<PAGE>
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH 2, 2000)
DLJ MORTGAGE ACCEPTANCE CORP.
DEPOSITOR
PNCMT TRUST SERIES 2000-1
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2000-1
$668,606,139
(APPROXIMATE)
YOU SHOULD CAREFULLY REVIEW THE INFORMATION IN 'RISK FACTORS' ON PAGE S-7 IN
THIS PROSPECTUS SUPPLEMENT AND PAGE 3 IN THE PROSPECTUS.
This prospectus supplement may be used to offer and sell the certificates only
if accompanied by the prospectus.
THE TRUST WILL ISSUE:
Five classes of senior Class A Certificates.
Two classes of senior principal-only Class P
Certificates.
Five classes of senior interest-only Class X
Certificates.
One class of senior residual Class A-R Certificates.
Six classes of Class D-B Certificates, which provide
credit enhancement for the senior certificates and each
class of Class D-B Certificates, if any, with a lower
numerical designation.
THE CERTIFICATES:
Represent ownership interests in a trust, whose assets
are primarily a pool of fixed rate, first lien
residential mortgage loans consisting of five groups.
Represent obligations of the trust only and do not
represent an interest in or obligation of DLJ Mortgage
Acceptance Corp., PNC Mortgage Securities Corp.,
Countrywide Home Loans, Inc., GreenPoint Mortgage
Funding, Inc., Bank One, National Association or any of
their affiliates or any other entity.
Offered to the public are listed under the heading
'Offered Certificates' in the table on page S-3.
RISKS:
The yield to investors on each class of certificates
will be sensitive to the rate and timing of principal
payments on the mortgage loans in the related group or
groups which may vary over time.
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 subordinate certificates in
particular.
The yield on the Class P Certificates and the Class X
Certificates are extremely sensitive to the rate and
timing of principal prepayments, as discussed in 'Risk
Factors' in this prospectus supplement.
Donaldson, Lufkin & Jenrette Securities Corporation, as underwriter, will buy
the offered certificates from DLJ Mortgage Acceptance Corp. at a price equal to
100.22% of their face value. The depositor 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.
The trust will make two REMIC elections for federal income tax purposes.
NEITHER THE SEC 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.
DONALDSON, LUFKIN & JENRETTE
March 2, 2000
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TABLE OF CONTENTS
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PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
- --------------------------------------------
Summary Information................... S-3
Risk Factors.......................... S-7
Important Notice About Information
Presented in this Prospectus
Supplement and the Prospectus....... S-13
The Mortgage Pool..................... S-13
The Sellers........................... S-28
Servicing of Mortgage Loans........... S-30
Description of the Certificates....... S-37
Glossary of Terms..................... S-38
Yield, Prepayment and Maturity
Considerations...................... S-51
Credit Enhancement.................... S-64
Use of Proceeds....................... S-65
Material Federal Income Tax
Consequences........................ S-65
ERISA Considerations.................. S-67
Method of Distribution................ S-68
Legal Matters......................... S-68
Ratings............................... S-69
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PAGE
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PROSPECTUS
- --------------------------------------------
Risk Factors.......................... 3
Important Notice About Information
Presented in This Prospecuts and the
Accompanying Prospectus
Supplement.......................... 7
Description of the Securities......... 8
Yield, Prepayment and Maturity
Consideration....................... 13
The Trust Funds....................... 18
Loan Underwriting Procedures and
Standards........................... 29
Servicing of Loans.................... 33
Credit Support........................ 44
Description of Mortgage and Other
Insurance........................... 47
The Agreements........................ 52
Legal Aspects of Loans................ 64
Material Federal Income Tax
Considerations...................... 76
State and Other Tax Consequences...... 93
ERISA Considerations.................. 93
Legal Investment...................... 99
Legal Matters......................... 100
The Depositor......................... 100
Use of Proceeds....................... 100
Plan of Distribution.................. 101
Glossary.............................. 102
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S-2
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SUMMARY INFORMATION
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS SUPPLEMENT AND
DOES NOT CONTAIN ALL OF THE INFORMATION NECESSARY 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 2000-1
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INITIAL CLASS
PRINCIPAL PASS- INITIAL RATING OF
BALANCE THROUGH CERTIFICATES
OR NOTIONAL RATE S&P DCR DESIGNATIONS AND
CLASS AMOUNT (PER ANNUM) RATING RATING FEATURES FORM
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
OFFERED
CERTIFICATES
I-A-1 $277,802,347 8.000%(1) AAA AAA Senior Book Entry
II-A-1 $ 76,959,843 7.375%(1) AAA AAA Senior Book Entry
III-A-1 $117,908,827 8.000% AAA AAA Senior Book Entry
IV-A-1 $ 50,068,041 8.250%(1) AAA AAA Senior Book Entry
V-A-1 $ 90,958,814 8.250% AAA AAA Senior Book Entry
I-X $ 3,583,803(2) 8.000% AAAr AAA Senior/Interest Book Entry
Only
II-X $ 1,515,126(2) 7.375% AAAr AAA Senior/Interest Book Entry
Only
III-X $ 13,028,468(2) 8.000% AAAr AAA Senior/Interest Book Entry
Only
IV-X $ 684,003(2) 8.250% AAAr AAA Senior/Interest Book Entry
Only
V-X $ 3,296,380(2) 8.250% AAAr AAA Senior/Interest Book Entry
Only
III-P $ 233,860 0.000% AAAr AAA Senior/Principal Book Entry
Only
V-P $ 371,270 0.000% AAAr AAA Senior/Principal Book Entry
Only
A-R $ 100 8.000% AAA AAA Senior/Residual Physical
D-B-1 $ 37,333,336 (3) N/A AA Subordinate Book Entry
D-B-2 $ 10,521,214 (3) N/A A Subordinate Book Entry
D-B-3 $ 6,448,487 (3) N/A BBB Subordinate Book Entry
NON-
OFFERED
CERTIFICATES
D-B-4 $ 4,072,727 (3) N/A BB Subordinate Physical
D-B-5 $ 2,375,757 (3) N/A B Subordinate Physcial
D-B-6 $ 3,733,337 (3) N/A N/A Subordinate Physical
</TABLE>
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(1) These classes will accrue interest at the fixed-rate specified above for
that class on the notional amount for that class, and will not accrue
interest on their principal balances. The initial Class I-A-1, Class II-A-1
and Class IV-A-1 notional amount will be approximately $278,323,737,
$77,063,700 and $50,152,946, respectively. The notional amounts may be
different on each distribution date.
(2) Initial notional amount.
(3) The initial pass-through rate on these classes will be approximately 7.9884%
per annum and will vary after the first distribution date. For a more
detailed description of the pass-through rate on these classes, see
'Description of the Certificate -- Distributions of Interest.'
The certificates are subject to a variance of no more than 5% prior to their
issuance.
OTHER INFORMATION:
Each of the certificates generally will receive distributions based on
collections on the mortgage loans in the corresponding group or groups. The
Class I-A-1 and Class I-X Certificates correspond to Group 1; the Class II-A-1
and Class II-X Certificates correspond to Group 2; the Class III-A-1,
Class A-R, Class III-X and Class III-P Certificates correspond to Group 3; the
Class IV-A-1 and Class IV-X Certificates correspond to Group 4 and the
Class V-A-1, Class V-X and Class V-P correspond to Group 5. The Class D-B-1,
Class D-B-2, Class D-B-3, Class D-B-4, Class D-B-5 and Class D-B-6 Certificates
correspond to all of the loan groups.
DEPOSITOR
DLJ Mortgage Acceptance Corp.
The Depositor maintains its principal office at 277 Park Avenue, 9th Floor, New
York, New York 10172. Its telephone number is (212) 892-3000.
SELLER AND SERVICER OF THE GROUP 1 LOANS
Countrywide Home Loans, Inc. is the seller.
Countrywide Home Loans, Inc. will initially service all of the Group 1 Loans.
SELLERS AND SERVICERS OF THE GROUP 2 AND GROUP 3 LOANS
Countrywide Home Loans, Inc., GreenPoint Mortgage Funding, Inc. and DLJ Mortgage
Capital, Inc. are each sellers of a portion of the Group 2 and Group 3 Loans.
Countrywide Home Loans, Inc. and GreenPoint Mortgage Funding, Inc. will
initially service over 84.03% (by principal balance as of the cut-off date) of
the Group 2 and Group 3 Loans. Either a FNMA-approved servicer or DLJ Mortgage
Capital, Inc. will initially act as servicer of the remaining loans. DLJ
Mortgage Capital, Inc. has delegated its servicing obligations to various
FNMA-approved subservicers.
SELLER AND SERVICER OF THE GROUP 4 AND GROUP 5 LOANS
PNC Mortgage Securities Corp. is the seller of substantially all of the Group 4
and Group 5 Loans.
PNC Mortgage Securities Corp. will initially service all of the Group 4 and
Group 5 Loans.
TRUSTEE
Bank One, National Association.
CUT-OFF DATE
February 1, 2000.
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CLOSING DATE
March 3, 2000.
DETERMINATION DATE
In the case of the Group 1 Loans, a day not later than the 15th day preceding a
related distribution date.
In the case of the Group 2 and Group 3 Loans, a day not later than the 16th day
preceding a related distribution date.
In the case of the Group 4 and Group 5 Loans, a day not later than the 10th day
preceding a related distribution date.
DISTRIBUTION DATE
In the case of the Group 1, Group 2 and Group 3 senior certificates, the 19th
day of each month or if that day is not a business day, the next business day.
In the case of the Group 4 and Group 5 senior certificates and the subordinate
certificates, the 25th day of each month or if the 25th day is not a business
day, the next business day.
RECORD DATE
The last business day of the month preceding the month of a distribution date.
MORTGAGE POOL
On March 3, 2000, the trust will acquire a pool of mortgage loans which will be
divided into five groups,
As of February 1, 2000, the pool of mortgage loans consists of approximately
5,436 fixed-rate mortgage loans, with an aggregate principal balance of
approximately $678,787,961. All of the mortgage loans are secured by residential
properties and each is set to mature within 10 to 30 years of the date it was
originated.
The five groups have the following characteristics:
<TABLE>
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APPROXIMATE
PRINCIPAL
NUMBER OF BALANCE AS OF
DESIGNATION MORTGAGE LOANS FEBRUARY 1, 2000
<S> <C> <C>
- ----------------------------------------------------------
Group 1 2,739 $306,963,920
Group 2 971 $ 85,038,501
Group 3 1,025 $130,544,517
Group 4 429 $ 55,323,803
Group 5 272 $100,917,221
</TABLE>
We refer you to 'The Mortgage Pool' in this prospectus supplement for more
detail.
CROSS-COLLATERALIZATION
Generally, distributions of principal and interest to the holders of the senior
certificates will be based solely on the payments received or advanced on the
mortgage loans in the related group. However, in certain limited circumstances
principal and interest collected from one group may be used to pay principal or
interest, or both, to the senior certificates related to another group.
We refer you to 'Description of the Certificates -- Cross-Collateralization' in
this prospectus supplement for more detail.
PRIORITY OF DISTRIBUTIONS
Funds available from monthly payments and other amounts received on the mortgage
loans in each loan group on any distribution date will be distributed to the
holders of the senior certificates related to that loan group in the following
order:
to principal of the Class P Certificates, if any, in the manner described in
this prospectus supplement under 'Description of the
Certificates -- Distributions of Principal';
to interest on the related interest bearing senior certificates in the manner
described in this prospectus supplement under 'Description of the
Certificates -- Distributions of Interest'; and
to principal of the related senior certificates (other than the related Class P
Certificates, if any) entitled to principal.
After giving effect to the distributions set forth in the previous paragraph for
all groups, all remaining funds will be aggregated and distributed as follows,
subject to any payments required to be made to the senior certificates as
described herein under 'Description of the
Certificates -- Cross-Collateralization':
to any deferred amounts payable on the Class P Certificates;
to interest on and principal of each class of subordinate certificates, in order
of their numerical class designations, beginning with the Class D-B-1
Certificates; and
to the Class A-R Certificates, any remaining amounts.
In certain limited circumstances, distributions of principal and interest on the
senior certificates of one group may be based on payments received or advanced
with respect to another group.
INTEREST DISTRIBUTIONS
Interest accrues on the interest-bearing certificates during the calendar month
prior to a distribution date.
On each distribution date, you will be entitled to the following:
S-4
<PAGE>
interest at the pass-through rate that accrued during the related accrual
period; and
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 in the related group and various types of losses on the mortgage
loans.
The Class P Certificates do not receive interest distributions.
PRINCIPAL DISTRIBUTIONS
Principal distributions are payable on each distribution date. The priority and
amount of principal distributions varies from class to class. Shortfalls in
available funds may result in a class receiving less than what it 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.
CREDIT ENHANCEMENT
Credit enhancement in the form of subordination should reduce delays in
distributions and losses on some 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
class of subordinate certificates with a higher numerical class designation;
and
2. Losses resulting from the liquidation of defaulted mortgage loans (other than
certain losses allocable to special hazards, mortgagor fraud or mortgagor
bankruptcy) will be allocated to the subordinate certificates in reverse
numerical class order until their class balance has been reduced to zero,
starting with the Class D-B-6 Certificates.
See 'Description of the Certificates -- Priority of Distributions Among
Certificates' and ' -- Allocation of Losses; Subordination' in this prospectus
supplement for more detail.
OPTIONAL TERMINATION OF THE TRUST
If the aggregate principal balance of the mortgage loans declines below 5% 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 does not exercise such option, the servicers may exercise such
option. If the depositor or the servicers purchase all of the mortgage loans,
you will receive a final distribution and then the trust will be terminated.
We refer you to 'Description of the Certificates -- Optional Termination' in
this prospectus supplement for more detail.
ADVANCES
If the servicer of a mortgage loan reasonably believes that cash advances can be
recovered from a delinquent mortgagor or other collections on that mortgage
loan, then the servicer will make cash advances to the trust to cover 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.
We refer you to 'Servicing of the Mortgage Loans -- Advances from the Servicer'
in this prospectus supplement for more detail.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the trust will be treated as two REMICs. All
classes of certificates, other than the Class A-R Certificates, will represent
regular interests in a REMIC. The Class A-R Certificates will represent
ownership of the residual interests in the REMICs.
S-5
<PAGE>
ERISA CONSIDERATIONS
The senior certificates, other than the Class A-R Certificates, may be eligible
for purchase by persons investing assets of employee benefit plans or individual
retirement accounts, subject to important considerations. Sales of the
subordinate certificates and the Class A-R Certificates to these plans or
retirement accounts are prohibited, except as permitted under 'ERISA
Considerations' in this prospectus supplement. If you invest in a Class D-B-1,
Class D-B-2 or Class D-B-3 Certificate, you will be deemed to represent that you
comply with these restrictions.
LEGAL INVESTMENT
When issued, the senior certificates and the Class D-B-1 Certificates will be
mortgage related securities for purposes of the Secondary Mortgage Market
Enhancement Act of 1984. The Class D-B-2 and Class D-B-3 Certificates will not
be mortgage related securities for purposes of SMMEA.
RATINGS
The trust will not issue the offered certificates unless they have been assigned
the ratings designated on page S-3.
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.
S-6
<PAGE>
RISK FACTORS
THIS PROSPECTUS SUPPLEMENT TOGETHER WITH THE PROSPECTUS DESCRIBES THE
MATERIAL RISK FACTORS RELATED TO YOUR SECURITIES. THE SECURITIES OFFERED UNDER
THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT IN THE CONTEXT
OF YOUR FINANCIAL SITUATION AND TOLERANCE FOR RISK.
<TABLE>
<S> <C>
YOU MAY HAVE TO HOLD YOUR CERTIFICATES TO The underwriter intends to make a secondary market
MATURITY IF THEIR MARKETABILITY IS LIMITED for the certificates, but is not obligated to do
so. There is currently no secondary market for the
offered certificates. We cannot give you any
assurance that 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 means you may not be able to find a
buyer to buy your securities readily or at prices
that will enable you to realize a desired yield.
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.
THE YIELD ON YOUR CERTIFICATES WILL VARY The rate of principal distributions and yield to
DEPENDING ON THE RATE OF PREPAYMENTS maturity on your certificates will be directly
related to the rate of principal payments on the
mortgage loans in the related group or groups.
Mortgagors may prepay a mortgage loan at any time.
The rate of principal payments on the mortgage
loans will be affected by, among other factors, the
following:
the amortization schedules of the mortgage loans;
the rate of prepayments by mortgagors, including
prepayments resulting from refinancing;
liquidations of defaulted mortgage loans; and
repurchases of mortgage loans as a result of
defective documentation and breaches of
representations and warranties.
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 currently offered mortgage rates fall below the
mortgage rates on the mortgage loans, the
prepayment rate should increase. On the other hand,
if currently offered mortgage rates rise above the
mortgage rates on the mortgage loans, the
prepayment rate should decrease.
</TABLE>
S-7
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<TABLE>
<S> <C>
IF THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS We cannot predict the rate at which mortgagors will
IS DIFFERENT THAN EXPECTED, YOUR YIELD MAY BE repay their mortgage loans. Please consider the
CONSIDERABLY LOWER THAN ANTICIPATED following:
If you are purchasing a certificate at a discount,
your yield may be lower than expected if principal
payments on the related mortgage loans occur at a
slower rate than you expected.
If you are purchasing a certificate at a premium,
your yield may be lower than expected if principal
payments on the related mortgage loans occur at a
faster rate than you expected.
Certificates that receive only payments of interest
are especially sensitive to variations in the rate
of prepayments. If the rate of prepayments is
faster than you expected, your yield will be lower
than expected and you may not fully recoup your
initial investment.
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.
We refer you to 'Yield, Prepayment and Maturity
Considerations' in this prospectus supplement for
more detail.
THE VALUE OF YOUR CERTIFICATES MAY BE REDUCED IF If the performance of the mortgage loans is
LOSSES ARE HIGHER THAN EXPECTED substantially worse than assumed by the rating
agencies, the ratings of any class of related
certificates may be lowered in the future. This
would probably reduce the value of those
certificates. None of the depositor, any seller,
any servicer or any other entity will have any
obligation to supplement any credit enhancement, or
to take any other action to maintain any rating of
the certificates. Consequently, if payments on the
mortgage loans are insufficient to make all
payments required on the certificates, then you may
incur a loss on your investment.
LOSSES ON THE MORTGAGE LOANS IN ONE GROUP MAY The applicable coverages for special hazard losses,
REDUCE THE YIELD ON THE SENIOR CERTIFICATES fraud losses and bankruptcy losses cover all
UNRELATED TO THAT GROUP groups. Therefore, if mortgage loans in any group
suffer a high level of these losses, it will reduce
the available coverage for all certificates. After
the available coverage has been exhausted, if a
mortgage loan in any group suffers such a loss, all
of the senior certificates will be allocated a
portion of such loss.
Investors in these senior certificates should also
be aware that because the subordinate certificates
represent interests in all groups, the class
balance of the subordinate certificates could be
reduced to zero as a result of realized losses on
the mortgage loans in any of these groups.
Therefore, the allocation of realized losses on the
mortgage loans in any of these groups to the
subordinate
</TABLE>
S-8
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certificates will reduce the subordination provided
by the subordinate certificates to the senior
certificates, including the senior certificates
related to a group which did not suffer any losses.
This will increase the likelihood that future
realized losses may be allocated to these senior
certificates.
RAPID PREPAYMENTS ON MORTGAGE LOANS IN GROUP 1 At any time, interest accruing on the Class I-A-1
WITH HIGH INTEREST RATES WILL REDUCE THE YIELD notional amount at the fixed rate of 8.000% per
ON THE CLASS I-A-1 AND CLASS I-X CERTIFICATES annum will equal interest which would accrue on the
Class I-A-1 principal balance at the weighted
average of the net mortgage rates on the mortgage
loans in Group 1 less a portion paid to the
Class I-X Certificates. If currently offered
mortgage rates decline, the mortgage loans in
Group 1 with higher mortgage rates are more likely
to be refinanced, resulting in prepayments in full
on these mortgage loans. Rapid prepayments of such
mortgage loans will cause the weighted average of
the mortgage rates on the mortgage loans in
Group 1 to decrease, in turn causing a decrease in
the Class I-A-1 and Class I-X notional amount and
the amount of interest accrued thereon.
RAPID PREPAYMENTS ON MORTGAGE LOANS IN GROUP 2 At any time, interest accruing on the Class II-A-1
WITH HIGH INTEREST RATES WILL REDUCE THE YIELD notional amount at the fixed rate of 7.375% per
ON THE CLASS II-A-1 AND CLASS II-X CERTIFICATES annum will equal interest which would accrue on the
Class II-A-1 principal balance at the weighted
average of the net mortgage rates on the mortgage
loans in Group 2 less a portion paid to the
Class II-X Certificates. If currently offered
mortgage rates decline, the mortgage loans in
Group 2 with higher mortgage rates are more likely
to be refinanced, resulting in prepayments in full
on these mortgage loans. Rapid prepayments of such
mortgage loans will cause the weighted average of
the mortgage rates on the mortgage loans in
Group 2 to decrease, in turn causing a decrease in
the Class II-A-1 and Class II-X notional amount and
the amount of interest accrued thereon.
RAPID PREPAYMENTS ON MORTGAGE LOANS IN GROUP 4 At any time, interest accruing on the Class IV-A-1
WITH HIGH INTEREST RATES WILL REDUCE THE YIELD notional amount at the fixed rate of 8.25% per
ON THE CLASS IV-A-1 AND CLASS IV-X CERTIFICATES annum will equal interest which would accrue on the
Class IV-A-1 principal balance at the weighted
average of the net mortgage rates on the mortgage
loans in Group 4 less a portion paid to the
Class IV-X Certificates. If currently offered
mortgage rates decline, the mortgage loans in
Group 4 with higher mortgage rates are more likely
to be refinanced, resulting in prepayments in full
on these mortgage loans. Rapid prepayments of such
mortgage loans will cause the weighted average of
the mortgage rates on the mortgage loans in
Group 4 to decrease, in turn causing a decrease in
the Class IV-A-1 and Class IV-X notional amount and
the amount of interest accrued thereon.
YIELD ON THE CLASS P CERTIFICATES ARE EXTREMELY The Class III-P Certificates will receive a portion
SENSITIVE TO RATE AND TIMING OF PREPAYMENTS of the principal payments only on the Group 3
mortgage loans that have net mortgage rates lower
than 8.00% per annum.
</TABLE>
S-9
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<TABLE>
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The Class V-P Certificates will receive a portion
of the principal payments only on the Group 5
mortgage loans that have net mortgage rates lower
than 8.25% per annum.
Therefore, the yield on the Class P Certificates
are extremely sensitive to the rate and timing of
principal prepayments and defaults on the related
mortgage loans that have net mortgage rates lower
than that indicated above.
If you invest in the Class P Certificates, you
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 low net mortgage rates occur at a rate
slower than you assumed at the time of purchase,
your yield may be less than expected.
We refer you to 'Yield, Prepayment and Maturity
Considerations' in this prospectus supplement for
more detail.
YIELD ON THE CLASS X CERTIFICATES ARE EXTREMELY The Class III-X Certificates will receive a portion
SENSITIVE TO RATE AND TIMING OF PREPAYMENTS of the interest payments only from Group 3 mortgage
loans that have net mortgage rates higher than
8.00% per annum.
The Class V-X Certificates will receive a portion
of the interest payment only from Group 5 mortgage
loans that have net mortgage rates higher than
8.25% per annum.
Therefore, the yield on the Class III-X and
Class V-X Certificates will be extremely sensitive
to the rate and timing of principal prepayments
and defaults on the related mortgage loans that
have net mortgage rates higher than that indicated
above.
If you invest in Class X Certificates, you 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 high net mortgage rates are
prepaid at a rate faster than you assumed at the
time of purchase, your yield may be adversely
affected. You should fully consider the risk that
a rapid rate of prepayments on the mortgage loans
that have high net mortgage rates could result in
your failure to fully recover your investments.
We refer you to 'Yield, Prepayment and Maturity
Considerations' in this prospectus supplement for
more detail.
LOSSES ON THE MORTGAGE LOANS WILL REDUCE THE Before purchasing a class of subordinate
YIELD ON THE SUBORDINATE CERTIFICATES certificates, you should consider the following
factors that may adversely impact your yield:
The subordinate certificates are not entitled to a
proportionate share of principal prepayments on
the mortgage loans until the beginning of the
ninth year after the closing date. In addition, if
losses on mortgage loans exceed stated levels, a
portion of the principal distribution payable to
classes of the subordinate
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
certificates with higher numerical class
designations will be paid to the classes of
subordinate certificates with lower numerical
class designations.
Losses resulting from the liquidation of defaulted
mortgage loans, other than 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 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.
The earlier in the transaction that a loss on a
mortgage loan occurs, the greater the reduction in
yield.
These risks are more severe for the classes of
subordinate certificates with higher numerical
class designations.
We refer you to 'Description of the Certificates'
and 'Yield, Prepayment and Maturity Considerations'
in this prospectus supplement for more detail.
INCREASED RISK OF LOSS AS A RESULT OF GEOGRAPHIC Approximately 19.16%, 9.33%, 22.59%, 25.02% and
CONCENTRATION 47.24% of the Group 1 mortgage loans, Group 2
mortgage loans, Group 3 mortgage loans, Group 4
mortgage loans and Group 5 mortgage loans,
respectively, by principal balance as of
February 1, 2000, 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 those rates in a
stable or improving real estate market. Also,
California is more susceptible to various types of
uninsurable hazards, such as earthquakes, brush
fires, floods, mudslides and other natural
disasters. If these occur, the rates of
delinquency, foreclosure, bankruptcy and loss on
the mortgage loans may increase.
CONSEQUENCES OF OWNING BOOK-ENTRY CERTIFICATES Limit on Liquidity of Certificates. Issuance of the
offered 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 DTC, 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 DTC 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
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
since the distributions will be forwarded by the
trustee to DTC for DTC to credit the accounts of
its participants which will thereafter credit them
to your account either directly or indirectly
through indirect participants, as applicable.
We refer you to 'Description of the
Certificates -- DTC Registered Certificates' in
this prospectus supplement for more detail.
YEAR 2000 COMPUTER PROBLEMS COULD DISRUPT Many computer systems and microprocessors with data
DISTRIBUTIONS ON CERTIFICATES functions, including those in non-information
technology equipment and systems, use only two
digits to identify a year in the date field with
the assumption that the first two digits of the
year are always '19.' Consequently, on and after
January 1, 2000, computers that are not year 2000
compliant may read the year as 1900 and
malfunction.
Each servicer believes that its systems are year
2000 compliant and, to date, has not experienced
any material year 2000 problems. In addition, each
servicer has not received notice from any of its
third party service providers, such as trustees,
borrowers' banks, loan servicers and DTC, that any
of them have experienced any material year 2000
problems.
Nonetheless, any failure by a servicer, or the
failure of any of its third-party service
providers, to be fully year 2000 ready could
disrupt, at least temporarily, that servicer's
ability to carry out its servicing duties,
including the calculation of amounts distributable
to you and the timely transfer of funds to the
trustee for your benefit. Your investment in the
certificates could consequently suffer.
</TABLE>
S-12
<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:
the prospectus, which provides general information, some of which may not
apply to your series of certificates; and
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.
THE MORTGAGE POOL
The depositor will establish a trust for Series 2000-1 on the closing date,
under a pooling and servicing agreement among the depositor, the sellers, the
servicers and the trustee, dated as of the cut-off date. On the closing date,
the depositor will deposit into the trust a pool of mortgage loans that, in the
aggregate, will constitute a mortgage pool, secured by one- to four-family
residential properties with terms to maturity of not more than thirty years.
Some capitalized terms used in this prospectus supplement will have meanings
given below under 'Description of the Certificates -- Glossary of Terms' or in
the prospectus under 'Glossary.'
THE MORTGAGE LOANS
The depositor will acquire 2,739 mortgage loans with an aggregate Stated
Principal Balance as of the cut-off date of approximately $306,963,920 (the
'Group 1 Loans') directly or indirectly through an affiliate from Countrywide
Home Loans, Inc. pursuant to one or more mortgage loan purchase agreements.
The depositor will acquire 1,996 mortgage loans with an aggregate Stated
Principal Balance as of the cut-off date of approximately $215,583,018 from DLJ
Mortgage Capital, Inc. ('DLJ Mortgage Capital') pursuant to one or more mortgage
loan purchase agreements. These mortgage loans are divided into two loan groups
(the 'Group 2 Loans' and the 'Group 3 Loans'). The Group 2 Loans consist of 971
mortgage loans with an aggregate Stated Principal Balance as of the cut-off date
of approximately $85,038,501. The Group 3 Loans consist of 1,025 mortgage loans
with an aggregate Stated Principal Balance as of the cut-off date of
approximately $130,544,517. The Group 2 and Group 3 Loans were previously
purchased by DLJ Mortgage Capital in secondary market transactions from various
mortgage loans originators, with a substantial majority being purchased from
Countrywide Home Loans, Inc. and GreenPoint Mortgage Funding, Inc.
The depositor will purchase 701 mortgage loans with an aggregate Stated
Principal Balance as of the cut-off date of approximately $156,241,023 directly
or indirectly through an affiliate from PNC Mortgage Securities Corp. pursuant
to one or more mortgage loan purchase agreements or, with respect to 10 of such
mortgage loans, from DLJ Mortgage Capital. These mortgage loans are divided into
two loan groups (the 'Group 4 Loans' and the 'Group 5 Loans'). The Group 4 Loans
consist of 429 mortgage loans with an aggregate Stated Principal Balance as of
the cut of date of approximately $55,323,803 and the Group 5 Loans consist of
272 mortgage loans with an aggregate Stated Principal Balance as of the cut-off
date of approximately $100,917,221.
Under the pooling and servicing agreement, the depositor will assign the
mortgage loans to the trustee for the benefit of the holders of the
certificates.
Under the pooling and servicing agreement, the sellers will make
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.' The mortgage loan
representations and warranties relating to the Group 1 Loans will be made by
Countrywide Home Loans, Inc. as of February 28, 2000. The mortgage loan
representations and warranties relating to the Group 2 and Group 3 Loans will be
made by either Countrywide Home Loans, Inc., GreenPoint Mortgage Funding, Inc.,
DLJ Mortgage Capital, or, with respect to no more than 7.71% of Group 2 and
Group 3 Loans (by aggregate Stated Principal Balance as of the cut-off date),
the entity specified in the pooling and servicing agreement, in each case as of
the dates specified in the pooling and servicing agreement. These dates occur no
earlier than April 29, 1999, except that
S-13
<PAGE>
for one mortgage loan the representations and warranties are made as of
December 29, 1998. The mortgage loan representations and warranties relating to
the Group 4 and Group 5 Loans will be made by PNC Mortgage Securities Corp. as
of the closing date or, with respect to 10 of such mortgage loans, by DLJ
Mortgage Capital as of January 31, 2000. In the event of a breach of any
representation or warranty relating to a mortgage loan that materially and
adversely affects the interests of the certificateholders in that mortgage loan,
the related seller will be obligated to do one of the following:
cure that breach,
repurchase that mortgage loan at an amount equal to the sum of the unpaid
principal balance of the mortgage loan on the date of repurchase, and
accrued interest on that mortgage loan at the applicable mortgage rate (net
of the servicing fee, if the seller is the servicer) from the date through
which interest was last paid by the mortgagor to the date of repurchase, or
substitute a replacement mortgage loan for that mortgage loan.
However, this 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 the substitution will not disqualify the REMIC, or result in a prohibited
transaction under the Internal Revenue Code. The depositor will make no
representations or warranties for the mortgage loans and will have no obligation
to repurchase or substitute mortgage loans with deficient documentation or that
are otherwise defective. Each seller is selling the mortgage loans without
recourse and will have no obligations for the mortgage loans in its capacity as
seller other than the cure, repurchase or substitution obligations described
above. The obligations of the servicer is limited to its contractual servicing
obligations under the pooling and servicing agreement. YOU SHOULD BE AWARE THAT
IF THE CIRCUMSTANCE GIVING RISE TO A BREACH OF A REPRESENTATION OR WARRANTY
OCCURS AFTER THE DATE AS OF WHICH THE APPLICABLE SELLER MAKES THE REPRESENTATION
OR WARRANTY, THE SELLER WILL HAVE NO OBLIGATION TO REPURCHASE OR SUBSTITUTE FOR
THAT MORTGAGE LOAN.
Information relating to the mortgage loans to be included in the mortgage
pool is presented in this section. Prior to the closing date, mortgage loans may
be removed from the mortgage pool and other mortgage loans may be substituted
for those mortgage loans. The depositor believes that the information in this
prospectus supplement relating to the mortgage loans to be included in the
mortgage pool as presently constituted is representative of the characteristics
of the these mortgage loans as it will be constituted at the closing date,
although some characteristics of the mortgage loans in the mortgage pool may
vary. 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 in the related group as of the cut-off date, unless otherwise
indicated.
As of the cut-off date, the aggregate Stated Principal Balance of the
mortgage loans is expected to be approximately $678,787,961. The mortgage loans
provide for the amortization of the amount financed over a series of
substantially equal monthly payments. Substantially all of these mortgage loans
provide for payments due on the first day of each month. The mortgage loans to
be included in the mortgage pool were originated or acquired by a seller in the
normal course of its business and in accordance with the underwriting criteria
specified in this prospectus supplement. At origination, the mortgage loans had
stated terms to maturity which ranged from 10 to 30 years. Scheduled monthly
payments made by the mortgagors on the mortgage loans either earlier or later
than the scheduled due dates will not affect the amortization schedule or the
relative application of those payments to principal and interest.
The mortgage loans will be divided into five groups. As of the cut-off date,
the groups will have the characteristics indicated in the following table:
<TABLE>
<CAPTION>
AGGREGATE STATED NUMBER OF EARLIEST PAYMENT LATEST STATED EARLIEST STATED
DESIGNATION PRINCIPAL BALANCE MORTGAGE LOANS DATE MATURITY DATE MATURITY DATE
----------- ----------------- -------------- ---- ------------- -------------
<S> <C> <C> <C> <C> <C>
Group 1.............. $306,963,920 2,739 January 1, 1992 March 1, 2030 May 1, 2014
Group 2.............. $ 85,038,501 971 May 1, 1998 February 1, 2015 August 1, 2009
Group 3.............. $130,544,517 1,025 November 1, 1998 February 1, 2030 March 1, 2014
Group 4.............. $ 55,323,803 429 January 1, 1989 February 1, 2030 December 1, 2018
Group 5.............. $100,917,221 272 December 1, 1998 February 1, 2030 August 20, 2019
</TABLE>
None of the mortgage loans has been delinquent more than 30 days in the last
12 month period. No mortgage loan will be delinquent more than 30 days as of the
cut-off date.
S-14
<PAGE>
No mortgage loan is subject to a buydown agreement. None of these mortgage
loans provides for deferred interest or negative amortization.
The LTV 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 overall or in a particular geographic
area decline, the LTV ratios might not be a reliable indicator of the rates of
delinquencies, foreclosures and losses that could occur on those mortgage loans.
All of the mortgage loans as of the cut-off date had a LTV ratio at
origination of 100% or less. Each mortgage loan with a LTV 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 Fannie Mae or
Freddie Mac, or any nationally recognized statistical rating organization. This
primary mortgage guaranty insurance policy will not be required for any of these
mortgage loans after the date that the related LTV ratio is 80% or less or,
based on a new appraisal, the principal balance of that mortgage loan represents
80% or less of the new appraised value or as otherwise provided by law. See
' -- Underwriting Standards' in this prospectus supplement.
The following information shows in tabular format some information, as of
the cut-off date, about the mortgage loans in each group. Except for rates of
interest, percentages, which are approximate, are stated by principal balance of
the mortgage loans in each group as of the cut-off date and have been rounded in
order to total 100%.
S-15
<PAGE>
GROUP 1 MORTGAGE LOANS
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 1
ORIGINAL LOAN-TO-VALUE MORTGAGE BALANCE MORTGAGE
RATIOS (%) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
0.00 to 60.00.............. 104 $ 9,671,150.94 3.15%
60.01 to 65.00............. 45 5,611,941.23 1.83
65.01 to 70.00............. 65 7,758,359.34 2.53
70.01 to 75.00............. 439 49,378,719.70 16.09
75.01 to 80.00............. 807 98,582,447.10 32.12
80.01 to 85.00............. 209 25,552,981.02 8.32
85.01 to 90.00............. 845 81,432,467.13 26.53
90.01 to 95.00............. 217 28,203,582.52 9.19
95.01 to 97.00............. 8 772,270.95 0.25
----- --------------- ------
Totals.................... 2,739 $306,963,919.93 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- -------------------
(1) The weighted average original LTV ratio of the Group 1 mortgage loans is
expected to be approximately 81.73%.
<TABLE>
<CAPTION>
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
CURRENT NUMBER OF PRINCIPAL GROUP 1
MORTGAGE LOAN MORTGAGE BALANCE MORTGAGE
PRINCIPAL BALANCES ($) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
0 -- 100,000.......... 1,344 $ 89,859,940.01 29.27%
100,001 -- 200,000.......... 1,148 160,118,163.49 52.16
200,001 -- 300,000.......... 240 54,651,346.13 17.80
300,001 -- 400,000.......... 7 2,334,470.30 0.76
----- --------------- ------
Totals.................... 2,739 $306,963,919.93 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- -------------------
(1) As of the cut-off date, the average current principal balance of the
Group 1 mortgage loans is expected to be approximately $112,072.
<TABLE>
<CAPTION>
MORTGAGE RATES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 1
MORTGAGE BALANCE MORTGAGE
MORTGAGE RATES (%) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
6.001 to 6.500............ 1 $ 105,300.94 0.03%
6.501 to 7.000............ 13 1,633,250.30 0.53
7.001 to 7.500............ 52 7,031,471.78 2.29
7.501 to 8.000............ 676 84,041,444.94 27.38
8.001 to 8.500............ 958 107,062,445.92 34.88
8.501 to 9.000............ 753 77,367,053.73 25.20
9.001 to 9.500............ 205 21,130,427.45 6.88
9.501 to 10.000............ 80 8,494,696.57 2.77
10.001 to 10.500............ 1 97,828.30 0.03
----- --------------- ------
Totals.................... 2,739 $306,963,919.93 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- -------------------
(1) As of the cut-off date, the weighted average mortgage rate of the Group 1
mortgage loans is expected to be approximately 8.404% per annum.
<TABLE>
<CAPTION>
OCCUPANCY TYPES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 1
MORTGAGE BALANCE MORTGAGE
OCCUPANCY TYPES LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Primary..................... 1,502 $192,467,974.50 62.70%
Investment/Non-Owner........ 1,186 108,978,380.10 35.50
Second Home................. 51 5,517,565.33 1.80
----- --------------- ------
Totals.................... 2,739 $306,963,919.93 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- -------------------
(1) Based on representations of the related mortgagors at the time of
origination.
<TABLE>
<CAPTION>
ORIGINAL TERMS TO MATURITY(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 1
ORIGINAL TERM TO MORTGAGE BALANCE MORTGAGE
MATURITY (MONTHS) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
180......................... 1 $ 97,828.30 0.03%
240......................... 59 5,603,775.87 1.83
300......................... 9 816,513.30 0.27
360......................... 2,670 300,445,802.46 97.88
----- --------------- ------
Totals.................... 2,739 $306,963,919.93 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- -------------------
(1) As of the cut-off date, the weighted average remaining term to maturity of
the Group 1 mortgage loans is expected to be approximately 356 months.
<TABLE>
<CAPTION>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 1
MORTGAGE BALANCE MORTGAGE
STATE LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Alabama..................... 41 $ 3,803,365.46 1.24%
Alaska...................... 1 123,833.04 0.04
Arizona..................... 89 9,666,986.78 3.15
Arkansas.................... 14 1,329,262.53 0.43
California.................. 400 58,819,021.88 19.16
Colorado.................... 117 14,654,355.96 4.77
Connecticut................. 27 3,260,853.40 1.06
Delaware.................... 10 867,501.58 0.28
District of Columbia........ 5 482,808.21 0.16
Florida..................... 156 15,155,797.07 4.94
Georgia..................... 71 8,573,401.13 2.79
Hawaii...................... 26 4,809,878.63 1.57
Idaho....................... 28 2,793,832.82 0.91
Illinois.................... 55 6,350,178.50 2.07
Indiana..................... 61 4,531,868.21 1.48
Iowa........................ 9 786,911.25 0.26
Kansas...................... 24 1,934,161.95 0.63
Kentucky.................... 36 3,048,738.39 0.99
Louisiana................... 38 3,469,269.62 1.13
Maine....................... 15 1,445,457.38 0.47
Maryland.................... 28 3,403,003.43 1.11
Massachusetts............... 70 10,519,653.70 3.43
Michigan.................... 186 18,340,853.36 5.97
Minnesota................... 28 3,607,754.92 1.18
Mississippi................. 5 383,239.71 0.12
Missouri.................... 61 5,067,400.44 1.65
Montana..................... 21 2,174,821.57 0.71
Nebraska.................... 10 691,554.67 0.23
Nevada...................... 31 3,210,586.29 1.05
New Hampshire............... 29 3,122,027.96 1.02
New Jersey.................. 96 12,415,950.37 4.04
New Mexico.................. 25 2,574,401.02 0.84
New York.................... 96 13,935,158.54 4.54
North Carolina.............. 55 4,877,798.22 1.59
North Dakota................ 3 210,911.81 0.07
Ohio........................ 91 7,221,812.89 2.35
Oklahoma.................... 37 2,801,459.63 0.91
Oregon...................... 66 7,531,304.20 2.45
Pennsylvania................ 115 10,217,852.50 3.33
Rhode Island................ 12 1,088,452.85 0.35
South Carolina.............. 30 2,701,199.81 0.88
South Dakota................ 3 261,767.62 0.09
Tennessee................... 51 4,945,154.64 1.61
Texas....................... 151 14,933,431.43 4.86
Utah........................ 38 4,866,965.21 1.59
Vermont..................... 1 142,030.33 0.05
Virginia.................... 50 6,061,265.43 1.97
Washington.................. 64 7,850,108.01 2.56
West Virginia............... 9 650,422.30 0.21
Wisconsin................... 41 3,868,429.68 1.26
Wyoming..................... 13 1,379,663.60 0.45
----- --------------- ------
Totals.................... 2,739 $306,963,919.93 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- -------------------
(1) No more than approximately 0.28% of the Group 1 mortgage loans will be
secured by mortgaged properties located in any one postal zip code area.
S-16
<PAGE>
<TABLE>
<CAPTION>
PURPOSE OF MORTGAGE LOANS
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 1
MORTGAGE BALANCE MORTGAGE
LOAN PURPOSE LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Purchase. .................. 1,565 $173,268,090.78 56.45%
Cash-out Refinance.......... 772 86,071,720.26 28.04
Rate/Term Refinance......... 402 47,624,108.89 15.51
----- --------------- ------
Totals.................... 2,739 $306,963,919.93 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 1
MORTGAGE BALANCE MORTGAGE
TYPE OF PROGRAM LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Full Documentation.......... 2,279 $248,437,726.95 80.93%
No Documentation............ 154 18,345,122.02 5.98
Reduced Documentation....... 269 35,415,443.30 11.54
No Ratio.................... 25 3,270,547.39 1.07
Streamlined................. 12 1,495,080.27 0.49
----- --------------- ------
Totals.................... 2,739 $306,963,919.93 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 1
MORTGAGE BALANCE MORTGAGE
PROPERTY TYPE LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Single Family............... 1,776 $197,082,624.40 64.20%
PUD......................... 239 33,148,957.43 10.80
Condominium................. 162 16,142,241.48 5.26
2-4 Family.................. 561 60,540,778.07 19.72
Cooperative................. 1 49,318.55 0.02
----- --------------- ------
Totals.................... 2,739 $306,963,919.93 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
S-17
<PAGE>
GROUP 2 MORTGAGE LOANS
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 2
ORIGINAL LOAN-TO-VALUE MORTGAGE BALANCE MORTGAGE
RATIOS (%) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
0.00 - 60.00................ 117 $ 9,555,659.83 11.24%
60.01 - 65.00................ 31 2,880,874.75 3.39
65.01 - 70.00................ 57 5,052,978.97 5.94
70.01 - 75.00................ 190 15,642,081.60 18.39
75.01 - 80.00................ 324 30,900,640.32 36.34
80.01 - 85.00................ 119 10,766,565.74 12.66
85.01 - 90.00................ 118 9,177,552.47 10.79
90.01 - 95.00................ 15 1,062,147.08 1.25
--- -------------- ------
Totals..................... 971 $85,038,500.76 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- -------------------
(1) The weighted average original LTV ratio of the Group 2 mortgage loans is
expected to be approximately 75.62%.
<TABLE>
<CAPTION>
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
CURRENT NUMBER OF PRINCIPAL GROUP 2
MORTGAGE LOAN MORTGAGE BALANCE MORTGAGE
PRINCIPAL BALANCES ($) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
0 - 100,000............ 661 $40,532,900.63 47.66%
100,001 - 200,000............ 271 35,711,385.85 41.99
200,001 - 300,000............ 39 8,794,214.28 10.34
--- -------------- ------
Totals..................... 971 $85,038,500.76 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- -------------------
(1) As of the cut-off date, the average current principal balance of the
Group 2 mortgage loans is expected to be approximately $87,578.
<TABLE>
<CAPTION>
MORTGAGE RATES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 2
MORTGAGE BALANCE MORTGAGE
MORTGAGE RATES (%) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
6.001 - 6.500.............. 17 $ 1,617,414.93 1.90%
6.501 - 7.000.............. 94 9,508,974.22 11.18
7.001 - 7.500.............. 239 22,022,596.65 25.90
7.501 - 8.000.............. 300 26,041,824.99 30.62
8.001 - 8.500.............. 199 16,530,987.18 19.44
8.501 - 9.000.............. 103 7,852,148.67 9.23
9.001 - 9.500.............. 16 1,268,502.56 1.49
9.501 - 10.000.............. 1 52,239.46 0.06
10.001 - 10.500.............. 2 143,812.09 0.17
--- -------------- ------
Totals..................... 971 $85,038,500.76 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- -------------------
(1) As of the cut-off date, the weighted average mortgage rate of the Group 2
mortgage loans is expected to be approximately 7.784% per annum.
<TABLE>
<CAPTION>
OCCUPANCY TYPES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 2
MORTGAGE BALANCE MORTGAGE
OCCUPANCY TYPES LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Primary...................... 624 $58,820,800.30 69.17%
Investment/Non-Owner......... 329 24,574,690.50 28.90
Second Home.................. 18 1,643,009.96 1.93
--- -------------- ------
Totals..................... 971 $85,038,500.76 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- -------------------
(1) Based on representations of the related mortgagors at the time of
origination.
<TABLE>
<CAPTION>
ORIGINAL TERMS TO MATURITY(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 2
ORIGINAL TERM TO MORTGAGE BALANCE MORTGAGE
MATURITY (MONTHS) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
120.......................... 7 $ 524,343.16 0.62%
180.......................... 964 84,514,157.60 99.38
--- -------------- ------
Totals..................... 971 $85,038,500.76 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- -------------------
(1) As of the cut-off date, the weighted average remaining term to maturity of
the Group 2 mortgage loans is expected to be approximately 174 months.
