to the DTC seller on the settlement date. Thus, to
the DTC Participants a cross-market transaction will settle no differently than
a trade between two DTC Participants.
<PAGE>
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to credit the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of the actual
number of days in such accrual period and a year assumed to consist to 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of Cedel Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the Cedel
Participant's or Euroclear Participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase
side of the trade is reflected in their Cedel or Euroclear accounts)
in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their Cedel or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is
at least one day prior to the value date for the sale to the Cedel
Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel
or Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons (as defined below), unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business in the chain of intermediaries between such beneficial
owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (ii) such beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate: Exemption for
Non-U.S. Persons (Form W-8). Beneficial Holders of Global Securities that are
Non-U.S. Persons (as defined below) can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
<PAGE>
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Holdership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Noteholders or their agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Holder of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds the
security (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in, or under the laws of, the
United States, any state thereof or the District of Columbia (except, in the
case of a partnership, to the extent provided in regulations), or an estate
whose income is subject to United States federal income tax regardless of its
source, or a trust if a court within the United States is able to 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. The term "Non-U.S. Person" means any person who is not a U.S. Person.
This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
<PAGE>
DLJ MBN TRUST
Series ____-_
DLJ MORTGAGE ACCEPTANCE CORP.
Depositor
MORTGAGE-BACKED NOTES
SERIES ____-_
$______________________
(Approximate)
____________________
PROSPECTUS SUPPLEMENT
____________________
[NAME OF UNDERWRITER]
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the Series ____-_ Mortgage-Backed Notes in any state where
the offer is not permitted.
We do not claim that the information in this prospectus supplement and
prospectus is accurate as of any date other than the dates stated on the
respective covers.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the Series ____-_ Mortgage-Backed Notes and with respect to
their unsold allotments or subscriptions. In addition, all dealers selling the
Series ____-_ Mortgage-Backed Notes will be required to deliver a prospectus
supplement and prospectus for ninety days following the date of this prospectus
supplement.
_______________ ______, _____
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (ITEM 14 OF FORM S-3).
The expenses expected to be incurred in connection with the issuance
and distribution of the 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............... $1,112,000
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 ............................................. $2,522,000
==========
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>
-2-
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>
-3-
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.
5.3 -- Opinion of Brown & Wood 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).
8.3 -- Opinion of Brown & Wood LLP as to certain tax matters.
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 Brown & Wood LLP (included in Exhibit 5.3).
**24.1 -- Power of Attorney.
- -----------------
* Filed as an exhibit to Registration Statement on Form S-11 (No. 33-22364)
and incorporated herein by reference.
<PAGE>
-4-
** Filed as an exhibit to Registration Statement on Form S-3 (No. 333-39325)
and incorporated herein by reference.
*** Filed as an exhibit to Registration Statement on Form S-3 (No. 333-51537)
and incorporated herein by reference.
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.
<PAGE>
-5-
(b) The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this Registration Statement shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
B. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
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 April 7, 1999.
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 April 7, 1999
- -------------------------- (Principal Executive
Leon M. Pollack Officer)
/s/ Marjorie S. White* Secretary and Treasurer April 7, 1999
- -------------------------- (Principal Financial and
Marjorie S. White Accounting Officer)
/s/ David F. Delucia* Director April 7, 1999
- --------------------------
David F. DeLucia
/s/ Steven L. Kantor Director and Senior Vice April 7, 1999
- -------------------------- President
Steven L. Kantor
*By:/s/ Steven L. Kantor
-----------------------
Steven L. Kantor
Attorney-in-fact
EXHIBIT 5.1
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[Letterhead of Thacher Proffitt & Wood]
April 8, 1999
DLJ Mortgage Acceptance Corp.
277 Park Avenue
New York, New York 10172
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 "1933 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.
