<PAGE> 1
Filed pursuant to Rule 424(b)(5)
Registration No. 33-58522
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 22, 1995)
$112,789,000 (APPROXIMATE)
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION (DEPOSITOR)
MIDLAND COMMERCIAL FINANCIAL CORP. (MORTGAGE LOAN SELLER)
MIDLAND LOAN SERVICES, L.P. (SERVICER)
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1995 -- MCF-2
------------------------
The Commercial Mortgage Pass-Through Certificates, Series 1995-MCF-2 (the
"Certificates") will consist of 14 Classes of Certificates, designated as the
Class A-1 Certificates, the Class A-2 Certificates, the Class A-EC Certificates,
the Class B Certificates, the Class C Certificates, the Class D Certificates,
the Class E Certificates, the Class F Certificates, the Class G Certificates,
the Class H Certificates, the Class J-1 Certificates, the Class J-2 Certificates
(collectively, the "Regular Certificates"), the Class R Certificates and the
Class LR Certificates (together, the "Residual Certificates"). Only the Class
A-1, Class C, Class D and Class E Certificates (the "Offered Certificates") are
offered hereby.
(continued on next page)
------------------------
THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE MORTGAGE LOAN SELLER, THE SERVICER, THE TRUSTEE, THE FISCAL
AGENT OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE OFFERED
CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY THE
UNITED STATES GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS DISCUSSED HEREIN UNDER
"RISK FACTORS" AT PAGE S-22 IN THIS PROSPECTUS SUPPLEMENT
BEFORE PURCHASING ANY OF THE OFFERED CERTIFICATES.
<TABLE>
======================================================================================================
<CAPTION>
INITIAL RATED FINAL
CERTIFICATE PASS-THROUGH DISTRIBUTION
CLASS BALANCE(1) RATE(2) DATE(3)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Class A-1.............................. $75,000,000 6.525% December 26, 2022
- ------------------------------------------------------------------------------------------------------
Class C................................ $13,337,000 7.015% December 26, 2022
- ------------------------------------------------------------------------------------------------------
Class D................................ $ 8,892,000 7.165% December 26, 2022
- ------------------------------------------------------------------------------------------------------
Class E................................ $15,560,000 7.610% December 26, 2022
======================================================================================================
</TABLE>
(1) Approximate, subject to an upward or downward variance of up to 5%.
(2) In addition to distributions of principal and interest, holders of certain
Classes of Certificates will be entitled to receive a portion of the
Prepayment Premiums received from the borrowers as described herein. See
"DESCRIPTION OF THE CERTIFICATES -- Distribution -- Prepayment Premiums"
herein.
(3) The Rated Final Distribution Dates for each Class of Offered Certificates is
the Distribution Date occurring two years after the latest Assumed Maturity
Date of any of the Mortgage Loans. The "Assumed Maturity Date" of (a) any
Mortgage Loan that is not a Balloon Loan is the maturity date of such
Mortgage Loan, and (b) any Balloon Loan is the date on which such Mortgage
Loan would be deemed to mature in accordance with its original amortization
schedule absent its Balloon Payment.
------------------------
The Offered Certificates will be purchased by Prudential Securities Incorporated
(the "Underwriter") from the Depositor and will be offered by the Underwriter
from time to time to the public in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. Proceeds to the Depositor
from the sale of the Offered Certificates will be approximately $113,000,000,
before deducting certain expenses payable by the Depositor. The Offered
Certificates are offered by the Underwriter, subject to prior sale, when, as and
if delivered to and accepted by the Underwriter and subject to their right to
reject orders in whole or in part. It is expected that delivery of the Offered
Certificates will be made in book-entry form through the Same-Day Funds
Settlement System of The Depository Trust Company ("DTC"), on or about December
29, 1995 (the "Delivery Date"), against payment therefor in immediately
available funds.
PRUDENTIAL SECURITIES INCORPORATED
DECEMBER 22, 1995
<PAGE> 2
(continued from previous page)
The Certificates will represent beneficial ownership interests
in a trust fund (the ``Trust Fund'') to be created by Prudential Securities
Secured Financing Corporation (the ``Depositor''). The Trust Fund will consist
primarily of a pool (the ``Mortgage Pool'') of 84 fixed-rate ``whole'' mortgage
loans, with original terms to maturity of not more than twenty years (the
``Whole Loans''), secured by first liens on commercial and multifamily
residential properties (the ``Mortgaged Properties''), and one mortgage loan
participation (the ``Seaport Participation'' and collectively with the Whole
Loans, the ``Mortgage Loans'') that constitutes a 49.3% undivided ownership
interest in one fixed-rate ``whole'' mortgage loan (such ``whole'' mortgage
loan, the ``Seaport Loan'').
The Mortgaged Properties consist of multifamily residential
housing, nursing homes, congregate care facilities, retail properties, office
buildings, self-storage facilities, light industrial/industrial properties,
hotels, mobile home parks and mixed use properties. Seventy-eight of the
Mortgage Loans were originated (or in the case of one Mortgage Loan, purchased
from Arbor National Mortgage Corporation) by Midland Loan Services, L.P.
(``Midland'') and sold to Midland Commercial Financing Corp. (the ``Mortgage
Loan Seller''). Seven of the Mortgage Loans were originated by The Union Labor
Life Insurance Company (``ULLICO'') and sold to the Mortgage Loan Seller. The
Mortgage Loans will be sold to the Depositor by the Mortgage Loan Seller on or
prior to the date of initial issuance of the Certificates. The characteristics
of the Mortgage Loans and the related Mortgaged Properties are described herein
under ``DESCRIPTION OF THE MORTGAGE POOL.''
The Class A-1, Class A-2, Class B, Class C, Class D, Class E,
Class F, Class G and Class H Certificates (the ``P&I Certificates'') will be
entitled to distributions of interest on their respective Certificate Balances
at the applicable Pass-Through Rate for each such Class. The Class A-EC
Certificates will be entitled to distributions of Class A-EC Excess Interest,
on each Distribution Date occurring on or prior to November 27, 2006 (the ``EC
Maturity Date''). ``Class A-EC Excess Interest'' is an amount equal to the
Class A-EC Pass-Through Rate multiplied by the Class A-EC Notional Balance.
The Class A-EC Certificates will not be entitled to any distributions (other
than any unpaid Class Interest Shortfalls (as defined herein)) after the EC
Maturity Date. With respect to each Distribution Date, the Class J-2
Certificates will be entitled to distributions of interest at the Class J-2
Pass-Through Rate (as defined herein) on the Class J-2 Notional Balance. The
Class J-1 Certificates are principal only and will not be entitled to
distributions of interest. See ``DESCRIPTION OF THE
CERTIFICATES-Distributions'' herein.
Distributions of principal and interest, as applicable, on the
Regular Certificates will be made, to the extent of Available Funds, on the
25th day of each month, or, if any such day is not a Business Day, then on the
next succeeding Business Day, beginning in January, 1996 (each, a
``Distribution Date''). Distributions allocable to interest on the
Certificates will be made as described herein under ``DESCRIPTION OF THE
CERTIFICATES--Distributions.'' The rights of the holders of the Class B, Class
C, Class D, Class E, Class F, Class G, Class H, Class J-1 and Class J-2
Certificates (the ``Subordinate Certificates'') to receive distributions of
principal and interest will be subordinate to such rights of the holders of the
Class A-1, Class A-2 and Class A-EC Certificates (the ``Senior Certificates'');
the rights of the holders of the Class C, Class D, Class E, Class F, Class G,
Class H, Class J-1 and Class J-2 Certificates to receive such distributions
will be subordinate to such rights of the holders of the Class B Certificates;
the rights of the Class D, Class E, Class F, Class G, Class H, Class J-1 and
Class J-2 Certificates to receive distributions will be subordinate to such
rights of the holders of the Class C Certificates; the rights of the Class E,
Class F, Class G, Class H, Class J-1 and Class J-2 Certificates to receive
distributions will be subordinate to such rights of the Class D Certificates;
the rights of the holders of the Class F, Class G, Class H, Class J-1 and Class
J-2 Certificates to receive distributions will be subordinate to such rights of
the Class E Certificates; the rights of the holders of the Class G, Class H,
Class J-1 and Class J-2 Certificates to receive distributions will be
subordinate to such rights of the holders of the Class F Certificates; the
rights of the Class H, Class J-1 and Class J-2 Certificates to receive
distributions will be subordinate to such rights of the holders of the Class G
Certificates; and the rights of the holders of the Class J-1 and Class J-2
Certificates to receive distributions will be subordinate to such rights of the
holders of the Class H Certificates. See ``DESCRIPTION OF THE
CERTIFICATES--Subordination'' herein.
The Residual Certificates are not entitled to distributions of
interest or principal.
S-2
<PAGE> 3
The yield to maturity on each Class of the Regular
Certificates will be sensitive, and, in the case of the Class A-EC, Class J-1
and Class J-2 Certificates, will be very sensitive, to the amount and timing of
debt service payments (including both voluntary and involuntary prepayments,
defaults and liquidations) on the Mortgage Loans, and payments with respect to
repurchases thereof that are applied in reduction of the Certificate Balance of
such Class (or, in the case of the Class A-EC Certificates or the Class J-2
Certificates, which reduce the Class A-EC Notional Balance or the Class J-2
Notional Balance, respectively). No representation is made as to the rate of
prepayments on or liquidations of the Mortgage Loans or as to the anticipated
yield to maturity of any Class of Regular Certificates. Each of the Mortgage
Loans generally provides that for a specified amount of time during which a
prepayment is permitted, it must be accompanied by payment of a Prepayment
Premium. Prepayment Premiums are distributable to the Regular Certificates as
described herein under ``DESCRIPTION OF THE--Distributions--Prepayment
Premiums.''
The yield to investors in each Class of the Regular
Certificates will also be very sensitive to the timing and magnitude of losses
on the Mortgage Loans due to liquidations to the extent that the Certificate
Balances of the Class or Classes of Certificates that are subordinate to such
Class have been reduced to zero. A loss on any one of the Mortgage Loans
included in the Mortgage Pool could result in a significant loss, and in some
cases a complete loss, of an investor's investment in any Class of the Regular
Certificates. No representation is made as to the rate of liquidations of or
losses on the Mortgage Loans.
The Certificates are being issued pursuant to a Pooling and
Servicing Agreement dated as of December 1, 1995 (the ``Pooling and Servicing
Agreement''), by and among the Depositor, Midland Loan Services, L.P., as
servicer (the ``Servicer''), Lennar Partners, Inc., as special servicer (the
``Special Servicer''), LaSalle National Bank, as trustee (the ``Trustee''), and
ABN AMRO Bank N.V., as fiscal agent (the ``Fiscal Agent''). The obligations of
the Servicer with respect to the Certificates will be limited to its
contractual servicing obligations and the obligation under certain
circumstances to make Advances with respect to the Mortgage Loans. See ``THE
POOLING AND SERVICING AGREEMENT'' herein.
It is a condition to the issuance of the Certificates that:
the Class A-1 Certificates and the Class A-2 Certificates be rated ``AAA'' by
each of Fitch Investors Service, L.P. (``Fitch''), Duff & Phelps Credit Rating
Co. (``Duff & Phelps'') and Standard & Poor's Ratings Services, a division of
McGraw-Hill, Inc. (``S&P'') and together with Fitch and Duff & Phelps, the
``Rating Agencies''); the Class A-EC Certificates be rated ``AAA'' by Fitch and
Duff & Phelps and ``AAAr'' by S&P; the Class B Certificates be rated ``AAA'' by
Fitch, ``AA+'' by Duff & Phelps and ``AA'' by S&P; the Class C Certificates be
rated ``AA'' by Fitch and Duff & Phelps and ``A+'' by S&P; the Class D
Certificates be rated ``AA-'' by Fitch, ``A+'' by Duff & Phelps and ``A-'' by
S&P; the Class E Certificates be rated ``BBB'' by Fitch and Duff & Phelps and
``BBB-'' by S&P; the Class F Certificates be rated ``BBB-'' by Fitch and Duff &
Phelps; the Class G Certificates be rated ``BB'' by S&P and ``BB-'' by each of
Fitch and Duff & Phelps; and the Class H Certificates be rated ``B'' by S&P and
``B-'' by each of Fitch and Duff & Phelps. The Class J-1, Class J-2, Class R
and Class LR Certificates are unrated. S&P's rating of the Class A-EC
Certificates shall expire on the earlier to occur of (i) the EC Maturity Date
and (ii) the first Distribution Date on which the Class A-EC Notional Component
A is reduced to zero. The Class A-EC Notional Component A represents an amount
equal to the sum of the Certificate Balances of the Class A-1 Certificates and
the Class A-2 Certificates. Duff & Phelps' rating of the Class A-EC
Certificates shall expire on the earlier to occur of (i) the EC Maturity Date
and (ii) the first Distribution Date on which the A-EC Notional Balance is
reduced to zero. The Class A-EC Notional Balance represents an amount equal to
the sum of the Class A-EC Notional Component A and the Certificate Balances of
the Class B, Class C, Class D, Class E, Class F, Class G, Class H and Class J-1
Certificates.
Elections will be made to treat designated portions of the
Trust Fund (such portions of the Trust Fund, the ``Trust REMICs''), and the
Trust REMICs will qualify, as two separate ``real estate mortgage investment
conduits'' (each a ``REMIC'' or, alternatively, the ``Upper-Tier REMIC'' and
the ``Lower-Tier REMIC'') for federal income tax purposes. As described more
fully herein, the Class A-1, Class A-2, Class A-EC, Class B, Class C, Class D,
Class E, Class F, Class G, Class H, Class J-1 and Class J-2 Certificates will
constitute ``regular interests'' in the Upper-Tier REMIC, and the Class R
Certificates and Class LR Certificates will constitute the sole Class of
``residual interests'' in the Upper-Tier REMIC and the Lower-Tier REMIC,
respectively. Prospective investors in the Class R Certificates and Class LR
Certificates are cautioned that their respective REMIC taxable income and the
liability thereon will exceed, and may substantially exceed, cash
S-3
<PAGE> 4
distributions to such holders during certain periods, in which event such
holders must have sufficient alternative sources of funds to pay such tax
liability. It is likely that the Class R Certificates and Class LR
Certificates will be considered ``noneconomic residual interests,'' certain
transfers of which may be disregarded for federal income purposes. The Class R
Certificates and Class LR Certificates may not be purchased by or transferred
to, among others, (i) a ``Disqualified Organization,'' (ii) except under
certain limited circumstances, a person who is not a ``U.S. Person,'' (iii) a
Plan or (iv) any person or entity who the transferor knows or has reason to
know will be unwilling or unable to pay when due any federal, state or local
taxes with respect thereto. Holders of the Class R Certificates and Class LR
Certificates will be required to include the taxable income or loss of the
Upper-Tier REMIC and Lower-Tier REMIC, respectively, in determining their
federal taxable income. It is anticipated that all or a substantial portion of
the taxable income of the Upper-Tier REMIC and Lower-Tier REMIC includible by
the Class R Certificateholders and Class LR Certificateholders, respectively,
will be treated as ``excess inclusion'' income subject to special limitations
for federal income purposes. See ``CERTAIN FEDERAL INCOME TAX CONSEQUENCES,''
``DESCRIPTION OF THE CERTIFICATES--Delivery, Form and Denomination'' and
``ERISA CONSIDERATIONS'' herein.
There is currently no secondary market for the Certificates.
The Underwriter has advised that it currently intends to make a secondary
market in the Certificates, but it is under no obligation to do so. There can
be no assurance that such a market will develop or, if it does develop, that it
will continue or will provide investors with a sufficient level of liquidity of
investment. See ``RISK FACTORS--Limited Liquidity'' herein.
This Prospectus Supplement does not contain complete
information about the offering of the Offered Certificates. Additional
Information is contained in the Prospectus and investors are urged to read both
this Prospectus Supplement and the Prospectus in full. Sales of the Offered
Certificates may not be consummated unless the purchaser has received both this
Prospectus Supplement and the Prospectus.
Until 90 days after the date of this Prospectus Supplement,
all dealers effecting transactions in the Offered Certificates, whether or not
participating in this distribution, may be required to deliver a Prospectus
Supplement and Prospectus. This is in addition to the obligation of dealers
acting as underwriters to deliver a Prospectus Supplement and Prospectus with
respect to their unsold allotments and subscriptions.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE OFFERED CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange
Commission (the ``Commission'') a Registration Statement under the Securities
Act of 1933, as amended (the ``1933 Act''), with respect to the Offered
Certificates. This Prospectus Supplement and the accompanying Prospectus,
which form a part of the Registration Statement, omit certain information
contained in such Registration Statement pursuant to the rules and regulations
of the Commission. The Registration Statement can be inspected and copied at
the Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the Commission's regional offices at 7 World Trade
Center, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W, Washington D.C. 20549.
S-4
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by
reference to the detailed information appearing elsewhere in this Prospectus
Supplement. Capitalized terms used herein and not otherwise defined herein
have the meanings assigned in the Prospectus. See ``Index of Significant
Prospectus Supplement Definitions'' herein and ``Index of Significant
Definitions'' in the Prospectus.
<TABLE>
<S> <C>
Title of Certificates . . . . . . . . . . . . . . Prudential Securities Secured Financing
Corporation Commercial Mortgage Pass-Through
Certificates, Series 1995-MCF-2 (the
``Certificates'').
The Certificates . . . . . . . . . . . . . . . . $75,000,000 initial aggregate principal balance
(``Certificate Balance'') of Class A-1
Certificates;
$65,040,000 initial Certificate Balance of Class
A-2 Certificates;
Class A-EC Certificates;
$8,891,000 initial Certificate Balance of Class B
Certificates;
$13,337,000 initial Certificate Balance of Class C
Certificates;
$8,892,000 initial Certificate Balance of Class D
Certificates;
$15,560,000 initial Certificate Balance of Class E
Certificates;
$5,557,000 initial Certificate Balance of Class F
Certificates;
$12,226,000 initial Certificate Balance of Class G
Certificates;
$11,114,000 initial Certificate Balance of Class H
Certificates;
$6,669,173.25 initial Certificate Balance of Class
J-1 Certificates;
Class J-2 Certificates;
Class R Certificates; and
Class LR Certificates.
The aggregate initial Certificate Balance of all
Classes of Certificates is subject to a permitted
variance of plus or minus 5% as described herein.
The Certificates will be issued pursuant to a
Pooling and Servicing Agreement to be dated as of
December 1, 1995 (the ``Pooling and Servicing
</TABLE>
S-5
<PAGE> 6
<TABLE>
<S> <C>
Agreement'') among the Depositor, the Servicer,
the Special Servicer, the Trustee and the Fiscal
Agent. ONLY THE CLASS A-1, CLASS C, CLASS D AND
CLASS E CERTIFICATES ARE OFFERED HEREBY.
The Class A-2, Class A-EC, Class B, Class F, Class
G, Class H, Class J-1, Class J-2, Class R and
Class LR Certificates (collectively, the ``Private
Certificates'') have not been registered under the
1933 Act and are not offered hereby. Accordingly,
to the extent this Prospectus Supplement contains
information regarding the terms of the Private
Certificates, such information is provided solely
because of its relevance to a prospective
purchaser of an Offered Certificate.
Depositor . . . . . . . . . . . . . . . . . . . . Prudential Securities Secured Financing
Corporation, a Delaware corporation and an
affiliate of Prudential Securities Incorporated
(the ``Underwriter'').
Servicer . . . . . . . . . . . . . . . . . . . . Midland Loan Services, L.P., a Missouri limited
partnership. See ``THE SERVICER AND THE MORTGAGE
LOAN SELLER'' herein.
Special Servicer . . . . . . . . . . . . . . . . Lennar Partners, Inc., a Florida corporation. See
``THE SPECIAL SERVICER'' herein.
Trustee . . . . . . . . . . . . . . . . . . . . . LaSalle National Bank, a nationally chartered
bank. See ``THE POOLING AND SERVICING
AGREEMENT--The Trustee'' herein.
Fiscal Agent . . . . . . . . . . . . . . . . . . ABN AMRO Bank N.V., a Netherlands banking
corporation, and the corporate parent of the
Trustee. See ``THE POOLING AND SERVICING
AGREEMENT--The Fiscal Agent'' herein.
Cut-Off Date . . . . . . . . . . . . . . . . . . December 1, 1995 (except with respect to two loans
for which the Cut-Off Date is December 4, 1995,
and three loans for which the Cut-Off Date is
December 6, 1995).
Closing Date . . . . . . . . . . . . . . . . . . On or about December 29, 1995.
Distribution Date . . . . . . . . . . . . . . . . The 25th day of each month, or if such 25th day is
not a Business Day, the Business Day immediately
following such 25th day, commencing on January 25,
1996. As used herein, a ``Business Day'' is any
day other than a Saturday, Sunday or a day in
which banking institutions in the States of New
York, Missouri or Illinois are authorized or
obligated by law, executive order or governmental
decree to close.
</TABLE>
S-6
<PAGE> 7
<TABLE>
<S> <C>
Record Date . . . . . . . . . . . . . . . . . . . With respect to each Distribution Date, the close
of business on the last Business Day of the month
preceding the month in which such Distribution
Date occurs.
Interest Accrual Period . . . . . . . . . . . . . With respect to any Distribution Date, the
calendar month preceding the month in which such
Distribution Date occurs. Interest for each
Interest Accrual Period is calculated based on a
360-day year consisting of twelve 30-day months.
Scheduled Final
Distribution Date . . . . . . . . . . . . . . . November 27, 2015.
Rated Final
Distribution Date . . . . . . . . . . . . . . . As to each Class of Certificates (other than the
Class A-EC Certificates), December 26, 2022, which
is the Distribution Date occurring two years after
the latest Assumed Maturity Date of any of the
Mortgage Loans. The ``Assumed Maturity Date'' of
(a) any Mortgage Loan that is not a Balloon Loan
is the maturity date of such Mortgage Loan and
(b) any Balloon Loan is the date on which such
Mortgage Loan would be deemed to mature in
accordance with its original amortization schedule
absent its Balloon Payment.
Collection Period . . . . . . . . . . . . . . . . With respect to each Distribution Date, the period
beginning on the day following the Determination
Date in the month preceding the month in which
such Distribution Date occurs (or, in the case of
the Distribution Date occurring in January, 1996,
on the day after the Cut-off Date) and ending on
the Determination Date in the month in which such
Distribution Date occurs (or, in the case of the
Seaport Participation only, on the Business Day
immediately preceding the 25th day of the month in
which such Distribution Date occurs).
Determination Date . . . . . . . . . . . . . . . The 17th day of any month, or if such 17th day is
not a Business Day, the Business Day immediately
following such 17th day, commencing on January 17,
1996.
Due Date . . . . . . . . . . . . . . . . . . . . With respect to any Mortgage Loan, the date on
which scheduled payments are due on such Mortgage
Loan (without regard to grace periods), which
date, for 83 of the Mortgage Loans, is the first
day of the month, which date, for one of the
Mortgage Loans, is the sixth day of the month, and
which date, for the Seaport Participation, is the
Business Day immediately preceding the 25th day of
the month.
Denominations . . . . . . . . . . . . . . . . . . The Class A-1, Class A-2, Class A-EC, Class B,
</TABLE>
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<PAGE> 8
<TABLE>
<S> <C>
Class C, Class D, Class E and Class F Certificates
will be issued in minimum denominations of
Certificate Balance or Notional Balance, as
applicable, of $100,000 and multiples of $1,000 in
excess thereof and will be registered in the name
of a nominee of The Depository Trust Company
(``DTC'' and, together with any successor
depository selected by the Depositor, the
``Depository'') and beneficial interests therein
will be held by investors through the book-entry
facilities of the Depository. The Depositor has
been informed by DTC that its nominee will be Cede
& Co. Beneficial owners will hold and transfer
their respective ownership interests in and to
such Book-Entry Certificates through the
book-entry facilities of DTC and will not be
entitled to definitive, fully registered
Certificates except in the limited circumstances
set forth herein. The Class G, Class H, Class J-1
and Class J-2 Certificates will be issued in
minimum denominations of Certificate Balance or
Notional Balance, as applicable, of $100,000 and
multiples of $1,000 in excess thereof (or $1 in
excess thereof with respect to the Class J-1 and
Class J-2 Certificates) and will be issuable in
definitive physical registered form. The Residual
Certificates shall each be issuable in registered
definitive physical form, in minimum denominations
of 5% Percentage Interest and integral multiples
of a 1% Percentage Interest in excess thereof.
See ``DESCRIPTION OF THE CERTIFICATES--Delivery,
Form and Denomination.''
The Mortgage Pool . . . . . . . . . . . . . . . . The Mortgage Pool will consist of 84 ``whole''
mortgage loans (the ``Whole Loans'') and one
mortgage loan participation (the ``Seaport
Participation'' and collectively with the Whole
Loans, the ``Mortgage Loans'') that constitutes a
49.3% participation interest in one fixed-rate
``whole'' mortgage loan (such ``whole'' mortgage
loan, the ``Seaport Loan''). The Mortgage Loans
have an aggregate Cut-off Date Principal Balance
(the ``Initial Pool Balance'') of approximately
$222,286,173, subject to a permitted variance of
plus or minus 5%. All numerical information
provided herein with respect to the Mortgage Loans
is provided on an approximate basis. All weighted
averaged information regarding the Mortgage Loans
reflects weighting of the Mortgage Loans by their
Cut-off Date Principal Balances. See
``DESCRIPTION OF THE MORTGAGE POOL--Changes in
Mortgage Pool Characteristics'' herein.
The ``Cut-off Date Principal Balance'' of each
Mortgage Loan is equal to the unpaid principal
balance thereof as of the Cut-off Date, after
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C>
application of all payments of principal due on or
before such date, whether or not received. The
Cut-off Date Principal Balances of the Mortgage
Loans range from approximately $598,000 to
approximately $8,250,000, and the average Cut-off
Date Principal Balance of the Mortgage Loans is
approximately $2,615,000.
Each Mortgage Loan is secured by a first mortgage
or deed of trust lien on the borrower's fee simple
or leasehold estate in certain land used for
commercial or multifamily residential purposes,
all buildings and improvements thereon and certain
personal property located thereon (each, a
``Mortgaged Property''). Twenty-two of the
Mortgage Loans, which represent approximately 21%
of the Initial Pool Balance, are secured by
multifamily residential properties (each, a
``Multifamily Loan'' and ``Multifamily Property,''
respectively); one Mortgage Loan, which represents
approximately 0.7% of the Initial Pool Balance, is
secured by a nursing home (a ``Nursing Home Loan''
and ``Nursing Home Property,'' respectively);
three Mortgage Loans, which represent
approximately 5.9% of the Initial Pool Balance,
are secured by congregate care facilities (each, a
``Congregate Care Loan'' and ``Congregate Care
Property,'' respectively); 31 Mortgage Loans,
which represent approximately 43.6% of the Initial
Pool Balance, are secured by retail shopping
centers (each, a ``Retail Loan'' and ``Retail
Property,'' respectively), seven Mortgage Loans,
which represent approximately 6.2% of the Initial
Pool Balance, are secured by office buildings
(each, an ``Office Building Loan'' and ``Office
Building Property,'' respectively); two Mortgage
Loans, which represent approximately 4.6% of the
Initial Pool Balance, are secured by mixed use
properties consisting of a retail and office
component (each, a ``Retail/Office Loan'' and
``Retail/Office Property''); three Mortgage Loans,
which represent approximately 1.9% of the Initial
Pool Balance, are secured by self-storage
facilities (each, a ``Self-Storage Loan'' and
``Self-Storage Property,'' respectively); nine
Mortgage Loans, which represent approximately 7.8%
of the Initial Pool Balance, are secured by light
industrial/industrial properties (each, a ``Light
Industrial/Industrial Loan'' and ``Light
Industrial/Industrial Property,'' respectively);
one Mortgage Loan, which represents approximately
1.3% of the Initial Pool Balance, is secured by a
hotel (a ``Hotel Loan'' and ``Hotel Property,''
respectively); two Mortgage Loans, which represent
approximately 1.7% of the Initial Pool Balance,
are secured by a mobile home park (each, a
``Mobile
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Home Park Loan'' and ``Mobile Home Park
Property,'' respectively); one Mortgage Loan,
which represents approximately 0.7% of the Initial
Pool Balance, is secured by a mixed use property
consisting of a retail and multifamily component
(a ``Retail/Multifamily Loan'' and ``Retail/
Multifamily Property,'' respectively); one
Mortgage Loan, which represents approximately 3.3%
of the Initial Pool Balance is secured by mixed
use property consisting of office, multifamily and
retail components (an ``Office/Multifamily/Retail
Loan'' and ``Office/Multifamily/Retail Property,''
respectively); and two Mortgage Loans, which
represent approximately 1.4% of the Initial Pool
Balance are secured by mixed use property
consisting of an office and warehouse component
(each, an ``Office/Warehouse Loan'' and ``Office/
Warehouse Property,'' respectively.)
Fourteen of the Mortgage Loans, which represent
approximately 14.1% of the Initial Pool Balance,
are secured by liens on Mortgaged Properties
located in Texas; 11 of the Mortgage Loans, which
represent approximately 16.7% of the Initial Pool
Balance, are secured by liens on Mortgaged
Properties located in California; five of the
Mortgage Loans, which represent approximately 8.4%
of the Initial Pool Balance, are secured by liens
on Mortgaged Properties located in Florida; five
of the Mortgage Loans, which represent
approximately 6.9% of the Initial Pool Balance,
are secured by liens on the Mortgaged Properties
located in New York, and four of the Mortgage
Loans, which represent approximately 8.8% of the
Initial Pool Balance, are secured by liens on
Mortgaged Properties located in Massachusetts.
The remaining Mortgaged Properties are located
throughout 25 other states and the District of
Columbia, and not more than 5% of the Initial Pool
Balance is secured by Mortgaged Properties located
in any individual state among those other states
or the District of Columbia.
All of the Mortgage Loans provide for scheduled
payments of principal and interest (``Monthly
Payments'') to be due on the first day of each
month, except with respect to one Mortgage Loan,
as to which Monthly Payments are due on the sixth
day of each month, and the Seaport Participation,
as to which Monthly Payments are due on the
Business Day immediately preceding the 25th day of
each month. Each Mortgage Loan accrues interest
at a rate per annum (a ``Mortgage Rate'') that is
fixed for the entire term of such Mortgage Loan.
No
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Mortgage Loan permits negative amortization or the
deferral of accrued interest.
Seventy-six of the Mortgage Loans, which represent
approximately 88% of the Initial Pool Balance,
provide for monthly payments of principal based on
amortization schedules longer than the remaining
terms of such Mortgage Loans (such Mortgage Loans,
the ``Balloon Loans''), such that substantial
amounts of principal are due and payable on the
respective maturity dates (each such payment,
together with accrued interest on the respective
Balloon Loan for the one-month period ending on
the day preceding its respective maturity date, a
``Balloon Payment''), unless prepaid prior
thereto. Nine of the Mortgage Loans, which
represent approximately 12% of the Initial Pool
Balance, are fully amortizing over their stated
terms.
Seventy-eight of the Mortgage Loans were
originated (or in the case of one Mortgage Loan,
purchased from Arbor National Mortgage
Corporation) by Midland and acquired by the
Mortgage Loan Seller and seven of the Mortgage
Loans were acquired from The Union Labor Life
Insurance Company (``ULLICO'') directly by the
Mortgage Loan Seller. The Mortgage Loan Seller
will sell the Mortgage Loans to the Depositor and,
in connection therewith, Midland and the Mortgage
Loan Seller shall make certain representations and
warranties, as more fully described herein. The
Depositor will assign the Mortgage Loans, together
with its rights and remedies in respect of
breaches of Midland's and the Mortgage Loan
Seller's representations and warranties, to the
Trustee for the benefit of Certificateholders.
See ``THE POOLING AND SERVICING AGREEMENT--
Representations and Warranties; Repurchase.''
The characteristics of the Mortgage Pool are more
fully described herein under the heading
``DESCRIPTION OF THE MORTGAGE POOL'' and the
characteristics of the individual Mortgage Loans
are more particularly described in Annex A hereto.
Distributions . . . . . . . . . . . . . . The per annum rate at which interest accrues (the
``Pass-Through Rate'') on the Class A-1 and A-2
Certificates during any Interest Accrual Period
will be equal to 6.525% and 6.84%, respectively.
With respect to each Interest Accrual Period up to
and including November 27, 2006 (the ``EC Maturity
Date''), the Class A-EC Certificates will be
entitled to an amount equal to (i) the excess of
the weighted average, as of the related Due Date,
of the Net
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Mortgage Rates (as defined herein) on the Mortgage
Loans (the ``Weighted Average Net Mortgage Rate'')
over the weighted average of the Pass-Through
Rates of the P&I Certificates (weighted in each
case on the basis of a fraction equal to the
Certificate Balance of each such Class of
Certificates divided by the sum of the Certificate
Balances of the P&I Certificates and the Class J-1
Certificate Balance) and the Class J-2
Pass-Through Rate (weighted on the basis of a
fraction equal to the Class J-2 Notional Balance
divided by the sum of the Certificate Balances of
the P&I Certificates and the Class J-1
Certificates), multiplied by (ii) the Class A-EC
Notional Balance. For purposes of this
calculation, the Pass-Through Rates for the Class
F, Class G and Class H Certificates will be equal
to the Weighted Average Net Mortgage Rate. The
Class A-EC Certificates are not entitled to
distributions (other than any Class Interest
Shortfalls (as defined herein)) following the EC
Maturity Date. The Pass-Through Rate on the Class
B Certificates during any Interest Accrual Period
will be equal to 6.905%. The Pass-Through Rate on
the Class C Certificates during any Interest
Accrual Period will be equal to 7.015%. The
Pass-Through Rate on the Class D Certificates
during any Interest Accrual Period will be equal
to 7.165%. The Pass-Through Rate on the Class E
Certificates during any Interest Accrual Period
will be equal to 7.610%. The Pass-Through Rate on
the Class F, Class G, and Class H Certificates
during any Interest Accrual Period will be equal
to the greater of (i) the Weighted Average Net
Mortgage Rate and (ii) 7.64%. The Pass-Through
Rate on the Class J-2 Certificates during any
Interest Accrual Period will be equal to the
Weighted Average Net Mortgage Rate. The Class J-1
Certificates are principal-only certificates and
are not entitled to distributions in respect of
interest.
On each Distribution Date, each Class of
Certificates (other than the Class J-1
Certificates) will be entitled to receive interest
distributions in an amount equal to the Class
Interest Distribution Amount (as defined herein)
for such Class and Distribution Date, together
with any Class Interest Shortfalls remaining from
prior Distribution Dates, in each case to the
extent of Available Funds (as defined herein), if
any, remaining after (i) payment of the Interest
Distribution Amount and Class Interest Shortfall
for each other outstanding Class of Certificates,
if any, bearing an earlier sequential designation
of such Class, (ii) payment of the Pooled
Principal Distribution Amount (as defined herein)
for such Distribution Date to each
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outstanding Class of Certificates having an
earlier sequential designation, and (iii) payment
of the unreimbursed amount of Realized Losses, if
any, up to an amount equal to the aggregate of
such unreimbursed amount previously allocated to
each other outstanding Class of Certificates
having an earlier sequential designation.
References herein to the earlier (or later)
sequential designation of such Classes of
Certificates means such Classes in alphabetical
order (or such Classes in reverse alphabetical
order); provided, however, that the Class A-1,
Class A-2 and Class A-EC Certificates will be
treated pari passu and the Class J-1 and Class J-2
Certificates will be treated pari passu.
The ``Class Interest Distribution Amount'' with
respect to any Distribution Date and any Class of
Regular Certificates other than the Class A-EC,
Class J-1 and Class J-2 Certificates is equal to
interest accrued during the related Interest
Accrual Period at the applicable Pass-Through Rate
for such Class and such Interest Accrual Period on
the Certificate Balance of such Class; provided
that reductions of the Certificate Balance of such
Class as a result of distributions in respect of
principal or the allocation of losses on the
Distribution Date occurring in such Interest
Accrual Period shall be deemed to have been made
as of the first day of such Interest Accrual
Period. With respect to any Distribution Date and
the Class A-EC Certificates, the ``Class Interest
Distribution Amount'' will equal (a) for any
Distribution Date occurring on or prior to the EC
Maturity Date, the Class A-EC Excess Interest and
(b) thereafter, zero; provided that reductions of
the Notional Balance of such Class as a result of
distributions in respect of principal or the
allocation of losses on the Distribution Date
occurring in such Interest Accrual Period shall be
deemed to have been made as of the first day of
such Interest Accrual Period. With respect to any
Distribution Date and the Class J-2 Certificates,
the ``Class Interest Distribution Amount'' will
equal an amount equal to the product of the Class
J-2 Pass-Through Rate and the Class J-2 Notional
Balance; provided that reductions of the Notional
Balance of such Class as a result of distributions
in respect of principal or the allocation of
losses on the Distribution Date occurring in such
Interest Accrual Period shall be deemed to have
been made as of the first day of such Interest
Accrual Period. The Class Interest Distribution
Amount of each Class will be reduced by its
allocable sum of the amount of any Prepayment
Interest Shortfalls (as defined herein) not offset
by Servicing Fees with respect to such
Distribution Date all as provided herein. The
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Class J-1 Certificates are principal-only
certificates and have no Class Interest
Distribution Amount.
The Pooled Principal Distribution Amount for each
Distribution Date will be distributed, first, to
the Class A-1 Certificates, until the Certificate
Balance thereof has been reduced to zero and
thereafter, sequentially to each other Class of
Regular Certificates (other than the Class A-EC
and Class J-2 Certificates, neither of which has a
Certificate Balance and neither of which is
entitled to distributions in respect of principal)
until its Certificate Balance is reduced to zero,
in each case, to the extent of Available Funds
remaining after required distributions of interest
to such Class (or, with respect to the Class J-1
Certificates, to the Class J-2 Certificates) and
interest and principal payable to any other
outstanding Class which has an equal or higher
priority which is entitled to distributions on
such Distribution Date.
In addition, on each Distribution Date following
the EC Maturity Date, an amount equal to the
excess of Available Funds over the amounts paid to
all Classes of Certificates in respect of
interest, principal and (other than with respect
to the Class J-1 Certificates) unreimbursed
Realized Losses (together with interest thereon)
on such Distribution Date will be distributed in
reduction of the Certificate Balances of the Class
H Certificates, then the Class G Certificates,
then the Class F Certificates, then the Class E
Certificates, then the Class D Certificates, then
the Class C Certificates, then the Class B
Certificates, then the Class A-1 and Class A-2
Certificates, pro rata, and finally the Class J-1
Certificates, in each case until the Certificate
Balance of each thereof has been reduced to zero.
The ``Pooled Principal Distribution Amount'' for
any Distribution Date is equal to the sum, for all
Mortgage Loans, of (i) the principal component of
all scheduled Monthly Payments (other than Balloon
Payments) which become due (regardless of whether
received) on the Mortgage Loans during the related
Collection Period; (ii) to the extent not included
elsewhere in this definition, the principal
component of all Assumed Scheduled Payments, as
applicable, deemed to become due (regardless of
whether received) during the related Collection
Period with respect to any Mortgage Loan that is
delinquent in respect of its Balloon Payment;
(iii) to the extent not included elsewhere in this
definition, the Scheduled Principal Balance of
each Mortgage Loan that was repurchased from the
Trust Fund in
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connection with the breach of a representation or
warranty or purchased from the Trust Fund pursuant
to the Pooling and Servicing Agreement, in either
case, during the related Collection Period; (iv)
to the extent not included elsewhere in this
definition, the portion of Unscheduled Payments
allocable to principal of any Mortgage Loan that
was liquidated during the related Collection
Period; (v) to the extent not included elsewhere
in this definition, the principal component of all
Balloon Payments received during the related
Collection Period; (vi) to the extent not included
elsewhere in this definition, all other Principal
Prepayments received in the related Collection
Period; and (vii) to the extent not included
elsewhere in this definition, any other full or
partial recoveries in respect of principal,
including Insurance Proceeds, Condemnation
Proceeds, Liquidation Proceeds and Net REO
Proceeds.
See ``DESCRIPTION OF THE
CERTIFICATES--Distributions'' herein.