<TABLE>
<CAPTION>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 2
MORTGAGE BALANCE MORTGAGE
STATE LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Alabama...................... 11 $ 634,903.52 0.75%
Alaska....................... 1 146,464.16 0.17
Arizona...................... 19 1,479,680.56 1.74
Arkansas..................... 5 300,032.17 0.35
California................... 68 7,930,483.63 9.33
Colorado..................... 22 2,331,130.54 2.74
Connecticut.................. 13 1,270,801.06 1.49
Delaware..................... 3 387,134.42 0.46
District of Columbia......... 2 181,198.59 0.21
Florida...................... 116 8,852,882.96 10.41
Georgia...................... 58 4,926,758.90 5.79
Hawaii....................... 3 471,064.39 0.55
Idaho........................ 7 427,152.59 0.50
Illinois..................... 26 2,513,629.39 2.96
Indiana...................... 20 1,260,050.11 1.48
Iowa......................... 4 282,436.77 0.33
Kansas....................... 8 584,013.45 0.69
Kentucky..................... 17 1,306,182.36 1.54
Louisiana.................... 11 548,601.24 0.65
Massachusetts................ 25 2,814,461.85 3.31
Maine........................ 1 96,786.52 0.11
Maryland..................... 13 1,523,188.52 1.79
Michigan..................... 32 2,488,096.88 2.93
Minnesota.................... 8 793,074.78 0.93
Mississippi.................. 7 460,416.52 0.54
Missouri..................... 18 1,132,904.99 1.33
Montana...................... 4 263,023.79 0.31
Nebraska..................... 5 404,675.47 0.48
Nevada....................... 5 434,070.45 0.51
New Hampshire................ 6 406,476.64 0.48
New Jersey................... 33 3,407,144.21 4.01
New Mexico................... 9 895,808.77 1.05
New York..................... 48 5,193,770.42 6.11
North Carolina............... 26 2,163,622.02 2.54
North Dakota................. 1 70,143.23 0.08
Ohio......................... 44 2,931,978.79 3.45
Oklahoma..................... 21 1,260,541.88 1.48
Oregon....................... 16 1,950,412.79 2.29
Pennsylvania................. 43 3,491,373.27 4.11
Rhode Island................. 3 123,474.20 0.15
South Carolina............... 26 1,938,876.54 2.28
South Dakota................. 1 85,234.91 0.10
Tennessee.................... 42 3,898,717.39 4.58
Texas........................ 58 4,812,760.80 5.66
Utah......................... 10 1,284,797.38 1.51
Vermont...................... 1 36,593.36 0.04
Virginia..................... 18 1,969,845.02 2.32
Washington................... 13 1,290,691.04 1.52
West Virginia................ 5 339,329.33 0.40
Wisconsin.................... 7 752,750.20 0.89
Wyoming...................... 8 488,857.99 0.57
--- -------------- ------
Totals..................... 971 $85,038,500.76 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- -------------------
(1) No more than approximately 0.45% of the Group 2 mortgage loans will be
secured by mortgaged properties located in any one postal zip code area.
S-18
<PAGE>
<TABLE>
<CAPTION>
PURPOSE OF MORTGAGE LOANS
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 2
MORTGAGE BALANCE MORTGAGE
LOAN PURPOSE LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Cash-out Refinance........... 600 $51,509,346.82 60.57%
Purchase..................... 215 18,186,670.08 21.39
Rate/Term Refinance.......... 156 15,342,483.86 18.04
--- -------------- ------
Totals..................... 971 $85,038,500.76 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 2
MORTGAGE BALANCE MORTGAGE
TYPE OF PROGRAM LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Full Documentation........... 670 $54,375,161.43 63.94%
No Documentation............. 15 1,142,112.05 1.34
No Ratio..................... 45 5,015,781.85 5.90
Reduced Documentation........ 239 24,307,725.03 28.58
Streamlined.................. 2 197,720.40 0.23
--- -------------- ------
Totals..................... 971 $85,038,500.76 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 2
MORTGAGE BALANCE MORTGAGE
PROPERTY TYPE LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
2-4 Family................... 188 $17,098,957.69 20.11%
Condominium.................. 52 3,228,688.56 3.80
PUD.......................... 43 5,006,328.17 5.89
Single Family................ 688 59,704,526.33 70.21
--- -------------- ------
Totals..................... 971 $85,038,500.76 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
S-19
<PAGE>
GROUP 3 MORTGAGE LOANS
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 3
ORIGINAL LOAN-TO-VALUE MORTGAGE BALANCE MORTGAGE
RATIOS (%) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
0.00 - 60.00.............. 18 $ 1,877,952.00 1.44%
60.01 - 65.00.............. 12 2,690,431.49 2.06
65.01 - 70.00.............. 15 2,521,853.13 1.93
70.01 - 75.00.............. 36 6,019,277.32 4.61
75.01 - 80.00.............. 127 15,616,309.71 11.96
80.01 - 85.00.............. 228 27,528,708.63 21.09
85.01 - 90.00.............. 215 28,069,204.22 21.50
90.01 - 95.00.............. 224 28,487,612.36 21.82
95.01 - 100.00.............. 150 17,733,168.16 13.58
----- --------------- ------
Totals.................... 1,025 $130,544,517.02 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- -------------------
(1) The weighted average original LTV ratio of the Group 3 mortgage loans is
expected to be approximately 87.24%.
<TABLE>
<CAPTION>
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
CURRENT MORTGAGE NUMBER OF PRINCIPAL GROUP 3
LOAN PRINCIPAL MORTGAGE BALANCE MORTGAGE
BALANCES ($) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
0 - 100,000........... 381 $ 28,103,385.14 21.53%
100,001 - 200,000........... 532 74,558,384.91 57.11
200,001 - 300,000........... 98 22,168,812.50 16.98
300,001 - 400,000........... 10 3,484,166.91 2.67
400,001 - 500,000........... 2 881,212.84 0.68
500,001 - 600,000........... 1 519,141.47 0.40
800,001 - 900,000........... 1 829,413.25 0.64
----- --------------- ------
Totals.................... 1,025 $130,544,517.02 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- -------------------
(1) As of the cut-off date, the average current principal balance of the
Group 3 mortgage loans is expected to be approximately $127,361.
<TABLE>
<CAPTION>
MORTGAGE RATES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 3
MORTGAGE BALANCE MORTGAGE
MORTGAGE RATES (%) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
7.001 - 7.500............. 1 $ 203,372.19 0.16%
7.501 - 8.000............. 24 3,325,727.73 2.55
8.001 - 8.500............. 160 21,936,246.11 16.80
8.501 - 9.000............. 350 44,681,108.68 34.23
9.001 - 9.500............. 240 30,704,111.25 23.52
9.501 - 10.000............. 182 22,187,914.22 17.00
10.001 - 10.500............. 60 6,690,241.00 5.12
10.501 - 11.000............. 7 660,585.00 0.51
11.001 - 11.500............. 1 155,210.84 0.12
----- --------------- ------
Totals.................... 1,025 $130,544,517.02 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- -------------------
(1) As of the cut-off date, the weighted average mortgage rate of the Group 3
mortgage loans is expected to be approximately 9.090% per annum.
<TABLE>
<CAPTION>
OCCUPANCY TYPES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 3
MORTGAGE BALANCE MORTGAGE
OCCUPANCY TYPES LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Primary..................... 999 $128,419,298.63 98.37%
Investment/Non-Owner........ 22 1,746,086.95 1.34
Second Home................. 4 379,131.44 0.29
----- --------------- ------
Totals.................... 1,025 $130,544,517.02 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- -------------------
(1) Based on representations of the related mortgagors at the time of
origination.
<TABLE>
<CAPTION>
ORIGINAL TERMS TO MATURITY(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 3
ORIGINAL TERM TO MORTGAGE BALANCE MORTGAGE
MATURITY (MONTHS) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
180......................... 6 $ 456,535.61 0.35%
240......................... 1 114,000.00 0.09
360......................... 1,018 129,973,981.41 99.56
----- --------------- ------
Totals.................... 1,025 $130,544,517.02 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- -------------------
(1) As of the cut-off date, the weighted average remaining term to maturity of
the Group 3 mortgage loans is expected to be approximately 352 months.
<TABLE>
<CAPTION>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
- ---------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 3
MORTGAGE BALANCE MORTGAGE
STATE LOANS OUTSTANDING LOANS
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Arizona.................... 74 $ 8,998,409.72 6.89%
California................. 192 29,493,660.20 22.59
Colorado................... 57 7,669,635.76 5.88
Connecticut................ 3 205,137.52 0.16
Delaware................... 5 663,236.37 0.51
District of Columbia....... 4 434,877.46 0.33
Florida.................... 54 4,687,077.38 3.59
Georgia.................... 39 4,240,093.85 3.25
Hawaii..................... 2 519,733.00 0.40
Idaho...................... 19 1,664,813.47 1.28
Illinois................... 14 1,604,583.98 1.23
Indiana.................... 3 260,595.83 0.20
Kansas..................... 1 99,661.96 0.08
Kentucky................... 3 268,314.79 0.21
Louisiana.................. 1 65,127.61 0.05
Maryland................... 47 6,461,671.81 4.95
Massachusetts.............. 28 3,489,951.01 2.67
Michigan................... 2 256,934.49 0.20
Minnesota.................. 2 81,721.33 0.06
Missouri................... 2 153,514.76 0.12
Montana.................... 8 710,891.78 0.54
Nevada..................... 27 3,387,238.81 2.59
New Hampshire.............. 4 518,221.91 0.40
New Jersey................. 36 4,655,459.13 3.57
New Mexico................. 5 233,756.78 0.18
New York................... 19 6,639,000.90 5.09
North Carolina............. 19 2,237,497.72 1.71
Ohio....................... 5 340,350.61 0.26
Oregon..................... 37 4,534,199.79 3.47
Pennsylvania............... 38 3,384,374.94 2.59
Rhode Island............... 3 231,270.17 0.18
South Carolina............. 9 703,955.23 0.54
Tennessee.................. 19 1,643,852.58 1.26
Texas...................... 12 1,370,424.38 1.05
Utah....................... 45 5,213,467.22 3.99
Virginia................... 87 11,097,591.44 8.50
Washington................. 86 11,238,777.28 8.61
West Virginia.............. 4 388,159.80 0.30
Wyoming.................... 10 697,274.24 0.53
----- --------------- ------
Totals................... 1,025 $130,544,517.02 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- -------------------
(1) No more than approximately 0.64% of the Group 3 mortgage loans will be
secured by mortgaged properties located in any one postal zip code area.
S-20
<PAGE>
<TABLE>
<CAPTION>
PURPOSE OF MORTGAGE LOANS
- ---------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 3
MORTGAGE BALANCE MORTGAGE
LOAN PURPOSE LOANS OUTSTANDING LOANS
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Purchase................... 582 $ 77,131,042.56 59.08%
Cash-out Refinance......... 302 35,739,231.03 27.38
Rate/Term Refinance........ 141 17,674,243.44 13.54
----- --------------- ------
Totals................... 1,025 $130,544,517.02 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS
- ---------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 3
MORTGAGE BALANCE MORTGAGE
TYPE OF PROGRAM LOANS OUTSTANDING LOANS
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Full Documentation......... 984 $120,280,251.98 92.14%
Reduced Documentation...... 9 1,486,405.07 1.14
No Documentation........... 32 8,777,859.97 6.72
----- --------------- ------
Totals................... 1,025 $130,544,517.02 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES
- ---------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 3
MORTGAGE BALANCE MORTGAGE
PROPERTY TYPE LOANS OUTSTANDING LOANS
- ---------------------------------------------------------------------
<S> <C> <C> <C>
2-4 Family................. 21 $ 3,249,441.15 2.49%
Condominium................ 69 8,289,780.45 6.35
PUD........................ 162 23,831,202.72 18.26
Single Family.............. 773 95,174,092.71 72.91
----- --------------- ------
Totals................... 1,025 $130,544,517.02 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
S-21
<PAGE>
GROUP 4 MORTGAGE LOANS
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 4
ORIGINAL LOAN-TO-VALUE MORTGAGE BALANCE MORTGAGE
RATIOS (%) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
0.00 - 60.00............... 17 $ 2,345,781.10 4.24%
60.01 - 65.00............... 10 1,114,970.61 2.02
65.01 - 70.00............... 19 2,075,764.60 3.75
70.01 - 75.00............... 48 6,537,511.59 11.82
75.01 - 80.00............... 111 15,337,347.43 27.72
80.01 - 85.00............... 13 2,242,981.03 4.05
85.01 - 90.00............... 137 16,081,148.52 29.07
90.01 - 95.00............... 46 6,031,434.71 10.90
95.01 - 97.00................ 28 3,556,863.04 6.43
--- -------------- ------
Totals..................... 429 $55,323,802.63 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- -------------------
(1) The weighted average original LTV ratio of the Group 4 mortgage loans is
expected to be approximately 83.1%.
<TABLE>
<CAPTION>
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
CURRENT NUMBER OF PRINCIPAL GROUP 4
MORTGAGE LOAN MORTGAGE BALANCE MORTGAGE
PRINCIPAL BALANCES ($) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
0 - 100,000............ 191 $13,192,650.86 23.85%
100,001 - 200,000............ 155 21,816,468.35 39.43
200,001 - 300,000............ 76 18,073,381.43 32.67
300,001 - 400,000............ 7 2,241,301.99 4.05
--- -------------- ------
Totals..................... 429 $55,323,802.63 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- -------------------
(1) As of the cut-off date, the average current principal balance of the
Group 4 mortgage loans is expected to be approximately $128,960.
<TABLE>
<CAPTION>
MORTGAGE RATES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 4
MORTGAGE BALANCE MORTGAGE
MORTGAGE RATES (%) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
6.001 - 6.500.............. 1 $ 230,910.95 0.42%
6.501 - 7.000.............. 3 679,651.43 1.23
7.001 - 7.500.............. 10 1,918,938.81 3.47
7.501 - 8.000.............. 17 2,365,015.46 4.27
8.001 - 8.500.............. 66 8,742,283.88 15.80
8.501 - 9.000.............. 121 15,581,058.12 28.16
9.001 - 9.500.............. 104 12,128,827.57 21.92
9.501 - 10.000.............. 86 11,133,668.94 20.12
10.001 - 10.500.............. 18 2,190,469.78 3.96
10.501 - 11.000.............. 3 352,977.69 0.64
--- -------------- ------
Totals..................... 429 $55,323,802.63 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- -------------------
(1) As of the cut-off date, the weighted average mortgage rate of the Group 4
mortgage loans is expected to be approximately 9.013% per annum.
<TABLE>
<CAPTION>
OCCUPANCY TYPES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 4
MORTGAGE BALANCE MORTGAGE
OCCUPANCY TYPES LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Primary...................... 225 $34,643,697.75 62.62%
Investment/Non-Owner......... 199 19,824,866.02 35.83
Second Home.................. 5 855,238.86 1.55
--- -------------- ------
Totals..................... 429 $55,323,802.63 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- -------------------
(1) Based on representations of the related mortgagors at the time of
origination.
<TABLE>
<CAPTION>
ORIGINAL TERMS TO MATURITY(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 4
ORIGINAL TERM TO MORTGAGE BALANCE MORTGAGE
MATURITY (MONTHS) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
240.......................... 1 $ 294,666.88 0.53%
360.......................... 428 55,029,135.75 99.47
--- -------------- ------
Totals..................... 429 $55,323,802.63 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- -------------------
(1) As of the cut-off date, the weighted average remaining term to maturity of
the Group 4 mortgage loans is expected to be approximately 352 months.
<TABLE>
<CAPTION>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 4
MORTGAGE BALANCE MORTGAGE
STATE LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Arizona...................... 14 $ 1,593,746.74 2.88%
California................... 79 13,840,424.44 25.02
Colorado..................... 10 1,559,654.78 2.82
Connecticut.................. 19 2,436,502.53 4.40
District of Columbia......... 2 447,854.09 0.81
Florida...................... 26 2,878,874.84 5.20
Georgia...................... 7 908,757.31 1.64
Hawaii....................... 2 601,097.04 1.09
Idaho........................ 3 234,470.34 0.42
Illinois..................... 12 1,606,566.63 2.90
Indiana...................... 9 723,529.25 1.31
Iowa......................... 2 120,526.87 0.22
Kentucky..................... 4 253,174.63 0.46
Maine........................ 5 614,561.34 1.11
Maryland..................... 19 3,004,018.02 5.43
Massachusetts................ 34 4,323,276.66 7.81
Michigan..................... 17 1,359,673.47 2.46
Minnesota.................... 2 181,340.64 0.33
Mississippi.................. 3 258,597.44 0.47
Missouri..................... 7 518,686.64 0.94
Montana...................... 2 197,615.99 0.36
Nebraska..................... 1 76,607.03 0.14
Nevada....................... 12 1,793,699.39 3.24
New Hampshire................ 5 660,050.16 1.19
New Jersey................... 14 1,914,999.54 3.46
New Mexico................... 4 418,889.83 0.76
New York..................... 11 1,736,829.85 3.14
North Carolina............... 3 517,393.34 0.94
Ohio......................... 10 639,871.32 1.16
Oklahoma..................... 2 86,627.30 0.16
Oregon....................... 10 1,584,986.91 2.86
Pennsylvania................. 9 1,014,644.92 1.83
Rhode Island................. 7 667,005.10 1.21
South Carolina............... 4 564,997.00 1.02
Tennessee.................... 3 197,458.87 0.36
Texas........................ 21 2,045,293.12 3.70
Utah......................... 3 476,990.56 0.86
Vermont...................... 5 460,648.74 0.83
Virginia..................... 6 644,972.98 1.17
Washington................... 18 1,875,522.88 3.39
Wisconsin.................... 3 283,364.10 0.51
--- -------------- ------
Totals..................... 429 $55,323,802.63 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- -------------------
(1) No more than approximately 0.80% of the Group 4 mortgage loans will be
secured by mortgaged properties located in any one postal zip code area.
S-22
<PAGE>
<TABLE>
<CAPTION>
PURPOSE OF MORTGAGE LOANS
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 4
MORTGAGE BALANCE MORTGAGE
LOAN PURPOSE LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Purchase..................... 268 $35,398,746.52 63.98%
Cash-out Refinance........... 103 12,010,415.63 21.71
Rate/Term Refinance.......... 58 7,914,640.48 14.31
--- -------------- ------
Totals..................... 429 $55,323,802.63 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 4
MORTGAGE BALANCE MORTGAGE
TYPE OF PROGRAM LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Full Documentation........... 216 $27,211,320.59 49.19%
Reduced Documentation........ 171 21,858,301.82 39.51
No Documentation............. 14 2,018,664.73 3.65
No Ratio..................... 28 4,235,515.49 7.66
--- -------------- ------
Totals..................... 429 $55,323,802.63 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 4
MORTGAGE BALANCE MORTGAGE
PROPERTY TYPE LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Single Family................ 232 $29,552,395.10 53.42%
2-4 Family................... 149 19,359,584.18 34.99
PUD.......................... 19 3,348,985.63 6.05
Condominium.................. 28 2,963,584.06 5.36
Townhouse/Rowhouse........... 1 99,253.66 0.18
--- -------------- ------
Totals..................... 429 $55,323,802.63 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
S-23
<PAGE>
GROUP 5 MORTGAGE LOANS
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 5
ORIGINAL LOAN-TO-VALUE MORTGAGE BALANCE MORTGAGE
RATIOS (%) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
0.00 - 60.00.............. 27 $ 13,907,077.57 13.78%
60.01 - 65.00.............. 5 3,114,023.12 3.09
65.01 - 70.00.............. 20 8,623,454.60 8.55
70.01 - 75.00.............. 51 18,794,496.79 18.62
75.01 - 80.00.............. 77 27,664,715.97 27.41
80.01 - 85.00.............. 12 4,110,981.08 4.07
85.01 - 90.00.............. 60 18,867,756.81 18.70
90.01 - 95.00.............. 19 5,571,018.89 5.52
95.01 - 100.00.............. 1 263,695.88 0.26
--- --------------- ------
Totals.................... 272 $100,917,220.71 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
- -------------------
(1) The weighted average original LTV ratio of the Group 5 mortgage loans is
expected to be approximately 76.42%.
<TABLE>
<CAPTION>
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
CURRENT NUMBER OF PRINCIPAL GROUP 5
MORTGAGE LOAN MORTGAGE BALANCE MORTGAGE
PRINCIPAL BALANCES ($) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
100,001 - 200,000.......... 1 $ 148,299.44 0.15%
200,001 - 300,000.......... 110 30,254,027.18 29.98
300,001 - 400,000.......... 94 32,209,388.16 31.92
400,001 - 500,000.......... 36 16,279,318.91 16.13
500,001 - 600,000.......... 9 5,090,277.06 5.04
600,001 - 700,000.......... 9 5,846,464.63 5.79
700,001 - 800,000.......... 6 4,572,528.07 4.53
800,001 - 900,000.......... 3 2,599,383.77 2.58
900,001 - 1,000,000......... 4 3,917,533.49 3.88
--- --------------- ------
Totals.................... 272 $100,917,220.71 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
- -------------------
(1) As of the cut-off date, the average current principal balance of the
Group 5 mortgage loans is expected to be approximately $371,019.
<TABLE>
<CAPTION>
MORTGAGE RATES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 5
MORTGAGE BALANCE MORTGAGE
MORTGAGE RATES (%) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
7.501 - 8.000............. 2 $ 672,358.90 0.67%
8.001 - 8.500............. 52 16,846,714.26 16.69
8.501 - 9.000............. 89 32,509,040.00 32.21
9.001 - 9.500............. 85 35,174,098.19 34.85
9.501 - 10.000............. 34 12,171,650.92 12.06
10.001 - 10.500............. 9 3,194,640.01 3.17
10.501 - 11.000............. 1 348,718.43 0.35
--- --------------- ------
Totals.................... 272 $100,917,220.71 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
- -------------------
(1) As of the cut-off date, the weighted average mortgage rate of the Group 5
mortgage loans is expected to be approximately 9.094% per annum.
<TABLE>
<CAPTION>
OCCUPANCY TYPES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 5
MORTGAGE BALANCE MORTGAGE
OCCUPANCY TYPES LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Primary..................... 246 $ 90,512,907.77 89.69%
Investment/Non-Owner........ 18 7,545,057.96 7.48
Second Home................. 8 2,859,254.98 2.83
--- --------------- ------
Totals.................... 272 $100,917,220.71 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
- -------------------
(1) Based on representations of the related mortgagors at the time of
origination.
<TABLE>
<CAPTION>
ORIGINAL TERMS TO MATURITY(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 5
ORIGINAL TERM TO MORTGAGE BALANCE MORTGAGE
MATURITY (MONTHS) LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
240......................... 4 1,358,440.55 1.35%
360......................... 268 99,558,780.16 98.65
--- --------------- ------
Totals.................... 272 $100,917,220.71 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
- -------------------
(1) As of the cut-off date, the weighted average remaining term to maturity of
the Group 5 mortgage loans is expected to be approximately 355 months.
<TABLE>
<CAPTION>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 5
MORTGAGE BALANCE MORTGAGE
STATE LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Arizona..................... 7 $ 2,576,479.46 2.55%
California.................. 124 47,677,744.97 47.24
Colorado.................... 9 2,952,183.48 2.93
Connecticut................. 2 660,007.03 0.65
District of Columbia........ 2 727,063.31 0.72
Florida..................... 10 3,375,266.65 3.34
Georgia..................... 5 1,563,401.86 1.55
Hawaii...................... 2 721,651.68 0.72
Idaho....................... 1 303,820.51 0.30
Illinois.................... 7 2,377,525.17 2.36
Louisiana................... 1 287,640.73 0.29
Maine....................... 1 336,340.54 0.33
Maryland.................... 9 2,911,735.93 2.89
Massachusetts............... 5 1,477,742.10 1.46
Michigan.................... 3 933,530.40 0.93
Minnesota................... 2 856,298.94 0.85
Nevada...................... 6 2,338,360.51 2.32
New Hampshire............... 1 260,631.71 0.26
New Jersey.................. 10 4,069,723.61 4.03
New Mexico.................. 2 959,472.44 0.95
New York.................... 20 7,778,596.54 7.71
North Carolina.............. 1 285,216.05 0.28
Ohio........................ 1 331,564.01 0.33
Oregon...................... 4 1,543,762.79 1.53
Pennsylvania................ 6 1,963,631.31 1.95
South Carolina.............. 5 2,077,297.25 2.06
Tennessee................... 2 838,609.14 0.83
Texas....................... 11 4,065,223.54 4.03
Utah........................ 6 2,504,359.85 2.48
Vermont..................... 1 372,919.71 0.37
Virginia.................... 1 343,275.05 0.34
Washington.................. 5 1,446,144.44 1.43
--- --------------- ------
Totals.................... 272 $100,917,220.71 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
- -------------------
(1) No more than approximately 1.65% of the Group 5 mortgage loans will be
secured by mortgaged properties located in any one postal zip code area.
<TABLE>
<CAPTION>
PURPOSE OF MORTGAGE LOANS
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 5
MORTGAGE BALANCE MORTGAGE
LOAN PURPOSE LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Purchase.................... 154 $ 53,588,377.74 53.10%
Cash-out Refinance.......... 56 21,911,885.76 21.71
Rate/Term Refinance......... 62 25,416,957.21 25.19
--- --------------- ------
Totals.................... 272 $100,917,220.71 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
S-24
<PAGE>
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 5
MORTGAGE BALANCE MORTGAGE
TYPE OF PROGRAM LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Reduced Documentation....... 115 $ 43,138,818.52 42.75%
Full Documentation.......... 95 35,912,965.36 35.59
No Documentation............ 37 11,427,092.50 11.32
No Ratio.................... 25 10,438,344.33 10.34
--- --------------- ------
Totals.................... 272 $100,917,220.71 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES
- ----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL GROUP 5
MORTGAGE BALANCE MORTGAGE
PROPERTY TYPE LOANS OUTSTANDING LOANS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Single Family............... 207 $ 78,397,388.59 77.68%
PUD......................... 38 13,449,514.56 13.33
Condominium................. 11 3,589,625.13 3.56
2-4 Family.................. 15 5,214,235.24 5.17
Cooperatives................ 1 266,457.19 0.26
--- --------------- ------
Totals.................... 272 $100,917,220.71 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
S-25
<PAGE>
UNDERWRITING STANDARDS
The mortgage loans have either been originated by a seller or purchased by a
seller from various banks, savings and loan associations, mortgage bankers
(which may or may not be affiliated with a seller) and other mortgage loan
originators, and were originated generally in accordance with the underwriting
criteria described herein.
All of the mortgage loans are 'conventional non-conforming mortgage loans'
(i.e., loans which are not insured by the Federal Housing Authority or partially
guaranteed by the Veterans Administration or which do not qualify for sale to
FNMA or FHLMC). The underwriting standards applicable to the mortgage loans
typically differ from, and are generally less stringent than, the underwriting
standards established by FNMA or FHLMC primarily with respect to original
principal balances, loan-to-value ratios, borrower income, borrower credit
history, borrower employment history, required documentation, interest rates,
borrower occupancy of the mortgaged property and/or property types. To the
extent the programs reflect underwriting standards different from these of FNMA
and FHLMC, the performance of the mortgage loans thereunder may reflect higher
delinquency rates and/or credit losses. In addition, certain exceptions to the
underwriting standards described herein are made in the event that compensating
factors are demonstrated by a prospective borrower. Neither the depositor nor
any affiliate has re-underwritten any mortgage loan. In addition, none of the
sellers nor any affiliate has re-underwritten any loan that was purchased by
that seller rather than originated by it.
Generally, each mortgagor will have been required to complete an application
designed to provide to the original lender pertinent credit information
concerning the mortgagor. As part of the description of the mortgagor's
financial condition, such mortgagor will have furnished information (which may
be supplied solely in such application) with respect to its assets, liabilities,
income (except as described below), credit history, employment history and
personal information, and furnished an authorization to apply for a credit
report which summarizes the mortgagor's credit history with local merchants and
lenders and any record of bankruptcy. The mortgagor may also have been required
to authorize verifications of deposits at financial institutions where the
mortgagor had demand or savings accounts. In the case of investment properties
and two- to four-unit dwellings, income derived from the mortgaged property may
have been considered for underwriting purposes, in addition to the income of the
mortgagor from other sources. With respect to mortgaged property consisting of
vacation or second homes, no income derived from the property generally will
have been considered for underwriting purposes. In the case of certain
mortgagors with acceptable payment histories, no income will be required to be
stated (or verified) in connection with the loan application.
Based on the data provided in the application and certain verification (if
required), a determination is made by the original lender that the mortgagor's
monthly income (if required to be stated) will be sufficient to enable the
mortgagor to meet its monthly obligations on the mortgage loan and other
expenses related to the mortgaged property (such as property taxes, utility
costs, standard hazard insurance and other fixed obligations other than housing
expenses). Generally, scheduled payments on a mortgage loan during the first
year of its term plus taxes and insurance and all scheduled payments on
obligations that extend beyond ten months (including those mentioned above and
other fixed obligations) equal no more than a specified percentage of the
prospective mortgagor's gross income. The percentage applied varies on a case by
case basis depending on a number of underwriting criteria, including the
loan-to-value ratio of the mortgage loan. The originator may also consider the
amount of liquid assets available to the mortgagor after origination.
Certain of the mortgage loans have been originated under 'reduced
documentation,' 'no ratio,' 'streamlined documentation' or 'no documentation'
programs which require less documentation and verification than do traditional
'full documentation' programs. Generally, under a 'reduced documentation'
program, no verification of a mortgagor's stated income and/or employment is
undertaken by the originator. Under a 'no ratio' program, certain borrowers with
acceptable payment histories will not be required to provide any information
regarding income and no other investigation regarding the borrower's income will
be undertaken. Under a 'no documentation' or 'streamlined documentation'
program, no verification of a mortgagor's income or assets is undertaken by the
originator. The 'streamlined documentation' program is only available for
mortgagors who are refinancing an existing mortgage loan that has not been more
than 30 days delinquent in payment during the previous twelve-month period. The
underwriting for such mortgage loans may be based primarily or entirely on an
appraisal of the mortgaged property and the loan-to-value ratio at origination.
S-26
<PAGE>
The adequacy of the mortgaged property as security for repayment of the
related mortgage loan will generally have been determined by an appraisal in
accordance with pre-established appraisal procedure guidelines for appraisals
established by or acceptable to the originator. All appraisals conform to the
Uniform Standards of Professional Appraisal Practice adopted by the Appraisal
Standards Board of the Appraisal Foundation and must be on forms acceptable to
FNMA and/or FHLMC. Appraisers may be staff appraisers employed by the originator
or independent appraisers selected in accordance with pre-established appraisal
procedure guidelines established by or acceptable to the originator. The
appraisal procedure guidelines generally will have required the appraiser or an
agent on its behalf to personally inspect the property and to verify whether the
property was in good condition and that construction, if new, had been
substantially completed. The appraisal generally will have been based upon a
market data analysis of recent sales of comparable properties and, when deemed
applicable, an analysis based on income generated from the property or a
replacement cost analysis based on the current cost of constructing or
purchasing a similar property.
ASSIGNMENT OF THE MORTGAGE LOANS
Pursuant to the pooling and servicing agreement, the depositor on the
closing date will sell, transfer, assign, set over and otherwise convey without
recourse to the trustee in trust for the benefit of the certificateholders all
right, title and interest of the depositor in and to each mortgage loan and all
right, title and interest of the depositor in and to all other assets included
in the trust fund, including all principal and interest received on or with
respect to such mortgage loans, exclusive of principal and interest due on or
prior to the cut-off date.
In connection with such transfer and assignment, the depositor will deliver
or cause to be delivered to the trustee, or a custodian for the trustee, a
mortgage file for each mortgage loan which will consist of, among other things,
the original promissory note, or mortgage note, and any modification or
amendment thereto endorsed in blank without recourse, except that the depositor
may deliver or cause to be delivered a lost note affidavit in lieu of any
original mortgage note that has been lost, the original instrument creating a
first lien on the related mortgaged property, or the mortgage, with evidence of
recording indicated thereon, an assignment in recordable form of the mortgage,
the title policy with respect to the related mortgaged property and, if
applicable, all recorded intervening assignments of the mortgage and any riders
or modifications to such mortgage note and mortgage except for any such document
not returned from the public recording office, which will be delivered to the
trustee as soon as the same is available to the depositor. Assignments of the
mortgage loans to the trustee or its nominee will be recorded in the appropriate
public office for real property records, except in states where, in the opinion
of counsel, such recording is not required to protect the trustee's interest in
the mortgage loan against the claim of any subsequent transferee or any
successor to or creditor of the depositor or the related seller.
With respect to up to 50% of the mortgage loans that have been purchased
indirectly by the depositor through an affiliate from Countrywide Home Loans,
Inc., the depositor may deliver all or a portion of each related mortgage file
to the trustee not later than thirty days after the closing date. All of the
Group 1 mortgage loans and approximately 71.38% of the Group 2 mortgage loans
(by principal balance as of the cut-off date) were purchased by the depositor
indirectly from Countrywide Home Loans, Inc.
The trustee will review each mortgage file within 90 days of the closing
date or promptly after the trustee's receipt of any document permitted to be
delivered after the closing date and if any document in a mortgage file is found
to be missing or defective in a material respect and the applicable seller or
other entity specified in the pooling and servicing agreement does not cure such
defect within 90 days of notice thereof from the trustee or within such longer
period not to exceed 720 days after the closing date in the case of missing
documents not returned from the public recording office, such seller will be
obligated to repurchase the related mortgage loan from the trust fund. Rather
than repurchase the mortgage loan as provided above, such seller may remove such
mortgage loan, a deleted mortgage loan, from the trust fund and substitute in
its place another mortgage loan, a replacement 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
tax under the Code. Any replacement mortgage loan generally will, on the date of
substitution, among other characteristics set forth in the pooling and servicing
agreement:
have a principal balance, after deduction of all scheduled payments due in
the month of substitution, not in excess of, and not more than 10% less
than, the Stated Principal Balance of the deleted mortgage loan
S-27
<PAGE>
(the amount of any shortfall to be deposited by the related seller and held
for distribution to the certificateholders on the related distribution
date),
have a mortgage rate not lower than, and not more than 1% per annum higher
than, that of the deleted mortgage loan,
have a LTV not higher than that of the deleted mortgage loan,
have a remaining term to maturity not greater than, and not more than one
year less than, that of the deleted mortgage loan, and
comply with all of the representations and warranties set forth in the
pooling and servicing agreement as of the date of substitution.
This cure, repurchase or substitution obligation constitutes the sole remedy
available to certificateholders or the trustee for omission of, or a material
defect in, a mortgage loan document.
THE SELLERS
The information set forth in this section contains a brief description of
the sellers of the Group 1 Loans, the Group 4 Loans, the Group 5 Loans and over
92% (by aggregate principal balance as of the cut-off date) of the Group 2 and
Group 3 Loans. The remaining sellers of the Group 2 and Group 3 Loans are set
forth in the pooling and servicing agreement and none of such sellers account
for more than approximately 3.24% (by aggregate principal balance as of the
cut-off date) of the Group 2 and Group 3 Loans. The primary obligation of a
seller under the pooling and servicing agreement is to repurchase a related
mortgage loan in the event of a breach of a representation and warranty or if
the related mortgage loan file is defective.
The following information has been provided by Countrywide Home Loans, Inc.,
DLJ Mortgage Capital, GreenPoint Mortgage Funding, Inc. and PNC Mortgage
Securities Corp., as applicable, and neither the depositor nor the underwriter
make any representations or warranties as to the accuracy or completeness of
such information.
COUNTRYWIDE HOME LOANS, INC.
Countrywide Home Loans, Inc. ('Countrywide'), a New York corporation and a
subsidiary of Countrywide Credit Industries, Inc., is engaged primarily in the
mortgage banking business, and as such, originates, purchases, sells and
services mortgage loans. Countrywide originates mortgage loans through a retail
branch system and through mortgage loan brokers and correspondents nationwide.
Countrywide's mortgage loans are principally first-lien, fixed or adjustable
rate mortgage loans secured by single-family residences. The principal executive
offices of Countrywide are located at 4500 Park Granada, Calabasas,
California 91302.
DLJ MORTGAGE CAPITAL, INC.
DLJ Mortgage Capital, Inc. ('DLJ Mortgage Capital'), a Delaware corporation,
is a subsidiary of the underwriter and an affiliate of the depositor. The
principal executive offices of DLJ Mortgage Capital are located at 277 Park
Avenue, New York, New York 10172.
GREENPOINT MORTGAGE FUNDING, INC.
GreenPoint Mortgage Funding, Inc. ('GreenPoint'), a New York corporation, is
a wholly-owned subsidiary of GreenPoint Financial Corp., a national specialty
housing finance company. GreenPoint is engaged in the mortgage banking business,
which consists of the origination, acquisition, sale and servicing of
residential mortgage loans secured primarily by one to four-unit family
residences, and the purchase and sale of mortgage servicing rights. GreenPoint
originates loans through a nationwide network of production branches. Loans are
originated primarily through GreenPoint's wholesale division, through a network
of independent mortgage loan brokers approved by GreenPoint, and also through
its retail lending division and correspondent lending division.
GreenPoint's present business operations were formed through the transfer to
GreenPoint effective October 1, 1999 of the assets and liabilities of Headlands
Mortgage Company. Simultaneously with this transfer, GreenPoint Mortgage Corp.,
a subsidiary of GreenPoint Financial specializing in non-conforming, no
documentation loans, was merged into GreenPoint. All of the mortgage operations
of GreenPoint Financial are now conducted through GreenPoint.
S-28
<PAGE>
GreenPoint's executive offices are located at 1100 Larkspur Landing Circle,
Suite 101, Larkspur, CA 94939.
PNC MORTGAGE SECURITIES CORP.
PNC Mortgage Securities Corp. ('PNC'), a Delaware corporation, is a
wholly-owned indirect subsidiary of PNC Bank Corp., a bank holding company. PNC
was organized for the purpose of providing mortgage lending institutions,
including affiliated institutions, with greater financing and lending
flexibility, by purchasing mortgage loans from such institutions and issuing
mortgage-backed securities. PNC's principal executive officers are located at 75
North Fairway Drive, Vernon Hills, Illinois, 60061, and its telephone number is
(847) 549-6500.
S-29
<PAGE>
SERVICING OF MORTGAGE LOANS
GENERAL
Under the pooling and servicing agreement, Countrywide will act as servicer
of the Group 1 mortgage loans and PNC will act as servicer of the Group 4 and
Group 5 mortgage loans. Countrywide, GreenPoint and DLJ Mortgage Capital will
each be a servicer of a portion of the Group 2 and Group 3 mortgage loans. Over
84.03% (by principal balance as of the cut-off date) of the Group 2 and Group 3
Loans are being serviced by Countrywide or GreenPoint. The remaining mortgage
loans are being serviced by a FNMA-approved servicer or on behalf of DLJ
Mortgage Capital by various FNMA-approved subservicers. DLJ Mortgage Capital is
liable for the servicing duties and obligations set forth in the pooling and
servicing agreement for those mortgage loans being subserviced on its behalf.
DLJ Mortgage Capital intends to transfer its servicing obligations and resign as
servicer in accordance with the pooling and servicing agreement in the future.
Prior to any such transfer and resignation, DLJ Mortgage Capital will obtain the
consent of the rating agencies.
Each servicer will be responsible for servicing the mortgage loans serviced
by it under the terms of the pooling and servicing agreement, employing that
degree of skill and care which it employs in servicing mortgage loans comparable
to those mortgage loans serviced by it for itself or others. None of the
servicers will have any servicing obligations with respect to the mortgage loans
not serviced by it.
Each 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 those procedures are consistent with the
pooling and servicing agreement, will follow collection procedures as are
followed for mortgage loans comparable to the mortgage loans in the trust in the
local areas where each mortgaged property is located. Under the pooling and
servicing agreement, each servicer will establish and maintain, or cause to be
established and maintained, one or more collection accounts, 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 payable to the related servicer. Funds credited to a collection
account may be invested for the benefit and at the risk of the related servicer
in permitted investments, as described in the pooling and servicing agreement,
that are scheduled to mature on or prior to the business day preceding the next
distribution date. If permitted by the pooling and servicing agreement, a
collection account may be a commingled account with other similar accounts
maintained by the related servicer.
The pooling and servicing agreement prohibits the resignation of a servicer,
except upon (a) appointment of a successor servicer and receipt by the trustee
of a letter from each rating agency that such a resignation and appointment will
not result in a downgrading of the rating of any of the certificates, or (b) a
determination that its duties thereunder are no longer permitted under
applicable law. No such resignation will be effective until a successor servicer
has assumed such servicing obligations in the manner provided in the pooling and
servicing agreement.
Under the pooling and servicing agreement, each servicer may contract with
subservicers to perform some or all of its servicing duties. Regardless of its
servicing arrangement, a servicer will remain liable for its servicing duties
and obligations under the pooling and servicing agreement as if that servicer
alone were servicing the mortgage loans.
COUNTRYWIDE'S LOSS AND DELINQUENCY EXPERIENCE
The information set forth in this section has been provided by Countrywide
and neither the depositor nor the underwriter make any representations or
warranties as to the accuracy or completeness of such information.
Historically, a variety of factors, including the appreciation of real
estate values, have limited Countrywide's loss and delinquency experience on its
portfolio of serviced mortgage loans. There can be no assurance that factors
beyond Countrywide's control, such as national or local economic conditions or
downturns in the real estate markets of its lending areas, will not result in
increased rates of delinquencies and foreclosure losses in the future.
A general deterioration of the real estate market in regions where the
mortgaged properties are located may occur and result in increases in
delinquencies of loans secured by real estate, slower absorption rates of real
estate into the market and lower sales prices for real estate. A general
weakening of the economy may result in decreases in the financial strength of
borrowers and decreases in the value of collateral serving as security for
S-30
<PAGE>
loans. If the real estate market and economy were to decline, Countrywide may
experience an increase in delinquencies on the loans it services and higher net
losses on liquidated mortgage loans.
The following table summarizes the delinquency, foreclosure and loss
experience, respectively, on the dates indicated, of all mortgage loans
originated or acquired by Countrywide, serviced or master serviced by
Countrywide and securitized by CWMBS, Inc., an affiliate of Countrywide,
excluding mortgage loans subserviced for others. The delinquency, foreclosure
and loss percentages may be affected by the size and relative lack of seasoning
of the servicing portfolio which increased from approximately $8.555 billion at
February 29, 1996, to approximately $8.671 billion at February 28, 1997, to
approximately $11.002 billion at February 28, 1998, to approximately $15.381
billion at February 28, 1999 and to approximately $17.480 billion at
November 30, 1999. Accordingly, the information should not be considered as a
basis for assessing the likelihood, amount or severity of delinquency or losses
on the Group 1 Loans and the Group 2 Loans serviced by Countrywide and no
assurances can be given that the foreclosure, delinquency and loss experience
presented in the following table will be indicative of the actual experience on
those loans:
<TABLE>
<CAPTION>
AT FEBRUARY 28 OR 29,
-------------------------------------------------------- AT NOVEMBER 30,
1996 1997 1998 1999 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Delinquent mortgage loans and
pending foreclosures at
period end:
30-59 days................ 0.65% 0.65% 1.08% 1.03% 1.12%
60-89 days................ 0.09 0.15 0.16 0.18 0.17
90 days or more (excluding
pending foreclosures)... 0.09 0.16 0.16 0.12 0.14
-------- ---------- ---------- ---------- --------
Total of
delinquencies....... 0.83% 0.96% 1.40% 1.33% 1.43%
-------- ---------- ---------- ---------- --------
-------- ---------- ---------- ---------- --------
Foreclosures pending.......... 0.12% 0.17% 0.17% 0.14% 0.15%
-------- ---------- ---------- ---------- --------
-------- ---------- ---------- ---------- --------
Total delinquencies and
foreclosures pending........ 0.95% 1.13% 1.57% 1.47% 1.58%
-------- ---------- ---------- ---------- --------
-------- ---------- ---------- ---------- --------
Net Gains/(Losses) on
liquidated mortgage
loans(1).................... ($307,000) ($2,812,000) ($2,662,000) ($2,882,524) ($755,996)
Percentage of Net
Gains/(Losses) on liquidated
mortgage loans(1)(2)........ 0.00% (0.032)% (0.024)% (0.028)% (0.004)%
Percentage of Net
Gains/(Losses) on liquidated
mortgage loans (based on
average outstanding
principal balance)(1)....... (0.004)% (0.033)% (0.027)% (0.028)% (0.004)%
</TABLE>
- ---------
(1) 'Net Gains (Losses)' are actual gains or losses incurred on liquidated
properties that are calculated as net liquidation proceeds less book value
(excluding loan purchase premium or discount).
(2) Based upon the total principal balance of the mortgage loans outstanding on
the last day of the indicated period.
The following table summarizes the delinquency and foreclosure experience,
respectively, on the dates indicated, of all mortgage loans serviced or master
serviced by Countrywide, excluding mortgage loans subserviced for others. The
mortgage loans have a variety of underwriting, payment and other
characteristics, many of which differ from those of the Group 1 Loans and the
Group 2 Loans serviced by Countrywide, and no assurances can be given that the
delinquency and foreclosure experience presented in the following table will be
indicative of such actual experience of those mortgage loans. The delinquency
and foreclosure percentages may be affected by the size and relative lack of
seasoning of the servicing portfolio which increased from approximately $136.8
billion at February 29, 1996, to approximately $158.6 billion at February 28,
1997, to approximately $182.9 billion at February 28, 1998, to approximately
$215.5 billion at February 28, 1999 and to approximately $244.0 billion at
November 30, 1999.
S-31
<PAGE>
<TABLE>
<CAPTION>
AT FEBRUARY 28 OR 29,
------------------------------- AT NOVEMBER 30,
1996 1997 1998 1999 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Delinquent mortgage loans and pending
foreclosures at period end(1):
30-59 days............................... 2.13% 2.26% 2.68% 3.05% 3.38%
60-89 days............................... 0.48 0.52 0.58 0.21 0.26
90 days or more (excluding pending
foreclosures).......................... 0.59 0.66 0.65 0.29 0.33
---- ---- ---- ---- ----
Total of delinquencies............... 3.20% 3.44% 3.91% 3.55% 3.97%
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Foreclosures pending......................... 0.49% 0.71% 0.45% 0.31% 0.33%
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Total delinquencies and foreclosures
pending.................................... 3.69% 4.15% 4.36% 3.86% 4.30%
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
- ---------
(1) Including loans subserviced for others.
GREENPOINT'S DELINQUENCY AND FORECLOSURE EXPERIENCE
GreenPoint Mortgage Funding, Inc., a servicer, will service a portion of the
Group 2 Loans and substantially all of the Group 3 Loans pursuant to the pooling
and servicing agreement. All of these mortgage loans are currently serviced by
GreenPoint substantially in accordance with the procedures described below and
in the accompanying prospectus.
In connection with the consolidation of GreenPoint Financial Corp.'s
mortgage operations, the servicing operations formerly maintained by Headlands
Mortgage Company at its servicing center in Santa Rosa, California are being
transferred to the servicing center formerly maintained by GreenPoint Mortgage
Corp. in Columbus, Georgia. The servicer expects this transfer to be completed
during the first quarter of 2000, at which time all of the servicer's servicing
operations will be located in Columbus. The servicer will continue to use the
servicing procedures described herein and in the accompanying prospectus to
service the mortgage loans; however, the personnel who service the mortgage
loans at the Columbus facility will principally be former GreenPoint Mortgage
Corp. employees rather than former Headlands Mortgage Company employees. Until
the transfer is complete, a portion of the mortgage loans will continue to be
serviced at the Santa Rosa facility.
Mortgage loan servicing includes:
collecting payments from borrowers and remitting those funds to investors,
accounting for all mortgage loan principal and interest,
reporting to investors,
holding custodial funds for payment of mortgage and mortgage related
expenses such as taxes and insurance,
advancing funds to cover delinquent payments,
inspecting foreclosures and property disposition in the event of unremedied
defaults, and
otherwise administering the mortgages.
The following tables contain servicing portfolio information concerning
recent delinquency and foreclosure experience on mortgage loans included in
various mortgage pools underlying all series of GreenPoint's mortgage
pass-through certificates with respect to which one or more classes of
certificates were publicly offered. No assurances can be given that the
delinquency and foreclosure experience presented in the following tables will be
indicative of the actual experience on those loans.
S-32
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED AT OR FOR THE YEAR ENDED AT OR FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- ----------------- -----------------
BY DOLLAR BY DOLLAR BY DOLLAR
AMOUNT OF AMOUNT OF AMOUNT OF
BY NO. OF LOANS BY NO. OF LOANS BY NO. OF LOANS
LOANS (IN MILLIONS) LOANS (IN MILLIONS) LOANS (IN MILLIONS)
----- ------------- ----- ------------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans............... 136,203 $14,032 144,950 $14,414 164,954 $16,735
Period of Delinquency(1)
31 to 59 days............ 5,412 558 6,191 616 5,447 553
60 to 89 days............ 1,581 163 1,808 180 1,421 144
90 days or more.......... 324 33 404 40 337 34
Foreclosure.............. 1,863 192 2,262 225 1,756 178
------- ------- ------- ------- ------- -------
Total Mortgage Loans......... 9,180 $ 946 10,665 $ 1,061 8,961 $ 909
</TABLE>
- ---------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent for
the purpose of this table until one month has passed after the related due
date. A mortgage loan is no longer considered delinquent once foreclosure
proceedings have begun.
PNC'S DELINQUENCY, LOSS AND FORECLOSURE EXPERIENCE
The following table sets forth certain information, as reported to PNC by
its various servicers, concerning recent delinquency, loss and foreclosure
experience on mortgage loans included in various mortgage pools underlying all
series of PNC's mortgage pass-through certificates with respect to which one or
more classes of certificates were publicly offered.