In rendering this opinion letter, we have examined the forms of the
Agreements incorporated by reference in the Registration Statement, the
Registration Statement and such other documents as we have deemed necessary
including, where we have deemed appropriate, representations or certifications
of officers of parties thereto or public officials. In rendering this opinion
letter, except for the matters that are specifically addressed in the opinions
expressed below, we have assumed (i) the authenticity of all documents submitted
to us as originals and the conformity to the originals of all documents
submitted to us as copies, (ii) the necessary entity formation and continuing
existence
<PAGE>
DLJ Mortgage Acceptance Corp.
April 8, 1999 Page 1.
in the jurisdiction of formation, and the necessary licensing and qualification
in all jurisdictions, of all parties to all documents, (iii) the necessary
authorization, execution, delivery and enforceability of all documents, and the
necessary entity power with respect thereto and (iv) that there is not any other
agreement that modifies or supplements the agreements expressed in the documents
to which this opinion letter relates and that renders any of the opinions
expressed below inconsistent with such documents as so modified or supplemented.
In rendering this opinion letter, we have made no inquiry, have conducted no
investigation and assume no responsibility with respect to (a) the accuracy of
and compliance by the parties thereto with the representations, warranties and
covenants contained in any document or (b) the conformity of the underlying
assets and related documents to the requirements of the agreements to which this
opinion letter relates.
Our opinions set forth below with respect to the enforceability of any
right or obligation under any agreement are subject to (i) general principles of
equity, including concepts of materiality, reasonableness, good faith and fair
dealings and the possible unavailability of specific performance and injunctive
relief, regardless of whether considered in a proceeding in equity or at law,
(ii) the effect of certain laws, regulations and judicial or other decisions
upon the availability and enforceability of certain covenants, remedies and
other provisions, including the remedies of specific performance and self-help
and provisions imposing penalties and forfeitures and waiving objections to
venue and forum, (iii) bankruptcy, insolvency, receivership, reorganization,
liquidation, fraudulent conveyance, moratorium or other similar laws affecting
the rights of creditors or secured parties and (iv) public policy considerations
underlying the securities laws, to the extent that such public policy
considerations limit the enforceability of the provisions of any agreement which
purport or are construed to provide indemnification with respect to securities
law violations.
In rendering this opinion letter, we do not express any opinion
concerning any laws other than the federal laws of the United States, the laws
of the State of New York and the General Corporation Law of the State of
Delaware as interpreted by judicial decisions. We do not express any opinion
with respect to the securities laws of any jurisdiction or any other matter not
specifically addressed in the opinions expressed below.
Based upon and subject to the foregoing, it is our opinion that:
1. Each Pooling and Servicing Agreement for a Series of
Certificates, assuming the authorization, execution and
delivery thereof by the parties thereto, will be a valid and
legally binding agreement under the laws of the State of New
York, enforceable thereunder against the Registrant in
accordance with its terms.
2. Each Indenture for a Series of Notes, assuming the
authorization, execution and delivery thereof by the parties
thereto, will be a valid and legally binding agreement under
the laws of the State of New York, enforceable thereunder
against the applicable issuer in accordance with its terms.
3. Each series of Certificates, assuming the authorization,
execution and delivery of the related Pooling and Servicing
Agreement, the execution and authentication of such
Certificates in accordance with that Pooling and Servicing
Agreement and the delivery and payment therefor as
contemplated in the Registration Statement and the prospectus
and prospectus supplement delivered in connection therewith,
will be legally and validly issued and outstanding, fully paid
and non-assessable and entitled to the benefits of that
Pooling and Servicing Agreement.
4. Each series of Notes, assuming the authorization, execution
and delivery of the related Indenture, the execution and
authentication of such Notes in accordance with that Indenture
and the delivery and payment therefor as contemplated in the
Registration Statement and the prospectus and prospectus
supplement delivered in connection therewith, will be legally
and validly issued and outstanding, fully paid and
non-assessable and 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 the Certificates, is accurate
with respect to those tax consequences which are discussed,
and we hereby confirm and adopt that description as our
opinion.