Advances . . . . . . . . . . . . . . . . . Subject to the limitations described herein, the
Servicer is required to make advances (``P&I
Advances'') in respect of delinquent Monthly
Payments on the Mortgage Loans. The Servicer will
not be required to advance the full amount of any
Balloon Payment not made by the related borrower
on its due date, but will advance an amount equal
to the monthly payment (or portion thereof not
received) deemed to be due on the Mortgage Loan
after such default, calculated based on the
original amortization schedule of such Mortgage
Loan with interest as described herein. With
respect to any Distribution Date and any Seriously
Delinquent Loan (as defined herein), P&I Advances
will only be made if and to the extent that
Available Funds for such Distribution Date
(exclusive of any P&I Advance with respect to any
Seriously Delinquent Loans) are not sufficient to
make full distributions in accordance with the
Available Funds Allocation (as defined herein) to
each Class of Certificates whose Certificate
Balance would not be reduced by Anticipated Losses
(as defined herein) with respect to all Seriously
Delinquent Loans. Therefore, neither (i) the most
subordinate Class (or Classes) of Certificates
outstanding at any time nor (ii) any other Class
of Certificates whose Certificate Balance would be
reduced if Realized Losses occurred in the amount
of anticipated losses with respect to all
Seriously Delinquent Loans will receive
distributions on any Distribution Date on which
one or more Mortgage Loans is a Seriously
Delinquent Loan unless
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Available Funds for such Distribution Date
(exclusive of any P&I Advances with respect to any
Seriously Delinquent Loans) exceed the amount
necessary to make full distributions in accordance
with the Available Funds Allocation to each Class
of Certificates that is senior to such Class. See
``THE POOLING AND SERVICING AGREEMENT--Advances''
herein. If the Servicer fails to make a required
P&I Advance, the Trustee, acting in accordance
with the servicing standard, will be required to
make such P&I Advance, and if the Trustee fails to
make a required P&I Advance, the Fiscal Agent will
be required to make such P&I Advance. See ``THE
POOLING AND SERVICING AGREEMENT--the Fiscal
Agent'' herein.
Subordination . . . . . . . . . . . . . . . As a means of providing a certain amount of
protection to the holders of the Class A-1, Class
A-2 and Class A-EC Certificates against losses
associated with delinquent and defaulted Mortgage
Loans, the rights of the holders of the Class B,
Class C, Class D, Class E, Class F, Class G, Class
H, Class J-1 and Class J-2 Certificates to receive
distributions of interest and principal, as
applicable, will be subordinated to such rights of
the holders of the Class A-1 Certificates, the
Class A-2 Certificates and the Class A-EC
Certificates. Each other Class of Regular
Certificates will likewise be protected by the
subordination offered by the other Classes of
Certificates that bear a later alphabetical
designation. This subordination will be effected
in two ways: (i) by the preferential right of the
holders of a Class of Certificates to receive, on
any Distribution Date, the amounts of both
interest and principal, as applicable,
distributable in respect of such Certificates on
such Distribution Date prior to any distribution
being made on such Distribution Date in respect of
any Classes of Certificates subordinate thereto,
and (ii) by the allocation of Realized Losses (as
defined herein) to the Certificates in reverse
order of their alphabetical designations, provided
that Realized Losses are allocated pro rata to the
Class A-1 Certificates and the Class A-2
Certificates. See ``DESCRIPTION OF THE
CERTIFICATES--Subordination'' herein. Shortfalls
in Available Funds resulting from additional
Servicer or Special Servicer compensation,
interest on Advances, extraordinary expenses of
the Trust Fund or otherwise will be allocated in
the same manner as Realized Losses.
The Residual Certificates . . . . . . . . . The holders of the Class R and Class LR
Certificates will not be entitled to distributions
of interest or principal. The holders of the
Class R
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and Class LR Certificates are not expected to
receive any distributions until after the
Certificate Balances of all other Classes of
Certificates have been reduced to zero and only to
the extent of any Available Funds remaining in the
Distribution Account and Collection Account,
respectively, on any Distribution Date after the
distribution to the holders of the Regular
Certificates and to the Trustee as holder of the
Lower-Tier Regular Interests, respectively, of all
amounts which they are entitled to receive on such
Distribution Date.
Optional Termination . . . . . . . . . . . . . . The Special Servicer, the Servicer, the Depositor,
and any holder of the Class LR Certificates
representing more than a 50% Percentage Interest
of the Class LR Certificates will each have the
option to purchase, at the purchase price
specified herein, all of the Mortgage Loans, and
all property acquired through exercise of remedies
in respect of any Mortgage Loans, remaining in the
Trust Fund, and thereby effect a termination of
the Trust Fund and early retirement of the then
outstanding Certificates, on any Distribution Date
on which the aggregate Scheduled Principal Balance
of the Mortgage Loans remaining in the Trust Fund
is less than 10% of the Initial Pool Balance. See
``THE POOLING AND SERVICING AGREEMENT--Optional
Termination'' herein.
Auction . . . . . . . . . . . . . . . . . . . . . If the Trust Fund has not been earlier terminated
as described under ``THE POOLING AND SERVICING
AGREEMENT--Optional Termination'' herein, the
Trustee shall on the Distribution Date occurring
in September of each year from and including 2006
and on any date after the Distribution Date
occurring in September 2006 on which the Trustee
receives an unsolicited bona fide offer to
purchase all (but not less than all) of the
Mortgage Loans (each, an ``Auction Valuation
Date''), request that four independent financial
advisory or investment banking or investment
brokerage firms nationally recognized in the field
of real estate analysis and reasonably acceptable
to the Servicer and the Special Servicer provide
the Trustee with an estimated value at which the
Mortgage Loans and all other property acquired in
respect of any Mortgage Loan in the Trust Fund
could be sold pursuant to an auction. If the
aggregate value of the Mortgage Loans and all
other property acquired in respect of any Mortgage
Loan, as determined by the average of the three
highest such estimates, equals or exceeds the
aggregate amount of the Certificate Balances of
all Certificates outstanding on the Auction
Valuation
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Date plus expenses, the Trustee shall conduct an
auction of the Mortgage Loans and such property
and thereby effect a termination of the Trust Fund
and early retirement of the then outstanding
Certificates. The Trustee shall accept no bid
lower than the Certificate Balances of all
Certificates outstanding on the Auction Valuation
Date plus expenses. See ``POOLING AND SERVICING
AGREEMENT--Auction'' herein.
Certain Federal Income Elections will be made to treat the Trust REMICs,
Tax Consequences . . . . . . . . . . . . . . . and the Trust REMICs will qualify, as two separate
real estate mortgage investment conduits (each, a
``REMIC'' or, in the alternative, the ``Upper-Tier
REMIC'' and the ``Lower-Tier REMIC'') for federal
income tax purposes. The Class A-1, Class A-2,
Class A-EC, Class B, Class C, Class D, Class E,
Class F, Class G, Class H, Class J-1 and Class J-2
Certificates (collectively, the ``Regular
Certificates'') will represent ``regular
interests'' in the Upper-Tier REMIC and the Class
R Certificates will be designated as the sole
Class of ``residual interest'' in the Upper-Tier
REMIC. Certain uncertificated classes of
interests will represent ``regular interests'' in
the Lower-Tier REMIC (the ``Lower-Tier Regular
Interests'') and the Class LR Certificates will be
designated as the sole Class of ``residual
interest'' in the Lower-Tier REMIC.
The Regular Certificates will be treated as newly
originated debt instruments for federal income tax
purposes. Beneficial owners of the Offered
Certificates will be required to report income
thereon in accordance with the accrual method of
accounting. The Class A-EC and Class J-2
Certificates will be issued with original issue
discount in an amount equal to the excess of all
distributions of interest expected to be received
thereon over their respective issue prices
(including accrued interest). The Class J-1
Certificates will be issued with original issue
discount in an amount equal to the excess of the
Initial Certificate Balances thereof over their
issue price. It is anticipated that the Class F,
Class G and Class H Certificates will be issued
with original issue discount in an amount equal to
their Initial Certificate Balances plus 4 days of
interest at the initial Pass-Through Rate thereon
over their respective issue prices (including
accrued interest). It is further anticipated that
the Class A-1, Class A-2, Class B, Class C and
Class D and Class E Certificates will be issued at
a premium for federal income tax purposes. See
``CERTAIN FEDERAL INCOME TAX CONSEQUENCES''
herein.
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The Prepayment Assumption (as defined herein) that
will be used for purposes of accruing original
issue discount with respect to the Regular
Certificates and determining whether such original
issue discount with respect to the Regular
Certificates is de minimis, and that may be used
by a holder to amortize premium, is described
herein as Scenario 3 under the heading ``YIELD
CONSIDERATIONS - Weighted Average Life of the
Regular Certificates.'' No representation is made
as to the rate, if any, at which the Mortgage
Loans will prepay.
Although not free from doubt, it is anticipated
that any Prepayment Premiums allocable to the
Regular Certificates will be ordinary income to a
Certificateholder as such amounts accrue. See
``DESCRIPTION OF THE CERTIFICATES--Distributions''
herein.
Holders of the Class R and Class LR Certificates
will be required to include the taxable income or
loss of the Upper-Tier REMIC and the Lower-Tier
REMIC, respectively, in determining their federal
taxable income. It is anticipated that all or a
substantial portion of the taxable income of the
Upper-Tier REMIC and the Lower-Tier REMIC
includible by the Class R and Class LR
Certificateholders, respectively, will be named as
``excess inclusion'' income subject to special
limitations for federal income tax purposes.
FURTHER, SIGNIFICANT RESTRICTIONS APPLY TO THE
TRANSFER OF THE CLASS R AND CLASS LR CERTIFICATES.
THE CLASS R CERTIFICATES WILL, AND CLASS LR
CERTIFICATE MAY, BE CONSIDERED ``NONECONOMIC
RESIDUAL INTERESTS,'' CERTAIN TRANSFERS OF WHICH
MAY BE DISREGARDED FOR FEDERAL INCOME TAX
PURPOSES.
ERISA Considerations . . . . . . . . . . . . . . The United States Department of Labor has issued
to the Underwriter an individual prohibited
transaction exemption, Prohibited Transaction
Exemption 90-32, which generally exempts from the
application of certain of the prohibited
transaction provisions of Section 406 of the
Employee Retirement Income Security Act of 1974,
as amended (``ERISA''), and the excise taxes
imposed by Sections 4975(a) and (b) of the Code
and the civil penalties imposed by 502(i) of
ERISA, transactions relating to the purchase, sale
and holding of pass-through certificates such as
the Class A-1, Class A-2 and Class A-EC
Certificates by employee benefit plans and certain
other retirement arrangements, including
individual retirement accounts and Keogh plans,
which are subject to ERISA and the Code (all of
which are hereinafter
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referred to as ``Plans''), collective investment
funds in which such Plans are invested, and
insurance companies using assets of separate
accounts or general accounts which include assets
of Plans (or which are deemed pursuant to ERISA to
include assets of Plans) and the servicing and
operation of mortgage pools such as the Mortgage
Pool, provided that certain conditions are
satisfied. See ``ERISA CONSIDERATIONS'' herein.
THE CLASS B, CLASS C, CLASS D, CLASS E, CLASS F,
CLASS G, CLASS H, CLASS J-1 AND CLASS J-2
CERTIFICATES ARE SUBORDINATED TO ONE OR MORE OTHER
CLASSES OF CERTIFICATES AND, ACCORDINGLY, THE
CLASS B, CLASS C, CLASS D, CLASS E, CLASS F, CLASS
G, CLASS H, CLASS J-1 AND CLASS J-2 CERTIFICATES
MAY NOT BE PURCHASED BY OR TRANSFERRED TO A PLAN
OR PERSON ACTING ON BEHALF OF ANY PLAN OR USING
THE ASSETS OF ANY SUCH PLAN, OTHER THAN AN
INSURANCE COMPANY USING ASSETS OF ITS GENERAL
ACCOUNT UNDER CIRCUMSTANCES IN WHICH SUCH PURCHASE
OR TRANSFER WOULD NOT CONSTITUTE OR RESULT IN A
PROHIBITED TRANSACTION. NEITHER THE CLASS R
CERTIFICATES NOR THE CLASS LR CERTIFICATES MAY BE
PURCHASED BY OR TRANSFERRED TO A PLAN.
Ratings . . . . . . . . . . . . . . . . . . . . . It is a condition to the issuance of the
Certificates that: the Class A-1 Certificates and
Class A-2 Certificates each be rated ``AAA'' by
each of Fitch, Duff & Phelps and S&P; the Class
A-EC Certificates be rated ``AAA'' by each of
Fitch and Duff & Phelps and ``AAAr'' by S&P; the
Class B Certificates be rated ``AAA'' by Fitch,
``AA+'' by Duff & Phelps and ``AA'' by S&P; the
Class C Certificates be rated ``AA'' by each of
Fitch and Duff & Phelps and ``A+'' by S&P; the
Class D Certificates be rated ``AA-'' by Fitch,
``A+'' by Duff & Phelps and ``A-'' by S&P; the
Class E Certificates be rated ``BBB'' by Fitch and
Duff & Phelps and ``BBB-'' by S&P; the Class F
Certificates be rated ``BBB-'' by Fitch and Duff &
Phelps; the Class G Certificates be rated ``BB''
by S&P and ``BB-'' by Fitch and Duff & Phelps; and
the Class H Certificates be rated ``B'' by S&P and
``B-'' by Fitch and Duff & Phelps. The Class J-1,
Class J-2, Class R and Class LR Certificates are
unrated. S&P's rating of the Class A-EC
Certificates shall expire on the earlier to occur
of (i) the EC Maturity Date and (ii) the first
Distribution Date on which the Class A-EC Notional
Component A is reduced to zero. Duff & Phelps'
rating of the Class A-EC Certificates shall expire
on the earlier to occur of (i) the EC Maturity
Date and (ii) the first Distribution Date on which
the Class
</TABLE>
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<PAGE> 21
<TABLE>
<S> <C>
A-EC Notional Balance is reduced to zero. A
security rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or withdrawal at any time by the
assigning rating organization. A security rating
does not address the likelihood or frequency of
prepayments (both voluntary and involuntary) or
the possibility that Certificateholders might
suffer a lower than anticipated yield, nor does a
security rating address the likelihood of receipt
of Prepayment Premiums or the likelihood of
collection by the Servicer of Default Interest.
See ``RISK FACTORS'' and ``RATINGS'' herein.
Legal Investment . . . . . . . . . . . . . . . . The Certificates will not constitute ``mortgage
related securities'' within the meaning of the
Secondary Mortgage Market Enhancement Act of 1984.
The appropriate characterization of the
Certificates under various legal investment
restrictions, and thus the ability of investors
subject to these restrictions to purchase the
Certificates, may be subject to significant
interpretative uncertainties. Accordingly,
investors should consult their own legal advisors
to determine whether and to what extent the
Certificates constitute legal investments for
them. See ``LEGAL INVESTMENT'' herein.
</TABLE>
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<PAGE> 22
RISK FACTORS
Prospective holders of Certificates should consider, among
other things, the following factors in connection with the purchase of the
Certificates.
THE MORTGAGE LOANS
The Mortgage Loans, proceeds of which are the sole source of
payments on the Certificates, are not insured or guaranteed by any governmental
entity, by any private mortgage insurer, or by the Depositor, the Mortgage Loan
Seller, the Servicer, the Special Servicer, Midland, the Trustee, the Fiscal
Agent or any of their respective affiliates. Four of the Mortgage Loans are
fully recourse loans, while 81 of the Mortgage Loans are non-recourse loans so
that in the event of a default under such Mortgage Loan, recourse generally may
be had only against the related Mortgaged Property and other assets that have
been pledged to secure such Mortgage Loan. The Mortgage Loans are secured by
the following types of properties: multifamily, nursing homes, congregate care
facilities, retail, self-storage, office buildings, industrial, hotel, mobile
home parks and certain mixed use properties. Certain risks attend an
investment in mortgage loans secured by commercial and multifamily properties
generally and mortgage loans secured by the types of properties securing the
Mortgage Loans specifically. See ``DESCRIPTION OF THE MORTGAGE
POOL--Investment in Commercial and Multifamily Mortgage Loans'' herein.
PREPAYMENT AND YIELD CONSIDERATIONS
The yield to maturity on the Regular Certificates will depend
on, among other things, (a) the allocation and timing of any delinquencies,
defaults, losses or other shortfalls experienced on the Mortgage Loans and the
allocation thereof to the various Classes of Certificates, (b) the rate and
timing of principal payments (including both voluntary and involuntary
prepayments, such as prepayments resulting from casualty or condemnation,
defaults and liquidations) on the Mortgage Loans and the allocation thereof to
reduce the Certificate Balances (or Notional Balances) of the Certificates and
(c) the accrual of interest on unreimbursed Advances, the accrual of Special
Servicing Fees and Disposition Fees and the incurrence of other servicing
expenses as to which the right of payment or reimbursement from the Trust Fund
is senior to the rights of Certificateholders.
All but nine of the Mortgage Loans are Balloon Loans which
will have substantial payments (that is, Balloon Payments) due at their stated
maturities unless previously prepaid. Balloon Loans involve a greater risk of
default to the lender than self-amortizing loans because the ability of a
borrower to make a Balloon Payment typically will depend upon its ability
either to refinance the related Mortgaged Property or to sell such Mortgaged
Property at a price sufficient to permit the borrower to make the Balloon
Payment. The ability of a borrower to accomplish either of these goals will be
affected by a number of factors at the time of attempted sale or refinancing,
including the level of available mortgage rates, the fair market value of the
related Mortgaged Property, the borrower's equity in the related Mortgaged
Property, the financial condition of the borrower and operating history of the
related Mortgaged Property, tax laws, prevailing economic conditions and the
availability of credit for multifamily or commercial properties (as the case
may be) generally. See ``YIELD CONSIDERATIONS---Balloon Payments'' herein.
Effect of Borrower Defaults and Delinquencies. The aggregate
amount of distributions on the Regular Certificates, the yield to maturity of
the Regular Certificates, the rate of principal payments on the Regular
Certificates and the weighted average life of the Regular Certificates will be
affected by the rate and the timing of delinquencies and defaults on the
Mortgage Loans. Losses on the Mortgage Loans will be allocated to the
Certificates in reverse order of their alphabetical Class designations,
beginning with the Class J-1 Certificates, until the Certificate Balance
thereof has been reduced to zero, prior to any allocation of losses to the next
most subordinate Class. Losses allocated to the Class J-1 Certificates will
reduce the Class J-2 Notional Balance. If a purchaser of a Regular Certificate
of any Class calculates its anticipated yield based on an assumed default rate
and amount of losses on the Mortgage Loans that is lower than the default rate
and amount of losses actually experienced and such additional losses are
allocable to such Class of Certificates or, with respect to the Class A-EC or
Class J-2 Certificates, such losses result in a reduction of the Class A-EC
Notional Balance, or the Class J-2 Notional Balance, respectively, such
purchaser's actual yield to maturity will be lower than the anticipated yield
calculated and could, under certain extreme scenarios, be negative. The
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<PAGE> 23
timing of any loss on a liquidated Mortgage Loan will also affect the actual
yield to maturity of the Regular Certificates to which a portion of such loss
is allocable, even if the rate of defaults and severity of losses are
consistent with an investor's expectations. In general, the earlier a loss
borne by an investor occurs, the greater will be the effect on such investor's
yield to maturity.
The distribution of Liquidation Proceeds to the Class or
Classes of Certificates then entitled to distributions in respect of principal
will reduce the weighted average life of such Classes and may reduce or
increase the weighted average life of the other Classes of Certificates.
Regardless of whether losses ultimately result, prior to the
liquidation of any defaulted Mortgage Loan, delinquencies on the Mortgage Loans
may significantly delay the receipt of payments by the holder of a Regular
Certificate, to the extent that Advances or the subordination of another Class
of Certificates does not fully offset the effects of any delinquency or
default. The Available Funds generally consist of, as more fully described
herein, principal and interest on the Mortgage Loans actually collected or
advanced. The Servicer's, the Trustee's or the Fiscal Agent's obligation, as
applicable, to make Advances is limited to the extent described under ``THE
POOLING AND SERVICING AGREEMENT--Advances'' herein. In particular, with
respect to any Distribution Date, P&I Advances will only be made with respect
to any Seriously Delinquent Loan (as defined herein) if and to the extent that
Available Funds for such Distribution Date (exclusive of any Advance with
respect to any Seriously Delinquent Loan) are not sufficient to make full
distributions in accordance with the Available Funds Allocation (as defined
herein) to each Class of Certificates whose Certificate Balance would not be
reduced by Anticipated Losses with respect to all Seriously Delinquent Loans.
Therefore, neither (i) the most subordinate Class (or Classes) of Certificates
outstanding at any time nor (ii) any other Class of Certificates whose
Certificate Balance would be reduced if Realized Losses occurred in the amount
of Anticipated Losses with respect to all Seriously Delinquent Loans will
receive distributions on any Distribution Date on which one or more Mortgage
Loans is a Seriously Delinquent Loan unless Available Funds for such
Distribution Date (exclusive of any P&I Advances with respect to any Seriously
Delinquent Loans) exceed the amount necessary to make full distributions in
accordance with the Available Funds Allocation to each Class of Certificates
that is senior to such Class. In addition, no Advances are required to be made
to the extent that, in the good faith judgment of the Servicer, the Trustee or
the Fiscal Agent, as applicable, any such Advance, if made, would be
nonrecoverable from proceeds of the Mortgage Loan to which such Advance
relates. See ``THE POOLING AND SERVICING AGREEMENT--Advances'' herein.
Effect of Prepayments and other Unscheduled Payments. The
actual rate of prepayment of principal on the Mortgage Loans cannot be
predicted. The investment performance of the Certificates may vary materially
and adversely from the investment expectations of investors due to the rate of
prepayments on the Mortgage Loans being higher or lower than anticipated by
investors. In addition, in the event of any repurchase of a Mortgage Loan by
Midland, the Mortgage Loan Seller or the Depositor from the Trust Fund under
the circumstances described under ``THE POOLING AND SERVICING
AGREEMENT--Representations and Warranties; Repurchase'' herein, the repurchase
price paid will be passed through to the holders of the Certificates with the
same effect as if such Mortgage Loan had been prepaid in full (except that no
Prepayment Premium will be payable with respect to any such repurchase). No
representation is made as to the anticipated rate of prepayments (voluntary or
involuntary) on the Mortgage Loans or as to the anticipated yield to maturity
of any Certificate. Furthermore, the distribution of Liquidation Proceeds to
the Class or Classes of Certificates then entitled to distributions in respect
of principal will reduce the weighted average lives of such Classes. See
``YIELD CONSIDERATIONS'' herein.
In general, the yield on Certificates purchased at a premium
or at a discount and the yield on the Class A-EC and Class J-2 Certificates,
which have no Certificate Balances, will be sensitive to the amount and timing
of principal distributions thereon (or in reduction of Notional Balance). The
occurrence of principal distributions at a rate faster than that anticipated by
an investor at the time of purchase will cause the actual yield to maturity of
a Certificate purchased at a premium to be lower than anticipated. The yield
to maturity of the Class A-EC and Class J-2 Certificates will be especially
sensitive to the occurrence of high rates of principal distributions.
Conversely, if a Certificate is purchased at a discount (especially the Class
J-1 Certificates) and principal distributions thereon occur at a rate slower
than that assumed at the time of purchase, the investor's actual yield to
maturity will be lower than assumed at the time of purchase.
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<PAGE> 24
All of the Mortgage Loans, require the payment of Prepayment
Premiums in connection with voluntary prepayments during a certain period
following the origination thereof. The requirement that voluntary prepayments
be accompanied by Prepayment Premiums expires prior to the maturity date of
each Mortgage Loan. In addition, one of the Balloon Loans, Loan #61,
representing approximately 0.6% of the Initial Pool Balance, permits the
related borrower to make voluntary prepayments sufficient to fully amortize the
principal balance thereof over the remaining term thereof without the payment
of prepayment premiums. Such borrower has not made any such voluntary
prepayments since the origination of such Balloon Loan. The prepayment terms
of each of the Mortgage Loans are more particularly described herein under the
heading ``DESCRIPTION OF THE MORTGAGE POOL--Certain Terms and Conditions of the
Mortgage Loans--Prepayment Provisions.''
Provisions requiring Prepayment Premiums may not be
enforceable in some states and under federal bankruptcy law, and may constitute
interest for usury purposes. Accordingly, no assurance can be given that the
obligation to pay a Prepayment Premium will be enforceable under applicable
state or federal law or, if enforceable, that the foreclosure proceeds received
with respect to a defaulted Mortgage Loan will be sufficient to make such
payment.
Prepayment Premiums, to the extent actually collected from
borrowers, will be allocated among the Certificates as described under
``DESCRIPTION OF THE CERTIFICATES--Distributions--Prepayment Premiums'' herein.
No assurance can be given that the distribution of Prepayment Premiums to any
Class of Certificates will offset any diminution in yield resulting from the
increased level of principal distributions caused by any borrower prepayments.
The Class J-2 Certificates are not entitled to receive any distributions in
respect of Prepayment Premiums. In addition, the Class B, Class C, Class D,
Class E, Class F, Class G, Class H and Class J-1 Certificates are unlikely to
receive any distributions in respect of Prepayment Premiums.
Investors in the Class A-EC and Class J-2 Certificates should
consider the risk that the occurrence of voluntary and involuntary principal
prepayment on the Mortgage Loans could result in the failure of such investors
to fully recover their initial investments.
Weighted Average Net Mortgage Rate. The Pass-Through Rate on
each of the Class F, Class G and Class H Certificates is equal to the greater
of (i) the Weighted Average Net Mortgage Rate and (ii) 7.64%. The Weighted
Average Net Mortgage Rate will be affected by modifications to the Mortgage
Rate applicable to any Mortgage Loan. If the Weighted Average Net Mortgage
Rate were to fall below 7.64%, the Pass-Through Rate on the Class F, Class G
and Class H Certificates would be 7.64%, and there will not be sufficient cash
flow to make all interest payments due on each of such Classes and the Class
J-2 Certificates. Any such interest shortfall would affect the Class J-2
Certificates prior to affecting the Class H Certificates, would affect the
Class H Certificates prior to affecting the Class G Certificates and would
affect the Class G Certificates prior to affecting the Class F Certificates.
See ``DESCRIPTION OF THE CERTIFICATES--Distributions'' herein.
Effect of Interest on Advances, Special Servicing Fees and
Other Servicing Expenses. As and to the extent described herein, the Servicer,
the Trustee or the Fiscal Agent, as applicable, will be entitled to receive
interest on unreimbursed Advances at the Advance Rate from the date on which
the related Advance is made to the date on which such amounts are reimbursed.
The Servicer's, the Trustee's or the Fiscal Agent's right, as applicable, to
receive such payments of interest is prior to the rights of Certificateholders
to receive distributions on the Regular Certificates and, consequently, may
result in losses being allocated to the Regular Certificates that would not
otherwise have resulted, absent the accrual of such interest. See ``THE
POOLING AND SERVICING AGREEMENT--Advances'' herein. In addition, certain
circumstances, including delinquencies in the payment of principal and
interest, will result in a Mortgage Loan being specially serviced. The Special
Servicer is entitled to additional compensation for special servicing
activities, including Special Servicing Fees and Disposition Fees, which may
result in losses being allocated to the Regular Certificates that would not
otherwise have resulted absent such compensation. See ``THE POOLING AND
SERVICING AGREEMENT--Special Servicing'' herein.
Residual Certificates. The Class R and Class LR Certificates
are not entitled to regular distributions. The Class R and Class LR
Certificates will only be entitled to distributions after the Class Principal
Balances of all other Classes of Certificates have been reduced to zero and
only to the extent of any funds remaining in the Distribution Account and
Collection Account, respectively. In the case of the Class LR Certificates,
the existence of any funds remaining in the Collection Account may result from
the allocation of
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<PAGE> 25
Available Funds to the Lower-Tier Regular Interests as described in the
Available Funds Allocation. See ``DESCRIPTION OF THE
CERTIFICATES--Distributions'' herein. No assurance can be given that any funds
will remain in the Collection Account for distribution to the Class LR
Certificates. In the case of the Class R Certificates, no funds are expected
to remain in the Distribution Account for distribution thereto. Therefore, the
Class R and Class LR Certificateholders' REMIC taxable income and the tax
liability thereon will substantially exceed cash distributions to such holders
during certain periods. There can be no assurance as to the amount by which
such taxable income or such tax liability will exceed cash distributions in
respect of the Class R Certificates and Class LR Certificates during any such
period and no representation is made with respect thereto. Due to the special
tax treatment of residual interests, the after-tax return of the Class R
Certificates and Class LR Certificates may be significantly lower than would be
the case if the Class R Certificates and Class LR Certificates were taxed as
debt instruments, or may be negative. See ``YIELD CONSIDERATIONS'' herein.
LIMITED LIQUIDITY
There is currently no secondary market for the Regular
Certificates. The Underwriter has advised that it currently intends to make a
secondary market in the Regular Certificates, but it is under no obligation to
do so. Accordingly, there can be no assurance that a secondary market for the
Regular Certificates will develop. Moreover, if a secondary market does
develop, there can be no assurance that it will provide holders of Regular
Certificates with liquidity of investment or that it will continue for the life
of the Regular Certificates. The Regular Certificates will not be listed on
any securities exchange.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of (a) 84 multifamily and commercial
``whole'' mortgage loans (the ``Whole Loans'') and (b) one mortgage loan
participation (the ``Seaport Participation'' and collectively with the Whole
Loans, the ``Mortgage Loans'') that constitutes a 49.3% undivided ownership
interest (the ``Seaport Participation'') in one fixed-rate ``whole'' mortgage
loan (such ``whole'' mortgage loan, Loan #28, the ``Seaport Loan''). The
Mortgage Loans have an aggregate Cut-off Date Principal Balance of
approximately $222,286,173 (the ``Initial Pool Balance''), subject to a
variance of plus or minus 5%. The ``Cut-off Date Principal Balance'' of each
Mortgage Loan (and the Seaport Loan) is the unpaid principal balance thereof as
of the Cut-off Date, after application of all payments of principal due on or
before such date, whether or not received. The ``Cut-off Date Principal
Balance'' of the Seaport Participation is the product of (i) the Cut-off Date
Principal Balance of the related Seaport Loan, and (ii) the 49.3% (the ``Pooled
Percentage'') participation interest that such Seaport Participation represents
in the related Seaport Loan. The Seaport Participation represents
approximately 1.3% of the Initial Pool Balance. All numerical information
provided herein with respect to the Mortgage Loans is provided on an
approximate basis. All percentages of the Mortgage Pool, or of any specified
sub-group thereof, referred to herein without further description are
approximate percentages by aggregate Cut-off Date Principal Balance and, with
respect to the Seaport Loan, will be based on the Cut-off Date Principal
Balance of the related Seaport Participation (which reflects only the Pooled
Percentage of the Seaport Loan). Any description of the terms and provisions
of the Mortgage Loans is a generalized description of the terms and provisions
of the Mortgage Loans in the aggregate. Many of the individual Mortgage Loans
have special terms and provisions that deviate from the generalized, aggregated
description.
The Seaport Participation is evidenced by a participation certificate
(the ``Participation Certificate'') issued pursuant to a Participation
Agreement, dated as of December 1, 1995 between LaSalle National Bank, as
trustee, as seller (in such capacity, the ``Seaport Trustee''), and the
Mortgage Loan Seller, as participant (the ``Seaport Participation Agreement'').
Each Mortgage Loan (other than the Seaport Participation but including the
Seaport Loan) is evidenced by a promissory note (each, a ``Note'') and secured
by a mortgage, deed of trust, deed to secure debt or other similar security
instrument (a ``Mortgage'') that creates a first lien on a fee simple or
leasehold estate in real property (a ``Mortgaged Property''), improved by (a)
an apartment building or complex consisting of five or more rental units (a
``Multifamily Property,'' and any Mortgage Loan secured thereby, a
``Multifamily Loan''), (b) a nursing home (a ``Nursing Home Property,'' and any
Mortgage Loan secured thereby, a ``Nursing Home Loan''), (c) a congregate care
facility (a ``Congregate Care Property,'' and any Mortgage Loan secured
thereby, a ``Congregate Care Loan''), (d) a retail property (a ``Retail
Property,'' and any Mortgage Loan
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<PAGE> 26
secured thereby, a ``Retail Loan''), (e) an office building (an ``Office
Building Property,'' and any Mortgage Loan secured thereby, an ``Office
Building Loan''), (f) a retail/office property (a ``Retail/Office Property,''
and any Mortgage Loan secured thereby, a ``Retail/Office Loan''), (g) a
self-storage facility (a ``Self-Storage Property,'' and any Mortgage Loan
secured thereby, a ``Self-Storage Loan''), (h) a light industrial/industrial
property (a ``Light Industrial/Industrial Property,'' and any Mortgage Loan
secured thereby, a ``Light Industrial/Industrial Loan''), (i) a hotel (a
``Hotel Property,'' and any Mortgage Loan secured thereby, a ``Hotel Loan''),
(j) a mobile home park (a ``Mobile Home Park Property,'' and any Mortgage Loan
secured thereby, a ``Mobile Home Park Loan''); (k) a retail/multifamily
property (a ``Retail/Multifamily Property,'' and any Mortgage Loan secured
thereby, a ``Retail/Multifamily Loan''); (l) an office/multifamily/retail
property (an ``Office/Multifamily/Retail Property'' and any Mortgage Loan
secured thereby, an ``Office/Multifamily/Retail Loan'') or (m) an
office/warehouse property (an ``Office/Warehouse Property,'' and any Mortgage
Loan secured thereby, an ``Office/Warehouse Loan''). The percentage of the
Initial Pool Balance represented by each type of Mortgaged Property is as
follows:
Percentage of
Property Type Initial Pool Balance
------------- --------------------
Multifamily 21.0%
Nursing Home 0.7%
Congregate Care 5.9%
Retail 43.6%
Self-Storage 1.9%
Office Building 6.2%
Light Industrial/Industrial 7.8%
Retail/Office 4.6%
Hotel 1.3%
Mobile Home Park 1.7%
Retail/Multifamily 0.7%
Office/Multifamily/Retail 3.3%
Office/Warehouse 1.4%
Approximately 78.5% of the Initial Pool Balance represents the
refinancing of existing mortgage indebtedness.
None of the Mortgage Loans or the Seaport Loan is insured or
guaranteed by the United States of America, any governmental agency or
instrumentality, any private mortgage insurer or by the Depositor, the Mortgage
Loan Seller, Midland, the Servicer, the Special Servicer, the Trustee or the
Fiscal Agent or any of their respective affiliates. Four of the Mortgage Loans
are fully recourse loans, while 81 of the Mortgage Loans are non-recourse loans
so that, in the event of a borrower default on such Mortgage Loan, recourse may
generally be had only against the specific Mortgaged Property or Mortgaged
Properties securing such Mortgage Loan and such limited other assets as have
been pledged to secure such Mortgage Loan, and not against the borrower's other
assets. However, generally, upon the occurrence of certain circumstances as
set forth in the Mortgage Loan Documents, typically including, without
limitation, fraud, intentional misrepresentation, waste, misappropriation of
tenant security deposits or rent, and in some cases failure to maintain any
required insurance or misappropriation of any insurance proceeds or
condemnation awards, recourse may generally be had against the borrower for
damages sustained by the mortgagee. With respect to one of the Mortgage Loans,
Loan #35, representing approximately 1.2% of the Initial Pool Balance, the
corporate parent company of the related borrower has unconditionally guaranteed
the payment of the related Mortgage Loan. However, guarantors may have limited
assets and there can be no assurance that any guarantor will have sufficient
assets to support obligations under the related guaranty. See ``--Investment
in Commercial and Multifamily Mortgage Loans--Borrower Default; Non-Recourse
Mortgage Loans'' herein.
Seventy-six of the Mortgage Loans (the ``Midland Mortgage Loans''),
and the Seaport Loan, were originated by Midland generally in accordance with
Midland's customary underwriting criteria and practices, with such exceptions
thereto as are customarily acceptable to commercial mortgage lenders. Midland
acquired Loan #4 (the ``Acquired Mortgage Loan'') from another originator after
evaluating such Mortgage Loan using its customary underwriting criteria and
practices, with such exceptions thereto as are customarily acceptable to
commercial mortgage lenders. Midland's underwriting criteria and practices are
described under ``--The
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<PAGE> 27
Mortgage Loan Program,'' ``--Underwriting Standards'' and ``--Midland
Underwriting and Closing Procedures'' herein. The Mortgage Loan Seller (a
wholly-owned subsidiary of Midland) acquired seven of the Mortgage Loans (the
``ULLICO Mortgage Loans'') from ULLICO after performing an evaluation of the
ULLICO Mortgage Loans and ULLICO's underwriting criteria and practices. See
``--The Mortgage Loan Program,'' ``--Underwriting Standards'' and ``--ULLICO
Underwriting and Closing Procedures'' herein. The originators of the Mortgage
Loans are referred to herein collectively as the ``Originators'' and
individually as an ``Originator.''
The Midland Mortgage Loans and the Acquired Mortgage Loan were
acquired by the Mortgage Loan Seller pursuant to a Master Mortgage Loan
Purchase Agreement (the ``Master Mortgage Loan Purchase Agreement'') dated as
of June 22, 1994, as amended, between the Mortgage Loan Seller and Midland.
The ULLICO Mortgage Loans were acquired by the Mortgage Loan Seller pursuant to
a Mortgage Loan Purchase and Sale Agreement (the ``ULLICO Mortgage Loan
Purchase Agreement'') dated December 4, 1995, between the Mortgage Loan Seller
and ULLICO. The Seaport Participation was created pursuant to the
Participation Agreement and is evidenced by the Participation Certificate. See
``--The Seaport Participation'' herein. The Depositor will purchase the
Mortgage Loans to be included in the Mortgage Pool on or before the Closing
Date from the Mortgage Loan Seller pursuant to a Mortgage Loan Purchase and
Sale Agreement (the ``Mortgage Loan Purchase and Sale Agreement'') to be dated
as of December 22, 1995 (the ``Loan Purchase Closing Date''), between the
Mortgage Loan Seller and the Depositor. The Mortgage Loan Seller will be
obligated, and, upon failure by the Mortgage Loan Seller, Midland will be
obligated, to repurchase a Midland Mortgage Loan or the Acquired Mortgage Loan
in the event of a breach of a representation or warranty of Midland and the
Mortgage Loan Seller with respect to such Mortgage Loan, as described under
``THE POOLING AND SERVICING AGREEMENT--Representations and Warranties;
Repurchase'' herein. The Mortgage Loan Seller will be obligated to repurchase
a ULLICO Mortgage Loan in the event of a breach of a representation or warranty
of the Mortgage Loan Seller with respect to such Mortgage Loan. ULLICO will be
obligated to repurchase a ULLICO Mortgage Loan from the Mortgage Loan Seller in
the event of a breach of a representation or warranty made by ULLICO in the
ULLICO Mortgage Loan Purchase Agreement. Each of the Mortgage Loan Seller and
Midland has only limited assets with which to fulfill any repurchase
obligations that may arise. There can be no assurance that the Mortgage Loan
Seller or Midland has or will have sufficient assets with which to fulfill any
repurchase obligations that may arise. The Depositor will not have any
obligation to fulfill any such obligation if Midland or the Mortgage Loan
Seller, as applicable, fails to do so. The Depositor will assign the Mortgage
Loans in the Mortgage Pool, together with the Depositor's rights and remedies
against Midland and the Mortgage Loan Seller in respect of breaches of
representations or warranties regarding the Mortgage Loans, to the Trustee,
pursuant to the Pooling and Servicing Agreement. The Servicer and the Special
Servicer will each service the Mortgage Loans pursuant to the Pooling and
Servicing Agreement. The Seaport Loan will be serviced as described herein.
See ``THE POOLING AND SERVICING AGREEMENT--Servicing of the Mortgage Loans;
Collection of Payments.''
SECURITY FOR THE MORTGAGE LOANS
Each Mortgage Loan (and the Seaport Loan) is secured by a Mortgage
encumbering the related borrower's interest in the related Mortgaged Property.
Eighty-two of the Mortgage Loans and the Seaport Loan are secured by fee simple
interests in the related Mortgaged Property; one Mortgage Loan, Loan #54, is
secured solely by a leasehold interest in the related Mortgaged Property; and
one Mortgage Loan, Loan #17, is secured by a leasehold interest in a portion of
the related Mortgaged Property and a fee simple interest in a portion of the
related Mortgaged Property. Four of the Mortgaged Loans are fully recourse
loans, while eighty-one of the Mortgage Loans are non-recourse loans. Each
Mortgage Loan is also secured by an assignment of the related borrower's
interest in the leases, rents, issues and profits of the related Mortgaged
Property. In certain instances, additional collateral exists in the nature of
letters of credit or the establishment of one or more reserve or escrow
accounts for necessary repairs and replacements, tenant improvements and
leasing commissions, real estate taxes and insurance premiums, deferred
maintenance and/or scheduled capital improvements or as reserves against
delinquencies in Monthly Payments (such accounts, ``Reserve Accounts''), a
pledge of all of the ownership interests in a limited liability company
borrower or the assignment of the proceeds of purchase options. The aggregate
amount on deposit in the Reserve Accounts as of the Cut-off Date was
approximately $3,833,497. Each Mortgage Loan and the Seaport Loan provides for
the indemnification of the mortgagee by the related borrower for the presence
of any hazardous substances affecting the Mortgaged Property. However, the
borrowers generally have limited assets (and, with respect to two of the
Mortgage Loans, the related borrowers' indemnification obligations are
non-recourse obligations) and there can be no assurance that any borrower will
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<PAGE> 28
have sufficient assets to support any such indemnification obligations that may
arise. See ``Investment in Commercial and Multifamily Mortgage
Loans--Environmental Risks'' herein. Each Mortgage constitutes a first lien on
a Mortgaged Property, subject generally only to (a) liens for real estate and
other taxes and special assessments, (b) covenants, conditions, restrictions,
rights of way, easements and other encumbrances whether or not of public record
as of the date of recording of such Mortgage, such exceptions having been
acceptable to the Mortgage Loan Seller and PSRFC (as defined below) in
connection with the purchase of the related Mortgage Loan, and (c) such other
exceptions and encumbrances on the Mortgaged Property as are reflected in the
related title insurance policies.