There can be no assurance that the delinquency, loss and foreclosure
experience set forth in the following table (which includes mortgage loans with
various terms to stated maturity and a variety of payment characteristics, such
as balloon loans and buydown loans) will be representative of the results that
may be experienced with respect to the Group 4 and Group 5 Loans. Delinquencies,
losses and foreclosures generally are expected to occur more frequently after
the first full year of the life of a mortgage loan. Accordingly, because a large
number of mortgage loans included in the mortgage pools underlying PNC's
mortgage pass-through certificates have been recently originated, the current
level of delinquencies, losses and foreclosures may not be representative of the
levels that may be experienced over the lives of those mortgage loans.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED AT OR FOR THE YEAR ENDED AT OR FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- ----------------- -----------------
BY DOLLAR BY DOLLAR BY DOLLAR
AMOUNT OF AMOUNT OF AMOUNT OF
BY NO. OF LOANS BY NO. OF LOANS BY NO. OF LOANS
LOANS (IN MILLIONS) LOANS (IN MILLIONS) LOANS (IN MILLIONS)
----- ------------- ----- ------------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Total Rated Mortgage Pass-
Through Certificate
Portfolio.................. 27,343 $6,817.3 74,769 $16,647.8 105,213 $21,983.8
Average Balance(1)........... 19,336 4,878.5 47,628 10,998.8 94,255 20,234.2
Period of Delinquency(2)
31 to 59 days............ 451 95.7 2,178 488.8 2,068 362.7
60 to 89 days............ 69 17.0 173 35.5 322 52.1
90 days or more.......... 55 14.4 108 23.1 261 44.2
------ -------- ------ --------- ------- ---------
Total Delinquent Loans....... 575 $ 127.1 2,459 $ 547.3 2,651 $ 459.0
Delinquency Rate............. 2.10% 1.86% 3.29% 3.29% 2.52% 2.09%
Foreclosures(3).............. 288 $ 62.4 217 $ 43.3 340 $ 68.1
Foreclosure Ratio(4)......... 1.05% 0.92% 0.29% 0.26% 0.32% 0.31%
Covered Losses(5)............ $ 19.2 $ 8.6 $ 2.8
Applied Losses(6)............ $ 1.8 $ 0.6 $ 0.7
</TABLE>
- ---------
(1) Average Balance for the period indicated is based on end of month balances
divided by the number of months in the period indicated.
(2) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent for
the purpose of this table until one month has passed after the related due
date. A mortgage loan is no longer considered delinquent once foreclosure
proceedings have begun.
(footnotes continued on next page)
S-33
<PAGE>
(footnotes continued from previous page)
(3) Includes mortgage loans for which foreclosure proceedings had been
instituted or with respect to which the related property had been acquired
as of the dates indicated.
(4) Foreclosures as a percentage of total mortgage loans at the end of each
period.
(5) Covered Losses are Gross Losses (as defined below) realized during the
period indicated that were covered by credit enhancements obtained or
established for one or more pools of mortgage loans, exclusive of any
insurance (such as primary mortgage insurance or ordinary hazard insurance)
that was available for specific mortgage loans or mortgaged properties.
'Gross Losses' are the sum for each mortgage loan liquidated during the
applicable period of the difference between (a) the sum of the outstanding
principal balance plus accrued interest, plus all liquidation expenses
related to the mortgage loan and (b) all amounts received in connection with
the liquidation of the related mortgaged property, including insurance (such
as primary mortgage insurance or ordinary hazard insurance) available solely
for the mortgage loan or the related mortgaged property.
(6) Applied Losses are Covered Losses that were applied against the outstanding
principal balance of the mortgage pass-through certificates during the
period indicated.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The expense fees with respect to each of the respective loan groups are
payable out of the interest payments on each mortgage loan in the related loan
group. The expense fees will vary from mortgage loan to mortgage loan. The rate
at which the expense fees accrue is expected to range from 0.2565% to 1.3815%
per annum with respect to the Group 1 Loans, from 0.2565% to 1.0765% per annum
with respect to the Group 2 Loans, from 0.2565% to 1.1865% per annum with
respect to the Group 3 Loans, from 0.3065% to 1.6865% per annum with respect to
the Group 4 Loans and from 0.3065% to 1.8815% per annum with respect to the
Group 5 Loans, in each case of the stated principal balance of the related
mortgage loan. As of the cut-off date, the weighted average rate at which the
expense fees accrue is expected to equal approximately 0.2955% per annum with
respect to the Group 1 Loans, approximately 0.2672% per annum with respect to
the Group 2 Loans, approximately 0.3056% per annum with respect to the Group 3
Loans, approximately 0.6472% per annum with respect to the Group 4 Loans and
approximately 0.6051% per annum and with respect to the Group 5 Loans.
The expense fees consist of the servicing fee payable to a servicer in
respect of its servicing activities concerning the mortgage loans serviced by it
and fees payable to the trustee for its activities as trustee under the pooling
and servicing agreement. The weighted average servicing fee payable to
Countrywide will be approximately 0.2890% per annum of the aggregate stated
principal balance of the Group 1 Loans; the weighted average servicing fee
payable to the servicers of the Group 2 and Group 3 Loans will be approximately
0.2607% and approximately 0.2991% per annum of the aggregate stated principal
balance of the Group 2 Loans and Group 3 Loans, respectively; and the weighted
average serciving fee payable to PNC will be approximately 0.6135% per annum of
the aggregate stated principal balance of the Group 4 and Group 5 Loans. The
servicers are obligated to pay some ongoing expenses associated with the trust
and incurred by the servicer in connection with its responsibilities under the
pooling and servicing agreement and those amounts will be paid by the servicer,
out of its servicing fee. The amount of the servicing fee is subject to
adjustment for prepaid mortgage loans, as described in this prospectus
supplement under ' -- Adjustment to Servicing Fee in Connection with Prepaid
Mortgage Loans.' The related servicer will also be entitled to receive late
payment fees, assumption fees and other similar charges. Each 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 of that mortgage loan
minus the rate at which the expense fees accrue. The mortgage rate of a mortgage
loan is the rate at which interest accrues on that mortgage loan in accordance
with the terms of the related mortgage note.
ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH PREPAID MORTGAGE LOANS
When a principal prepayment in full is made on a mortgage loan, the
mortgagor is charged interest only for the period from the due date of the
immediately preceding monthly payment up to the date of that prepayment, instead
of for a full month. In most cases, partial principal prepayments are applied as
of the day of receipt, with a resulting reduction in interest payable for the
month during which the partial principal prepayment is made.
Compensating Interest Payments by Countrywide. Countrywide is obligated to
remit to the trust on the day before each distribution date with respect to each
Group 1 Loan and each Group 2 Loan for which Countrywide is the servicer, an
amount equal to the lesser of:
S-34
<PAGE>
any shortfall for the previous month in interest collections resulting from
the timing of principal prepayments in full and partial principal
prepayments on the mortgage loans serviced by Countrywide in these loan
groups made during the calendar month preceding such distribution date; and
one-half of the servicing fee Countrywide is entitled to receive from the
trust on the related distribution date.
Compensating Interest Payments by GreenPoint. GreenPoint is obligated to
remit to the trust on the day before each distribution date with respect to each
Group 2 and Group 3 Loan serviced by it an amount equal to the lesser of:
any shortfall for the previous month in interest collections resulting from
the timing of principal prepayments in full and partial principal
prepayments on the mortgage loans serviced by GreenPoint in these loan
groups made during the calendar month preceding such distribution date; and
one-half of the servicing fee GreenPoint is entitled to receive from the
trust on the related distribution date.
Compensating Interest Payments by DLJ Mortgage Capital and the Remaining
Servicers of the Group 2 and Group 3 Loans. In general, each of DLJ Mortgage
Capital and the remaining servicers of the Group 2 and Group 3 Loans, other than
Countrywide and GreenPoint, are obligated to remit to the trust on the day
before each distribution date with respect to each Group 2 and Group 3 Loan
serviced by it an amount equal to the lesser of:
any shortfall for the previous month in interest collections resulting from
the timing of principal prepayments in full on the mortgage loans serviced
by it in these loan groups made during the calendar month preceding such
distribution date; provided, however, pursuant to the pooling and servicing
agreement, any of such servicers are permitted to change this period from
the sixteenth day of the calendar month preceding such distribution date to
the last day of such month; and
0.04% per annum of the stated principal balance of the mortgage loans
serviced by the related servicer.
Compensating Interest Payments by PNC. PNC is obligated to remit to the
trust on the day before each distribution date with respect to each Group 4 and
Group 5 Loan an amount equal to the lesser:
any shortfall for the previous month in interest collections resulting from
the timing of principal prepayments in full on the mortgage loans in these
loan groups made from the fifteenth day of the calendar month preceding
such distribution date to the last day of such month; and
the sum of:
a portion of the applicable monthly servicing fee payable to PNC equal to
0.04% per annum of the aggregate stated principal balance of the mortgage
loans with respect to these loan groups;
any reinvestment income realized by PNC relating to prepayments in full on
the mortgage loans in these loan groups made during the period commencing
on the fifteenth day of the month preceding the month in which the related
distribution date occurs (or, in the case of the first distribution date,
beginning on the cut-off date) and ending on the fourteenth day of the
month in which the distribution date occurs; and
interest payments on such prepayments in full received during the period
of the first day through the fourteenth day of the month of such
distribution date.
Any remaining shortfall in interest collections resulting from partial
principal prepayments and the timing of principal prepayments in full will be
allocated pro rata according to the amount of interest to which each class of
certificates of the related group (or, in the case of the Group D-B
Certificates, only to the portion of those certificates that derives its
interest from the related loan group) would otherwise be entitled in reduction
thereof.
You may refer to 'Description of the Certificates -- Distributions of
Interest' in this prospectus supplement for more detail.
S-35
<PAGE>
ADVANCES FROM SERVICERS
Subject to the limitations described below and only with respect to those
mortgage loans serviced by it, each servicer will be required to advance, prior
to each distribution date, from its own funds or amounts received for the
mortgage loans that are not required to be distributed on that distribution
date, an amount equal to the following:
the aggregate of payments of principal of and interest on the mortgage
loans, net of the servicing fee, which were due on the previous due date
and which were delinquent on the determination date for that distribution
date.
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. Each servicer is obligated to make advances for delinquent
payments of principal of or interest on each mortgage loan serviced by it to the
extent that those 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 related
servicer determines on any determination date to make an advance, that advance
will be included with the distribution to certificateholders on the related
distribution date. Any failure by any servicer to make an advance as required
under the pooling and servicing agreement will constitute an event of default
under the pooling and servicing agreement subject to a specified grace period.
If any 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 that
advance, in accordance with the terms of the pooling and servicing agreement.
For a discussion of other events of default under the pooling and servicing
agreement and the rights of the trustee in the case of any event of default, see
'The Agreements -- Event of Default and Rights in the Case of Events of Default'
in the prospectus.
OPTIONAL PURCHASE OF DEFAULTED LOANS
Each servicer may, at its option, purchase from the trust any mortgage loan
serviced by it which is delinquent 91 days or more. That purchase shall be at a
price equal to 100% of the Stated Principal Balance of that mortgage loan plus
accrued interest on that mortgage loan at the applicable mortgage rate (less
certain fees) from the date through which interest was last paid by the related
mortgagor or advanced to the first day of the month in which that amount is to
be distributed.
SPECIAL SERVICING AGREEMENTS
The pooling and servicing agreement will permit each servicer to enter into
a special servicing agreement with an unaffiliated holder of subordinate
certificates. Under such agreement, that unaffiliated holder may instruct the
related servicer to commence or delay foreclosure proceedings for delinquent
mortgage loans being serviced by it. The commencement or delay at that holder's
direction will be taken by the related servicer, only after that holder deposits
a specified amount of cash with the servicer. That cash will be available for
payment to related certificateholders if liquidation proceeds are less than they
otherwise may have been had the servicer acted using its normal servicing
procedures.
S-36
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The certificates will be issued under the pooling and servicing agreement.
Described below in this section are summaries of the specific terms and
provisions under which the certificates will be issued. The following summaries
do not purport to be complete and additional information is provided in the
provisions of the pooling and servicing agreement.
The Mortgage Pass-Through Certificates, Series 2000-1 will consist of the
Class I-A-1, Class II-A-1, Class III-A-1, Class IV-A-1, Class V-A-1, Class I-X,
Class II-X, Class III-X, Class IV-X, Class V-X, Class III-P, Class V-P and
Class A-R Certificates, which are collectively referred to as the senior
certificates, and the Class D-B-1, Class D-B-2, Class D-B-3, Class D-B-4,
Class D-B-5 and Class D-B-6 Certificates, which are collectively referred to as
the subordinate certificates. Only the senior certificates and the Class D-B-1,
Class D-B-2 and Class D-B-3 Certificates, which are collectively referred to as
the offered certificates, are offered by this prospectus supplement. The
Class I-A-1, Class II-A-1, Class III-A-1, Class IV-A-1 and Class V-A-1
Certificates are collectively referred to as the Class A Certificates. The Class
I-X, Class II-X, Class III-X, Class IV-X and Class V-X Certificates are
collectively referred to as the Class X Certificates. The Class III-P and Class
V-P Certificates are collectively referred to as the Class P Certificates. The
Class D-B-1, Class D-B-2, Class D-B-3, Class D-B-4, Class D-B-5 and Class D-B-6
Certificates are collectively referred to herein as the Group D-B Certificates.
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 listed or described on page S-3 of this
prospectus supplement.
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
Class P Certificates will not be entitled to receive any distributions of
interest.
The senior certificates of each group will evidence in the aggregate an
initial beneficial ownership interest of approximately 90.50% of the mortgage
loans in the related group as of the closing date. The Class D-B-1,
Class D-B-2, Class D-B-3, Class D-B-4, Class D-B-5 and Class D-B-6 Certificates,
as of the closing date, represent an initial beneficial ownership interest of
approximately 5.50%, 1.55%, 0.95%, 0.60%, 0.35% and 0.55%, respectively, in the
mortgage loans.
The senior certificates, other than the Class A-R Certificates, and the
Class D-B-1, Class D-B-2 and Class D-B-3 Certificates, will be available only in
book-entry form through the facilities of DTC. The Class A-R, Class D-B-4,
Class D-B-5 and Class D-B-6 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.
DTC REGISTERED CERTIFICATES
Each class available in book-entry form will be issued in one or more
certificates which equal the aggregate initial Class Principal Balance of each
of those classes of certificates and which will be held by a nominee of DTC, and
are collectively referred to as the DTC registered certificates. Beneficial
interests in the DTC registered certificates will be held indirectly by
investors through the book-entry facilities of DTC, as described in this
prospectus supplement. Investors in the DTC registered certificates, other than
the Class X Certificates, may hold those beneficial interests in these
certificates in minimum denominations representing an original principal amount
of $25,000 and multiples of $1 in excess of that amount. Investors in the
Class X Certificates may hold those beneficial interests in the DTC registered
certificates in minimum denominations representing an original notional amount
of not less than $100,000 and multiples of $1 in excess of that amount. The
depositor has been informed by DTC that its nominee will be Cede & Co.
Accordingly, Cede & Co. is expected to be the holder of record of the DTC
registered certificates. No person acquiring a DTC registered certificate will
be entitled to receive a physical certificate representing that certificate, a
definitive certificate, except as described in the third paragraph below.
Unless and until definitive certificates are issued, it is anticipated that
the only 'certificateholder' of the DTC registered certificates will be Cede &
Co., as nominee of DTC. Beneficial owners of the DTC registered certificates
will not be certificateholders, as that term is used in the pooling and
servicing agreement. Beneficial owners are only permitted to exercise the rights
of certificateholders indirectly through participants and DTC.
S-37
<PAGE>
Monthly and annual reports on the trust provided to Cede & Co., as nominee of
DTC, may be made available to beneficial owners on request, in accordance with
the rules, regulations and procedures creating and affecting DTC, and to the
participants to whose DTC accounts the DTC registered certificates of those
beneficial owners are credited.
For a description of the procedures applicable to the DTC registered
certificates, see 'Description of the Securities -- Book-Entry Registration' in
the prospectus.
Definitive certificates will be issued to beneficial owners of DTC
registered certificates, or their nominees, rather than to DTC, only if:
DTC 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 for the DTC registered
certificates and the depositor or the trustee is unable to locate a
qualified successor;
the depositor, at its sole option, in writing, elects to terminate the
book-entry system through DTC; or
after the occurrence of an event of default, beneficial owners of any class
of DTC registered certificates representing not less than 51% of the
related aggregate Class Principal Balance advise the trustee and DTC
through the participants in writing that the continuation of a book-entry
system through DTC, or a successor thereto, is no longer in the best
interests of the beneficial owners.
In the case 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 that event and the availability of definitive certificates. At the
time of surrender by DTC of the global certificate or certificates representing
the DTC registered certificates and instructions for re-registration, the
trustee will issue the definitive certificates. After that, the trustee will
recognize the holders of those definitive certificates as certificateholders
under the pooling and servicing agreement.
According to DTC, the information above for DTC has been provided for
informational purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.
VOTING RIGHTS
Voting rights of the trust will be allocated 1% to each Class of Class X
Certificates with the balance allocated among the other classes of certificates
based on their respective Class Principal Balances.
GLOSSARY OF TERMS
The following terms are given the meanings shown below to help describe the
cash flows on the certificates:
AVAILABLE FUNDS -- For any distribution date and mortgage loan group, the
sum of:
(a) all scheduled installments of interest, net of the related expense
fees, and principal due on the due date in the month in which that
distribution date occurs and received prior to the related
determination date on the related mortgage loans, together with any
advances for the related mortgage loans;
(b) all insurance proceeds (to the extent not applied to restoration of
the mortgage property or released to the mortgagor in accordance
with the servicer's standard servicing procedures) and liquidation
proceeds received during the month preceding the month of that
distribution date on the related mortgage loans, in each case net of
unreimbursed expenses incurred in connection with a liquidation or
foreclosure and unreimbursed advances, if any;
(c) all partial and full prepayments received during the applicable
Prepayment Period on the related mortgage loans, exclusive of
prepayment penalties and premiums;
(d) amounts received for that distribution date in respect of the
substitution of a related mortgage loan, the purchase of a related
deleted mortgage loan, or a repurchase of a related mortgage loan by
a seller or the servicer as of that distribution date;
(e) any amounts payable as Compensating Interest by the servicer on that
distribution date on the related mortgage loans; and
S-38
<PAGE>
(f) minus, in the case of clauses (a) through (d) above, the amounts to
which the servicer is entitled under the pooling and servicing
agreement, including accrued and unpaid servicing fees, unreimbursed
advances and certain expenses.
BANKRUPTCY LOSS COVERAGE AMOUNT -- The aggregate amount of Bankruptcy Losses
that are allocated solely to the subordinate certificates, initially,
approximately $302,339.
BANKRUPTCY LOSSES -- A Realized Loss attributable to a Deficient Valuation
or a Debt Service Reduction each as defined under 'Credit
Enhancement -- Subordination of Group D-B Certificates.'
CLASS PRINCIPAL BALANCE -- For any class of certificates as of any date of
determination, an amount equal to the initial principal balance of that class,
reduced by the aggregate of the following amounts allocable to that class:
all amounts previously distributed to holders of certificates of that
class as payments of principal;
the amount of Realized Losses, including Excess Losses, allocated to
that class;
in the case of any class of subordinate certificates, any amounts
allocated to that class in reduction of its Class Principal Balance for
payment of Class P Deferred Amounts or if the aggregate Class Principal
Balance of the certificates exceeds the aggregate Stated Principal
Balance of the mortgage loans, as described below under ' -- Allocation
of Losses.'
CLASS P DEFERRED AMOUNT -- For either the Group 3 or Group 5 Class P
Mortgage Loans, the Class P Fraction of any Realized Loss on a Class P Mortgage
Loan in such group, other than an Excess Loss, allocated to the related Class P
Certificates on or prior to the Senior Credit Support Depletion Date and not
previously reimbursed. A payment made in respect of the Class P Deferred Amount
shall not reduce the Class Principal Balance of the Class P Certificates.
CLASS P MORTGAGE LOAN -- Any Group 3 mortgage loan with a net mortgage rate
of less than 8.00% per annum or any Group 5 mortgage loan with a net mortgage
rate of less than 8.25% per annum.
CLASS III-P PRINCIPAL DISTRIBUTION AMOUNT -- For each distribution date and
the Class III-P Certificates, a portion of the Available Funds for the Group 3
mortgage loans attributable to principal received on or in respect of a related
Class P Mortgage Loan, equal to the amount of principal so attributable
multiplied by the applicable Class P Fraction plus, prior to the Senior Credit
Support Depletion Date and to the extent of any amounts otherwise available to
be paid as principal to the subordinate certificates, the Class P Deferred
Amount on such date for the Group 3 Class P Mortgage Loans.
CLASS V-P PRINCIPAL DISTRIBUTION AMOUNT -- For each distribution date and
the Class V-P Certificates, a portion of the Available Funds for the Group 5
mortgage loans attributable to principal received on or in respect of a related
Class P Mortgage Loan, equal to the amount of principal so attributable
multiplied by the applicable Class P Fraction plus, prior to the Senior Credit
Support Depletion Date and to the extent of any amounts otherwise available to
be paid as principal to the subordinate certificates, the Class P Deferred
Amount for the Group 5 Class P Mortgage Loans.
CLASS P FRACTION -- For any Class P Mortgage Loan, a fraction, the numerator
of which is 8.00%, in the case of a Group 3 mortgage loan, or 8.25%, in the case
of a Group 5 mortgage loan minus the net mortgage rate on that Class P Mortgage
Loan and the denominator of which is 8.00%, in the case of a Group 3 mortgage
loan or 8.25%, in the case of a Group 5 mortgage loan.
COMPENSATING INTEREST -- For each of the Group 1 mortgage loans and the
Group 2 mortgage loans serviced by Countrywide and any distribution date, an
amount to be paid by Countrywide for that distribution date equal to the lesser
of any shortfall in interest collections resulting from the timing of principal
prepayments in full and partial principal prepayments made during the related
Prepayment Period on the mortgage loans in that loan group serviced by
Countrywide and one-half of the monthly servicing fee otherwise payable to
Countrywide on the mortgage loans in that group in connection with that
distribution date.
For the Group 2 and Group 3 mortgage loans serviced by GreenPoint and any
distribution date, an amount to be paid by GreenPoint for that distribution date
equal to the lesser of any shortfall in interest collections resulting from
principal prepayments in full and partial principal prepayments made during the
related Prepayment Period on the related mortgage loans in the related group and
one-half of the monthly servicing fee
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otherwise payable to GreenPoint on the related mortgage loans in the related
group in connection with that distribution date.
For the Group 2 and Group 3 mortgage loans serviced by DLJ Mortgage Capital
and the remaining servicers of the Group 2 and Group 3 mortgage loans, other
than Countrywide and GreenPoint, and any distribution date, an amount to be paid
by a servicer for that distribution date equal to the lesser of any shortfall in
interest collections resulting from the timing of principal prepayments in full
made during the related Prepayment Period on the mortgage loans serviced by it
in a group and 0.04% per annum of the stated principal balance of the mortgage
loans serviced by that servicer in that group.
For the Group 4 and Group 5 mortgage loans and any distribution date, an
amount to be paid by PNC for that distribution date equal to the lesser of any
shortfall in interest collections resulting from the timing of principal
prepayments in full made during the related Prepayment Period and the amount
required to be paid by PNC in respect of the shortfall, as described above under
'Servicing of the Mortgage Loans-Adjustment to Servicing Fee in Connection with
Certain Prepaid Mortgage Loans.'
EXCESS LOSSES -- Special Hazard Losses in excess of the Special Hazard Loss
Coverage Amount; Bankruptcy Losses in excess of the Bankruptcy Loss Coverage
Amount; and Fraud Losses in excess of the Fraud Loss Coverage Amount.
FRAUD LOSS COVERAGE AMOUNT -- The aggregate amount of Fraud Losses that are
allocated solely to the subordinate certificates, initially, approximately
$13,575,759.
FRAUD LOSSES -- A Realized Loss incurred on a mortgage loan as to which
there was fraud in the origination of the mortgage loan.
GROUP D-B COMPONENT BALANCE -- With respect to each group, the excess, if
any, of the then outstanding aggregate Stated Principal Balance of the mortgage
loans in the applicable group over the then outstanding aggregate Class
Principal Balance of the senior certificates in such group.
GROUP D-B PERCENTAGE -- For any distribution date, the aggregate Class
Principal Balance of the subordinate certificates immediately prior to the
distribution date divided by the outstanding aggregate Stated Principal Balance
of the mortgage loans as of the due date in the month of the distribution date.
INTEREST ACCRUAL PERIOD -- For each distribution date for each
interest-bearing class of certificates, the calendar month preceding the month
of that distribution date.
LIQUIDATION PRINCIPAL -- For any distribution date and the mortgage loans,
the principal portion of liquidation proceeds received for each mortgage loan in
such group which became a liquidated mortgage loan, but not in excess of the
principal balance of that liquidated mortgage loan, during the calendar month
preceding the month of the distribution date, exclusive of, in the case of
Group 3 and Group 5, the portion of the Liquidation Principal attributable to
the Class III-P or Class V-P Principal Distribution Amount, as applicable.
NET INTEREST SHORTFALL -- For any distribution date and group, the sum of:
the amount of interest which would otherwise have been received for a
mortgage loan in that group that was the subject of (x) a Relief Act
Reduction or (y) a Special Hazard Loss, Fraud Loss or Bankruptcy Loss,
after the exhaustion of the respective amounts of coverage provided by the
subordinate certificates for those types of losses; and
any related Net Prepayment Interest Shortfalls.
NET PREPAYMENT INTEREST SHORTFALL -- For any distribution date and group,
the amount by which the aggregate of Prepayment Interest Shortfalls for such
group during the related Prepayment Period exceeds the available Compensating
Interest for that period.
PREMIUM RATE MORTGAGE LOANS -- The Group 3 mortgage loans having net
mortgage rates in excess of 8.00% per annum and the Group 5 mortgage loans
having net mortgage rates in excess of 8.25% per annum.
PREPAYMENT INTEREST SHORTFALL -- 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 that mortgage loan.
PREPAYMENT PERIOD -- For any distribution date and the Group 1 mortgage
loans, the calendar month preceding that distribution date.
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For any distribution date and the Group 2 or Group 3 mortgage loans serviced
by either Countrywide or GreenPoint, the calendar month preceding that
distribution date.
For any distribution date and principal prepayment in full received on a
Group 2 or Group 3 mortgage loan serviced by either DLJ Mortgage Capital or one
of the remaining servicers, other than Countrywide and GreenPoint, the calendar
month preceding that distribution date; provided, however, any of such servicers
are permitted to change such period to be from the sixteenth day of the prior
calendar month (or in the case of the first distribution date, from the cut-off
date) through the fifteenth day of the month of that distribution date. For any
distribution date and partial principal prepayment received on a Group 2 or
Group 3 mortgage loan serviced by either DLJ Mortgage Capital or one of the
remaining servicers, other than Countrywide and GreenPoint, the calendar month
preceding that distribution date.
For any distribution date and principal prepayment in full received on a
Group 4 or Group 5 mortgage loan, the period from the fifteenth day of the prior
calendar month (or in the case of the first distribution date, from the cut-off
date) through the fourteenth day of the month of that distribution date. For any
distribution date and partial principal prepayment received on a Group 4 or
Group 5 mortgage loan, the calendar month preceding that distribution date.
PRINCIPAL PAYMENT AMOUNT -- For any distribution date and group, the sum of:
scheduled principal payments on the mortgage loans due on the related due
date;
the principal portion of repurchase proceeds received for any mortgage loan
which was repurchased as permitted or required by the pooling and servicing
agreement during the calendar month preceding the month of the distribution
date; and
any other unscheduled payments of principal which were received on the
mortgage loans during the preceding calendar month, other than principal
payments in full, partial principal prepayments or Liquidation Principal.
PRINCIPAL PREPAYMENT AMOUNT -- For any distribution date and group, the sum
of all partial prepayments or prepayments in full which were received during the
related Prepayment Period.
REALIZED LOSS -- Either (a) a Bankruptcy Loss or (b) 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.
RELIEF ACT REDUCTION -- A reduction in the amount of the monthly interest
payment on a mortgage loan under the Soldiers' and Sailors' Civil Relief Act of
1940.
SENIOR CREDIT SUPPORT DEPLETION DATE -- The date on which the aggregate
Class Principal Balance of the subordinate certificates has been reduced to
zero.
SENIOR LIQUIDATION AMOUNT -- For any distribution date and the aggregate for
each group, for each mortgage loan which became a liquidated mortgage loan
during the calendar month preceding the month of the distribution date, the
lesser of the related Senior Percentage of the Stated Principal Balance of that
mortgage loan, exclusive of, in the case of Group 3 and Group 5, the Class P
Fraction related to that mortgage loan, if applicable, and the related Senior
Prepayment Percentage of the Liquidation Principal for that mortgage loan.
SENIOR PERCENTAGE -- For any distribution date and group, the percentage
equivalent of a fraction, the numerator of which is the aggregate Class
Principal Balance of the classes of senior certificates of such group, other
than, in the case of Group 3 and Group 5, the related Class P Certificates,
immediately prior to that date and the denominator of which is the aggregate
Stated Principal Balance of the mortgage loans in such group less, in the case
of Group 3 and Group 5, the Class Principal Balance of the related Class P
Certificates, in each case immediately prior to the distribution date.
In no event will the Senior Percentage for any group exceed 100%.
SENIOR PREPAYMENT PERCENTAGE -- For any group and distribution date
occurring during the five years beginning on the first distribution date, 100%.
Thereafter, the Senior Prepayment Percentage will, except as described below, be
subject to gradual reduction as described in the following paragraph. This
disproportionate allocation of 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
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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 each group and 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 related Senior
Percentage plus 70% of the related Subordinate Percentage for that
distribution date;
for any distribution date in the second year thereafter, the related Senior
Percentage plus 60% of the related Subordinate Percentage for that
distribution date;
for any distribution date in the third year thereafter, the related Senior
Percentage plus 40% of the related Subordinate Percentage for that
distribution date;
for any distribution date in the fourth year thereafter, the related Senior
Percentage plus 20% of the related Subordinate Percentage for that
distribution date; and
for any distribution date thereafter, the related Senior Percentage for
that distribution date.
If for any of the foregoing distribution dates a Senior Percentage exceeds
its initial Senior Percentage, the Senior Prepayment Percentage for each group
for that distribution date will once again equal 100%.
In spite of the foregoing, no decrease in the reduction to a Senior
Prepayment Percentage as described above will occur if, as of the first
distribution date as to which that decrease applies the outstanding principal
balance of the mortgage loans in the related group, delinquent 60 days or more
averaged over the preceding six month period, as a percentage of the related
Group D-B Component Balance as of that distribution date is equal to or greater
than 50% or cumulative Realized Losses for the mortgage loans in the related
group exceed:
for the distribution date on the fifth anniversary of the first
distribution date, 30% of the related Group D-B Component Balance;
for the distribution date on the sixth anniversary of the first
distribution date, 35% of the related Group D-B Component Balance;
for the distribution date on the seventh anniversary of the first
distribution date, 40% of the related Group D-B Component Balance;
for the distribution date on the eighth anniversary of the first
distribution date, 45% of the related Group D-B Component Balance; and
for the distribution date on the ninth anniversary of the first
distribution date, 50% of the related Group D-B Component Balance.
If the Senior Prepayment Percentage for one group is not permitted to reduce
due to the limitations set forth above, then the Senior Prepayment Percentage
for all other groups will not be reduced on such date.
If on any distribution date the allocation to the class of senior
certificates then entitled to distributions of principal payments in full and
partial principal prepayments and other amounts in the percentage required above
would reduce the outstanding Class Principal Balance of that class below zero,
the distribution to that class of certificates of the Senior Prepayment
Percentage of those amounts for that distribution date will be limited to the
percentage necessary to reduce the related Class Principal Balance to zero.
SENIOR PRINCIPAL DISTRIBUTION AMOUNT -- For any distribution date and group,
the sum of:
the related Senior Percentage of the related Principal Payment Amount,
exclusive of, in the case of Group 3 and Group 5, the portion of the
Principal Payment Amount attributable to the Class III-P or Class V-P
Principal Distribution Amount, as applicable;
the related Senior Prepayment Percentage of the related Principal
Prepayment Amount, exclusive of, in the case of Group 3 and Group 5, the
portion of the Principal Prepayment Amount attributable to the Class III-P
or Class V-P Principal Distribution Amount, as applicable; and
the related Senior Liquidation Amount.
SPECIAL HAZARD LOSS COVERAGE -- The aggregate amount of Special Hazard
Losses that are allocated solely to the subordinate certificates, initially,
approximately $6,787,879.
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SPECIAL HAZARD LOSSES -- A Realized Loss incurred to the extent that the
loss was attributable to direct physical damage to a mortgaged property other
than any loss of a type covered by a hazard insurance policy or a flood
insurance policy, if applicable; and any shortfall in insurance proceeds for
partial damage due to the application of the co-insurance clauses contained in
hazard insurance policies.
STATED PRINCIPAL BALANCE -- As to any mortgage loan and due date, the unpaid
principal balance of that mortgage loan as of that due date, as specified in the
amortization schedule at the time relating to that mortgage loan and due date
before any adjustment to the 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 that due date and irrespective of any delinquency in payment by
the related mortgagor.
STRIPPED INTEREST RATE -- For any Premium Rate Mortgage Loan, the excess, if
any, of the net mortgage rate for that mortgage loan over 8.00% per annum with
respect to Group 3 and 8.25% per annum with respect to Group 5.
SUBORDINATE LIQUIDATION AMOUNT -- For any distribution date and group, the
excess, if any, of the aggregate Liquidation Principal of all mortgage loans in
that group which became liquidated mortgage loans during the calendar month
preceding the month of that distribution date over the sum of the related Senior
Liquidation Amount for that distribution date.
SUBORDINATE PERCENTAGE -- For any distribution date and group, the
difference between 100% and the related Senior Percentage for that distribution
date.
SUBORDINATE PREPAYMENT PERCENTAGE -- For any distribution date and group,
the difference between 100% and the related Senior Prepayment Percentage for
that distribution date.
SUBORDINATE PRINCIPAL DISTRIBUTION AMOUNT -- For any distribution date, the
sum of the following amounts calculated for each group:
the related Subordinate Percentage of the related Principal Payment Amount,
exclusive of, in the case of Group 3 and Group 5, the portion of that
Principal Payment Amount attributable to the Class III-P and Class V-P
Principal Distribution Amount, as applicable;
the related Subordinate Prepayment Percentage of the related Principal
Prepayment Amount, exclusive of, in the case of Group 3 and Group 5, the
portion of that Principal Prepayment Amount attributable to the
Class III-P and Class V-P Principal Distribution Amount, as applicable;
the related Subordinate Liquidation Amount;
less the sum of the following amounts:
any Class P Deferred Amounts required to be paid to the Class III-P and
Class V-P Certificates on that distribution date; and
the amount of certain cross-collateralization payments as described under
' -- Cross-Collateralization.'
Any reduction to the Subordinate Principal Distribution Amount shall first
offset the Principal Payment Amounts, second the Subordinate Liquidation Amounts
and then the Principal Prepayment Amounts.
SUBORDINATION LEVEL -- On any distribution date for any class of subordinate
certificates, 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 that class by the sum of the Class Principal Balances of all classes
of certificates, in each case immediately prior to that distribution date.
NET WAC RATE -- For any distribution date and group, the weighted average
(by principal balance) of the net mortgage rates for the mortgage loans in that
group as of the second preceding due date after giving effect to scheduled
payments for that due date, whether or not received, or for the initial
distribution date, the cut-off date, reduced in the case of Group 1, Group 2 and
Group 4, by a fraction, expressed as a percentage, the numerator of which is the
product of the related Class X notional amount for such distribution date and
the related Class X pass-through rate and the denominator of which is the
aggregate Stated Principal Balance of the mortgage loans in the related group as
of the second preceding due date after giving effect to scheduled payments for
that due date, whether or not received, or for the initial distribution date,
the cut-off date.
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PAYMENTS ON MORTGAGE LOANS; ACCOUNTS
On or prior to the closing date, the trustee will establish a Certificate
Account, which shall be maintained with the trustee in trust for the benefit of
the certificateholders. On the business day prior to each distribution date, as
specified in the pooling and servicing agreement, each servicer will withdraw
from its Collection Account the portion of the Available Funds for each group on
deposit in that Collection Account for that distribution date and will deposit
those 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
19th day of each month in the case of the Group 1, Group 2 and Group 3 senior
certificates and on the 25th day of each month in the case of the Group 4 and
Group 5 senior certificates and the subordinate certificates, or if either such
day is not a business day, on the first business day thereafter, commencing in
March 2000, to the persons in whose names those certificates are registered at
the close of business on the last business day of the month preceding the month
of that distribution date.
Distributions on each distribution date will be made by check mailed to the
address of the person entitled to those distributions as it appears on the
applicable certificate register. 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 pooling
and servicing agreement, distributions on each distribution date will be made by
wire transfer in immediately available funds to the account of that
certificateholder at a bank or other depository institution having appropriate
wire transfer facilities. The final distribution in retirement of the
certificates will be made only on presentment and surrender of those
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
for the related group in the order and priority as follows:
first, to the Class P Certificates of the related group, if any, a portion
of the principal received for each Class P Mortgage Loan in such group, if
any, as described in ' -- Distributions of Principal' in this prospectus
supplement;
second, to the Class A and Class X Certificates of the related group and,
with respect to Group 3, the Class A-R Certificates, accrued and unpaid
interest, as described in ' -- Distributions of Interest' in this
prospectus supplement;
third, to the Class A Certificates of the related group and, with respect
to Group 3, the Class A-R Certificates, principal as described in
' -- Distributions of Principal -- Senior Principal Distribution Amount;'
After giving effect to the distributions set forth in the previous
paragraph, all remaining Available Funds will be aggregated and the following
distributions will be made in the priority set forth below, subject to any
payments required to be made to the senior certificates as described herein
under ' -- Cross-Collateralization':
first, to the Class P Certificates, any applicable Class P Deferred
Amounts;
second, to 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
third, 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 for the mortgage loans in the related
group except under the limited circumstances described under
' -- Cross-Collateralization.'
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DISTRIBUTIONS OF INTEREST
The pass-through rate for each interest-bearing class of offered
certificates for each distribution date is as listed or described on page S-3 of
this prospectus supplement.
The notional amount of the Class I-X Certificates for any distribution date
will equal the product of:
the aggregate Stated Principal Balance, as of the second preceding due
date after giving effect to scheduled payments for that due date,
whether or not received, or for the initial distribution date, as of
the cut-off date, of the mortgage loans in Group 1; and
a fraction, the numerator of which is 0.0934% and the denominator of
which is 8.000%.
The notional amount of the Class II-X Certificates for any distribution date
will equal the product of:
the aggregate Stated Principal Balance, as of the second preceding due
date after giving effect to scheduled payments for that due date,
whether or not received, or for the initial distribution date, as of
the cut-off date, of the mortgage loans in Group 2; and
a fraction, the numerator of which is 0.1314% and the denominator of
which is 7.375%.
The notional amount of the Class IV-X Certificates for any distribution date
will equal the product of:
aggregate Stated Principal Balance, as of the second preceding due date
after giving effect to scheduled payments for that due date, whether or
not received, or for the initial distribution date, as of the cut-off
date, of the mortgage loans in Group 4; and
a fraction, the numerator of which is 0.1020% and the denominator of
which is 8.250%.
Distributions of interest to the Class III-X Certificates and Class V-X
Certificates will be paid from the interest collections on the Premium Rate
Mortgage Loans in the related group. The interest payable to the Class III-X
Certificates and Class V-X Certificates is based on the weighted average of the
Stripped Interest Rates of the Premium Rate Mortgage Loans in the related group.
The notional amount of the Class III-X Certificates for any distribution
date will equal the product of:
the aggregate Stated Principal Balance, as of the second preceding due
date after giving effect to scheduled payments for that due date,
whether or not received, or for the initial distribution date, as of
the cut-off date, of the Premium Rate Mortgage Loans in Group 3; and
a fraction, the numerator of which is the weighted average of the
Stripped Interest Rates for the Premium Rate Mortgage Loans in Group 3
as of that due date and the denominator of which is 8.00%.
The notional amount of the Class V-X Certificates for any distribution date
will equal the product of:
the aggregate Stated Principal Balance, as of the second preceding due
date after giving effect to scheduled payments for that due date,
whether or not received, or for the initial distribution date, as of
the cut-off date, of the Premium Rate Mortgage Loans in Group 5; and
a fraction, the numerator of which is the weighted average of the
Stripped Interest Rates for the Premium Rate Mortgage Loans in Group 5
as of that due date and the denominator of which is 8.25%.
The Class I-A-1, Class II-A-1 and Class IV-A-1 Certificates will accrue
interest on the notional amount for that class, and will not accrue interest on
the related Class Principal Balance. However, at any time, interest accruing on
the Class I-A-1, Class II-A-1 and Class IV-A-1 notional amount at the fixed
pass-thourgh rate for that class specified on page S-3 of this prospectus
supplement will equal the amount of interest that would accrue on the principal
balance for that class at the weighted average of the net mortgage rates on the
mortgage loans in the related group minus a portion of the interest paid to the
related class of Class X Certificates.
The notional amount of the Class I-A-1 Certificates for any distribution
date will equal the product of:
Class Principal Balance thereof immediately prior to that distribution
date; and
a fraction, the numerator of which is the Net WAC Rate for Group 1 for
that distribution date and the denominator of which is 8.00%.
The notional amount of the Class II-A-1 Certificates for any distribution
date will equal the product of:
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Class Principal Balance thereof immediately prior to that distribution
date; and
a fraction, the numerator of which is the Net WAC Rate for Group 2 for
that distribution date and the denominator of which is 7.375%.
The notional amount of the Class IV-A-1 Certificates for any distribution
date will equal the product of:
Class Principal Balance thereof immediately prior to that distribution
date; and
a fraction, the numerator of which is the weighted average of the Net
WAC Rate for Group 4 for that distribution date and the denominator of
which is 8.25%.
The notional amount as of the Closing Date for the Class I-A-1, Class II-A-1
and Class IV-A-1 Certificates is approximately $278,323,737, $77,063,700, and
$50,152,946, respectively.
The pass-through rate on the subordinate certificates will equal, on any
distribution date, the quotient expressed as a percentage of (a) the sum of
(i) the product of (x) the Net WAC Rate for Group 1 for that distribution date
and (y) the Group D-B Component Balance for Group 1 immediately prior to such
distribution date, (ii) the product of (x) the Net WAC Rate for Group 2 for that
distribution date and (y) the Group D-B Component Balance for Group 2
immediately prior to such distribution date, (iii) the product of (x) 8.00% and
(y) the Group D-B Component Balance for Group 3 immediately prior to such
distribution date, (iv) the product of (x) the Net WAC Rate for Group 4 for that
distribution date and (y) the Group D-B Component Balance for Group 4
immediately prior to such disctibution date and (v) the product of (x) 8.25% and
(y) the Group D-B Component Balance for Group 5 immediately prior to such
distribution date divided by (b) the aggregate Group Component Balance for
Group 1, Group 2, Group 3, Group 4 and Group 5 immediately prior to such
distribution date, subject to certain adjustments under the circumstances set
forth in the pooling and servicing agreement. The initial pass-through rate on
each class of subordinate certificates will be approximately 7.9884% per annum.
On each distribution date, to the extent of funds available therefore, each
interest-bearing class of certificates will be entitled to receive an amount
allocable to interest for the related Interest Accrual Period. This amount will
be equal to the sum of:
interest at the applicable pass-through rate on the related Class Principal
Balance or notional amount, as the case may be, and
the sum of the amounts, if any, by which the amount described in the clause
above on each prior distribution date exceeded the amount actually
distributed as interest on those prior distribution dates and not
subsequently distributed.
The Class P Certificates will not bear interest.
The interest entitlement described above for each interest-bearing class of
senior certificates will be reduced by Net Interest Shortfalls experienced by
the mortgage loans in the related group for that distribution date and the
interest entitlement described above for the subordinate certificates will be
reduced by Net Interest Shortfalls experienced by the mortgage loans in all
groups for that distribution date. Net Interest Shortfalls on any distribution
date will be allocated pro rata among all such classes of certificates related
to such group or groups, based on the amount of interest each of those classes
of certificates would otherwise be entitled to receive on that distribution date
from such group or groups before taking into account any reduction in the
amounts resulting from Net Interest Shortfalls. The amount a class of
subordinate certificates would otherwise be entitled to receive from the
mortgage loans in a group before taking into account any such reduction will be
based on the amount of interest accruing at the applicable pass-through rate on
that class' proportionate share, based on the Class Principal Balance, of the
related Group D-B Component Balance for that distribution date.
Accrued interest to be distributed 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 that distribution date. Interest will be calculated and
payable on the basis of a 360-day year divided into twelve 30-day months.
DISTRIBUTIONS OF PRINCIPAL
General. On each distribution date, certificateholders will be entitled to
receive principal distributions from funds available therefore and in the
priority described in this prospectus supplement. See ' -- Priority of
S-46
<PAGE>
Distributions Among Certificates' in this prospectus supplement. Each class of
senior certificates will receive principal collected from the related group
except under the limited circumstances described in ' -- Cross-
Collateralization.' The subordinate certificates will receive principal
collected from all of the mortgage loans.
The Class X Certificates will not be entitled to receive any distributions
of principal.
Senior Principal Distribution Amount. On each distribution date, to the
extent of related Available Funds for that distribution date, up to the amount
of the applicable Senior Principal Distribution Amount for that distribution
date, will be distributed as principal to the related classes of senior
certificates in the following order of priority:
(A) With respect to Group 1, to the Class I-A-1 Certificates, until their
Class Principal Balance has been reduced to zero;
(B) With respect to Group 2, to the Class II-A-1 Certificates, until their
Class Principal Balance has been reduced to zero;
(C) With respect to Group 3, in the following order of priority:
(1) to the Class A-R Certificates, until their Class Principal Balance
has been reduced to zero; and
(2) to the Class III-A-1 Certificates, until their Class Principal
Balance has been reduced to zero;
(D) With respect to Group 4, to the IV-A-1 Certificates, until their Class
Principal Balance has been reduced to zero; and
(E) With respect to Group 5, to the V-A-1 Certificates, until their Class
Principal Balance has been reduced to zero.
Class III-P Principal Distribution Amount. On each distribution date, the
Class III-P Certificates will receive the Class III-P Principal Distribution
Amount for that distribution date, from the Available Funds of Group 3. The
Class III-P Principal Distribution Amount will be paid in the priority set forth
above under ' -- Priority of Distributions Among Certificates.'
Class V-P Principal Distribution Amount. On each distribution date, the
Class V-P Certificates will receive the Class V-P Principal Distribution Amount
for that distribution date, from the Available Funds of Group 5. The Class V-P
Principal Distribution Amount will be paid in the priority set forth above under
' -- Priority of Distributions Among Certificates.'
Subordinate Principal Distribution Amount. On each distribution date, to the
extent of aggregate Available Funds therefore for that distribution date, up to
the amount of the Subordinate Principal Distribution Amount for that
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
on its respective Class Principal Balance, of the Subordinate Principal
Distribution Amount. Distributions of principal of the subordinate certificates
will be made on each distribution date sequentially in the order of their
numerical class designation, beginning with the Class D-B-1 Certificates, until
each class of subordinate certificates has received its respective pro rata
share of the Subordinate Principal Distribution Amount for that distribution
date.
For each class of subordinate certificates, if on any distribution date the
related Subordination Level of that class is less than that percentage as of the
closing date, no distributions of principal prepayments in full and partial
principal prepayments will be made to any class or classes junior to that class.
The amount otherwise distributable to the those classes will be allocated among
the remaining classes of subordinate certificates, pro rata, based on their
respective Class Principal Balances.
Residual Certificates. The Class A-R Certificates will remain outstanding
for so long as the trust 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 any Available Funds remaining
after payment of interest and principal on the senior certificates, Class P
Deferred Amounts on the Class P Certificates and interest and principal on the
subordinate certificates for that distribution date, as described above. It is
not anticipated that there will be any significant amounts remaining for
distribution.