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 supplement included in the Registration Statement under the headings
"Certain Federal Income Tax Consequences" and "Legal Matters", without admitting
that we are "persons" within the meaning of Section 7(a) or 11(a)(4) of the 1933
Act, or "experts" within the meaning of Section 11 thereof, with respect to any
portion of the Registration Statement.
Very truly yours,
THACHER PROFFITT & WOOD
By /s/ Thacher Proffitt & Wood
Exhibit 5.2
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[Letterhead of Stroock & Stroock & Lavan LLP]
April 8, 1999
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
April 8, 1999
DLJ Mortgage Acceptance Corp.
277 Park Avenue
New York, New York 10172
Re: DLJ Mortgage Acceptance Corp.
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for DLJ Mortgage Acceptance Corp., a Delaware
corporation (the "Company"), in connection with the registration statement on
Form S-3 (the "Registration Statement") relating to the Securities (defined
below) and with the authorization and issuance from time to time in one or more
series (each, a "Series") of up to $4,000,000,000 aggregate principal amount of
Mortgage Pass-Through Certificates (the "Certificates") and Mortgage-Backed
Notes (the "Notes," and together with the Certificates, the "Securities"). As
set forth in the Registration Statement, each Series of Securities will be
issued under and pursuant to the conditions of a separate pooling and servicing
agreement or indenture (each, an "Agreement") among the Company, a trustee (the
"Trustee") and, where appropriate, one or more servicers (the "Servicer"), each
to be identified in the prospectus supplement for such Series of Securities.
We have examined copies of the Company's Certificate of Incor poration,
the Company's By-laws and forms of each Agreement, as filed or incorporated by
reference as exhibits to the Registration Statement, and the forms of Securities
included in any Agreement so filed or incorporated by reference in the
Registration Statement and such other records, documents and statutes as we have
deemed necessary for purposes of this opinion.
<PAGE>
Based upon the foregoing, we are of the opinion that:
1. When any Agreement relating to a Series of Securities has been duly
and validly authorized by all necessary action on the part of the Company and
has been duly executed and delivered by the Company, the Servicer, if any, the
Trustee and any other party thereto, such Agreement will constitute a legal,
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other laws relating to or affecting creditors' rights
generally or by general equity prin ciples.
2. When a Series of Securities has been duly authorized by all
necessary action on the part of the Company (subject to the terms thereof being
otherwise in compliance with applicable law at such time), duly executed and
authenticated by the Trustee for such Series in accordance with the terms of the
related Agreement and issued and delivered against payment therefor as described
in the Registration Statement, such Series of Securities will be legally and
validly issued, fully paid and nonassessable, and the holders thereof will be
entitled to the benefits of the related Agreement.
In rendering the foregoing opinions, we express no opinion as to the
laws of any jurisdiction other than the laws of the State of New York (excluding
choice of law principles therein) and the federal laws of the United States of
America.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus forming a part of the Registration Statement,
without admitting that we are "experts" within the meaning of the Securities Act
of 1933, as amended, or the Rules and Regulations of the Commission issued
thereunder, with respect to any part of the Registration Statement, including
this exhibit.
Very truly yours,
/s/ Brown & Wood LLP
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<PAGE>
April 8, 1999
DLJ Mortgage Acceptance Corp.
277 Park Avenue
New York, New York 10172
Re: DLJ Mortgage Acceptance Corp.
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel for DLJ Mortgage
Acceptance Corp., a Delaware corporation (the "Company"), in connection with the
registration statement on Form S-3, as amended (the "Registration Statement"),
referred to above relating to $4,000,000,000 aggregate principal amount of
Mortgage Pass-Through Certificates (the "Certificates") and Mortgage-Backed
Notes (the "Notes", and together with the Certificates, the "Securities")
issuable in series (each, a "Series"). The Registration Statement has been filed
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended. As set forth in the Registration Statement, each Series of Certificates
will be issued under and pursuant to the conditions of a separate pooling and
servicing agreement or indenture (each, an "Agreement") among the Company, a
trustee and, where appropriate, one or more servicers to be identified in the
prospectus supplement for such Series (the "Trustee" and the "Servicer" for such
Series, respectively).