THE MORTGAGE LOAN PROGRAM--GENERAL
The mortgage loan program under which the Midland Mortgage Loans
(other than the Seaport Participation but including the Seaport Loan) were
originated targets the origination of multi-family and commercial real estate
loans (generally with principal balances ranging from $750,000 to $10,000,000).
To generate a sufficient volume of loan submissions of this size from a variety
of geographic areas, Midland has developed a network of mortgage bankers,
mortgage brokers and commercial bankers who are paid a fee, at closing, for
referrals and any other services they may provide in connection with the
underwriting and closing of such mortgage loans. See ``THE SERVICER AND THE
MORTGAGE LOAN SELLER'' herein.
The seven ULLICO Mortgage Loans, with an aggregate Cut-off Date
Principal Balance of approximately $23,813,425 and representing approximately
10.7% of the Initial Pool Balance, were purchased by the Mortgage Loan Seller
(a wholly owned subsidiary of Midland) from ULLICO, which is a wholly owned
subsidiary of ULLICO, Inc. ULLICO is a Maryland-based life insurer founded in
1925. ULLICO is an active originator of commercial real estate mortgage loans,
holding $95,528,000 of such loans as of December 31, 1994. Total assets and
surplus, as of December 31, 1994, for ULLICO and ULLICO, Inc. were
$1,911,105,015 and $132,443,781, respectively.
The Underwriter, which is an affiliate of the Depositor, served as
financial advisor to Midland in connection with the development of the loan
origination program. In this capacity, the Underwriter consulted with Midland
regarding loan pricing policy and periodically provided Midland with
information on current yields on those U.S. Treasury securities that were used
by Midland to establish the interest rates on the Midland Mortgage Loans. In
addition, the Underwriter assisted Midland in making presentations to the
Rating Agencies regarding the Mortgage Loans and the Servicer's servicing
capabilities.
Prudential Securities Realty Funding Corporation (``PSRFC''), another
affiliate of the Depositor, provided warehouse financing to the Mortgage Loan
Seller. In this connection PSRFC reviewed the underwriting of each Midland
Mortgage Loan before issuance of a commitment by Midland to make the loan to
the related applicant. PSRFC also reviewed (a) the underwriting conducted by
Midland in connection with Midland's acquisition of the Acquired Mortgage Loan,
and (b) the underwriting conducted by the Mortgage Loan Seller in connection
with the Mortgage Loan Seller's acquisition of the ULLICO Loans. PSRFC's
review of underwriting was independent of the review by Midland's own credit
review committee and was intended only to ensure that all loans funded using
the warehouse financing provided by PSRFC met Midland's underwriting
guidelines, with such exceptions thereto as are customarily acceptable to
commercial mortgage lenders, in accordance with Midland's agreement with PSRFC.
UNDERWRITING STANDARDS
Midland's customary underwriting policies and procedures required an
evaluation of both the prospective borrower and the proposed real estate
collateral. Factors typically analyzed in connection with a prospective
borrower include its credit history, capitalization and overall financial
resources and management skill and experience in the applicable property type.
Factors typically analyzed in connection with a Mortgaged Property include its
historical and anticipated future cash flow; age and condition; appraised
value; gross square footage; net rentable area; gross land area; number of
units, rooms or beds; size, identity and termination or purchase option rights
of current tenants; property interest to be mortgaged (fee or leasehold); term,
expiration and rental rates under current leases; projected future leasing
commissions and retaining costs; applicable market rentals for similar
properties; historical vacancy rate and credit loss rate; debt service coverage
ratio; and loan to value ratio.
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Midland generally analyzed historical and current financial
information regarding a Mortgaged Property provided by a prospective borrower
to determine the initial maximum amount of a proposed Midland Mortgage Loan
(including, for this purpose, the Seaport Loan). This analysis allowed Midland
to calculate the initial debt service coverage ratio and loan-to-value ratio
for a proposed Midland Mortgage Loan, based upon the revenues generally
available from the related Mortgaged Property minus the expenses incurred in
operating and maintaining the related Mortgaged Property, all as adjusted by
the actual, historical and market factors applicable to the property type and
location of the related Mortgaged Property. Except as approved by Midland's
credit review committee in connection with specific Midland Mortgage Loans,
Midland applied its customary underwriting policies with respect to these
ratios in connection with the origination of the Midland Mortgage Loans in the
Mortgage Pool as well as the Seaport Loan. Midland's customary underwriting
policies for these ratios are as follows:
<TABLE>
<CAPTION>
Minimum Maximum Term to
Property Type DSCR Maximum LTV Stated Maturity
------------- ------- ----------- ---------------
<S> <C> <C> <C>
Multifamily 1.20 75% 25 years
Nursing Home 1.35 70% 20 years
Congregate Care 1.35 70% 25 years
Retail 1.25 75% 25 years
Office Building 1.25 75% 25 years
Retail/Office 1.25 75% 25 years
Self-Storage 1.35 70% 20 years
Light Industrial/Industrial 1.25 75% 25 years
Hotel 1.40 70% 20 years
Mobile Home Park 1.35 70% 20 years
Retail/Multifamily 1.25 75% 25 years
Office/Multifamily/Retail 1.25 75% 25 years
Office/Warehouse 1.25 75% 25 years
</TABLE>
Actual debt service coverage ratios and loan-to-value ratios for the
Mortgage Loans may and do vary from the guidelines described above. See
``--Certain Characteristics of the Mortgage Pool'' and ``Annex A'' herein.
With respect to the underwriting due diligence conducted by the
Mortgage Loan Seller in connection with its purchase of the ULLICO Mortgage
Loans, the Mortgage Loan Seller reviewed ULLICO's underwriting files including
related appraisals, property condition reports and Phase I environmental
assessments. The Mortgage Loan Seller then applied Midland's customary
underwriting policies and procedures to determine underwritten cash flow,
value, debt service coverage ratio and loan to value ratio for each of the
ULLICO Mortgage Loans. These estimates are included in the information set
forth in Annex A.
MIDLAND UNDERWRITING AND CLOSING PROCEDURES
The information utilized by Midland to determine whether to issue a
binding loan commitment typically included two or more years financial history
for the related Mortgaged Property, a site plan, a rent roll, recent
photographs, a fact sheet completed by the prospective borrower detailing
requested loan terms, ownership information, existing debt, zoning and property
improvement information, copies of specified leases, copies of the most recent
twelve months rent deposits and utility bills, copies of the most recent
property tax bills and insurance premium statements and a listing of all other
income property owned by the principals of the prospective borrower detailing
income, expenses, debt service, valuation and current encumbrances. Midland's
analysis of the foregoing included any adjustments deemed advisable by Midland
to take into account projected increases or decreases in terms of revenue
and/or expense. Midland also performed a site inspection of the subject
Mortgaged Property, investigated (where possible) four lease comparables and
four sales comparables, met the principals of the prospective borrower (when
practical), and gathered market information through interviews with property
managers, leasing agents, real estate brokers and appraisers familiar with the
subject Mortgaged Property's market area. The prospective borrower also was
typically required to make a cash deposit
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equal to 1% of the requested loan balance with Midland concurrently with the
prospective borrower's submission of a formal loan application.
To complete the underwriting of a proposed Midland Mortgage Loan
(including, for this purpose, the Seaport Loan), Midland derived an estimate of
stabilized net cash flow available to pay debt service. On the revenue side,
Midland evaluated the proposed Mortgaged Property's rental rates in relation to
rental rates for similar properties in the same market. If the proposed
Mortgaged Property is leased to relatively few tenants (e.g., retail, office,
light industrial/industrial), Midland analyzed the terms of each of the major
leases. On the expense side, Midland collected documentation for major
operating expense items, such as taxes, insurance and utilities (and, in the
case of Hotel Properties, franchise and management fees), to ensure that
Midland's assumptions regarding property expenses were realistic and in line
with historical experience. Midland also substantiated the financial
performance of the proposed Mortgaged Property by reference to industry
standards and to the more specialized expertise of local real estate brokers
and appraisers. If the proposed Mortgaged Property was an office building,
retail center or industrial property, Midland analyzed potential roll-over risk
for the purpose of making appropriate assumptions regarding the average annual
investment in tenant improvements and leasing commissions likely to be required
to keep occupancy of the proposed Mortgaged Property at or above the occupancy
level assumed by Midland.
The underwriting information received with respect to a proposed
Midland Mortgage Loan was evaluated by Midland through the use of its mortgage
loan analysis model, and a final underwriting memorandum with respect to the
proposed Midland Mortgage Loan was prepared which summarized proposed loan
terms, described the prospective borrower, and discussed the major underwriting
assumptions, competitive status of the subject Mortgaged Property, market
conditions in the locale of the subject Mortgaged Property and the strengths,
weaknesses and mitigating factors with respect to the proposed Midland Mortgage
Loan. This information was then presented to Midland's credit review committee
for a determination as to whether a binding commitment for the proposed Midland
Mortgage Loan should be issued. The information regarding a proposed Midland
Mortgage Loan provided to Midland's credit review committee was simultaneously
provided to both the Mortgage Loan Seller and PSRFC for their consideration.
Prior to the issuance of a loan commitment, both the Mortgage Loan Seller and
PSRFC were also required to approve the terms of the proposed Midland Mortgage
Loan.
Generally, following acceptance of the commitment by the prospective
borrower, Midland ordered an appraisal, an architectural and engineering report
and a Phase I environmental site assessment. In certain instances, Midland may
have utilized a report prepared by a third party not selected by Midland but
only if the qualifications of such third party were approved by Midland and the
report met Midland's specifications for such a report.
It was a condition of closing to each commitment to make a proposed
Midland Mortgage Loan (including, for this purpose, the Seaport Loan) that
Midland receive third-party reports that it considered satisfactory based on a
review by Midland. If the appraisal of a proposed Mortgaged Property did not
confirm the minimum debt service coverage ratio and the maximum loan-to-value
ratio specified in Midland's loan commitment, the loan commitment gave Midland
the flexibility to reduce the loan amount in order to maintain those ratios.
If the architectural and engineering report indicated that critical repairs
needed to be made to the proposed Mortgaged Property, the prospective borrower
was required to make those repairs prior to the closing or Midland held back an
amount sufficient to complete those repairs from the Mortgage Loan proceeds.
All Phase I environmental site assessments were reviewed by McRoberts &
Associates, P.C. (the ``Environmental Consultant''), an independent third party
environmental attorney retained by Midland. If the Phase I environmental site
assessment indicated the existence of a potentially material and significant
environmentally hazardous condition and recommended further investigation, the
Environmental Consultant prepared a scope of work for a Phase II assessment and
Midland engaged a separate consultant to perform the additional work. If
either the Phase I or Phase II environmental site assessment indicated the
presence of material and significant environmentally hazardous condition at the
proposed Mortgaged Property, the prospective borrower was required to remediate
those conditions, provide environmental insurance in an amount acceptable to
Midland, escrow an amount sufficient to pay the costs of such remediation,
provide an indemnity for such costs from a potentially culpable party, or, if
appropriate, implement an operations and maintenance plan for the management of
those conditions.
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Generally, each completed underwriting file contains the following
documents:
A Midland Loan Fact Sheet;
Financial statements for the preceding 2 or more years and the
most recent year-to-date interim statement for the proposed
Mortgaged Property, the prospective borrower, and any
proposed guarantor, co-borrower, general partner of the
borrowing entity and/or limited partner owning 10% or more of
the borrowing entity;
Tax returns for the preceding 3 years for the prospective
borrower and any proposed guarantor, co-borrower, general
partner of the borrowing entity, and/or limited partner
owning 10% or more of the borrowing entity;
A current rent roll, certified by the prospective borrower;
For a proposed Mortgaged Property leased to relatively few
tenants (e.g., retail, office, light industrial/industrial),
copies of all leases;
A copy of any ground lease that may affect the proposed
Mortgaged Property;
A site plan of the proposed Mortgaged Property;
A map of the area in which the proposed Mortgaged Property is
located; and
Pictures of the proposed Mortgaged Property and the
surrounding area.
Midland's closing of the Midland Mortgage Loans (including, for this
purpose, the Seaport Loan) was managed by two staff attorneys supervising a
team of closing coordinators with responsibility for processing mortgage loans
through closing. With the exception of the Seaport Participation, the Acquired
Mortgage Loan and the ULLICO Mortgage Loans, each Mortgage Loan (including the
Seaport Loan) was documented on Midland's form mortgage loan documents, which
were conformed by legal counsel to the requirements and customary loan
documentation of the state where the related Mortgaged Property is located.
The Mortgage File for each of the Mortgage Loans contains the
documents identified under the heading ``THE POOLING AND SERVICING
AGREEMENT--Assignment of the Mortgage Loans'' herein.
ULLICO UNDERWRITING AND CLOSING PROCEDURES
Based upon information obtained from ULLICO, which has not been
independently verified for accuracy or completeness by any of the Depositor,
the Underwriter, the Trustee, the Servicer, the Special Servicer, the Mortgage
Loan Seller or Midland, the following is a general summary of the customary
underwriting policies and procedures typically utilized by ULLICO in connection
with its origination of the ULLICO Mortgage Loans.
ULLICO's standard underwriting procedures require a site inspection of
the proposed Mortgaged Property. In connection with the site inspection,
ULLICO gathers information on the size of the proposed Mortgaged Property, the
mechanical systems serving the proposed Mortgaged Property, the use of the
proposed Mortgaged Property, the appearance of the proposed Mortgaged Property,
the visibility and accessibility of the proposed Mortgaged Property, the
neighborhood surrounding the proposed Mortgaged Property, the zoning applicable
to the proposed Mortgaged Property, any parking requirements applicable to the
proposed Mortgaged Property and the location of the proposed Mortgaged Property
relative to areas of flood hazard, potential environmental concerns with
respect to the proposed Mortgaged Property.
ULLICO evaluates the market and/or submarket in which a proposed
Mortgaged Property is located, considering such factors as size, geographic
boundaries, rental rates, occupancy rate, and absorption trends. ULLICO bases
this evaluation on information gathered during the site inspection, market data
gleaned from third-party sources, and conversations with local brokers and
landlords. In addition, ULLICO evaluates the proposed Mortgaged Property in
relation to the properties that are its primary competition.
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ULLICO's economic analysis of a proposed loan is generally based on a
pro forma operating statement, developed by ULLICO using actual lease terms,
information contained in the appraisal of the proposed Mortgaged Property, and
comparable market data. ULLICO's standard underwriting procedures call for the
use of realistic vacancy factors and lease concessions. Furthermore, ULLICO's
standard underwriting procedures indicate that a market-based management fee
and a reserve for replacements should be included in pro forma operating
expenses, regardless of whether the prospective borrower includes such items in
its calculation of expenses.
In determining whether to issue a firm commitment to make a proposed
loan, ULLICO's standard underwriting procedures require that consideration be
given to the anticipated debt service coverage ratio, both on an interest-only
basis and on an amortizing basis. ULLICO also takes into consideration the
value of the proposed Mortgaged Property. ULLICO typically relies on an
appraisal of the proposed Mortgaged Property for an estimate of value, but does
take into account the assumptions used in the appraisal, the appropriateness of
the discount and/or direct capitalization rates used by the appraiser, and any
circumstances that might have a negative impact on the value of the proposed
Mortgaged Property.
ULLICO's standard underwriting procedure with respect to prospective
borrowers includes obtaining a current financial statement, and personal tax
returns (if available) for the last three years for each guarantor of a
proposed loan. In addition, ULLICO typically obtains verification of each
guarantor's liquidity, explanations of each guarantor's contingent liabilities,
information about near-term events that could affect each guarantor's balance
sheet, and credit and character references for each guarantor.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Due Dates. Eighty-three of the Mortgage Loans provide for scheduled
payments of principal and/or interest (``Monthly Payments'') to be due on the
first day of each month, one Mortgage Loan provides for Monthly Payments to be
due on the sixth day of each month, and the Seaport Participation provides for
Monthly Payments to be remitted on the Business Day immediately preceding the
25th day of each month. With respect to the Seaport Participation, the
borrower under the related Seaport Loan is required to make monthly payments of
principal and interest to the Seaport Trustee on the first day of each month.
Mortgage Rates; Calculations of Interest. All of the Mortgage Loans
accrue interest on the basis of a 360-day year consisting of twelve 30-day
months. Each Mortgage Loan accrues interest at an annualized rate (a
``Mortgage Rate'') that is fixed for the entire term of such Mortgage Loan. No
Mortgage Loan permits negative amortization or the deferral of interest
thereon.
Amortization of Principal. Seventy-six of the Mortgage Loans (the
``Balloon Loans''), which represent approximately 88% of the Initial Pool
Balance, provide for monthly payments of principal based on amortization
schedules longer than their remaining terms, thereby leaving substantial
principal amounts due and payable on their respective maturity dates (each such
payment, together with interest on the related Balloon Loan for the one-month
period ending on the day preceding such Balloon Loan's maturity date, a
``Balloon Payment''), unless previously prepaid. Nine of the Mortgage Loans,
which represent approximately 12% of the Initial Pool Balance, have remaining
amortization terms that are the same as their respective remaining terms to
maturity. With respect to 81 of the Mortgage Loans, which represent
approximately 88.1% of the Initial Pool Balance, the Monthly Payments due on
January 1, 1996 include an amount allocable to the amortization of the
principal amounts of such Mortgage Loans. With respect to four of the Mortgage
Loans, which represent approximately 11.9% of the Initial Pool Balance (the
``Newly Originated Loans''), the Monthly Payments due on January 1, 1996 are
allocable to interest only on such Mortgage Loans, with the principal amounts
thereof scheduled to commence amortizing effective with the February 1, 1996
Monthly Payments. The Newly Originated Loans were originated after December 1,
1995. Accordingly, the Monthly Payment due on January 1, 1996 with respect to
each Newly Originated Loan will represent less than one full month of accrued
interest thereon. To offset any resulting interest shortfall to the
Certificateholders, the Depositor will deposit into the Trust Fund on or before
the Closing Date an amount that, when added to the aggregate amount of Monthly
Payments due on the Newly Originated Mortgage Loans on January 1, 1996, will
constitute an amount equal to one full month of interest on all such Newly
Originated Loans.
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Prepayment Provisions. Provided that a premium or fee (a ``Prepayment
Premium'') is paid to the mortgagee in connection therewith, the Mortgage Loans
generally permit each borrower to voluntarily prepay the principal of its
Mortgage Loan in whole, but not in part. The imposition of such Prepayment
Premiums is designed primarily to deter borrowers from voluntarily prepaying
the principal amounts of their respective Mortgage Loans. However, the
requirement that a voluntary prepayment be accompanied by a Prepayment Premium
expires prior to the maturity date of each Mortgage Loan. In addition, one of
the Balloon Loans, Loan #61, representing approximately 0.6% of the Initial
Pool Balance, permits the related borrower to make voluntary prepayments
sufficient to fully amortize the principal balance thereof over the remaining
term thereof without the payment of Prepayment Premiums. Such borrower has not
made any such voluntary prepayments since the origination of such Balloon Loan.
The Mortgage Loan Documents relating to certain of the Mortgage Loans may
permit the related borrower to transfer the related Mortgaged Property to a
third party without prepaying the related Mortgage Loan, provided that certain
conditions are satisfied, including, without limitation, an assumption by the
transferee of all of such borrower's obligations in respect of such Mortgage
Loan. See ``--`Due-on-Encumbrance'' and ``Due-on-Sale Provisions'' herein.
Annex B sets forth certain information regarding the Prepayment
Premiums applicable to each of the Mortgage Loans. Certain of the Mortgage
Loans are subject to specified periods following the origination of such
Mortgage Loans wherein no voluntary prepayments are allowed (any such period, a
``Lockout Period''). In addition, certain of the Mortgage Loans (the ``Yield
Maintenance Loans'') would require the related borrower to pay a Prepayment
Premium of not less than a specified percentage of the amount prepaid during a
certain period (any such period, a ``Yield Maintenance Period''). The
Prepayment Premium with respect to the Midland Mortgage Loans and the Acquired
Mortgage Loan is generally an amount equal to (a) the present value (discounted
at a rate equal to the Appropriate Treasury Rate) of the scheduled principal
and interest payments which would have been due on such Mortgage Loan from the
date of such prepayment through the maturity thereof had such prepayment not
occurred, minus (b) the principal amount of such prepayment. The ``Appropriate
Treasury Rate'' is equal to the rate derived by linear interpolation between
the yields of the two United States Treasury securities with adjusted constant
maturities most nearly approximating the maturity of such Midland Mortgage
Loan. Five of the ULLICO Mortgage Loans, which represent approximately 8.9% of
the Initial Pool Balance, calculate the applicable Prepayment Premium by
utilizing a formula (comparable to, but varied from, the formula described
above utilized in the Midland Mortgage Loans) based upon the present value
(from the date of the prepayment to the earlier of the date on which the
related mortgagee is permitted to accelerate such ULLICO Mortgage Loan in the
absence of a default or the related maturity date of such ULLICO Mortgage Loan)
of the amount by which the related Mortgage Rate exceeds the rate applicable to
U.S. Treasury obligations of a similar term. The Prepayment Premium payable in
connection with two of the Mortgage Loans (Loan #32 and Loan #60), representing
approximately 1.8% of the Initial Pool Balance, after the expiration of any
Lockout Period, will be equal to a fixed percentage (initially 5%) of the
amount prepaid, which percentage declines by one percent per year until no
Prepayment Premium is required. With respect to the Seaport Participation
(Loan #28), representing approximately 1.3% of the Initial Pool Balance, after
expiration of a ten-year Yield Maintenance Period (during which the Prepayment
Premium will be equal to 5% of the then outstanding principal balance)
Prepayment Premium will be equal to a fixed percentage (initially 5%) of the
then outstanding principal balance, which percentage declines by one percent
per year until no Prepayment Premium is required.
Most of the Midland Mortgage Loans provide that in the event of damage
to any of the related Mortgaged Properties by reason of fire or other casualty
(a ``Casualty''), the mortgagee may, if the value of the related Mortgaged
Property following such Casualty is less than or equal to 50% of such value
immediately preceding such Casualty, apply the insurance proceeds to the
repayment of debt. The Midland Mortgage Loans (including, for this purpose,
the Seaport Loan) generally provide that in the event of a Casualty after which
the value of the related Mortgaged Property remains greater than 50% of the
value of the related Mortgaged Property immediately preceding such Casualty,
all insurance proceeds will be paid to the mortgagee and, subject to the
borrower's satisfaction of the requirements set forth in the related Mortgage
Loan Documents, that such proceeds will be disbursed by the mortgagee, in
amounts deemed necessary by the mortgagee, in connection with the restoration
of the related Mortgaged Property. Except as described herein, all of the
insurance proceeds applicable to any Casualty of a Mortgaged Property securing
a ULLICO Mortgage Loan are to be paid directly to the related mortgagee, and
then it is such mortgagee's option as to whether to apply such proceeds to the
outstanding indebtedness of the related Mortgage Loan, or to allow such
proceeds to be applied to the restoration of the related Mortgaged Property;
provided, however, that with respect to five of the ULLICO
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Mortgage Loans, representing approximately 8.9% of the Initial Pool Balance,
(A) if such proceeds total $250,000 or less, the mortgagee is required to
disburse the same to the related borrower for a restoration of the related
Mortgaged Property, and (B) if such proceeds total more than $250,000, the
mortgagee is required to so disburse such proceeds upon certain specified
conditions. With respect to two of the ULLICO Mortgage Loans (Loan #32 and
Loan #60), representing approximately 1.8% of the Initial Pool Balance, if such
proceeds total $500,000 or less and certain other specified conditions exist,
the mortgagee is required to disburse all such proceeds to the related borrower
for the restoration of the related Mortgaged Property. In certain of the
Mortgage Loans, the lease between the related borrower and a tenant of all or
part of the related Mortgaged Property may require the borrower to rebuild the
buildings located upon the related Mortgaged Property in the event of a
Casualty, and the related Mortgage Loan Documents may permit the application of
insurance proceeds to satisfy such requirement, regardless of the value of such
Mortgaged Property following such Casualty. Generally, the Midland Mortgage
Loans provide that all awards payable to the borrower in connection with any
taking or exercise of the power of eminent domain with respect to the related
Mortgaged Property (a ``Condemnation'') will be paid directly to the mortgagee
for application to the outstanding indebtedness. With respect to all of the
ULLICO Mortgage Loans, any proceeds payable in connection with any Condemnation
of the related Mortgaged Property are to be paid directly to the related
mortgagee. With respect to five of such ULLICO Mortgage Loans, representing
approximately 8.9% of the Initial Pool Balance, the related mortgagee is
entitled, with certain restrictions, to apply such proceeds to the outstanding
indebtedness of the related ULLICO Mortgage Loan, or allow such proceeds to be
utilized for the restoration and repair of the related Mortgaged Property.
With respect to the remaining two ULLICO Mortgage Loans (Loan #32 and Loan
#60), representing approximately 1.8% of the Initial Pool Balance, if specified
conditions are satisfied, the mortgagee is required to allow such proceeds to
be utilized for the restoration and repair of the related Mortgaged Property.
The Mortgage Loans generally further provide that no Prepayment Premium is
payable in connection with any involuntary prepayment resulting from a Casualty
or Condemnation. Although the Servicer itself has no right to apply insurance
or condemnation proceeds received in respect of the Seaport Loan in the event
of a casualty or condemnation relating to the Seaport Loan, the servicer of the
Seaport Loan will be obligated to administer all such insurance and
condemnation proceeds generally in accordance with the procedures described in
this paragraph. See ``THE POOLING AND SERVICING AGREEMENT--Special
Servicing.''
The Mortgage Loans (including, for this purpose, the Seaport Loan)
generally also contain provisions that permit prepayment after an event of
default (but prior to the sale by the mortgagee thereunder of the Mortgaged
Property through foreclosure or otherwise) provided that the related borrower
pays the applicable Prepayment Premium.
The Depositor makes no representation as to the enforceability of the
provision of any Mortgage Loan requiring the payment of a Prepayment Premium or
as to the collectability of any Prepayment Premium. See ``RISK
FACTORS--Prepayment and Yield Considerations'' herein and ``CERTAIN LEGAL
ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS--Enforceability of Certain
Provisions'' in the Prospectus.
``Due-on-Encumbrance'' and ``Due-on-Sale'' Provisions. The Mortgages
generally contain ``due-on-encumbrance'' clauses that permit the holder of the
Mortgage to accelerate the maturity of the related Mortgage Loan if the
borrower encumbers the related Mortgaged Property without the consent of the
mortgagee. The Servicer or the Special Servicer, as applicable, (or in the
case of the Seaport Participation, the servicer or special servicer, as
applicable, of the Seaport Loan under the Seaport Servicing Agreement) will
determine, in a manner consistent with the servicing standard described herein
under ``Servicing of the Mortgage Loans--General,'' whether to exercise any
right the mortgagee may have under any such clause to accelerate payment of a
Mortgage Loan (or the Seaport Loan, as applicable) upon, or to withhold its
consent to, any additional encumbrance of the related Mortgaged Property. The
Mortgages for the Midland Mortgage Loans (and the Seaport Loan) generally
provide that the borrower may transfer the Mortgaged Property or allow a change
in ownership (generally defined as, among other things, (a) a 40% change in the
ownership of the borrower, a guarantor or, with respect to certain of the
Midland Mortgage Loans (and the Seaport Loan), in the ownership of the general
partner of the borrower or a guarantor, (b) the removal, resignation or change
in ownership of any general partner or managing partner of a borrower, a
guarantor or, with respect to certain of the Midland Mortgage Loans (and the
Seaport Loan), any general partner of a borrower or a guarantor, or (c) with
respect to some of the Midland Mortgage Loans (and the Seaport Loan), the
removal, resignation or change in ownership of the managing agent of the
related Mortgaged Property) of the Mortgaged Property, provided that (i) no
event of default has occurred, (ii) the proposed transferee meets the
mortgagee's customary underwriting
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criteria, (iii) the Mortgaged Property continues to meet the mortgagee's
customary underwriting criteria and (iv) an assumption fee, equal to 1% of the
then outstanding principal balance of the applicable Note, has been received by
the mortgagee. The Mortgages for the ULLICO Mortgage Loans generally prohibit
any such transfer or changes in ownership without the mortgagee's prior written
consent. Certain of the Mortgages allow such transfers or changes in ownership
between partners, family members and affiliated companies. In the event of any
transfer or change in ownership of the Mortgaged Property in violation of the
applicable provisions of the related Mortgage Loan Documents, the mortgagee is
permitted to accelerate the maturity of the related Mortgage Loan. See
``CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND CONTRACTS--Due-on-Sale Clauses''
in the Prospectus. The Depositor makes no representation as to the
enforceability of any due-on-sale or due-on-encumbrance provision in any
Mortgage Loan which is the subject of a proceeding under the Bankruptcy Code.
Default Provisions. Each Mortgage Loan (other than the Seaport
Participation but including the Seaport Loan) generally provides that, among
other things, each of the following will constitute an event of default:
(a) if any regular installment of principal and/or
interest is not paid timely and such failure is not remedied on or before the
fifth day following written notice from the mortgagee of such failure, if the
borrower fails to pay the entire outstanding principal balance of the Note,
together with interest thereon, when due or if any other portion of the debt is
not paid within a specified period after written notice from the mortgagee that
such amount is due;
(b) subject to the borrower's right to contest, if taxes
or other charges are not paid when due;
(c) if required insurance policies are not kept in full
force and effect;
(d) if the borrower encumbers any portion of the
Mortgaged Property without the mortgagee's prior written consent or if any
transfer or change in ownership of the Mortgaged Property occurs in violation
of the conditions described in ``--`Due-on-Encumbrance' and `Due-on-Sale'
Provisions'' above;
(e) if any representation of the borrower or a guarantor
is false or misleading in any material respect when made;
(f) if the borrower makes an assignment for the benefit
of creditors or if the borrower is generally not paying its debts as they
become due;
(g) if a receiver, liquidator or trustee of the borrower
is appointed or if the borrower is adjudicated as bankrupt or insolvent, or if
any petition for bankruptcy, reorganization or arrangement pursuant to federal
bankruptcy law, or any similar federal or state law, is filed by or against,
consented to by, or acquiesced in by, the borrower or if any proceeding for the
dissolution or liquidation of the borrower is instituted; however, if such
appointment, adjudication, petition or proceeding was involuntary and not
consented to by the borrower, upon the same not being discharged, stayed or
dismissed within sixty days;
(h) if the borrower is in default under any other
mortgage or security agreement covering any part of the Mortgaged Property,
whether superior or junior in lien to the related Mortgage;
(i) subject to the borrower's right to contest, if the
Mortgaged Property becomes subject to any mechanic's, materialman's or other
lien (not discharged of record by payment, bonding or otherwise within thirty
days) except a lien for local real estate taxes and assessments not then due
and payable;
(j) if the borrower fails to cure properly any material
violations of laws or ordinances affecting the Mortgaged Property; or
(k) if the borrower fails to cure a default under any
other term, covenant or provision of the Mortgage within thirty days after the
borrower first receives written notice of any such default; provided, however,
if such default is not reasonably susceptible of cure within such thirty-day
period, then the borrower
S-35
<PAGE> 36
may be permitted an additional period (not to exceed sixty additional days) to
cure such default provided that the borrower diligently and continuously
pursues such cure.
Additionally, some of the Mortgage Loans contain events of default
related to failure of the borrower to operate the property according to certain
criteria, defaults under or unapproved modifications to any related franchise
agreement, material changes to or defaults under any related management
agreement, failure to correct any deficiency that would justify termination of
a Medicare or Medicaid contract or a ban on new patients otherwise qualifying
for Medicaid or Medicare coverage or the assessment of fines or penalties in
excess of specified amounts by any state or any Medicare, Medicaid, health,
reimbursement or licensing agency.
Upon the occurrence of an event of default with respect to any
Mortgage Loan (other than the Seaport Participation), the Servicer or the
Special Servicer, as applicable, may take such action as the Servicer or the
Special Servicer deems advisable to protect and enforce the rights of the
Trustee, on behalf of the Certificateholders, against the related borrower and
in and to the related Mortgaged Property, subject to the terms of the related
Mortgage Loan, including, without limitation, declaring the entire debt to be
immediately due and payable and/or instituting a proceeding, judicial or
non-judicial, for the complete or partial foreclosure of the Mortgage Loan.
Upon the occurrence of an event of default with respect to the Seaport Loan,
the servicer or the special servicer, as applicable under the Seaport Servicing
Agreement will be responsible for the enforcement of remedies against the
related borrower.
Default Interest. All of the Mortgage Loans provide for imposition of
a rate of interest higher than the stated interest rate upon the occurrence of
an event of default by the related borrower (``Default Interest'').
With respect to all of the Midland Mortgage Loans (including, for this
purpose, the Seaport Loan), representing approximately 86.3% of the Initial
Pool Balance, the related Mortgage Loan Documents generally provide that,
subject to applicable limitations upon interest rates, upon the occurrence of
an event of default in connection with the related Mortgage Loan, the related
borrower will be obligated to pay Default Interest at a rate equal to the
greater of (a) 4% above the stated interest rate of such Mortgage Loan, and (b)
4% above the prime rate reported in The Wall Street Journal. With respect to
the Acquired Mortgage Loan, representing approximately 3.0% of the Initial Pool
Balance, the related Mortgage Loan Documents provide that, subject to
applicable limitations upon interest rates, upon the occurrence of an event of
default in connection with the related Mortgage Loan, the related borrower will
be obligated to pay Default Interest at a rate equal to 5% above the stated
interest rate on such Mortgage Loan.
With respect to the seven ULLICO Mortgage Loans, representing
approximately 10.7% of the Initial Pool Balance, the following applies: (a)
the related Mortgage Loan Documents for one of the ULLICO Mortgage Loans
provides that upon the occurrence of an event of default in connection with the
related Mortgage Loan, the related borrower will be obligated to pay Default
Interest at a rate equal to the lesser of: (i) 13.86% per annum, and (ii) the
maximum rate allowed by applicable law; (b) the related Mortgage Loan Documents
for one of the ULLICO Mortgage Loans provides that, upon the occurrence of an
event of default in connection with the related Mortgage Loan, the related
borrower will be obligated to pay Default Interest at a rate equal to the
lesser of: (i) 13.48% per annum, and (ii) the maximum rate allowed by
applicable law; and (c) the related Mortgage Loan Documents for the remaining
five ULLICO Mortgage Loans provide that, upon the occurrence of an event of
default in connection with the related Mortgage Loan, the related borrower will
be obligated to pay Default Interest at a rate equal to the lesser of: (i) 150%
of the stated interest rate on such Mortgage Loan, and (ii) the maximum rate
allowed by applicable law.
No assurance can be given as to the enforceability of any provision of
any Mortgage Loan requiring the payment of any Default Interest or as to the
collectability of any Default Interest. See ``CERTAIN LEGAL ASPECTS OF
MORTGAGE LOANS AND CONTRACTS--Enforceability of Certain Provisions'' in the
Prospectus.
Hazard, Liability and Other Insurance. Generally, each Mortgage Loan
requires that the related Mortgaged Property be insured by a hazard insurance
policy in an amount not less than the lesser of (a) the full replacement cost
of the Mortgaged Property, and (b) the outstanding principal balance of the
related Note, but in any event in an amount sufficient to ensure that the
insurer would not deem the borrower a co-insurer. Each hazard insurance policy
is typically required to cover loss or damage by fire or other risks and
hazards covered
S-36
<PAGE> 37
by a standard extended coverage insurance policy including, but not limited to,
windstorm, hail, explosion, riot and civil commotion, vandalism, malicious
mischief, burglary and theft. The borrower is further required to maintain a
flood insurance policy if any part of the Mortgaged Property upon which a
material improvement is located lies in an area identified by the Federal
Emergency Management Agency as an area having special flood hazards and for
which flood insurance has been made available, in an amount at least equal to
the outstanding principal balance of the related Note or the maximum limit of
coverage available. With respect to many of the Mortgage Loans, the related
borrower has satisfied the applicable insurance requirements by obtaining
blanket insurance policies, subject to the review and approval of the same by
the mortgagee, including the amount of insurance and the number of properties
covered by such policies.
Generally, each Mortgage Loan also requires that the related borrower
obtain and maintain during the entire term of the Mortgage Loan (a)
comprehensive public liability insurance, including broad form property damage,
blanket contractual and personal injuries coverages, containing minimum limits
of $1,000,000 per occurrence, (b) rent loss and/or business interruption
insurance in an amount equal to all rents or estimated gross revenues from the
operations of the Mortgaged Property for a period as required by the Mortgage,
(c) insurance against loss or damage from explosion of steam boilers, air
conditioning equipment, high pressure piping, machinery and equipment, pressure
vessels or similar apparatus, and (d) such other insurance as may from time to
time reasonably be required by the mortgagee.
THE SEAPORT PARTICIPATION
The Mortgage Pool includes the Seaport Participation, which represents
approximately 1.3% of the Initial Pool Balance. The underlying Seaport Loan is
a mortgage loan in the original principal amount of $5,915,000 and was
originated by Midland on May 24, 1995. The Seaport Participation was created
pursuant to the Participation Agreement and the Participation Certificate
represents a 49.3% participation interest in the Seaport Loan (with the
remaining 50.7% interest therein included among the mortgage assets backing
another series of the Depositor's commercial mortgage pass-through
certificates). The Seaport Loan will be serviced pursuant to a pooling and
servicing agreement (the ``Seaport Servicing Agreement'') generally in
accordance with the manner in which the Whole Loans will be serviced under the
Pooling and Servicing Agreement. The Participation Agreement may not be
amended without the consent of the Trustee, as holder of the Seaport
Participation. The terms and conditions of the Participation Agreement and the
Seaport Servicing Agreement do not grant voting or other approval rights to
either the Trustee or the Certificateholders in respect of any modifications or
amendments of the Seaport Loan (whether in connection with any default by the
related borrower on its obligations with respect to the Seaport Loan or
otherwise). The related Mortgage Loan Documents for the Seaport Loan have been
delivered by the Mortgage Loan Seller to LaSalle National Bank, as custodian
under the Seaport Servicing Agreement, or Midland, as the current servicer
thereunder.
In the event of a borrower default under the Seaport Loan, the Seaport
Loan could become a specially serviced mortgage loan serviced by the special
servicer under the Seaport Servicing Agreement. In such event, the Special
Servicing Fee payable with respect to the Seaport Participation (which would
have otherwise been payable to the Special Servicer under the Pooling and
Servicing Agreement if the Trust Fund's interest in the Seaport Loan was being
serviced by the Special Servicer thereunder) will be withdrawn from the
Collection Account as an expense of the Trust Fund and paid to such special
servicer. In addition, an amount equal to 49.3% of (i) the amount of any
property advances incurred with respect to the Seaport Loan under the Seaport
Servicing Agreement that have been deemed to be nonrecoverable advances
thereunder and (ii) the interest amount which has accrued on any unreimbursed
property advances incurred with respect to the Seaport Loan under the Seaport
Servicing Agreement, will be withdrawn from the Collection Account as an
expense of the Trust Fund and paid to the servicer under the Seaport Servicing
Agreement. In the event of a breach of a representation or warranty with
respect to the Seaport Loan made to the trustee under the Seaport Servicing
Agreement, such breach may result in a repurchase of the entire Seaport Loan
from such trustee and therefore a prepayment of the Seaport Participation under
the Participation Agreement. See ``THE POOLING AND SERVICING
AGREEMENT--Special Servicing'' herein.
CERTAIN CHARACTERISTICS OF THE MORTGAGE POOL
As of the Cut-off Date, the Mortgage Loans had the following
characteristics: (a) Mortgage Rates ranging from 7.89% per annum to 10.06% per
annum; (b) a weighted average Mortgage Rate of approximately
S-37
<PAGE> 38
8.8% per annum; (c) approximate principal balances ranging from $598,000 to
$8,250,000; (d) an average principal balance of approximately $2,615,000; (e)
original terms to scheduled maturity ranging from approximately 60 months to
240 months; (f) remaining terms to scheduled maturity ranging from
approximately 60 months to approximately 239 months; (g) a weighted average
remaining term to scheduled maturity of 149 months; (h) Cut-off Date
Loan-to-Value (``LTV'') Ratios ranging from approximately 37.46% to
approximately 80.36%; (i) a weighted average Cut-off Date LTV Ratio of
approximately 66.2%; (j) Cut-off Date Debt Service Coverage Ratios ranging from
approximately 1.18x to approximately 1.84x and (k) a weighted average Cut-off
Date Debt Service Coverage Ratio of approximately 1.37x.