S-47
<PAGE>
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 of that class
is reduced to zero. To the extent funds are available on that distribution date
or on any future distribution date from amounts that would otherwise be
allocable to the Subordinate Principal Distribution Amount for the subordinate
certificates, Class P Deferred Amounts will be paid on the Class P Certificates
prior to distributions on the subordinate certificates. See ' -- Priority of
Distributions Among Certificates' in this prospectus supplement. Any
distribution relating to unpaid Class P Deferred Amounts will not further reduce
the Class Principal Balance of the Class P Certificates. The Class P 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 by the amount of any payments in respect of Class P
Deferred Amounts. After the Senior Credit Support Depletion Date, no new
Class P Deferred Amounts will be created for the Class P Certificates.
On each distribution date, any Realized Loss, other than the Class P
Fraction of the Realized Loss, if applicable, and other than any Excess Loss,
incurred on a mortgage loan will be allocated in the following order:
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
second, to the Class A Certificates related to that group, pro rata, based
on their respective Class Principal Balances.
With respect to any Realized Loss allocated pursuant to clause second of the
previous paragraph, (I) if such loss occurs in an Overcollateralized Group and
there is a single Undercollateralized Group, such Undercollateralized Group will
receive a portion of the loss (such portion equal to a fraction, the numerator
of which is the Group D-B Component Balance of the Overcollateralized Group that
suffered such loss and the denominator of which is the aggregate Stated
Principal Balance of the mortgage loans in such Overcollateralized Group less
the applicable Class P Fraction of any Class P Mortgage Loan) and the remainder
will be allocated to the senior certificates related to the group that suffered
such loss; and (II) if such loss occurs in an Overcollateralized Group and there
are two or more Undercollateralized Groups, each Undercollateralized Group will
receive a portion of the loss (such portion equal to the same fraction as above,
multiplied by a second fraction, the numerator of which is the
Undercollateralized Group's Principal Transfer Amount and the denominator of
which is the sum of each Undercollateralized Group's Principal Transfer Amount)
and the remainder will be allocated to the senior certificates related to the
group that suffered such loss.
On each distribution date, Excess Losses, other than the Class P Fraction of
the Excess Loss, if applicable, will be allocated pro rata among the classes of
senior certificates, other than the Class X and Class P Certificates, and the
subordinate certificates, based on their respective Class Principal Balances.
On each distribution date, if the aggregate Class Principal Balance of all
classes of 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 related certificates on that distribution date,
that excess will be deemed a principal loss and will be allocated to the most
junior class of subordinate certificates then outstanding.
Investors in the senior certificates should be aware that because the
subordinate certificates represent interests in all of the groups, the Class
Principal Balances of the subordinate certificates could be reduced to zero as a
result of a disproportionate amount of Realized Losses on the mortgage loans in
one of these groups. Therefore, notwithstanding that Realized Losses on the
mortgage loans in one group may only be allocated to the related senior
certificates, other than Excess Losses, the allocation to the subordinate
certificates of Realized Losses on the mortgage loans in the other group will
increase the likelihood that losses may be allocated to such senior
certificates.
S-48
<PAGE>
CROSS-COLLATERALIZATION
CROSS-COLLATERALIZATION DUE TO RAPID PREPAYMENTS
On each distribution date prior to the Senior Credit Support Depletion Date,
but after the date on which the Class Principal Balance of a class of Class A
Certificates has been reduced to zero, all principal on the mortgage loans
relating to the Class A Certificates that have been paid in full, after
distributions of principal to the Class P Certificates of that group, if
applicable, will be paid to the Class A Certificates of the other groups, pro
rata based on Class Principal Balance. However, principal will not be
distributed as described above if on that distribution date (a) the Group D-B
Percentage for that distribution date is greater than or equal to 200% of that
Group D-B Percentage as of the closing date and (b) the average outstanding
principal balance of the mortgage loans in each group delinquent 60 days or more
over the last six months, as a percentage of the related Group D-B Component
Balance, is less than 50%. If principal from one group is distributed to the
senior certificates of another group according to this paragraph, the
subordinate certificates will not receive that principal amount.
CROSS-COLLATERALIZATION DUE TO DISPROPORTIONATE REALIZED LOSSES IN ONE GROUP
If on any distribution date the Class Principal Balance of the Class A
Certificates of a group is greater than the aggregate Stated Principal Balance
of the mortgage loans in the related group less, in the case of Group 3 and
Group 5, the applicable Class P Fraction of each Class P Mortgage Loan in such
group, if any, (the 'Undercollateralized Group'), then the following will occur:
the Available Funds in the other groups that are not Undercollateralized
Groups (the 'Overcollateralized Groups') will be reduced, after
distributions of interest to the senior certificates of the
Overcollateralized Groups, in an amount equal to one month's interest on
the Principal Transfer Amount of each Undercollateralized Group at the
pass-through rate applicable to the Undercollateralized Group or
Undercollateralized Groups and that amount will be added to the Available
Funds of the applicable Undercollateralized Group; and
the portion of the Available Funds in respect of principal on the mortgage
loans in the Overcollateralized Groups, after distributions of principal to
the senior certificates of the Overcollateralized Groups, will be
distributed to the Class A Certificates of the Undercollateralized Group
until the Class Principal Balance of the Class A Certificates of the
Undercollateralized Group equals the aggregate Stated Principal Balance of
the mortgage loans in the related group less, in the case of Group 3 and
Group 5, the applicable Class P Fraction of each Class P Mortgage Loan in
such group, if any.
Consequently, the subordinate certificates will not receive any distributions of
principal until each Undercollateralized Group is no longer undercollateralized.
On each Distribution Date, the 'PRINCIPAL TRANSFER AMOUNT' for each
Undercollateralized Group will equal the excess, if any, of the Class Principal
Balance of the Class A Certificates related to such Undercollateralized Group
over the aggregate Stated Principal Balance of the mortgage loans in such group
(less, in the case of Group 3 and Group 5, the applicable Class P Fraction of
each Class P Mortgage Loan in such group, if any).
In the event more than one group is an Overcollateralized Group on any
distribution date, reductions in the Available Funds of such groups to make
payments to the Undercollateralized Group or Groups will be made pro rata based
on the amount of payments required to be made to the Undercollateralized Group
or Groups.
All or a portion of the distributions to the senior certificates of Group 1,
Group 2 and Group 3 pursuant to the cross-collateralization provisions described
above, may be made on the distribution date in the month following the month
during which such transfer payment occurs (without any additional distribution
of interest or earnings thereon with respect to such delay).
OPTIONAL TERMINATION
The depositor will have the right to repurchase all remaining mortgage loans
and REO Properties in the trust, effecting early retirement of the certificates,
subject to the sum of the aggregate Stated Principal Balance of those mortgage
loans and REO Properties at the time of repurchase being less than 5% of the
aggregate Stated Principal Balance of the mortgage loans as of the cut-off date.
If the depositor does not exercise such option, the servicers may exercise such
option. In the event the depositor or the servicers exercise that option,
S-49
<PAGE>
the purchase price distributed for each certificate will be 100% of its then
outstanding principal balance plus any Class P Deferred Amounts in the case of
the Class P Certificates, if any, and, in the case of an interest-bearing
certificate, any unpaid accrued interest on that Class Principal Balance or
notional amount, as applicable, at the applicable pass-through rate, subject to
reduction as provided in the pooling and servicing agreement if the purchase
price is based in part on the appraised value of any REO Properties and that
appraised value is less than the Stated Principal Balance of the related
mortgage loans. Distributions on the certificates relating to any optional
termination will first be paid to the senior certificates and then to the
subordinate certificates. The proceeds from that distribution may not be
sufficient to distribute the full amount to which each class of certificates is
entitled.
THE TRUSTEE
Bank One, National Association will be the trustee under the pooling and
servicing agreement. The depositor and the servicers may maintain other banking
relationships in the ordinary course of business with the trustee and its
affiliates. Offered certificates may be surrendered at the corporate trust
office of the trustee located at Bank One, National Association, 14 Wall Street,
Eighth Floor, New York, New York, 10005, Attention: Corporate Trust
Administration or at 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 'Material Federal Income Tax
Consequences -- REMICs -- Taxation of Owners of REMIC Residual
Certificates -- Tax and Restrictions on Transfers of REMIC Residual Certificates
to Specific Organizations.' The pooling and servicing agreement provides that
the Class A-R Certificates, in addition to other classes of certificates, may
not be acquired by a Plan or with assets of such a Plan. See 'ERISA
Considerations' in this prospectus supplement. Each Class A-R Certificate will
contain a legend describing the foregoing restrictions.
S-50
<PAGE>
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
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 the holders and the purchase price of these
certificates because monthly distributions will not be payable to the holders of
the Group 1, Group 2 and Group 3 senior certificates until the 19th day, and to
the holders of the Group 4 and Group 5 senior certificates and the subordinate
certificates until the 25th 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 on the certificates relating to that delay.
Delinquencies on the mortgage loans in a group which are not advanced by or
on behalf of the related servicer because amounts, if advanced, would be
nonrecoverable, will adversely affect the yield on the certificates of the
related group. Because of the priority of distributions, shortfalls resulting
from delinquencies not so advanced will be borne first by the Group D-B
Certificates in the reverse order of their numerical class designations, and
then by the senior certificates of the related group. If, as a result of those
shortfalls, the aggregate of the Class Principal Balances of the 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 that
excess.
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 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 one or more 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 first by the Group D-B Certificates in decreasing order of their
numerical class designations, either directly or through distributions in
respect of Class P Deferred Amounts on the Class P Certificates, Excess Losses
on the mortgage loans will be borne by all classes of certificates on a pro rata
basis. Moreover, since the Subordinate Principal Distribution Amount for the
Group D-B Certificates for each distribution date will be reduced by the amount
of any distributions on that distribution date relating to Class P Deferred
Amounts and by the cross-collateralization described under 'Description of the
Certificates -- Cross-Collateralization,' the amount distributable as principal
on each of those distribution dates to each class of Group D-B Certificates will
be less than it otherwise would be in the absence of Class P Deferred Amounts
and the cross-collateralization feature. 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
Group D-B Certificates are still outstanding and otherwise available to absorb
other types of Realized Losses. See 'Description of the
Certificates -- Allocation of Losses' in this prospectus supplement.
PREPAYMENT CONSIDERATIONS AND RISKS
Distributions to the Class I-A-1, Class II-A-1, Class III-A-1, Class IV-A-1
and Class V-A-1 certificates relate to payments on the Group 1, Group 2,
Group 3, Group 4 and Group 5 Loans, respectively, except in the limited
circumstances described herein under 'Description of the
Certificates -- Cross-Collateralization.' Distributions to the Group D-B
Certificates relate to payments on all mortgage loans. The rate of principal
payments on the offered certificates, the aggregate amount of distributions on
these certificates and the yields to maturity of these certificates will be
related to the rate and timing of payments of principal on the related mortgage
loans. The rate of principal payments on these 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 a seller or servicer. The mortgage loans may be
prepaid by the mortgagors at any time without penalty. The mortgage loans are
subject to 'due-on-sale' provisions. However, the related servicer may choose
not to accelerate a mortgage loan on the conveyance of the related mortgaged
property if
S-51
<PAGE>
the servicer would make a similar decision for a comparable mortgage loan held
for its own account. See 'The Mortgage Pool' in this prospectus supplement.
Prepayments, liquidations and purchases of the mortgage loans in a loan
group including any optional purchase by the related servicer of a defaulted
mortgage loan as described in this prospectus supplement, will result in
distributions on the related 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
that 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 on the degree to which that offered certificate is purchased at a
discount or premium, and the degree to which the timing of payments on that
offered certificate is sensitive to prepayments, liquidations and purchases of
the related 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 related mortgage loans could result in an actual
yield to that investor that is lower than the anticipated yield. In the case of
the Class X Certificates and any other offered certificate purchased at a
premium, a faster than anticipated rate of principal payments on the related
mortgage loans could result in an actual yield to that investor that is lower
than the anticipated yield. Investors in the Class III-X and Class V-X
Certificates should carefully consider the risk that a rapid rate of principal
prepayments on the related Premium Rate Mortgage Loans could result in the
failure of those investors to fully 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 rights 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. On the other hand, if prevailing interest rates
were to rise significantly, the rate of prepayments on the mortgage loans would,
in most cases, be expected to decrease. No assurances can be given as to the
rate of prepayments on the mortgage loans.
With respect to up to 50% of the mortgage loans being purchased indirectly
by the depositor from Countrywide Home Loans, Inc., the depositor may deliver
all or a portion of each related mortgage file to the trustee not later than
thirty days after the closing date. Should Countrywide Home Loans, Inc. fail to
deliver all or a portion of any mortgage file to the depositor or other designee
of the depositor or, at the depositor's direction, to the trustee, within that
period, Countrywide Home Loans, Inc. will be required to use its best efforts to
deliver a substitute mortgage loan for the related delayed delivery mortgage
loan or repurchase the related delayed delivery mortgage loan. Any repurchases
pursuant to this provision would also have the effect of accelerating the rate
of prepayments on the Group 1 or Group 2 Loans, as applicable.
As described in this prospectus supplement under 'Description of the
Certificates -- Distributions of Principal,' with respect to each group, the
applicable Senior Prepayment Percentage of the Principal Prepayment Amount
(exclusive of the portion attributable to the Class III-P Principal Distribution
Amount and Class V-P Principal Distribution Amount, as applicable) will be
initially distributed to the related senior certificates (other than the
Class III-P and V-P Certificates). This may result in all, or a disproportionate
percentage of those principal prepayments being distributed to holders of the
senior certificates and none, or less than their pro rata share, of those
principal prepayments being distributed to holders of the Group D-B Certificates
during the periods of time described in the definition of Senior Prepayment
Percentage.
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.
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<PAGE>
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:
the mortgage loans have the following characteristics:
GROUP 1 LOANS
<TABLE>
<CAPTION>
REMAINING
UNPAID TERM TO
PRINCIPAL MATURITY LOAN AGE
BALANCE MORTGAGE RATE NET RATE (IN MONTHS) (IN MONTHS)
------- ------------- -------- ----------- -----------
<S> <C> <C> <C> <C>
$306,963,919.93 8.4038794303% 8.1084147223% 356 2
</TABLE>
GROUP 2 LOANS
<TABLE>
<CAPTION>
REMAINING
UNPAID TERM TO
PRINCIPAL MATURITY LOAN AGE
BALANCE MORTGAGE RATE NET RATE (IN MONTHS) (IN MONTHS)
------- ------------- -------- ----------- -----------
<S> <C> <C> <C> <C>
$ 85,038,500.76 7.7835861466% 7.5163525623% 174 6
</TABLE>
GROUP 3 LOANS
<TABLE>
<CAPTION>
REMAINING
UNPAID TERM TO
PRINCIPAL MATURITY LOAN AGE
BALANCE MORTGAGE RATE NET RATE (IN MONTHS) (IN MONTHS)
------- ------------- -------- ----------- -----------
<S> <C> <C> <C> <C>
$ 11,731,542.25 8.1974178943% 7.8405251157% 346 10
$118,812,974.77 9.1777661839% 8.8772421357% 353 7
</TABLE>
GROUP 4 LOANS
<TABLE>
<CAPTION>
REMAINING
UNPAID TERM TO
PRINCIPAL MATURITY LOAN AGE
BALANCE MORTGAGE RATE NET RATE (IN MONTHS) (IN MONTHS)
------- ------------- -------- ----------- -----------
<S> <C> <C> <C> <C>
$ 55,323,802.63 9.0131454120% 8.3659903850% 352 7
</TABLE>
GROUP 5 LOANS
<TABLE>
<CAPTION>
REMAINING
UNPAID TERM TO
PRINCIPAL MATURITY LOAN AGE
BALANCE MORTGAGE RATE NET RATE (IN MONTHS) (IN MONTHS)
------- ------------- -------- ----------- -----------
<S> <C> <C> <C> <C>
$ 41,982,692.20 8.7127555841% 8.1770418536% 355 3
$ 58,934,528.51 9.3660485562% 8.7114466912% 355 3
</TABLE>
the mortgage loans prepay at the specified percentage of the prepayment
assumption described in the following paragraph,
no defaults in the payment by the mortgagor of principal of and interest on
the mortgage loans are experienced,
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,
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<PAGE>
prepayments are allocated as described in this prospectus supplement
without giving effect to loss and delinquency tests,
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,
the scheduled monthly payment for each mortgage loan has been calculated
based on the assumed mortgage loan characteristics described in the table
above so that the mortgage loans will amortize in amounts sufficient to
repay the principal balances of those assumed mortgage loans by its
respective amortized remaining term to maturity,
the initial Class Principal Balance or notional amount, as applicable, of
each class of certificates is as listed under 'Summary Information' in this
prospectus supplement,
interest accrues on each interest-bearing class of certificates at the
applicable interest rate listed or described under 'Summary Information' in
this prospectus supplement,
distributions are received in cash on the 19th day, in the case of the
Group 1, Group 2 and Group 3 senior certificates, and the 25th day, in the
case of the Group 4 and Group 5 senior certificates and the subordinate
certificates, of each month commencing in the calendar month following the
assumed closing date,
the closing date of the sale of the offered certificates is February 29,
2000,
none of the sellers are required to repurchase or substitute for any
mortgage loan,
the option to repurchase the mortgage loans described in this prospectus
supplement under 'Description of the Certificates -- Optional Termination'
is not exercised, and
no class of subordinate certificates is locked out from principal payments
as a result of a decrease in the Subordination Level of a class with a
higher payment priority.
While it is assumed that each mortgage loan prepays at the specified percentage
of the prepayment assumption, this is not likely to be the case. Moreover,
discrepancies will exist between the characteristics of the actual mortgage
loans and characteristics of the mortgage loans assumed in preparing the tables
in this prospectus supplement.
Prepayments of mortgage loans commonly are measured relative to a prepayment
standard or model. The two prepayment models used in this prospectus supplement
represent an assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of mortgage loans. For the Group 1,
Group 2, Group 3 and Group 4 mortgage loans, a 100% prepayment assumption
assumes prepayment rates of 4% per annum of the then outstanding principal
balance of such mortgage loans in the first month of the life of the mortgage
loans and increasing by 12/11% per annum in each month thereafter until the
twelfth month. Beginning in the twelfth month and in each month thereafter
during the life of the mortgage loan, 100% of the prepayment assumption assumes
a constant prepayment rate of 16% per annum. For the Group 5 mortgage loans, a
100% prepayment assumption assumes prepayment rates of 6% per annum of the then
outstanding principal balance of such mortgage loans in the first month of the
life of the mortgage loans and increasing by 14/11% per annum in each month
thereafter until the twelfth month. Beginning in the twelfth month and in each
month thereafter during the life of the mortgage loan, 100% of the prepayment
assumption assumes a constant prepayment rate of 20% per annum. 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 particular classes of
certificates to various percentages of the prepayment assumption. The yields
listed 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
that assumed stream of cash flows to equal the assumed purchase price of those
classes and converting those monthly rates to corporate bond equivalent rates.
Those 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 particular classes of certificates and consequently do not
purport to reflect the return on any investment in that class of certificates
when those reinvestment rates are considered.
S-54
<PAGE>
SENSITIVITY OF THE CLASS P CERTIFICATES
THE CLASS III-P AND CLASS V-P CERTIFICATES WILL BE 'PRINCIPAL ONLY'
CERTIFICATES AND WILL NOT BEAR INTEREST. AS INDICATED IN THE TABLES BELOW, A LOW
RATE OF PRINCIPAL PAYMENTS, INCLUDING PREPAYMENTS, OF THE RELATED CLASS P
MORTGAGE LOANS WILL HAVE AN ADVERSE EFFECT ON THE YIELD TO INVESTORS IN THE
RELATED CLASS P CERTIFICATES.
As described above under 'Description of the Certificates -- Distributions
of Principal,' the Class P Principal Distribution Amount for a class of Class P
Certificates is calculated by reference to the principal payments, including
prepayments, on the related Class P Mortgage Loans. The Class P Mortgage Loans
in the related loan group will have lower net mortgage rates, and lower mortgage
rates, than the other mortgage loans in that loan group. 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 in the related loan
group may prepay at lower rates, reducing the rate of payment of principal and
the resulting yield of the related Class P Certificates.
The information shown in the following table has been prepared on the basis
of the structuring assumptions and on the assumption that the purchase prices of
the Class P Certificates, expressed as a percentage of initial Class Principal
Balance, is as follows:
<TABLE>
<CAPTION>
CLASS PRICE
- ----- -----
<S> <C>
Class III-P................................................. 50.0000%
Class V-P................................................... 55.2500%
</TABLE>
SENSITIVITY OF THE CLASS P CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
------------------------------------
CLASS 0% 50% 100% 150% 200%
- ----- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class III-P.................................. 3.77% 10.15% 19.34% 30.27% 43.04%
</TABLE>
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
------------------------------------
0% 50% 100% 150% 200%
-- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class V-P.................................... 3.04% 9.43% 18.08% 27.67% 38.17%
</TABLE>
It is highly unlikely that all of the mortgage loans of a specific group
will have the characteristics assumed or that the mortgage loans of a specific
group 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 Class P Mortgage Loans prepay
at the indicated percentages of the applicable prepayment assumption. No
representation is made as to the actual rate of principal payments on the
Class P Mortgage Loans of a specific loan group 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 III-X
AND CLASS V-X CERTIFICATES WILL BE SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS,
INCLUDING PREPAYMENTS, OF THE RELATED PREMIUM RATE MORTGAGE LOANS, PARTICULARLY
THOSE WITH HIGH NET MORTGAGE RATES, AND THE CLASS I-X, CLASS II-X AND
CLASS IV-X CERTIFICATES WILL BE SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) OF THE GROUP I, GROUP II AND GROUP IV LOANS,
RESPECTIVELY. THE MORTGAGE LOANS CAN BE PREPAID AT ANY TIME. ON THE BASIS OF THE
ASSUMPTIONS DESCRIBED BELOW, THE YIELD TO MATURITY ON THE CLASS III-X AND
CLASS V-X CERTIFICATES WOULD BE APPROXIMATELY 0% IF PREPAYMENTS WERE TO OCCUR AT
A CONSTANT RATE OF APPROXIMATELY 189% AND 193%, RESPECTIVELY, OF THE APPLICABLE
PREPAYMENT ASSUMPTION. ON THE BASIS OF THE ASSUMPTIONS DESCRIBED BELOW, THE
YIELD TO MATURITY ON THE CLASS I-X, CLASS II-X AND CLASS IV-X CERTIFICATES WOULD
BE APPROXIMATELY 0% IF THE PREPAYMENTS WERE TO OCCUR AT A CONSTANT RATE OF
APPROXIMATELY 159%, 148%, AND 182%, RESPECTIVELY, OF THE APPLICABLE PREPAYMENT
ASSUMPTION. IF THE
S-55
<PAGE>
ACTUAL PREPAYMENT RATE OF THE MORTGAGE LOANS WERE TO EXCEED THE APPLICABLE LEVEL
FOR AS LITTLE AS ONE MONTH WHILE EQUALING THE 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 III-X and Class V-X Certificates
in effect from time to time is calculated by reference to the net mortgage rates
of the related Premium Rate Mortgage Loans. 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 change in market interest rates. As a
result, the Premium Rate Mortgage Loans of a specific loan group may prepay at
higher rates, reducing the pass-through rate and notional amount of the
Class III-X and Class V-X Certificates of the related group.
The information shown 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 of the Class X Certificates, expressed as a
percentage of initial notional amount of the Class X Certificates, excluding
accrued interest (except that accrued interest has been added to that price in
calculating the yields shown in the table below) are as follows:
<TABLE>
<CAPTION>
CLASS PRICE
- ----- -----
<S> <C>
Class I-X................................................... 28.00%
Class II-X.................................................. 22.50%
Class III-X................................................. 21.75%
Class IV-X.................................................. 23.50%
Class V-X................................................... 18.00%
</TABLE>
SENSITIVITY OF THE CLASS X CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
--------------------------------------
CLASS 0% 50% 100% 150% 200%
- ----- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class I-X................................... 28.60% 20.03% 11.10% 1.76% (8.06)%
Class II-X.................................. 27.58 18.73 9.48 (0.22) (10.44)
Class III-X................................. 37.90 28.55 18.80 8.56 (2.22)
Class IV-X.................................. 35.75 26.53 16.89 6.79 (3.87)
Class V-X................................... 47.88 36.49 24.49 11.75 (1.87)
</TABLE>
It is highly unlikely that all of the mortgage loans of a specific loan
group will have the characteristics assumed or that the mortgage loans of a
specific loan group will prepay at any constant rate until maturity or that all
of the mortgage loans of a specific group will prepay at the same rate or time.
As a result of these factors, the pre-tax yields on the Class X Certificates are
likely to differ from those shown in the table above, even if all of the
Mortgage Loans prepay at the indicated percentages of the applicable 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:
multiplying the amount of the reduction, if any, of the Class Principal
Balance of that Class on each distribution date by the number of years from
the date of issuance to that distribution date,
summing the results and
dividing the sum by the aggregate amount of the reductions in Class
Principal Balance of that class referred to in the first clause.
S-56
<PAGE>
For a discussion of the factors which may influence the rate of payments,
including prepayments, of the mortgage loans, see ' -- Prepayment Considerations
and Risks' in this prospectus supplement 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 related mortgage loans
increases. However, the weighted average lives of the offered certificates will
depend on a variety of other factors, including the timing of changes in that
rate of principal payments and the priority sequence of distributions of
principal of the classes of certificates. See 'Description of the
Certificates -- Distributions of Principal' in this prospectus supplement.
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 that 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 those classes of offered
certificates will result in variability in the related yields to maturity. For
an example of how the weighted average lives of the classes of offered
certificates may be affected at various percentages of the prepayment
assumption, see ' -- Decrement Tables' in the following paragraph.
DECREMENT TABLES
The following tables indicate the percentages of the initial Class Principal
Balances of the classes of offered certificates that would be outstanding after
each of the dates shown at various percentages of the applicable prepayment
assumption and the corresponding weighted average lives of those classes. The
tables have been prepared on the basis of the structuring assumptions. It is not
likely that all of the mortgage loans will have the characteristics assumed,
that all of the mortgage loans will prepay at the percentages of the applicable
prepayment assumption specified in the tables or at any constant rate or that
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
percentages of the applicable prepayment assumption, 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.
S-57
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCES OUTSTANDING
<TABLE>
<CAPTION>
CLASS I-A-1 CLASS II-A-1
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
--------------------------------- --------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
- ----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 2001....... 99 93 86 79 73 96 88 81 73 65
February 2002....... 98 84 70 57 46 92 77 63 51 39
February 2003....... 97 75 57 41 28 87 67 49 34 22
February 2004....... 96 68 45 28 15 83 57 37 23 12
February 2005....... 95 61 36 19 7 77 49 28 14 5
February 2006....... 94 55 29 13 3 72 41 21 9 1
February 2007....... 93 49 23 8 * 65 34 16 5 0
February 2008....... 91 44 19 5 0 59 28 11 3 0
February 2009....... 90 40 15 4 0 51 22 8 2 0
February 2010....... 88 36 12 3 0 44 18 6 1 0
February 2011....... 86 32 10 2 0 35 13 4 1 0
February 2012....... 84 29 8 2 0 26 9 2 * 0
February 2013....... 82 26 7 1 0 16 5 1 * 0
February 2014....... 80 23 6 1 0 6 2 * * 0
February 2015....... 77 21 5 1 0 0 0 0 0 0
February 2016....... 74 18 4 * 0 0 0 0 0 0
February 2017....... 71 16 3 * 0 0 0 0 0 0
February 2018....... 68 14 2 * 0 0 0 0 0 0
February 2019....... 64 12 2 * 0 0 0 0 0 0
February 2020....... 61 11 1 * 0 0 0 0 0 0
February 2021....... 56 9 1 * 0 0 0 0 0 0
February 2022....... 52 8 1 * 0 0 0 0 0 0
February 2023....... 47 6 1 * 0 0 0 0 0 0
February 2024....... 41 5 1 * 0 0 0 0 0 0
February 2025....... 35 4 * * 0 0 0 0 0 0
February 2026....... 29 3 * * 0 0 0 0 0 0
February 2027....... 22 2 * * 0 0 0 0 0 0
February 2028....... 14 1 * * 0 0 0 0 0 0
February 2029....... 6 * * * 0 0 0 0 0 0
February 2030....... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (in
years)**.......... 20.44 9.00 4.95 3.16 2.22 8.59 5.60 3.79 2.65 1.93
</TABLE>
- ---------
* Indicates a number that is greater than zero but less than 0.5%
** Determined as specified under ' -- Weighted Average Lives of the Offered
Certificates' herein.
S-58
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCES OUTSTANDING
<TABLE>
<CAPTION>
CLASS III-A-1 CLASS III-P
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
--------------------------------- ---------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
- ----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 2001....... 99 91 83 74 66 99 91 83 75 68
February 2002....... 99 82 67 54 41 98 83 69 57 45
February 2003....... 98 74 54 38 24 97 76 58 43 31
February 2004....... 97 67 44 26 13 96 69 48 32 21
February 2005....... 96 60 35 17 6 95 62 40 24 14
February 2006....... 95 54 28 11 2 93 57 33 18 9
February 2007....... 93 49 22 7 0 92 51 27 13 6
February 2008....... 92 44 18 5 0 90 46 22 10 4
February 2009....... 91 39 14 3 0 89 42 18 8 3
February 2010....... 89 36 12 2 0 87 38 15 6 2
February 2011....... 87 32 10 2 0 85 34 12 4 1
February 2012....... 85 29 8 1 0 83 30 10 3 1
February 2013....... 83 26 7 1 0 80 27 8 2 1
February 2014....... 81 23 5 1 0 78 24 7 2 *
February 2015....... 78 21 4 1 0 75 21 5 1 *
February 2016....... 75 18 4 * 0 72 19 4 1 *
February 2017....... 72 16 3 * 0 68 17 4 1 *
February 2018....... 69 14 2 * 0 65 14 3 * *
February 2019....... 65 12 2 * 0 61 13 2 * *
February 2020....... 61 11 1 * 0 57 11 2 * *
February 2021....... 57 9 1 * 0 52 9 1 * *
February 2022....... 52 8 1 * 0 47 8 1 * *
February 2023....... 47 6 1 * 0 42 6 1 * *
February 2024....... 41 5 * * 0 36 5 1 * *
February 2025....... 35 4 * * 0 30 4 * * *
February 2026....... 28 3 * * 0 23 3 * * *
February 2027....... 21 2 * * 0 15 2 * * *
February 2028....... 13 1 * * 0 7 1 * * *
February 2029....... 4 * * * 0 0 0 0 0 0
February 2030....... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (in
years)**.......... 20.54 8.87 4.76 2.94 2.01 19.62 9.12 5.26 3.50 2.54
</TABLE>
- ---------
* Indicates a number that is greater than zero but less than 0.5%.
** Determined as specified under ' -- Weighted Average Lives of the Offered
Certificates' herein.
S-59
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCES OUTSTANDING
<TABLE>
<CAPTION>
CLASS IV-A-1 CLASS V-A-1
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
--------------------------------- ---------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
- ----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 2001....... 99 91 83 74 66 99 90 81 72 63
February 2002....... 98 82 67 54 41 99 80 63 47 34
February 2003....... 98 74 54 38 25 98 70 48 30 16
February 2004....... 97 67 44 26 13 97 61 36 18 5
February 2005....... 96 60 35 17 6 96 54 26 9 0
February 2006....... 94 54 28 11 2 95 47 19 4 0
February 2007....... 93 49 22 7 0 93 41 14 1 0
February 2008....... 92 44 18 5 0 92 36 11 * 0
February 2009....... 90 39 14 3 0 91 32 8 0 0
February 2010....... 89 36 12 2 0 89 28 6 0 0
February 2011....... 87 32 10 2 0 87 25 5 0 0
February 2012....... 85 29 8 1 0 86 22 4 0 0
February 2013....... 83 26 7 1 0 83 19 3 0 0
February 2014....... 81 23 5 1 0 81 17 2 0 0
February 2015....... 78 21 4 1 0 79 15 2 0 0
February 2016....... 75 18 4 * 0 76 13 1 0 0
February 2017....... 72 16 3 * 0 73 11 1 0 0
February 2018....... 69 14 2 * 0 70 10 1 0 0
February 2019....... 65 12 2 * 0 66 8 1 0 0
February 2020....... 61 11 1 * 0 62 7 * 0 0
February 2021....... 57 9 1 * 0 58 6 * 0 0
February 2022....... 52 8 1 * 0 53 5 * 0 0
February 2023....... 47 6 1 * 0 48 4 * 0 0
February 2024....... 41 5 * * 0 43 3 * 0 0
February 2025....... 35 4 * * 0 36 2 * 0 0
February 2026....... 28 3 * * 0 30 2 * 0 0
February 2027....... 20 2 * * 0 22 1 * 0 0
February 2028....... 12 1 * * 0 14 1 * 0 0
February 2029....... 3 * * * 0 6 * * 0 0
February 2030....... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (in
years)**.......... 20.49 8.88 4.78 2.96 2.03 20.75 7.63 3.86 2.34 1.69
</TABLE>
- ---------
* Indicates a number that is greater than zero but less than 0.5%.
** Determined as specified under ' -- Weighted Average Lives of the Offered
Certificates' herein.
S-60
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCES OUTSTANDING
<TABLE>
<CAPTION>
CLASS D-B-1, CLASS D-B-2 AND
CLASS V-P CLASS D-B-3
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
--------------------------------- -----------------------------------
0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
-- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 2001....... 99 91 83 75 67 99 99 99 99 99
February 2002....... 98 81 66 52 40 98 98 98 98 98
February 2003....... 98 73 52 36 24 96 96 96 96 96
February 2004....... 97 65 41 25 14 95 95 95 95 95
February 2005....... 95 58 33 17 8 93 93 93 93 92
February 2006....... 94 51 26 12 5 91 89 87 84 77
February 2007....... 93 45 20 8 3 90 84 79 73 61
February 2008....... 92 40 16 6 2 88 78 69 60 41
February 2009....... 90 36 13 4 1 85 71 58 47 27
February 2010....... 89 32 10 3 1 83 63 47 34 18
February 2011....... 87 28 8 2 * 80 56 38 25 12
February 2012....... 85 24 6 1 * 77 50 31 18 8
February 2013....... 83 21 5 1 * 74 44 25 13 5
February 1014....... 80 19 4 1 * 71 38 20 9 3
February 2015....... 78 16 3 * * 68 34 16 7 2
February 2016....... 75 14 2 * * 66 30 13 5 1
February 2017....... 72 12 2 * * 63 26 10 4 1
February 2018....... 69 11 1 * * 60 23 8 3 1
February 2019....... 65 9 1 * * 57 20 6 2 *
February 2020....... 61 8 1 * * 53 17 5 1 *
February 2021....... 57 6 1 * * 50 15 4 1 *
February 2022....... 52 5 * * * 46 12 3 1 *
February 2023....... 47 4 * * * 41 10 2 * *
February 2024....... 42 3 * * * 36 8 2 * *
February 2025....... 36 3 * * * 31 6 1 * *
February 2026....... 29 2 * * * 25 5 1 * *
February 2027....... 22 1 * * * 19 3 1 * *
February 2028....... 14 1 * * * 12 2 * * *
February 2029....... 5 * * * 0 4 1 * * *
February 2030....... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (in
years)**.......... 20.55 8.12 4.46 2.95 2.16 19.04 13.19 10.57 9.19 7.87
</TABLE>
- ---------
* Indicates a number that is greater than zero but less than 0.5%.
** Determined as specified under ' -- Weighted Average Lives of the Offered
Certificates' herein.
S-61
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCES OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-R
PREPAYMENT ASSUMPTION
--------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial............. 100% 100% 100% 100% 100%
February 2001....... 0 0 0 0 0
February 2002....... 0 0 0 0 0
February 2003....... 0 0 0 0 0
February 2004....... 0 0 0 0 0
February 2005....... 0 0 0 0 0
February 2006....... 0 0 0 0 0
February 2007....... 0 0 0 0 0
February 2008....... 0 0 0 0 0
February 2009....... 0 0 0 0 0
February 2010....... 0 0 0 0 0
February 2011....... 0 0 0 0 0
February 2012....... 0 0 0 0 0
February 2013....... 0 0 0 0 0
February 2014....... 0 0 0 0 0
February 2015....... 0 0 0 0 0
February 2016....... 0 0 0 0 0
February 2017....... 0 0 0 0 0
February 2018....... 0 0 0 0 0
February 2019....... 0 0 0 0 0
February 2020....... 0 0 0 0 0
February 2021....... 0 0 0 0 0
February 2022....... 0 0 0 0 0
February 2023....... 0 0 0 0 0
February 2024....... 0 0 0 0 0
February 2025....... 0 0 0 0 0
February 2026....... 0 0 0 0 0
February 2027....... 0 0 0 0 0
February 2028....... 0 0 0 0 0
February 2029....... 0 0 0 0 0
February 2030....... 0 0 0 0 0
Weighted Average
Life (in
years)**.......... 0.05 0.05 0.05 0.05 0.05
</TABLE>
- ---------
* Indicates a number that is greater than zero but less than 0.5%.
** Determined as specified under ' -- Weighted Average Lives of the Offered
Certificates' herein.
S-62
<PAGE>
LAST SCHEDULED DISTRIBUTION DATE
The last scheduled distribution date for the Group 1 senior certificates is
the distribution date in April 2030, which is the distribution date in the month
after the scheduled maturity date for the latest maturing Group 1 Loan. The last
scheduled distribution date for the Group 2 senior certificates is the
distribution date in March 2015, which is the distribution date in the month
after the scheduled maturity date for the latest maturing Group 2 Loan. The last
scheduled distribution date for the Group 3 senior certificates is the
distribution date in March 2030, which is the distribution date in the month
after the scheduled maturity date for the latest maturing Group 3 Loan. The last
scheduled distribution date for the Group 4 senior certificates is the
distribution date in March 2030, which is the distribution date in the month
after the scheduled maturity date for the latest maturing Group 4 Loan. The last
scheduled distribution date for the Group 5 senior certificates is the
distribution date in March 2030, which is the distribution date in the month
after the scheduled maturity date for the latest maturing Group 5 Loan. The last
scheduled distribution date for the Group D-B Certificates is the distribution
date in March 2030, 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 that 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' in this prospectus supplement and 'Yield, Prepayment and
Maturity Considerations' in the prospectus.
THE SUBORDINATE CERTIFICATES
The weighted average lives of, and the yields to maturity on the Group D-B
Certificates, in increasing order of their numerical class designations, will be
progressively more 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 Group D-B Certificate, the actual yield to maturity of that
certificate may be lower than the yield expected by that holder based on that
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. Usually, 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 a class of Group D-B Certificates to the extent
of any losses allocated to that class, as described under 'Description of the
Certificates -- Allocation of Losses,' without the receipt of cash attributable
to that reduction. In addition, shortfalls in cash available for distributions
on the Group D-B Certificates will result in a reduction in the Class Principal
Balance of the class of Group D-B Certificates then outstanding with the highest
numerical class designation after giving effect to all distributions and
allocations of losses, as described in this prospectus supplement under
'Description of the Certificates -- Allocation of Losses.' As a result of those
reductions, less interest will accrue on that class or classes of Group D-B
Certificates than otherwise would be the case. The yield to maturity of the
Group D-B Certificates will also be affected by the disproportionate allocation
of the Principal Prepayment Amounts 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 Group D-B Certificates to the extent of reimbursement for
the Class P Deferred Amounts and the implementation of the
cross-collateralization feature. See 'Description of the
Certificates -- Allocation of Losses' and ' -- Cross-Collateralization' in this
prospectus supplement.
If on any distribution date the Subordination Level for any class of
Group D-B Certificates is less than that percentage as of the closing date, all
principal payments in full and partial principal prepayments available for
distribution on the Group D-B Certificates will be allocated solely to that
class and all other classes of Group D-B Certificates with lower numerical class
designations, accelerating the amortization of those classes relative to the
other classes of Group D-B Certificates and reducing the weighted average lives
of those classes of Group D-B Certificates receiving those distributions.
Accelerating the amortization of the classes of Group D-B Certificates with
lower numerical class designations relative to the other classes of Group D-B
Certificates is intended to preserve the availability of the subordination
provided by those other classes.
S-63
<PAGE>
ADDITIONAL INFORMATION
The depositor intends to file additional yield tables and other
computational materials for one or more classes of offered certificates with the
SEC, in a report on Form 8-K. Those tables and materials were prepared by the
underwriter at the request of particular prospective investors, based on
assumptions provided by, and satisfying the special requirements of, those
prospective investors. Those tables and assumptions may be based on assumptions
that differ from the structuring assumptions. Accordingly, those tables and
other materials may not be relevant to or appropriate for investors other than
those specifically requesting them.
CREDIT ENHANCEMENT
SUBORDINATION OF GROUP D-B CERTIFICATES
The subordination of the Group D-B Certificates to the senior certificates
and the further subordination within the Group D-B 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
Group D-B Certificates will provide limited protection to the senior
certificates against Special Hazard Losses, Bankruptcy Losses and Fraud Losses
on the mortgage loans up to the Special Hazard Loss Coverage Amount, Bankruptcy
Loss Coverage Amount and Fraud Loss Coverage Amount, respectively, as described
below.
Investors in the offered certificates should be aware that because the
Bankruptcy Loss Coverage Amount, the Fraud Loss Coverage Amount and the Special
Hazard Loss Coverage Amount apply to all groups, disproportionate Bankruptcy
Losses, Fraud Losses or Special Hazard Losses in one group will reduce the
protection otherwise available to the certificateholders of the unrelated group.
The Special Hazard Loss Coverage Amount will be reduced, from time to time,
to an amount equal on any distribution date to the lesser of:
the greatest of:
1% of the aggregate of the principal balances of the mortgage loans,
twice the principal balance of the largest mortgage loan, and
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
the 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 that 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 Amount 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 cut-off date, the Fraud Loss Coverage
Amount will be reduced as follows:
on the first, second, third and fourth anniversaries of the cut-off date,
to an amount equal to the lesser of:
1% of the then current Stated Principal Balances of the mortgage loans and
the excess of that Fraud Loss Coverage Amount as of the preceding
anniversary of the cut-off date (or, in the case of the first anniversary,
as of the cut-off date) over the cumulative amount of Fraud Losses
allocated to the certificates since that preceding anniversary or the
cut-off date, as the case may be, and
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 Group D-B 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 by the cancellation or reduction of those
amounts. In addition, a reserve fund or other form of
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<PAGE>
credit enhancement may be substituted for the protection provided by the Group
C-B 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 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 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 servicer without giving effect to any Debt Service
Reduction or Deficient Valuation. The servicer will have no obligation to
advance payments in respect of any such mortgage loan that has suffered a
Deficient Valuation or Debt Service Reduction if the servicer reasonably
believes such amount is not recoverable from future payments or collections on
such mortgage loan or proceeds of the liquidation of the related mortgaged
property.
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.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Brown & Wood LLP, counsel to the depositor, has filed with the depositor's
registration statement one or more opinions stating that the discussion in this
section, along with the discussion in the prospectus under 'Material Federal
Income Tax Consequences,' represents counsel's opinion as to the material
federal income tax consequences of investing in the certificates.
Assuming compliance with all provisions of the pooling and servicing
agreement, for federal income tax purposes, the trust will be treated as two
separate REMICs. The assets of the lower tier REMIC will consist of the mortgage
loans and all other property in the trust and the lower tier REMIC will issue
several classes of uncertificated regular interests to the upper tier REMIC. The
upper tier REMIC will issue the regular certificates, which will be designated
as the regular interests in the upper tier REMIC. The Class A-R Certificates
will represent the beneficial ownership of the residual interest in each REMIC.
See 'Description of the Certificates -- REMIC Structure' in this prospectus
supplement. The regular certificates will be treated as debt instruments issued
by the upper tier 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 original issue discount, or 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 those 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 that 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 'Material 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 intends to assume that there will be prepayments on the
mortgage loans at 100% of the prepayment assumption for the applicable mortgage
loan group. 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' in this prospectus supplement and 'Material 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
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<PAGE>
certificates issued with OID in an accrual period. Holders will be entitled to
offset negative accruals of OID only against future OID accrual on those
certificates.
The IRS has issued regulations under Sections 1271 to 1275 of the Internal
Revenue Code, addressing the treatment of debt instruments issued with OID.
Purchasers of the regular certificates should be aware that the OID regulations
and Section 1272(a)(6) of the Internal Revenue Code do not adequately address
particular 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 those
certificates at a premium, those 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 'Material 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 Internal Revenue 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 Internal Revenue Code, to the extent the assets of
the trust are assets described in these 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 Internal Revenue 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 those holders during various 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, or 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 of the REMIC regulations, effective for taxable years beginning after
December 31, 1995, except for 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 that 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 those 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 Section 593(d) of the Internal Revenue Code 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 for those consequences. See
'Material 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 'Material Federal Income Tax
Consequences -- Taxation of Owners of REMIC Residual Certificates -- Noneconomic
REMIC Residual Certificates,' 'Material 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 'Material 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.
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<PAGE>
ERISA CONSIDERATIONS
Any plan fiduciary which proposes to cause an employee benefit plan subject
to ERISA and/or to Section 4975 of the Internal Revenue Code to acquire any of
the offered certificates should consult with its counsel about the potential
consequences under ERISA, and/or the Internal Revenue Code, of the plan's
acquisition and ownership of those certificates. See 'ERISA Considerations' in
the prospectus. Section 406 of ERISA and Section 4975 of the Internal Revenue
Code prohibit parties in interest with respect to an employee benefit plan
subject to ERISA and/or to Section 4975 of the Internal Revenue Code from
engaging in specific transactions involving that plan and its assets unless a
statutory, regulatory or administrative exemption applies to the transaction.
Section 4975 of the Internal Revenue Code imposes various 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 Internal
Revenue Code.
Some employee benefit plans, including governmental plans and some church
plans, are not subject to ERISA's requirements. Accordingly, assets of those
plans may be invested in the offered certificates without regard to the ERISA
considerations described in this prospectus supplement and in the prospectus,
subject to the provisions of other applicable federal and state law. Any of
these plans that are qualified and exempt from taxation under Sections 401(a)
and 501(a) of the Internal Revenue Code may nonetheless be subject to the
prohibited transaction rules described in Section 503 of the Internal Revenue
Code.
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 (the 'Exemption') from some of the prohibited
transaction rules of ERISA and the related excise tax provisions of
Section 4975 of the Internal Revenue Code for the initial purchase, the holding
and the subsequent resale by plans of certificates in pass-through trusts that
consist of particular receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. Assuming that the general
conditions of the Exemption are met, the Exemption applies to certificates that
qualify for the Exemption and that represent unsubordinated fractional undivided
interests in a trust comprised of mortgage loans like the mortgage loans in the
trust.
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 of the mortgage loans included in
the trust by aggregate unamortized principal balance of the assets of the trust.
BECAUSE THE CHARACTERISTICS OF THE CLASS D-B-1, CLASS D-B-2, CLASS D-B-3 AND
CLASS A-R 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 THESE
CERTIFICATES BY A PLAN OR BY INDIVIDUAL RETIREMENT ACCOUNTS OR OTHER PLANS
SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE MAY RESULT IN PROHIBITED
TRANSACTIONS OR THE IMPOSITION OF EXCISE TAXES OR CIVIL PENALTIES. CONSEQUENTLY,
TRANSFERS OF THE CLASS D-B-1, CLASS D-B-2, CLASS D-B-3 AND CLASS A-R
CERTIFICATES WILL NOT BE REGISTERED BY THE TRUSTEE UNLESS THE TRUSTEE RECEIVES
THE FOLLOWING:
A REPRESENTATION FROM THE TRANSFEREE OF THE CERTIFICATE, ACCEPTABLE TO AND
IN FORM AND SUBSTANCE SATISFACTORY TO THE TRUSTEE, TO THE EFFECT THAT THE
TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO SECTION 406 OF ERISA
OR A PLAN OR ARRANGEMENT SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE
CODE, NOR A PERSON ACTING ON BEHALF OF SUCH A PLAN OR ARRANGEMENT NOR USING
THE ASSETS OF SUCH A PLAN OR ARRANGEMENT TO EFFECT THAT TRANSFER;
IF THE PURCHASER IS AN INSURANCE COMPANY, A REPRESENTATION THAT THE
PURCHASER IS AN INSURANCE COMPANY WHICH IS PURCHASING THE CERTIFICATES WITH
FUNDS CONTAINED IN AN 'INSURANCE COMPANY GENERAL ACCOUNT,' AS THAT TERM IS
DEFINED IN SECTION V(e) OF PROHIBITED TRANSACTION CLASS
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<PAGE>
EXEMPTION 95-60, OR PTCE 95-60, AND THAT THE PURCHASE AND HOLDING OF THE
CERTIFICATES ARE COVERED UNDER SECTIONS I AND III OF PTCE 95-60, OR
AN OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE THAT THE PURCHASE OR
HOLDING OF THE CERTIFICATE BY A PLAN, ANY PERSON ACTING ON BEHALF OF A PLAN
OR USING PLAN'S ASSETS, WILL NOT RESULT IN THE ASSETS OF THE TRUST BEING
DEEMED TO BE 'PLAN ASSETS' AND SUBJECT TO THE PROHIBITED TRANSACTION
REQUIREMENTS OF ERISA AND THE INTERNAL REVENUE CODE AND WILL NOT SUBJECT
THE TRUSTEE OR THE SERVICER TO ANY OBLIGATION IN ADDITION TO THOSE
UNDERTAKEN IN THE POOLING AND SERVICING AGREEMENT.