We have examined the prospectus contained in the Registration
Statement (the "Prospectus") and such other records, documents and instruments
as we have deemed necessary for the purposes of this opinion.
In arriving at the opinion expressed below, we have assumed
that each Pooling Agreement will be duly authorized by all necessary corporate
action on the part of the Company, the Trustee, the Servicer, if any, and any
other party thereto and will be duly executed and delivered by the Company, the
Trustee, the Servicer, if any, and any other party thereto substantially in the
form filed
<PAGE>
as an exhibit to the Registration Statement; that each Series of Certificates
will be duly executed and delivered in substantially the forms set forth in the
related Agreement filed as an exhibit to the Registration Statement; that
Certificates will be sold as described in the Registration Statement; and we
have relied upon the documents referred to above (the "Documents"). We have
assumed that all parties had the corporate power and authority to enter into and
perform all obligations thereunder, and we have also assumed the due
authorization by all requisite corporate actions, the due execution and delivery
and the validity and binding effect and enforceability of such Documents. We
have made investigations of such matters of law and fact as we have considered
necessary or appropriate for the purpose of this opinion.
Our opinion is also based on the assumption that there are no
agreements or understandings with respect to the transactions contemplated in
the Documents other than those contained in the Documents. Furthermore, our
opinion is based on the assumption that all parties to the Documents will comply
with the terms thereof, including all tax reporting requirements contained
therein.
As special tax counsel to the Company, we have advised the
Company with respect to certain federal income tax aspects of the proposed
issuance of each Series of Certificates pursuant to the related Agreement. Such
advice has formed the basis for the description of selected federal income tax
consequences for holders of such Securities that appears under the heading
"Certain Federal Income Tax Consequences" in the Prospectus forming a part of
the Registration Statement. Such description does not purport to discuss all
possible federal income tax ramifications of the proposed issuance of the
Securities, but with respect to those federal income tax consequences which are
discussed, in our opinion, the description is accurate in all material respects.
The opinions set forth herein are based upon the existing
provisions of the Code and Treasury regulations issued or proposed thereunder,
published Revenue Rulings and releases of the Internal Revenue Service and
existing case law, any of which could be changed at any time. Any such changes
may be retroactive in application and could modify the legal conclusions upon
which such opinions are based. The opinions expressed herein are limited as
described above, and we do not express an opinion on any other legal or income
tax aspect of the transactions contemplated by the Documents relating to the
transaction.
In rendering the foregoing opinions, we express no opinion as to the
laws of any jurisdiction other than the federal income tax laws of the United
States. This opinion is rendered as of the date hereof and we undertake no
obligation to update this opinion or advise you of changes in the event there is
any change in legal authorities, facts, assumptions or Documents on which this
opinion is based (including the taking of any action by any party to the
Documents pursuant to any opinion of counsel or a waiver), or any
2
<PAGE>
inaccuracy in any of the representations, warranties or assumptions upon which
we have relied in rendering this opinion, unless we are specifically engaged to
do so. This opinion is rendered only to those to whom it is addressed and may
not be relied on in connection with any transactions other than the transactions
contemplated herein. The opinion may not be relied upon for any other purpose,
or relied upon by any other person, firm or corporation for any purpose, without
our prior written consent.
We hereby consent to the filing of this letter as an exhibit
to the Registration Statement and to the references to this firm under the
heading "Certain Federal Income Tax Consequences" in the Prospectus forming a
part of the Registration Statement, without admitting that we are "experts"
within the meaning of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission issued thereunder, with
respect to any part of the Registration Statement, including this exhibit.
Very truly yours,
/s/ Brown & Wood LLP
3