The following tables and Annex A set forth certain information with
respect to the Mortgage Loans and the Mortgaged Properties. The statistics in
the following tables and Annex A were primarily derived from information
provided to the Depositor by the Originator or the Mortgage Loan Seller, which
information may have been obtained from the borrowers without independent
verification except as noted. Financial statements supplied by the borrowers,
and on the basis of which certain information contained in the following charts
and Annex A was derived, were not prepared in accordance with generally
accepted accounting principles. With respect to the Seaport Loan, all
statistical information contained in the following tables and Annex A is
derived with reference only to the Pooled Percentage of the Seaport Loan
represented by the Participation Certificate. For purposes of the tables and
Annex A:
(1) ``Underwritten Cash Flow'' means, with respect to any
Mortgage Loan, the cash flow available for debt service for a 12-month
period, as determined by the Originator in accordance with the
standards of a prudent commercial mortgage lender based upon recent
information supplied by the related borrower prior to the origination
of such mortgage loan, and adjusted, if determined appropriate by the
Originator, to: (a) deduct any non-cash items such as depreciation or
amortization; (b) deduct capital expenditures; (c) reflect a more
appropriate occupancy rate; (d) reflect replacement, capital
expenditure and other reserves required by the related Mortgage Loan
Documents; (e) reflect a market rate management fee; (f) exclude
certain percentage rent, delinquent rents and non-recurring income;
(g) reflect an allowance for tenant improvements and leasing
commissions; and (h) reflect such other adjustments determined
appropriate by the Originator. The Depositor has not made any attempt
to verify the accuracy of any operating statements or other
information provided by each borrower. In addition, ``Underwritten
Cash Flow'' is not intended to be and is not a substitute for or an
improvement upon properly determined net income as determined in
accordance with generally accepted accounting principles as a measure
of the results of a Mortgaged Property's operations or a substitute
for cash flows from operating activities determined in accordance with
generally accepted accounting principles as a measure of liquidity.
No representation is made as to the future net cash flow of the
properties, nor is ``Underwritten Cash Flow'' set forth herein
intended to represent such future net cash flow.
(2) ``1994 Net Operating Income'' is the net operating
income for a Mortgaged Property as established by financial statements
provided by the borrowers as of December 31, 1994. 1994 Net Operating
Income does not necessarily reflect accrual of certain costs such as
taxes and capital expenditures and does not reflect non-cash items
such as depreciation or amortization. In some cases, capital
expenditures may have been treated by a borrower as an expense and the
Depositor does not represent that the borrowers' financial statements
were prepared in accordance with generally accepted accounting
principles. The Depositor has not made any attempt to verify the
accuracy of any operating statements or other information provided by
each borrower or to reflect changes in net operating income that may
have occurred since the date of the last operating statements provided
by each borrower for the related Mortgaged Property. ``1994 Net
Operating Income'' was generally not determined in accordance with
generally accepted accounting principles and is not intended to be and
is not a substitute for or an improvement upon properly determined net
income as determined in accordance with generally accepted accounting
principles as a measure of the results of a Mortgaged Property's
operations.
(3) ``Appraised Value'' means, for each of the Mortgaged
Properties, the appraised value of such property as determined by an
appraisal thereof made not more than one year prior to the origination
date of the related Mortgage Loan and reviewed by Midland.
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<PAGE> 39
(4) ``Annual Debt Service'' means, for any Mortgage Loan,
the current annual debt service (including interest allocable to
payment of the Servicing Fee, and principal) payable with respect to
such Mortgage Loan during the 12-month period commencing on the
Cut-off Date (assuming no principal prepayments occur).
(5) ``DSCR'' or ``Debt Service Coverage Ratio'' means,
with respect to any Mortgage Loan, (a) the Underwritten Cash Flow for
the related Mortgaged Property, divided by (b) the Annual Debt Service
for such Mortgage Loan.
(6) ``Loan-to-Value Ratio'' or ``LTV'' means, with
respect to any Mortgage Loan, the principal balance of such Mortgage
Loan as of be Cut-off Date divided by the Appraised Value of the
Mortgaged Property securing such Mortgage Loan.
(7) ``Balloon LTV'' for any Mortgage Loan is calculated
in the same manner as Cut-off Date LTV, except that the principal
balance used to calculate the Balloon LTV has been adjusted to give
effect to the amortization of such Mortgage Loan scheduled to take
place prior to its maturity date.
(8) ``Balloon Amount'' for each Mortgage Loan is equal to
the principal amount, if any, due at maturity, taking into account
scheduled amortization, assuming no prepayments or defaults.
(9) ``Occupancy Rate'' means the percentage of gross
leasable area, rooms, units, beds, pads or sites of a Mortgaged
Property that are leased or occupied. Occupancy rates are calculated
within a recent period.
(10) ``Adjusted Annualized Year To Date Net Operating
Income'' as used herein, means the year to date net operating income
as determined by Midland divided by the number of months shown and
multiplied by 12, adjusted by extraordinary expenditures during the
period covered by the year to date financial information. Certain of
such adjustments are described in the Financial Comments column in the
table in Annex A.
(11) Due to rounding, percentages may not add to 100% and
amounts may not add to the indicated total.
RANGE OF CUT-OFF DATE PRINCIPAL BALANCES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF PERCENT AGGREGATE CUT-OFF PCT BY AGGREGATE WEIGHTED AVERAGE
CUT-OFF MORTGAGE BY NUMBER DATE PRINCIPAL CUT-OFF DATE MORTGAGE RATE WEIGHTED
BALANCES LOANS BALANCE PRINCIPAL BALANCE AVERAGE DSCR(x)
<S> <C> <C> <C> <C> <C> <C>
$500,000 to 999,999 12 14.1% 9,630,002 4.3% 8.957% 1.37
$1,000,000 to 1,499,999 18 21.2% 23,373,947 10.5% 9.012% 1.41
$1,500,000 to 1,999,999 10 11.8% 17,340,704 7.8% 8.927% 1.35
$2,000,000 to 2,499,999 9 10.6% 19,748,839 8.9% 9.123% 1.35
$2,500,000 to 2,999,999 11 12.9% 30,258,805 13.6% 9.038% 1.35
$3,000,000 to 3,499,999 5 5.9% 16,205,886 7.3% 8.955% 1.29
$3,500,000 to 3,999,999 5 5.9% 18,823,802 8.5% 8.764% 1.38
$4,000,000 to 4,499,999 4 4.7% 17,203,779 7.7% 8.820% 1.33
$4,500,000 to 4,999,999 2 2.4% 9,250,000 4.2% 8.226% 1.31
$5,000,000 to 5,499,999 1 1.2% 5,350,000 2.4% 7.890% 1.39
$5,500,000 to 5,999,999 1 1.2% 5,500,000 2.5% 8.050% 1.22
$6,000,000 to 6,499,999 2 2.4% 12,558,061 5.6% 8.713% 1.46
$6,500,000 to 6,999,999 2 2.4% 13,287,984 6.0% 8.429% 1.49
$7,000,000 to 7,499,999 1 1.2% 7,388,563 3.3% 8.750% 1.26
$8,000,000 to 8,499,999 2 2.4% 16,365,800 7.4% 8.590% 1.43
85 100.0% 222,286,173 100.0% 8.801% 1.37
</TABLE>
S-39
<PAGE> 40
RANGE OF MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF PERCENT AGGREGATE CUT-OFF PCT BY AGGREGATE WEIGHTED AVERAGE
MORTGAGE MORTGAGE BY NUMBER DATE PRINCIPAL CUT-OFF DATE MORTGAGE RATE WEIGHTED
RATES LOANS BALANCE PRINCIPAL BALANCE AVERAGE DSCR(x)
<S> <C> <C> <C> <C> <C> <C>
7.750% to 7.999% 3 3.5% 13,450,000 6.1% 7.894% 1.37
8.000% to 8.249% 5 5.9% 21,401,009 9.6% 8.122% 1.44
8.250% to 8.499% 11 12.9% 28,218,122 12.7% 8.348% 1.38
8.500% to 8.749% 12 14.1% 43,995,227 19.8% 8.606% 1.39
8.750% to 8.999% 17 20.0% 34,151,131 15.4% 8.842% 1.31
9.000% to 9.249% 15 17.6% 33,439,647 15.0% 9.139% 1.39
9.250% to 9.499% 9 10.6% 19,384,136 8.7% 9.373% 1.34
9.500% to 9.749% 10 11.8% 23,037,576 10.4% 9.605% 1.28
9.750% to 9.999% 2 2.4% 4,061,879 1.8% 9.903% 1.53
10.000% to 10.249% 1 1.2% 1,147,446 0.5% 10.060% 1.36
85 100.0% 222,286,173 100.0% 8.801% 1.37
</TABLE>
RANGE OF REMAINING TERM OF AMORTIZATION (IN MONTHS)
<TABLE>
<CAPTION>
RANGE OF REMAINING NUMBER OF PERCENT AGGREGATE CUT-OFF PCT BY AGGREGATE WEIGHTED AVERAGE
AMORT (IN MONTHS) MORTGAGE BY NUMBER DATE PRINCIPAL CUT-OFF DATE MORTGAGE RATE WEIGHTED
LOANS BALANCE PRINCIPAL BALANCE AVERAGE DSCR(x)
<S> <C> <C> <C> <C> <C> <C>
168 to 179 3 3.5% 5,025,999 2.3% 9.306% 1.35
180 to 191 3 3.5% 10,825,000 4.9% 8.199% 1.32
192 to 203 2 2.4% 6,040,017 2.7% 8.525% 1.31
216 to 227 1 1.2% 3,750,000 1.7% 8.650% 1.23
228 to 239 10 11.8% 23,517,236 10.6% 9.161% 1.36
240 to 251 6 7.1% 11,755,500 5.3% 8.515% 1.36
252 to 263 2 2.4% 4,458,909 2.0% 9.130% 1.33
264 to 275 2 2.4% 10,625,559 4.8% 8.676% 1.51
288 to 299 36 42.4% 82,522,153 37.1% 9.043% 1.37
300 to 311 19 22.4% 57,215,800 25.7% 8.504% 1.37
420 to 431 * 1 1.2% 6,550,000 2.9% 8.510% 1.44
WTD AVG TERM 278 85 100.0% 222,286,173 100.0% 8.801% 1.37
- ------------
</TABLE>
* The initial amortization term of this Mortgage Loan is 35 years, but the
amortization term will reduce to a 21-year period three years after the
origination of such Mortgage Loan.
RANGE OF MATURITY YEARS
<TABLE>
<CAPTION>
NUMBER OF PERCENT AGGREGATE CUT-OFF PCT BY AGGREGATE WEIGHTED AVERAGE
YEAR OF MORTGAGE BY NUMBER DATE PRINCIPAL CUT-OFF DATE MORTGAGE RATE WEIGHTED
MATURITY LOANS BALANCE PRINCIPAL BALANCE AVERAGE DSCR(x)
<S> <C> <C> <C> <C> <C> <C>
2000 1 1.2% 4,750,000 2.1% 7.900% 1.32
2002 7 8.2% 24,795,991 11.2% 8.140% 1.44
2003 2 2.4% 6,222,490 2.8% 8.189% 1.24
2005 15 17.6% 41,369,699 18.6% 8.716% 1.38
2007 22 25.9% 35,475,192 16.0% 8.933% 1.37
2008 1 1.2% 4,500,000 2.0% 8.570% 1.31
2010 30 35.3% 68,489,759 30.8% 9.229% 1.36
2011 4 4.7% 22,015,800 9.9% 8.619% 1.40
2012 1 1.2% 4,390,017 2.0% 8.200% 1.30
2014 1 1.2% 2,888,661 1.3% 9.550% 1.35
2015 1 1.2% 7,388,563 3.3% 8.750% 1.26
85 100.0% 222,286,173 100.0% 8.801% 1.37
</TABLE>
S-40
<PAGE> 41
RANGE OF LOAN ORIGINATION YEARS
<TABLE>
<CAPTION>
NUMBER OF PERCENT AGGREGATE CUT-OFF PCT BY AGGREGATE WEIGHTED AVERAGE
YEAR OF MORTGAGE BY NUMBER DATE PRINCIPAL CUT-OFF DATE MORTGAGE RATE WEIGHTED
ORIGINATION LOANS BALANCE PRINCIPAL BALANCE AVERAGE DSCR(x)
<S> <C> <C> <C> <C> <C> <C>
1993 1 1.2% 6,737,984 3.0% 8.350% 1.54
1995 84 98.8% 215,548,189 97.0% 8.815% 1.36
85 100.0% 222,286,173 100.0% 8.801% 1.37
</TABLE>
RANGE OF LTVS
<TABLE>
<CAPTION>
RANGE NUMBER OF PERCENT AGGREGATE CUT-OFF PCT BY AGGREGATE WEIGHTED AVERAGE
OF LTV MORTGAGE BY NUMBER DATE PRINCIPAL CUT-OFF DATE MORTGAGE RATE WEIGHTED
LOANS BALANCE PRINCIPAL BALANCE AVERAGE DSCR(x)
<S> <C> <C> <C> <C> <C> <C>
35.0% to 39.9% 1 1.2% 1,086,299 0.5% 9.830% 1.44
40.0% to 44.9% 1 1.2% 1,325,000 0.6% 8.150% 1.79
50.0% to 54.9% 6 7.1% 21,944,817 9.9% 8.663% 1.43
55.0% to 59.9% 10 11.8% 19,974,260 9.0% 8.716% 1.48
60.0% to 64.9% 18 21.2% 40,277,768 18.1% 8.903% 1.35
65.0% to 69.9% 18 21.2% 56,620,957 25.5% 8.852% 1.38
70.0% to 74.9% 26 30.6% 70,036,573 31.5% 8.771% 1.33
75.0% to 79.9% 4 4.7% 8,770,500 3.9% 8.733% 1.27
80.0% to 84.9% 1 1.2% 2,250,000 1.0% 8.900% 1.21
WTD AVG LTV 66.2% 85 100.0% 222,286,173 100.0% 8.801% 1.37
- -----------
</TABLE>
RANGE OF DSCRS
<TABLE>
<CAPTION>
RANGE NUMBER OF PERCENT AGGREGATE CUT-OFF PCT BY AGGREGATE WEIGHTED AVERAGE
OF MORTGAGE BY NUMBER DATE PRINCIPAL CUT-OFF DATE MORTGAGE RATE WEIGHTED
DSCR(x) LOANS BALANCE PRINCIPAL BALANCE AVERAGE DSCR AVERAGE DSCR(x)
<S> <C> <C> <C> <C> <C> <C>
1.15 to 1.19 1 1.2% 1,300,000 0.6% 8.310% 1.18
1.20 to 1.24 9 10.6% 26,776,117 12.0% 8.950% 1.21
1.25 to 1.29 7 8.2% 23,283,367 10.5% 8.654% 1.28
1.30 to 1.34 22 25.9% 49,484,228 22.3% 8.865% 1.32
1.35 to 1.39 24 28.2% 57,196,650 25.7% 8.929% 1.37
1.40 to 1.44 9 10.6% 23,566,803 10.6% 8.657% 1.42
1.45 to 1.49 3 3.5% 6,612,575 3.0% 9.078% 1.47
1.50 to 1.54 4 4.7% 20,178,386 9.1% 8.446% 1.52
1.55 to 1.59 3 3.5% 10,066,596 4.5% 8.670% 1.58
1.60 to 1.64 1 1.2% 1,150,000 0.5% 8.900% 1.64
1.75 to 1.79 1 1.2% 1,325,000 0.6% 8.150% 1.79
1.80 to 1.84 1 1.2% 1,346,450 0.6% 9.150% 1.84
WTD AVG DSCR 1.37 85 100.0% 222,286,173 100.0% 8.801% 1.37
- ------------
</TABLE>
RANGE OF PROPERTY AGE (IN YEARS)
<TABLE>
<CAPTION>
RANGE OF NUMBER OF PERCENT AGGREGATE CUT-OFF PCT BY AGGREGATE WEIGHTED AVERAGE
EFFECTIVE AGE OF MORTGAGE BY NUMBER DATE PRINCIPAL CUT-OFF DATE MORTGAGE RATE WEIGHTED
PROPERTY LOANS BALANCE PRINCIPAL BALANCE AVERAGE DSCR(x)
<S> <C> <C> <C> <C> <C> <C>
0 to 4 25 29.4% 76,388,004 34.4% 8.798% 1.34
5 to 9 29 34.1% 82,544,495 37.1% 8.833% 1.37
10 to 14 13 15.3% 27,160,217 12.2% 8.684% 1.41
15 to 19 4 4.7% 8,042,428 3.6% 8.990% 1.31
20 to 24 10 11.8% 16,821,325 7.6% 8.898% 1.37
25 to 29 2 2.4% 1,796,619 0.8% 8.667% 1.39
30 to 34 2 2.4% 9,533,086 4.3% 8.582% 1.49
WTD AVG AGE 8 85 100.0% 222,286,173 100.0% 8.801% 1.37
- -----------
</TABLE>
S-41
<PAGE> 42
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF PERCENT AGGREGATE CUT-OFF PCT BY AGGREGATE WEIGHTED AVERAGE
MORTGAGE BY NUMBER DATE PRINCIPAL CUT-OFF DATE MORTGAGE RATE WEIGHTED
LOANS BALANCE PRINCIPAL BALANCE AVERAGE DSCR(x)
<S> <C> <C> <C> <C> <C> <C>
PROPERTY TYPE
Multifamily 22 25.9% 46,766,923 21.0% 8.531% 1.39
Nursing Home 1 1.2% 1,497,664 0.7% 8.690% 1.51
Congregate Care 3 3.5% 13,074,653 5.9% 8.439% 1.52
Retail 31 36.5% 96,988,965 43.6% 8.911% 1.34
Office Building 7 8.2% 13,850,422 6.2% 8.921% 1.33
Retail/Office 2 2.4% 10,143,489 4.6% 8.662% 1.42
Self Storage 3 3.5% 4,133,745 1.9% 9.517% 1.44
Light Industrial/Industrial 9 10.6% 17,216,846 7.8% 8.746% 1.36
Hotel 1 1.2% 2,975,580 1.3% 9.930% 1.56
Mobile Home Park 2 2.4% 3,660,000 1.7% 8.310% 1.34
Retail/Multifamily 1 1.2% 1,446,522 0.7% 9.700% 1.24
Office/Multifamily/Retail 1 1.2% 7,388,563 3.3% 8.750% 1.26
Office/Warehouse 2 2.4% 3,142,801 1.4% 9.491% 1.40
85 100.0% 222,286,173 100.0% 8.801% 1.37
</TABLE>
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF PERCENT AGGREGATE CUT-OFF PCT BY AGGREGATE WEIGHTED AVERAGE
MORTGAGE BY NUMBER DATE PRINCIPAL CUT-OFF DATE MORTGAGE RATE WEIGHTED
LOANS BALANCE PRINCIPAL BALANCE AVERAGE DSCR(x)
<S> <C> <C> <C> <C> <C> <C>
PROPERTY LOCATION
Alaska 1 1.2% 1,673,009 0.8% 9.660% 1.40
Arkansas 1 1.2% 3,887,575 1.7% 9.240% 1.46
Arizona 2 2.4% 2,616,864 1.2% 8.594% 1.27
California 11 12.9% 37,222,173 16.7% 8.903% 1.35
Colorado 3 3.5% 4,408,008 2.0% 8.442% 1.34
Connecticut 1 1.2% 787,315 0.4% 9.360% 1.27
District of Columbia 2 2.4% 9,288,563 4.2% 8.803% 1.30
Florida 5 5.9% 18,679,529 8.4% 9.125% 1.30
Illinois 1 1.2% 1,381,505 0.6% 9.170% 1.40
Indiana 2 2.4% 3,569,020 1.6% 8.978% 1.35
Kansas 1 1.2% 2,250,000 1.0% 8.900% 1.21
Kentucky 1 1.2% 2,789,889 1.3% 9.100% 1.34
Louisiana 2 2.4% 5,245,500 2.4% 8.641% 1.27
Massachusetts 4 4.7% 19,535,844 8.8% 8.711% 1.44
Maryland 2 2.4% 5,837,909 2.6% 9.232% 1.38
Michigan 1 1.2% 2,583,274 1.2% 8.310% 1.34
Minnesota 5 5.9% 8,745,612 3.9% 9.306% 1.34
Missouri 2 2.4% 3,881,401 1.7% 9.333% 1.40
Mississippi 1 1.2% 995,014 0.4% 8.410% 1.31
Nebraska 1 1.2% 2,800,000 1.3% 8.250% 1.27
New Hampshire 1 1.2% 722,490 0.3% 9.250% 1.38
New Jersey 2 2.4% 3,148,539 1.4% 9.023% 1.31
New Mexico 2 2.4% 3,047,446 1.4% 9.225% 1.38
New York 5 5.9% 15,355,698 6.9% 8.813% 1.41
Ohio 2 2.4% 1,496,143 0.7% 8.902% 1.44
Oklahoma 4 4.7% 8,344,883 3.8% 8.413% 1.32
Rhode Island 1 1.2% 4,000,000 1.8% 8.420% 1.29
Tennessee 2 2.4% 9,468,833 4.3% 8.661% 1.58
Texas 14 16.5% 31,400,115 14.1% 8.431% 1.38
Virginia 2 2.4% 5,824,021 2.6% 8.555% 1.47
Washington 1 1.2% 1,300,000 0.6% 8.690% 1.37
85 100.0% 222,286,173 100.0% 8.801% 1.37
</TABLE>
CHANGES IN MORTGAGE POOL CHARACTERISTICS
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the close of business on the Cut-off Date, as
S-42
<PAGE> 43
adjusted for scheduled principal payments due on the Mortgage Loans on or
before the Cut-off Date. Prior to the issuance of the Certificates, one or
more Mortgage Loans may be removed from the Mortgage Pool if the Depositor
deems such removal necessary or appropriate or if it is prepaid. A limited
number of other mortgage loans or mortgage loan participations may be included
in the Mortgage Pool prior to the issuance of the Certificates, unless
including such mortgage loans or mortgage loan participations would materially
alter the characteristics of the Mortgage Pool as described herein.
Accordingly, the range of Mortgage Rates and maturities, as well as the other
characteristics of the Mortgage Loans constituting the Mortgage Pool at the
time the Certificates are issued may vary from those described herein.
A Current Report on Form 8-K (the ``Form 8-K'') will be available to
purchasers of the Certificates on the Closing Date and will be filed, together
with the Pooling and Servicing Agreement, with the Securities and Exchange
Commission within fifteen days after the initial issuance of the Certificates.
In the event that Mortgage Loans are removed from or added to the Mortgage Pool
as set forth in the preceding paragraph, such removal or addition will be noted
in the Form 8-K.
INVESTMENT IN COMMERCIAL AND MULTIFAMILY MORTGAGE LOANS
Borrower Default; Non-recourse Mortgage Loans. The Mortgage Loans are
not insured or guaranteed by any governmental entity, by any private mortgage
insurer, or by the Depositor, the Mortgage Loan Seller, the Servicer, the
Special Servicer, Midland, the Trustee, the Fiscal Agent or any of their
respective affiliates. However, as more fully described under ``--General''
above and ``THE POOLING AND SERVICING AGREEMENT--Representations and
Warranties; Repurchase,'' the Mortgage Loan Seller and Midland will be
obligated to repurchase a Mortgage Loan if certain of their respective
representations or warranties concerning such Mortgage Loan are breached.
However, there can be no assurance that either such entity will be in a
financial position to effect such repurchase. See ``THE SERVICER AND THE
MORTGAGE LOAN SELLER'' herein. Since Midland is both the Originator of the
Midland Mortgage Loans and the Servicer, the ability of Midland to perform its
obligations as Servicer under the Pooling and Servicing Agreement may be
jeopardized if it incurs significant liabilities as an Originator for the
repurchase of Mortgage Loans as to which there has been a breach of a
representation or warranty.
Four of the Mortgaged Loans, Loan #7, Loan #12, Loan #14 and Loan #35,
are fully recourse loans, while 81 of the Mortgage Loans are non-recourse
loans, which means that in the event of a borrower default, recourse may be had
only against the specific Mortgaged Property and other assets, if any, that
have been pledged to secure such Mortgage Loan, and not to any other of the
borrower's assets. Consequently, payment of each Mortgage Loan prior to
maturity is dependent primarily on the sufficiency of the net operating income
of the related Mortgaged Property and payment at maturity (whether at scheduled
maturity or, in the event of a default under the Mortgage Loan, upon the
acceleration of such maturity) is dependent primarily upon the then market
value of the Mortgaged Property.
With respect to one of the Mortgage Loans, Loan #35, representing
approximately 1.2% of the Initial Pool Balance, Midland obtained the
unconditional guaranty of the corporate parent company of the related borrower
of the obligations of such borrower in connection with such Mortgage Loan. The
Servicer or the Special Servicer, as applicable, on behalf of the Trustee and
Certificateholders, will be entitled to enforce the terms of such guaranty.
The guaranty is intended to encourage the performance by the related borrower
or the guarantor of the obligations to which the guaranty relates. However,
the guarantor under such guaranty may have limited assets and there can be no
assurance that such guarantor will have sufficient assets to support its
obligation under such guaranty. In addition, any action to enforce such
guaranty will likely involve significant expense and delays to the Trust Fund
and may not be enforceable if the related guarantor should become the subject
of a bankruptcy, insolvency, reorganization, moratorium or other similar
proceedings. Furthermore, in some states, actions against guarantors may be
limited by anti-deficiency legislation.
Commercial and Multifamily Lending Generally. Commercial and
multifamily lending is generally viewed as exposing a lender to a greater risk
of loss than one-to-four family residential lending. Commercial and
multifamily lending typically involves larger loans to single obligors than
one-to-four family residential lending and therefore provides lenders with less
diversification of risk and has the potential for greater losses resulting from
the delinquency and/or default of individual loans. The repayment of loans
secured by commercial or multifamily properties is typically dependent upon the
successful operation of such properties. As noted above,
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<PAGE> 44
81 of the Mortgage Loans are non-recourse loans, the payment of which is
dependent primarily upon the sufficiency of the net operating income of the
related Mortgaged Property and the market value of such Mortgaged Property.
Commercial and multifamily property values and net operating income
are subject to volatility. There can be no assurance that historical operating
results will be comparable to future operating results. Net operating income
may be reduced, and the borrower's ability to repay a Mortgage Loan impaired,
as a result of an increase in vacancy rates for the Mortgaged Property, a
decline in rental rates as leases are renewed or entered into with new tenants,
an increase in operating expenses of the Mortgaged Property and/or an increase
in capital expenditures needed to maintain the Mortgaged Property and make
needed improvements. The income from and market value of a Mortgaged Property
may be adversely affected by such factors as changes in the general economic
climate, local conditions such as an oversupply of space or a reduction in
demand for real estate in the area, attractiveness to tenants and guests,
perceptions regarding a property's safety, convenience and services, and
competition from other available space. Real estate values and income are also
affected by such factors as government regulations and changes in real estate,
zoning or tax laws, a property owner's willingness and ability to provide
capable management, changes in interest rate levels, the availability of
financing and potential liability under environmental and other laws.
a. Aging and Deterioration of Commercial and Multifamily
Properties. The age, construction quality and design of a particular property
may affect the occupancy level as well as the rents that may be charged for
individual leases or, in the case of the Congregate Care Properties, the
Nursing Home Properties and the Hotel Properties, the amounts that customers
may be charged for the occupancy thereof. The effects of poor construction
quality are likely to increase over time in the form of increased maintenance
and capital improvements. Even good construction will deteriorate over time if
the property managers do not schedule and perform adequate maintenance in a
timely fashion. If, during the term of a Mortgage Loan, properties of a
similar type are built in the area where the property securing such Mortgage
Loan is located or other similar properties in such area are substantially
updated and refurbished during that time, the value of such property could be
reduced.
b. Leases. Income from and the market value of the
Mortgaged Properties would be adversely affected if vacant space in the
Mortgaged Properties could not be leased for a significant period of time, if
tenants were unable to meet their lease obligations or if, for any other
reason, rental payments could not be collected. Where a significant portion of
a Mortgaged Property is leased to a single tenant, the consequences of a
failure of such tenant to perform its obligations under the related lease, or
the failure of the borrower to relet such portion of such Mortgaged Property in
the event that such tenant vacates (either as a result of a default by the
tenant or the expiration of the term of the lease), will be more pronounced
than if such Mortgaged Property were leased to a greater number of tenants.
Upon the occurrence of an event of default by a tenant, delays and costs in
enforcing the lessor's rights could occur. Repayment of the Mortgage Loans
will be affected by the expiration or termination of space leases and the
ability of the related borrowers to renew the leases or relet the space on
economically favorable terms. No assurance can be given that leases which
expire can be renewed, or that the space covered by leases which expire or are
terminated can be leased at comparable rents, or on comparable terms, or in any
timely manner, or at all. Certain tenants at the Mortgaged Properties may be
entitled to terminate their leases or reduce rents under their leases if an
anchor tenant ceases operations at the related Mortgaged Property. In such
cases, there can be no assurance that any such anchor tenants will maintain
operations at the related Mortgaged Properties.
c. Competition. Other multifamily residences, retail
centers, office buildings, nursing homes, congregate care facilities, warehouse
facilities, industrial properties, self-storage facilities, hotels and mobile
home parks located in the areas of the Mortgaged Properties compete with the
Mortgaged Properties of such types to attract residents, retailers, customers,
tenants and guests. In addition, tenants at the Mortgaged Properties that have
retail space face competition from discount shopping centers and clubs, factory
outlet centers, direct mail and telemarketing. Increased competition could
adversely affect income from and the market value of the Mortgaged Properties.
d. Quality of Management. The successful operation of
the Mortgaged Properties is also dependent on the performance of the property
manager of such Mortgaged Property. The property manager is responsible for
responding to changes in the local market, planning and implementing the rental
rate structure,
S-44
<PAGE> 45
including establishing levels of rent payments, and advising the related
borrower so that maintenance and capital improvements can be carried out in a
timely fashion.
Risks Particular to Nursing Homes and Congregate Care Facilities. The
Mortgage Pool contains three Mortgage Loans, Loan #6, Loan #19 and Loan #28,
which represent approximately 5.9% of the Initial Pool Balance, secured by
Mortgages on congregate care facilities. With respect to Loan #6, which
represents approximately 2.9% of the Initial Pool Balance, 73 of the 143 units
available for letting to residents in the related facility are used to provide
congregate care services to residents, while the remaining 70 available units
are used to provide nursing home services to residents. The Mortgage Pool
contains one Mortgage Loan, Loan #56, which represents approximately 0.7% of
the Initial Pool Balance, secured by a Mortgage on a nursing home. Nursing
homes provide long term around-the-clock residential health care services to
residents who require a lower level of care than that provided by an acute care
hospital, but a higher level of care than that provided in a non-institutional
home-like setting. Congregate care facilities provide housing and limited
services such as meal programs to the ``well elderly.'' Loans secured by liens
on properties of these types pose additional risks not associated with loans
secured by liens on other types of income-producing real estate.
Providers of long-term nursing care and other medical services are
subject to federal and state laws that relate to the adequacy of medical care,
distribution of pharmaceuticals, rate setting, equipment, personnel, operating
policies and additions to facilities and services and, to the extent they are
dependent on patients whose fees are reimbursed by private insurers, to the
reimbursement policies of such insurers. In addition, facilities where such
care or other medical services are provided are subject to periodic inspection
by governmental authorities to determine compliance with various standards
necessary to continued licensing under state law and continued participation in
the Medicaid and Medicare reimbursement programs. The failure of a borrower
under a Nursing Home Loan to maintain or renew any required license or
regulatory approval could prevent it from continuing operations at the related
Nursing Home Property or, if applicable, bar it from participation in
government reimbursement programs.
Nursing home facilities may receive a substantial portion of their
revenues from government reimbursement programs, primarily Medicaid and
Medicare. Medicaid and Medicare are subject to statutory and regulatory
changes, retroactive rate adjustments, administrative rulings, policy
interpretations, delays by fiscal intermediaries and government funding
restrictions. Moreover, governmental payors have employed cost-containment
measures that limit payments to health care providers, and there are currently
under consideration various proposals for national health care reform that
could further limit those payments. Accordingly, there can be no assurance
that payments under government reimbursement programs will, in the future, be
sufficient to fully reimburse the cost of caring for program beneficiaries. If
not, net operating income of the Nursing Home Properties that receive revenues
from those sources, and consequently the ability of the related borrowers to
meet their Mortgage Loan obligations, could be adversely affected.
Additionally, the continued operation of a nursing home facility subsequent to
a foreclosure is dependent upon the proposed operator satisfying all applicable
legal requirements, such as processing the required license to operate such
facility and/or dispense required pharmaceuticals.
Congregate care retirement residences generally do not require
licensing by state or federal regulatory agencies and do not qualify for
payments under the federal Medicare program or state Medicaid programs.
However, congregate care retirement residences are required to be licensed by a
state or municipal authority to provide food service. The failure of a
borrower under a Congregate Care Loan to maintain or renew any required license
could impair its ability to generate operating income.
The operators of such nursing homes and congregate care facilities are
likely to compete on a local and regional basis with others that operate
similar facilities. Some of their competitors may be better capitalized, may
offer services not offered by such operators, or may be owned by non-profit
organizations or government agencies supported by endowments, charitable
contributions, tax revenues and other sources not available to such operators.
The successful operation of a Nursing Home Property or Congregate Care Property
will generally depend upon the number of competing facilities in the local
market, as well as upon other factors such as its age, appearance, reputation
and management, the types of services it provides and, where applicable, the
quality of care and the cost of that care.
S-45
<PAGE> 46
Risks Particular to Self-Storage Facilities. The Mortgage Pool
contains three loans, Loan #48, Loan #71 and Loan #72, which represent
approximately 1.9% of the Initial Pool Balance, secured by Mortgages on
self-storage facilities. The conversion of self-storage facilities to
alternative uses generally requires substantial capital expenditures. Thus, if
the operation of any of the Self-Storage Properties becomes unprofitable due to
decreased demand, competition, age of improvements or other factors such that
the related borrower becomes unable to meet its obligations on the related
Mortgage Loan, the liquidation value of that Self-Storage Property may be
substantially less, relative to the amount owing on the related Mortgage Loan,
than would be the case if the Self-Storage Property were readily adaptable to
other uses. Tenant privacy, anonymity and efficient access may heighten
environmental risks. The environmental assessments discussed herein did not
include an inspection of the contents of the self-storage units included in the
Self-Storage Properties and there is no assurance that all of the units
included in the Self-Storage Properties are free from hazardous substances or
other pollutants or contaminants or will remain so in the future. See
``--Environmental Risks'' below.
Risks Particular to Hotel Properties. One of the Mortgages, Loan #26,
representing approximately 1.3% of the Initial Pool Balance, is secured by a
Mortgage on a Hotel Property. This Mortgaged Property is subject to operating
risks common to the hotel industry. These risks include, among other things,
competition from other hotels, over-building in the hotel industry which has
adversely affected occupancy and daily room rates, and increases in operating
costs (which increases may not necessarily in the future be offset by increased
room rates), dependence on business and commercial travelers and tourism,
increases in energy costs and other expense of travel and adverse effects of
general and local economic conditions. These factors could adversely affect
the related borrower's ability to make payments on the related Mortgage Loan.
The hotel industry is seasonal in nature. This seasonality can be expected to
cause periodic fluctuations in the related borrower's revenues.
Hotel Properties may present additional risks as compared to the other
property types in that: (a) hotels are typically operated pursuant to
franchise, management and operating agreements which may be terminable by the
franchisor, the manager or the operator; (b) the transferability of a hotel's
operating, liquor and other licenses to the entity acquiring a hotel either
through purchase or foreclosure is subject to the vagaries of local law
requirements; and (c) because of the expertise and knowledge required to run
hotel operations, foreclosure and a change in ownership (and consequently of
management) may have an especially adverse effect on the perception of the
public and the industry (including franchisors) concerning the quality of a
hotel's operations.
The Hotel Property is a Comfort Inn franchise. The continuation of
the franchise is subject to specified operating standards and other terms and
conditions. The franchisor periodically inspects its licensed properties to
confirm adherence to its operating standards. The failure of the Hotel
Property to maintain such standards or adhere to such other terms and
conditions could result in the loss or cancellation of the franchise license.
It is possible that the franchisor could condition the continuation of a
franchise license on the completion of capital improvements or the making of
certain capital expenditures which the related borrower determines are too
expensive or are otherwise unwarranted in light of general economic conditions
or the operating results or prospects of the affected hotel. In that event,
the related borrower may elect to allow the franchise license to lapse. In any
case, if the franchise is terminated, the related borrower may seek to obtain a
suitable replacement franchise or to operate the Hotel Property independent of
a franchise license. The loss of a franchise license could have a material
adverse effect upon the operations or the underlying value of the hotel covered
by the franchise because of the loss of associated name recognition, marketing
support and decentralized reservation systems provided by the franchisor.
Risks Particular to Mobile Home Parks. Two of the Mortgage Loans,
Loan #38 and Loan #65, representing approximately 1.7% of the Initial Pool
Balance, are secured by Mortgages on Mobile Home Park Properties. A mobile
home park is a residential subdivision designed and improved with home sites
which are leased to residents for the placement of mobile homes and related
improvements. Mobile homes are detached, single-family homes which are
produced off-site by manufacturers and installed within the community. All of
the Mobile Home Park Properties are located in developed areas that include
other mobile home parks. The number of competitive mobile home parks in a
particular area could have a material adverse effect on the related borrower's
ability to lease sites at the property and on the rents charged for such sites.
In addition, other forms of multi-family residential properties and
single-family housing provide housing alternatives to potential residents of
mobile home parks.
S-46
<PAGE> 47
Laws and regulations have been adopted by certain states and
municipalities specifically regulating the ownership and operation of mobile
home parks. Included as part of certain of these laws and regulations are
provisions imposing restrictions on the timing or amount of rental increases
and granting to residents a right of first refusal on sales of their community
by the owner to a third party. Laws and regulations relating to the ownership
and operation of mobile home parks could adversely affect a related borrower by
limiting its ability to increase rents or recover increases in operating
expenses or by making it more difficult in certain circumstances to refinance
the related Mortgage Loan or to sell the Mortgaged Property for purposes of
making any Balloon Payment due upon the maturity of such Mortgage Loan.
Concentration of Mortgage Loans and Borrowers. Several of the
Mortgage Loans have Cut-off Date Principal Balances that are substantially
higher than the average Cut-off Date Principal Balance. The largest single
Mortgage Loan, Loan #1, has a Cut-off Date Principal Balance that represents
approximately 3.7% of the Initial Pool Balance; provided, however, that two of
the Mortgage Loans, Loan #1 and Loan #2, which are cross-collateralized and
cross-defaulted, when considered together, have a Cut-off Date Principal
Balance that represents approximately 7.4% of the Initial Pool Balance. The
five largest Mortgage Loans have Cut-off Date Principal Balances that represent
in the aggregate approximately 16.7% of the Initial Pool Balance.
The percentage of the Initial Pool Balance represented by each type of
Mortgaged Property is as follows:
<TABLE>
<CAPTION>
Percentage of
Property Type Initial Pool Balance
------------- --------------------
<S> <C>
Multifamily 21.0%
Nursing Home 0.7%
Congregate Care 5.9%
Retail 43.6%
Self-Storage 1.9%
Office Building 6.2%
Light Industrial/Industrial 7.8%
Retail/Office 4.6%
Hotel 1.3%
Mobile Home Park 1.7%
Retail/Multifamily 0.7%
Office/Multifamily/Retail 3.3%
Office/Warehouse 1.4%
</TABLE>
The Mortgage Pool (including, for this purpose, the Seaport Loan)
consists of 85 Mortgage Loans to 78 separate borrowers. Twenty-eight of the
Mortgage Loans were made to borrowers that are affiliated with the borrower of
another Mortgage Loan. However, no set of Mortgage Loans made to a single
group of affiliated borrowers constitutes more than approximately 7.4% of the
Initial Pool Balance. Thirteen of such Mortgage Loans (which together
represent approximately 25% of the Initial Pool Balance) are
cross-collateralized and cross-defaulted with the Mortgage Loan made to the
related affiliated borrower. See ``--Limitations on Enforceability of
Cross-Collateralization'' below. In addition, with respect to each of Loan
#23, Loan #24 and Loan #25, Kash N'Karry, the sole tenant of the related
Mortgaged Property, is affiliated with the related borrower under each such
Mortgage Loan.
In general, concentrations in a mortgage pool of loans with
larger-than-average balances can result in losses that are more severe,
relative to the size of the pool than would be the case if the aggregate
balance of such pool were more evenly distributed. Concentrations of Mortgage
Loans with the same borrower or related borrowers can also pose increased
risks. For example, if one borrower that owns or controls several Mortgaged
Properties experiences financial difficulty resulting from the unprofitability
of one Mortgaged Property, such financial difficulty could cause defaults with
respect to the Mortgage Loans secured by the other Mortgaged Properties owned
or controlled by that borrower. Such borrower could attempt to avert
foreclosure by filing a bankruptcy petition that might have the effect of
interrupting Monthly Payments for an indefinite period on all of the related
Mortgage Loans.