THE REPRESENTATION AS DESCRIBED ABOVE SHALL BE DEEMED TO HAVE BEEN MADE TO THE
TRUSTEE BY THE TRANSFEREE'S ACCEPTANCE OF A CLASS D-B-1, CLASS D-B-2 OR CLASS
D-B-3 CERTIFICATE, OR BY ANY BENEFICIAL OWNER WHO PURCHASES AN INTEREST IN THOSE
CERTIFICATES REGISTERED IN BOOK-ENTRY FORM. IN THE EVENT THAT THE REPRESENTATION
IS VIOLATED, OR ANY ATTEMPT TO TRANSFER TO A PLAN OR PERSON ACTING ON BEHALF OF
A PLAN OR USING A PLAN'S ASSETS IS ATTEMPTED WITHOUT THE OPINION OF COUNSEL, THE
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 Internal Revenue 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, 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 described in the underwriting agreement
between the depositor and Donaldson, Lufkin & Jenrette Securities Corporation,
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 various 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 that
purpose shall be pending before or threatened by the SEC.
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 100.22% 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 those transactions by selling its
certificates to or through dealers, and those 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 various civil liabilities under the Securities Act of 1933,
as amended, or contribute to payments required to be made for the
indemnification.
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.
LEGAL MATTERS
The validity of the certificates, including material federal income tax
consequences relating to the certificates, will be passed on for the depositor
by Brown & Wood LLP, New York, New York. Brown & Wood LLP, New York, New York,
will pass on specific legal matters on behalf of the underwriter.
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<PAGE>
RATINGS
It is a condition of the issuance of the offered certificates that they
receive ratings from Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. ('S&P') and Duff & Phelps Credit Rating Co. ('DCR')
as indicated:
<TABLE>
<CAPTION>
RATING AGENCY
-------------
CLASS S&P DCR
- ----- --- ---
<S> <C> <C>
I-A-1............................................... AAA AAA
II-A-1.............................................. AAA AAA
III-A-1............................................. AAA AAA
IV-A-1.............................................. AAA AAA
V-A-1............................................... AAA AAA
I-X................................................. AAAr AAA
II-X................................................ AAAr AAA
III-X............................................... AAAr AAA
IV-X................................................ AAAr AAA
V-X................................................. AAAr AAA
III-P............................................... AAAr AAA
V-P................................................. AAAr AAA
A-R................................................. AAA AAA
D-B-1............................................... -- AA
D-B-2............................................... -- A
D-B-3............................................... -- BBB
</TABLE>
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 described 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 Class Principal Balance. The rating assigned by DCR
to the Class A-R Certificates only addresses the return of its Class Principal
Balance and interest on that class 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 that those 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 those certificates, and the extent to which the payment
stream on that mortgage pool is adequate to make payments required by those
certificates. S&P's ratings on those 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 those
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 S&P and DCR. There can be no assurance, however, as
to whether any other rating agency will rate the offered certificates or, if it
does, what rating would be assigned by that other rating agency. The rating
assigned by that other rating agency to the offered certificates could be lower
than the respective ratings assigned by the rating agencies.
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<PAGE>
PROSPECTUS
DLJ MORTGAGE ACCEPTANCE CORP.
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
MORTGAGE-BACKED NOTES
You should carefully consider the Risk Factors beginning on Page 3 in this
prospectus.
THIS PROSPECTUS TOGETHER WITH THE ACCOMPANYING PROSPECTUS SUPPLEMENT WILL
CONSTITUTE THE FULL PROSPECTUS.
THE DEPOSITOR MAY PERIODICALLY ESTABLISH TRUSTS TO
ISSUE SECURITIES IN SERIES BACKED BY MORTGAGE
COLLATERAL.
EACH TRUST WILL CONSIST PRIMARILY OF:
one or more pools of mortgage loans secured by
residential properties, loans secured by manufactured
homes, or participation interests in those loans
agency mortgage-backed securities
private mortgage-backed securities.
THE SECURITIES IN A SERIES:
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
may include multiple classes of securities with
differing payment terms and priorities
will have the benefit of credit enhancement.
The securities may be offered to the public through several different methods.
Donaldson, Lufkin & Jenrette Securities Corporation, an affiliate of DLJ
Mortgage Acceptance Corp., may act as agent or underwriter in connection with
the sale of those 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 those transactions and those 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.
March 2, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RISK FACTORS.......................... 3
IMPORTANT NOTICE ABOUT INFORMATION
PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS
SUPPLEMENT.......................... 7
DESCRIPTION OF THE SECURITIES......... 8
General........................... 8
Distributions on the Securities... 8
Categories of Classes of
Securities...................... 10
Funding Account................... 12
Optional Termination.............. 12
Book-Entry Registration........... 12
YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS...................... 13
Payment Delays.................... 13
Principal Prepayments............. 13
Timing of Reduction of Principal
Balance......................... 14
Interest or Principal Only
Securities...................... 14
Funding Account................... 14
Final Scheduled Distribution
Date............................ 14
Prepayments and Weighted Average
Life............................ 14
Other Factors Affecting Weighted
Average Life.................... 15
THE TRUST FUNDS....................... 18
Private Mortgage-Backed
Securities...................... 19
The Agency Securities............. 21
The Mortgage Loans................ 22
The Manufactured Home Loans....... 27
Collection Account and Certificate
Account......................... 28
Other Funds or Accounts........... 29
LOAN UNDERWRITING PROCEDURES AND
STANDARDS........................... 29
Underwriting Standards............ 29
Loss Experience................... 31
Representations and Warranties.... 32
SERVICING OF LOANS.................... 33
General........................... 33
Collection Procedures; Escrow
Accounts........................ 34
Deposits to and Withdrawals from
the Collection Account.......... 35
Servicing Accounts................ 36
Buy-Down Loans, GPM Loans and
Other Subsidized Loans.......... 36
Advances.......................... 37
Maintenance of Insurance Policies
and Other Servicing
Procedures...................... 37
Presentation of Claims;
Realization On Defaulted
Loans........................... 40
Enforcement of Due-On-Sale
Clauses......................... 41
Servicing Compensation and Payment
of Expenses..................... 41
Evidence as to Compliance......... 42
Matters Regarding the Master
Servicer and the Depositor...... 42
CREDIT SUPPORT........................ 44
General........................... 44
Subordinate Securities;
Subordination Reserve Fund...... 44
Overcollateralization............. 45
Cross-Support Features............ 45
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Insurance......................... 46
Letter of Credit.................. 46
Financial Guarantee Insurance..... 46
Reserve Funds..................... 47
DESCRIPTION OF MORTGAGE AND OTHER
INSURANCE........................... 47
Mortgage Insurance on the Loans... 47
Hazard Insurance on the Loans..... 51
Bankruptcy Bond................... 52
Repurchase Bond................... 52
THE AGREEMENTS........................ 52
Assignment of Mortgage Assets..... 52
Repurchase and Substitution of
Loans........................... 55
Reports to Securityholders........ 56
Investment of Funds............... 57
Event of Default and Rights In the
Case of Events of Default....... 58
The Owner Trustee................. 60
The Trustee....................... 60
Duties of the Trustee............. 60
Resignation of Trustee............ 61
Certificate Account............... 61
Expense Reserve Fund.............. 62
Amendment of Agreements........... 62
Voting Rights..................... 63
REMIC Administrator............... 63
Termination....................... 63
LEGAL ASPECTS OF LOANS................ 64
Cooperative Loans................. 64
Tax Aspects of Cooperative
Ownership....................... 65
Foreclosure on Mortgage Loans..... 66
Realizing On Cooperative Loan
Security........................ 68
Rights of Redemption.............. 69
Anti-Deficiency Legislation and
Other Limitations on Lenders.... 69
Leasehold Considerations.......... 71
Soldiers' and Sailors' Civil
Relief Act...................... 71
Junior Mortgages; Rights of Senior
Mortgagees...................... 72
Due-on-sale Clauses in Mortgage
Loans........................... 73
Enforceability of Prepayment and
Late Payment Fees............... 73
Equitable Limitations on
Remedies........................ 73
Applicability of Usury Laws....... 74
Adjustable Interest Rate Loans.... 74
Environmental Legislation......... 74
Forfeitures in Drug and RICO
Proceedings..................... 75
Negative Amortization Loans....... 75
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES........................ 76
General........................... 76
REMICs............................ 76
Notes............................. 92
STATE AND OTHER TAX CONSEQUENCES...... 93
ERISA CONSIDERATIONS.................. 93
LEGAL INVESTMENT...................... 99
LEGAL MATTERS......................... 100
THE DEPOSITOR......................... 100
USE OF PROCEEDS....................... 100
PLAN OF DISTRIBUTION.................. 101
GLOSSARY.............................. 102
</TABLE>
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RISK FACTORS
THE PROSPECTUS AND RELATED PROSPECTUS SUPPLEMENT WILL DESCRIBE THE MATERIAL
RISK FACTORS RELATED TO YOUR SECURITIES. THE SECURITIES OFFERED UNDER THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT 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 PROSPECTUS SUPPLEMENT IN THE CONTEXT OF YOUR FINANCIAL SITUATION AND
TOLERANCE FOR RISK.
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THERE IS NO SOURCE OF PAYMENTS FOR YOUR When you buy a security, you will not own an
SECURITIES OTHER THAN PAYMENTS ON THE MORTGAGE interest in or a debt obligation of DLJ Mortgage
LOANS IN THE TRUST AND ANY CREDIT ENHANCEMENT. 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.
YOU BEAR THE RISK OF MORTGAGOR DEFAULTS; SOME Because your securities are backed by the mortgage
KINDS OF MORTGAGE LOANS MAY BE ESPECIALLY PRONE loans, your investment may be affected by a decline
TO DEFAULTS. in real estate values and changes in individual
mortgagor's financial conditions. You should be
aware that the 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. 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,
several types of mortgage loans which have higher
than average rates of default or loss may be
included in the trust that issues your certificate
or note. The following types of loans may be
included:
mortgage loans that are subject to 'negative
amortization'. The principal balances of these
loans may be increased to amounts greater than the
value of the underlying property. This increases
the likelihood of default;
mortgage loans that do not fully amortize over
their terms to maturity which are sometimes
referred to as balloon loans. Balloon 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;
adjustable rate mortgage loans and other mortgage
loans that provide for escalating or variable
payments by the mortgagor. The mortgagor may have
qualified for those loans based on an income level
sufficient to make the initial payments only. As
the payments increase, the likelihood of default
will increase;
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<S> <C>
loans secured by second or more junior liens. The
cost of foreclosure on these loans compared to the
potential foreclosure proceeds, after repaying all
senior liens, may cause these loans to be
effectively unsecured; and
mortgage loans that are concentrated in one or more
regions, States or zip code areas of the United
States. Those geographic units may experience weak
economic conditions and housing markets. This may
cause higher rates of loss and delinquency.
See 'The Mortgage Pool' in the prospectus
supplement to see if any of these or other types of
special risk loans are included in the mortgage
pool applicable to your securities.
CREDIT ENHANCEMENTS MAY BE LIMITED OR REDUCED The prospectus supplement related to your
AND THIS MAY CAUSE YOUR SECURITIES TO BEAR MORE securities may specify that credit enhancements
RISK OF MORTGAGOR DEFAULTS. will provide some protection to cover various
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 of the above. See 'Credit Support' in
this prospectus. See also 'Credit Enhancement' 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:
The amount of coverage is usually limited;
The amount of coverage will usually be reduced over
time according to a schedule or formula;
The particular form of credit enhancements may
provide coverage only to some types of losses on
the mortgage loans, and not to other types of
losses;
The particular form of credit enhancements may
provide coverage only to some certificates or notes
and not other securities of the same series; and
If the applicable rating agencies believe that the
rating on the securities will not be adversely
affected, some types of credit enhancements may be
reduced or terminated.
THE RATINGS OF YOUR SECURITIES MAY BE LOWERED OR Any class of securities issued under this
WITHDRAWN, AND DO NOT TAKE INTO ACCOUNT RISKS prospectus and the accompanying prospectus
OTHER THAN CREDIT RISKS WHICH YOU WILL BEAR. supplement will be rated in one of the four highest
rating categories of at least one nationally
recognized rating agency. A rating is based on the
adequacy of the value of the trust assets and any
credit enhancement for that class, and reflects the
rating agency's assessment of how likely it is that
holders of the class of securities will receive the
payments to which they
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<TABLE>
<S> <C>
are entitled. A rating does not constitute an
assessment of how likely it is that principal
prepayments on the underlying loans will be made,
the degree to which the rate of prepayments might
differ from that originally anticipated, or the
likelihood that the securities will be redeemed
early. A rating is not a recommendation to
purchase, hold, or sell securities because it does
not address the market price of the securities or
the suitability of the securities for any
particular investor.
A rating may not remain in effect for any given
period of time and the rating agency could lower or
withdraw the rating entirely in the future. For
example, the rating agency could lower or withdraw
its rating due to:
a decrease in the adequacy of the value of the
trust assets or any related credit enhancement,
an adverse change in the financial or other
condition of a credit enhancement provider, or
a change in the rating of the credit enhancement
provider's long-term debt.
The amount, type, and nature of credit enhancement
established for a class of securities will be
determined on the basis of criteria established by
each rating agency rating classes of the
securities. These criteria are sometimes based on
an actuarial analysis of the behavior of similar
loans in a larger group. That analysis is often the
basis on which each rating agency determines the
amount of credit enhancement required for a class.
The historical data supporting any actuarial
analysis may not accurately reflect future
experience, and the data derived from a large pool
of similar loans may not accurately predict the
delinquency, foreclosure, or loss experience of any
a particular pool of mortgage loans.
YOUR YIELD MAY BE REDUCED DUE TO THE OPTIONAL DLJ Mortgage Acceptance Corp., the master servicer
REDEMPTION OF THE SECURITIES OR THE OPTIONAL or another entity may elect to repurchase all of
REPURCHASE OF UNDERLYING MORTGAGE LOANS. the assets of the trust if the aggregate
outstanding principal balance of those assets is
less than a percentage of their initial outstanding
principal amount specified in the prospectus
supplement. This kind of 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 those series.
See 'Yield, Prepayment and Maturity Considerations'
in this prospectus and in the accompanying
prospectus supplement.
THE YIELD, MARKET PRICE, RATING AND LIQUIDITY OF A trust may include one or more financial
YOUR SECURITIES MAY BE REDUCED IF THE PROVIDER instruments including interest rate or other swap
OF ANY FINANCIAL INSTRUMENT DEFAULTS OR IS agreements and interest rate cap or floor
DOWNGRADED. agreements. These financial instruments provide
protection against some types of risks or provide
specific cashflow characteristics for one or more
classes of a series. The protection or benefit to
be provided by any specific financial instrument
will be dependent on, among other things, the
credit strength of the provider of that financial
instrument. If that provider were to be unable or
unwilling to perform its obligations
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5
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<S> <C>
under the financial instrument, the securityholders
of the applicable class or classes would bear that
credit risk. This could cause a material adverse
effect on the yield to maturity, the rating or the
market price and liquidity for that class. For
example, suppose a financial instrument is designed
to cover the risk that the interest rates on the
mortgage assets that adjust based on one index will
be less than the interest rate payable on the
securities based on another index. If that
financial instrument does not perform, then the
investors will bear basis risk, or the risk that
their yield will be reduced if the first index
declines relative to the second. Even if the
provider of a financial instrument performs its
obligations under that financial instrument, a
withdrawal or reduction in a credit rating assigned
to that provider may adversely affect the rating or
the market price and liquidity of the applicable
class or classes of securities.
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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:
this prospectus, which provides general information, some of which may not
apply to your series of securities; and
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 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 definitions for capitalized terms used in this
prospectus under the caption 'Glossary' beginning on page 102.
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DESCRIPTION OF THE SECURITIES
GENERAL
The securities will be issued in one or more series. Each series of
certificates will be issued under separate pooling and servicing agreements
among the depositor, the master servicer and the trustee for the related series
identified in the related prospectus supplement. Each series of notes will be
issued under separate indentures between the related issuer and the trustee for
the related series identified in the related prospectus supplement. The trust
for each series of notes will be created under an owner trust agreement between
the depositor and the owner trustee. The following summaries describe provisions
common to each series. The summaries do not purport to be complete, but together
with the related prospectus supplement they describe the material provisions of
the agreements relating to each series.
Each series will consist of one or more classes of securities, one or more
of which may consist of accrual securities, floating rate securities, interest
only securities or principal only securities. A series may also include one or
more classes of subordinate securities. A class of subordinate securities will
be offered by this prospectus and by the related prospectus supplement, as
specified, only if rated by a rating agency in at least its fourth highest
applicable rating category. If stated in the related prospectus supplement, the
mortgage assets in a trust may be divided into multiple groups of individual
mortgage assets, or asset groups, which share similar characteristics. These
mortgage assets are aggregated into separate groups and the securities of each
separate class will evidence beneficial ownership of, or be secured by, each
corresponding asset group.
The securities for each series will be issued in fully registered form, in
the minimum original principal amount, notional amount or percentage interest
specified in the related prospectus supplement. The transfer of the securities
may be registered, and the securities may be exchanged, without the payment of
any service charge payable in connection with the registration of transfer or
exchange. However, 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 stated in the related prospectus
supplement, one or more classes of a series may be available in book-entry form
only.
DISTRIBUTIONS ON THE SECURITIES
Commencing on the date specified in the related prospectus supplement,
distributions of principal and interest on the securities will be made on each
distribution date to the extent of the Available Distribution Amount as
described 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,
for floating rate securities, determined in the manner described in the related
prospectus supplement. Interest on the securities will, be calculated as
described 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 that series registered on the close
of business on the record date specified in the related prospectus supplement at
their addresses appearing on the security register. However, distributions may
be made by wire transfer in the circumstances described in the related
prospectus supplement, and the final distribution in retirement of a security
will be made only on presentation and surrender of that security at the
corporate trust office of the trustee for that series or another office of the
trustee as specified in the prospectus supplement. If specified in the related
prospectus supplement, the securities of a series or some classes of a series
may be available only in book-entry form. See 'Book-Entry Registration' in this
prospectus.
For information regarding reports to be furnished to securityholders
concerning a distribution, see 'The Agreements -- Reports to Securityholders.'
Single Class Series. For a series other than a multiple class series,
distributions on the securities on each distribution date will, in most cases,
be allocated to each security entitled to those distributions on the basis of
the undivided percentage interest evidenced by that security in the trust 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 related securities
may also vary, due to changes in those rates and due to prepayments on 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 related securities
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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 related
securities may also reflect those caps.
Multiple Class Series. Each security of a multiple class series will have a
principal amount or a notional amount and a specified security interest rate,
which may be zero. Interest distributions on a multiple class series will be
made on each security entitled to an interest distribution on each distribution
date at the security interest rate specified or. For floating rate securities,
interest distributions will be 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' and 'Credit Support'
in this prospectus.
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'
and 'Credit Support' in this prospectus. Distributions of interest on a class of
accrual securities will commence only after the related Accrual Termination
Date. On each distribution date prior to and including the Accrual Termination
Date, interest on the class of accrual securities will accrue and the amount of
interest accrued on that distribution date will be added to the principal
balance of that class on the related distribution date. On each distribution
date after the Accrual Termination Date, interest distributions will be made on
classes of accrual securities on the basis of the current principal balance of
that class.
The securities of a multiple class series may include one or more classes of
floating rate securities. The security interest rate of a floating rate security
will be a variable or adjustable rate, subject to a maximum floating rate, a
minimum floating rate, or both. For each class of floating rate securities, the
related prospectus supplement will describe the initial floating rate or the
method of determining it, the interest accrual period, and the formula, index,
or other method by which the floating rate will be determined.
A series may include one or more classes of interest only securities,
principal only securities, or both. Payments received from the mortgage assets
will be allocated on the basis of the interest of each class in the principal
component of the distributions, the interest component of the distributions, or
both. Those distributions will be further allocated on a pro rata basis among
the securities within each class.
In the case of a multiple class series, the timing, sequential order,
priority of payment or amount of distributions of principal, and any schedule or
formula or other provisions applicable to any of those determinations for each
class of securities shall be as described 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 on
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.
Subordinate Securities. One or more classes of a series may consist of
subordinate securities. Subordinate securities may be included in a series to
provide credit support as described in this prospectus 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 with separate classes of
securities, 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. Subordinate securities will not be offered by this prospectus
or by the related prospectus supplement unless they are rated in one of the four
highest rating categories by at least one rating agency. As to any series of
notes, the equity certificates, insofar as they represent the beneficial
ownership interest in the issuer, will be subordinate to the related notes.
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CATEGORIES OF CLASSES OF SECURITIES
In general, classes of pass-through securities fall into different
categories. The following chart identifies and describes some typical
categories. The prospectus supplement for a series of securities may identify
the classes which comprise the series by reference to the following categories.
<TABLE>
<CAPTION>
DESCRIPTION
CATEGORIES OF CLASSES PRINCIPAL TYPES
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<S> <C>
Accretion directed........................... A class that receives principal payments from the accreted
interest from specified accrual classes. An accretion directed
class also may receive principal payments from principal paid on
the underlying mortgage assets or other assets of the trust fund
for the related series.
Component securities......................... A class consisting of 'components.' The components of a class of
component securities may have different principal and interest
payment characteristics but together constitute a single class.
Each component of a class of component securities may be
identified as falling into one or more of the categories in this
chart.
Notional amount securities................... A class having no principal balance and bearing interest on the
related notional amount. The notional amount is used for
purposes of the determination of interest distributions.
Planned principal class or PACs.............. A class that is designed to receive principal payments using a
predetermined principal balance schedule derived by assuming two
constant prepayment rates for the underlying mortgage assets.
These two rates are the endpoints for the 'structuring range'
for the planned principal class. The planned principal classes
in any series of securities may be subdivided into different
categories, for example, primary planned principal classes,
secondary planned principal classes and so forth, having
different effective structuring ranges and different principal
payment priorities. The structuring range for the secondary
planned principal class of a series of securities will be
narrower than that for the primary planned principal class of
the series.
Scheduled principal class.................... A class that is designed to receive principal payments using a
predetermined principal balance but is not designated as a
planned principal class or targeted principal class. In many
cases, the schedule is derived by assuming two constant
prepayment rates for the underlying mortgage assets. These two
rates are the endpoints for the 'structuring range' for the
scheduled principal class.
Sequential pay............................... Classes that receive principal payments in a prescribed
sequence, that do not have predetermined principal balance
schedules and that under all circumstances receive payments of
principal continuously from the first distribution date on which
they receive principal payments before or after all other
classes in the same series of securities may be identified as a
sequential pay class.
Strip........................................ A class that receives a constant proportion, or 'strip,' of the
principal payments on the underlying mortgage assets or other
assets of the trust fund.
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<TABLE>
<CAPTION>
DESCRIPTION
CATEGORIES OF CLASSES PRINCIPAL TYPES
--------------------- ---------------
<S> <C>
Support class (also sometimes referred to as
'companion classes')....................... A class that receives principal payments on any
distribution date only if scheduled payments have
been made on specified planned principal classes,
targeted principal classes or scheduled principal
classes.
Targeted principal class or TACs............. A class that is designed to receive principal
payments using a predetermined principal balance
schedule derived by assuming a single constant
prepayment rate for the underlying mortgage assets.
<CAPTION>
INTEREST TYPES
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<S> <C>
Lockout...................................... A senior class that does not receive principal payments for a
specific period of time.
Fixed rate................................... A class with an interest rate that is fixed throughout the
life of the class.
Floating rate................................ A class with an interest rate that resets periodically based
on a designated index and that varies inversely with changes
in the index.
Inverse floating rate........................ A class with an interest rate that resets periodically based
on a designated index that varies directly with changes in
the index.
Variable rate................................ A class with an interest rate that resets periodically and is
calculated by reference to the rate or rates of interest
applicable to specified assets or instruments, for example,
the mortgage rates borne by the underlying mortgage loans.
Interest only................................ A class that receives some or all of the interest payments
made on the underlying mortgage assets or other assets of the
trust fund and little or no principal. Interest only classes
have either a nominal principal balance or a notional amount.
A nominal principal balance represents actual principal that
will be paid on the class. It is referred to as nominal since
it is extremely small compared to other classes. A notional
amount is the amount used as a reference to calculate the
amount of interest due on an interest only class that is not
entitled to any distributions of principal.
Principal only............................... A class that does not bear interest and is entitled to
receive only distributions of principal.
Partial accrual.............................. A class that accretes a portion of the amount of accrued
interest on it, which amount will be added to the principal
balance of the class on each applicable distribution date,
with the remainder of the accrued interest to be distributed
currently as interest on the class. The accretion may
continue until a specified event has occurred or until the
partial accrual class is retired.
Accrual...................................... A class that accretes the amount of accrued interest
otherwise distributable on the class, which amount will be
added as principal to the principal balance of the class on
each applicable distribution date. The accretion may continue
until some specified event has occurred or until the accrual
class is retired.
</TABLE>
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FUNDING ACCOUNT
The related agreement may provide for the transfer by the seller of
additional loans to the related trust after the closing date. The additional
loans will be required to conform to the requirements described in the related
prospectus supplement. As specified in the related prospectus supplement, the
transfer may be funded by the establishment of 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 of principal will be deposited in that account to be released as
additional loans are transferred. In most cases, all amounts deposited in a
Funding Account will be required to be invested in eligible investments, as
described under 'The Agreements -- Investment of Funds' in this prospectus. The
amount held in those eligible investments shall at no time exceed 25% of the
aggregate outstanding principal balance of the securities. The related agreement
or other agreement providing for the transfer of additional loans will provide
that all those transfers must be made within 3 months after the closing date.
Amounts set aside to fund those 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 described in that
prospectus supplement. A Funding Account can affect the application of the
requirements under ERISA. See 'ERISA Considerations.'
OPTIONAL TERMINATION
The depositor, the master servicer, or another entity designated in the
related prospectus supplement may have the option to cause an early termination
of a trust. This would be effected by repurchasing all of the mortgage assets
from that trust on or after a date specified in the related prospectus
supplement, or on or after that time as the aggregate outstanding principal
amount of the mortgage assets is less than their initial aggregate principal
amount times a percentage, not greater than 25%, stated in the related
prospectus supplement. The repurchase price will be at least equal to the entire
unpaid principal balance, plus accrued and unpaid interest, of the securities
that are the subject of that optional termination. In the case of a trust 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 Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. See
'The Agreements -- Termination.'
In addition to the optional repurchase of the property in the related trust,
a holder of the Call Class may have the right, solely at its discretion, to
terminate the related trust and by that termination effect early retirement of
the certificates of the series, on any distribution date after the 12th
distribution date following the date of initial issuance of the related series
of certificates and until the date when the optional termination rights of the
master servicer and the depositor become exercisable. The Call Class will not be
offered under the prospectus supplement. That call will be of the entire trust
at one time; multiple calls as to any series of certificates will not be
permitted. In the case of a call, the holders of the certificates will be paid a
price equal to the Call Price. To exercise the call, the Call Class
certificateholder must remit to the related trustee for distribution to the
certificateholders, funds equal to the Call Price. If those funds are not
deposited with the related trustee, the certificates of that series will remain
outstanding. In addition, in the case of a trust for which a REMIC election or
elections have been made, this termination will be effected in a manner
consistent with applicable Federal income tax regulations and its status as a
REMIC. In connection with a call by the Call Class certificateholder, the final
payment to the certificateholders will be made on surrender of the related
certificates to the trustee. Once the certificates have been surrendered and
paid in full, there will not be any further liability to certificateholders.
In the event of an optional termination as described in the preceding two
paragraphs, the trust and the securityholders will have no continuing liability
as sellers of assets of the trust fund.
BOOK-ENTRY REGISTRATION
The securities may be issued in book-entry form in the minimum denominations
specified in the prospectus supplement and integral multiples of those minimum
denominations. Each class will be represented by a single security registered in
the name of the nominee of The Depository Trust Company, or DTC, a
limited-purpose trust company organized under the laws of the State of New York.
In most cases, a securityowner will be entitled to receive a security issued in
fully registered, certificated form, or definitive security, representing that
person's interest in the securities only if the book-entry system for the
securities is discontinued, as described in
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the fifth paragraph 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. Securityowners will only be
permitted to exercise the rights of securityholders indirectly through DTC
participants. For 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 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 other organizations. Indirect access to the DTC
system also is available to indirect participants, entities that clear through
or maintain a custodial relationship with a participant.
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 that owner's security to persons or entities that do not participate
in the DTC system, or otherwise take actions relating to that security, may be
limited. In addition, under a book-entry format, securityowners may experience
some delay in their receipt of principal and interest distributions on the
securities since those distributions will be forwarded to DTC and DTC will then
forward those distributions to its participants which in turn will forward them
to indirect participants or securityowners.
Under DTC rules, DTC participants may make book-entry transfers among
participants through DTC facilities for the securities. DTC, as registered
holder, is required to receive and transmit principal and interest distributions
and distributions on the securities. Participants and indirect participants with
which securityowners have accounts for securities similarly are required to make
book-entry transfers and receive and transmit those distributions on behalf of
their respective securityowners. Accordingly, although securityowners will not
possess certificates or notes, the DTC 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 those actions for
holders of a specified interest in the certificates or notes or holders having a
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 as to other holders of securities to the extent that
those 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 for the
securities at any time by giving reasonable notice to the depositor or the
trustee. Under those 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
For any series, a period of time will elapse between receipt of payments or
distributions on the mortgage assets and the distribution date on which those
payments or distributions are passed through to securityholders. This 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 describe an example of the timing of receipts and the
distribution of those receipts to securityholders.
PRINCIPAL PREPAYMENTS
For a series for which the mortgage assets consist of loans or participation
interests in those loans, when a loan prepays in full, the borrower will in most
cases 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
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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 for those prepaid loans.
See 'Servicing of Loans -- Advances and Limitations.'
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 on those
securities is actually distributed. Consequently, the amount of interest accrued
during any Interest Accrual Period will be less than the amount that would have
accrued on the actual principal balance of the security outstanding. The effect
of those 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 those 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 ONLY SECURITIES
A lower rate of principal prepayments than anticipated will negatively
affect the yield to investors in principal only securities, and a higher rate of
principal prepayments than anticipated will negatively affect the yield to
investors in interest only securities. The prospectus supplement for a series
including those securities will include a table showing the effect of various
levels of prepayment on yields on those securities. The 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, as described under 'Description of the Securities -- Funding
Account' in this prospectus, and the trust is unable to acquire those additional
loans within any applicable time limit, the amounts set aside for that purpose
may be applied as principal payments on one or more classes of securities of
that 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. 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 the related series, on which the aggregate
principal balance of that 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 that
security will be repaid to the investor. The weighted average life of the
securities of a series will be influenced by the rate at which principal on the
loans comprising or underlying the mortgage assets for those securities is paid,
which may be in the form of scheduled amortization or prepayments. For this
purpose, prepayments include those prepayments made in whole or in part, and
liquidations due to default.
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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 most cases, 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, those loans are
likely to prepay at rates higher than if prevailing interest rates remain at or
above the interest rates borne by those 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 some of the mortgage assets or the security interest rate on the securities
may be a number of percentage points less than interest rates on those 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 CPR prepayment model or the 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 those 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 those loans in the first month of the life of the loans and
an additional 0.2% per annum in each month after that month until the thirtieth
month. Beginning in the thirtieth month and in each month after that month
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 showing the
weighted average life of each class of that 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 that series that
would be outstanding on specified distribution dates for that series based on
the assumptions stated in that 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 other
rates specified in that prospectus supplement. The tables and assumptions are
intended to illustrate the sensitivity of weighted average life of the
securities to various prepayment rates. They 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. Some types of loans may experience a rate of principal
prepayments which is different from the principal prepayment rate for
conventional fixed rate loans or from other adjustable rate loans. These
include:
Additional Collateral Loans,
ARM loans,
Balloon Loans,
Bi-Weekly Loans,
GEM Loans,
GPM Loans, or
Buy-Down Loans
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In the case of negatively amortizing ARM loans, if interest rates rise
without a simultaneous increase in the related scheduled payment, deferred
interest and negative amortization may result. However, borrowers may pay
amounts in addition to their scheduled payments in order to avoid that negative
amortization and to increase tax deductible interest payments. To the extent
that any of those mortgage loans negatively amortize over their respective
terms, future interest accruals are computed on the higher outstanding principal
balance of that 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 those 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,
resulting in accelerated amortization of that negatively amortizing ARM loan.
This acceleration in amortization of the principal balance of any negatively
amortizing ARM loan will shorten the weighted average life of that mortgage
loan. The application of partial prepayments to reduce the outstanding principal
balance of a negatively amortizing ARM loan 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
only class.
If the loans comprising or underlying the mortgage assets for a series
include ARM loans that permit the borrower to convert to a long-term fixed
interest rate loan if specified in the related prospectus supplement, some
entity may be obligated to repurchase any loan so converted. This 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 those
mortgage loans, including Additional Collateral Loans, that require Balloon
Payments may default at maturity, or that the maturity of those mortgage loans
may be extended in connection with a workout. Based on the amortization schedule
of those mortgage loans, the Balloon Payment is expected to be the entire or a
substantial amount of the original principal balance. Payment of the Balloon
Payment will usually depend on the mortgagor's ability to obtain refinancing of
those mortgage loans, to sell the mortgaged property prior to the maturity of
the Balloon Loan or to otherwise have sufficient funds to pay that 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.
In most cases, 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 for manufactured home loans will, in most cases,
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 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 and that of the related series of securities. Servicing
decisions made relating 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 on 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 only 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 various
transfers of the mortgaged property securing a loan is another factor affecting
prepayment rates. Most types of mortgage loans may include
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'due-on-sale' clauses. In most cases, 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 applicable 'due-on-sale' clause in the manner it
enforces those clauses on other similar loans in its portfolio. 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 usually 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. The entity specified in the related prospectus
supplement may cause an early termination of the related trust by its repurchase
of the remaining mortgage assets in that trust. See 'Description of the
Securities -- Optional Termination.'
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THE TRUST FUNDS
The trust for each series will be held by the trustee for the benefit of the
related securityholders. Each trust will consist of:
the mortgage assets;
amounts held from time to time in the Collection Account and the
Certificate Account established for that series;
mortgaged property;
any reserve fund for that series, if specified in the related prospectus
supplement;
the subservicing agreements, if any, relating to loans in the trust;
any primary mortgage insurance policies relating to loans in the trust;
any pool insurance policy, any special hazard insurance policy, any
bankruptcy bond or other credit support relating to the series;
eligible investment of funds held in any Eligible Account of the trust, or
any guaranteed investment contract for the investment of those funds; and
any other instrument or agreement relating to the trust and described 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;
Some of the items listed above may be held outside of the trust. The value of
any guaranteed investment contract held by a trust will not exceed 10% of the
total assets of the trust.
Any Retained Interests which are received on a private mortgage-backed
security or loan comprising the mortgage assets for a series will not be
included in the trust for that series. Instead, that Retained Interest will be
retained by or payable to the originator, servicer or seller of that private
mortgage-backed security or loan, free and clear of the interest of
securityholders under the related agreement.
Mortgage assets in the trust for a series may consist of any combination of
the following to the extent and as specified in the related prospectus
supplement:
private mortgage-backed securities;
mortgage loans or participation interests in those mortgage loans and
manufactured home loans or participation interests in those manufactured
home loans; or
Agency Securities.
As of the closing date, no more than 5% of the loans or securities, as
applicable, relative to the aggregate asset pool balance, will deviate from the
characteristics of the loans or securities as described in the prospectus
supplement. 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, under a participation
agreement. See 'The Agreements -- Assignment of Mortgage Assets.'
Any mortgage securities underlying any certificates will (i) either
(a) have been previously registered under the Securities Act, or (b) will be
eligible for sale under Rule 144(k) under the Securities Act, and (ii) will be
acquired in secondary market transactions from persons other than the issuer or
its affiliates. Alternatively, if the mortgage securities were acquired from
their issuer or its affiliates, or were issued by the depositor or any of its
affiliates, then the mortgage securities will be registered under the Securities
Act at the same time as the certificates.
Each trust will be established under either a pooling and servicing
agreement, or an owner trust agreement, that limits the activities of the trust
to those necessary or incidental to the securities. Each trust will issue only
one series of securities, and will not be authorized to incur other obligations.
As a result of the limited purpose and activities of each trust, the possibility
that any trust will be involved in a bankruptcy proceeding is remote. At the
time that each series of securities is issued, the issuer will deliver an
opinion of counsel, acceptable to the rating agencies rating the series,
addressing the effect on the trust of the bankruptcy of the depositor, or of the
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transferor of the trust's assets to the depositor. That opinion will state that
in the event of that bankruptcy, the assets of the trust would not be treated as
property of the depositor or the transferor and therefore would not be subject
to an automatic stay in those bankruptcy proceedings.
PRIVATE MORTGAGE-BACKED SECURITIES
General. Private mortgage-backed securities may consist of:
mortgage pass-through certificates, evidencing an undivided interest in a
pool of loans;
collateralized mortgage obligations secured by loans; or
pass-through certificates representing beneficial interests in Agency
Securities.
Private mortgage-backed securities will have been issued under a private
mortgage-backed securities agreement, or PMBS agreement. The seller/servicer of
the underlying loans will have entered into the PMBS agreement with the private
mortgage-backed securities trustee, or PMBS trustee. The PMBS trustee or its
agent, or a custodian, will possess the loans underlying that private
mortgage-backed security. Loans underlying a private mortgage-backed security
will be serviced by 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 Fannie Mae- or Freddie Mac-approved servicer and, if FHA loans
underlie the private mortgage-backed securities, approved by HUD as a FHA
mortgagee.
The private mortgage-backed securities issuer, or PMBS issuer, will be a
financial institution or other entity engaged 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
those trusts, and selling beneficial interests in those trusts. In some cases,
the PMBS issuer may be the depositor or an affiliate of the depositor. The
obligations of the PMBS issuer will, in most case, be limited to various
representations and warranties relating to the assets conveyed by it to the
related trust. In most cases, 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 specified 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,
ARM loans, or
loans having other special payment features.
Loans may be secured by single family property which is property consisting of
one- to four-family attached or detached residential housing including
Cooperative Dwellings, 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. The
following criteria apply to most loans:
no loan will have had a Loan-to-Value Ratio, or LTV ratio, at origination in
excess of 95%,
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each mortgage loan secured by single family property and having a LTV ratio in
excess of 80% at origination will be covered by a primary mortgage insurance
policy,
each loan will have had an original term to stated maturity of not less than
10 years and not more than 40 years,
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,
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
each loan, other than a Cooperative Loan or a loan secured by a manufactured
home, will be covered by a title insurance policy.
Credit Support Relating to Private Mortgage-Backed Securities. Credit
support in the form of reserve funds, subordination of other private mortgage
certificates issued under the PMBS agreement, overcollateralization, letters of
credit, insurance policies or other types of credit support may be provided for
the loans underlying the private mortgage-backed securities or for the private
mortgage-backed securities themselves. The type, characteristics and amount of
credit support, if any, will be a function of various 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 includes private mortgage-backed securities will specify:
the aggregate approximate principal amount and type of the private
mortgage-backed securities to be included in the trust;
various characteristics of the loans which comprise the underlying assets
for the private mortgage-backed securities including:
the payment features of those loans, i.e., whether they are fixed rate or
adjustable rate and whether they provide for fixed level payments or other
payment features;
the approximate aggregate principal balance, if known, of underlying loans
insured or guaranteed by a governmental entity;
the servicing fee or range of servicing fees for the loans; and
the minimum and maximum stated maturities of the underlying loans at
origination;
the maximum original term-to-stated maturity of the private mortgage-backed
securities;
the weighted average term-to-stated maturity of the private mortgage-backed
securities;
the note interest rate, pass-through or certificate rate or ranges of those
rates for the private mortgage-backed securities;
the weighted average note interest rate, pass-through or certificate rate
of the private mortgage-backed securities;
the PMBS issuer, the PMBS servicer, if other than the PMBS issuer, and the
PMBS trustee for those private mortgage-backed securities;
various 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 the private
mortgage-backed securities themselves;
the terms on which the underlying loans for those 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
the terms on which loans may be substituted for those originally underlying
the private mortgage-backed securities.
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THE AGENCY SECURITIES
All of the Agency Securities will be registered in the name of the trustee
or its nominee or, in the case of Agency Securities issued only in book-entry
form, a financial intermediary, which may be the trustee, that is a member of
the Federal Reserve System or of a clearing corporation on the books of which
the security is held. Each Agency Security will evidence an interest in a pool
of mortgage loans and/or cooperative loans and/or in principal distributions and
interest distributions on those loans. All of the Agency Securities in a trust
will be issued or guaranteed by the United States or a United States
government-sponsored agency.
The descriptions of GNMA, Freddie Mac and Fannie Mae Certificates that are
presented in the remaining paragraphs of this subsection are descriptions of
certificates representing proportionate interests in a pool of mortgage loans
and in the payments of principal and interest on those loans. GNMA, Freddie Mac
or Fannie Mae 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
those issuers may issue certificates representing interests in mortgage loans
having characteristics that are different from the types of mortgage loans
described under 'The Mortgage Loans' in this prospectus. The terms of any of
those certificates to be included in a trust 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 of those certificates that are actually included in a trust.
GNMA. The Government National Mortgage Association, or GNMA, is a
wholly-owned corporate instrumentality of the United States within the United
States Department of Housing and Urban Development, or HUD. Section 306(g) of
Title III of the National Housing Act of 1934, as amended, or 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 either:
insured by the Federal Housing Administration, or the FHA, under the
Housing Act or under Title V of the Housing Act of 1949, or
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 that 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. In most cases, 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 for 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 for a series of certificates will
be described in the related prospectus supplement.
Freddie Mac. The Federal Home Loan Mortgage Corporation, or Freddie Mac, is
a corporate instrumentality of the United States created under Title III of the
Emergency Home Finance Act of 1970, as amended, or the FHLMC Act. Freddie Mac
was established primarily for the purpose of increasing the availability of
mortgage credit for the financing of needed housing. The principal activity of
Freddie Mac currently consists of purchasing first-lien, conventional,
residential mortgage loans or participation interests in those mortgage loans
and reselling the mortgage loans so purchased in the form of guaranteed mortgage
securities, primarily Freddie Mac certificates. In 1981, Freddie Mac initiated
its Home Mortgage Guaranty Program under which it purchases mortgage loans from
sellers with Freddie Mac certificates representing interests in the mortgage
loans so purchased. All mortgage loans purchased by Freddie Mac must meet
various standards presented in the FHLMC Act. Freddie Mac is confined to
purchasing, so far as practicable, mortgage loans that it deems to be of that
quality and type as to meet most of the purchase standards imposed by private
institutional mortgage investors. See 'Additional Information' for the
availability of further information
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regarding Freddie Mac and Freddie Mac certificates. Neither the United States
nor any agency of the United States is obligated to finance Freddie Mac's
operations or to assist Freddie Mac in any other manner.
Freddie Mac Certificates. In most cases, each Freddie Mac 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 Freddie Mac, except for any stripped mortgage-backed
securities issued by Freddie Mac. That pool will consist of mortgage loans:
substantially all of which are secured by one- to four-family residential
properties or
if specified in the related prospectus supplement, are secured by five or
more family residential properties.
The characteristics of any Freddie Mac certificates included in the trust
for a series of certificates will be described in the related prospectus
supplement.
Fannie Mae. The Federal National Mortgage Association, or Fannie Mae, 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. Fannie
Mae 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. Fannie Mae provides funds to the mortgage market primarily by purchasing
home mortgage loans from local lenders, replenishing their funds for additional
lending. See 'Additional Information' for the availability of further
information regarding Fannie Mae and Fannie Mae certificates. Although the
Secretary of the Treasury of the United States has authority to lend Fannie Mae
up to $2.25 billion outstanding at any time, neither the United States nor any
agency of the United States is obligated to finance Fannie Mae's operations or
to assist Fannie Mae in any other manner.
Fannie Mae Certificates. In most cases, each Fannie Mae certificate relating
to a series will represent a fractional undivided interest in a pool of mortgage
loans formed by Fannie Mae, except for any stripped mortgage-backed securities
issued by Fannie Mae. Mortgage loans underlying Fannie Mae certificates will
consist of:
fixed, variable or adjustable rate conventional mortgage loans or
fixed-rate FHA loans or VA loans.
Those mortgage loans may be secured by either one- to four-family or
multi-family residential properties. The characteristics of any Fannie Mae
certificates included in the trust for a series of certificates will be
described in the related prospectus supplement.
THE MORTGAGE LOANS
The trust for a series may consist of mortgage loans or participation
interests in those mortgage loans. The mortgage loans may have been originated
by mortgage lenders which are Fannie Mae- or Freddie Mac-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
FHA loans which are fixed rate housing loans secured by the FHA, or VA loans
which are housing loans partially guaranteed by the Department of Veteran
Affairs, or the VA, or conventional loans which are 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
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mortgage loans with other payment characteristics as described under 'The
Mortgage Loans' in this prospectus or in the related prospectus
supplement.
ARM loans may have a feature which permits the borrower to convert the rate on
those ARM loans to a long-term fixed rate. The mortgage loans may be secured by
mortgages or deeds of trust or other similar security instruments creating a
first lien or a junior lien on mortgaged property. The mortgage loans may also
include Cooperative Loans evidenced by promissory notes secured by a lien on the
shares issued by private, non-profit, cooperative housing corporations and on
the related proprietary leases or occupancy agreements granting exclusive rights
to occupy specific Cooperative Dwellings. The mortgage loans may also include
condominium loans secured by a mortgage on a condominium unit together with that
condominium unit's appurtenant interest in the common elements.
The mortgaged properties may include single family property including:
detached individual dwellings,
individual condominiums,
townhouses,
duplexes,
row houses,
individual units in planned unit developments and
other attached dwelling units.
Each single family 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 on 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 in most cases 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 that tenant-stockholder. See 'Legal Aspects of Loans.'
If stated in the related prospectus supplement, some of the mortgage pools
may contain mortgage loans secured by junior liens, and the related senior liens
may not be included in the mortgage pool. The primary risk to holders of
mortgage loans secured by junior liens is the possibility that adequate funds
will not be received in connection with a foreclosure of the related senior
liens to satisfy fully both the senior liens and the mortgage loan. In the event
that a holder of a senior lien forecloses on a mortgaged property, the proceeds
of the foreclosure or similar sale will be applied:
first to the payment of court costs and fees in connection with the
foreclosure,
second to real estate taxes,
third in satisfaction of all principal, interest, prepayment or
acceleration penalties, if any, and
fourth, 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 those proceeds are
sufficient, before the trust as holder of the junior lien receives any payments
on 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 that sale, a bidder at the
foreclosure sale of that 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 those
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, as the holder of the junior lien, and, accordingly,
holders of one or more classes of the securities bear the risk of delay in
distributions while a deficiency judgment against the borrower is obtained and
the risk of loss if the deficiency judgment is not collected. Moreover,
deficiency judgments may not be available in some jurisdictions. In addition, a
junior
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mortgagee may not foreclose on the property securing a junior mortgage unless it
forecloses subject to the senior mortgages.
Liquidation expenses for 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 on 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 will contain
Additional Collateral Loans. In most cases, the security agreements and other
similar security instruments related to the Additional Collateral for the loans
in a trust will, in the case of Additional Collateral consisting of personal
property, create first liens on that personal property, and, in the case of
Additional Collateral consisting of real estate, create first or junior liens on
that Additional Collateral. Additional Collateral, or the liens on that
Additional Collateral in favor of the related Additional Collateral Loans, may
be greater or less in value than the principal balances of those Additional
Collateral Loans, the appraised values of the underlying mortgaged properties or
the differences, if any, between those principal balances and those appraised
values. The requirements that Additional Collateral be maintained may be
terminated in the case of the reduction of the LTV Ratios or principal balances
of the related Additional Collateral Loans to pre-determined amounts. In most
cases, appraised value means:
For mortgaged property securing a single family property, the lesser of:
the appraised value determined in an appraisal obtained at origination of
the related mortgage loan, if any, or, if the related mortgaged property
has been appraised subsequent to origination, the value determined in that
subsequent appraisal, and
the sales price for the related mortgaged property, except in
circumstances in which there has been a subsequent appraisal;
For refinanced, modified or converted mortgaged property, the lesser of:
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
the sales price of the related mortgaged 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
For 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.
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, 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 includes Additional Collateral Loans, the
related prospectus supplement will specify the nature and extent of that
Additional Collateral Loans and of the related Additional Collateral. If
specified in that prospectus supplement, the trustee, on behalf of the related
securityholders, will have only the right to receive various proceeds from the
disposition of that Additional Collateral consisting of personal property and
the liens on that personal property 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 'Legal Aspects of Loans -- Anti-Deficiency
Legislation and Other Limitations on Lenders' in this prospectus.
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Additional Collateral Loans may include:
DLJdirect ACCOUNT POWER'TM' 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
DLJdirect FAMILY POWER'TM' 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.
Additional Collateral Loans may also include Nest Egg Mortgage Loanssm.
Those 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 that initial
period, the mortgagor will continue to make interest-only payments on the
mortgage loan until the final scheduled payment on that 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. In most cases, 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:
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
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 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. In most cases, the following selection criteria shall
apply for the mortgage loans comprising the mortgage assets:
no mortgage loan will have had a LTV ratio at origination in excess of 95%;
no mortgage loan that is a conventional loan secured by a single family
property may have a LTV ratio in excess of 80%, unless covered by a primary
mortgage insurance policy as described in this prospectus;
each mortgage loan must have an original term to maturity of not less than
10 years and not more than 40 years;
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
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 for the mortgaged property securing that
mortgage loan.
Each mortgage loan will be selected by the depositor for inclusion in a
trust 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 but were not selected for inclusion in that
trust.
The mortgage loans to be included in a trust will, in most cases, be
acquired by the depositor under a Designated Seller Transaction. Those
securities may be sold in whole or in part to seller in exchange for the related
mortgage loans, or may be offered under any of the other methods described in
this prospectus under 'Plan of Distribution.' The related prospectus supplement
for a trust composed of mortgage loans acquired by the depositor under a
Designated Seller Transaction will in most cases 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 as to that mortgage loan, or any representation as to the accuracy
or completeness of
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that information provided by the seller and no assurances are made as to that
seller's financial strength, stability or wherewithal to honor its repurchase
obligations for breaches of representations and warranties or otherwise honor
its obligations.
The depositor will not require that a standard hazard or flood insurance
policy be maintained for any Cooperative Loan. In most cases, 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 that
insurance or do not maintain adequate coverage or any insurance proceeds are not
applied to the restoration of the damaged property, damage to that borrower's
Cooperative Dwelling or that cooperative's building could significantly reduce
the value of the collateral securing that Cooperative Note.
The initial LTV 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 that mortgaged property.
In most cases, for Buy-Down Loans, during the Buy-Down Period when the
borrower is not obligated to pay the full scheduled payment otherwise due on
that loan, each of the Buy-Down Loans will provide for scheduled payments based
on 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. The 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. 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 some Buy-Down Loans, while those Buy-Down Amounts are being depleted.
In most cases, 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 of that loan and secured by first mortgages on one-to
four-family residential properties.
In most cases, adjustable rate mortgage loans, or ARM loans, will provide
for a fixed initial mortgage rate for either the first six or twelve scheduled
payments. After that period, 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, 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 loan, at the time of its origination. An
ARM loan may be convertible into a fixed-rate mortgage loan. To the extent
specified in the related prospectus supplement, any ARM loan so converted may be
subject to repurchase by the seller, the servicer or the master servicer.
ARM loans have features that can cause payment increases that some borrowers
may find difficult to make. However, each of the ARM loans provides that its
mortgage rate may not be adjusted to a rate above the applicable maximum
mortgage rate or below the applicable minimum mortgage rate, if any, for that
ARM loan. In addition, some of the ARM loans provide for Periodic Rate Caps.
Some ARM loans are payable in self-amortizing payments of principal and
interest. Negatively amortizing ARM loans instead provide for limitations on
changes in the scheduled payment on those ARM loans to protect borrowers from
payment increases due to rising interest rates. Those limitations can result in
scheduled payments which are greater or less than the amount necessary to
amortize a negatively amortizing ARM loan 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 loan, then the deferred interest is added to the
principal balance of that ARM loan causing the negative amortization of that ARM
loan, and will be repaid through future scheduled payments. If specified in the
related prospectus supplement, negatively amortizing ARM loans 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 ARM
loans comprising or underlying the mortgage assets are negatively amortizing ARM
loans.
If applicable, the prospectus supplement for each series will specify the
index to be used for any mortgage loans underlying that series.
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The related prospectus supplement for each series will provide information
for the mortgage loans as of the cut-off date, including, among other things:
the aggregate outstanding principal balance of the mortgage loans;
the weighted average mortgage rate on the mortgage loans, and, in the case
of ARM loans, the weighted average of the current mortgage rates and the
maximum mortgage rates, if any;
the average outstanding principal balance of the mortgage loans;
the weighted average remaining term-to-stated maturity of the mortgage
loans and the range of remaining terms-to-stated maturity;
the range of LTV ratios of the mortgage loans;
the relative percentage, by outstanding principal balance as of the cut-off
date, of mortgage loans that are Additional Collateral Loans, ARM loans,
Balloon Loans, Buy-Down Loans, GEM Loans, GPM Loans, Cooperative Loans,
conventional loans, Bi-Weekly Loans, FHA loans and VA loans;
the percentage of mortgage loans, by outstanding principal balance as of
the cut-off date, that are covered by primary mortgage insurance policies;
any pool insurance policy, special hazard insurance policy or bankruptcy
bond or other credit support relating to the mortgage loans;
the geographic distribution of the mortgaged properties securing the
mortgage loans;
the percentage of mortgage loans, by principal balance as of the cut-off
date, that are secured by single family property, Cooperative Dwellings,
investment property and vacation or second homes; and
for 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 in the preceding paragraph for the
mortgage loans is not known to the depositor at the time the securities are
initially offered, more general information of the nature described in that
paragraph will be provided in the prospectus supplement. The final specific
information will be presented 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, for each series of
certificates, or the related servicing agreement, owner trust agreement and
indenture, for each series of notes, with the Securities and Exchange
Commission, or the Commission, within 15 days after the initial issuance of
those securities.
THE MANUFACTURED HOME LOANS
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 Fannie Mae- or Freddie Mac-approved seller/servicer or by
any financial institution approved for insurance by the Secretary of Housing and
Urban Development under Section 2 of the National Housing Act. Mortgage loans,
including an interest in that mortgage loan, or manufactured home loans,
including an interest in that manufactured home, that are conveyed to the trust
for a series is referred to throughout this prospectus as the 'loans.'
The manufactured home loans may be conventional loans, FHA loans or VA
loans. Each manufactured home loan will be secured by a manufactured home. In
most cases, the manufactured home loans will be fully amortizing and will bear
interest at a fixed interest rate.
The manufactured homes securing the manufactured home loans, in most cases,
consist of manufactured homes within the meaning of 42 United States Code,
Section 5402(6), which defines a 'manufactured home' as 'a structure,
transportable in one or more sections, which in the traveling mode, is eight
body feet or more in width or forty body feet or more in length, or, when
erected on site, is three hundred twenty or more square feet, and which is built
on a permanent chassis and designed to be used as a dwelling with or without a
permanent foundation when connected to the required utilities, and includes the
plumbing, heating, air-conditioning, and electrical systems contained therein;
except that such term shall include any structure which meets all the
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requirements of this paragraph except the size requirements and as 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.' In addition, the following restrictions, in most cases, apply for
manufactured home loans comprising or underlying the mortgage assets for a
series:
no manufactured home loan will have had a LTV ratio at origination in
excess of 95%;
each manufactured home loan must have an original term to maturity of not
less than three years and not more than 25 years;
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
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 for that
manufactured home loan.
The initial LTV 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 that manufactured home. For underwriting of manufactured home
loans, see 'Loan Underwriting Procedures and Standards.' For servicing of
manufactured home loans, see 'Servicing of Loans.'
The related prospectus supplement for each series will provide information
for the manufactured home loans comprising the mortgage assets as of the cut-off
date, including, among other things:
the aggregate outstanding principal balance of the manufactured home loans
comprising or underlying the mortgage assets;
the weighted average interest rate on the manufactured home loans;
the average outstanding principal balance of the manufactured home loans;
the weighted average remaining scheduled term to maturity of the
manufactured home loans and the range of remaining scheduled terms to
maturity;
the range of LTV ratios of the manufactured home loans;
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;
any pool insurance policy, special hazard insurance policy or bankruptcy
bond or other credit support relating to the manufactured home loans; and
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 in the preceding paragraph for 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 in that
paragraph will be provided in the prospectus supplement. The final specific
information will be presented 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 those securities.
COLLECTION ACCOUNT AND CERTIFICATE ACCOUNT
In most cases, a separate Collection Account for each series will be
established by the master servicer in the name of the trustee for deposit of:
all distributions received on the mortgage assets for that series,
all Advances, other than Advances deposited into the Certificate Account,
the amount of cash to be initially deposited in that Collection Account, if
any,
reinvestment income on those funds and other amounts required to be
deposited in that Collection Account under the related pooling and
servicing agreement or the related servicing agreement and indenture.
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Any reinvestment income or other gain from investments of funds in the
Collection Account will usually be credited to that Collection Account, and any
loss resulting from those investments will be charged to that Collection
Account. That 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 this case, that
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 various payments provided for in the related
pooling and servicing agreement or the related servicing agreement and
indenture. In most cases, amounts in the Collection Account constituting
reinvestment income which is payable to the master servicer as additional
servicing compensation will not be included in determining amounts to be
remitted to the trustee for deposit into the Certificate Account. In addition,
amounts in the Collection Account for the reimbursement of advances or expenses,
amounts relating to 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 by the
master servicer, in either case in the name of the trustee for the benefit of
the securityholders. All funds received from the master servicer and all
required withdrawals from any reserve funds and any draws on any financial
guarantee insurance for that series will be deposited into that Certificate
Account, pending distribution to the securityholders. Any reinvestment income or
other gain from investments of funds in the Certificate Account will usually be
credited to the Certificate Account and any loss resulting from those
investments will be charged to that Certificate Account. That 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 permitted withdrawals by the
trustee as described in the related agreement, will be available for remittance
to the securityholders. 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 in that Collection
Account will, subject to permitted withdrawals by the trustee as specified in
the related agreement, be available for remittance to the securityholders. See
also 'The Agreements -- Certificate Account' in this prospectus.
OTHER FUNDS OR ACCOUNTS
A trust may include other funds and accounts or a security interest in
various funds and accounts for the purpose of, among other things, paying
administrative fees and expenses of the trust and accumulating funds pending
their distribution. In some cases, funds may be established with the trustee for
Buy-Down Loans, GPM Loans, or other loans having special payment features
included in the trust in addition to or in lieu of those similar funds to be
held by the servicer. See 'Servicing of Loans -- Buy-Down Loans, GPM Loans and
Other Subsidized Loans.' 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 -- Buy-Down
Loans, GPM Loans and Other Subsidized Loans' in this prospectus. 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 in this prospectus, as supplemented by the related
prospectus supplement.
Sellers of the loans may include banks, savings and loan associations,
mortgage bankers, investment banking firms, the Resolution Trust Corporation, or
RTC, the Federal Deposit Insurance Corporation, or the FDIC, and others. These
sellers will make representations and warranties concerning compliance with
those underwriting procedures and standards. Additionally, all or a sample of
the loans comprising mortgage assets for
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a series may be reviewed by or on behalf of the depositor to determine
compliance with those underwriting standards and procedures and compliance with
other requirements for inclusion in the trust.
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 under Sections 203 and 211 of the National Housing Act.
Manufactured home loans may have been originated by those institutions or by a
financial institution approved for insurance by the Secretary of Housing and
Urban Development under Section 2 of the National Housing Act. 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 relating to its assets, liabilities, income,
credit history, employment history and personal information. The borrower will
have also furnished 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. Various
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.
The adequacy of the property financed by the related loan as security for
repayment of that loan will in most cases have been determined by appraisal in
accordance with pre-established appraisal procedure guidelines for appraisals
established by or acceptable to the originator. Appraisers may be staff
appraisers employed by the loan originator or independent appraisers selected in
accordance with pre-established guidelines established by the loan originator.
The appraisal procedure guidelines will have required that the appraiser or an
agent on its behalf personally inspect the property and verify that it was in
good condition and that construction, if new, had been completed. The appraisal
will have been based on 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.
The value of the property being financed, as indicated by the appraisal,
must currently support, and is anticipated to support in the future, the
outstanding loan balance. In most cases, appraisals are required to conform to
the Uniform Standards of Professional Appraisal Practice and the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, or FIRREA, and must
be on forms acceptable to the Fannie Mae and/or Freddie Mac.
Based on the data provided, various 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. These
expenses include property taxes, utility costs, standard hazard and primary
mortgage insurance and, if applicable, maintenance fees and other levies
assessed by a Cooperative, and other fixed obligations other than housing
expenses. The originating lender's guidelines for loans secured by single family
property in most cases 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.
In most cases, these guidelines will be applied only to the payments to be made
during the first year of the loan.
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For 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 in most cases have been applied. For 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.
For mortgaged property consisting of vacation or second homes, no income
derived from the property will have been considered for underwriting purposes.
Other types of loans that may be included in the mortgage assets for a
series are recently developed and may involve additional uncertainties not
present in traditional types of loans. For example, Balloon Loans, Buy-Down
Loans, GEM Loans and GPM Loans provide for escalating or variable payments by
the borrower. These types of loans are underwritten on the basis of a judgment
that the borrower will have the ability to make larger scheduled payments in
subsequent years. ARM loans may involve similar assessments.
To the extent specified in the related prospectus supplement, the depositor
may purchase loans, or participation interests in those loans, for inclusion in
a trust that are underwritten under standards and procedures which vary from and
are less stringent than those described in this prospectus. For instance, loans
may be underwritten under a 'limited documentation program,' if specified in the
prospectus supplement. For those loans, minimal investigation into the
borrowers' credit history and income profile is undertaken by the originator and
those loans may be underwritten primarily on the basis of an appraisal of the
mortgaged property and LTV ratio on origination. Thus, if the LTV ratio is less
than a percentage specified in the related prospectus supplement, the originator
may forego other aspects of the review relating to monthly income, and
traditional ratios of monthly or total expenses to gross income may not be
applied.
In addition, mortgage loans may have been originated in connection with a
governmental program under which underwriting standards were significantly less
stringent and designed to promote home ownership or the availability of
affordable residential rental property in spite of higher risks of default and
losses. The related prospectus supplement describes the underwriting standards
applicable to those 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. Some
states where the mortgaged properties may be located have 'antideficiency' laws
requiring that lenders providing credit on single family property look solely to
the property for repayment in the event of foreclosure. See 'Legal Aspects of
Loans' in this prospectus.
For the underwriting standards applicable to any mortgage loans, those
underwriting standards, in most cases, include a set of specific criteria under
which the underwriting evaluation is made. However, the application of those
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 those
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 those 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 the conventional loans will continue.
Further, there is no assurance that appreciation of real estate values will
limit loss experiences on non-traditional housing such as 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
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existing on the date of origination of that 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 those loans become equal to or greater than the value of
that mortgaged properties, then the actual rates of delinquencies, foreclosures
and losses could be higher than those now experienced in the mortgage lending
industry. In addition, the value of property securing Cooperative Loans and the
delinquency rates for Cooperative Loans, could be adversely affected if the
current favorable tax treatment of cooperative tenant stockholders were to
become less favorable. See 'Legal Aspects of Loans' in this prospectus.
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.
To the extent that losses resulting from delinquencies, losses and
foreclosures or repossession of mortgaged property for 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 in this prospectus or in the
related prospectus supplement, those losses will be borne by holders of the
securities of that 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
The seller, or other party as described in the related prospectus
supplement, will represent and warrant to the depositor and the trustee
regarding the mortgage loans comprising the mortgage assets in a trust, on
delivery of the mortgage loans to the trustee under a trust, among other things,
that:
any required hazard and primary mortgage insurance policies were effective
at the origination of that mortgage loan, and that policy remained in
effect on the date of purchase of that mortgage loan from the seller by or
on behalf of the depositor;
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 that mortgage loan and that 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 that
mortgage loan is located in an area where those policies are often not
available, there is in the related mortgage file an attorney's certificate
of title indicating, subject to those permissible exceptions stated in that
certificate, the first lien status of the mortgage;
the seller has good title to the mortgage loan and the 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;
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;
the related mortgaged property is free from material damage and at least in
adequate repair;
there are no delinquent tax or assessment liens against the related
mortgaged property;
that mortgage loan is not more than 30 days' delinquent as to any scheduled
payment of and/or interest;
if a primary mortgage insurance policy is required for that mortgage loan,
that mortgage loan is the subject of that policy; and
that 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 concerning 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. In most cases, the Cooperative or
condominium association itself is responsible for the maintenance of hazard
insurance for property owned by the Cooperative
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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' in this prospectus. For a Cooperative Loan, the
seller, or other party as described in the related prospectus supplement, will
represent and warrant that (a) 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 (b) the
related Cooperative Dwelling is free of material damage and in good repair.
For each manufactured home loan, the seller, or other party as described in
the related prospectus supplement, will represent and warrant, among other
things that:
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;
as of the date of the transfer and assignment, the manufactured home loans
are subject to no offsets, defenses or counterclaims;
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;
as of the date of the transfer and assignment, each manufactured home loan
constitutes a valid first lien on the related manufactured home and that
manufactured home is free of material damage and is in good repair;
as of the date of the 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
for 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 that insurance have
been paid in full.
In the case of the discovery of the breach of any representation or warranty
made by the master servicer concerning a loan that materially and adversely
affects the interest of the securityholder in that loan, the seller, or other
party as described in the prospectus supplement, will be obligated to cure that
breach in all material respects, repurchase that loan from the trustee, or
deliver a qualified substitute mortgage loan as described under 'The
Agreements -- Assignment of Mortgage Assets' in this prospectus. See 'Risk
Factors -- Limited Obligations and Assets of the Depositor' in this prospectus.
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 that loan. The master servicer may be obligated to enforce those obligations
rather than the trustee or PMBS trustee.
SERVICING OF LOANS
GENERAL
Customary servicing functions for loans constituting the mortgage assets in
the trust will be provided by the master servicer directly or through one or
more servicers subject to supervision by the master servicer. If the master
servicer is not directly servicing the loans, then the master servicer will:
administer and supervise the performance by the servicers of their
servicing responsibilities under their subservicing agreements with the
master servicer;
maintain any standard or special hazard insurance policy, primary mortgage
insurance bankruptcy bond or pool insurance policy required for the related
loans; and
advance funds as described under 'Advances' in this prospectus.
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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, regardless of
its delegation of various responsibilities to that 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 for any
participation securities which constitute the mortgage assets. The master
servicer may be an affiliate of the depositor. The master servicer and each
servicer will usually be required to be a Fannie Mae- or Freddie Mac-approved
seller/servicer and, in the case of FHA loans, approved by HUD as an FHA
mortgagee.
The master servicer will be paid 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 subservicing agreement
if the master servicer elects to perform those servicing functions itself.
The master servicer, at its election, may pay itself the Servicing Fee for a
series for each mortgage loan either by:
withholding the Servicing Fee from any scheduled payment of interest prior
to the deposit of that payment in the Collection Account for that series,
withdrawing the Servicing Fee from the Collection Account after the entire
scheduled payment has been deposited in the Collection Account, or
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, and follow
the collection procedures as it follows for comparable loans held in its own
portfolio. Consistent with the preceding sentence, the master servicer may, in
its discretion:
waive any assumption fee, late payment charge, or other charge in
connection with a loan and
arrange with a mortgagor a schedule for the liquidation of delinquencies by
extending the due dates for scheduled payments on that loan. However, the
master servicer shall first determine that the 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, if a material default occurs or a payment default is reasonably
foreseeable, the master servicer will be permitted, subject to any specific
limitations required by the related pooling and servicing agreement or servicing
agreement and described in the related prospectus supplement, to modify, waive
or amend any term of that mortgage loan, including deferring payments, extending
the stated maturity date or otherwise adjusting the payment schedule. This
modification, waiver or amendment will be permitted only if it (1) is reasonably
likely to produce a greater recovery for that mortgage loan on a present value
basis than would liquidation and (2) will not adversely affect the coverage
under any applicable instrument of credit enhancement.
In most cases, the master servicer, to the extent permitted by law, will
establish and maintain 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 those payments under the loan
related documents, in which case the master servicer would not be required to
establish any Escrow Account for those loans. Withdrawals from the Escrow
Accounts are to be made:
to effect timely payment of taxes, assessments, mortgage and hazard
insurance,
to refund to borrowers amounts determined to be overages,
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to pay interest to borrowers on balances in the Escrow Account to the
extent required by law,
to repair or otherwise protect the property securing the related loan and
to clear and terminate that Escrow Account.
The master servicer will be responsible for the administration of the Escrow
Accounts and, in most cases, will make advances to that account when a
deficiency exists in that account.
DEPOSITS TO AND WITHDRAWALS FROM THE COLLECTION ACCOUNT
In most cases, the Collection Account will be an Eligible Account and the
funds held in that account may be invested, pending remittance to the trustee,
in eligible investments. The master servicer will usually be entitled to receive
as additional compensation any interest or other income earned on funds in the
Collection Account.
In most cases, the master servicer will deposit into the Collection Account
for each series on the business day after 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. After the cut-off
date, the master servicer will deposit into the Collection Account after the
date of receipt of those scheduled payments, the following payments and
collections received or made by it, other than payments representing principal
of and interest on the related loans due on or before that cut-off date:
All payments on account of principal, including prepayments, on those
loans;
All payments on account of interest on those loans net of any portion of
that payment 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;
All Insurance Proceeds and all amounts received by the master servicer in
connection with the liquidation of defaulted loans or property acquired
relating to those defaulted loans, whether through foreclosure sale or
otherwise. This includes all payments in connection with those loans
received from the mortgagor, other than 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 Liquidation Expenses;
Any Buydown Funds, and, if applicable, investment earnings on the Buydown
Funds required to be paid as described in this prospectus;
All proceeds of any mortgage loan in that trust purchased, or, in the case
of a substitution, other amounts representing a principal adjustment, by
the master servicer, the seller or any other person under the terms of the
related pooling and servicing agreement or servicing agreement;
All amounts required to be deposited in that trust in connection with any
losses on eligible investments under the related pooling and servicing
agreement or servicing agreement; and
All other amounts required to be deposited in that trust under 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 various purposes, as specified in the related
pooling and servicing agreement or servicing agreement, which, in most cases,
will include the following, except as otherwise provided in that agreement:
to make deposits to the Certificate Account in the amounts and in the
manner provided in the pooling and servicing agreement or servicing
agreement;
to reimburse itself for Advances, including amounts advanced for taxes,
insurance premiums or similar expenses as to any mortgaged property, out of
late payments or collections on the related mortgage loan for which those
Advances were made;
to pay to itself unpaid Servicing Fees, out of payments or collections of
interest on each mortgage loan;
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 on disposition of a mortgaged property acquired by deed in lieu of
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foreclosure or otherwise allowed under the related pooling and servicing
agreement or servicing agreement;
to pay to itself or the seller all amounts received on to each mortgage
loan purchased, repurchased or removed under 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;
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 limitations described
in the related pooling and servicing agreement or servicing agreement as
described in the related prospectus supplement;
to reimburse itself, the trustee or the depositor for 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 under the related pooling and servicing agreement or the
related servicing agreement and indenture;
to make any other withdrawals permitted by the related pooling and
servicing agreement or servicing agreement and described in the related
prospectus supplement; and
to clear the Collection Account of amounts relating to the corresponding
loans in connection with the termination of the trust under the pooling and
servicing agreement or servicing agreement.
SERVICING ACCOUNTS
In those cases where a servicer is servicing a mortgage loan, the servicer
will usually establish and maintain 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 subservicing 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 for each mortgage
loan, after deducting from that remittance an amount equal to the servicing
compensation and unreimbursed expenses and advances to which it is then entitled
under the related subservicing agreement, to the extent not previously paid to
or retained by it. In addition on each of those dates the servicer will be
required to remit to the master servicer any amount required to be advanced
under the related subservicing agreement, and the servicer will also be required
to remit to the master servicer, within one business day of receipt, the
proceeds of any principal Prepayments and all Insurance Proceeds and Liquidation
Proceeds.
BUY-DOWN LOANS, GPM LOANS AND OTHER SUBSIDIZED LOANS
For each Buy-Down Loan, if any, included in a trust the master servicer will
deposit all Buy-Down Amounts in a Buy-Down Fund. The amount of that deposit,
together with investment earnings on that deposit at the rate specified in the
related prospectus supplement, will provide sufficient funds to support the
payments on that 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 in
that account 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. A Buy-Down Fund, in most cases, will not
be included in or deemed to be a part of the trust.
The terms of some of the loans may provide for the contribution of subsidy
funds by the seller of the related mortgaged property or by another entity. The
master servicer will deposit the subsidy funds in a Subsidy Fund for that loan.
In most cases, the terms of the 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 that loan. Neither the
master servicer, any servicer nor the depositor will be obligated to add to that
Subsidy Fund any of its own funds. The Subsidy Fund, in most cases, will not be
included in or deemed to be a part of the trust.
If the depositor values any GPM Loans deposited into the trust for a
multiple class series on the basis of that GPM Loan's scheduled maximum
principal balance, the master servicer will deposit in a GPM Fund complying with
the requirements described above for the Collection Account an amount which,
together with anticipated reinvestment income on that amount, will be sufficient
to cover the amount by which payments of principal and interest on those GPM
Loans assumed in calculating payments due on the securities of that
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multiple class series exceed the scheduled payments on those GPM Loans. The
trustee will withdraw amounts from the GPM Fund for a series on a prepayment of
those GPM Loan as necessary and apply those amounts to the payment of principal
and interest on the securities of that series. Neither the depositor, the master
servicer nor any servicer will be obligated to supplement the GPM Fund should
amounts in that account and investment earnings on those amounts prove
insufficient to maintain the scheduled level of payments, in which event,
distributions to the securityholders may be affected. The GPM Fund, in most
cases, will not be included in or deemed to be part of the trust.
For 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
General. The related prospectus supplement will describe when the master
servicer or servicer will make an Advance for delinquent payments of principal
of and interest on a loan. In most cases, neither the master servicer nor any
servicer will be obligated to make Advances. That obligation to make Advances
may be limited in amount, may be limited to advances received from the
servicers, if any, or may not be activated until a particular 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 for that
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 for which that 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. Recovery
also may be from a specified reserve fund as applicable, to the extent specified
in the related prospectus supplement. For any multiple class series, so long as
the related subordinate securities remain outstanding, those Advances may also
be reimbursable in most cases 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 usually be required to pay interest on the principal amount
prepaid only to the date of that prepayment. 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 as needed to cover a full scheduled payment of interest on the related
loan, less any related Servicing Fees. That principal prepayment, together with
a full scheduled payment of interest on that prepayment to the extent of the
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 in the second preceding sentence 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 some 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' in this prospectus. In most cases,
coverage will be in an amount at least equal to the greater of (1) the amount
necessary to avoid the enforcement of any co-insurance clause contained in the
policy or (2) the outstanding principal balance of the related loan.
The master servicer will also maintain on REO Property that secured a
defaulted loan and that has been acquired on foreclosure, deed in lieu of
foreclosure, or repossession, a standard hazard insurance policy in an amount
that is at least equal to the maximum insurable value of that REO Property. No
earthquake or other
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additional insurance will be required of any borrower or will be maintained on
REO Property acquired for a defaulted loan, other than under those applicable
laws and regulations as shall at any time be in force and shall require for
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 an acceptable insurance carrier, in an
amount representing coverage not less than the lesser of:
the outstanding principal balance of the loan or
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 that coverage
at the mortgagor's cost and expense and to seek reimbursement for that cost and
expense from the mortgagor.
Any amounts collected by the master servicer or the servicer, as the case
may be, under those 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 that 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 that policy absent that deductible
clause, deposit in the Collection Account the amount not otherwise payable under
the blanket policy because of the application of that 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. In most cases, 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 that insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to that borrower's Cooperative Dwelling or that
Cooperative's building could significantly reduce the value of the collateral
securing that 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. In most cases, 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 that insurance or do not maintain adequate
coverage or any insurance proceeds are not applied to the restoration of damaged
property, any damage to that borrower's condominium unit or the related
condominium building could significantly reduce the value of the collateral
securing that condominium loan to the extent not covered by other credit
support.
Special Hazard Insurance Policy. If, and to the extent specified in the
related prospectus supplement, the master servicer will maintain a special
hazard insurance policy, in the amount specified in the related prospectus
supplement, in full force and effect for the loans. In most cases, 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
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then existing coverage of the terminated special hazard insurance policy.
However, if the cost of that replacement policy is greater than the cost of the
terminated special hazard insurance policy, the amount of coverage under the
replacement policy will, in most cases, be reduced to a level so 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. Some
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 for each conventional loan secured
by single family property for which that coverage is required for as long as the
related mortgagor is obligated to maintain that primary mortgage insurance under
the terms of the related loan. The master servicer will not cancel or refuse to
renew that 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 that cancelled or nonrenewed
policy is maintained with a Qualified Insurer.
Primary insurance policies will be required for manufactured home loans only
to the extent described in the related prospectus supplement. If primary
mortgage insurance is to be maintained for manufactured home loans, the master
servicer will be required to maintain that 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 steps that
are reasonably necessary to keep that insurance and guarantees in full force and
effect. See 'Description of Mortgage and Other Insurance -- Mortgage Insurance
on the Loans.'
Pool Insurance Policy. The master servicer may be obligated to use its best
reasonable efforts to maintain a pool insurance policy for the loans in the
amount and with the coverage described in the related prospectus supplement. In
most cases, 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 that 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 Freddie Mac or Fannie Mae 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. However, 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, in most cases, be reduced to a level so
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. Typical
terms of the pool insurance policy are described under 'Description of Mortgage
and Other Insurance -- Mortgage Insurance on the Loans.'
Bankruptcy Bond. The master servicer may be obligated to use its best
reasonable efforts to obtain and after those efforts maintain a bankruptcy bond
or similar insurance or guaranty in full force and effect throughout the term of
the related agreement, unless coverage under that bankruptcy bond has been
exhausted through payment of claims. The master servicer may 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 the cancellation or reduction does
not adversely affect the then current
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rating of the related series of securities. See 'Description of Mortgage and
Other Insurance -- Bankruptcy Bond' in this prospectus.
PRESENTATION OF CLAIMS; REALIZATION ON DEFAULTED LOANS
The master servicer, on behalf of the trustee and the securityholders, will
be required to present or cause to be presented, claims for 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 relating to any FHA insurance or VA guarantee respecting
defaulted mortgage loans.
The master servicer will use its reasonable best efforts to foreclose on,
repossess or otherwise comparably convert the ownership of the real properties
securing 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 the foreclosure or other conversion, the master servicer will
follow those practices and procedures as it deems necessary or advisable and as
are normal and usual in its servicing activities for 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:
that restoration or foreclosure will increase the Liquidation Proceeds of
the related mortgage loan available to the securityholders after
reimbursement to itself for those expenses, and
that those expenses will be recoverable by it either through Liquidation
Proceeds or the proceeds of insurance.
In spite of anything to the contrary in this prospectus, in the case of a trust
for which a REMIC election or elections have been made, the master servicer
shall not liquidate any collateral acquired through foreclosure later than two
years after the acquisition of that 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, or IRS, an extension of
the two year period within which it would otherwise be required to liquidate the
collateral. While the holder of mortgaged property acquired through foreclosure
can often maximize its recovery by providing financing to a new purchaser, the
trust will have no ability to do so and neither the master servicer nor any
servicer will be required to do so.
For 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 of those remedies if it determines that one remedy is
more likely to result in a greater recovery. If that mortgage loan is an
Additional Collateral Loan, the master servicer, or the related servicer, if the
lien on the Additional Collateral for that 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 that Additional Collateral is held, including any third-party
guarantee. On the first to occur of final liquidation, by foreclosure or
otherwise, and a repurchase or substitution under a breach of a representation
and warranty, that mortgage loan will be removed from the related trust 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:
that restoration will increase the Liquidation Proceeds of the loan after
reimbursement of the expenses incurred by that servicer or the master
servicer, and
that those 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, in most cases, 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
'Legal Aspects of Loans -- Realizing On Cooperative Loan Security' in this
prospectus. This approval is usually based on the
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purchaser's income and net worth and numerous other factors. Although the
Cooperative's approval is unlikely to be unreasonably withheld or delayed, the
necessity of acquiring that approval could limit the number of potential
purchasers for those shares and otherwise limit the trust's ability to sell and
realize the value of those shares.
For 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 that
loss is not covered by other credit support, a loss may be experienced by the
trust.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
In most cases, 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 that prospective conveyance and prior to the time of the
consummation of that conveyance, exercise the trustee's right to accelerate the
maturity of that loan under the applicable 'due-on-sale' clause, if any, unless
the master servicer reasonably believes that the clause is not enforceable under
applicable law or if the enforcement of that clause would result in loss of
coverage under any primary mortgage insurance policy. If those 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 that property has been or is about to be
conveyed. Under this agreement, that person becomes liable under the loan and
under which the original borrower is released from liability and that 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
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. In most cases, the master servicer or any servicer will
be entitled to additional servicing compensation 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 in this prospectus.
In most cases, the master servicer will pay the fees of the servicers, if
any, and various 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, and
payment of expenses incurred in enforcing the obligations of servicers and
sellers and in the preparation of reports to securityholders.
Some of these expenses may be reimbursable under 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 on the related loans or from specific
recoveries of costs.
The master servicer will be entitled to reimbursement for various expenses
incurred by it in connection with the liquidation of defaulted loans. The
related trust will suffer no loss by reason of those 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 under those insurance policies has been exhausted, the
related trust 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, that 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.
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In most cases, 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
that series.
EVIDENCE AS TO COMPLIANCE
In most cases, 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 to the effect that the master servicer has complied in all material
respects with the minimum servicing standards specified 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. If there has been material noncompliance with those servicing standards or
a material default in the fulfillment of any obligation, that statement shall
include a description of that noncompliance or specify that known default, as
the case may be, and the nature and status of the default. The statement may be
provided as a single form making the required statements as to more than one
agreement.
In most cases, 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 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 that firm. The opinion will
state that on the basis of an examination by that 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 specified
in the Uniform Single Attestation Program for Mortgage Bankers during the
preceding year is fairly stated in all material respects, subject to those
exceptions and other qualifications that, in the opinion of that firm, those
accounting standards require it to report. In rendering its statement that firm
may rely, as to the matters relating to the direct servicing of mortgage loans
by servicers, on 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
that statement, for those servicers which also have been the subject of that
examination.
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.
In most cases, the master servicer may not resign from its obligations and
duties under the related pooling and servicing agreement or servicing agreement
except on its determination that its duties under that agreement are no longer
permissible under applicable law or except in connection with a permitted
transfer of servicing. This resignation will become effective until the trustee
or a successor master servicer has assumed the master servicer's obligations and
duties under the related agreement.
In the event of an Event of Default under the related pooling and servicing
agreement or servicing agreement, the master servicer may be replaced by the
trustee or a successor master servicer. See 'The Agreements -- Rights in the
Case of Events of Default' in this prospectus.
In most cases, 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 that assignment or delegation:
is qualified to sell loans to and service mortgage loans for Fannie Mae or
Freddie Mac;
has a net worth of not less than $10,000,000;
is acceptable to each rating agency for purposes of maintaining its
then-current ratings of the securities;
is reasonably acceptable to the trustee; and
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 that purchaser or transferee of the due and
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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 that agreement.
To the extent that the master servicer transfers its obligations to a
wholly-owned subsidiary or affiliate, that subsidiary or affiliate need not
satisfy the criteria described above. However, in that 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 the successor or surviving entity meets the
requirements for a successor master servicer described in the preceding
paragraph.
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 or the securityholders for any action
taken or for failing to take any action in good faith under the related
agreement or for errors in judgment. However, neither the master servicer, the
depositor, nor any other person will be protected against any breach of warranty
or representations made by that party under the related agreement or the failure
to perform its obligations in compliance with any standard of care described 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 under that
agreement. 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 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 under that agreement or by reason of reckless
disregard of obligations and duties under that agreement. 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 that action which it
may deem necessary or desirable for the related agreement and the rights and
duties of the parties to that agreement and the interests of the securityholders
under that agreement. In that event, the legal expenses and costs of that action
and any liability resulting from that action will be expenses, costs, and
liabilities of the trust and the master servicer or the depositor will be
entitled to be reimbursed for those expenses, costs and liabilities out of the
Collection Account, or the Certificate Account, if applicable.
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CREDIT SUPPORT
GENERAL
For any series, credit support may be provided for one or more classes of
that series or the related mortgage assets. Credit support may be in the form of
the following:
a letter of credit;
the subordination of one or more classes of the securities of that 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 the
amounts and having the 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
described in that insurance policy.
In most cases, 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 on those securities at the
security interest rate. If losses occur which exceed the amount covered by
credit support or which are not covered by credit support, those losses will be
borne by the securityholders. If credit support is provided for a series, the
related prospectus supplement will include a description of:
the amount payable under that credit support,
any conditions to payment under that credit support not otherwise described
in this prospectus,
the conditions under which the amount payable under that credit support may
be reduced and under which that credit support may be terminated or
replaced, and
the material provisions of any agreement relating to that credit support.
Additionally, the related prospectus supplement will provide some information on
the issuer of any third-party credit support, including:
a brief description of its principal business activities,
its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business,
if applicable, the identity of regulatory agencies which exercise primary
jurisdiction over the conduct of its business, and
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
In some issuances, one or more classes of a series may be subordinate
securities. The rights of the subordinate securityholders to receive
distributions of principal and interest from the Certificate Account on any
distribution date may be subordinated to the rights of the senior
securityholders to the extent of the then applicable Subordinated Amount as
defined in the related prospectus supplement. The Subordinated Amount will
decrease whenever amounts otherwise payable to the Subordinate securityholders
are paid to the senior securityholders, including amounts withdrawn from the
Subordination Reserve Fund, if any, and paid to the senior securityholders. The
Subordinated Amount will usually increase whenever there is distributed to the
subordinate securityholders amounts for which subordination payments have
previously been paid to the senior
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securityholders, which will occur when subordination payments for delinquencies
and some 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. That right
will effectively be subordinate to the rights of other securityholders, but will
not be limited to the Subordinated Amount. The subordination of a class may
apply only in the event of some 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 some provisions
of the federal bankruptcy code, 11 United States Code 101 et seq., and
regulations promulgated under the federal bankruptcy code, or 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.
In some cases, for any series which includes one or more classes of
subordinate securities, a Subordination Reserve Fund may be established. 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. In most
cases, the Subordination Reserve Fund will not be a part of the trust. If the
Subordination Reserve Fund is not a part of the trust, the trustee will have a
security interest in that Subordination Reserve Fund 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 described in the related prospectus supplement.
Moneys deposited in any Subordination Reserve Fund will be invested in
Eligible Reserve Fund Investments. Any reinvestment income or other gain from
those investments will usually be credited to the Subordination Reserve Fund for
that series, and any loss resulting from those investments will be charged to
that 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 described in the related prospectus
supplement, including the amount of any initial deposit to that Subordination
Reserve Fund, the required reserve fund balance to be maintained in the
Subordination Reserve Fund, the purposes for which funds in the Subordination
Reserve Fund may be applied to make distributions to senior securityholders and
the employment of reinvestment earnings on amounts in the Subordination Reserve
Fund, if any.
OVERCOLLATERALIZATION
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 that series. That 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 some 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 those 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. 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. The related prospectus supplement for a series which includes
a cross-support
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feature will describe the manner and conditions for applying that cross-support
feature. As to any trust that includes a cross-support feature, only assets of
the trust will be used to provide cross-support, and cross-support will be
provided only to securities issued by the trust. A trust will not provide a
cross-support feature that benefits securities issued by any other trust, and a
trust will not receive cross-support from any other trust.
INSURANCE
Credit support for 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 insurance policy, for all loans comprising or underlying
the mortgage assets for a series, or those loans that have specified
characteristics. Those 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 risks not covered by standard
hazard insurance policies,
a bankruptcy bond covering a number of losses resulting from the bankruptcy
of a borrower and application of various 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, for a series of securities will be issued by
the letter of credit bank specified in the related prospectus supplement. Under
the letter of credit, the letter of credit bank will be obligated to honor
drawings under the letter of credit in an aggregate fixed dollar amount, net of
unreimbursed payments under that letter of credit, 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 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 various 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 under that letter of credit. The obligations
of the letter of credit 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. See 'Description of the
Securities -- Optional Termination' and 'The Agreements -- Termination.' A copy
of the letter of credit for a series, if any, will be filed with the Commission
as an exhibit to a Current Report on Form 8-K to be filed within 15 days of
issuance of the securities of the related series.
FINANCIAL GUARANTEE INSURANCE
Financial guarantee insurance, if any, for a series of securities will be
provided by one or more insurance companies. That financial guarantee insurance
will guarantee, for 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 described in or determined in the
manner specified in the related prospectus supplement. The financial guarantee
insurance may 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
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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 for a series, in which cash, a
letter of credit, Eligible Reserve Fund Investments, a demand note or a
combination of the foregoing, 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 in those reserve funds 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 on those deposits, 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 that series by each rating agency rating that series.
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 various 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 various 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 that 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. Any reinvestment income or other gain from those investments
will usually be credited to the related reserve fund for that series, and any
loss resulting from those investments will be charged to that reserve fund.
However, that 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.' In most cases, the reserve fund, if any, for
a series will not be a part of the trust.
Additional information concerning any reserve fund will be provided in the
related prospectus supplement, including the initial balance of that 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 under those insurances are general descriptions only and do
not purport to be complete.
MORTGAGE INSURANCE ON THE LOANS
In most cases, all mortgage loans that are conventional loans secured by
single family property and which had initial LTV ratios of greater than 80% will
be covered by primary mortgage insurance policies providing coverage on the
amount of each of those mortgage loans in excess of 75% of the original
appraised value of the related mortgaged property and remaining in force until
the principal balance of that mortgage loan is reduced to 80% of that original
appraised value.
In some cases, a pool insurance policy will be obtained to cover any loss,
subject to limitations described in this prospectus, 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' in
this prospectus. Neither the primary mortgage insurance policies nor any pool
insurance policy will insure against losses sustained in the event of a personal
bankruptcy of the borrower under a mortgage loan. See 'Legal Aspects of
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Loans' in this prospectus. Those 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 those
losses are not covered by the pool insurance policy or other credit support for
that series, those 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'
in this prospectus. Other hazard risks will not be insured and the occurrence of
those 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 insurer will differ from those
in primary mortgage insurance policies issued by other primary insurers, each
primary mortgage insurance policy, in most cases, will pay either:
the insured percentage of the loss on the related mortgaged property;
the entire amount of that loss, after receipt by the primary insurer of
good and merchantable title to, and possession of, the mortgaged property;
or
at the option of the primary insurer under various 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,
after that date, 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 the date the mortgage loan would
have been discharged in full if the default had not occurred or an approved
sale.
The amount of the loss as calculated under a primary mortgage insurance policy
covering a mortgage loan will in most cases consist of the unpaid principal
amount of that mortgage loan and accrued and unpaid interest on that mortgage
loan and reimbursement of various expenses, less:
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,
hazard insurance proceeds in excess of the amount required to restore that
mortgaged property and which have not been applied to the payment of the
mortgage loan,
amounts expended but not approved by the primary insurer,
claim payments previously made on that mortgage loan, and
unpaid premiums and 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:
advance or discharge hazard insurance premiums and, as necessary and
approved in advance by the primary insurer, real estate taxes, protection
and preservation expenses and foreclosure and related costs;
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
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, in
most cases, will require that the master servicer or servicer maintain, or cause
to be maintained, coverage under a primary mortgage insurance policy to the
extent this 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
LTV Ratio at origination in excess of 80% and was not the subject of a primary
mortgage insurance policy, was not included in any exception to that standard
disclosed in the related prospectus supplement, and that the mortgage loan has a
then current LTV 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 this kind of 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.
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FHA Insurance and VA Guarantees. The Housing Act authorizes various FHA
mortgage insurance programs. Some of the mortgage loans may be insured under
either Section 203(b), Section 234 or Section 235 of the Housing Act. Under
Section 203(b), FHA insures mortgage loans of up to 30 years' duration for the
purchase of one- to four-family dwelling units. Mortgage loans for the purchase
of condominium units are insured by FHA under Section 234. Loans insured under
these programs must bear interest at a rate not exceeding the maximum rate in
effect at the time the loan is made, as established by HUD, and may not exceed
specified percentages of the lesser of the appraised value of the property and
the sales price, less seller paid closing costs for the property, up to
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 on foreclosure, or other acquisition of possession, and
conveyance of the mortgaged premises to HUD or on assignment of the defaulted
mortgage loan to HUD. The FHA insurance that may be provided under these
programs on the conveyance of the home to HUD is equal to 100% of the
outstanding principal balance of the mortgage loan, plus accrued interest, and
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 tax, insurance and similar payments made by it and to deduct
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 some 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 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. In spite of 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 on 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 specified amounts. The
amount of that additional coverage will be specified 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. The master servicer may be required to maintain the
pool insurance policy and to present or cause the servicers, if any, to present
claims under that policy 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 those policies. The
related prospectus supplement will describe any provisions of a pool insurance
policy which are materially different from those described in this prospectus.
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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
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 that have LTV
ratios at the time of origination in excess of 80% and that a claim under that
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, in most
cases, will be:
the amount of the unpaid principal balance of the defaulted mortgage loan
immediately prior to the sale of the mortgaged property,
the amount of the accumulated unpaid interest on that mortgage loan to the
date of claim settlement at the contractual rate of interest, and
advances made by the insured as described above less a number of specified
payments.
An approved sale is:
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,
a foreclosure or trustee's sale of the mortgaged property at a price
exceeding the maximum amount specified by the pool insurer,
the acquisition of the mortgaged property under the primary mortgage
insurance policy by the mortgage insurer, or
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 that the restoration will increase the proceeds to the
securityholders on liquidation of the mortgage loan after reimbursement of the
master servicer for its expenses, and that these 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 on
disposition of all foreclosed mortgaged properties covered by that policy. The
amount of claims paid includes 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 'Legal Aspects of Loans' in this
prospectus. 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, 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 relating to a delinquent loan would not be
recoverable from the proceeds of the liquidation of that loan or otherwise, it
will not be obligated to make an advance for that delinquency since the Advance
would not be ultimately recoverable by it. See 'Servicing of Loans -- Advances.'
Mortgage Insurance for 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 relating to manufactured home loans will be described in
the related prospectus supplement.
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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. That coverage,
in most case, will be in an amount equal to the lesser of the principal balance
of that 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 those
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 in the next
paragraph and under 'Special Hazard Insurance Policy' and 'Other Hazard-Related
Insurance; Liability Insurance,' or on the extent to which information in this
regard is furnished to the master servicer or the servicer by mortgagors.
In most cases, 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 of
those terms and conditions are dictated by respective state laws. Those 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 other
cases, vandalism. The foregoing list is merely indicative of some 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 that mortgage loan, the pooling and servicing agreement
or servicing agreement, in most cases, requires the master servicer or servicer
to cause to be maintained for that mortgage loan serviced, flood insurance as
described under 'Servicing of Loans -- Maintenance of Insurance Policies and
Other Servicing Procedures.'
Standard Hazard Insurance Policies for Manufactured Home Loans. The terms of
the pooling and servicing agreement or servicing agreement will require the
servicer or the master servicer, as applicable, to cause to be maintained for
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 those 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 that manufactured home or the principal balance due
from the mortgagor on the related manufactured home loan, whichever is less.
That 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 maintain
at its expense hazard insurance for that manufactured home or indemnify the
trustee against any damage to that manufactured home prior to resale or other
disposition.