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<PAGE> 48
Tax Considerations Related to Foreclosure. If the Trust Fund were to
acquire a Mortgaged Property subsequent to a default on the related Mortgage
Loan pursuant to a foreclosure or deed in lieu of foreclosure, the Special
Servicer would be required under certain circumstances to retain an independent
contractor to operate and manage such Mortgaged Property. Any net income from
such operation and management, other than qualifying ``rents from real
property,'' or any rental income based on the net profits of a tenant or
sub-tenant or allocable to a service that is non-customary in the area and for
the type of building involved, will subject the Lower-Tier REMIC to federal
(and possibly state or local) tax on such income at the highest marginal
corporate rate (currently 35%), thereby reducing net proceeds available for
distribution to Certificateholders. See ``CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--Status of Remic Certificates'' and ``--Taxes That May be Imposed
on the REMIC Pool--Net Income From Foreclosure Property'' in the Prospectus.
Risk of Different Timing of Mortgage Loan Amortization. If and as
principal payments or prepayments are made on the Mortgage Loans at different
rates, depending upon the amortization schedule and maturity of each Mortgage
Loan, the remaining Mortgage Pool will be subject to more concentrated risk
with respect to the diversity of types of properties and with respect to the
number of borrowers.
Because principal on the Certificates is payable in sequential order,
and no Class receives principal until the Certificate Balance of the preceding
Class or Classes has been reduced to zero (other than any amounts distributable
pursuant to priority thirty-seventh of the Available Funds Allocation), Classes
that have a later sequential designation are more likely to be exposed to the
risk of concentration discussed in the preceding paragraph than Classes with
higher sequential priority.
Geographic Concentration. Repayments by borrowers and the market
values of the Mortgaged Properties could be affected by economic conditions
generally or in regions where the borrowers and the Mortgaged Properties are
located, conditions in the real estate markets where the Mortgaged Properties
are located, changes in governmental rules and fiscal policies, acts of nature
(which may result in uninsured losses), and other factors which are beyond the
control of the borrowers. The Mortgaged Properties are located in thirty
states and the District of Columbia. Eleven of the Mortgage Loans, which
represent approximately 16.7% of the Initial Pool Balance, are secured by liens
on Mortgaged Properties located in California, 14 of the Mortgage Loans, which
represent approximately 14.1% of the Initial Pool Balance, are secured by liens
on Mortgaged Properties located in Texas, four of the Mortgage Loans, which
represent approximately 8.8% of the Initial Pool Balance, are secured by liens
on Mortgaged Properties located in Massachusetts, five of the Mortgage Loans,
which represent approximately 8.4% of the Initial Pool Balance, are secured by
liens on Mortgaged Properties located in Florida and five of the Mortgage
Loans, which represent approximately 6.9% of the Initial Pool Balance, are
secured by liens on Mortgaged Properties located in New York. The remaining
Mortgaged Properties are located throughout 25 other states and the District of
Columbia, and not more than 5% of the Initial Pool Balance is secured by
Mortgaged Properties located in any individual state among those other states
or the District of Columbia.
The economy of any state or region in which a Mortgaged Property is
located may be adversely affected to a greater degree than that of other areas
of the country by certain developments affecting industries concentrated in
such state or region. Moreover, in recent periods, several regions of the
United States have experienced significant downturns in the market value of
real estate. To the extent that general economic or other relevant conditions
in states or regions in which concentrations of Mortgaged Properties securing
significant portions of the aggregate principal balance of the Mortgage Loans
are located decline and result in a decrease in commercial property, housing or
consumer demand in the region, the income from and market value of the
Mortgaged Properties may be adversely affected.
Environmental Risks. Under various federal, state and local laws,
ordinances and regulations, a current or previous owner or operator of real
property, as well as certain other categories of parties, may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under,
adjacent to, or in such property. The environmental condition of
nonresidential properties may be affected by the business operation of tenants
and occupants of the properties. In addition, current and future environmental
laws, ordinances or regulations, including new requirements developed by
federal agencies pursuant to the mandates of the Clean Air Act amendments of
1990, may impose additional compliance obligations on business operations that
can be met only by significant capital expenditures.
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<PAGE> 49
Secured lenders may be exposed to the following risks: (a) a
diminution in the value of a Mortgaged Property or the inability to foreclose
against such Mortgaged Property; (b) the potential that the borrower may
default on a Mortgage Loan due to the borrower's inability to pay high
remediation costs or difficulty in bringing its operations into compliance with
environmental laws; or (c) in certain circumstances as more fully described
below, liability for clean-up costs or other remedial actions, which liability
could exceed the value of such Mortgaged Property.
Under the laws of certain states and federal law, failure of a
property owner to perform remediation of certain environmental conditions can
give rise to a lien on the related property to ensure the reimbursement of
remedial costs incurred by the state. In several states such lien has priority
over the lien of an existing mortgage. Any such lien arising with respect to a
Mortgaged Property would adversely affect the value of such Mortgaged Property
as collateral for the related Mortgage Loan and could make impracticable the
foreclosure by the Special Servicer on such Mortgaged Property in the event of
a default by the borrower of its obligations under the related Mortgage Loan.
The cost of any required remediation and the owner's liability
therefor as to any property is generally not limited under such enactments and
could exceed the value of the property and/or the aggregate assets of the
owner. Under some environmental laws, a secured lender (such as the Trust
Fund) may be liable, as an ``owner'' or ``operator,'' for the costs of
responding to a release or threat of a release of hazardous substances on or
from a borrower's property if the lender is deemed to have participated in the
management of the borrower, regardless of whether a previous owner caused the
environmental damage. One court has held that a lender will be deemed to have
participated in the management of the borrower if the lender participates in
the financial management of the borrower to a degree indicating the capacity to
influence the borrower's treatment of hazardous waste. The Trust Fund's
potential exposure to liability for cleanup costs will increase if the Trust
Fund actually takes possession of a Mortgaged Property, or control of its
day-to-day operations; such potential exposure to environmental liability may
also increase if a court grants a petition to appoint a receiver to operate the
Mortgaged Property in order to protect the Trust Fund's collateral. See
``CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND CONTRACTS--Environmental Risks''
in the Prospectus.
Certain federal, state and local laws, regulations and ordinances
govern the removal, encapsulation or disturbance of asbestos-containing
materials (``ACMs'') in the event of the remodeling, renovation or demolition
of a building. Such laws, as well as common law standards, may impose
liability for releases of ACMs and may allow third parties to seek recovery
from owners or operators of real properties for personal injuries associated
with such releases.
The United States Environmental Protection Agency (the ``EPA'') has
concluded that radon gas, a naturally occurring substance, is linked to
increased risks of lung cancer. While there are no current federal or state
requirements mandating radon gas testing, the EPA and the United States Surgeon
General recommend testing residences for the presence of radon and that
abatement measures be undertaken where radon concentrations in indoor air meet
or exceed four picocuries per liter. Midland required testing for radon gas
only in connection with the origination of certain of the Multifamily Loans.
The Residential Lead-Based Paint Hazard Reduction Act of 1992 (the
``Lead Paint Act'') requires federal agencies to promulgate regulations that
will require owners of residential housing constructed prior to 1978 to
disclose to potential residents or purchasers any known lead-paint hazards.
The Lead Paint Act creates a private right of action with treble damages
available for any failure to so notify. Federal agencies have proposed
regulations delineating the scope of this disclosure obligation that are
expected to take effect in 1996. In addition, the ingestion of lead-based
paint chips or dust particles by children can result in lead poisoning, and the
owner of a property where such circumstances exist may be held liable for such
injuries. Midland required testing for lead-based paint only in connection
with the origination of Multifamily Loans with respect to Mortgaged Properties
with improvements constructed prior to 1985.
Underground storage tanks (``USTs'') are, and in the past have been,
frequently located at properties used for industrial, retail, and other
business purposes. Federal law, as well as the laws of most states, currently
require USTs used for the storage of fuel or hazardous substances and waste to
meet certain standards designed to prevent releases from the USTs into the
environment. USTs installed prior to the implementation of these standards, or
that otherwise do not meet these standards, are potential sources of
contamination to the soil and
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<PAGE> 50
groundwater. Land owners may be liable for the costs of investigating and
remediating soil and groundwater contamination that may emanate from leaking
USTs.
The Pooling and Servicing Agreement requires that the Special Servicer
obtain an environmental site assessment of a Mortgaged Property prior to
acquiring title thereto on behalf of the Trust Fund or assuming its operation.
Such requirement may effectively preclude enforcement of the security for the
related Note until a satisfactory environmental site assessment is obtained (or
until any required remedial action is thereafter taken), but will decrease the
likelihood that the Trust Fund will become liable under any environmental law.
However, there can be no assurance that the requirements of the Pooling and
Servicing Agreement will effectively insulate the Trust Fund from potential
liability under environmental laws. See ``THE POOLING AND SERVICING
AGREEMENT--Servicing of the Mortgage Loans; Collection of Payments'' herein and
``CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND CONTRACTS--Environmental Risks''
in the Prospectus.
All of the Mortgaged Properties have been subject to environmental
site assessments within ten months preceding the Cut-off Date. Environmental
site assessments with respect to each Mortgaged Property were obtained by the
applicable Originator within six months prior to the respective date of
origination of the related Mortgage Loan. Other than as described below, the
assessments did not reveal the existence of conditions or circumstances
respecting the Mortgaged Properties that would constitute or result in a
material violation of applicable environmental law, impose a material
constraint on the operation of such Mortgaged Properties, require any material
change in the use thereof, require clean-up, remedial action or other response
with respect to hazardous materials on or affecting such Mortgaged Properties
under any applicable environmental law, with the exception of conditions or
circumstances (a) which such assessments indicated could be cleaned up,
remediated or brought into compliance with applicable environmental law by the
taking of certain actions, and (b) either (i) for which a hold-back or other
escrow of funds not less than the costs of taking such clean-up, remediation or
compliance actions as estimated in such assessments have been created until
such clean-up, remediation or compliance actions have been taken, or (ii) for
which an environmental insurance policy in an amount satisfactory to the
Originator has been obtained by the related borrower or an indemnity for such
costs has been obtained from a potentially culpable party, or (iii) such clean
up, remediation or compliance actions in compliance with applicable
environmental law have been completed prior to the closing of such Mortgage
Loan. Investors should understand that the results of the environmental site
assessments do not constitute an assurance or guarantee by the Depositor,
Midland, the Mortgage Loan Seller, the borrowers, the environmental consultants
or any other person as to the absence or extent of the existence of any
environmental condition on the Mortgaged Properties that could result in
environmental liability. Given the scope of the environmental site
assessments, an environmental condition that affects a Mortgaged Property may
not be discovered or its severity revealed during the course of the assessment.
Further, no assurance can be given that future changes in applicable
environmental laws, the development or discovery of presently unknown
environmental conditions at the Mortgaged Properties, or the deterioration of
existing conditions, will not require material expenses for remediation or
other material liabilities.
In the case of 29 of the Mortgaged Properties, the environmental
assessments revealed the existing or potential environmental conditions
described below. In the case of one of the Mortgaged Properties, the analysis
of the history of such Mortgaged Property in the Phase I environmental
assessment indicated that further soil testing would normally be warranted to
investigate whether, and to what extent, such soil was contaminated by
petroleum hydrocarbons. However, based upon physical characteristics of such
Mortgaged Property making such testing a practical impossibility, and an
analysis of all information deemed relevant by the consultant performing such
Phase I environmental assessment, such consultant did not recommend that any
further testing be performed. In the case of one of the Mortgaged Properties,
the Phase I environmental assessment revealed the existence of an underground
storage tank at such Mortgaged Property. Subsequent investigations did not
reveal the existence of any soil contamination. However, the related borrower
has agreed to take all steps necessary to appropriately close such tank in
accordance with applicable laws, and has escrowed $100,000 of the Mortgage Loan
proceeds in a Reserve Account to ensure such closure. In the case of one of
the Mortgaged Properties, the environmental assessment revealed the potential
presence of lead-based paint at such Mortgaged Property. In connection
therewith, the related borrower has established and is obligated to implement
an operations and maintenance plan with respect to such matters. In the case
of 25 of the Mortgaged Properties, the environmental assessments revealed the
presence of ACMs and/or radon gas at such Mortgaged Properties. In the case of
one of the Mortgaged Properties, the environmental assessment revealed the
presence of methane gas at such Mortgaged Property. In connection therewith,
each related borrower has escrowed an amount deemed sufficient
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by Midland and the Environmental Consultant to insure the proper investigation,
remediation (if deemed necessary by the environmental assessment), and/or
establishment of an operations and maintenance plan with respect to such
matters. The environmental site assessments obtained with respect to two of
the Mortgage Loans, representing approximately 0.9% of the Initial Pool
Balance, revealed the existence of USTs at the related Mortgaged Property. The
related borrower in each such Mortgage Loan was required to obtain an
environmental insurance policy, in form and substance, and in an amount,
satisfactory to Midland.
Balloon Payments; Optional Acceleration. All but nine of the Mortgage
Loans are Balloon Loans which will have substantial payments (that is, Balloon
Payments) due at their stated maturities unless previously prepaid. Balloon
Loans involve a greater risk of default to the lender than self-amortizing
loans because the ability of a borrower to make a Balloon Payment typically
will depend upon its ability either to refinance the related Mortgaged Property
or to sell such Mortgaged Property at a price sufficient to permit the borrower
to make the Balloon Payment. The ability of a borrower to accomplish either of
these goals will be affected by a number of factors at the time of attempted
sale or refinancing, including the level of available mortgage rates, the fair
market value of the related Mortgaged Property, the borrower's equity in the
related Mortgaged Property, the financial condition of the borrower and
operating history of the related Mortgaged Property, tax laws, prevailing
economic conditions and the availability of credit for multifamily or
commercial properties (as the case may be) generally.
The Mortgage Loan Documents with respect to each of Loan #40, Loan #3,
Loan #13 and Loan #15 grant the mortgagee an option to accelerate the maturity
of such Mortgage Loans. With respect to the first such Mortgage Loan, the
mortgagee has the option to accelerate the maturity of such Mortgage Loan at
any time during months 121 through 132 following the first Due Date applicable
to such Mortgage Loan. With respect to the second such Mortgage Loan, the
mortgagee has the option to accelerate the maturity of such Mortgage Loan at
any time during months 121 through 132 and months 181 through 192 following the
first Due Date applicable to such Mortgage Loan. With respect to the third
such Mortgage Loan, the mortgagee has the option to accelerate the maturity of
such Mortgage Loan at any time during months 109 through 120 and months 169
through 180 following the first Due Date applicable to such Mortgage Loan.
Under the Pooling and Servicing Agreement, the Servicer or the Special
Servicer, as applicable, will be required to exercise each such option to
accelerate the maturity of each such Mortgage Loan on the earliest date
permitted under the related Mortgage Loan Documents. See ``THE POOLING AND
SERVICING AGREEMENT--Servicing of the Mortgage Loans'' herein. Notwithstanding
such exercise, there can be no assurance that the related borrowers will repay
such Mortgage Loans upon the acceleration of the maturity dates thereunder. As
noted above, the ability of a borrower to make such a payment typically will
depend upon its ability either to refinance the related Mortgaged Property or
to sell such Mortgaged Property at a price sufficient to permit the borrower to
make the payment. Furthermore, there can be no assurance that a related
borrower will not raise equitable or other legal defenses to the enforcement by
the Servicer of the maturity acceleration provisions described above. See
``CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND CONTRACTS--The Mortgage
Loans--Enforceability of Certain Provisions'' in the Prospectus.
Other Financing. As of the origination date of one of the Mortgage
Loans, Loan #70, representing approximately 0.5% of the Initial Pool Balance,
the related Mortgaged Property was subject to a subordinate mortgage lien in
the principal amount of $275,000 held by a third party unrelated to Midland or
the related borrower, which lien was fully subordinated to such Mortgage Loan.
The related Mortgaged Loan Documents for such Mortgage Loan prohibit any
payments under such subordinate financing during any period of a default under
the related Mortgage Loan. As of the respective origination dates of Loan #18
and Loan #33, the related Mortgaged Properties were subject to subordinate
wraparound mortgage liens held by a prior owner of the related Mortgaged
Properties, which liens were fully subordinated to the related Mortgage Loan.
See ``CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND CONTRACTS--The Mortgage
Loans--Subordinate Financing'' in the Prospectus.
In general, the borrowers are prohibited from encumbering the related
Mortgaged Property with additional secured debt or the mortgagee's approval is
required for such an encumbrance, except as set forth herein. However, a
violation of such prohibition may not become evident until the related Mortgage
Loan otherwise becomes defaulted. The Mortgage Loan Documents with respect to
each of Loan #5, Loan #26 and Loan #11, permit the related borrower to grant a
subordinate mortgage in favor of a third party. With respect to Loan #5, the
related borrower is permitted to grant a subordinate mortgage in favor of a
third party, provided
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that, among other things, (a) such subordinate financing must be non-recourse,
with interest (at a rate no greater than the applicable interest rate for the
related Mortgage Loan), but not principal, payable during its term and with a
maturity date at least one year after the maturity date of the related Mortgage
Loan, (b) the subordinate lender must be a non-institutional lender, (c) the
aggregate debt service coverage ratio for such Mortgage Loan and such
subordinate financing (as of the effective date of such subordinate financing)
must equal or exceed 1.15, and (d) the subordinate lender must enter into a
subordination agreement satisfactory to the mortgagee. With respect the Loan
#26, the related borrower is permitted to grant a subordinate mortgage in favor
of a third party, provided that, among other things, (i) the proceeds of such
subordinate financing must be used solely for the refurbishment or renovation
of the related Mortgaged Property, (ii) the subordinate financing must be
repaid in equal principal and interest installments over a term of not less
than 20 years, (iii) the subordinate lender must enter into a subordination
agreement satisfactory to the mortgagee, and (iv) no payments under the
subordinate financing are allowed during any month in which either (A) the
aggregate debt service coverage ratio during the preceding 12 month period is
less than 1.35, or (B) the aggregate loan to value ratio exceeds 70%. With
respect to Loan #11, the related borrower is permitted to grant a subordinate
mortgage in favor of a third party, provided that, among other things, (1) such
subordinate financing must be non-recourse and for not more than $500,000 and
(2) the subordinate lender must enter into a subordination agreement
satisfactory to the mortgagee including a prohibition on any payments under
such subordinate financing during any period in which a default exists with
respect to the related Mortgage Loan, and the mortgagee determines that the
aggregate debt service coverage ratio is less than 1.20, and the aggregate loan
to value ratio exceeds 80%. With respect to each of Loan #23, Loan #24 and
Loan #25, the related borrower has requested that Midland consent to certain
modifications to the related Mortgage Loan Documents to allow the related
Mortgaged Property to be encumbered with a subordinate mortgage, however, no
agreement with respect to such modifications has been reached. See ``CERTAIN
LEGAL ASPECTS OF MORTGAGE LOANS AND CONTRACTS--The Mortgage Loans--Subordinate
Financing'' in the Prospectus.
In cases where one or more junior liens are imposed on a Mortgaged
Property or the borrower incurs other indebtedness, the Trust Fund is subject
to additional risks, including, without limitation, the risks that the borrower
may have greater incentives to repay the junior or unsecured indebtedness first
and that it may be more difficult for the borrower to refinance the Mortgage
Loan or to sell the Mortgaged Property for purposes of making any Balloon
Payment upon the maturity of the Mortgage Loan. See ``CERTAIN LEGAL ASPECTS OF
MORTGAGE LOANS AND CONTRACTS--The Mortgage Loans--Subordinate Financing'' in
the Prospectus.
Delinquencies. As of the Cut-off Date, no Mortgage Loan was more than
30 days delinquent in respect of any Monthly Payment.
Bankruptcy of Borrowers. The borrowers have generally not been formed
with the intent that they be bankruptcy-remote entities and no assurance can be
given that a borrower will not file for bankruptcy protection or that creditors
of a borrower or a corporate or individual general partner or member will not
initiate a bankruptcy or similar proceeding against such borrower or corporate
or individual general partner or member. Unlike the case in some other types
of securitized offerings, the borrowers are operating businesses which contract
with other entities to perform services or purchase goods for or related to the
Mortgaged Properties and may, because of these activities, be more susceptible
than the borrowers involved in such other offerings to suit by various
claimants. Investors should be aware that, particularly in view of the
operational nature of the Mortgaged Properties, the borrowers may become
insolvent or become the subject of a voluntary or involuntary bankruptcy case.
See ``CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND CONTRACTS--Bankruptcy Laws''
in the Prospectus.
Limitations of Appraisals and Engineering Reports. In general,
appraisals represent the analysis and opinion of qualified experts and are not
guarantees of present or future value. Moreover, appraisals seek to establish
the amount a typical motivated buyer would pay a typical motivated seller.
Such amount could be significantly higher than the amount obtained from the
sale of a Mortgaged Property under a distress or liquidation sale. Information
regarding the values of the Mortgaged Properties as of the Cut-off Date is
presented under ``--Certain Characteristics of the Mortgage Pool'' above for
illustrative purposes only.
The architectural and engineering reports represent the analysis of
the individual engineers or site inspectors at or before the origination of the
respective Mortgage Loans, have not been updated since they were
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originally conducted and may not have revealed all necessary or desirable
repairs, maintenance or capital improvement items.
Zoning Compliance. Due to changes in applicable building and zoning
ordinances and codes (``Zoning Laws'') affecting certain of the Mortgaged
Properties which have come into effect since the construction of improvements
on such Mortgaged Properties and to other reasons, certain improvements may not
comply fully with current Zoning Laws, including without limitation, density,
use, parking and set back requirements. In such cases the Originator has
received assurances that such improvements qualify as permitted non-conforming
uses. Such changes may limit the ability of the related borrower to rebuild or
utilize the premises ``as is'' in the event of a substantial casualty loss with
respect thereto.
With respect to Loan #70, a portion of the parking utilized in
connection with such Mortgaged Property to satisfy applicable zoning
requirements with respect to the adequacy of parking facilities is located upon
property leased by the related borrower pursuant to a Lease Agreement (the
``Parking Lease'') with the Consolidated Rail Corporation, as lessor, which
Parking Lease is terminable upon thirty days' notice by either party. If the
Parking Lease is terminated, the related Mortgaged Property would not meet
applicable zoning requirements with respect to the adequacy of parking
facilities; however, the related borrower has indicated that it could satisfy
such parking requirements by reconfiguring the existing parking areas located
upon the related Mortgaged Property. The failure of such Mortgaged Property to
meet applicable zoning requirements could significantly impair the value
thereof as security for the related Mortgage Loan. In addition, with respect
to Loan #5, the off-street parking facilities available in connection with the
related Mortgaged Property do not satisfy applicable zoning requirements with
respect to the adequacy of off-street parking facilities. The related borrower
has obtained a waiver with respect to such parking shortfall, conditioned upon
the related borrower's continued payment to the City of Miami of a waiver
amount equal to $4,880 per month. The related Mortgage Loan Documents require
such borrower to maintain the related Mortgaged Property in compliance with all
Zoning Laws.
Costs of Compliance with Americans with Disabilities Act. Under the
Americans with Disabilities Act of 1990 (the ``ADA''), all public
accommodations are requited to meet certain federal requirements related to
access and use by disabled persons. To the extent the Mortgaged Properties do
not comply with the ADA, borrowers are likely to incur costs of complying with
the ADA. Noncompliance could result in the imposition of fines by the federal
government or an award of damages to private litigants.
Limitations on Enforceability of Cross-Collateralization. Thirteen of
the Mortgage Loans, each of which was made to a borrower which is affiliated
with the borrower under another Mortgage Loan (the ``Cross-Collateralized
Loans'' identified in Annex A as Loan #1, Loan #2, Loan #7, Loan #9, Loan #12,
Loan #13, Loan #14, Loan #19, Loan #22, Loan #31, Loan #51, Loan #53, and Loan
#56) are cross-collateralized and cross-defaulted with one or more related
Cross-Collateralized Loans. This arrangement is designed to reduce the risk
that the inability of an individual Mortgaged Property securing a
Cross-Collateralized Loan to generate net operating income sufficient to pay
debt service thereon will result in defaults (and ultimately losses). The
arrangement is based on the belief that the risk of default is reduced by
making the collateral pledged to secure each related Cross-Collateralized Loan
available to support debt service on, and principal repayment of, the aggregate
indebtedness evidenced by the related Cross-Collateralized Loans.
Such arrangements, however, could be challenged as fraudulent
conveyances by creditors of any of the related borrowers or by the
representative of the bankruptcy estate of such borrowers if one or more of
such borrowers were to become a debtor in a bankruptcy case. With respect to
the Cross-Collateralized Loans, (a) Loan #1 and Loan #2 were both made to the
same borrower, (b) Loan #7, Loan #14 and Loan #12 were all made to the same
borrower, (c) Loan #9 and Loan #22 were both made to the same borrower, (d)
Loan #13 and Loan #51 were both made to the same borrower, (e) Loan #19 and
Loan #56 were both made to the same borrower, and (f) Loan #31 and Loan #53
were made to affiliated borrowers. Generally, under federal and most state
fraudulent conveyance statutes, the incurring of an obligation or the transfer
of property (including the granting of a mortgage lien) by a person will be
subject to avoidance under certain circumstances if the person did not receive
fair consideration or reasonably equivalent value in exchange for such
obligation or transfer and (i) was insolvent or was rendered insolvent by such
obligation or transfer, (ii) was engaged in a business or a transaction, or was
about to engage in a business or a transaction, for which properties remaining
with the person constitute an unreasonably small capital, or (iii) intended to
incur, or believed that it would incur,
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debts that would be beyond the person's ability to pay as such debts matured.
Accordingly, a lien granted by any such borrower could be avoided if a court
were to determine that (x) such borrower was insolvent at the time of granting
the lien, was rendered insolvent by the granting of the lien, was left with
inadequate capital or was not able to pay its debts as they matured, and (y)
the borrower did not, when it allowed its Mortgaged Property to be encumbered
by the liens securing the indebtedness represented by the other
Cross-Collateralized Loans, receive fair consideration or reasonably equivalent
value for pledging such Mortgaged Properties for the equal benefit of the other
related borrowers. No assurance can be given that a lien granted by a borrower
on a Cross-Collateralized Loan to secure the Mortgage Loan of an affiliated
borrower, or any payment thereon, would not be avoided as a fraudulent
conveyance.
Tenant Matters. Sixteen Retail Properties, which represent security
for approximately 28.8% of the Initial Pool Balance, are leased wholly or in
large part to a single tenant or are wholly or in large part owner-occupied
(each such retail tenant or owner-occupier, a ``Major Tenant''). Generally,
such Major Tenants do not have investment-grade credit ratings, and there can
be no assurance that such Major Tenants will continue to perform their
obligations under their respective leases (or, in the case of owner-occupied
Mortgaged Properties, under the related Mortgage Loan Documents). Any default
by a Major Tenant could adversely affect the related borrower's ability to make
payments on the related Mortgage Loan. The following chart contains certain
information with respect to such Major Tenants, including if available, the
credit rating and trading symbol (to the extent applicable) of each such Major
Tenant.
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<TABLE>
<CAPTION>
Cut-off
Lease Date
Loan Type of Expiration Principal
# Property Name Lease Date Comments Balance
<S> <C> <C> <C> <C> <C>
==================================================================================================================================
1 Star Markets-Cambridge Triple Net 1/02/16 Star operates approximately 35 supermarkets
in the Boston area; privately owned but
Star's publicly traded Senior Subordinated
Notes are currently rated CCC+ by S&P and
Ba3 by Moody's. Moody's implied senior
rating is B1. $8,250,000
- ----------------------------------------------------------------------------------------------------------------------------------
2 Star Markets-Quincy Triple Net 1/02/16 See Star above. $8,115,800
- ----------------------------------------------------------------------------------------------------------------------------------
7 Gottschalk's--Antelope Valley Owner-Occu N/A Gottschalks operates approximately 29
Mall, Palmdale pied department and 24 apparel specialty stores
in California and Washington. NYSE traded
under the ticker GOT. Fiscal 1995 net
sales: $363.6 million; net income: $1.5
million. $6,064,807
- ----------------------------------------------------------------------------------------------------------------------------------
8 Garden Ridge Triple Net 8/31/15 Retails home accessories, decorative
products and crafts; stores in Texas and
Kentucky. NASDAQ traded under the symbol
GRDG. Fiscal 1995 net sales: $100 million;
net income: $4.2 million. $5,500,000
- ----------------------------------------------------------------------------------------------------------------------------------
12 Gottschalks--The Mall at Yuba Owner-Occu N/A See Gottschalks above.
City pied $4,462,500
- ----------------------------------------------------------------------------------------------------------------------------------
14 Gottschalks--Bayshore Mall, Owner-Occu N/A See Gottschalks above.
Eureka pied $4,351,262
- ----------------------------------------------------------------------------------------------------------------------------------
15 BJ's Wholesale Club Triple Net 9/30/04 Lease is guaranteed by TJX Companies, Inc.;
NYSE traded under the ticker TJX; rated Baa3
by Moody's. Operates chains of off-price
apparel stores and a mail order catalog
business. Fiscal 1995 net sales: $3.8
billion; net income: $82.6 million. $4,000,000
- ----------------------------------------------------------------------------------------------------------------------------------
21 Corona Food 4 Less Triple Net 10/31/09 Company privately owned by Ralph's Grocery
Company, Inc. Ralph's is rated B1 by
Moody's and B by S&P. $3,421,571
- ----------------------------------------------------------------------------------------------------------------------------------
23 Kash N'Karry Store #725 Triple Net 7/10/20 KNK operates approximately 95 food stores,
33 liquor stores in Florida; food stores
offer conventional, specialty food,
perishable goods, general merchandise.
NASDAQ traded under the symbol KASH. Net
1994 sales: $1.1 billion; net income: -$26
million. Rated B2 by Moody's and B- by S&P. $3,217,094
- ----------------------------------------------------------------------------------------------------------------------------------
24 Kash N'Karry Store #733 Triple Net 7/10/20 See KNK above. $3,187,168
- ----------------------------------------------------------------------------------------------------------------------------------
25 Kash N'Karry Store #720 Triple Net 7/10/20 See KNK above. $3,030,054
- ----------------------------------------------------------------------------------------------------------------------------------
27 Rialto Food-4 Less Triple Net 7/25/09 See Corona Food 4 Less (Ralph's) above. $2,937,407
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29 Food 4 Less Supermarket Triple Net 1/17/12 Fleming Companies, Inc., the nation's
largest wholesale food distributor, acquired
the stock of this Mortgaged Property's
original lessee and sub-lessor, Scrivner,
Inc.; Fleming assumed all of the obligations
of Scrivner, and Fleming is the tenant under
the lease directly; S&P gives Fleming an
overall corporate rating of BB+. $2,800,000
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35 Frank's Nursery & Craft Stores Owner Occu- N/A General Host Corp., a chain of retail stores
pied selling lawn and garden supplies, crafts and
holiday merchandise, operates approximately
266 Frank's stores. NYSE traded under the
ticker GH. Rated B3 by Moody's. Fiscal 1995
Net Sales: $568 million; net income: $8.6
million. $2,583,274
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61 Wickes Furniture Triple Net 5/27/04 A privately owned company. $1,381,505
- ----------------------------------------------------------------------------------------------------------------------------------
80 Walgreens Plaza Triple Net 7/31/04 A pharmaceutical retailer of prescription
and proprietary drugs, general merchandise,
liquor, beverages, cosmetics and tobacco
products. Operates 1,968 stores in 30
states and Puerto Rico. Fiscal 1995 net
sales: $10.4 billion; net income: $320.8
million. NYSE traded under the ticker WAG. $787,315
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</TABLE>
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As used in the foregoing chart, the term ``Triple Net'' generally means a lease
under which the tenant is required to pay all real estate taxes, liability and
casualty insurance premiums and non-structural (and in certain cases,
structural) maintenance costs in respect of the related Mortgaged Property.
The related borrower's obligations as landlord under each Triple Net lease may
vary significantly from lease to lease.
Contracts for Deed and Purchase Options. With respect to each of Loan
#1, Loan #2 and Loan #21, a tenant of all of the related Mortgaged Property
possesses a conditional purchase option in connection with its lease; provided,
however, that subject to the mortgagee's consent, the tenant would take title
to the Mortgaged Property subject to the related Mortgage. With respect to
each of Loan #7, Loan #14 and Loan #21, the property developer from whom the
related borrower acquired the related Mortgaged Property retained an option to
reacquire such Mortgaged Property, at the market value for such Mortgaged
Property on the date of the exercise of such option, conditional upon the
borrower ceasing operations at such Mortgaged Property. With respect to Loan
#7, the related borrower has assigned to the mortgagee all of such borrower's
rights to receive any proceeds from the exercise of such option, and the holder
of each such option has executed a consent agreeing to pay to the mortgagee any
funds payable in connection with its exercise of such purchase option. With
respect to Loan #14, the instrument creating the related purchase option
provides that such purchase option is subject and subordinate to all mortgages
encumbering the related Mortgaged Property. With respect to Loan #21, the
related borrower has obligated itself to (a) deliver to the mortgagee an
assignment of all of such borrower's rights to receive any proceeds from the
exercise of such option, and (b) to obtain and deliver to the mortgagee a
consent from the option holder in a form satisfactory to the mortgagee. See
``RISK FACTORS--Prepayment and Yield Considerations'' and ``YIELD
CONSIDERATIONS'' herein. With respect to one Mortgage Loan, the related
Mortgaged Property is the subject of an executory contract for deed. The
related Mortgage was executed by both the vendor (the borrower) and vendee
under such contract, and encumbers all of their respective interests in the
related Mortgaged Property. Such vendee's execution of such Mortgage as
security for the indebtedness of such borrower may be subject to a challenge as
a fraudulent conveyance. See ``DESCRIPTION OF THE MORTGAGE POOL--Investment in
Commercial and Multifamily Mortgage Loans--Limitations on Enforceability of
Cross-Collateralization.''
Ground Leases. Two Mortgage Loans, Loan #17 and Loan #54,
representing approximately 2.5% of the Initial Pool Balance, are secured,
wholly or in part, by first mortgage liens on the related borrower's leasehold
interest in all or part of the related Mortgaged Property. The related ground
leases expire no earlier than June 1, 2028. With respect to all such ground
leases, the related ground lessor has agreed to afford Midland certain notices
and rights with respect to such ground leases, including without limitation,
cure rights with respect to breaches of the related ground lease by the related
borrower. See ``CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND CONTRACTS--The
Mortgage Loans--Leasehold Risks'' in the Prospectus.
Borrower Escrows and Reserve Accounts. In a number of the Mortgage
Loans, the related borrower was required to establish one or more Reserve
Accounts for necessary repairs and replacements, tenant improvements and
leasing commissions, real estate taxes and insurance premiums, deferred
maintenance and/or scheduled capital improvements or as reserves against
delinquencies in Monthly Payments. With respect to Loan #17, for example, the
related borrower was required to deposit $257,905.98 into a Reserve Account, as
an escrow deposit pending the completion of a required sublease of a portion of
the related Mortgaged Property.
Modifications. None of the Mortgage Loans have been modified in any
material manner since their origination in connection with any default or
threatened default on the part of the related borrower. At Midland's request,
the Acquired Mortgage Loan was modified subsequent to its purchase by Midland
to extend the term of such Mortgage Loan for an additional five years. With
respect to each of Loan #23, Loan #24 and Loan #25, the related borrower has
requested that Midland consent to certain modifications to the related Mortgage
Loan Documents in connection with a proposed transfer of the beneficial
ownership of the related borrower, which requested modifications, among other
things, would allow the related Mortgaged Property to be encumbered with a
subordinate mortgage. Midland has informed each related borrower that further
information regarding the requested consents and modifications is required
before any evaluation and decisions can be made. Any such modification would
be subject to the conditions and requirements contained in the Pooling and
Servicing Agreement.
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<PAGE> 57
Litigation. There may be legal proceedings pending and, from time to
time, threatened against the borrowers and their affiliates relating to the
business of, or arising out of the ordinary course of business of, the
borrowers and their affiliates. There can be no assurance that such litigation
will not have a material adverse effect on any borrower's ability to meet its
obligations under the related Mortgage Loan and, thus, on the distributions to
Certificateholders.
THE SERVICER AND THE MORTGAGE LOAN SELLER
Midland Loan Services, L.P. (the ``Servicer'' or ``Midland'')
was organized under the laws of Missouri in 1992 as a limited partnership.
Midland is a real estate financial services company which provides loan
servicing and asset management for large pools of commercial and multifamily
real estate assets and originates commercial real estate loans. Midland's
address is 2001 Shawnee Mission Parkway, Shawnee Mission, Kansas 66205.
Midland's general partner, Midland Data Systems, Inc., a
Missouri corporation, was established in 1990 for the purpose of providing
systems development, data processing and commercial loan servicing primarily to
the Resolution Trust Corporation. As of October 31, 1995, Midland had 350
employees. The company's loan operations are centralized in Kansas City,
Missouri. A business development and marketing office is maintained in
Washington, D.C.
Biographies of selected executives involved in Midland's
commercial loan servicing, asset management and loan origination activities are
as follows:
ALAN L. ATTERBURY - PRESIDENT AND CHIEF EXECUTIVE OFFICER.
Mr. Atterbury is a founder of Midland and has served as a
board member from its inception. In 1980, Mr. Atterbury
became President of Midland Properties, Inc., a Missouri
corporation, which is a privately owned real estate company
(and an affiliate of Midland) that provides consulting,
property management and investment services to financial
institutions, government agencies and private clients.
Previously, Mr. Atterbury was a partner with the Kansas City,
Missouri law firm of Morrison & Hecker L.L.P. Mr. Atterbury
received a B.A. in Economics and a J.D. from the University of
Missouri at Columbia.
LEON E. BERGMAN - EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING
OFFICER. Mr. Bergman is responsible for strategic and
operational planning and management at Midland. He serves as
a member of the Credit Review Committee. Prior to joining
Midland, Mr. Bergman was Vice President and Chief Financial
Officer of Midland Properties, Inc. He is a Certified Public
Accountant and formerly a partner with the national accounting
firm of Fox & Company. Mr. Bergman received a B.S. in
Accounting and Business Administration from the University of
Kansas.
CLARENCE A. KRANTZ - EXECUTIVE VICE PRESIDENT. Mr. Krantz is
involved in strategic planning and also has senior
responsibility for Midland's asset management and loan
origination activities. He serves as a member of all of
Midland's Senior Credit Review Committees for loan origination
and asset management. Prior to joining Midland, Mr. Krantz
was Vice President of Midland Properties, Inc., and President
of Midland Asset Management, Inc. Mr. Krantz was previously a
partner and member of the Executive Committee at the law firm
of Morrison & Hecker L.L.P. Mr. Krantz received a B.A. and a
J.D. from the University of Illinois.
STACEY M. BERGER - EXECUTIVE VICE PRESIDENT. Mr. Berger is
responsible for strategic planning, business development and
corporate marketing activities related to commercial loan
servicing, real estate asset management and advisory services.
Mr. Berger heads Midland's Washington office and serves as its
primary contact with financial advisors, underwriters, rating
agencies and legal counsel for multifamily and commercial
mortgage-backed security issues. Prior to joining Midland,
Mr. Berger was responsible for the asset management activities
of Oak Tree Capital, Inc. Mr. Berger received a B.A. in
Economics and an M.B.A. from Tulane University.
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<PAGE> 58
E.J. BURKE - PROGRAM DIRECTOR, MIDLAND COMMERCIAL FUNDING.
Mr. Burke is responsible for the management of Midland's loan
origination and underwriting activities. He is the Chairman
of the Credit Review Committee. Prior to joining Midland, Mr.
Burke was Senior Vice President and Department Head for the
Real Estate Department of The Merchants Bank in Kansas City.
Mr. Burke received a B.S. degree in Economics from the School
of Management of Boston College and an M.B.A. from Oklahoma
City University.
LAWRENCE D. ASHLEY - DIRECTOR OF MORTGAGE-BACKED SECURITIES
PROGRAMS. Mr. Ashley is responsible for coordination and
management of both master and special servicing for
mortgage-backed securities transactions at Midland. Prior to
joining Midland, Mr. Ashley was Vice President of Midland
Properties, Inc. He is a Certified Public Accountant and
formerly a partner with Fox & Company. He received a B.S. in
Corporate Finance from the University of Missouri at Columbia
and a J.D. from the University of Missouri at Kansas City.
CHARLES J. SIPPLE - SENIOR VICE PRESIDENT OF LOAN SERVICING.
Mr. Sipple is responsible for all aspects of the performing
loan servicing operations at Midland. Prior to joining
Midland, Mr. Sipple was a partner with Deloitte & Touche. Mr.
Sipple received his B.S. from Purdue University.
STEVEN W. SMITH - PORTFOLIO ADMINISTRATION MANAGER. Mr. Smith
is responsible for overseeing conventional private-sector loan
servicing agreements and is the primary borrower liaison for
commercial mortgage-backed securities transactions. Mr. Smith
was previously with Deloitte & Touche. Mr. Smith received his
B.S. and M.A. degrees from the University of Kansas.
CLAY M. SUBLETT - SENIOR UNDERWRITER. Mr. Sublett is
responsible for managing the loan underwriting staff, which
includes training and providing underwriting guidance. Mr.
Sublett previously served as Vice President and Commercial
Real Estate Officer of Commerce Bank of Kansas City and then
in a similar capacity for The Merchants Bank. Mr. Sublett
received a B.A. degree in Economics from Vanderbilt University
in Nashville, Tennessee.
MICHAEL J. CAFFREY - SENIOR UNDERWRITER. Mr. Caffrey is
responsible for supervision of commercial loan underwriting.
Prior to joining Midland, he was a Senior Vice-President for
Mark Twain Bank. Mr. Caffrey received a B.A. from the
University of Missouri in Kansas City.
As of October 31, 1995, Midland and its affiliates were
responsible for servicing approximately 11,875 commercial and multifamily loans
with an aggregate principal balance of approximately $8.855 billion, the
collateral for which is located in 50 states. With respect to such loans,
approximately 9,100 loans with an aggregate principal balance of approximately
$5.682 billion pertain to commercial and multifamily mortgage-backed
securities. Property type concentrations within the portfolio include
multifamily, office, retail, and other types of income producing properties.
A substantial percentage of the commercial and multifamily
loans included in the portfolio of Midland and its affiliates are serviced on
behalf of the Resolution Trust Corporation acting as conservator or receiver
for various depository institutions and on behalf of various trust funds with
respect to mortgage-backed securities transactions that involved mortgage loans
acquired from the Resolution Trust Corporation acting in such capacity.
Midland also provides commercial loan servicing for newly-originated loans and
loans acquired in the secondary market on behalf of issuers of commercial and
multifamily mortgage-backed securities, financial institutions and private
investors. Recent servicing assignments with respect to mortgage-backed
securities transactions include serving as master servicer for the Resolution
Trust Corporation Commercial Pass-Through Certificates Series 1995-C1, 1994-C2
and 1994-C1 transactions, and for the CS First Boston Mortgage Securities Corp.
Commercial Mortgage Pass-Through Certificates Series 1995-AEW1 transaction, and
as servicer for the PS CMO Trust 94-C1 Commercial Mortgage Pay-Through Bonds
Series 1994-C1 transaction, the JDN REMIC Trust Commercial Mortgage
Pass-Through Certificates transaction, the Nomura Asset Securities Corporation
Commercial Pass-Through Certificates Series 1994-C3 transaction, the Structured
Asset Securities Corporation Multiclass Pass-Through Certificates Series
1995-C1 transaction, the Prudential Securities Secured Financing Corporation
Commercial Mortgage Pass-Through Certificates Series 1995-C1 transaction, and
the Asset Securitization Corporation Commercial Mortgage Pass-Through
Certificates Series 1995-D1 transaction.
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Midland and its affiliates provide asset management and
disposition services for private investors, commercial mortgage-backed security
transactions and the Resolution Trust Corporation. As of October 31, 1995,
Midland and its affiliates have provided such services for a portfolio of
approximately 8,845 assets with original book values of approximately $7.651
billion. Midland and its affiliates have liquidated, disposed of or otherwise
resolved approximately 4,635 assets with original book value of approximately
$3.577 billion.
As of October 31, 1995, Midland and its affiliates provided
asset management services as servicer for the Resolution Trust Corporation
Commercial Pass-Through Certificates Series 1992-Ml transaction, the Salomon
Brothers Mortgage Securities VII, Inc. Multifamily Mortgage Pass-Through
Certificates Series 1988-MFI transaction, the PS CMO Trust 94-C1 Commercial
Mortgage Pay-Through Bonds Series 1994-C1 transaction, the JDN REMIC Trust
Commercial Mortgage Pass-Through Certificates transaction, the Torrance
Crenshaw REMIC Trust Class A Commercial Deed of Trust Pass-Through Certificates
transaction, and as special servicer for the Nomura Asset Securities
Corporation Commercial Pass-Through Certificates Series 1994-C3 transaction,
the Prudential Securities Secured Financing Corporation Commercial Mortgage
Pass-Through Certificates Series 1995-C1 transaction, the Asset Securitization
Corporation Commercial Mortgage Pass-Through Certificates Series 1995-D1
transaction and the CS First Boston Mortgage Securities Corp. Commercial
Mortgage Pass-Through Certificates Series 1995-AEW1 transaction. Midland is
also the exclusive servicer and asset manager for the Eastrich Multiple
Investor Fund, which is sponsored by an affiliate of Aldrich Eastman Waltch, a
real estate investment advisor. The Eastrich Multiple Investor Fund acquired
670 non-performing commercial real estate loans with outstanding principal
balances of approximately $1.05 billion from the Resolution Trust Corporation.
Midland and its affiliates have been approved as a master and
special servicer for investment grade-rated commercial and multifamily
mortgage-backed securities by Fitch, Moody's Investors Service, Inc., S&P and
Duff & Phelps. Midland is ranked ``Above Average'' as a commercial loan
servicer and asset manager by S&P, and ``acceptable'' as a master servicer and
``Above Average'' as a special servicer by Fitch. S&P rates commercial loan
servicers and S&P and Fitch rate special servicers in one of five categories:
superior, above average, average, below average and unacceptable. Fitch rates
commercial loan master servicers as acceptable or unacceptable. Midland is
also a HUD/FHA-approved mortgagee and a Fannie Mae-approved multifamily loan
servicer.
The Mortgage Loan Seller is a Missouri corporation and a
special purpose subsidiary of Midland, formed for the purpose of holding
mortgage loans such as the Mortgage Loans from the time of origination thereof
through the time of securitization or other disposition thereof.
The information concerning Midland set forth above has been
provided by the Servicer, and none of the Depositor, the Trustee or the
Underwriter makes any representation or warranty as to the accuracy thereof.
THE SPECIAL SERVICER
It is anticipated that Lennar Partners, Inc. (the ``Special
Servicer''), a Florida corporation and a wholly owned subsidiary of Lennar
Corporation (``Lennar''), will serve as the Special Servicer and in such
capacity will be responsible for servicing the Specially Serviced Mortgage
Loans. The principal executive offices of the Special Servicer are located at
700 NW 107th Avenue, Suite 400, Miami, Florida 33172.
Lennar is a full-service real estate company primarily
involved in homebuilding, the development and management of commercial
properties, and real estate-related financial services. Lennar has regional
offices located across the country including Florida, Georgia, Texas, Arizona
and California. As a result of its real estate and mortgage loan activities,
Lennar and its affiliates have personnel with experience in loan workouts,
asset management and dispositions, real estate development, asset valuations,
bulk portfolio acquisitions and marketing and sales. The principal business of
the Special Servicer is the management, turnaround and capital recovery of
distressed and underperforming real estate loans, foreclosed real estate and
related assets and servicing commercial real estate loans.
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As of September 30, 1995, Lennar and its affiliates were
managing a portfolio including over 46,000 assets in 49 states with an original
face value of over $13 billion, $9.8 billion of which are commercial real
estate assets. Included in this managed portfolio is $4.8 billion of
commercial real estate assets representing 14 securitization transactions, for
which the Special Servicer is the servicer or special servicer.
The Special Servicer and its affiliates own and are in the
business of acquiring assets similar in type to the assets of the Trust Fund.
Accordingly, the assets of the Special Servicer and its affiliates may,
depending upon the particular circumstances, including the nature and location
of such assets, compete with the Mortgaged Properties for tenants, purchasers,
financing and the like.
The information concerning Lennar set forth above has been
provided by Lennar and none of the Depositor, the Trustee, the Servicer or the
Underwriter makes any representation or warranty as to the accuracy thereof.
Lennar is a publicly traded company and is listed on the New
York Stock Exchange under the trading symbol ``LEN.''
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and
Servicing Agreement and will consist of 14 Classes to be designated as the
Class A-1 Certificates, the Class A-2 Certificates, the Class A-EC
Certificates, the Class B Certificates, the Class C Certificates, the Class D
Certificates, the Class E Certificates, the Class F Certificates, Class G
Certificates, the Class H Certificates, the Class J-1 Certificates, the Class
J-2 Certificates, the Class R Certificates and the Class LR Certificates. ONLY
THE CLASS A-1, CLASS C, CLASS D AND CLASS E CERTIFICATES ARE OFFERED HEREBY.
The Pooling and Servicing Agreement will be included as part of the Current
Report on Form 8-K to be filed with the Commission within 15 days after the
Closing Date. See ``THE POOLING AND SERVICING AGREEMENT'' herein for more
important additional information regarding the terms of the Pooling and
Servicing Agreement and the Certificates.
The Certificates represent in the aggregate the entire
beneficial ownership interest in a Trust Fund consisting primarily of: (i) the
Mortgage Loans, all scheduled payments of interest and principal due after the
Cut-off Date (whether or not received) and all payments under and proceeds of
the Mortgage Loans received after the Cut-off Date (exclusive of payments of
principal and interest due on or before the Cut-off Date); (ii) any Mortgaged
Property acquired on behalf of the Trust Fund through foreclosure or deed in
lieu of foreclosure (upon acquisition, an ``REO Property''); (iii) such funds
or assets as from time to time are deposited in the Collection Account, the
Distribution Account and any account established in connection with REO
Properties (an ``REO Account''); (iv) the rights of the mortgagee under all
insurance policies with respect to the Mortgage Loans; (v) the Depositor's
rights and remedies under the Mortgage Loan Purchase and Sale Agreement; and
(vi) all of the mortgagee's right, title and interest in the Reserve Accounts.
The Certificate Balance of any Class of Certificates
outstanding at any time represents the maximum amount which the holders thereof
are entitled to receive as distributions allocable to principal from the cash
flow on the Mortgage Loans and the other assets in the Trust Fund. The
respective Certificate Balance of each Class of Certificates will in each case
be reduced by amounts actually distributed on such Class that are allocable to
principal and by any Realized Losses (as defined herein) allocated to such
Class. The Class A-EC and Class J-2 Certificates are interest-only
Certificates, have no Certificate Balances and are not entitled to
distributions in respect of principal. The Class J-1 Certificates are
principal-only certificates and are not entitled to distributions in respect of
interest.
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DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Regular
Certificates will be made on the 25th day of each month or, if such 25th day is
not a Business Day, then on the next succeeding Business Day, commencing in
January, 1996 (each, a ``Distribution Date''). All distributions (other than
the final distribution on any Certificate) will be made by the Trustee to the
persons in whose names the Certificates are registered at the close of business
on the last Business Day of the month preceding the month in which such
Distribution Date occurs. Such distributions will be made (a) by wire transfer
of immediately available funds to the account specified by the
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder provides the Trustee with wiring
instructions no less than five Business Days prior to the related Record Date
and is the registered owner of Certificates the aggregate Certificate Balance
or Notional Balance of which is at least $5,000,000, or otherwise (b) by check
mailed to such Certificateholder. The ``Class A-EC Notional Balance'' as of
any date is equal to the sum of the Class A-EC Notional Component A and the
Certificate Balances of the Class B, Class C, Class D, Class E, Class F, Class
G, Class H and Class J-1 Certificates. The ``Class J-2 Notional Balance'' as
of any date is equal to the Certificate Balance of the Class J-1 Certificates.
The Class A-EC and Class J-2 Notional Balances are referred to herein generally
as ``Notional Balances.'' The final distribution on any Certificate will be
made in like manner, but only upon presentment or surrender of such Certificate
at the location specified in the notice to the holder thereof of such final
distribution. All distributions made with respect to a Class of Certificates on
each Distribution Date will be allocated pro rata among the outstanding
Certificates of such Class based on their respective Percentage Interests. The
``Percentage Interest'' evidenced by any Regular Certificate is equal to the
initial denomination thereof as of the Closing Date divided by the initial
Certificate Balance (or, with respect to the Class A-EC and Class J-2
Certificates, the initial Class A-EC Notional Balance, or initial Class J-2
Notional Balance) of the related Class.
The aggregate distribution to be made on the Regular
Certificates on any Distribution Date shall equal the Available Funds. The
``Available Funds'' for a Distribution Date will be the sum of all previously
undistributed Monthly Payments or other receipts on account of principal and
interest on or in respect of the Mortgage Loans (including Unscheduled Payments
and Net REO Proceeds, if any) received by the Servicer in the related
Collection Period, including all P&I Advances made by the Servicer, the Trustee
or the Fiscal Agent, as applicable, in respect of such Distribution Date, plus
all other amounts required to be placed in the Collection Account by the
Servicer pursuant to the Pooling and Servicing Agreement allocable to the
Mortgage Loans, but excluding the following:
(a) amounts permitted to be used to reimburse the
Servicer, the Trustee or the Fiscal Agent, as applicable, for previously
unreimbursed Advances and interest thereon as described herein under ``THE
POOLING AND SERVICING AGREEMENT--Advances'';
(b) those portions of each payment of interest
which represent the applicable servicing compensation;
(c) all amounts in the nature of late fees, late
charges and similar fees, loan modification fees, extension fees, loan service
transaction fees, demand fees, beneficiary statement charges, Assumption Fees
and similar fees, which the Servicer or the Special Servicer, as applicable, is
entitled to retain as additional servicing compensation;
(d) all amounts representing scheduled Monthly
Payments due after the Due Date in the related Collection Period (such amounts
to be treated as received on the Due Date when due);
(e) that portion of (i) amounts received in
connection with the liquidation of Specially Serviced Mortgage Loans, by
foreclosure, trustee's sale or otherwise, (ii) amounts received in connection
with a sale of a Specially Serviced Mortgage Loan or REO Property in accordance
with the terms of the Pooling and Servicing Agreement, (iii) amounts (other
than Insurance Proceeds) received in connection with the taking of a Mortgaged
Property by exercise of the power of eminent domain or condemnation
(``Condemnation Proceeds''; clauses (i), (ii) and (iii) are collectively
referred to as ``Liquidation Proceeds'') or (iv) proceeds of the insurance
policies (to the extent such proceeds are not to be applied to the restoration
of the property or released to the borrower in accordance with the normal
servicing procedures of the Servicer or the related Sub-Servicer, subject to
the terms and conditions of the related Mortgage and Mortgage Note)
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<PAGE> 62
(``Insurance Proceeds'') with respect to a Mortgage Loan which represents any
unpaid servicing compensation to which the Servicer or Special Servicer is
entitled;
(f) all amounts representing certain expenses
reimbursable to the Servicer, the Special Servicer, the Trustee or the Fiscal
Agent and other amounts permitted to be retained by the Servicer or the Special
Servicer or withdrawn by the Servicer from the Collection Account (including,
without limitation, as provided in Section 3.6 of the Pooling and Servicing
Agreement) pursuant to the terms thereof;
(g) with respect to Distribution Dates after the
EC Maturity Date, Prepayment Premiums received in the related Collection
Period; and
(h) any interest or investment income on funds on
deposit in the Collection Account or in Permitted Investments in which such
funds may be invested.
The ``Monthly Payment'' with respect to any Mortgage Loan for
any Distribution Date (other than any REO Mortgage Loan) is the scheduled
monthly payment of principal and interest, excluding any Balloon Payment, which
is payable by the related borrower on the related Due Date. The Monthly
Payment with respect to an REO Mortgage Loan for any Distribution Date is the
monthly payment that would otherwise have been payable on the related Due Date
had the related Note not been discharged (after giving effect to any extension
or other modification), determined as set forth in the Pooling and Servicing
Agreement.
``Unscheduled Payments'' are all Liquidation Proceeds,
Condemnation Proceeds and Insurance Proceeds payable under the Mortgage Loans,
the Repurchase Price of any Mortgage Loans that are repurchased or purchased
pursuant to the Pooling and Servicing Agreement and any other payments under or
with respect to the Mortgage Loans not scheduled to be made, including
Principal Prepayments, but excluding Prepayment Premiums.
``Prepayment Premiums'' are payments received on a Mortgage
Loan as the result of a Principal Prepayment thereon, not otherwise due thereon
in respect of principal or interest, which are intended to be a disincentive to
prepayment.
``Net REO Proceeds'' with respect to any REO Property and any
related Mortgage Loan are all revenues received by the Servicer with respect to
such REO Property or REO Mortgage Loan that do not constitute Liquidation
Proceeds, net of any insurance premiums, taxes, assessments and other costs and
expenses permitted to be paid therefrom pursuant to the Pooling and Servicing
Agreement.
``Principal Prepayments'' are payments of principal made by a
borrower on a Mortgage Loan which are received in advance of the scheduled Due
Date for such payments and which are not accompanied by an amount of interest
representing the full amount of scheduled interest due on any date or dates in
any month or months subsequent to the month of prepayment.
The ``Collection Period'' with respect to a Distribution Date
is the period beginning on the day following the Determination Date in the
month preceding the month in which such Distribution Date occurs (or, in the
case of the Distribution Date occurring in January 1996, on the day after the
Cut-Off Date) and ending on the Determination Date in the month in which such
Distribution Date occurs (or, in the case of the Seaport Participation only, on
the Business Day immediately preceding the 25th day of the month in which such
Distribution Date occurs).
``Determination Date'' means the 17th day of any month, or if
such 17th day is not a Business Day, the Business Day immediately following
such 17th day, commencing on January 17, 1996.
``Default Interest'' with respect to any Mortgage Loan is
interest accrued on such Mortgage Loan at the excess of the Default Rate over
the Mortgage Rate.
The ``Default Rate'' with respect to any Mortgage Loan is the
annual rate at which interest accrues on such Mortgage Loan following any event
of default on such Mortgage Loan including a default in the payment of a
Monthly Payment or a Balloon Payment.
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Priorities. As used below in describing the priorities of
distribution of Available Funds for each Distribution Date, the terms set forth
below will have the following meanings.
"Class Interest Distribution Amount" with respect to any
Distribution Date and any of the Class A-1, Class A-2, Class B, Class C, Class
D, Class E, Class F, Class G and H Certificates, will equal interest for the
related Interest Accrual Period at the applicable Pass-Through Rate for such
Class of Certificates for such Interest Accrual Period on the Certificate
Balance of such Class. With respect to any Distribution Date and the Class
A-EC Certificates, the ``Class Interest Distribution Amount'' will equal for
any Distribution Date occurring on or prior to the EC Maturity Date, Class A-EC
Excess Interest. The Class A-EC Certificates are not entitled to distributions
(other than any Class Interest Shortfalls) following the EC Maturity Date. The
Class J-1 Certificates are principal only Certificates and have no Class
Interest Distribution Amount. With respect to any Distribution Date and the
Class J-2 Certificates, the ``Class Interest Distribution Amount'' will equal
the product of the Class J-2 Pass-Through Rate and the Class J-2 Notional
Balance. For purposes of determining any Class Interest Distribution Amount,
any distributions in reduction of Certificate Balance (and any resulting
reductions in Notional Balance) as a result of allocations of Realized Losses
on the Distribution Date occurring in such Interest Accrual Period shall be
deemed to have been made as of the first day of such Interest Accrual Period.
Notwithstanding the foregoing, the Class Interest Distribution Amount for each
Class of Certificates otherwise calculated as described above shall be reduced
by such Class's pro rata share of any Prepayment Interest Shortfall not offset
by a Prepayment Interest Surplus or by Servicing Fees as described below for
such Distribution Date (pro rata according to each respective Class's Class
Interest Distribution Amount determined without regard to this sentence).
``Class A-EC Excess Interest'': With respect to any
Distribution Date, an amount equal to the Class A-EC Pass-Through Rate
multiplied by the Class A-EC Notional Balance.
``Class A-EC Notional Balance'': As of any date of
determination, an amount equal to the sum of (i) the Class A-EC Notional
Component A and (ii) the Certificate Balances of the Class B Certificates, the
Class C Certificates, the Class D Certificates, the Class E Certificates, the
Class F Certificates, the Class G Certificates, the Class H Certificates and
the Class J-1 Certificates.
``Class A-EC Notional Component A'': As of any date of
determination, an amount equal to the sum of the Certificate Balances of the
Class A-1 Certificates and the Class A-2 Certificates.
``Class A-EC Pass-Through Rate'': With respect to any Interest
Accrual Period, a per annum rate equal to the excess of the Weighted Average
Net Mortgage Rate over the weighted averages of the Pass-Through Rates of the
P&I Certificates (weighted in each case on the basis of a fraction equal to the
Certificate Balance of each such Class of Certificates divided by the sum of
the Certificate Balances of the P&I Certificates and the Class J-1 Certificates
as of the first day of such Interest Accrual Period) and the Class J-2
Pass-Through Rate (weighted on the basis of a fraction equal to the Class J-2
Notional Balance divided by the sum of the Certificate Balances of the P&I
Certificates and the Class J-1 Certificates, each as of the first day of such
Interest Accrual Period). For purposes of this definition the Pass-Through
Rates of the Class F, Class G and Class H Certificates will be equal to the
Weighted Average Net Mortgage Rate.
``Prepayment Interest Shortfall'' with respect to any
Distribution Date is equal to the amount of any shortfall in interest (adjusted
to the applicable Net Mortgage Rate) resulting from Principal Prepayments on
such Mortgage Loans during the related Collection Period. Such shortfall may
result because interest on a Principal Prepayment is paid by the related
borrower only to the date of prepayment or because no interest is paid on a
Principal Prepayment, to the extent that such Principal Prepayment is applied
to reduce the principal balance of the related Mortgage Loan as of the Due Date
preceding the date of prepayment. Prepayment Interest Shortfalls with respect
to each Distribution Date will be allocated to each Class of Certificates pro
rata based on such Class's Interest Distribution Amount (without taking into
account the amount of Prepayment Interest Shortfalls to such Class on such
Distribution Date) for such Distribution Date. The amount of any Prepayment
Interest Shortfall with respect to any Distribution Date will be offset by the
Servicer first by the amount of any Prepayment Interest Surplus and then up to
an amount equal to the aggregate Servicing Fees to which the Servicer would
otherwise be entitled on such Distribution Date.
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The ``Pass-Through Rate'' for any Class of Regular
Certificates is the per annum rate at which interest accrues on the
Certificates of such Class during any Interest Accrual Period. The
Pass-Through Rate on the Class A-1 and A-2 Certificates during any Interest
Accrual Period will be 6.525% and 6.84%, respectively. The Pass-Through Rate on
the Class A-EC Certificates during any Interest Accrual Period will be the
Class A-EC Pass-Through Rate. The Pass-Through Rate on the Class B
Certificates during any Interest Accrual Period will be 6.905%. The
Pass-Through Rate on the Class C Certificates during any Interest Accrual
Period will be 7.015%. The Pass-Through Rate on the Class D Certificates during
any Interest Accrual Period will be 7.165%. The Pass-Through Rate on the Class
E Certificates during any Interest Accrual Period will be 7.610%. The
Pass-Through Rate on the Class F, Class G and Class H Certificates during any
Interest Accrual Period will be equal to the greater of (i) the Weighted
Average Net Mortgage Rate and (ii) 7.64%. The Pass-Through Rate on the Class
J-2 Certificates during any Interest Accrual Period will be equal to the
Weighted Average Net Mortgage Rate. The Class J-1 Certificates are
principal-only certificates and are not entitled to distributions in respect of
interest.
The ``Weighted Average Net Mortgage Rate'' for any Interest
Accrual Period is a per annum rate equal to the weighted average of the Net
Mortgage Rates as of the first day of such Interest Accrual Period. The ``Net
Mortgage Rate'' for each Mortgage Loan, prior to any default thereunder, is the
Mortgage Rate for such Mortgage Loan minus the Servicing Fee Rate.
The ``Interest Accrual Period'' with respect to any
Distribution Date is the calendar month preceding the month in which such
Distribution Date occurs. Interest for each Interest Accrual Period is
calculated based on a 360-day year consisting of twelve 30-day months.
``Class Interest Shortfall'' means on any Distribution Date
for any Class of Certificates, the excess, if any of the amount of interest
required to be distributed to the Holders of such Certificates on such
Distribution Date over the amount of interest actually distributed to such
Holders. No interest will accrue on unpaid Class Interest Shortfalls.
The ``Pooled Principal Distribution Amount'' for any
Distribution Date will be equal to the sum of:
(i) the principal component of all scheduled
Monthly Payments (other than Balloon Payments) which become due (regardless of
whether received) on the Mortgage Loans during the related Collection Period;
(ii) to the extent not included elsewhere in this
definition, the principal component of all Assumed Scheduled Payments, deemed
to become due (regardless of whether received) during the related Collection
Period with respect to any Balloon Loan that is delinquent in respect of its
Balloon Payment;
(iii) to the extent not included elsewhere in this
definition, the Scheduled Principal Balance of each Mortgage Loan that was,
during the related Collection Period, repurchased from the Trust Fund in
connection with the breach of a representation or warranty or purchased from
the Trust Fund as described herein under ``THE POOLING AND SERVICING
AGREEMENT--Optional Termination'';
(iv) to the extent not included elsewhere in this
definition, the portion of Unscheduled Payments allocable to principal of any
Mortgage Loan that was liquidated during the related Collection Period;
(v) to the extent not included elsewhere in this
definition, the principal component of all Balloon Payments received during the
related Collection Period;
(vi) to the extent not included elsewhere in this
definition, all other Principal Prepayments received in the related Collection
Period; and
(vii) to the extent not included elsewhere in this
definition, any other full or partial recoveries in respect of principal,
including Insurance Proceeds, Liquidation Proceeds, Condemnation Proceeds and
Net REO Proceeds.
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The ``Assumed Scheduled Payment'' with respect to any Mortgage
Loan that is delinquent in respect of its Balloon Payment (including any REO
Mortgage Loan as to which the Balloon Payment would have been past due), is an
amount equal to the sum of (a) the principal portion of the Monthly Payment
that would have been due on such Mortgage Loan on the related Due Date based on
the original amortization schedule thereof, assuming such Balloon Payment had
not become due, after giving effect to any modification, and (b) interest at
the applicable Net Mortgage Rate on the principal balance that would have
remained after giving effect to deemed principal payments pursuant to clause
(a) hereof on prior Due Dates.
An ``REO Mortgage Loan'' is any Mortgage Loan as to which the
related Mortgaged Property has become an REO Property.
On each Distribution Date, Holders of each Class of
Certificates (other than the Class LR Certificates) shall receive
distributions, up to the amount of Available Funds, in the amounts and in the
order of priority (the ``Available Funds Allocation'') set forth below:
(i) First, to the Class A-1 Certificates, Class A-2
Certificates and Class A-EC Certificates, pro rata in accordance with the Class
Interest Distribution Amount of each, up to an amount equal to the Class
Interest Distribution Amount of each such Class for such Distribution Date;
(ii) Second, to the Class A-1 Certificates, Class A-2
Certificates and Class A-EC Certificates, pro rata in accordance with the Class
Interest Shortfall of each, up to an amount equal to the aggregate unpaid Class
Interest Shortfalls previously allocated to such Class on any previous
Distribution Dates and not paid;
(iii) Third, to the Class A-1 Certificates, in reduction of the
Certificate Balance thereof, the Pooled Principal Distribution Amount for such
Distribution Date, until the Certificate Balance thereof is reduced to zero;
(iv) Fourth, after the Certificate Balance of the Class A-1
Certificates has been reduced to zero, to the Class A-2 Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date, until the Certificate Balance thereof is
reduced to zero;
(v) Fifth, to the Class A-1 Certificates and the Class A-2
Certificates, pro rata, for the unreimbursed amounts of Realized Losses, if
any, together with simple interest thereon at a rate equal to 10.00% per annum
from the date on which such unreimbursed Realized Loss was allocated (or the
date on which interest was last paid) to, but not including, the Distribution
Date on which distributions in respect of such unreimbursed Realized Loss are
made pursuant to this subparagraph, up to an amount equal to the aggregate of
such unreimbursed Realized Losses previously allocated to the Class A-1
Certificates and the Class A-2 Certificates and interest thereon, provided that
any distribution pursuant to this subparagraph shall be deemed to be
distributed first in respect of any such interest and then in respect of any
such unreimbursed Realized Loss;
(vi) Sixth, to the Class B Certificates, up to an amount equal
to the Class Interest Distribution Amount of such Class for such Distribution
Date;
(vii) Seventh, to the Class B Certificates, up to an amount equal
to the aggregate unpaid Class Interest Shortfalls previously allocated to such
Class on any previous Distribution Dates and not paid;
(viii) Eighth, after the Certificate Balance of the Class A-2
Certificates has been reduced to zero, to the Class B Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
(ix) Ninth, to the Class B Certificates, for the unreimbursed
amounts of Realized Losses, if any, together with simple interest thereon at a
rate equal to 10.00% per annum from the date on which such unreimbursed
Realized Loss was allocated (or the date on which interest was last paid) to,
but not including, the Distribution Date on which distributions in respect of
such unreimbursed Realized Loss are made pursuant to this subparagraph, up to
an amount equal to the aggregate of such unreimbursed Realized Losses
previously allocated to the Class B Certificates and interest thereon, provided
that any distribution pursuant to this
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subparagraph shall be deemed to be distributed first in respect of any such
interest and then in respect of any such unreimbursed Realized Loss;
(x) Tenth, to the Class C Certificates, up to an amount equal
to the Class Interest Distribution Amount of such Class for such Distribution
Date;
(xi) Eleventh, to the Class C Certificates, up to an amount
equal to the aggregate unpaid Class Interest Shortfalls previously allocated to
such Class on any previous Distribution Dates and not paid;
(xii) Twelfth, after the Certificate Balance of the Class B
Certificates has been reduced to zero, to the Class C Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
(xiii) Thirteenth, to the Class C Certificates, for the
unreimbursed amounts of Realized Losses, if any, together with simple interest
thereon at a rate equal to 10.00% per annum from the date on which such
unreimbursed Realized Loss was allocated (or the date on which interest was
last paid) to, but not including, the Distribution Date on which distributions
in respect of such unreimbursed Realized Loss are made pursuant to this
subparagraph, up to an amount equal to the aggregate of such unreimbursed
Realized Losses previously allocated to the Class C Certificates and interest
thereon, provided that any distribution pursuant to this subparagraph shall be
deemed to be distributed first in respect of any such interest and then in
respect of any such unreimbursed Realized Loss;
(xiv) Fourteenth, to the Class D Certificates, up to an amount
equal to the Class Interest Distribution Amount of such Class for such
Distribution Date;
(xv) Fifteenth, to the Class D Certificates, up to an amount
equal to the aggregate unpaid Class Interest Shortfalls previously allocated to
such Class on any previous Distribution Dates and not paid;
(xvi) Sixteenth, after the Certificate Balance of the Class C
Certificates has been reduced to zero, to the Class D Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
(xvii) Seventeenth, to the Class D Certificates, for the
unreimbursed amounts of Realized Losses, if any, together with simple interest
thereon at a rate equal to 10.00% per annum from the date on which such
unreimbursed Realized Loss was allocated (or the date on which interest was
last paid) to, but not including, the Distribution Date on which distributions
in respect of such unreimbursed Realized Loss are made pursuant to this
subparagraph, up to an amount equal to the aggregate of such unreimbursed
Realized Losses previously allocated to the Class D Certificates and interest
thereon, provided that any distribution pursuant to this subparagraph shall be
deemed to be distributed first in respect of any such interest and then in
respect of any such unreimbursed Realized Loss;
(xviii) Eighteenth, to the Class E Certificates, up to an amount
equal to the Class Interest Distribution Amount of such Class for such
Distribution Date;
(xix) Nineteenth, to the Class E Certificates, up to an amount
equal to the aggregate unpaid Class Interest Shortfalls previously allocated to
such Class on any previous Distribution Dates and not paid;
(xx) Twentieth, after the Certificate Balance of the Class D
Certificates has been reduced to zero, to the Class E Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
(xxi) Twenty-First, to the Class E Certificates, for the
unreimbursed amounts of Realized Losses, if any, together with simple interest
thereon at a rate equal to 10.00% per annum from the date on which such
unreimbursed Realized Loss was allocated (or the date on which interest was
last paid) to, but not including,
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the Distribution Date on which distributions in respect of such unreimbursed
Realized Loss are made pursuant to this subparagraph, up to an amount equal to
the aggregate of such unreimbursed Realized Losses previously allocated to the
Class E Certificates and interest thereon, provided that any distribution
pursuant to this subparagraph shall be deemed to be distributed first in
respect of any such interest and then in respect of any such unreimbursed
Realized Loss;
(xxii) Twenty-Second, to the Class F Certificates, up to an amount
equal to the Class Interest Distribution Amount of such Class for such
Distribution Date;
(xxiii) Twenty-Third, to the Class F Certificates, up to an amount
equal to the aggregate unpaid Class Interest Shortfalls previously allocated to
such Class on any previous Distribution Dates and not paid;
(xxiv) Twenty-Fourth, after the Certificate Balance of the Class E
Certificates has been reduced to zero, to the Class F Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
(xxv) Twenty-Fifth, to the Class F Certificates, for the
unreimbursed amounts of Realized Losses, if any, together with simple interest
thereon at a rate equal to 10.00% per annum from the date on which such
unreimbursed Realized Loss was allocated (or the date on which interest was
last paid) to, but not including, the Distribution Date on which distributions
in respect of such unreimbursed Realized Loss are made pursuant to this
subparagraph, up to an amount equal to the aggregate of such unreimbursed
Realized Losses previously allocated to the Class F Certificates and interest
thereon, provided that any distribution pursuant to this subparagraph shall be
deemed to be distributed first in respect of any such interest and then in
respect of any such unreimbursed Realized Loss;
(xxvi) Twenty-Sixth, to the Class G Certificates, up to an amount
equal to the Class Interest Distribution Amount of such Class for such
Distribution Date;
(xxvii) Twenty-Seventh, to the Class G Certificates, up to an
amount equal to the aggregate unpaid Class Interest Shortfalls previously
allocated to such Class on any previous Distribution Dates and not paid;
(xxviii) Twenty-Eighth, after the Certificate Balance of the Class F
Certificates has been reduced to zero, to the Class G Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
(xxix) Twenty-Ninth, to the Class G Certificates, for the
unreimbursed amounts of Realized Losses, if any, together with simple interest
thereon at a rate equal to 10.00% per annum from the date on which such
unreimbursed Realized Loss was allocated (or the date on which interest was
last paid) to, but not including, the Distribution Date on which distributions
in respect of such unreimbursed Realized Loss are made pursuant to this
subparagraph, up to an amount equal to the aggregate of such unreimbursed
Realized Losses previously allocated to the Class G Certificates and interest
thereon, provided that any distribution pursuant to this subparagraph shall be
deemed to be distributed first in respect of any such interest and then in
respect of any such unreimbursed Realized Loss;
(xxx) Thirtieth, to the Class H Certificates, up to an amount
equal to the Class Interest Distribution Amount of such Class for such
Distribution Date;
(xxxi) Thirty-First, to the Class H Certificates, up to an amount
equal to the aggregate unpaid Class Interest Shortfalls previously allocated to
such Class on any previous Distribution Dates and not paid;
(xxxii) Thirty-Second, after the Certificate Balance of the Class G
Certificates has been reduced to zero, to the Class H Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
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(xxxiii) Thirty-Third, to the Class H Certificates, for the
unreimbursed amounts of Realized Losses, if any, together with simple interest
thereon at a rate equal to 10.00% per annum from the date on which such
unreimbursed Realized Loss was allocated (or the date on which interest was
last paid) to, but not including, the Distribution Date on which distributions
in respect of such unreimbursed Realized Loss are made pursuant to this
subparagraph, up to an amount equal to the aggregate of such unreimbursed
Realized Losses previously allocated to the Class H Certificates and interest
thereon, provided that any distribution pursuant to this subparagraph shall be
deemed to be distributed first in respect of any such interest and then in
respect of any such unreimbursed Realized Loss;
(xxxiv) Thirty-Fourth, to the Class J-2 Certificates, up to an
amount equal to the Class Interest Distribution Amount of such Class for such
Distribution Date;
(xxxv) Thirty-Fifth, to the Class J-2 Certificates, up to an
amount equal to the aggregate unpaid Class Interest Shortfalls previously
allocated to such Class on any previous Distribution Dates and not paid;
(xxxvi) Thirty-Sixth, after the Certificate Balance of the Class H
Certificates has been reduced to zero, to the Class J-1 Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
(xxxvii) Thirty-Seventh, if such Distribution Date occurs after the
EC Maturity Date, to (i) the Class H Certificates, (ii) the Class G
Certificates, (iii) the Class F Certificates, (iv) the Class E Certificates,
(v) the Class D Certificates, (vi) the Class C Certificates, (vii) the Class B
Certificates, (viii) the Class A-2 Certificates and the Class A-1 Certificates,
pro rata, and (ix) the Class J-1 Certificates, in that order, in reduction of
the Certificate Balance of each thereof, any remaining portion of Available
Funds in the Distribution Account, until the Certificate Balance of each has
been reduced to zero; and
(xxxviii) Thirty-Eighth, to the Class J-1 Certificates, for the
unreimbursed amounts of Realized Losses, if any, together with simple interest
thereon at a rate equal to 10.00% per annum from the date on which such
unreimbursed Realized Loss was allocated (or the date on which interest was
last paid) to, but not including, the Distribution Date on which distributions
in respect of such unreimbursed Realized Loss are made pursuant to this
subparagraph, up to an amount equal to the aggregate of such unreimbursed
Realized Losses previously allocated to the Class J-1 Certificates and interest
thereon, provided that any distribution pursuant to this subparagraph shall be
deemed to be distributed first in respect of any such interest and then in
respect of any such unreimbursed Realized Loss.
On each Distribution Date, Available Funds remaining in the
Distribution Account following the distributions to the Certificates pursuant
to the Available Funds Allocation shall be distributed to the Class R
Certificates and Available Funds remaining in the Collection Account shall be
distributed to the Class LR Certificates.
All references to pro rata in the preceding clauses shall
mean pro rata based on the amount distributable pursuant to such clause.
Distributions of Principal on the Class A-1 and Class A-2
Certificates. On each Distribution Date prior to the earlier of (i) the Senior
Principal Distribution Cross-Over Date and (ii) the final Distribution Date in
connection with the termination of the Trust Fund, all distributions of
principal to the Class A-1 Certificates and the Class A-2 Certificates will be
paid, first, to holders of the Class A-1 Certificates until the Certificate
Balance of such Certificates is reduced to zero, and thereafter, to holders of
the Class A-2 Certificates, until the Certificate Balance of such Certificates
is reduced to zero. On each Distribution Date on and after the Senior Principal
Distribution Cross-Over Date, and in any event on the final Distribution Date
in connection with the termination of the Trust Fund, distributions of
principal on the Class A-1 Certificates and the Class A-2 Certificates will be
paid to holders of such two Class of Certificates, pro rata in accordance with
their respective Certificate Balances outstanding immediately prior to such
Distribution Date, until the Certificate Balance of each such Class of
Certificates is reduced to zero.
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The ``Senior Principal Distribution Cross-Over Date'' will
be the first Distribution Date as of which the aggregate Certificate Balance of
the Class A-1 Certificates and Class A-2 Certificates outstanding immediately
prior thereto exceeds the sum of (a) the aggregate Scheduled Principal Balance
of the Mortgage Loans that will be outstanding immediately following such
Distribution Date and (b) the portion of the Available Distribution Amount for
such Distribution Date that will remain after the distribution of interest to
be made on the Class A-1 and Class A-2 Certificates on such Distribution Date
has been made.
Prepayment Premiums. Each Mortgage Loan generally provides
that a prepayment be accompanied by the payment of a Prepayment Premium for all
or a portion of the period during which such prepayments are permitted. On
each Distribution Date up to and including the EC Maturity Date, Prepayment
Premiums with respect to any Unscheduled Payments received on Yield Maintenance
Loans in the related Collection Period, if such Collection Period occurred
during the Yield Maintenance Period for such Yield Maintenance Loan, shall be
distributed to the holders of the Certificates outstanding on such Distribution
Date, in the following amounts and order of priority:
(i) First, to the Class of Certificates which is
entitled to distributions in respect of principal on such Distribution Date
(other than pursuant to clause thirty-seventh of the Available Funds
Allocation), an amount equal to the excess of (A) the present value (discounted
at the Discount Rate (as defined below)) of the principal and interest
distributions that would have been paid in respect of such Class of
Certificates from the Distribution Date occurring in the following month until
the Certificate Balance of such Class of Certificates would have been reduced
to zero had the related prepayment not occurred (and assuming no other
prepayments were made and no delinquencies or defaults occur), less (B) the
present value (discounted at the Discount Rate (as defined below)) of the
principal and interest distributions that will be paid in respect of such Class
of Certificates from the Distribution Date occurring in the following month
until the Certificate Balance of such Class of Certificates is reduced to zero
following such prepayment (assuming no further prepayments are made and no
delinquencies or defaults occur) less (C) the amount of such prepayment;
provided that if more than one Class of Certificates is entitled to
distributions in respect of principal on such Distribution Date (other than
pursuant to clause thirty-seventh of the Available Funds Allocation), the
amount set forth herein shall be calculated for each such Class, and the amount
of Prepayment Premiums shall be allocated among such Classes, pro rata in
accordance with the amounts so calculated, up to an amount equal to the sum of
such amounts so calculated; and
(ii) Second, any remaining Prepayment Premiums
following the distribution in clause First above, to the Class A-EC
Certificates.