Special Hazard Insurance Policy. Although the terms of those 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 that damage is not
covered by the standard hazard insurance policy or any flood insurance policy,
if applicable, required to be maintained for that 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
amount of this payment is the lesser of (a) the cost of repair or replacement of
that property or (b) on transfer of the property to the special hazard insurer,
the unpaid principal balance of that loan at the time of acquisition of that
property by foreclosure or deed in lieu of foreclosure, plus accrued interest to
the date of claim settlement and expenses incurred by the master servicer or the
servicer for that property. If the unpaid principal balance plus accrued
interest and various expenses is paid by the special hazard insurer, the amount
of further coverage under the special hazard insurance
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policy will be reduced by that 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 that amount. Special hazard insurance policies typically do not
cover losses occasioned by war, civil insurrection, various governmental
actions, errors in design, faulty workmanship or materials, except under
specific circumstances, nuclear reaction, flood if the mortgaged property is in
a federally designated flood area, chemical contamination and other risks.
Restoration of the property with the proceeds described under (a) in the
preceding paragraph is expected to satisfy the condition under the pool
insurance policy that the property be restored before a claim that the pool
insurance policy may be validly presented for the defaulted loan secured by that
property. The payment described under (b) in the preceding paragraph will render
unnecessary presentation of a claim relating to that 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
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.
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 that loan. The amount
of the secured debt could be reduced to that value, and the holder of that loan
thus would become an unsecured creditor to the extent the outstanding principal
balance of that loan exceeds the value so assigned to the property, and any
related Additional Collateral, by the bankruptcy court. In addition, other
modifications of the terms of a loan can result from a bankruptcy proceeding.
See 'Legal Aspects of Loans' in this prospectus. If so provided in the related
prospectus supplement, the master servicer will obtain a bankruptcy bond or
similar insurance contract for proceedings relating to borrowers under the
Bankruptcy Code. The bankruptcy bond will cover some losses resulting from a
reduction by a bankruptcy court of scheduled payments of principal of and
interest on a loan or a reduction by that court of the principal amount of a
loan and will cover some unpaid interest on the amount of that 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 secured by
single unit primary residences. In most cases, that amount will be reduced by
payments made under that bankruptcy bond relating to those loans.
REPURCHASE BOND
The seller, the depositor or the master servicer may 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 that
loan. That 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 specific 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,
those 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 for a series. That assignment will include
all principal and interest due on or for the mortgage assets after the cut-off
date specified in the related prospectus supplement, except for any Retained
Interests. The trustee will, concurrently with that assignment, execute and
deliver the securities.
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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. In
most cases, 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' in this prospectus. Each private
mortgage-backed security will be identified in the mortgage certificate schedule
appearing as an exhibit to the related agreement, 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:
that the information contained in the mortgage certificate schedule is true
and correct in all material respects;
that, immediately prior to the conveyance of the private mortgage-backed
securities, the depositor had good title thereto, and was the sole owner of
those private mortgage-backed securities, subject to any Retained
Interests;
that there has been no other sale by it of that private mortgage-backed
securities; and
that there is no existing lien, charge, security interest or other
encumbrance, other than any Retained Interest, on those 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 for a series. That assignment will include all principal
and interest due on or for the Agency Securities after the cut-off date
specified in the related prospectus supplement, except for any Retained
Interest. The depositor will cause the Agency Securities to be registered in the
name of the trustee, or its nominee or correspondent, and the trustee will
concurrently authenticate and deliver the securities. Each Agency Security will
be identified in a schedule appearing as an exhibit to the related agreement,
which will specify as to each Agency Security the original principal amount and
outstanding principal balance as of the cut-off date and the annual pass-through
rate or interest rate for each Agency Security conveyed to the trustee.
Assignment of Mortgage Loans. In addition, the depositor will deliver or
cause to be delivered to the trustee, or, as specified in the related prospectus
supplement, the custodian:
the mortgage note for each mortgage loan endorsed without recourse to the
order of the trustee or in blank;
the original mortgage with evidence of recording indicated on that mortgage
note, except for any mortgage not returned from the public recording
office, in which case a copy of that mortgage will be delivered, together
with a certificate that the original of that mortgage was delivered to the
recording office; and
an assignment of the mortgage in recordable form and, if applicable, any
riders or modifications to the mortgage note and mortgage, together with
other documents as described in the related agreement.
The trustee, or, in some cases, the custodian, will hold those documents in
trust for the benefit of the securityholders.
In most cases, 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, that
recording is not required to protect the trustee's interest in the mortgage
loan. As promptly as possible, the depositor will cause that 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 that time, at the price described above for repurchase by reason
of defective documentation. In most cases, 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.
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For 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 the mortgage loan schedule
appearing as an exhibit to the related agreement. That mortgage loan schedule
will specify, among other things, for 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 loan, 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 for the manufactured home loans after the cut-off date specified in
the related prospectus supplement. Each manufactured home loan will be
identified in the loan schedule appearing as an exhibit to the related
agreement. That loan schedule will specify, for 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, for 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. In most cases, 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 that
assignment, the interest of the securityholders in the manufactured home loans
could be defeated. See '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. Those representations
and warranties will include:
that the information contained in the loan schedule provides an accurate
listing of the manufactured home loans and that the information about those
manufactured home loans listed in that loan schedule is true and correct in
all material respects at the date or dates when that information is
furnished;
that, immediately prior to the conveyance of the manufactured home loans,
the depositor had good title to, and was sole owner of, those manufactured
home loans, subject to any Retained Interests;
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that there has been no other sale by it of those manufactured home loans
and that the manufactured home loan is not subject to any lien, charge,
security interest or other encumbrance;
if the master servicer will not directly service the manufactured home
loans, each subservicing agreement entered into with a servicer for
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
the depositor has obtained from each of the master servicer, the servicer,
the originator of the manufactured home loans or other entity that is the
seller of the related manufactured home loan representations and warranties
relating to some information about 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 those representations and warranties are
inaccurate in any material respect. See 'Loan Underwriting Procedures and
Standards' in this prospectus.
Assignment of Participation Securities. The depositor will cause any
securities which evidence a participation interest in a loan, obtained under a
participation agreement to be assigned to the trustee by delivering to the
trustee the participation security, which will be reregistered in the name of
the trustee. In most cases, the trustee will not be in possession of or be
assignee of record for 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:
that the information contained in the participation security schedule is
true and correct in all material respects;
that, immediately prior to the conveyance of the participation securities,
the depositor had good title to and was sole owner of the participation
security;
that there has been no other sale by it of the participation security; and
that the 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
In most cases, 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 that defect within 60 days from the date the master servicer was
notified of the defect by the trustee, or within another 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 another
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 relating to that repurchase from the trustee. The price to repurchase
the related mortgage loan or property is equal to the outstanding principal
balance of that mortgage loan, or, in the case of a foreclosed mortgage loan,
the outstanding principal balance of that mortgage loan immediately prior to
foreclosure, plus accrued and unpaid interest to the date of the next scheduled
payment on that mortgage loan at the related mortgage rate.
In most cases, the master servicer may, rather than repurchase the loan as
described above, remove the loan from the trust and substitute in its place one
or more other loans provided, however, that:
for a trust for which no REMIC election is made, that substitution must be
effected within 120 days of the date of initial issuance of the securities,
and
for a trust for which a REMIC election or elections are made, the trustee
must have received a satisfactory opinion of counsel that the substitution
will not result in a prohibited transactions tax under the Internal Revenue
Code or cause the trust to lose its status as a REMIC, or in the case of a
trust
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consisting of two or more REMICs, that the substitution will not cause that
REMIC to lose its status as a REMIC.
In most cases, any qualified substitute mortgage loan will have on the date
of substitution:
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;
an interest rate not lower than and not more than 1% of the interest rate
of the deleted loan;
have a LTV Ratio at the time of substitution no higher than that of the
deleted loan at the time of substitution;
have a remaining term to maturity not greater than, and not more than one
year less than, that of the deleted loan; and
comply with all of the representations and warranties specified in the
related agreement as of the date of substitution. The related agreement may
include additional requirements relating to ARM loans 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.
In most cases, 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.
In most cases, the seller, or other party as described in the related
prospectus supplement, will make representations and warranties about loans
which comprise the mortgage assets for a series. See 'Loan Underwriting
Procedures and Standards -- Representations and Warranties' in this prospectus.
If the related seller, or other party, cannot cure a breach of those
representations and warranties in all material respects within 60 days after
notification by the master servicer, the depositor or the trustee of that
breach, and if the breach is of a nature that materially and adversely affects
interest of the securityholders in that loan, the seller is obligated to cure,
substitute or repurchase the affected mortgage loan if those 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 after that distribution date as is practicable, a statement providing, to
the extent applicable to any series as specified in the related agreement, among
other things:
as applicable, either (A) the amount of the distribution allocable to
principal on the mortgage assets, separately identifying the aggregate
amount of any principal prepayments included in that distribution 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 of each class and the aggregate unpaid principal amount of
each class following that distribution;
as applicable, either (A) the amount of the 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;
the amount of servicing compensation for the mortgage assets paid during
the Due Period commencing on the due date to which that distribution
relates and the amount of servicing compensation during that period
attributable to penalties and fees;
for accrual securities, prior to the Accrual Termination Date in addition
to the information specified in (B) of the first clause above of this
paragraph, the amount of interest accrued on those securities during the
related Interest Accrual Period and added to the principal balance of those
securities;
in the case of floating rate securities, the floating rate applicable to
the distribution being made;
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 that distribution relates;
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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 that distribution
relates;
if applicable, the amount of coverage under any pool insurance policy as of
the close of business on the applicable distribution date;
if applicable, the amount of coverage under any special hazard insurance
policy as of the close of business on the applicable distribution date;
if applicable, the amount of coverage under any bankruptcy bond as of the
close of business on the applicable distribution date;
in the case of any other credit support described in the related prospectus
supplement, the amount of coverage of that credit support as of the close
of business on the applicable distribution date;
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;
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
that distribution date, after giving effect to distributions made on that
date; and
any other information as specified in the related agreement.
In addition, within a reasonable period of time after the end of each
calendar year the master servicer, in most cases, will furnish to each
securityholder of record at any time during that 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
on by an independent public accountant. However, the master servicer will
provide to the trustee a report by independent public accountants concerning the
master servicer's servicing of the loans. See 'Servicing of Loans -- Evidence as
to Compliance' in this prospectus.
INVESTMENT OF FUNDS
The Certificate Account, Collection Account or Custodial Account, if any,
and any other funds and accounts for a series that may be invested by the
trustee or by the master servicer or by the servicer, if any, can be invested
only in eligible investments acceptable to each rating agency rating that
series, which may include, without limitation:
direct obligations of, or obligations fully guaranteed as to principal and
interest by, the United States or any agency or instrumentality of the
United States, provided that those obligations are backed by the full faith
and credit of the United States;
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 of the United States 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 the lower category as will not result in the downgrading or
withdrawal of the ratings then assigned to the securities by each rating
agency;
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 or of any state of the United States or the District
of Columbia. The short-term commercial paper of that 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
that holding company, at the date of acquisition must have been rated by
each rating agency in its highest short-term rating;
money market funds or mutual funds organized under the Investment Company
Act of 1940 rated in the highest rating category by each rating agency;
repurchase obligation, the collateral of which is held by a third party or
the trustee, for any security described in the first clause above of this
paragraph provided that the long-term unsecured obligations of
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the party agreeing to repurchase those obligations are at the time rated by
each rating agency in one of its two highest long-term rating categories;
and
those other investments which do not adversely affect the rating on the
securities of that series as confirmed in writing by each rating agency.
Funds held in a reserve fund or Subordinated Reserve Fund may be invested in
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 for 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 that series are required or may be anticipated to
be required to be applied for the benefit of securityholders of that 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' in this prospectus.
EVENT OF DEFAULT AND RIGHTS IN THE CASE OF 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, in most cases, include:
any failure by the master servicer to remit to the trustee for distribution
to the securityholders, or distribution to holders of the equity
certificates for a series of notes, of that series any required payment
which continues unremedied for five business days, or one business day for
other required payments, after the giving of written notice of that
failure, requiring the same to be remedied, to the master servicer by the
trustee or the depositor for each series of certificates or by the trustee
or the issuer for each series of notes, or to the master servicer, the
depositor and the trustee for each series of certificates or to the master
servicer, the issuer and the trustee for each series of notes by the
related holders of securities of that series evidencing at least 25% of
Voting Rights of the securities for the series;
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 that failure:
to the master servicer by the trustee or the depositor for each series of
certificates or by the trustee or the issuer for each series of notes,
to the master servicer, the depositor and the trustee for each series of
certificates, or
to the master servicer, the issuer and the trustee for each series of
notes by the holders of securities of that series evidencing at least 25%
of the Voting Rights of the securities; and
events of insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings and actions by the master servicer
indicating its insolvency, reorganization or inability to pay its
obligations.
In most cases, so long as an event of default remains unremedied under the
pooling and servicing agreement or servicing agreement for a series, the trustee
for that series or holders of the related securities evidencing at least 51% of
the aggregate outstanding principal amount of the securities for that series,
the first 51% who provide that 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
for 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. The trustee will then succeed to all the responsibilities, duties
and liabilities of the master servicer under the pooling and servicing agreement
or servicing agreement. The trustee will also be entitled to reasonable
servicing compensation not to exceed the applicable servicing fee, together
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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. In most cases, 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 Fannie Mae- or Freddie
Mac-approved mortgage servicing institution with a net worth of at least
$10,000,000 or 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. Pending that appointment, the
trustee is obligated to act in that capacity.
No securityholder of a series, solely by virtue of that holder's status as a
securityholder, will have any right under the pooling and servicing agreement or
servicing agreement for that series to institute any proceeding for the related
pooling and servicing agreement or servicing agreement, unless:
that holder previously has given to the trustee for that series written
notice of default,
the holders of securities evidencing at least 25% of the aggregate
outstanding principal amount of the securities for that series have made
written request to the trustee to institute that proceeding in its own name
as trustee under that agreement, and
the holders of securities evidencing at least 25% of the aggregate
outstanding principal amount of the securities for that series have offered
to the trustee reasonable indemnity, and the trustee for 60 days has
neglected or refused to institute that proceeding.
Indenture. In most cases, an event of default under the indenture will
include:
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 that series;
failure to perform any other covenant of the issuer in the indenture which
continues for a period of 30 days after notice of that covenant is given in
accordance with the procedures described in the related prospectus
supplement;
any representation or warranty made by the issuer in the indenture or in
any certificate or other writing delivered for or in connection with that
representation or warranty or affecting that series having been incorrect
in a material respect as of the time made, and the breach is not cured
within 30 days after notice of that breach is given in accordance with the
procedures described in the related prospectus supplement;
events of bankruptcy, insolvency, receivership or liquidation of the
issuer; or
any other event of default provided for notes of that series.
If an event of default for 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 that series may declare the
principal amount of all the notes of that series to be due and payable
immediately. If the notes of that series are accrual securities, the trustee or
the holders of that majority may declare that portion of the principal amount as
may be specified in the terms of that series, as provided in the related
prospectus supplement, to be due and payable. That declaration may, under
various 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 for any series of notes, the notes of that
series have been declared to be due and payable, the trustee may, in its
discretion, despite that acceleration, elect to maintain possession of the
collateral securing the notes of that series and to continue to apply payments
on that collateral as if there had been no declaration of acceleration if that
collateral continues to provide sufficient funds for the payment of principal of
and interest on the notes of that series as they would have become due if there
had not been that 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:
the holders of 100% of the then aggregate outstanding amount of the notes
of that series consent to that sale,
the proceeds of that sale or liquidation are sufficient to pay in full the
principal of and accrued interest, due and unpaid, on the outstanding notes
of that series at the date of that sale, or
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the trustee determines that the collateral would not be sufficient on an
ongoing basis to make all payments on those notes as those payments would
have become due if those 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 that 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 liquidation for unpaid fees and expenses. As a result,
on the occurrence of that 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 that event of
default.
In the event the principal of the notes of a series is declared due and
payable, as described in the second preceding paragraph, the holders of those
notes issued at a discount from par may be entitled to receive no more than an
amount equal to the unpaid principal amount of those notes less the amount of
that discount that is unamortized.
No noteholder or holder of an equity certificate of a series, solely by
virtue of that holder's status as a noteholder or holder of an equity
certificate, will have any right under an owner trust agreement or indenture for
that series to institute any proceeding for that agreement unless that holder
previously has given to the trustee for that 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 that class have
made written request on the trustee to institute that proceeding in its own name
as trustee under that series and have offered to the trustee reasonable
indemnity, and the trustee for 60 days has neglected or refused to institute for
that proceeding.
Under the terms of the indenture, if an event of default occurs and is
continuing, senior securityholders may be entitled to exercise specified rights
of the holders of the securities, without the consent of subordinate
securityholders, and the subordinate securityholders may exercise those 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 provided 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 provided 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 various local jurisdictions, the trustee will
have the power to appoint co-trustees or separate trustees of all or any part of
the trust relating to a series of securities. In the event of that appointment,
all rights, powers, duties and obligations conferred or imposed on the trustee
by the pooling and servicing agreement or indenture relating to that series will
be conferred or imposed on the trustee and that separate trustee or co-trustee
jointly, or, in any jurisdiction in which the trustee shall be incompetent or
unqualified to perform various acts, singly on that separate trustee or
co-trustee who shall exercise and perform those 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. Those agents shall
have any or all of the rights, powers, duties and obligations of the trustee
conferred on them by that appointment. However, 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 described in the applicable agreement has
occurred, the trustee is required to perform only those duties specifically
required of it under that
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agreement. On 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 those 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 for 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 in the
Case of Events of Default.' in this prospectus. 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 those funds or adequate indemnity against that risk or liability is
not reasonably assured to it.
RESIGNATION OF TRUSTEE
The trustee may resign, by written notice to the depositor, the master
servicer and to all securityholders; provided, that the 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 that
notice of resignation, the resigning trustee may petition any court of competent
jurisdiction for appointment of a successor trustee. The resigning trustee shall
not resign and be discharged until the time that the successor trustee is
approved by each rating agency. The trustee may also be removed at any time:
by the depositor, if the trustee ceases to be eligible to continue as
trustee under the related pooling and servicing agreement or indenture;
if the trustee becomes insolvent;
if a tax is imposed or threatened for the trust by any state in which the
trustee or the trust held by the trustee under the related agreement is
located; or
by the holders of securities evidencing at least 51% of the aggregate
outstanding principal amount of the securities in the trust on 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 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. The Certificate Account will, in most cases, be an
Eligible Account, and the funds held in that account may be invested, pending
disbursement to securityholders of the related series, under the terms of the
related pooling and servicing agreement or the related servicing agreement and
indenture, in eligible investments. The master servicer or the trustee will
usually 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. In most cases, the trustee is
permitted from time to time:
to make withdrawals from the Certificate Account for each series to remove
amounts deposited in that account 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.
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EXPENSE RESERVE FUND
If specified in the prospectus supplement relating to a series, the
depositor may deposit on the related closing date in an 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 in the Expense Reserve Fund 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 held
for the benefit of the holders. Amounts on deposit in any Expense Reserve Fund
will be invested in one or more eligible investments.
AMENDMENT OF AGREEMENTS
The pooling and servicing agreement for each series of certificates may be
amended by the depositor, the master servicer, and the trustee for that series,
without notice to or consent of the certificateholders:
to cure any ambiguity;
to correct or supplement any provision in that pooling and servicing
agreement which may be defective or inconsistent with any other provision
in that pooling and servicing agreement;
to make any other provisions regarding matters or questions arising under
that pooling and servicing agreement which are not inconsistent with any
other provisions of that pooling and servicing agreement; or
to comply with any requirements imposed by the Internal Revenue Code.
Any of these amendments, other than for the reason described in the last clause
of this paragraph, must not adversely affect in any material respect the
interests of any certificateholders of that series.
In most cases, the pooling and servicing agreement for each series of
certificates may also be amended by the trustee, the master servicer and the
depositor for that series with the consent of the holders possessing not less
than 66 2/3% of the aggregate outstanding principal amount of the certificates
of each class of that series affected by that amendment, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of that pooling and servicing agreement or modifying in any manner
the rights of certificateholders of that series. That amendment may not:
reduce the amount or delay the timing of payments on any certificate
without the consent of the holder of that certificate;
adversely affect the REMIC status, if a REMIC election or elections have
been made, for the related trust of a series; or
reduce the aforesaid percentage of aggregate outstanding principal amount
of certificates of each class, the holders of which are required to consent
to that amendment without the consent of the holders of 100% of the
aggregate outstanding principal amount of each class of certificates
affected by that amendment.
In spite of the foregoing, if a REMIC election or elections have been made
for the related trust, 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 the amendment or the exercise of any power
granted to the master servicer, the depositor or the trustee in accordance with
the amendment will not result in the imposition of a tax on the related trust or
any related REMIC or cause that trust or that REMIC to fail to qualify as a
REMIC.
In most cases, the servicing agreement or indenture for each series of notes
may be amended by the parties to that agreement without the consent of any of
the noteholders covered by that agreement:
to cure any ambiguity;
to correct, modify or supplement any provision in that agreement which may
be defective or inconsistent with any other provision in that agreement; or
to make any other provisions regarding matters or questions arising under
the agreement which are not inconsistent with the provisions of that
agreement, provided that this action will not adversely affect in any
material respect the interests of any noteholder covered by the agreement.
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In most cases, the servicing agreement or indenture for each series of notes
may also be amended by the parties to that agreement with the consent of the
holders evidencing not less than 66 2/3% of the aggregate outstanding principal
amount of the notes of each class of that series affected by that agreement, for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of that agreement or modifying in any manner the rights of
noteholders of that series. That the amendment may not:
reduce the amount of or delay the timing of, payments received on any note
without the consent of the holder of that note;
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 that class
evidencing not less than 66 2/3% of the aggregate outstanding principal
amount of the notes of each class of that series affected by that
amendment; or
reduce the aforesaid percentage of aggregate outstanding principal amount
of notes of each class, the holders of which are required to consent to
that amendment without the consent of the holders of 100% of the aggregate
outstanding principal amount of each class of notes affected by that
amendment.
VOTING RIGHTS
The related prospectus supplement will describe the method of determining
allocation of voting rights for a series, if other than as described in this
prospectus. If specified in the related prospectus supplement, a provider of
credit enhancement may be entitled to specified voting rights of the
securityholders.
REMIC ADMINISTRATOR
For any multiple class series of certificates as to which a REMIC election
is made, preparation of reports and other administrative duties relating to the
trust 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 on the distribution to securityholders of all amounts distributable to
them under those agreements after:
the later of the final payment or other liquidation of the last mortgage
loan remaining in the trust for that series or the disposition of all
property acquired on foreclosure or deed in lieu of foreclosure of any
mortgage loan, or
the repurchase by the master servicer or the depositor, or other party as
specified in the prospectus supplement, from the trustee for that series of
all mortgage loans at that time subject to the related agreements and all
property acquired in connection with any mortgage loan.
The exercise of that right will effect early retirement of the securities of
that series, but the 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 provided 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 persons identified in those agreements. 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 on surrender and cancellation of the
securities at an office or agency specified in the notice of termination. See
'Description of the Securities -- Optional Termination' in this prospectus.
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LEGAL ASPECTS OF LOANS
The following discussion contains summaries of various legal aspects of
housing loans which are general in nature. Because these 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 law 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.
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 on 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 by those manufactured
housing contracts and grant a security interest in the related manufactured
homes to secure repayment of that 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 various circumstances become subject to real
estate title and recording laws. See ' -- Manufactured Home Loans' in this
section of the prospectus. In some states, the filing of a mortgage, deed of
trust or deed to secure debt creates a lien or title interest on 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 to the mortgagee or to a trustee for the benefit of the mortgagee
subject to a condition subsequent, that is, the payment of the indebtedness
secured by that mortgage or deed of trust, respectively. 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
for those 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, in most cases, 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 in the next sentence, 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 a number of 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:
a separate undertaking to make payments on the mortgage note, and
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, often with a power of sale, to the trustee to secure
payment of the obligation. A deed to secure debt typically has two parties,
under which the borrower, or grantor, conveys title to the real property to the
grantee, or lender, often with a power of sale, until 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 a
number of 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 Cooperative
Note evidencing a Cooperative Loan will be secured by a security interest in
shares issued by the related Cooperative 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 on, 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 to that agreement, 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. That lien or security
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interest is not, in most cases, prior to liens in favor of the cooperative
corporation for unpaid assessments or common charges. That lien or security
interest is not prior to the lien for real estate taxes and assessments and
other charges imposed under governmental police powers.
All Cooperative buildings relating to the Cooperative Loans are usually
located in the State of New York. In most cases, 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 in that Cooperative. 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(s) on the Cooperative's building or
underlying land, as is usually 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 those 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 in most cases 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:
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
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 that
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
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. In most cases, a
tenant-stockholder of a Cooperative must make a monthly rental payment to the
Cooperative under the proprietary lease, which rental payment represents that
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. In most cases, the lender takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy agreement
and a financing statement covering the proprietary lease or occupancy agreement
and the Cooperative shares is filed in the appropriate state and local offices
to perfect the lender's interest in its collateral. Subject to the limitations
discussed under 'Realizing on Cooperative Loan Security', on 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' in this section of the prospectus.
TAX ASPECTS OF COOPERATIVE OWNERSHIP
In general, a 'tenant-stockholder', as defined in Section 216(b)(2) of the
Internal Revenue Code, of a corporation that qualifies as a 'cooperative housing
corporation' within the meaning of Section 216(b)(1) of the Internal Revenue
Code is allowed a deduction for amounts paid or accrued within his taxable year
to the corporation representing his proportionate share of specific interest
expenses and specific real estate taxes
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allowable as a deduction under Section 216(a) of the Internal Revenue Code to
the corporation under Sections 163 and 164 of the Internal Revenue Code. In
order for a corporation to qualify under Section 216(b)(1) of the Internal
Revenue Code for its taxable year in which those items are allowable as a
deduction to the corporation, that 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 Internal Revenue 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 that section
for any particular year. In the event that this 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 Internal Revenue Code for 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 Internal Revenue Code, the likelihood that this 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, in
most cases, is 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 in the case of 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 that 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. In most cases, 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. In
most cases, a mortgagor is bound by the terms of the mortgage note and the
mortgage as made and cannot be relieved from his default if the mortgagee has
exercised his rights in a commercially reasonable manner. However, since a
foreclosure action historically was equitable in nature, the court may exercise
equitable powers to relieve a mortgagor of a default and deny the mortgagee
foreclosure on proof that either the mortgagor's default was neither willful nor
in bad faith or the mortgagee's action established a waiver, fraud, bad faith,
or oppressive or unconscionable conduct such as to warrant a court of equity to
refuse affirmative relief to the mortgagee. Under various circumstances a court
of equity may relieve the mortgagor from an entirely technical default where
that default was not willful.
Foreclosure of a mortgage, in most cases, is accomplished by judicial
action. The action is usually initiated by the service of legal pleadings on 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, in most cases, 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 in most cases a public sale. However,
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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 that judgment is available. In the same states, there
is a statutory minimum purchase price which the lender may offer for the
property and, in most cases, state law controls the amount of foreclosure costs
and expenses, including attorneys' fees, which may be recovered by a lender.
After that purchase, 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 those 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 on 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 under those senior mortgages, 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, for 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 various
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 often 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 often 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, in most cases, 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
usually 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
on its security and to bar the mortgagor, and all persons who have an interest
in the property which is subordinate to the foreclosing mortgagee, from their
'equity of redemption.' The doctrine of equity of redemption provides that,
until the property covered by a mortgage has been sold in accordance with a
properly conducted foreclosure and foreclosure sale, those having an interest
which is subordinate to that of the foreclosing mortgagee have an equity of
redemption and may redeem the property by paying the entire debt with interest.
In addition, in some states, when a foreclosure action has been commenced, the
redeeming party must pay various costs of that 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.
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REALIZING ON 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 described 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 that tenant-stockholder, including
mechanics' liens against the Cooperative's building incurred by that
tenant-stockholder. In most cases, rent and other obligations and charges
arising under a proprietary lease or occupancy agreement which are owed to the
Cooperative are made liens on the shares to which the proprietary lease or
occupancy agreement relates. In addition, the proprietary lease or occupancy
agreement often permits the Cooperative to terminate that lease or agreement in
the event the borrower defaults in the performance of covenants under that lease
or agreement. 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, in most cases, 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 that 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 that 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, in most cases, cannot
restrict and does not monitor, could reduce the amount realized on the sale of
the collateral below the outstanding principal balance of the Cooperative Loan
and accrued and unpaid interest on that Cooperative Loan.
Recognition agreements, in most cases, also 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 on 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. That
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 on the value of the collateral. In most cases, 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, that is, 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.
A foreclosure on the Cooperative shares is accomplished by public sale in
accordance with the provisions of Article 9 of the Uniform Commercial Code, or
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. In most cases, 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, in most cases, 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. However, if a
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portion of the indebtedness remains unpaid, the tenant-stockholder is usually
responsible for the deficiency. See ' -- Anti-Deficiency Legislation and Other
Limitations on Lenders' in this section of the prospectus.
RIGHTS OF REDEMPTION
In some states, after sale under 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, usually 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
non-statutory right that must be exercised prior to the foreclosure sale. In
some states, redemption may occur only on payment of the entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower pays only a portion
of the sums due. The effect of a statutory right of redemption is to diminish
the ability of the lender to sell the foreclosed property. The right of
redemption would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust or a deed to secure debt.
Consequently, the practical effect of a right of redemption is to force the
lender to retain the property and pay the expenses of ownership until the
redemption period has run. In some states, there is no right to redeem property
after a trustee's sale under a deed of trust.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Various 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
on 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
that 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
other states, the lender has the option of bringing a personal action against
the borrower on the debt without first exhausting that security. However in some
of these states, the lender, following judgment on that personal action, may be
deemed to have elected a remedy and may be precluded from exercising remedies
for the security. Consequently, the practical effect of the election
requirement, in those states permitting that election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the borrower. Finally, in 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
usually 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. Various state laws also place a limitation on the mortgagee
for late payment charges.
For mortgage loans secured by collateral in addition to the related
mortgaged properties, realization on the additional collateral may be governed
by the UCC in effect under the law of the state applicable thereto. Some courts
have interpreted the UCC to prohibit or limit a deficiency award in a number of
circumstances, including those in which the disposition of the collateral was
not conducted in a commercially reasonable manner. In some states, the UCC does
not apply to liens on additional collateral consisting of various types of
personal property, including, for example, bank accounts and, to some extent,
insurance policies and annuities. Realization on that additional collateral will
be governed by state laws applicable to that additional collateral rather than
by the UCC, and the availability of deficiency awards under those state laws may
be limited. Whether realization on any Additional Collateral is governed by the
UCC or by other state laws, the ability of secured parties to realize on the
additional collateral may be limited by statutory prohibitions that limit
remedies for the related mortgage loans. Those 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 of those mortgaged properties and the additional collateral
concurrently. Some state statutes require secured parties to
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exhaust the security afforded by the mortgaged properties through foreclosure
before attempting to realize on the related additional collateral, including any
third-party guarantees. Other state statutes require secured parties to
foreclose on 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 on the related
mortgaged properties and where secured parties either are required or elect to
proceed against those mortgaged properties before proceeding against the related
additional collateral, limitations on the amounts of deficiency judgments may
reduce the amounts that may be realized by the secured parties on the
disposition of that additional collateral. Further, in some 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 for the other.
Consequently, the practical effect of the election requirement, in those states
permitting that 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. In most cases, 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 on 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 on 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 of 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, for 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 that 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 tax liens over the lender's
security. This may delay or interfere with the enforcement of rights relating to
a defaulted loan. In addition, substantive requirements are imposed on
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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 on 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. For mortgage loans secured by collateral in addition to the related
mortgaged properties, those tax liens may in some circumstances provide priority
over the lien on that additional collateral.
Some of the mortgage loans known as high cost 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, if those 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 prescribed levels.
Purchasers or assignees of any high cost loan could be liable for all claims and
subject to all defenses arising under those provisions that the borrower could
assert against the originator of that high cost loan. 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 various 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, THAT GROUND LEASE CONTAINS
PROVISIONS PROTECTIVE OF THE LEASEHOLD MORTGAGEE. THESE PROVISIONS INCLUDE 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 AFTER THAT ASSIGNMENT TO BE ASSIGNED BY THE
LEASEHOLD MORTGAGEE OR THAT 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 ON 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, or Relief Act, a mortgagor who enters military service after the
origination of that 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 that mortgagor's active duty status, unless a
court orders otherwise on 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 some 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 some
circumstances, during an
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additional three month period after that period of active duty status. 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 with those certificates. 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. 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 on 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 some cases, either reinstates 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 that default and bring the senior loan
current, and as a result, 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 that 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 those proceeds and awards
to any indebtedness secured by the mortgage or deed of trust, in the 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 the 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 of that
property, and to appear in and defend any action or proceeding purporting to
affect the property or the rights of the mortgagee under the mortgage. In the
case of a failure of the mortgagor to perform any of these obligations, the
mortgagee or beneficiary is given the right under some 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.
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DUE-ON-SALE CLAUSES IN MORTGAGE LOANS
In most cases, the loans 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, or 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 some
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 provides nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act may not exercise a
due-on-sale clause, in spite of the fact that a transfer of the property may
have occurred. These include intra-family transfers, various 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 on the acceleration of a loan under 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 on the average
life of the mortgage loans and the number of mortgage loans which may be
outstanding until maturity.
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 for contacts partially insured by the FHA
under Title I, in some states, there are or may be specific limitations on the
late charges that a lender may collect from a borrower for delinquent payments.
In some states, there are or may be specific limitations on the late charges
which a lender may collect from a borrower for delinquent payments. Some 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 on 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, or 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 for 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 on their security, courts
have invoked general equitable principles. In most cases, the equitable
principles are 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 on 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
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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 , or Title V, provides that state usury
limitations shall not apply to some types of residential first mortgage loans
originated by some lenders after March 31, 1980. Similar federal statutes were
in effect for 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. Some 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 subjected
to a variety of restrictions. Those 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, or Title VIII.
Title VIII provides that, regardless of any state law to the contrary, state-
chartered banks may originate 'alternative mortgage instruments' , including ARM
loans, in accordance with regulations promulgated by the Comptroller of the
Currency for origination of alternative mortgage instruments by national banks.
State chartered credit unions may originate alternative mortgage instruments in
accordance with regulations promulgated by the National Credit Union
Administration, or NCUA, for origination of alternative mortgage instruments by
federal credit unions and all other non-federally chartered housing creditors,
including state-chartered savings and loan associations. 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, for 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 those provisions. Some states
have taken this action.
ENVIRONMENTAL LEGISLATION
Under Comprehensive Environmental Response, Compensation and Liability Act
of 1980, or CERCLA, and under state law in some states, a lender or secured
creditor may become liable in some circumstances for the costs of cleaning up
hazardous substances regardless of whether it has 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.
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996,
or Conservation Act amended, among other things, the provisions of CERCLA for
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
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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.
In addition to CERCLA, other federal and state laws in some circumstances
may also impose liability on a secured party for a mortgaged property on which
contaminants other than CERCLA hazardous substances are present, including
petroleum, agricultural chemicals, asbestos, radon, and lead-based paint. In all
such circumstances, such cleanup costs may be substantial. It is possible that
those cleanup costs could become a liability of a Trust and reduce the amounts
otherwise distributable to the holders of the related series of certificates.
Some federal statutes and some states by statute impose an Environmental Lien.
All subsequent liens on that property, in most cases, are subordinated to the
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 the
Environmental Lien could be adversely affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present on 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 those evaluations prior to the origination of the secured loans.
Neither the depositor nor any replacement servicer will be required by any
agreement to undertake those 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 for 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 that
property. A failure so to foreclose may reduce the amounts otherwise available
to securityholders of the related series.
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, or RICO, statute can be seized by the government if the
property was used in, or purchased with the proceeds of, those crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984, 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:
its mortgage was executed and recorded before the commission of the crime
on which the forfeiture is based, or
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, or DIDMC, and as a result, remanded to the United States District
Court for the District of New Hampshire for further proceedings to determine
whether 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
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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.
MATERIAL 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 under this prospectus where Thacher Proffitt &
Wood, Brown & Wood LLP or Stroock & Stroock & Lavan LLP is identified in the
applicable prospectus supplement as 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, and does not
purport to discuss all federal income tax consequences that may be applicable to
particular categories of investors, such as banks, insurance companies and
foreign investors, some of which may be subject to special rules. Further, the
authorities on which this discussion, and the opinion referred to under
'REMICs -- Classification of REMICs', 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:
is given for events that have occurred at the time the advice is rendered
and is not given for the consequences of contemplated actions, and
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 in this prospectus. In addition to
the federal income tax consequences described in this prospectus, 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 under this
prospectus.
The following discussion addresses securities of two general types:
REMIC certificates representing interests in a trust that the Trustee will
elect to have treated as a 'real estate mortgage investment conduit', or
REMIC, under Sections 860A through 860G of the Internal Revenue Code, or
the REMIC Provisions, and
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 that series.
REMICS
In most cases, as to each series of certificates, the trustee will covenant
to elect to treat the trust, or a portion of that trust, 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
that REMIC. If a REMIC election or elections will not be made for a trust or
some assets of a trust, the federal income tax consequences of the purchase,
ownership and disposition of the related certificates will be described in the
related prospectus supplement if those certificates are offered by that
prospectus supplement.
The following discussion is based in part on the rules governing original
issue discount that are presented in Sections 1271-1273 and 1275 of the Internal
Revenue Code and in the Treasury regulations issued under those sections, or the
OID Regulations, and in part on the REMIC Provisions and the Treasury
regulations issued under the REMIC Provisions, which together are referred to as
the REMIC Regulations. The OID Regulations do not adequately address all issues
relevant to, and in some instances provide that they are not applicable to,
securities such as the certificates.
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Classification of REMICs
At the time of the issuance of each series of REMIC certificates, counsel to
the depositor will deliver its opinion to the effect that, assuming compliance
with all provisions of the related pooling and servicing agreement, the related
trust, or each applicable portion of that trust, will qualify as a REMIC and the
REMIC certificates offered under that REMIC will be considered to evidence
ownership of regular interests or residual interests 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 Internal Revenue Code for that status
during any taxable year, the Internal Revenue Code provides that the entity will
not be treated as a REMIC for that year and after that year. In that event, the
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 under ' -- Characterization of Investments in REMIC
Certificates.' Although the Internal Revenue 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. That
relief, moreover, may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the trust's income for the period in which
the requirements for that status are not satisfied. The pooling and servicing
agreement for each REMIC will include provisions designed to maintain the
trust's status as a REMIC under the REMIC Provisions.
Characterization of Investments in REMIC Certificates
In most cases, the REMIC certificates will be 'real estate assets' within
the meaning of Section 856(c)(4)(A) of the Internal Revenue Code and assets
described in Section 7701(a)(19)(C) of the Internal Revenue Code in the same
proportion that the assets of the REMIC underlying those 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 REMIC residual certificates
will be interest described in Section 856(c)(3)(B) of the Internal Revenue Code
to the extent that those certificates are treated as 'real estate assets' within
the meaning of Section 856(c)(4)(A) of the Internal Revenue Code. The
determination as to the percentage of the REMIC's assets that constitute assets
described in the foregoing sections of the Internal Revenue Code will be made
for each calendar quarter based on the average adjusted basis of each category
of the assets held by the REMIC during that 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 Internal Revenue Code if transferred to a REMIC on that
REMIC's startup day in exchange for regular or residual interests in that REMIC.
The assets of the REMIC will include, in addition to loans, payments on
loans, including temporary investments of those proceeds, held pending
distribution on the REMIC certificates and may include property acquired by
foreclosure held pending sale, a nd 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 those
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 those 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
Internal Revenue Code.
Tiered REMIC Structures
For some series of REMIC certificates, two or more separate elections may be
made to treat designated portions of the related trust as REMICs for federal
income tax purposes. At the time of the issuance of that series of REMIC
certificates, counsel to the depositor will deliver its opinion to the effect
that, assuming
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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 Internal
Revenue Code, and 'loans secured by an interest in real property' under Section
7701(a)(19)(C) of the Internal Revenue Code, and whether the income on those
certificates is interest described in Section 856(c)(3)(B) of the Internal
Revenue 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 for REMIC regular
certificates under an accrual method.
Original Issue Discount
Some REMIC regular certificates may be issued with 'original issue discount'
within the meaning of Section 1273(a) of the Internal Revenue Code. Any holders
of REMIC regular certificates issued with original issue discount, in most
cases, will be required to include original issue discount in income as it
accrues, in accordance with the 'constant yield' method described in this
section, in advance of the receipt of the cash attributable to that income. In
addition, Section 1272(a)(6) of the Internal Revenue Code provides special rules
applicable to REMIC regular certificates and some other debt instruments issued
with original issue discount. Regulations have not been issued under that
section.
The Internal Revenue Code requires that a reasonable prepayment assumption
be used for 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 that 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 Committee Report accompanying the
Tax Reform Act of 1986 indicates that the regulations will provide that the
prepayment assumption used for a REMIC regular certificate must be the same as
that used in pricing the initial offering of that REMIC regular certificate. 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 closing date, the issue price
for that class will be the fair market value of that 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 that 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 that 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 that amount will vary according to the
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characteristics of that REMIC regular certificates. If the original issue
discount rules apply to those certificates, the related prospectus supplement
will describe the manner in which those rules will be applied 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 for a period that begins prior to the closing date, a portion
of the purchase price paid for a REMIC regular certificate will reflect that
accrued interest. In those 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 for periods prior to the
closing date is treated as part of the overall cost of that 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 that REMIC regular certificate. However, the OID Regulations state that all
or some portion of that 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 that election could be made unilaterally by a
certificateholder.
In spite of 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 that REMIC regular certificate, by multiplying:
the number of complete years, rounding down for partial years, from the
issue date until that payment is expected to be made, presumably taking
into account the prepayment assumption, by
a fraction, the numerator of which is the amount of payment, and the
denominator of which is the stated redemption price at maturity of that
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 that de minimis original issue discount and a fraction, the
numerator of which is the amount of that 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 that election under the OID Regulations.
Example. A REMIC regular certificate was issued with a de minimis amount of
original issue discount. A REMIC regular certificate with a stated redemption
price at maturity of $100,000 was issued for $99,261.62 on the closing date.
Unless the holder of the REMIC regular certificate makes the election described
below in 'Taxation of Owners of REMIC Regular Certificates -- Market Discount,'
the holder will include the de minimis original issue discount amount of $738.38
($100,000.00 -- $99,621.62) into income on a pro rata basis as principal
payments on the REMIC regular certificate are received or, if earlier, on
disposition of the REMIC regular certificate. If, for example, the holder were
to receive a stated principal payment of $10,000 during a taxable year, the
holder would include $73.84 in income as shown by the following computation:
<TABLE>
<S> <C> <C> <C>
Amount of Principal Payment Received........................ $ 10,000
= 10%
--------
Outstanding Stated Principal Amount......................... $100,000
De Minimis Original Issue Discount Amount................... $ 738.38
x10%
--------
Portion of De Minimis Original Issue Discount Amount
Included in Income........................................ $ 73.84
--------
--------
</TABLE>
If original issue discount on a REMIC regular certificate is in excess of a
de minimis amount, the holder of that 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 that 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.
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In most cases, as to each 'accrual period,' 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 that first period,
that period begins on the closing date, a calculation will be made of the
portion of the original issue discount that accrued during that accrual period.
The portion of original issue discount that accrues in any accrual period will
equal the excess, if any, of
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
that REMIC regular certificate during the accrual period of amounts
included in the stated redemption price, over
the adjusted issue price of that 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:
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 for each mortgage asset in
accordance with the prepayment assumption, if any, described in the
participation agreement or other organizational document under which that
mortgage asset was issued, and
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 for each mortgage asset in
accordance with the participation agreement or other organizational document
under which that 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 that certificate, increased by the aggregate amount of original issue
discount that accrued for that certificate in prior accrual periods, and reduced
by the amount of any distributions made on that REMIC regular certificate in
prior accrual periods of amounts included in the stated redemption price. The
original issue discount accruing during any accrual period, computed as
described above, will be allocated ratably to each day during the accrual period
to determine the daily portion of original issue discount for that day.
A subsequent purchaser of a REMIC regular certificate that purchases that
certificate at a cost, excluding any portion of that 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 for that certificate. However, that daily portion will
be reduced, if that cost is in excess of the REMIC regular certificate's
'adjusted issue price,' in proportion to the ratio that excess bears to the
aggregate original issue discount remaining to be accrued on that REMIC regular
certificate. The adjusted issue price of a REMIC regular certificate on any
given day equals:
the adjusted issue price, or, in the case of the first accrual period, the
issue price, of that certificate at the beginning of the accrual period
which includes that day, plus
the daily portions of original issue discount for all days during that
accrual period prior to that day, minus
any payments of amounts included in the stated redemption price made during
that accrual period prior to that day for that 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 on receipt of each distribution representing stated
redemption price. In particular, under Section 1276 of the Internal Revenue
Code, that certificateholder in most cases will be required to allocate the
portion of that 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
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on a deferred basis in accordance with the foregoing. If made, that election
will apply to all market discount bonds acquired by that certificateholder on or
after the first day of the first taxable year to which that 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 that
election were made for a REMIC regular certificate with market discount, the
certificateholder would be deemed to have made an election to include currently
market discount in income for all other debt instruments having market discount
that the certificateholder acquires during the taxable year of the election or
after that year. 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 for all debt instruments having amortizable
bond premium that the certificateholder owns or acquires. See 'Taxation of
Owners of REMIC Regular Certificates -- Premium.' Each of these elections to
accrue interest, discount and premium for a REMIC regular certificate on a
constant yield method or as interest may not be revoked without the consent of
the IRS.
However, market discount for a REMIC regular certificate will be considered
to be de minimis for purposes of Section 1276 of the Internal Revenue Code if
that market discount is less than 0.25% of the remaining stated redemption price
of that REMIC regular certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule for 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 for market discount, presumably taking
into account the prepayment assumption. If market discount is treated as de
minimis under this rule, it appears that the market 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.'
That treatment may result in market discount being included in income at a
slower rate than market discount would be required to be included in income
using the method described in the preceding paragraph.
Section 1276(b)(3) of the Internal Revenue 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
various 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:
on the basis of a constant yield method,
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
in the case of a REMIC regular certificate issued with original issue
discount, in an amount that bears the same ratio to the total remaining
market discount as the original issue discount accrued in the accrual
period bears to the total original issue discount remaining on the REMIC
regular certificate at the beginning of the accrual period.
Moreover, the prepayment assumption used in calculating the accrual of original
issue discount is also used in calculating the accrual of market discount.
Because the regulations referred to in this paragraph have not been issued, it
is not possible to predict what effect that 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 that market discount would accrue if
it were original issue discount. Moreover, in any event a holder of a REMIC
regular certificate in most cases will be required to treat a portion of any
gain on the sale or exchange of that 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 Internal Revenue 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
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purposes, the de minimis rule referred to above applies. That deferred interest
expense would not exceed the market discount that accrues during that taxable
year and is, in general, allowed as a deduction not later than the year in which
that market discount is includible in income. If that holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by the 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
that 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 that REMIC regular certificate may elect under Section
171 of the Internal Revenue Code to amortize that premium under the constant
yield method over the life of the certificate. If made, that 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 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 that certificateholder as having made
the election to amortize premium. 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 will also apply in amortizing
bond premium under Section 171 of the Internal Revenue Code. Those rules
presumably will require use of a prepayment assumption in accruing market
discount or premium for REMIC regular certificates without regard to whether
those certificates have original issue discount.
Realized Losses
Under Section 166 of the Internal Revenue Code, both corporate holders of
the REMIC regular certificates and noncorporate holders of the REMIC regular
certificates that acquire those 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 Internal Revenue Code until that holder's
certificate becomes wholly worthless, that is, 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 for that certificate, without giving effect
to any reductions in distributions attributable to defaults or delinquencies on
the loans until it can be established that the 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 that 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 regarding
the timing and character of that loss or reduction in income.
TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
General
Although a REMIC is a separate entity for federal income tax purposes, a
REMIC, in most cases, is not subject to entity-level taxation, except with
regard to prohibited transactions and other transactions. See ' -- Prohibited
Transactions and Other Possible REMIC Taxes.' Rather, the taxable income or net
loss of a REMIC is, in most cases, 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.
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A holder of a REMIC residual certificate, in most cases, 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 the holder owned that REMIC residual certificate. In most
cases, 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.' The daily amounts so allocated
will then be allocated among the REMIC residual certificateholders in proportion
to their respective ownership interests on that 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 under '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 Internal Revenue Code on the deductibility
of 'passive activity losses.'