With respect to each Distribution Date up to and including
the EC Maturity Date, any Prepayment Premiums received with respect to any of
the Mortgage Loans that are not Yield Maintenance Loans and any Prepayment
Premiums received with respect to the Yield Maintenance Loans after the related
Yield Maintenance Periods will be allocated solely to the Class A-EC
Certificates. The amount of any Prepayment Premiums with respect to any
Unscheduled Payments received in any Collection Period subsequent to the
Collection Period related to the EC Maturity Date will be distributed as
Available Funds pursuant to the Available Funds Allocation.
The ``Discount Rate'' is the rate determined by the Trustee
to be the rate interpolated and rounded to the nearest one-thousandth of a
percent, if necessary, in the secondary market on the United States Treasury
security with a maturity equal to the then computed weighted average life of
the related Class of Certificates (rounded to the nearest month) (without
taking into account the related prepayment and assuming (i) no further
prepayments on the Mortgage Loans and (ii) no delinquencies or defaults with
respect to payments on Mortgage Loans) plus 0.50% per annum.
Notwithstanding the foregoing, Prepayment Premiums shall be
distributed on any Distribution Date only to the extent they are received in
the respect of the Mortgage Loans in the related Collection Period.
Realized Losses. The Certificate Balance of the
Certificates will be reduced without distribution on any Distribution Date as a
write-off to the extent of any Realized Loss with respect to such Distribution
Date. As referred to herein, the ``Realized Loss'' with respect to any
Distribution Date shall mean the amount, if any, by which (i) the Aggregate
Certificate Balance of the Certificates after giving effect to distributions
made on such
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Distribution Date exceeds (ii) the aggregate Scheduled Principal Balance of the
Mortgage Loans as of the Due Date in the month in which such Distribution Date
occurs. Any such write-offs will be applied to the Classes of Certificates in
the following order, until each is reduced to zero: first, to the Class J-1
Certificates, second, to the Class H Certificates, third, to the Class G
Certificates, fourth, to the Class F Certificates, fifth, to the Class E
Certificates, sixth, to the Class D Certificates, seventh, to the Class C
Certificates, eighth, to the Class B Certificates, and finally to the Class A-1
and Class A-2 Certificates, pro rata. Any amounts recovered in respect of any
amounts previously written off as Realized Losses will be distributed to the
Classes of Certificates in reverse order of allocation of Realized Losses
thereto. Realized Losses allocated to the Class J-1 Certificates will reduce
the Class J-2 Notional Balance. Realized Losses allocated to any Class of
Certificates will reduce the Class A-EC Notional Balance. Shortfalls in
Available Funds resulting from additional Servicer compensation (including
interest on Advances not covered by Default Interest, extraordinary expenses of
the Trust Fund or otherwise) will be allocated in the same manner as Realized
Losses.
The ``Scheduled Principal Balance'' of any Mortgage Loan as
of any Due Date will be the principal balance of such Mortgage Loan as of such
Due Date, after giving effect to (a) any Principal Prepayments, Non-Premium
Prepayments or other unscheduled recoveries of principal and any Balloon
Payments received during the related Collection Period, and (b) any payment in
respect of principal, if any, due on or before such Due Date (other than a
Balloon Payment, but including the principal portion of any Assumed Scheduled
Payment, if applicable), irrespective of any delinquency in payment by the
borrower. The Scheduled Principal Balance of any REO Mortgage Loan is equal to
the principal balance thereof outstanding on the date that the related
Mortgaged Property became an REO Property minus any Net REO Proceeds allocated
to principal on such REO Mortgage Loan and reduced by Monthly Payments due
thereon on or before such Due Date. With respect to any Mortgage Loan, from
and after the date on which the Servicer makes a Final Recovery Determination,
the Scheduled Principal Balance thereof shall be zero.
SUBORDINATION
As a means of providing a certain amount of protection to
the holders of the Class A-1, Class A-2 and Class A-EC Certificates against
losses associated with delinquent and defaulted Mortgage Loans, the rights of
the holders of the Class B, Class C, Class D, Class E, Class F, Class G and
Class H, Class J-1 and Class J-2 Certificates to receive distributions of
interest and principal, as applicable, will be subordinated to such rights of
the holders of the Class A-1, Class A-2 and Class A-EC Certificates. Each
Class of the Regular Certificates with a lower class designation will likewise
be protected by the subordination of all Classes of Certificates with yet lower
Class designations. This subordination will be effected in two ways: (i) by
the preferential right of the holders of a Class of Certificates to receive on
any Distribution Date the amounts of interest and principal, as applicable,
distributable in respect of such Certificates on such date prior to any
distribution being made on such Distribution Date in respect of any Classes of
Certificates subordinate thereto and (ii) by the allocation of Realized Losses,
first, to the Class J-1 Certificates, second, to the Class H Certificates,
third, to the Class G Certificates, fourth, to the Class F Certificates, fifth,
to the Class E Certificates, sixth, to the Class D Certificates, seventh, to
the Class C Certificates, eighth, to the Class B Certificates, and, finally, to
the Class A-1 and Class A-2 Certificates, pro rata, in each case in reduction
of the Certificate Balance of such Class until the Certificate Balance thereof
is reduced to zero. No other form of credit enhancement will be available for
the benefit of the holders of the Offered Certificates.
ADDITIONAL RIGHTS OF THE RESIDUAL CERTIFICATES
The Class R Certificates and Class LR Certificates will
remain outstanding for as long as the Trust Fund shall exist. Holders of the
Class R Certificates and Class LR Certificates are not entitled to
distributions in respect of principal, interest or Prepayment Premiums.
Holders of the Class R Certificates and Class LR Certificates are not expected
to receive any distributions until after the Class Balances of all other
Classes of Certificates have been reduced to zero and only to the extent of any
Available Funds remaining in the Distribution Account and Collection Account,
respectively, on any Distribution Date and any remaining assets of the
Upper-Tier REMIC and the Lower-Tier REMIC, respectively, if any, on the final
Distribution Date for the Certificates, after distributions in respect of any
accrued but unpaid interest on the Certificates and after distributions in
reduction of principal balance have reduced the principal balances of the
Certificates to zero.
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A HOLDER OF A GREATER THAN 50% PERCENTAGE INTEREST OF THE
CLASS LR CERTIFICATES MAY, UNDER CERTAIN CIRCUMSTANCES, PURCHASE THE REMAINING
ASSETS OF THE TRUST FUND, THEREBY EFFECTING THE TERMINATION OF THE TRUST
REMICS. SEE ``THE POOLING AND SERVICING AGREEMENT--OPTIONAL TERMINATION''
HEREIN.
DELIVERY, FORM AND DENOMINATION
Book-Entry Certificates. No Person acquiring a Class A-1,
Class A-2, Class A-EC, Class B, Class C, Class D, Class E or Class F
Certificate (each such Certificate, a ``Book-Entry Certificate'') will be
entitled to receive a physical certificate representing such Certificate except
under the limited circumstances described below. Absent such circumstances,
the Book-Entry Certificates will be registered in the name of a nominee of DTC
and beneficial interests therein will be held by investors (``Beneficial
Owners'') through the book-entry facilities of DTC, as described herein, in
denominations of $100,000 initial Certificate Balance or Notional Balance and
integral multiples of $1,000 in excess thereof except one certificate of each
such Class may be issued which represents a different initial Certificate
Balance or Notional Balance to accommodate the remainder of the initial
Certificate Balance or Notional Balance of such Class. 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 Book-Entry Certificates.
No Beneficial Owner of a Book-Entry Certificate will be
entitled to receive a definitive Certificate (a ``Definitive Certificate'')
representing such person's interest in the Book-Entry Certificates, except as
set forth below. Unless and until Definitive Certificates are issued to
beneficial owners in respect of the Book-Entry Certificates under the limited
circumstances described herein, all references to actions taken by
Certificateholders or holders shall, in the case of the Book-Entry
Certificates, refer to actions taken by DTC upon instructions from its
participants, and all references herein to distributions, notices, reports and
statements to Certificateholders or holders shall, in the case of the
Book-Entry Certificates, refer to distributions, notices, reports and
statements to DTC or Cede & Co., as the case may be, for distribution to
beneficial owners in accordance with DTC procedures. The Trustee, the
Servicer, the Special Servicer, the Fiscal Agent and the Certificate Registrar
may for all purposes, including the making of payments due on the Book-Entry
Certificates, deal with DTC as the authorized representative of the Beneficial
Owners with respect to such Certificates for the purposes of exercising the
rights of Certificateholders under the Pooling and Servicing Agreement.
The Depository Trust Company. DTC is a limited purpose
trust company organized under the laws of the State of New York, a member of
the Federal Reserve System, a ``clearing corporation'' within the meaning of
New York Uniform Commercial Code and a ``clearing agency'' registered pursuant
to Section 17A of the Securities Exchange Act of 1934, as amended. DTC was
created to hold securities for its participating organizations
(``Participants'') and to facilitate the clearance and settlement of securities
transactions among Participants through electronic book-entries, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers (including the Underwriter), banks,
trust companies and clearing corporations. Indirect access to the DTC system
also is available to banks, brokers, dealers, trust companies and other
institutions that clear through or maintain a custodial relationship with a
participant, either directly or indirectly (``Indirect Participants''). The
rights of Beneficial Owners with respect to the Book-Entry Certificates shall
be limited to those established by law and agreements between such Beneficial
Owners and the Participants and Indirect Participants representing such
Beneficial Owners.
Under the rules, regulations and procedures creating and
affecting DTC and its operations (the ``Rules''), DTC is required to make
book-entry transfers of Book-Entry Certificates among Participants on whose
behalf it acts with respect to the Book-Entry Certificates. Participants and
Indirect Participants with which Beneficial Owners have accounts with respect
to the Book-Entry Certificates similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Beneficial Owners.
Beneficial Owners that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, Book-Entry Certificates may do so only through
Participants and Indirect Participants. All transfers by Beneficial Owners of
their respective ownership interests in the Book-Entry Certificates shall be
made in accordance with the procedures established by the Participant or
brokerage firm representing each such Beneficial Owner. Each Participant shall
only transfer the ownership interests in the Book-Entry Certificates of
Beneficial Owners it represents or of brokerage firms for which it acts as
agent in accordance with DTC's normal procedures. Neither the Certificate
Registrar, nor the Trustee shall
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have any responsibility to monitor or restrict the transfer of ownership
interests in Book-Entry Certificates through the book-entry facilities of DTC.
In addition, Beneficial Owners will receive all
distributions of principal, interest and other sums through Participants. DTC
will forward such distributions to its Participants, which thereafter will
forward them to Indirect Participants or Beneficial Owners. Beneficial Owners
will not be recognized by the Trustee or any paying agent (each, a ``Paying
Agent'') appointed by the Trustee as Certificateholders, as such term is used
in the Pooling and Servicing Agreement, and Beneficial Owners will be permitted
to exercise the rights of Certificateholders only indirectly through DTC and
its Participants.
Because DTC can only act on behalf of Participants, who in
turn act on behalf of Indirect Participants and certain banks, the ability of a
Beneficial Owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to such
Book-Entry Certificates, may be limited due to lack of a definitive Certificate
for such Book-Entry Certificates. In addition, under a book-entry format,
Beneficial Owners may experience delays in their receipt of payments, since
distributions will be made by the Trustee or a Paying Agent on behalf of the
Trustee to Cede & Co., as nominee for DTC.
DTC has advised the Depositor that it will take any action
permitted to be taken by a Certificateholder under the Pooling and Servicing
Agreement only at the direction of one or more Participants to whose accounts
with DTC the Book-Entry Certificates are credited. Additionally, DTC has
advised the Depositor that, in the case of actions requiring the direction of
the holders of specified Percentage Interests or Voting Rights of the
Certificates, it will take such actions only at the direction of and on behalf
of Participants whose holdings of Book-Entry Certificates evidence such
specified Percentage Interests or Voting Rights. DTC may take conflicting
actions with respect to Percentage Interests or Voting Rights to the extent
that Participants whose holdings of Book-Entry Certificates evidence such
Percentage Interests or Voting Rights authorize divergent action.
Neither the Depositor, the Trustee, the Servicer, the
Special Servicer, the Fiscal Agent, nor any Paying Agent will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates
registered in the name of Cede & Co., as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests. In the event of the insolvency of DTC or a Participant or Indirect
Participant in whose name Book-Entry Certificates are registered, the ability
of the Beneficial Owners of such Book-Entry Certificates to obtain timely
payment may be impaired. In addition, in such event, if the limits of
applicable insurance coverage by the Securities Investor Protection Corporation
are exceeded or if such coverage is otherwise unavailable, ultimate payment of
amounts distributable with respect to such Book-Entry Certificates may be
impaired.
Physical Certificates. The Class G, Class H, Class J-1,
Class J-2, Class R and Class LR Certificates will be issued in fully registered
certificated form only. The Class G, Class H, Class J-1 and Class J-2
Certificates will be issued in denominations of $100,000 initial Certificate
Balance or Notional Balance, as applicable, and integral multiples of $1,000 in
excess thereof (or $1 in excess thereof with respect to the Class J-1 and Class
J-2 Certificates), except one Certificate of each such Class may be issued
which represents a different initial Certificate Balance or Notional Balance to
accommodate the remainder of the initial Certificate Balance or Notional
Balance. The Residual Certificates will be issued in definitive, physical,
registered form in percentage interests of 5% and integral multiples of a 1%
percentage interest in excess thereof.
Book-Entry Certificates will be converted to Definitive
Certificates and re-issued to Beneficial Owners for their nominees, rather than
to DTC or its nominee, only if (i)(A) the Depositor advises the Certificate
Registrar in writing that DTC is no longer willing or able to properly
discharge its responsibilities as depository with respect to any class of the
Book-Entry Certificates and (B) the Depositor is unable to locate a qualified
successor or (ii) the Depositor, at its option, advises the Certificate
Registrar that it elects to terminate the book-entry system through DTC with
respect to any Class of the Book-Entry Certificates.
Upon the occurrence of any event described in the
immediately preceding paragraph, the Certificate Registrar will be required to
notify all affected Beneficial Owners through DTC of the availability of
Definitive Certificates. Upon surrender by DTC of the physical certificates
representing the affected Book-Entry
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Certificates and receipt of instructions for re-registration, the Certificate
Registrar will reissue the Book-Entry Certificates as definitive Certificates
to the Beneficial Owners. Upon the issuance of Definitive Certificates for
purposes of evidencing ownership of the Class A-1, Class A-2, Class A-EC, Class
B, Class C, Class D, Class E or Class F Certificates, the registered holders of
such Definitive Certificates shall be recognized as Certificateholders
hereunder and, accordingly, shall be entitled directly to receive payments on,
and exercise Voting Rights with respect to, and to transfer and exchange such
Definitive Certificates.
Definitive Certificates will be transferable and
exchangeable at the offices of the Trustee or the Certificate Registrar in
accordance with the terms of the Pooling and Servicing Agreement.
REGISTRATION AND TRANSFER
Subject to the restrictions on transfer and exchange set
forth in the Pooling and Servicing Agreement, the holder of any Definitive
Certificate may transfer or exchange the same in whole or part (in a principal
amount equal to the minimum authorized denomination or any integral multiple
thereof) by surrendering such Definitive Certificate at the corporate trust
office of the certificate registrar appointed pursuant to the Pooling and
Servicing Agreement (the ``Certificate Registrar'') or at the office of any
transfer agent, together with an executed instrument of assignment and transfer
in the case of transfer and a written request for exchange in the case of
exchange. In exchange for any Definitive Certificate properly presented for
transfer or exchange with all necessary accompanying documentation, the
Certificate Registrar shall, within five Business Days of such request if made
at the corporate trust office of the Certificate Registrar, or within ten
Business Days if made at the office of a transfer agent (other than the
Certificate Registrar), execute and deliver at such corporate trust officer or
the office of the transfer agent, as the case may be, to the transferee (in the
case of transfer) or holder (in the case of exchange) or send by first class
mail at the risk of the transferee (in the case of transfer) or holder (in the
case of exchange) to such address as the transferee or holder, as applicable,
may request, a Definitive Certificate or Definitive Certificates, as the case
may require, for a like aggregate Certificate Balance or Notional Balance, as
applicable, and in such authorized denomination or denominations as may be
requested. The presentation for transfer or exchange of any Definitive
Certificate shall not be valid unless made at the corporate trust office of the
Certificate Registrar or at the office of a transfer agent by the registered
holder in person, or by a duly authorized attorney-in-fact. The Certificate
Registrar may decline to accept any request for an exchange or registration of
transfer of any Definitive Certificate during the period of 15 days preceding
any Distribution Date.
No fee or service charge will be imposed by the Certificate
Registrar for its services in respect of any registration of transfer or
exchange referred to herein. The Certificate Registrar may require payment by
each transferor of a sum sufficient to pay any tax (as defined in the Pooling
and Servicing Agreement), expense or other governmental charge payable in
connection with any such transfer.
For a discussion of certain transfer restrictions, see
``ERISA CONSIDERATIONS'' herein.
YIELD CONSIDERATIONS
REGULAR CERTIFICATES
General. The yield on any Regular Certificate will depend
on (a) the price at which such Certificate is purchased by an investor and (b)
the rate, timing and amount of distributions on such Certificate. The rate,
timing and amount of distributions on any Regular Certificate will in turn
depend on, among other things, (i) the rate and timing of principal payments
(including voluntary prepayments, involuntary prepayments resulting from
defaults and liquidations or other dispositions of the Mortgage Loans and
Mortgaged Properties or the application of insurance or condemnation proceeds,
and/or the purchase of the Mortgage Loans as described under ``THE POOLING AND
SERVICING AGREEMENT--Optional Termination'' and ``--Auction'' and the extent to
which such amounts are to be applied in reduction of the Certificate Balance
(or Notional Balance) of the Class of Certificates to which such Certificate
belongs, (ii) the rate, timing and severity of Realized Losses on the Mortgage
Loans and the extent to which such losses are allocable in reduction of the
Certificate Balances (or related Notional Balance) of the Class of Certificates
to which such Certificate belongs and (iii) with respect to the Class A-EC,
Class F, Class G, Class H and Class J-2 Certificates, the Weighted
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Average Net Mortgage Rate as in effect from time to time. Disproportionate
principal payments (whether resulting from differences in amortization
schedules, prepayments or otherwise) on Mortgage Loans having Net Mortgage
Rates that are higher or lower than the current Weighted Average Net Mortgage
Rate will affect the yield on the Class A-EC Certificates. Such
disproportionate principal payments will also affect the Pass-Through Rates of
the Class F, Class G, Class H and Class J-2 Certificates and therefore the
yield on each such Class. Furthermore, following the EC Maturity Date,
increases or decreases in the Weighted Average Net Mortgage Rate will increase
or decrease the rate of distributions in reduction of Class Principal Balances
of certain Classes of Certificates entitled to receive distributions pursuant
to priority thirty-seventh of the Available Funds Allocation.
Rate and Timing of Principal Payments. The yield to holders of the Regular
Certificates purchased at a discount or premium will be affected by the rate
and timing of principal payments made in reduction of the Certificate Balance
of such Certificates. As described herein, the Pooled Principal Distribution
Amount for each Distribution Date will be distributable in its entirety in
respect of the Class A-1 Certificates until the Certificate Balance thereof is
reduced to zero, and will thereafter be distributable in its entirety to each
remaining Class of Regular Certificates, sequentially in order of Class
designation, in each case until the Certificate Balance of each such Class of
Certificates is, in turn, reduced to zero. Consequently, the rate and timing of
principal payments made in reduction of the Certificate Balance of the Regular
Certificates will be directly related to the rate and timing of principal
payments on or in respect of the Mortgage Loans, which will in turn be affected
by the amortization schedules thereof, the dates on which Balloon Payments are
due and the rate and timing of principal prepayments and other unscheduled
collections thereon (including, for this purpose, collections made in
connection with liquidations of Mortgage Loans due to defaults, casualties or
condemnations affecting the Mortgage Properties, or purchases of Mortgage Loans
out of the Trust Fund in the manner described herein under ``THE POOLING AND
SERVICING AGREEMENT--Representations and Warranties; Repurchases,''
``--Optional Termination'' and ``--Auction''). Prepayments and, assuming the
respective stated maturity dates therefor have not occurred, liquidations and
purchases of the Mortgage Loans, will result in distributions on the Regular
Certificates (other than the Class A-EC, and Class J-2 Certificates) of amounts
that would otherwise have been distributed over the remaining terms of the
Mortgage Loans. Defaults on the Mortgage Loans, particularly at or near their
stated maturity dates, may result in significant delays in payments of
principal on the Mortgage Loans, and, accordingly, on the Regular Certificates,
while work-outs are negotiated foreclosures are completed or bankruptcy
proceedings are resolved. In addition, the Special Servicer has the option to
extend the maturity of Mortgage Loans following a Balloon Default. See ``THE
POOLING AND SERVICING AGREEMENT--Servicing of the Mortgage Loans; Collection of
Payments'' and ``--Realization Upon Mortgage Loans'' and ``CERTAIN LEGAL
ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS--The Mortgage Loans--Foreclosure''
in the Prospectus.
The extent to which the yield to maturity of any Class of
Regular Certificates may vary from the anticipated yield will depend upon the
degree to which they are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans are in turn
distributed in reduction of the Certificate Balance of such Certificates. An
investor should consider, in the case of any Regular Certificate purchased at a
discount, especially the Class J-1 Certificates, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans could result in an
actual yield to such investor that is lower than the anticipated yield and, in
the case of any Regular Certificate purchased at a premium (or the Class A-EC
and Class J-2 Certificates, which have no Certificate Balances), the risk that
a faster than anticipated rate of principal payments could result in an actual
yield to such investor that is lower than the anticipated yield. In general,
the earlier a payment of principal on the Mortgage Loans is distributed in
reduction of the Certificate Balance of any Regular Certificate purchased at a
discount or premium (or, in the case of the Class A-EC and Class J-2
Certificates, applied in reduction of the related Notional Balance), the
greater will be the effect on an investor's yield to maturity. As a result,
the effect on an investor's yield of principal payments on the Mortgage Loans
occurring at a rate higher (or lower) than the rate anticipated by the investor
during any particular period would not be fully offset by a subsequent like
reduction (or increase) in the rate of such principal prepayments. Because the
rate of principal payments on the Mortgage Loans will depend on future events
and a variety of factors (as described more fully below), no assurance can be
given as to such rate or the rate of Principal Prepayments in particular. The
Depositor is not aware of any relevant publicly available or authoritative
statistics with respect to the historical prepayment experience of a large
group of commercial and/or multifamily loans comparable to the Mortgage Loans.
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The amounts payable with respect to the Class J-1
Certificates derive only from principal payments on the Mortgage Loans. As a
result, the yield on the Class J-1 Certificates will be adversely affected by
slower than expected payments of principal (including prepayments, defaults and
liquidations) on the Mortgage Loans.
Balloon Payments. Most of the Mortgage Loans are Balloon
Loans which will have substantial payments (that is, Balloon Payments) due at
their stated maturities unless previously prepaid. If any borrower with
respect to any of such Balloon Loans is unable to make the applicable Balloon
Payment when due, the average life of the Certificates will be longer than
expected. With particular reference to the Class A-1 Certificates, the nine
Mortgage Loans listed below have a Scheduled Maturity Date within the next
seven years, with a Balloon Payment required on each such Maturity Date. If
the Balloon Payments with respect to each of these Mortgage Loans are not paid
by each of the related borrowers as scheduled, the average life of the Class
A-1 Certificates could be especially affected.
<TABLE>
<CAPTION>
Cut-Off Date Appraisal
Loan Property Principal Balloon Property Appraised Balloon Original
# Name Balance Balance Type LTV LTV Maturity
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 Mountain Creek $6,493,254 $5,741,367 Congregate 57.46% 50.81% 84
Manor Care
8 Garden Ridge $5,500,000 $3,722,592 Retail 60.11% 40.68% 84
9 Mack Park $5,350,000 $4,710,593 Multifamily 73.29% 64.53% 84
Apartments
10 Park Villa $4,750,000 $4,377,978 Multifamily 70.90% 65.34% 60
Apartments
19 The Bristol House $3,692,738 $3,271,518 Congregate 72.41% 64.15% 84
Gracious Retirement Living Care
22 Kingswood $3,350,000 $2,949,624 Multifamily 69.29% 61.01% 84
Apartments
38 Meadowbrook $2,360,000 $1,922,764 Mobile Home 51.30% 41.80% 84
Mobile Home Park Park
39 University Village $2,250,000 $2,013,321 Multifamily 80.36% 71.90% 84
Apartments
65 Loveland Plaza $1,300,000 $1,059,150 Mobile Home 62.65% 51.04% 84
Mobile Home Park Park
</TABLE>
Losses and Shortfalls. The yield to holders of the
Regular Certificates will also depend on the extent to which such holders are
required to bear the effects of any losses or shortfalls on the Mortgage Loans.
Shortfalls in collections of amounts payable on the Mortgage Loans (to the
extent not advanced) will generally be borne: first, by the holders of the
Class J-1 Certificates, to the extent of amounts otherwise distributable
thereto; second, by the holders of the Class H Certificates, to the extent of
amounts otherwise distributable thereto; third, by the holders of the Class G
Certificates, to the extent of amounts otherwise distributable thereto; fourth,
by the holders of the Class F Certificates, to the extent of amounts otherwise
distributable thereto; fifth, by the holders of the Class E Certificates to the
extent of amounts otherwise distributable thereto; sixth, by the holders of the
Class D Certificates, to the extent of amounts otherwise distributable thereto;
seventh, by the holders of the Class C Certificates, to the extent of amounts
otherwise distributable thereto; eighth, by the holders of the Class B
Certificates, to the extent of amounts otherwise distributable thereto; and,
last, by the holders of the Class A-1 and Class A-2 Certificates on a pro-rata
basis. Realized Losses will be allocated, as and to the extent described
herein, to the Classes of Certificates (in reduction of the Certificate Balance
of each such Class) in reverse order of their class designation.
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Certain Relevant Factors. The Mortgage Loans are not
insured or guaranteed in whole or in part by any governmental agency or any
other person or entity. In addition, 81 of the Mortgage Loans are non-recourse
loans. If the markets for commercial and multifamily real estate should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans exceed the value of the respective Mortgaged
Properties, actual losses may be higher than those originally anticipated by
investors. As otherwise described herein, most of the Mortgage Loans, by
number and by Cut-off Date Principal Balance, are Balloon Loans, and, as to
such loans, the ability of the borrowers to pay the Balloon Payment at the
maturity of the Mortgage Loan will depend on their ability to sell or refinance
the Mortgaged Properties, which, in turn, depends on a number of factors, many
of which are beyond the control of such borrowers. Such factors include the
level of interest rates and general economic conditions at the time of sale or
refinancing and changes in federal, state or local laws, including tax laws,
environmental laws and safety standards. The Certificates are subject to the
risk of default by the borrowers in making the required Balloon Payments.
The rate and timing of principal payments and
defaults and the severity of losses on the Mortgage Loans may be affected by a
number of factors, including, without limitation, prevailing interest rates,
the terms of the Mortgage Loans (for example, the provisions requiring the
payment of Prepayment Premiums and amortization terms that require Balloon
Payments), the demographics and relative economic vitality of the areas in
which the Mortgaged Properties are located, and the general supply and demand
for such facilities (and their uses) in such areas, the quality of management
of Mortgaged Properties, the servicing of the Mortgage Loans, possible changes
in tax laws and other opportunities for investment.
The rate of prepayment on the Mortgage Pool is likely
to be affected by prevailing market interest rates for mortgage loans of a
comparable type, term and risk level. When prevailing market interest rates
are below a mortgage note rate, a borrower may have an increased incentive to
refinance its mortgage loan. In addition, as prevailing market interest rates
decline, the related borrowers may have an increased incentive to refinance for
purposes of either (i) converting to another fixed rate loan with a lower
interest rate and thereby ``locking in'' such rate or (ii) taking advantage of
an initial ``teaser rate'' on an adjustable rate mortgage loan (that is, a
mortgage interest rate below that which would otherwise apply if the applicable
index and gross margin were applied). All of the Mortgage Loans require that
prepayments be accompanied by the payment of a Prepayment Premium, at least for
a specified period following the origination thereof. See ``DESCRIPTION OF THE
MORTGAGE POOL--Certain Terms and Conditions of the Mortgage Loans--Prepayment
Provisions'' herein. A requirement that a prepayment be accompanied by a
Prepayment Premium may not provide a sufficient economic disincentive to a
borrower seeking to refinance at a more favorable interest rate. In addition,
in certain jurisdictions such a requirement may be unenforceable. See ``RISK
FACTORS--Prepayment and Yield Considerations'' herein and ``CERTAIN LEGAL
ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS--The Mortgage Loans--Enforceability
of Certain Provisions'' in the Prospectus.
Depending on prevailing market rates of interest, the
outlook for market interest rates and economic conditions generally, some
borrowers may sell Mortgaged Properties in order to realize their equity
therein, to meet cash flow needs or to make other investments. In addition,
some borrowers may be motivated by federal and state tax laws (which are
subject to change) to sell Mortgaged Properties prior to the exhaustion of tax
depreciation benefits.
Neither the Depositor nor the Mortgage Loan Seller
makes any representation as to the particular factors that will affect the rate
and timing of prepayments and defaults on the Mortgage Loans, as to the
relative importance of such factors, as to the percentage of the principal
balance of the Mortgage Loans that will be prepaid or as to which a default
will have occurred as of any date or as to the overall rate of prepayment,
default or principal payment on the Mortgage Loans.
Pass-Through Rate. The Pass-Through Rates on the
Class F, Class G and Class H Certificates are related to the Weighted Average
Net Mortgage Rate and the Pass-Through Rate on the Class J-2 Certificates is
equal to the Weighted Average Net Mortgage Rate and the Class A-EC Pass-Through
Rate, used to calculate interest distributable on the Class A-EC Certificates
prior to the EC Maturity Date, is derived with reference to the Weighted
Average Net Mortgage Rate. The Weighted Average Net Mortgage Rate will
fluctuate over the lives of the Certificates as a result of scheduled
amortization, voluntary prepayments and liquidations of Mortgage Loans and
modifications to the Mortgage Rate applicable to any Mortgage Loan. If
principal payments, including voluntary and involuntary principal prepayments,
are made on a Mortgage Loan with a
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relatively high Net Mortgage Rate at a rate faster than the rate of principal
payments on the Mortgage Pool as a whole, the Pass-Through Rates applicable to
the Class A-EC, Class F, Class G, Class H and Class J-2 Certificates will be
adversely affected. Accordingly, the yield on each such Class of Certificates
will be sensitive to changes in the outstanding principal balances of the
Mortgage Loans as a result of scheduled amortization, voluntary prepayments and
liquidations of Mortgage Loans. The Pass-Through Rate on each of the Class F,
Class G and Class H Certificates is equal to the greater of (i) the Weighted
Average Net Mortgage Rate and (ii) 7.64%. If the Weighted Average Net Mortgage
Rate were to fall below 7.64%, the Pass-Through Rate on the Class F, Class G
and Class H Certificates would be 7.64%, and there will not be sufficient cash
flow to make all interest payments due on each of such Classes and the Class
J-2 Certificates. Any such interest shortfall would affect the Class J-2
Certificates prior to affecting the Class H Certificates, would affect the
Class H Certificates prior to affecting the Class G Certificates and would
affect the Class G Certificates prior to affecting the Class F Certificates.
See ``DESCRIPTION OF THE CERTIFICATES--Distributions'' herein. For a
description of the interest rates applicable to the Mortgage Loans see
``DESCRIPTION OF THE MORTGAGE POOL--Certain Characteristics of the Mortgage
Pool--Range of Mortgage Rate'' herein.
Delay in Payment of Distributions. Because monthly
distributions will not be made to Certificateholders until, at the earliest,
the 25th day of the month following the month in which interest accrued on the
Certificates, the effective yield to the holders of the Regular Certificates
will be lower than the yield that would otherwise be produced by the applicable
Pass-Through Rate and purchase prices (assuming such prices did not account for
such delay).
Interest Shortfalls. As described under
``DESCRIPTION OF THE CERTIFICATES--Distributions'' herein, if the portion of
the Available Funds distributable in respect of interest on any Class of
Regular Certificates on any Distribution Date is less than the amount of
interest required to be paid to the holders of such Class, the shortfall will
be distributable to holders of such Class of Certificates on subsequent
Distribution Dates, to the extent of Available Funds on such Distribution
Dates. Any such shortfall will not bear interest, however, and will therefore
negatively affect the yield to maturity of such Class of Certificates for so
long as it is outstanding.
WEIGHTED AVERAGE LIFE OF THE REGULAR CERTIFICATES
Weighted average life refers to the average amount of
time that will elapse from the date of determination to the date of
distribution to the investor of each dollar distributed in reduction of
principal balance or notional balance of such security. The weighted average
life of the Regular Certificates will be influenced by, among other things, the
rate at which principal of the Mortgage Loans is paid, which may be in the form
of scheduled amortization, Balloon Payments, prepayments or liquidations.
Prepayments on mortgage loans may be measured by a
prepayment standard or model. The model used in this Prospectus Supplement is
the ``Constant Prepayment Rate'' or ``CPR'' model. The CPR model represents an
assumed constant rate of prepayment each month, expressed as an annual rate,
relative to the then outstanding principal balance of a pool of mortgage loans
for the life of such mortgage loans. CPR of ``0%'' assumes that none of the
Mortgage Loans is prepaid by a borrower before maturity, while CPRs ``0.5%,''
``1.5%,'' ``4.2%,'' ``5.0%'' and ``15.0%'' assume that prepayments on the
relevant Mortgage Loans are made by borrowers at those CPRs. CPR does not
purport to be either an historical description of the prepayment experience of
any pool of mortgage loans or a prediction of the anticipated rate of
prepayment of any mortgage loans, including the Mortgage Loans to be included
in the Trust Fund.
The tables set forth below have been prepared on the
basis of certain assumptions as described below regarding the characteristics
of the Mortgage Loans that are expected to be included in the Mortgage Pool as
described under ``DESCRIPTION OF THE MORTGAGE POOL'' herein and the performance
thereof. The tables assume, among other things, that: (i) as of the date of
issuance of the Regular Certificates, the Mortgage Loans provide for a Monthly
Payment of principal and interest that would fully amortize the remaining
principal balance of such Mortgage Loan using the Monthly Payments in the
amounts set forth in Annex A hereto, commencing on the first day of the month
immediately following the month in which such issuance occurs, with, if such
Mortgage Loan is a Balloon Loan, the Monthly Payments in the amounts set forth
in Annex A hereto and a principal payment in the amount that would reduce the
principal balance of such Balloon Loan to zero on the maturity date set forth
in Annex A; (ii) neither the Mortgage Loan Seller nor Midland will repurchase
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any Mortgage Loan and none of the Servicer, the Depositor or the holders of the
Class LR Certificates exercises its option to purchase Mortgage Loans and
thereby cause a termination of the Trust Fund; (iii) there are no delinquencies
or Realized Losses on the Mortgage Loans; (iv) no Prepayment Premiums are paid
with respect to any Mortgage Loan; (v) payments on the Certificates will be
made on the 25th day of each month, commencing on January 25, 1996
(notwithstanding that any such day is not a Business Day); (vi) there are no
additional ongoing Trust Fund expenses payable out of the Trust Fund other than
the Servicing Fee; and (vii) the Regular Certificates will be purchased on
December 29, 1995.
The actual performance of the Mortgage Loans will
differ from the assumptions used in calculating the tables set forth below,
which are hypothetical in nature and are provided only to give a general sense
of how the principal cash flows might behave under varying prepayment
scenarios. Any difference between such assumptions and the actual performance
of the Mortgage Loans, or actual prepayment or loss experience, will affect
the percentages of initial Certificate Balance outstanding over time and the
weighted average lives of the Classes of Regular Certificates.
Subject to the foregoing discussion and assumptions,
the following tables indicate the weighted average life of each Class of
Regular Certificates, and set forth the percentages of the initial Certificate
Balance or Notional Balance of each such Class of Regular Certificates that
would be outstanding after each of the Distribution Dates shown based on the
assumptions described above and the following additional assumptions for each
of the designated scenarios (the ``Scenarios''). In the case of Scenario 1, it
was assumed that none of the Mortgage Loans prepay prior to their maturity
date. In the case of Scenario 2, it was assumed that all the Mortgage Loans
prepay at a rate equal to 0% CPR for the 48 months beginning on the Due Date in
January, 1996, then at a rate equal to 0.5% CPR for the 12 months beginning on
the Due Date in January, 2000, then at a rate equal to 1.5% CPR for the 24
months beginning on the Due Date in January, 2001, then at a rate equal to 4.2%
CPR for the 24 months beginning on the Due Date in January, 2003, then at a
rate equal to 5.0% CPR for the 24 months beginning on the Due Date in January,
2005 and finally at a rate equal to 15.0% CPR for the period beginning on the
Due Date in January, 2007. In the case of Scenario 3, the prepayment
assumptions set forth in Scenario 2 were assumed and it was further assumed
that the Trust Fund will be terminated pursuant to an auction on the
Distribution Date occurring in December 2006. See ``THE POOLING AND SERVICING
AGREEMENT--Auction'' herein.
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING FOR
EACH DESIGNATED SCENARIO
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS B
--------- --------- -------
SCENARIO SCENARIO SCENARIO
DISTRIBUTION DATE 1 2 3 1 2 3 1 2 3
----------------- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL PERCENTAGE . . . . . . 100 100 100 100 100 100 100 100 100
DECEMBER 1996 . . . . . . . . . 96 96 96 100 100 100 100 100 100
DECEMBER 1997 . . . . . . . . . 91 91 91 100 100 100 100 100 100
DECEMBER 1998 . . . . . . . . . 86 86 86 100 100 100 100 100 100
DECEMBER 1999 . . . . . . . . . 80 80 80 100 100 100 100 100 100
DECEMBER 2000 . . . . . . . . . 67 66 66 100 100 100 100 100 100
DECEMBER 2001 . . . . . . . . . 60 55 55 100 100 100 100 100 100
DECEMBER 2002 . . . . . . . . . 24 16 16 100 100 100 100 100 100
DECEMBER 2003 . . . . . . . . . 11 0 0 100 95 95 100 100 100
DECEMBER 2004 . . . . . . . . . 4 0 0 100 78 78 100 100 100
DECEMBER 2005 . . . . . . . . . 0 0 0 45 18 18 100 100 100
DECEMBER 2006 . . . . . . . . . 0 0 0 24 0 0 100 57 0
DECEMBER 2007 . . . . . . . . . 0 0 0 0 0 0 0 0 0
DECEMBER 2008 . . . . . . . . . 0 0 0 0 0 0 0 0 0
DECEMBER 2009 . . . . . . . . . 0 0 0 0 0 0 0 0 0
DECEMBER 2010 . . . . . . . . . 0 0 0 0 0 0 0 0 0
DECEMBER 2011 . . . . . . . . . 0 0 0 0 0 0 0 0 0
WEIGHTED AVERAGE LIFE(1) 5.8 5.5 5.5 10.5 9.6 9.6 12.0 11.1 10.9
</TABLE>
- -------------------------------------------
(1) The weighted average life of each Class is determined by (i)
multiplying the amount of each distribution in reduction of the
Certificate Balance of such Class by the number of years from the
date of purchase to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the aggregate distributions
in reduction of Certificate Balance referred to in clause (i).
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<PAGE> 79
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING FOR
EACH DESIGNATED SCENARIO
<TABLE>
<CAPTION>
CLASS C CLASS D CLASS E
------- ------- -------
SCENARIO SCENARIO SCENARIO
DISTRIBUTION DATE 1 2 3 1 2 3 1 2 3
----------------- ---- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL PERCENTAGE . . . 100 100 100 100 100 100 100 100 100
DECEMBER 1996 . . . . . . 100 100 100 100 100 100 100 100 100
DECEMBER 1997 . . . . . . 100 100 100 100 100 100 100 100 100
DECEMBER 1998 . . . . . . 100 100 100 100 100 100 100 100 100
DECEMBER 1999 . . . . . . 100 100 100 100 100 100 100 100 100
DECEMBER 2000 . . . . . . 100 100 100 100 100 100 100 100 100
DECEMBER 2001 . . . . . . 100 100 100 100 100 100 100 100 100
DECEMBER 2002 . . . . . . 100 100 100 100 100 100 100 100 100
DECEMBER 2003 . . . . . . 100 100 100 100 100 100 100 100 100
DECEMBER 2004 . . . . . . 100 100 100 100 100 100 100 100 100
DECEMBER 2005 . . . . . . 100 100 100 100 100 100 100 100 100
DECEMBER 2006 . . . . . . 100 100 0 100 100 0 100 100 0
DECEMBER 2007 . . . . . . 50 0 0 100 0 0 100 64 0
DECEMBER 2008 . . . . . . 0 0 0 92 0 0 100 0 0
DECEMBER 2009 . . . . . . 0 0 0 42 0 0 100 0 0
DECEMBER 2010 . . . . . . 0 0 0 0 0 0 0 0 0
DECEMBER 2011 . . . . . . 0 0 0 0 0 0 0 0 0
WEIGHTED AVERAGE LIFE(1) 12.1 11.7 11.0 13.8 11.9 11.0 14.7 12.2 11.0
</TABLE>
- -------------------------------------------
(1) The weighted average life of each Class is determined by (i)
multiplying the amount of each distribution in reduction of the
Certificate Balance of such Class by the number of years from the
date of purchase to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the aggregate distributions
in reduction of Certificate Balance referred to in clause (i).