A holder of a REMIC residual certificate that purchased that 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 that certificate. Those daily amounts,
in most cases, will equal the amounts of taxable income or net loss determined
as described above. The Committee Report indicates that 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 that certificate
from a prior holder of that certificate at a price greater than, or less than,
the adjusted basis, as defined under 'Basis Rules, Net Losses and
Distributions,' that REMIC residual certificate would have had in the hands of
an original holder of that certificate. The REMIC Regulations, however, do not
provide for those modifications.
Any payments received by a holder of a REMIC residual certificate in
connection with the acquisition of that REMIC residual certificate will be taken
into account in determining the income of that holder for federal income tax
purposes. Although it appears likely that this payment would be includible in
income immediately on its receipt, the IRS might assert that this 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 those payments, holders of REMIC residual certificates should
consult their tax advisors concerning the treatment of those payments for income
tax purposes.
The amount of income REMIC residual certificateholders will be required to
report, or the tax liability associated with that 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 under ' -- Excess Inclusions' and
' -- Noneconomic REMIC Residual Certificates.' The fact that the tax liability
associated with the income allocated to REMIC residual certificateholders may
exceed the cash distributions received by those REMIC residual
certificateholders for the corresponding period may significantly adversely
affect those REMIC residual certificateholders' after-tax rate of return. That
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 Internal Revenue Code, tax rates or character of
the income or loss.
Taxable Income of the REMIC
The taxable income of the REMIC will equal the income from the loans and
other assets of the REMIC plus any cancellation of indebtedness income due to
the allocation of realized losses to REMIC regular certificates, less the
deductions allowed to the REMIC for interest, including original issue discount
and reduced by amortization of any premium on issuance, on the REMIC regular
certificates, and any other class of REMIC certificates constituting regular
interests in the REMIC not offered by this prospectus, amortization of any
premium on the loans, bad debt losses for 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
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initially, their fair market values. The issue price of any REMIC certificates
offered by this prospectus 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
those 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 those 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 for 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 that market discount in income currently as it accrues, on a constant
yield basis. See ' -- Taxation of Owners of REMIC Regular Certificates' in this
section of the prospectus, which describes a method for accruing that 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 in that loan, determined as described above,
is less than, or greater than, its stated redemption price. That discount will
be includible in the income of the REMIC as it accrues, in advance of receipt of
the cash attributable to that 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 Internal Revenue Code to amortize any premium on the loans. Premium on any
loan to which that election applies may be amortized under a constant yield
method, presumably taking into account the prepayment assumption. Further, that
election would not apply to any loan originated on or before September 27, 1985.
Instead, premium on that loan should be allocated among the principal payments
on that loan and be deductible by the REMIC as those payments become due or on
the prepayment of that loan.
A REMIC will be allowed deductions for interest, including original issue
discount, on the REMIC regular certificates, which includes any other class of
REMIC certificates constituting 'regular interests' in the REMIC not offered by
this prospectus, equal to the deductions that would be allowed if the REMIC
regular certificates, which includes any other class of REMIC certificates
constituting 'regular interests' in the REMIC not offered by this prospectus,
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, which includes any other class of REMIC certificates constituting
'regular interests' in the REMIC not offered by this prospectus, described in
that Section will not apply.
If a class of REMIC regular certificates is issued at an issue premium, the
net amount of interest deductions that are allowed the REMIC in each taxable
year relating to the REMIC regular certificates of that 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 Internal Revenue Code, which allows
those 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 those
expenses will be allocated as a separate item to the holders of REMIC residual
certificates, subject to the limitation of Section 67 of the Internal Revenue
Code. See ' -- Possible Pass-Through of Miscellaneous Itemized Deductions.' If
the deductions allowed to the REMIC exceed its gross income for a calendar
quarter, that excess will be the net loss for the REMIC for that calendar
quarter.
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Basis Rules, Net Losses and Distributions
The adjusted basis of a REMIC residual certificate will be equal to the
amount paid for that 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 that REMIC residual
certificateholder.
A REMIC residual certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent that net loss exceeds that REMIC
residual certificateholder's adjusted basis in its REMIC residual certificate as
of the close of that calendar quarter, determined without regard to that 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 Internal Revenue 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 that certificate. To the extent a distribution on a REMIC
residual certificate exceeds that adjusted basis, it will be treated as gain
from the sale of that certificate. Holders of REMIC residual certificates may be
entitled to distributions early in the term of the related REMIC under
circumstances in which their bases in that REMIC residual certificates will not
be sufficiently large that those distributions will be treated as nontaxable
returns of capital. Their bases in those REMIC residual certificates will
initially equal the amount paid for those REMIC residual certificates and will
be increased by their allocable shares of the taxable income of the REMIC.
However, those bases increases may not occur until the end of the calendar
quarter, or perhaps the end of the calendar year, for which that REMIC taxable
income is allocated to the REMIC residual certificateholders. To the extent that
REMIC residual certificateholders' initial bases are less than the distributions
to that REMIC residual certificateholders, and increases in those initial bases
either occur after those distributions or, together with their initial bases,
are less than the amount of those distributions, gain will be recognized to
those REMIC residual certificateholders on those 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 on the sale of its REMIC residual certificate. See ' -- Sales of REMIC
Certificates,' in this section of the prospectus. 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 that REMIC residual certificate to
that REMIC residual certificateholder and the adjusted basis that 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' for a REMIC residual certificate will be subject to
federal income tax in all events.
In general, the 'excess inclusions' for a REMIC residual certificate for any
calendar quarter will be the excess, if any, of:
the daily portions of REMIC taxable income allocable to that REMIC residual
certificate, over
the sum of the 'daily accruals', as defined below, for each day during that
quarter that the 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 for that REMIC residual certificate before the
beginning of that 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:
will not be permitted to be offset by deductions, losses or loss carryovers
from other activities,
will be treated as 'unrelated business taxable income' to an otherwise
tax-exempt organization, and
will not be eligible for any rate reduction or exemption under any
applicable tax treaty for the 30% United States withholding tax imposed on
distributions to REMIC residual certificateholders that are foreign
investors. See, however, ' -- Foreign Investors in REMIC Certificates,' in
this section of the prospectus.
Provisions governing the relationship between excess inclusions and the
alternative minimum tax provide that:
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,
the alternative minimum taxable of a taxpayer for a taxable year cannot be
less than the amount of excess inclusions for that year, and
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 for those certificates, reduced, but not below zero, by the
real estate investment trust taxable income, within the meaning of Section
857(b)(2) of the Internal Revenue Code, excluding any net capital gain, will be
allocated among the shareholders of that trust in proportion to the dividends
received by those shareholders from that trust. Any amount so allocated will be
treated as an excess inclusion for a REMIC residual certificate as if held
directly by that shareholder. A similar rule will apply for regulated investment
companies, common trust funds and various 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 that transfer is disregarded, the purported
transferor will continue to remain liable for any taxes due for the income on
that '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:
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 for
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
the transferor reasonably expects that for each anticipated excess
inclusion the transferee will receive distributions for 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 various restrictions under the
terms of the related pooling and servicing agreement that are intended to reduce
the possibility of that transfer being disregarded. Those restrictions will
require each party to a transfer to provide an affidavit that no purpose of that
transfer is to impede the assessment or collection of tax, including various
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 that 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 that REMIC residual certificate by that
purchaser to another purchaser at some future date might be disregarded
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in accordance with the above-described rules, which would result in the
retention of tax liability by that purchaser.
The related prospectus supplement will disclose whether offered REMIC
residual certificates may be considered 'noneconomic' residual interests under
the REMIC regulations. However, any disclosure that a REMIC residual certificate
will not be considered 'noneconomic' will be based on various 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 various REMIC
residual certificates to foreign persons.
Mark-to-Market Rules
On December 24, 1996, the IRS released 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 in most cases may not be marked to market.
Possible Pass-Through of Miscellaneous Itemized Deductions
Fees and expenses of a REMIC in most cases 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 those fees and expenses should be allocated
to the holders of the related REMIC regular certificates. In most cases, those
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.
For 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 that certificate is an individual, estate or
trust, or a 'pass-through entity' beneficially owned by one or more individuals,
estates or trusts:
an amount equal to that individual's, estate's or trust's share of those
fees and expenses will be added to the gross income of that holder, and
that individual's, estate's or trust's share of those fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to
the limitation of Section 67 of the Internal Revenue Code, which permits
those 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 that partnership's miscellaneous
itemized deductions will be disallowed, although the remaining deductions will,
in most cases, 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 Internal Revenue 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:
3% of the excess of the individual's adjusted gross income over that amount
or
80% of the amount of itemized deductions otherwise allowable for the
taxable year.
The amount of additional taxable income reportable by holders of those
certificates that are subject to the limitations of either Section 67 or Section
68 of the Internal Revenue Code may be substantial. Furthermore, in determining
the alternative minimum taxable income of that 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 that holder's allocable portion of servicing fees and other
miscellaneous itemized deductions of the REMIC, even though an amount equal to
the amount of those fees and other deductions will be included in that holder's
gross income. Accordingly, those REMIC certificates may not be appropriate
investments for individuals, estates or trusts, or pass-through entities
beneficially owned by one or more
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individuals, estates or trusts. Those prospective investors should carefully
consult with their own tax advisors prior to making an investment in those
certificates.
Sales of REMIC Certificates
If a REMIC regular 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, in most cases, will equal the cost of that
REMIC regular certificate to that certificateholder, increased by income
reported by that certificateholder for that REMIC regular certificate, including
original issue discount and market discount income, and reduced, but not below
zero, by distributions on that REMIC regular certificate received by that
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, the gain or
loss described will be capital gain or loss provided that REMIC regular
certificate is held as a capital asset, which in most cases is property held for
investment, within the meaning of Section 1221 of the Internal Revenue 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 that gain does not
exceed the excess, if any, of:
the amount that would have been includible in the seller's income for that
REMIC regular certificate assuming that income had accrued on that REMIC
regular certificate at a rate equal to 110% of the 'applicable Federal
rate', in most cases, 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 that certificate,
which rate is computed and published monthly by the IRS, determined as of
the date of purchase of that certificate, over
the amount of ordinary income actually includible in the seller's income
prior to that sale.
In addition, gain recognized on the sale of a REMIC regular certificate by a
seller who purchased that certificate at a market discount will be taxable as
ordinary income in an amount not exceeding the portion of that discount that
accrued during the period that REMIC certificate was held by that 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 regular certificates will be 'evidences of indebtedness' within the
meaning of Section 582(c)(1) of the Internal Revenue Code, so that gain or loss
recognized from the sale of a REMIC regular certificate by a bank or thrift
institution to which that 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 the certificate is held as part of a 'conversion transaction' within the
meaning of Section 1258 of the Internal Revenue Code. A conversion transaction,
in most cases, 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 that transaction. The amount of gain so
realized in a conversion transaction that is recharacterized as ordinary income,
in most cases, 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 that 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 Internal Revenue
Code, during the period beginning six months before, and ending six months
after, the date of that sale, the sale will be subject to the 'wash sale' rules
of Section 1091 of the Internal Revenue Code. In that event, any loss realized
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by the REMIC residual certificateholder on the sale will not be deductible, but
instead will be added to that REMIC residual certificateholder's adjusted basis
in the newly acquired asset.
Prohibited Transactions and Other Possible REMIC Taxes
The Internal Revenue Code imposes a Prohibited Transaction Tax. In general,
subject to specified exceptions, a prohibited transaction means the disposition
of a loan, the receipt of income from a source other than a loan or some 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, contributions to a REMIC made after the day on which the REMIC
issues all of its interests could result in the imposition of a Contributions
Tax. Each pooling and servicing agreement will include provisions designed to
prevent the acceptance of any contributions that would be subject to that 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,' in most cases, 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.
In most cases, it is not anticipated that any REMIC will recognize 'net income
from foreclosure property' subject to federal income tax.
In most cases, 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 any of those taxes 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 relating to compliance with applicable laws and
regulations. That tax not borne by the master servicer or the trustee will be
charged against the related trust, resulting in a reduction in amounts payable
to holders of the related REMIC certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to Specific
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:
the present value, which is 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 for the REMIC residual
certificate, which rate is computed and published monthly by the IRS, of
the total anticipated excess inclusions for that REMIC residual certificate
for periods after the transfer and
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 that transfer, the prepayment assumption and any
required or permitted clean up calls or required qualified liquidation provided
for in the REMIC's organizational documents. That tax would be, in most cases,
imposed on the transferor of the REMIC residual certificate, except that where
that transfer is through an agent for a disqualified organization, the tax would
instead be imposed on that agent. However, a transferor of a REMIC residual
certificate would in no event be liable for that tax for 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 the affidavit was false. Moreover, an entity
will not qualify as a REMIC unless there are reasonable arrangements designed to
ensure that:
residual interests in that entity are not held by disqualified
organizations and
information necessary for the application of the tax described in this
prospectus will be made available.
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Restrictions on the transfer of REMIC residual certificates and 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 for a REMIC residual certificate and a disqualified
organization is the record holder of an interest in that entity, then a tax will
be imposed on that entity equal to the product of:
the amount of excess inclusions on the REMIC residual certificate that are
allocable to the interest in the pass-through entity held by that
disqualified organization and
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 that pass-through entity furnishes to
that pass-through entity:
that holder's social security number and a statement under penalty of
perjury that the social security number is that of the record holder or
a statement under penalty of perjury that the record holder is not a
disqualified organization.
For taxable years beginning after December 31, 1997, in spite of the preceding
two sentences, in the case of a REMIC residual certificate held by an 'electing
large partnership,' all interests in that 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 that tax, in most cases, allowed to pass-through entities.
For these purposes, a 'disqualified organization' means:
the United States, any State or political subdivision of the United States,
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 Internal Revenue Code or the Federal Home
Loan Mortgage Corporation,
any organization, other than a cooperative described in Section 521 of the
Internal Revenue Code, that is exempt from federal income tax, unless it is
subject to the tax imposed by Section 511 of the Internal Revenue Code, or
any organization described in Section 1381(a)(2)(C) of the Internal Revenue
Code.
For these purposes, a 'pass-through entity' means any regulated investment
company, real estate investment trust, trust, partnership or other entities
described in Section 860E(e)(6) of the Internal Revenue Code. In addition, a
person holding an interest in a pass-through entity as a nominee for another
person will, for that 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 relating of the loans or on 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 that REMIC residual
certificate is less than the REMIC Residual certificateholder's adjusted basis
in that certificate, that REMIC residual certificateholder should , but may not,
be treated as realizing a loss equal to the amount of that difference, and that
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 Internal
Revenue Code, which may be accomplished by designating in the REMIC's final tax
return a date on which that adoption is deemed to occur, and sells all of its
assets, other than cash, within a 90-day period beginning on that date, the
REMIC will not be subjected to any 'prohibited transactions taxes' solely on
account of that 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 Internal Revenue
Code, the REMIC will be treated as a partnership and REMIC residual
certificateholders will be treated as partners. In most cases, the trustee will
file REMIC federal income tax returns on behalf of the REMIC, will hold at least
a nominal amount of REMIC residual certificates, and will be designated as and
will act as the 'tax matters person' for the REMIC in all respects.
The trustee, as the tax matters person or as agent for the tax matters
person, subject to various notice requirements and various restrictions and
limitations, in most cases 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, in
most cases, be required to report that 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 that 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 that 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 that person and other information.
Reporting of interest income, including any original issue discount, for
REMIC regular certificates is required annually, and may be required more
frequently under Treasury regulations. These information reports in most cases
are required to be sent to various 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 Internal
Revenue Code, securities dealers and other non-individuals will be provided
interest and original issue discount income information and the information
provided in the following paragraph on 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 that information to be reported
to the IRS. Reporting for 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, in most cases 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 for 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, those 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 as 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 Internal Revenue Code at a rate of 31% if recipients of
those payments fail to furnish to the payor various information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from that tax. Final Withholding Regulations, which are, in most cases,
effective for payments made after December 31, 2000, 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
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
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withheld from a distribution to a recipient would be allowed as a credit against
that recipient's federal income tax. Furthermore, penalties may be imposed by
the IRS on a recipient of payments that is required to supply information but
that does not do so in the proper manner.
Foreign Investors in REMIC Certificates
A REMIC Regular certificateholder that is not a United States person, as
defined below, and is not subject to federal income tax as a result of any
direct or indirect connection to the United States in addition to its ownership
of a REMIC regular certificate will not, in most cases, be subject to United
States federal income or withholding tax relating to a distribution on a REMIC
regular certificate, provided that the holder complies to the extent necessary
with various identification requirements. These requirements include delivery of
a statement, signed by the certificateholder under penalties of perjury,
certifying that the certificateholder is not a United States person and
providing the name and address of that 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 effective for payments made after December
31, 2000. 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 of the
United States 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 Internal Revenue 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 regardless of the previous sentence. It is possible
that the IRS may assert that the foregoing tax exemption should not apply for 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 of accrued original issue discount, to that
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 that United
States shareholder's allocable portion of the interest income received by that
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. In
most cases, 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 for 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 related documents and on issuance of the
notes, for federal income tax purposes:
the notes will be treated as indebtedness and
the issuer, as created under the terms and conditions of the owner trust
agreement, will not be characterized as an association, or publicly traded
partnership, taxable as a corporation or as a taxable mortgage pool.
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Status as Real Property Loans
Notes held by a domestic building and loan association will not constitute
'loans . . . secured by an interest in real property' within the meaning of
Internal Revenue 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 Internal Revenue 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 Internal Revenue Code section 856(c)(3)(B).
Taxation of Noteholders
Notes in most cases will be subject to the same rules of taxation as REMIC
regular certificates issued by a REMIC, as described above, except that:
income reportable on the notes is not required to be reported under the
accrual method unless the holder otherwise uses the accrual method and
the special rule treating a portion of the gain on sale or exchange of a
REMIC regular certificate as ordinary income is inapplicable to the notes.
See ' -- REMICs -- Taxation of Owners of REMIC Regular Certificates' and
' -- Sales of REMIC Certificates.'
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in 'Material
Federal Income Tax Consequences,' potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
securities offered under this prospectus. 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 as to the
various tax consequences of investments in the securities offered under this
prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended, or ERISA,
imposes fiduciary and prohibited transaction restrictions on employee pension
and welfare benefit plans subject to ERISA, or ERISA plans. Section 4975 of the
Internal Revenue Code imposes similar prohibited transaction restrictions on
qualified retirement plans described in Section 401(a) of the Internal Revenue
Code and on individual retirement accounts, or IRAs, described in Section 408 of
the Internal Revenue Code (these qualified plans and IRAs, together with ERISA
Plans, are referred to in this section as Plans).
Some 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 Internal Revenue Code, church plans as defined in Section 3(33) of ERISA,
are not subject to the ERISA requirements discussed in this prospectus.
Accordingly, assets of those 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 plan that is a qualified retirement plan
and exempt from taxation under Sections 401(a) and 501(a) of the Internal
Revenue Code, however, is subject to the prohibited transaction rules presented
in Section 503 of the Internal Revenue 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 Internal Revenue Code prohibit a broad
range of transactions involving parties in interest, unless a statutory,
regulatory or administrative exemption is available. Parties in interest that
participate in a prohibited transaction may be subject to a penalty, or an
excise tax, imposed under Section 502(i) of ERISA or Section 4975 of the
Internal Revenue Code, unless a statutory, regulatory or administrative
exemption is available.
ERISA Plan Asset Regulations. Transactions involving a trust that issues
securities offered under this prospectus might be deemed to constitute
prohibited transactions under ERISA and the Internal Revenue Code for a Plan
that purchases the securities, if the underlying mortgage assets and other
assets included in the trust are deemed to be assets of the Plan. The U.S.
Department of Labor, or DOL, has promulgated ERISA 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 Internal Revenue Code. Under
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the ERISA Plan Asset Regulations, in most cases, when a Plan acquires an 'equity
interest' in another entity, such as the trust, the underlying assets of that
entity may be considered to be ERISA plan assets unless exceptions apply. In
addition to several exceptions not applicable to an entity like the trust, a
Plan's Assets will not include an undivided interest in each asset of an entity
in which that Plan makes an equity investment if benefit plan investors, that
is, ERISA plans and employee benefit plans not subject to ERISA, do not own, in
the aggregate, 25% or more in value of any class of equity securities issued by
the entity. Neither ERISA plans nor persons investing ERISA plan assets should
acquire or hold securities in reliance on the availability of any exception
under the ERISA Plan Asset Regulations. The ERISA 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 ERISA Plan Asset Regulations,
ERISA 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 some of the
rules presented in the ERISA Plan Asset Regulations, ERISA 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. 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 for that Plan.
Any person who has discretionary authority or control respecting the
management or disposition of ERISA plan assets, and any person who provides
investment advice for such assets for a fee, is a fiduciary of the investing
Plan. If the mortgage assets and other assets included in a trust constitute
ERISA 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 some affiliates of those entities may be deemed to be a Plan 'fiduciary' and
thus subject to the fiduciary responsibility provisions and prohibited
transaction provisions of ERISA and the Internal Revenue Code for the investing
Plan. In addition, if the mortgage assets and other assets included in a trust
constitute ERISA plan assets, the purchase of certificates by a Plan, as well as
the operation of the trust, may constitute or involve a prohibited transaction
under ERISA or the Internal Revenue Code.
The ERISA Plan Asset Regulations provide that where a Plan acquires a
'guaranteed governmental mortgage pool certificate,' the Plan's assets include
that certificate but do not solely by reason of the Plan's holdings of that
certificate include any of the mortgages underlying that certificate. The ERISA
Plan Asset Regulations include in the definition of a 'guaranteed governmental
mortgage pool certificate' Freddie Mac Certificates, GNMA Certificates and
Fannie Mae Certificates. Accordingly, even if those Agency Securities included
in a trust were deemed to be assets of Plan investors, the mortgages underlying
those Agency Securities would not be treated as assets of those ERISA plans.
Private mortgage-backed securities are not 'guaranteed governmental mortgage
pool certificates' within the meaning of the ERISA Plan Asset Regulations.
Potential Plan investors should consult their counsel and review the ERISA
discussion in this prospectus and in the related prospectus supplement before
purchasing those certificates.
Prohibited Transaction Exemption. The DOL has granted to DLJ Prohibited
Transaction Exemption 90-83, or the Exemption, which in most cases exempts from
the application of the prohibited transaction provisions of Section 406 of
ERISA, and the excise taxes imposed on those prohibited transactions under
Section 4975(a) and (b) of the Internal Revenue Code, transactions 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, provided that conditions listed in the Exemption are satisfied. For
purposes of this Exemption, 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 for a class of securities. 'Securities'
potentially covered by the Exemption would include certificates, notes that are
treated as 'equity interests' under the ERISA Plan Asset Regulations, and
interests issued by a trust that elects to be treated as a REMIC or FASIT.
The Exemption provides six general conditions which must be satisfied for a
transaction involving the purchase, sale and holding of securities to be
eligible for exemptive relief under the Exemption. First, the acquisition of
securities by a Plan or with ERISA 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
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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.
Third, the securities at the time of acquisition by or with ERISA 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 Credit Rating Company or Fitch IBCA, Inc., or,
together, the Rating Agencies. Fourth, the trustee cannot be an affiliate of any
other member of the Restricted Group, as defined below. 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 under the assignment of the assets to the
related trust must represent not more than the fair market value of those
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 that person's services under the related agreement
and reimbursement of that 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 Restricted Group consists of the depositor, the related seller, any
underwriter, the trustee, the servicer, any obligor with respect to contracts
including the trust constituting more than five percent of the aggregate
unamortized principal balance of the assets in the trust, or any affiliate of
these parties.
The Exemption also requires that a trust meet the following requirements:
(1) The trust must consist solely of assets of a type that have been
included in other investment pools;
(2) Securities in those other investment pools must have been rated in one
of the three highest categories of one of the Rating Agencies for at
least one year prior to the Plan's acquisition of securities; and
(3) Securities in those other investment pools must have been purchased by
investors other than ERISA plans for at least one year prior to any
Plan's acquisition of securities.
A fiduciary of any Plan or other investor of ERISA plan assets contemplating
purchasing a certificate or note must make its own determination that the
general conditions described above will be satisfied for that certificate or
note.
If the general conditions of the Exemption are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407 of
ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b) of the
Internal Revenue Code by reason of Sections 4975(c)(1)(A) through (D) of the
Internal Revenue Code) in connection with the direct or indirect sale, exchange,
transfer, holding, acquisition or disposition in the secondary market of
securities by ERISA plans or with ERISA 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 ERISA plan
assets of an 'Excluded Plan', as defined below, by any person who has
discretionary authority or renders investment advice for ERISA plan assets of
that Excluded Plan. For purposes of the securities, an Excluded Plan is a Plan
sponsored by any member of the Restricted Group.
If 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 Internal
Revenue Code in connection with:
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 for the investment of the relevant ERISA plan assets in the
securities is (a) a mortgagor as to 5% or less of the fair market value of
the assets of the related trust or (b) an affiliate of that person,
the direct or indirect acquisition or disposition of securities in the
secondary market by a Plan or an entity investing ERISA plan assets, and
the holding of securities by a Plan or an entity investing ERISA plan
assets.
Further, if 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 Internal Revenue Code by reason of Section 4975(c) of the
Internal Revenue Code for transactions in connection with the servicing,
management and operation of the trusts. The depositor
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expects that the specific conditions of the Exemption required for this purpose
will be satisfied for 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
Internal Revenue Code by reason of Section 4975(c) of the Internal Revenue Code,
for transactions in connection with the servicing, management and operation of
the trusts, 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 Internal Revenue Code by reason of Sections 4975(c)(1)(A) through
(D) of the Internal Revenue Code if those restrictions would otherwise apply
merely because a person is deemed to be a party in interest for an investing
Plan (or the investing entity holding ERISA plan assets) by virtue of providing
services to the Plan (or by virtue of having specified relationships to that
person) solely as a result of the ownership of securities by a Plan or the
investment of ERISA plan assets in securities.
On July 21, 1997, the DOL amended the Exemption to extend exemptive relief
to various mortgage-backed and asset-backed securities transactions using
Funding Accounts for trusts issuing pass-through certificates. For the
securities, the amendment in most cases 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 (the
Pre-Funding Limit), to be transferred to that trust within a 90-day or
three-month period following the closing date (the Pre-Funding Period) instead
of requiring that all those 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:
the ratio of the amount allocated to the pre-funding account to the total
principal amount of the certificates being offered (the Pre-Funding Limit)
must be less than or equal to 25%;
all obligations transferred after the closing date (the subsequent mortgage
loans) must meet the same terms and conditions for eligibility as the
original mortgage loans used to create the trust, which terms and
conditions have been approved by one of the exemption rating agencies;
the transfer of those subsequent mortgage loans to the trust during the
Pre-Funding Period must not result in the securities to be covered by the
Exemption receiving a lower credit rating from a Rating Agency on
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;
solely as a result of the use of pre-funding, the weighted average annual
percentage interest rate, or Average Interest Rate, for all of the mortgage
loans and subsequent mortgage loans in the trust at the end of the
Pre-Funding Period must not be more than 100 basis points lower than the
Average Interest Rate for the mortgage loans which were transferred to the
trust on the closing date;
in order to ensure that the characteristics of the subsequent mortgage
loans are substantially similar to those of the original mortgage loans:
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
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 that letter, the independent
accountant must use the same type of procedures as were applicable to the
mortgage loans which were transferred to the trust as of the closing date;
the Pre-Funding Period must end no later than three months or 90 days after
the closing date or earlier in various circumstances if the Funding
Accounts falls below the minimum level specified in the agreement or an
event of default occurs;
amounts transferred to any Funding Accounts and/or capitalized interest
accounts used in connection with the pre-funding may be invested only in
permitted investments;
the prospectus or prospectus supplement must describe any pre-funding
account and/or capitalized interest account used in connection with the
Funding Account, the duration of the Pre-Funding Period; the percentage
and/or dollar amount of the Pre-Funding Limit for the trust; and that the
amounts
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remaining in the funding account at the end of the Pre-Funding Period will
be remitted to certificateholders as repayments of principal;
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, must enforce all the rights created in favor
of securityholders of the trust, including employee benefit plans subject
to ERISA.
Before purchasing a certificate or note, a fiduciary of a Plan or other
investor of ERISA plan assets should itself confirm:
that the securities constitute 'certificates' for purposes of the Exemption
and
that the specific and general conditions provided in the Exemption and the
other requirements provided 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 ERISA plan assets.
Any fiduciary or other Plan investor which proposes to purchase securities
on behalf of or with ERISA plan assets should consult with its counsel
concerning the potential applicability of ERISA and the Internal Revenue Code to
that investment and the availability of the Exemption or any other prohibited
transaction exemption in connection with that purchase. 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,
that fiduciary or other Plan investor should consider the potential availability
of the Exemption or Prohibited Transaction Class exemption (PTCE) 83-1, or PTCE
83-1, for various transactions involving mortgage pool investment trusts.
However, PTCE 83-1 does not provide exemptive relief for securities evidencing
interests in trusts which include Cooperative Loans and may not provide
exemptive relief for securities having particular cash-flow characteristics that
may be issued by a trust. In addition, that 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 for a series of
securities may contain additional information regarding the application of the
Exemption, PTCE 83-1, or any other exemption, for the securities offered by that
prospectus supplement. There can be no assurance that any of these exemptions
will apply for 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
that 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 some exemptive relief from the provisions of Part 4 of
Title I of ERISA and Section 4975 of the Internal Revenue Code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by the Internal Revenue Code, for transactions involving an
insurance company general account. Under Section 401(c) of ERISA, the DOL
published Proposed 401(c) Regulations on December 22, 1997, however the required
final regulations have not been issued as of the date of this prospectus. 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 ERISA plan assets. Section 401(c) of ERISA
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 Internal Revenue Code on the basis
of a claim that the assets of an insurance company general account constitute
ERISA plan assets, unless:
as otherwise provided by the Secretary of Labor in the Proposed 401(c)
Regulations to prevent avoidance of the regulations, or
an action is brought by the Secretary of Labor for 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
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support insurance policies issued to a Plan after December 31, 1998 or
issued to ERISA 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 ERISA plan assets.
In addition, because Section 401(c) does not relate to insurance company
separate accounts, separate account assets are still treated as ERISA plan
assets of any Plan invested in that separate account. Insurance companies
contemplating the investment of general account assets in the securities should
consult with their legal counsel about 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 ERISA Plans Investing in Securities. 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 some 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.
Therefore, transfers of any securities which would cause the assets of the trust
to be deemed ERISA 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 ERISA plan
assets to effect that 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. This opinion will not be at the expense of the depositor, the trustee
or the master servicer, and it will state that the purchase of those securities
by or on behalf of that Plan is permissible under applicable law, will not
constitute or result in any non-exempt prohibited transaction under ERISA or
Section 4975 of the Internal Revenue 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 that opinion of counsel, the transferee may provide a
certification substantially to the effect that the purchase of securities by or
on behalf of that Plan is permissible under applicable law, will not constitute
or result in any non-exempt prohibited transaction under ERISA or Section 4975
of the Internal Revenue 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:
the transferee is an insurance company;
the source of funds used to purchase that securities is an 'insurance
company general account' (as that term is defined in PTCE 95-60);
the conditions provided in Sections I and III of PTCE 95-60 have been
satisfied; and
there is no Plan for which the amount of that general account's reserves
and liabilities for contracts held by or on behalf of that Plan and all
other ERISA plans maintained by the same employer, or any 'affiliate' of
that employer, as defined in PTCE 95-60, or by the same employee
organization exceed 10% of the total of all reserves and liabilities of
that general account, as determined under PTCE 95-60, as of the date of the
acquisition of those securities.
An opinion of counsel or certification will not be required for the purchase
of securities registered through DTC. Any purchaser of a security registered
through DTC will be deemed to have represented by that purchase that either (a)
the purchaser is not a Plan and is not purchasing those securities on behalf of,
or with ERISA plan assets of, any Plan or (b) the purchase of those securities
by or on behalf of, or with ERISA 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 Internal Revenue 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 Tax Exempt Investor nonetheless will be subject to
federal income taxation to the extent that its income is 'unrelated business
taxable income,' or UBTI, within the meaning of Section 512 of the Internal
Revenue 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 'Material Federal Income Tax
Consequences -- Taxation of Owners of REMIC Residual Certificates -- Excess
Inclusions.'
Consultation With Counsel. Any fiduciary of a Plan or other Plan investor
that proposes to acquire or hold securities on behalf of a Plan or with ERISA
plan assets should consult with its counsel about the potential applicability of
the fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of
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ERISA and the Internal Revenue 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 by this prospectus 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. In most cases,
securities of any series will constitute 'mortgage related securities' for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, or 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. This group
includes, but is 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 under 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 of the United States constitute legal investments for
those entities. Any class of securities that represents an interest in a trust
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 those entities in
relation to 'mortgage related securities,' the securities will constitute legal
investments for entities subject to that legislation only to the extent provided
in that legislation. Some States have enacted legislation which overrides the
preemption provisions of SMMEA. SMMEA provides, however, that in no event will
the enactment of that 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 those securities so long as that
contractual commitment was made or those securities acquired prior to the
enactment of that 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 by those mortgage-related securities, 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 applicable to investment securities provided in 12 U.S.C. 24
(Seventh), subject in each case to the regulations as the applicable federal
regulatory authority may prescribe.
On April 23, 1998, the Federal Financial Institutions Examination Council
issued the 1998 Policy Statement applicable to all depository institutions,
providing 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 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 '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,' or 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:
a pre-purchase portfolio sensitivity analysis for any 'significant
transaction' involving securities or financial derivatives, and
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 by this
prospectus and by the related prospectus supplement
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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 that do not have adequate risk measurement, monitoring
and control systems may be viewed by OTS examiners as an unsafe and unsound
practice.
Some classes of securities offered by this prospectus, 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.
Those classes of securities will be identified in the related prospectus
supplement. Prospective investors in those classes of securities, in particular,
should consider the matters discussed in the following paragraph.
There may be other restrictions on the ability of some investors either to
purchase various 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 that
investor.
LEGAL MATTERS
Some specific legal matters in connection with the securities offered by
this prospectus will be passed on 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
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 in those trusts and acquiring
and selling mortgage assets to those 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 in this prospectus, the only obligations of the depositor will
be under various representations and warranties relating the mortgage assets.
See 'Loan Underwriting Standards -- Representations and Warranties' and 'The
Agreements -- Assignment of Mortgage Assets' in this prospectus. The depositor
will have no ongoing servicing responsibilities or other responsibilities for
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 for any trust.
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 that loan, or if applicable, the master servicer or, the servicer. See
'Risk Factors' in this prospectus.
USE OF PROCEEDS
The depositor will apply all or substantially all of the net proceeds from
the sale of each series offered by this prospectus 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. In some cases, securities may be
exchanged by the depositor for mortgage assets. The depositor expects that it
will make additional sales of
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securities similar to the securities from time to time, but the timing and
amount of those additional offerings will be dependent on a number of factors,
including the volume of mortgage loans purchased by the depositor, prevailing
interest rates, availability of funds and general market conditions.
PLAN OF DISTRIBUTION
The securities offered by this prospectus and by the related prospectus
supplements will be offered in series may be sold directly by the depositor or
may be offered through 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 that 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.
The methods are as follows:
by negotiated firm commitment or best efforts underwriting and public
re-offering by the underwriters;
by placements by the depositor with institutional investors through
dealers; and
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 for those securities.
If underwriters are used in a sale of any securities, other than in
connection with an underwriting on a best efforts basis, those 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 related to the offer and sale of a particular series of securities
will be named on the cover of the prospectus supplement relating to that series
and the members of the underwriting syndicate, if any, will be named in that
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 those 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 various conditions precedent, that the underwriters will be
obligated to purchase those 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 civil liabilities, including
liabilities under the Securities Act of 1933, as amended, or will contribute to
payments required to be made in connection with those civil liabilities.
The prospectus supplement for any series offered by placements through
dealers will contain information regarding the nature of that offering and any
agreements to be entered into between the depositor and purchasers of securities
of that series.
This prospectus, together with the related prospectus supplement, may be
used by Donaldson, Lufkin & Jenrette Securities Corporation, an affiliate of the
depositor, in connection with offers and sales related to market making
transactions in the securities in which Donaldson, Lufkin & Jenrette acts as
principal or agent. Sales in such transactions will be made at prices related to
prevailing prices at the time of sale.
The depositor anticipates that the securities offered by this prospectus
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 those 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 that reoffer or
sale.
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GLOSSARY
1998 POLICY STATEMENT -- The revised supervisory statement setting for the
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 NCUA and the OTS with an effective
date of May 26, 1998.
401(C) REGULATIONS -- The unissued final regulations, for proposed
regulations of the DOL published on December 22, 1997, Section 401(c) of ERISA.
ACCRUAL TERMINATION DATE -- For a class of accrual securities, the
distribution date on which all securities of the related series with final
scheduled distribution dates earlier than that of that class of accrual
securities have been fully paid, or another date or period as may be specified
in the related prospectus supplement.
ADDITIONAL COLLATERAL -- Marketable securities, insurance policies,
annuities, certificates of deposit, cash, accounts or other personal property
and, in the case of Additional Collateral owned by any guarantor, may consist of
real estate.
ADDITIONAL COLLATERAL LOAN -- A mortgage loan that, in addition to being
secured by the related mortgaged property, is secured by other collateral owned
by the related mortgagors or are supported by third-party guarantees secured by
collateral owned by the related guarantors.
ADVANCE -- A cash advance by the master servicer or a servicer for
delinquent payments of principal of and interest on a loan, and for the other
purposes specified in this prospectus and in the related prospectus supplement.
AGENCY SECURITIES -- Mortgage-backed securities issued or guaranteed by
GNMA, Fannie Mae, Freddie Mac or other government agencies or
government-sponsored agencies.
AVAILABLE DISTRIBUTION AMOUNT -- The amount in the Certificate Account,
including amounts deposited in that account from any reserve fund or other fund
or account, eligible for distribution to securityholders on a distribution date.
BALLOON LOAN -- A mortgage loan with payments similar to a conventional
loan, calculated on the basis of an assumed amortization term, but providing for
a Balloon Payment of all outstanding principal and interest to be made at the
end of a specified term that is shorter than that assumed amortization term.
BALLOON PAYMENT -- The payment of all outstanding principal and interest
made at the end of the term of a Balloon Loan.
BI-WEEKLY LOAN -- A mortgage loan which provides for payments of principal
and interest by the borrower once every two weeks.
BUY-DOWN FUND -- A custodial account, established by the master servicer or
the servicer for a Buy-Down Loan, that meets the requirements described in this
prospectus.
BUY-DOWN LOAN -- A level payment mortgage loan for which funds have been
provided by a person other than the mortgagor to reduce the mortgagor's
scheduled payment during the early years of that mortgage loan.
BUY-DOWN PERIOD -- The period in which the borrower is not obligated to pay
the full scheduled payment otherwise due on a Buy-Down Loan.
BUY-DOWN MORTGAGE RATE -- For any Buy-Down Loan, the hypothetical reduced
interest rate on which scheduled payments are based.
BUY-DOWN AMOUNTS -- For any Buy-Down Loan, the maximum amount of funds that
may be contributed by the Servicer of that Buy-Down Loan.
CALL CERTIFICATE -- Any Certificate evidencing an interest in a Call Class.
CALL CLASS -- A class of certificates under which the holder will have the
right, at its sole discretion, to terminate the related trust resulting in early
retirement of the certificates of the series.
CALL PRICE -- In the case of a call as to a Call Class, a price equal to
100% of the principal balance of the related certificates as of the day of that
purchase plus accrued interest at the applicable pass-through rate.
CERTIFICATE ACCOUNT -- For a series, the account established in the name of
the trustee for the deposit of remittances received from the master servicer
relating to the mortgage assets in a trust.
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COLLECTION ACCOUNT -- For a series, the account established in the name of
the master servicer for the deposit by the master servicer of payments received
from the mortgage assets in a trust, or from the servicers, if any.
CONTRIBUTIONS TAX -- The imposition of a tax on the REMIC equal to 100% of
the value of the contributed property. Each pooling and servicing agreement will
include provisions designed to prevent the acceptance of any contributions that
would be subject to the tax.
COOPERATIVE -- A corporation owned by tenant-stockholders who, through the
ownership of stock, shares or membership certificates in the corporation,
receive proprietary leases or occupancy agreements which confer exclusive rights
to occupy specific units.
COOPERATIVE DWELLING -- An individual housing unit in a building owned by a
cooperative.
COOPERATIVE LOAN -- A housing loan made for a Cooperative Dwelling and
secured by an assignment by the borrower/tenant-stockholder, of a security
interest in shares issued by the applicable Cooperative.
DESIGNATED SELLER TRANSACTION -- A series of securities where the mortgage
loans included in the trust are delivered either directly or indirectly to the
depositor by one or more unaffiliated sellers identified in the related
prospectus supplement.
DISQUALIFIED PERSONS -- For these purposes means:
the United States, any State or political subdivision of the United
States or any State, any foreign government, any international
organization, or any agency or instrumentality of the foregoing, but
would not include instrumentalities described in Section 168(h)(2)(D)
of the Internal Revenue Code or Freddie Mac,
any organization, other than a cooperative described in Section 521 of
the Internal Revenue Code, that is exempt from federal income tax,
unless it is subject to the tax imposed by Section 511 of the Internal
Revenue Code,
any organization described in Section 1381(a)(2)(C) of the Internal
Revenue Code,
an 'electing large partnership,' as described in Section 775 of the
Code, or
any other person so designated by the trustee based on an opinion of
counsel that the holding of an ownership interest in a REMIC
certificate by that person may cause the related trust or any person
having an ownership interest in the REMIC certificate, other than that
person, to incur a liability for any federal tax imposed under the Code
that would not otherwise be imposed but for the transfer of an
ownership interest in a REMIC certificate to that person.
ELIGIBLE ACCOUNT -- 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 in that account,
insured by the FDIC to the limits established by that Corporation, the
uninsured deposits in which account are otherwise secured in a way
that, as evidenced by an opinion of counsel delivered to the trustee
prior to the establishment of that account, the holders of the
securities will have a claim as to the funds in that account and a
perfected first priority security interest against any collateral
securing those funds that is superior to claims of any other depositors
or general creditors of the depository institution with which that
account is maintained
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
an account or accounts of a depository institution acceptable to the
rating agencies.
Eligible Accounts may bear interest.
ENVIRONMENTAL LIEN -- A lien imposed by federal or state statute, for any
cleanup costs incurred by a state on the property that is the subject of the
cleanup costs.
ESCROW ACCOUNT -- An account, established and maintained by the master
servicer or the servicer for a loan, into which payments by borrowers to pay
taxes, assessments, mortgage and hazard insurance premium and other comparable
items that are required to be paid to the mortgagee are deposited.
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FUNDING ACCOUNT -- An account established for the purpose of purchasing
additional loans.
GEM LOAN -- A fixed rate, fully amortizing mortgage loan providing for
monthly payments based on a 10-to 30-year amortization schedule, with further
provisions for scheduled annual payment increases for a number of years with the
full amount of those increases being applied to principal, and with further
provision for level payments thereafter.
GPM FUND -- A trust account established by the master servicer or the
servicer of a GPM Loan into which funds sufficient to cover the amount by which
payments of principal and interest on that GPM Loan assumed in calculating
payments due on the securities of the related multiple class series exceed
scheduled payments on that GPM Loan.
GPM LOAN -- A mortgage loan providing for graduated payments, having an
amortization schedule:
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,
providing for deferred payment of a portion of the interest due monthly
during that period of time, and
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.
INSURANCE PROCEEDS -- Amounts paid by the insurer under any of the insurance
policies covering any loan or mortgaged property.
INTEREST ACCRUAL PERIOD -- 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 that series for any distribution date.
LIQUIDATION EXPENSES -- 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.
LIQUIDATED MORTGAGE LOAN -- 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 that mortgage loan, whether from Insurance Proceeds, Liquidation
Proceeds or otherwise have been recovered.
LIQUIDATION PROCEEDS -- Amounts received by the master servicer or servicer
in connection with the liquidation of a mortgage, net of liquidation expenses.
MARK-TO-MARKET REGULATIONS -- The final regulations of the IRS, released on
December 24, 1996, relating to the requirement that a securities dealer mark to
market securities held for sale to customers.
PARTIES IN INTEREST -- For a Plan, persons who have specified relationships
to the Plans, either 'Parties in Interest' within the meaning of ERISA or
Disqualified Persons within the meaning of the Internal Revenue Code.
PERIODIC RATE CAP -- For any ARM loan, the maximum amount by which mortgage
rate of that ARM loan may adjust for any single adjustment period.
PRE-FUNDING PERIOD -- For the securities, the period in which supporting
payments of the related mortgage loans, having a value equal to no more than 25%
of the total principal amount of those securities, to be transferred to the
related trust instead of requiring that the related mortgage loans be either
identified or transferred on or before the Closing Date, which period will be no
longer than 90 days or three months following the Closing Date.
PRE-FUNDING LIMIT -- For the securities, the ratio of the amount allocated
to the Funding Account to the total principal amount of the securities, which
must be less than or equal to 25%.
QUALIFIED INSURER -- A mortgage guarantee or insurance company duly
qualified as a mortgage guarantee or insurance company under the laws of the
states in which the mortgaged properties are located, duly authorized and
licensed in those states to transact the applicable insurance business and to
write the insurance provided.
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REO PROPERTY -- Real property which secured a defaulted loan which has been
acquired on foreclosure, deed in lieu of foreclosure or repossession.
RETAINED INTEREST -- For a mortgage asset, the amount or percentage
specified in the related prospectus supplement which is not sold by the
depositor or seller of the mortgage asset and, therefore, is not included in the
trust for the related series.
RESTRICTED GROUP -- The group consisting of any underwriter, the master
servicer, any servicer, any subservicer, the trustee and any obligor for assets
of a trust constituting more than 5% of the aggregate unamortized principal
balance of the assets in the trust as of the date of initial issuance of the
securities.
SERVICER ACCOUNT -- An account established by a servicer, other than the
master servicer, who is directly servicing loans, into which that servicer will
be required to deposit all receipts received by it relating to the mortgage
assets serviced by that servicer.
SERVICING FEE -- The amount paid to the master servicer on a given
distribution date, in most cases, determined on a loan-by-loan basis, and
calculated at a specified per annum rate.
SUBORDINATED AMOUNT -- The amount, if any, specified in the related
prospectus supplement for a series with a class of subordinate securities, that
the subordinate securities are subordinated to the senior securities of the same
series.
SUBORDINATION RESERVE FUND -- The subordination reserve fund, if any, for a
series with a class of subordinate securities, established under the related
pooling and servicing agreement or indenture.
SUBSEQUENT MORTGAGE LOAN -- Additional mortgage loans transferred to the
related trust after the closing date.
SUBSIDY FUND -- For any loan, a custodial account, which may be
interest-bearing, complying with the requirements applicable to a Collection
Account in which the master servicer will deposit subsidy funds.
TAX-EXEMPT INVESTOR -- Tax-qualified retirement plans described in
Section 401(a) of the Internal Revenue Code and on individual retirement
accounts described in Section 408 of the Internal Revenue Code.
TAX-FAVORED PLANS -- An ERISA plan that is exempt from federal income
taxation under Section 501 of the Internal Revenue Code.
UNITED STATES PERSON -- 'United States person' means a citizen or resident
of the United States, a corporation, partnership or other entity created or
organized in, or under the laws of, the United States, any state of the United
States 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. 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 regardless of the previous sentence.
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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.
You should carefully consider the Risk Factors beginning on Page 3 in this
prospectus.
This prospectus together with the accompanying prospectus supplement will
constitute the full prospectus.
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DLJ MORTGAGE ACCEPTANCE CORP.
Depositor
PNCMT TRUST SERIES 2000-1
MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 2000-1
$668,606,139
(APPROXIMATE)
---------------------
PROSPECTUS SUPPLEMENT
---------------------
DONALDSON, LUFKIN & JENRETTE
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 2000-1 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 2000-1 MORTGAGE PASS-THROUGH CERTIFICATES AND
FOR THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. IN ADDITION, ALL DEALERS
SELLING THE SERIES 2000-1 MORTGAGE PASS-THROUGH CERTIFICATES WILL BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS FOR NINETY DAYS
FOLLOWING THE DATE OF THIS PROSPECTUS SUPPLEMENT.
March 2, 2000
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as................................ 'TM'
The section symbol shall be expressed as.................................. 'SS'