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<PAGE> 80
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
(OR NOTIONAL BALANCE)
OUTSTANDING FOR
EACH DESIGNATED SCENARIO
<TABLE>
<CAPTION>
CLASS F CLASS G CLASS H CLASS J-1 AND
------- ------- ------- -------------
CLASS J-2
---------
SCENARIO SCENARIO SCENARIO SCENARIO
DISTRIBUTION DATE 1 2 3 1 2 3 1 2 3 1 2 3
----------------- ---- ---- ----- ---- ---- ---- ----- ----- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL PERCENTAGE 100 100 100 100 100 100 100 100 100 100 100 100
DECEMBER 1996 . . . 100 100 100 100 100 100 100 100 100 100 100 100
DECEMBER 1997 . . . 100 100 100 100 100 100 100 100 100 100 100 100
DECEMBER 1998 . . . 100 100 100 100 100 100 100 100 100 100 100 100
DECEMBER 1999 . . . 100 100 100 100 100 100 100 100 100 100 100 100
DECEMBER 2000 . . . 100 100 100 100 100 100 100 100 100 100 100 100
DECEMBER 2001 . . . 100 100 100 100 100 100 100 100 100 100 100 100
DECEMBER 2002 . . . 100 100 100 100 100 100 100 100 100 100 100 100
DECEMBER 2003 . . . 100 100 100 100 100 100 100 100 100 100 100 100
DECEMBER 2004 . . . 100 100 100 100 100 100 100 100 100 100 100 100
DECEMBER 2005 . . . 100 100 100 100 100 100 100 100 100 100 100 100
DECEMBER 2006 . . . 100 100 0 100 100 0 99 99 0 100 100 0
DECEMBER 2007 . . . 100 100 0 100 100 0 90 95 0 100 100 0
DECEMBER 2008 . . . 100 78 0 100 100 0 86 94 0 100 100 0
DECEMBER 2009 . . . 100 0 0 100 76 0 82 93 0 100 100 0
DECEMBER 2010 . . . 0 0 0 0 0 0 31 0 0 100 67 0
DECEMBER 2011 . . . 0 0 0 0 0 0 0 0 0 0 0 0
WEIGHTED AVERAGE
LIFE (1) 14.8 13.2 11.0 14.9 14.3 11.0 14.5 14.6 11.0 15.1 15.0 11.0
</TABLE>
- -------------------------------------------
(1) The weighted average life of each Class is determined by (i)
multiplying the amount of each distribution in reduction of the
Certificate Balance (or Notional Balance) of such Class by the
number of years from the date of purchase to the related
Distribution Date, (ii) adding the results, and (iii) dividing the
sum by the aggregate distributions in reduction of Certificate
Balance (or Notional Balance) referred to in clause (i).
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<PAGE> 81
Based on the assumptions described in the third
paragraph preceding the above tables, (i) the weighted average life of the
Class A-EC Certificates under the assumptions described above as Scenario 1
would be 9.0 years, (ii) the weighted average life of the Class A-EC
Certificates under the assumptions described above as Scenario 2 would be 8.7
years and (iii) the weighted average life of the Class A-EC Certificates under
the assumptions described above as Scenario 3 would be 8.7 years. The weighted
average lives of each such Class set forth above are determined by (a)
multiplying the amount of each distribution which reduces the Class A-EC
Notional Balance by the number of years from the date of purchase to the
related Distribution Date, (b) adding the results and (c) dividing the sum by
the aggregate distributions in reduction of the Notional Balance referred to in
clause (a).
Effect on Subordinate Certificates. The aggregate
amount of distributions on the Subordinate Certificates offered hereby, the
yield to maturity of such Subordinate Certificates, the rate of principal
payments on such Subordinate Certificates and the weighted average life of such
Subordinate Certificates will be affected by the rate and the timing of
delinquencies and defaults on the Mortgage Loans. If a purchaser of a
Subordinate Certificate of any Class calculates its anticipated yield based on
an assumed rate of default and amount of losses on the Mortgage Loans that is
lower than the default rate and amount of losses actually experienced and such
additional losses are allocable to such Class of Certificates, such purchaser's
actual yield to maturity will be lower than that so calculated and could be
negative. The timing of any loss on a liquidated Mortgage Loan will also
affect the actual yield to maturity of the Subordinate Certificates to which a
portion of such loss is allocable, even if the rate of defaults and severity of
losses are consistent with an investor's expectations. In general, the earlier
a loss borne by an investor occurs, the greater is the effect on such
investor's yield to maturity.
The yield to investors in the Subordinate
Certificates will be very sensitive to the timing and magnitude of losses on
the Mortgage Loans due to liquidations following a default, and will also be
very sensitive to delinquencies in payment. MOREOVER, BECAUSE THE SUBORDINATE
CERTIFICATES ARE SUBORDINATED TO THE SENIOR CERTIFICATES, REALIZED LOSSES WILL
BE ALLOCATED FIRST TO THE CLASS J-1 CERTIFICATES, UNTIL THE CERTIFICATE BALANCE
THEREOF IS REDUCED TO ZERO, SECOND TO THE CLASS H CERTIFICATES, UNTIL THE
CERTIFICATE BALANCE THEREOF IS REDUCED TO ZERO, THIRD TO THE CLASS G
CERTIFICATES, UNTIL THE CERTIFICATE BALANCE THEREOF IS REDUCED TO ZERO, FOURTH
TO THE CLASS F CERTIFICATES UNTIL THE CERTIFICATE BALANCE THEREOF IS REDUCED TO
ZERO, FIFTH TO THE CLASS E CERTIFICATES, UNTIL THIS CERTIFICATE BALANCE THEREOF
IS REDUCED TO ZERO, SIXTH TO THE CLASS D CERTIFICATES, UNTIL THE CERTIFICATE
BALANCE THEREOF IS REDUCED TO ZERO, SEVENTH TO THE CLASS C CERTIFICATES, UNTIL
THE CERTIFICATE BALANCE THEREOF IS REDUCED TO ZERO, AND EIGHTH TO THE CLASS B
CERTIFICATES, UNTIL THE CERTIFICATE BALANCE THEREOF IS REDUCED TO ZERO BEFORE
BEING ALLOCATED TO THE CLASS A-1 AND CLASS A-2 CERTIFICATES, PRO-RATA. AS A
RESULT, A LOSS ON ANY ONE OF THE MORTGAGE LOANS COULD RESULT IN A SIGNIFICANT
LOSS, OR IN SOME CASES A COMPLETE LOSS, OF AN INVESTORS'S INVESTMENT IN ANY
CLASS OF THE SUBORDINATE CERTIFICATES. CONSEQUENTLY PROSPECTIVE INVESTORS
SHOULD PERFORM THEIR OWN ANALYSIS OF THE EXPECTED TIMING AND SEVERITY OF
REALIZED LOSSES PRIOR TO INVESTING IN ANY SUBORDINATE CERTIFICATE.
As described under ``THE POOLING AND SERVICING
AGREEMENT--Advances'' herein, (a) the Servicer, the Trustee and the Fiscal
Agent will be entitled to receive interest on unreimbursed Advances at the
Advance Rate and (b) and the Special Servicer shall be entitled to receive
servicing compensation for Specially Serviced Loans and REO Mortgage Loans as
described herein under ``THE POOLING AND SERVICING AGREEMENT--Special
Servicing.'' The Servicer's and the Special Servicer's rights to receive such
payment of interest and compensation are prior to the rights of
Certificateholders to receive distributions on the Certificates and,
consequently, may result in losses being allocated to the Subordinate
Certificates that would not otherwise have resulted absent the accrual of such
interest or such additional compensation.
Even if losses on the Mortgage Loans are not borne by
an investor in any Class, such losses may affect the weighted average life and
yield to maturity of such investor's Certificates.
Regardless of whether losses ultimately result,
delinquencies and defaults on the Mortgage Loans may significantly delay the
receipt of payments by the holder of a Subordinate Certificate, to the extent
that Advances or the subordination of another Class of Certificates does not
fully offset the effects of any such delinquency or default. With respect to
any Distribution Date, P&I Advances will only be made with respect to any
Seriously Delinquent Loan if and to the extent that Available Funds for such
Distribution Date (exclusive of any P&I Advance with respect to any Seriously
Delinquent Loan) are not sufficient to make full distributions in accordance
with the Available Funds Allocation to each Class of Certificates whose
Certificate Balance would not be reduced by Anticipated Losses with respect to
all Seriously Delinquent Loans. Therefore, neither (i) the most subordinate
Class (or Classes) of Certificates outstanding at any time nor (ii) any other
Class of Certificates whose Certificate Balance would be reduced if Realized
Losses occurred in the amount of Anticipated Losses with respect to all
Seriously Delinquent Loans will receive distributions on any Distribution Date
on which one or more Mortgage Loans is a Seriously Delinquent Loan unless
Available Funds for such Distribution Date (exclusive of any P&I Advances with
respect to any Seriously Delinquent
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<PAGE> 82
Loans) exceed the amount necessary to make full distributions in accordance
with the Available Funds Allocation to each Class of Certificates that is
senior to such Class. See ``THE POOLING AND SERVICING AGREEMENT--Advances''
herein.
RESIDUAL CERTIFICATES
As indicated under ``CERTAIN FEDERAL INCOME TAX
CONSEQUENCES'' herein, the Class R and Class LR Certificates are not entitled
to regular distributions. The Class R and Class LR Certificates are not
expected to receive any distributions until after the Class Balances of all
other Classes of Certificates have been reduced to zero and only to the extent
of any Available Funds remaining in the Distribution Account and Collection
Account, respectively, on any Distribution Date. In the case of the Class LR
Certificates, the existence of any funds remaining in the Collection Account
may result from the allocation of Available Funds to the Lower-Tier Regular
Interests as described in the Available Funds Allocation. See ``DESCRIPTION OF
THE CERTIFICATES--Distributions'' herein. No assurance can be given that any
funds will remain in the Collection Account for distribution to the Class LR
Certificates. In the case of the Class R Certificates, no funds are expected
to remain in the Distribution Account for distribution thereto. Therefore, the
Class R and Class LR Certificateholders, REMIC taxable income and the tax
liability thereon will substantially exceed cash distributions to such holders
during certain periods. There can be no assurance as to the amount by which
such taxable income or such tax liability will exceed cash distributions in
respect of the Class R Certificates and Class LR Certificates during any such
period and no representation is made with respect thereto. DUE TO THE SPECIAL
TAX TREATMENT OF RESIDUAL INTERESTS, THE AFTER-TAX RETURN OF THE CLASS R
CERTIFICATES AND CLASS LR CERTIFICATES MAY BE SIGNIFICANTLY LOWER THAN WOULD BE
THE CASE IF THE CLASS R CERTIFICATES AND CLASS LR CERTIFICATES WERE TAXED AS
DEBT INSTRUMENTS, OR MAY BE NEGATIVE.
THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling
and Servicing Agreement to be dated as of December 1, 1995 (the ``Pooling and
Servicing Agreement''), by and among the Depositor, the Servicer, the Special
Servicer, the Trustee and the Fiscal Agent.
The Depositor will provide to a prospective or actual
holder of a Certificate without charge, upon written request, a copy (without
exhibits) of the Pooling and Servicing Agreement. Requests should be addressed
to Prudential Securities Secured Financing Corporation, One New York Plaza, New
York, New York 10292, attention: Peter Riemenschneider or Andy Chao at
telephone number (212) 778-1000.
ASSIGNMENT OF THE MORTGAGE LOANS
On or before the Closing Date, the Depositor will
assign or cause the assignment of the Mortgage Loans without recourse, to the
Trustee for the benefit of the holders of Certificates. On or prior to the
Closing Date, the Depositor will deliver to the Trustee, with a copy to the
Servicer, with respect to each Mortgage Loan (other than the Seaport
Participation) the following set of documents (the ``Trustee Mortgage File''):
(i) the original of the related Note, endorsed by
the Mortgage Loan Seller (or in the case of
the seven Mortgage Loans originated by
ULLICO, by ULLICO) in blank in the following
form: ``Pay to the order of
________________, without recourse'' which
the Trustee or its designee is authorized to
complete and which Note and all endorsements
thereof shall show a complete chain of
endorsement from the Originator to the
Mortgage Loan Seller;
(ii) the related original recorded Mortgage or a
copy thereof certified by the related title
insurance company, public recording office or
closing agent to be in the form in which
executed or submitted for recording, the
related original recorded Assignment of
Mortgage from Midland to the Mortgage Loan
Seller or a copy thereof certified by the
related title insurance company, public
recording office or closing agent to be in
the form in which executed or submitted for
recording and the related original Assignment
of Mortgage executed by the Mortgage Loan
Seller in blank which the Trustee or its
designee is authorized to complete (and but
for the insertion of the name of the assignee
and any related recording information which
is not yet available to the Mortgage Loan
Seller, is in suitable form for recordation
in the jurisdiction in which the related
Mortgaged Property is located); provided,
that with respect to each of the seven
Mortgage Loans originated by ULLICO, there
will be the related original Assignment of
Mortgage executed by ULLICO in blank which
the Trustee or its designee is authorized to
complete (and but for the insertion of the
name of the assignee and any related
recording information which is not yet
available to the Mortgage
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<PAGE> 83
Loan Seller, is in suitable form for
recordation in the jurisdiction in which
the related Mortgaged Property is located);
(iii) if the related security agreement is separate
from the Mortgage, the original security
agreement or a counterpart thereof, and if
the security agreement is not assigned under
the Assignments of Mortgage described in
clause (ii) above, the related original
assignment of such security agreement from
Midland to the Mortgage Loan Seller or a
counterpart thereof and the related original
assignment of such security agreement
executed by the Mortgage Loan Seller in blank
which the Trustee or its designee is
authorized to complete;
(iv) a copy of each Form UCC-1 financing
statement, if any, filed with respect to
personal property constituting a part of the
related Mortgaged Property, together with a
copy of each Form UCC-2 or UCC-3 assignment,
if any, of such financing statement to the
Mortgage Loan Seller from Midland and a copy
of each Form UCC-2 or UCC-3 assignment, if
any, of such financing statement executed by
the Mortgage Loan Seller in blank which the
Trustee or its designee is authorized to
complete (and but for the insertion of the
name of the assignee and any related filing
information which is not yet available to the
Mortgage Loan Seller, is in suitable form for
filing in the filing office in which such
financing statement was filed); provided,
that with respect to each of the seven
Mortgage Loans originated by ULLICO, there
will be a copy of each Form UCC-2 or UCC-3
Assignment, if any, of such financing
statement executed by ULLICO in blank which
the Trustee or its designee is authorized to
complete (and but for the insertion of the
name of assignee and any related filing
information which is not yet available to the
Mortgage Loan Seller, is in suitable form for
filing in the filing office in which such
financing statement was filed);
(v) the related original of the Loan Agreement,
if any, relating to such Mortgage Loan or a
counterpart thereof;
(vi) the related original lender's title insurance
policy (or the original pro forma title
insurance policy), together with any
endorsements thereto;
(vii) if any related Assignment of Leases, Rents
and Profits is separate from the Mortgage,
the original recorded Assignment of Leases,
Rents and Profits or a copy thereof certified
by the related title insurance company,
public recording office, or closing agent to
be in the form in which executed or submitted
for recording, the related original recorded
reassignment of such instrument, if any, from
Midland to the Mortgage Loan Seller or a copy
thereof certified by the related title
insurance company or closing agent to be in
the form in which executed or submitted for
recording and the related original
reassignment of such instrument, if any,
executed by the Mortgage Loan Seller in blank
which the Trustee or its designee is
authorized to complete (and but for the
insertion of the name of the assignee and any
related recording information which is not
yet available to the Mortgage Loan Seller, is
in suitable form for recordation in the
jurisdiction in which the related Mortgaged
Property is located) (any of which
reassignments, however, may be included in a
related Assignment of Mortgage and need not
be a separate instrument);
(viii) copies of the original Environmental Reports
with respect to the Mortgaged Property made
in connection with origination of such
Mortgage Loan;
(ix) if any related assignment of contracts is
separate from the Mortgage, the original
assignment of contracts or a counterpart
thereof, and if the assignment of contracts
is not assigned under the Assignments of
Mortgage described in clause (ii) above, the
related original reassignment of such
instrument from Midland to the Mortgage Loan
Seller or a counterpart thereof and the
related original reassignment of such
instrument executed by the Mortgage Loan
Seller in blank which the Trustee or its
designee is authorized to complete;
(x) with respect to the related Reserve Accounts,
if any, a copy of the original of any
separate agreement with respect thereto
between the related borrower and the
Originator;
(xi) the original letter of credit, if any, with
respect thereto, together with any and all
amendments thereto, including, without
limitation, any amendment which entitles the
Servicer to draw upon such letter of credit
on behalf of the Trustee for the benefit of
the Certificateholders, and the original of
each instrument or other item of personal
property given as security for a Mortgage
Loan possession of which by a secured party
is necessary to a secured party's valid,
perfected, first priority security interest
therein, together with all assignments or
endorsements
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<PAGE> 84
thereof necessary to entitle the Servicer to
enforce a valid, perfected, first priority
security interest therein on behalf of the
Trustee for the benefit of the
Certificateholders;
(xii) with respect to the related Reserve Accounts,
if any, a copy of the UCC-1 financing
statements, if any, submitted for filing with
respect to the Mortgage Loan Seller's
security interest in such Reserve Accounts
and all funds contained therein, together
with a copy of each Form UCC-2 or UCC-3
assignment, if any, of such financing
statement to the Mortgage Loan Seller from
Midland and a copy of each Form UCC-2 or
UCC-3 assignment, if any, of such financing
statement executed by the Mortgage Loan
Seller in blank which the Trustee or its
designee is authorized to complete (and but
for the insertion of the name of the
assignee and any related filing information
which is not yet available to the Mortgage
Loan Seller, is in suitable form for filing
in the filing office in which such financing
statement was filed); provided, that with
respect to any Mortgage Loan originated by
ULLICO, there will be a copy of each Form
UCC-2 or UCC-3 Assignment, if any, of such
financing statement executed by ULLICO in
blank which the Trustee or its designee is
authorized to complete (and but for the
insertion of the name of the assignee and any
related filing information which is not yet
available to the Mortgage Loan Seller, is in
suitable form for filing in the filing office
in which such financing statement was filed);
and
(xiii) copies of any and all amendments,
modifications and supplements to, and waivers
related to, any of the foregoing.
If the Depositor cannot deliver any original or certified recorded document
described above on the Closing Date, the Depositor shall use its best efforts
to deliver (or cause to be delivered) such original or certified recorded
documents within 45 days from the Closing Date (subject to delays attributable
to the failure of the appropriate recording office to return such documents, in
which case the Depositor shall deliver such documents promptly upon receipt
thereof). The Trustee is obligated to review the Mortgage File for each
Mortgage Loan within 45 days after the later of delivery or the Cut-off Date
and report any missing documents or certain types of defects therein to the
Depositor.
On or before the Closing Date, the Depositor will
deliver to the Trustee, with a copy to the Servicer, with respect to the
Seaport Participation, (i) a new participation certificate, issued by the
Seaport Trustee in the name of the Trustee, (ii) a copy of the Seaport
Participation Agreement and (iii) copies of all releases of security interests
relating to the Seaport Participation, such that the Trustee shall hold good
and valid title to the Seaport Participation, free and clear free and clear of
any and all liens, encumbrances, pledges, charges or security interests of any
nature.
The Servicer shall hold all remaining Mortgage Loan
Documents and all other documents related to each Mortgage Loan, including
copies of any Management Agreements, copies of related ground leases, if any,
copies of related appraisals, surveys, environmental reports and similar
documents and any other written agreements relating to each Mortgage Loan
(collectively, the ``Servicer Mortgage File'' and together with the Trustee
Mortgage File, the ``Mortgage File'') in trust for the benefit of the Trustee
on behalf of Certificateholders. The legal ownership of all records and
documents with respect to each Mortgage Loan prepared by or which come into the
possession of the Servicer shall immediately vest in the Trustee, in trust for
the benefit of Certificateholders.
REPRESENTATIONS AND WARRANTIES; REPURCHASE
In the Pooling and Servicing Agreement, the Depositor
will assign certain representations and warranties made by the Mortgage Loan
Seller and Midland in the Mortgage Loan Purchase and Sale Agreement to the
Trustee for the benefit of Certificateholders.
In the Mortgage Loan Purchase and Sale Agreement, the
Mortgage Loan Seller (with respect to each of the Mortgage Loans and the
Seaport Loan) and Midland (with respect only to the Midland Mortgage Loans, the
Acquired Mortgage Loan and the Seaport Loan) will represent and warrant, among
other things, that (subject to certain exceptions specified in the Mortgage
Loan Purchase and Sale Agreement), as of the date of the Mortgage Loan Purchase
and Sale Agreement (unless another date is specified):
(i) Mortgage Loan Schedule. The
information set forth in the Mortgage Loan Schedule is true,
complete and correct in all material respects.
(ii) Payment Current. All payments
required to be made with respect to such Mortgage Loan under the
terms of the related Note or Mortgage (inclusive of any grace or
cure period) up to the Loan Purchase Closing Date have been made.
There is currently no delinquency of any payment due from the
related borrower under such Mortgage Loan in excess of 30 days
beyond the grace or cure period permitted by such Mortgage or Note,
as applicable, and, since the date of the origination of such
Mortgage Loan, there has not been more than one such delinquency.
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(iii) Equity Participation or
Participation Interest. Such Mortgage Loan contains no equity
participation by the Mortgage Loan Seller and, except with respect
to Loan #28 (the Seaport Participation), is a whole loan and not a
participation certificate; neither the related Note nor the related
Mortgage provides for any contingent or additional interest in the
form of participation in the cash flow of the related Mortgaged
Property. The indebtedness evidenced by such Note is not
convertible to an ownership interest in such Mortgaged Property
(other than through foreclosure of such Mortgage) or the related
borrower. The Mortgage Loan Seller has no ownership interest in such
Mortgaged Property or such borrower other than in such Mortgage Loan
which is being sold and assigned by the Mortgage Loan Seller, and
such borrower is not an affiliate of the Mortgage Loan Seller.
(iv) Compliance with Applicable Laws. As
of the date of its origination, such Mortgage Loan (other than the
two Mortgage Loans identified below) either complied with, or was
exempt from, applicable state or federal laws, regulations and other
requirements pertaining to usury, and with respect to each of Loan
#26 and Loan #6 (as to which the related Mortgaged Properties are
located in Tennessee), the stated interest rate of the related Note
complied with applicable state or federal laws, regulations and
other requirements pertaining to usury. To the best of the Mortgage
Loan Seller's and Midland's knowledge, as of the date of origination
of such Mortgage Loan, the Originator complied in all material
respects with the requirements of any and all other federal, state
or local laws applicable to the origination, servicing and
collection of such Mortgage Loan, including, without limitation,
truth-in-lending, real estate settlement procedures, equal credit
opportunity and disclosure laws.
(v) Servicing and Collection Practices.
In connection with the servicing and collection of such Mortgage
Loan, the Originator and Servicer have employed practices which
conform in all material respects to those customarily used by loan
servicers which service commercial mortgage loans for securitization
transactions.
(vi) No Right to Possess or Repurchase
the Mortgage Loan. The Mortgage Loan Seller intends to relinquish
all rights to possess, control and monitor such Mortgage Loan and,
after the Loan Purchase Closing Date, the Mortgage Loan Seller will
have no right to modify or alter the terms of such Mortgage Loan.
After the Loan Purchase Closing Date, the Mortgage Loan Seller will
have no obligation or right to repurchase such Mortgage Loan or
substitute another Mortgage Loan, except as described below in
connection with a breach of a representation or warranty.
(vii) Proceeds Fully Disbursed. The
proceeds of such Mortgage Loan have been fully disbursed, and there
is no requirement for future advances thereunder. All costs, fees
and expenses incurred in connection with the origination and closing
of such Mortgage Loan, including, without limitation, recording
costs and fees, have been paid to the appropriate person or
arrangements have been made for their payment to the appropriate
person on a timely basis by the related borrower or the Originator.
Such borrower is not entitled to any refund of any amounts paid or
due under the related Note or the related Mortgage except for a
refund of a cost, fee or expense related to the origination or
closing of such Mortgage Loan which the Originator was obligated to
pay, and made arrangements to pay, in full on a timely basis and
except for disbursements from, or a refund of, the balance remaining
in an escrow or reserve account held for the Mortgage Loan Seller to
ensure the payment of anticipated repairs or improvements to the
related Mortgaged Property, leasing commissions, future Monthly
Payments and the like when the specific conditions therefor have
been satisfied, and except for a rebate of a financial and lease
reporting fee upon such borrower's furnishing of certain financial
and leasing information on a timely basis during any applicable
12-month period (and provided no event of default occurs during such
period or thereafter prior to the payment of such rebate) as
provided under the terms of the related Mortgage and any other
documents executed in connection with the origination of such
Mortgage Loan (collectively, ``Mortgage Loan Documents'').
(viii) Documents Valid. Each of the
related Note, the related Mortgage and each other written agreement
delivered by or to the Originator in connection therewith is the
legal, valid and binding obligation of the related borrower, the
related guarantor or other party executing such document,
enforceable in accordance with its terms. There is no valid offset,
defense, counterclaim or right of rescission with respect to such
Note, Mortgage or other written agreement, nor will the operation of
any of the terms of such Note or such Mortgage, or the exercise of
any right thereunder, render either such Mortgage or such Note
unenforceable or subject to any valid right of rescission, offset,
counterclaim or defense, including without limitation the defense of
usury, and the Mortgage Loan Seller has no knowledge that any such
right of rescission, offset, counterclaim or defense has been
asserted or is available with respect thereto. Each representation
and warranty of the Mortgage Loan Seller and Midland set forth in
the Mortgage Loan Purchase and Sale Agreement, to the extent related
to the enforceability of any instrument, agreement or other document
or as to offsets, defenses, counterclaims or rights of rescission
related to such enforceability, including, without limitation, the
representations set forth above in this subparagraph (viii), is
qualified to the extent that (A) enforcement may be limited (1) by
bankruptcy, insolvency, reorganization or other similar laws
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affecting the enforcement of creditors' rights generally, (2) by
general principles of equity (regardless of whether such enforcement
is considered in a proceeding in equity or at law) and (3) by any
applicable anti-deficiency law or statute; (B) such instrument,
agreement or other document may contain certain provisions which may
be unenforceable in accordance with their terms, in whole or in
part, but the unenforceability of such provisions will not (i) cause
the related Note or Mortgage to be void, (ii) invalidate the related
borrower's obligation to pay interest at the stated interest rate of
such Note on, and repay the principal of, the related Mortgage Loan
in accordance with the payment terms of such Note, such Mortgage and
other written agreements delivered to the Mortgage Loan Seller in
connection therewith, (iii) invalidate the obligation of any related
guarantor to pay guaranteed obligations with respect to interest at
the stated interest rate of such Note on, and the principal of, such
Mortgage Loan in accordance with the payment terms of such
guarantor's written guaranty, (iv) impair the mortgagee's right to
accelerate and demand payment of the interest at the stated interest
rate of such Note on, and principal of, such Mortgage Loan upon the
occurrence of a legally enforceable default or (v) impair the
mortgagee's right to realize against such Mortgaged Property by
judicial or, if applicable, nonjudicial foreclosure; and (C) with
respect to each of Loan #26 and Loan #6, each representation and
warranty that there is no valid offset, defense, counterclaim or
right of rescission as it relates to a claim of usury is limited to
a representation and warranty that there is no valid offset,
defense, counterclaim or right of rescission solely on the basis
that stated interest rate of the related Note is usurious.
(ix) Assignment of Mortgage: Note
Endorsement. The related Assignment of Mortgage (but for the
insertion of the name of the assignee and any related recording
information which is not yet available to the Mortgage Loan Seller)
is in recordable form and constitutes the Mortgage Loan Seller's
legal, valid and binding assignment to the Depositor of the related
Mortgage and the related Assignment of Leases, Rents and Profits.
The Mortgage Loan Seller's endorsement (or in the case of the seven
Mortgage Loans originated by ULLICO, ULLICO's endorsement) and
delivery of the related Note to the Depositor in accordance with the
terms of the Mortgage Loan Purchase and Sale Agreement constitutes
the Mortgage Loan Seller's legal, valid and binding assignment to
the Depositor of such Note, and together with the Mortgage Loan
Seller's execution and delivery of such Assignment of Mortgage to
the Depositor, legally and validly conveys all right, title and
interest of the Mortgage Loan Seller in such Mortgage Loan to the
Depositor.
(x) First Lien. The related Mortgage is
a valid, subsisting and enforceable first lien on the related
Mortgaged Property (including all buildings and improvements on such
Mortgaged Property and all installations and mechanical, electrical,
plumbing, heating and air conditioning systems located in or annexed
to such buildings, and all additions, alterations and replacements
made at any time prior to the closing date of such Mortgage Loan
with respect to the foregoing, but excluding any related personal
property), which Mortgaged Property is free and clear of all
encumbrances and liens having priority over the first lien of such
Mortgage, except for (A) liens for real estate taxes and special
assessments not yet due and payable, (B) covenants, conditions and
restrictions, rights of way, easements and other matters of public
record as of the date of recording of such Mortgage which do not
materially and adversely (1) affect the value of such Mortgaged
Property as security for such Mortgage Loan or (2) interfere with
the related borrower's ability to make required principal and
interest payments or use of such Mortgaged Property for the intended
purposes therefor, (C) leases and subleases pertaining to such
Mortgaged Property which the Originator, in accordance with the
Originator's customary underwriting and closing requirements and
procedures as in effect at the time of origination, did not require
to be subordinated to the lien of such Mortgage and (D) other
matters to which like properties are commonly subject which do not,
individually or in the aggregate, materially interfere with the
related borrower's ability to make required principal and interest
payments or make use of such Mortgaged Property for the intended
purposes therefor. Any security agreement, chattel mortgage or
equivalent document related to and delivered in connection with such
Mortgage Loan establishes and creates a valid, subsisting and
enforceable lien on and a security interest in the property
described therein, and the Mortgage Loan Seller has full right to
sell and assign the same to the Depositor.
(xi) No Modification, Release or
Satisfaction. Neither the related Mortgage nor the related Note has
been impaired, waived, modified, altered, satisfied, canceled or
subordinated or rescinded, and the related Mortgaged Property has
not been released from the lien of such Mortgage and the related
borrower has not been released from its obligations under such
Mortgage, in whole or in any part, in each such event in a manner
which would materially interfere with the benefits of the security
intended to be provided by such Mortgage. No instrument has been
executed that would effect any such waiver, modification,
alteration, satisfaction, cancellation, subordination, rescission or
release, with the exception of the written instruments (A) which are
a part of the related Mortgage File and (B) which have been recorded
if necessary to protect the interests of the Mortgage Loan Seller.
(xii) No Taxes or Assessments. All taxes
and governmental assessments, or if payable in installments, the
installments thereof, which became due and owing prior to the Loan
Purchase Closing Date in respect of the related Mortgaged Property
(excluding any related personal property) and which, if left
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unpaid, would be, or might become, a lien on such Mortgaged Property
having priority over the related Mortgage, have been paid, or an
escrow of funds in an amount sufficient to cover such taxes and
assessments has been established.
(xiii) Escrow Deposits. All escrow
deposits and other escrow payments required under the related Note,
the related Mortgage Loan Documents to be paid prior to the Loan
Purchase Closing Date have been paid to, and are in the possession,
or under the control, of, or have been applied in accordance with
their intended purposes by, the Mortgage Loan Seller or its agent.
(xiv) No Buydowns or Third Party Advances.
The Mortgage Loan Seller has not, directly or indirectly, advanced
funds, induced or solicited any payment from a person other than the
related borrower, or, to the best of the Mortgage Loan Seller's or
Originator's knowledge, received any payment from a person other
than such borrower, for the payment of any amount required under the
related Note or the related Mortgage, except for interest accruing
from the date of such Note or the date of disbursement of the
proceeds of such Mortgage Loan, whichever is later, to the date
which precedes by 30 days the first due date under such Note. The
related Mortgage Loan Documents contain no provisions pursuant to
which Monthly Payments are (A) paid or partially paid prior to an
event of default thereunder with funds deposited in any separate
account established by the Mortgage Loan Seller, such borrower, or
anyone on behalf of such borrower, except (1) with respect to Loan
#80, Loan #37, Loan #61, Loan #25, Loan #23 and Loan #24 escrow
accounts held by the Mortgage Loan Seller and funded by the deposit
of all rentals paid by the tenants of the related Mortgaged
Properties from which the Mortgage Loan Seller is paid all payments
due and owing under the related Mortgaged Loan Documents, and (2)
with respect to Loan #43, Loan #65, Loan #16 and Loan #3 escrow
accounts held by the Mortgage Loan Seller to ensure the related
borrower's compliance with certain requirements related to future
leases of the related Mortgaged Property, or (B) paid by any source
other than such borrower except (1) provisions pertaining to a
related guarantor's obligations under the terms of such guarantor's
written guaranty and (2) with respect to Loan #37, Loan #18, Loan
#11 (as to which each related borrower has delivered a letter of
credit to ensure satisfactory reletting of certain leased space) and
Loan #3 (as to which the related borrower has delivered a letter of
credit to ensure the satisfactory renewal of certain leases), and
such Mortgage Loan Documents contain no similar provision which may
constitute a ``buydown'' provision. Such Mortgage Loan is not a
graduated payment mortgage loan, except with respect to Loan #15 and
Loan #5, each of which provides for the Monthly Payment to increase
on a specified Due Date prior to maturity.
(xv) No Condemnation or Damages. To the
best of the Mortgage Loan Seller's or Midland's knowledge, no
proceedings for the total or partial condemnation of the related
Mortgaged Property (A) have occurred since the date as of which the
appraisal of such Mortgaged Property contained in the related
Mortgage File was prepared, or (B) are pending or threatened other
than, in each such case, proceedings as to partial condemnation
which (1) are specifically addressed by the appraiser in the
determination of the appraised value thereof in such appraisal (the
``Appraised Value''), or (2) which do not materially and adversely
affect the value of such Mortgaged Property as security, for such
Mortgage Loan. To the best of the Mortgage Loan Seller's and
Midland's knowledge, such Mortgaged Property is being used for the
purpose(s) set forth in the letter executed by the Originator and
related borrower (or an affiliate thereof) setting forth the terms
and conditions upon which the Originator agreed to originate such
Mortgage Loan (the ``Commitment Letter'') and is in good repair and
free of any damage, waste or defective condition that would
materially and adversely affect the value of such Mortgaged Property
as security for such Mortgage Loan or the use for which such
Mortgaged Property was intended at the time of origination of such
Mortgage Loan.
(xvi) No Mechanics' Liens. The related
Mortgaged Property (excluding any related personal property) is free
and clear of any mechanics' and materialmen's liens or liens in the
nature thereof, and no rights are outstanding that, under law, could
give rise to any such liens, any of which liens are or may be prior
to, or equal with, the lien of the related Mortgage, except those
which are insured against by the related lender's title insurance
policy referred to in subparagraph (xxi) below.
(xvii) Title Survey; Improvements. (A) The
related Mortgage File includes an ALTA/ACSM Land Title Survey with
respect to the related Mortgaged Property, or (B) if an ALTA/ACSM
Land Title Survey was not available or as otherwise approved in
writing by the Mortgage Loan Seller or the Originator, such Mortgage
File includes an as-built survey, a survey recertification, a site
plan, a recorded plat or the like with respect to such Mortgaged
Property which satisfied, or the Originator otherwise satisfied, the
requirements of the related title insurance company for deletion of
the standard general exceptions for encroachments, boundary and
other survey matters and for easements not shown by the public
records from the related title insurance policy, except that with
respect to any of the Mortgage Properties located in the State of
Texas, the exception for easements not shown by the public records
could not be deleted, and is customarily accepted by prudent
commercial mortgage lenders in such jurisdiction. Except for
encroachments and similar matters which do not materially and
adversely affect the value of such Mortgaged Property as security
for such
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Mortgage Loan (1) none of the improvements which were included for
the purpose of determining the Appraised Value of such Mortgaged
Property at the time of the origination of such Mortgage Loan lies
outside the boundaries and building restriction lines of such
Mortgaged Property, and (2) no improvements on adjoining properties
materially encroach upon such Mortgaged Property so as to materially
and adversely affect the value of such Mortgaged Property as
security for such Mortgage Loan. To the best of the Mortgage Loan
Seller's and Midland's knowledge (based upon a representation of the
related borrower, zoning letter, legal opinion, zoning endorsement
to the related title insurance policy or other information
acceptable to the Originator at the time of origination of such
Mortgage Loan), no improvements located on or forming a part of such
Mortgaged Property are in violation of any applicable zoning and
building laws or ordinances which violations would materially and
adversely affect the value of such Mortgaged Property as security
for such Mortgage Loan.
(xviii) Mortgage Files. The related
Mortgage File contains the agreements, instruments and documents
described in Section 2.1 of the Pooling and Servicing Agreement.
(xix) Title. The Mortgage Loan Seller is
the sole owner and beneficial holder of such Mortgage Loan, has full
right and authority to sell and assign such Mortgage Loan, is the
sole mortgagee or beneficiary of record under the related Mortgage
(except that until the related Assignment of Mortgage is completed
in favor of the Trustee or its designee and is filed for record,
ULLICO will be the mortgagee or beneficiary of record with respect
to the seven Mortgage Loans originated by ULLICO) and is
transferring such Mortgage Loan to the Depositor free and clear of
any and all liens, encumbrances, participation interests, pledges,
charges or security interests of any nature encumbering such
Mortgage Loan.
(xx) Compliance with Laws. To the best
of the Mortgage Loan Seller's and Midland's knowledge (based upon a
representation or opinion either (1) obtained from the related
borrower at the time of origination of such Mortgage Loan, or (2)
obtained from ULLICO at the time of the purchase of the ULLICO
Mortgage Loans), (A) the related Mortgaged Property complies, in all
material respects, with all laws and regulations pertaining to the
use and occupancy thereof, other than applicable zoning and building
laws and regulations (addressed in subparagraph (xvii) above) and
Environmental Laws (as defined and addressed in subparagraphs (xlii)
and (xliii) below) and all applicable insurance requirements, except
for such non-compliance for which a Reserve Account held for the
Mortgage Loan Seller has been established in an amount sufficient to
pay for the estimated costs to correct such non-compliance, and (B)
such borrower has obtained all inspections, licenses, permits,
authorizations, and certificates necessary for such compliance,
including but not limited to certificates of occupancy. The
Mortgage Loan Seller has not received notification from any
governmental authority that such Mortgaged Property is in material
non-compliance with such laws or regulations, is being used,
operated or occupied unlawfully or has failed to have or obtain such
inspections, licenses or certificates, as the case may be.
(xxi) Title Insurance. The related
Mortgaged Property (excluding any related personal property) is
covered by an ALTA lender's title insurance policy or, if an ALTA
lender's title insurance policy is unavailable, another
state-approved form of lender's title insurance policy issued by an
insurance company in an amount not less than the stated original
principal amount of such Mortgage Loan insuring that the related
Mortgage is a valid first lien on such Mortgaged Property, subject
only to exceptions described in subparagraph (x) above. Such title
insurance policy is in full force and effect, and upon endorsement
and delivery of the related Note to the Depositor and recording of
the related Assignment of Mortgage in favor of the Depositor in the
applicable real estate records, such title insurance policy will
inure to the benefit of the Depositor. Such title policy (A) does
not contain the standard general exceptions for encroachments,
boundary or other survey matters and for easements not shown by the
public records, other than such exceptions as are customarily
accepted by prudent commercial mortgage lenders in the related
jurisdiction, and (B) only contains such exceptions for boundary,
encroachments and survey issues as are customarily accepted by
prudent commercial mortgage lenders. If required by the Originator,
such title policy includes an endorsement with respect to zoning and
permitted uses. Neither the Mortgage Loan Seller nor Midland has
taken, or omitted to take, any action, and, to the best knowledge of
the Mortgage Loan Seller and Midland, no other person has taken, or
omitted to take, any action, that would materially impair the
coverage benefits of any such title insurance policy. Neither the
Mortgage Loan Seller nor the Originator has made any claim under
such title insurance policy. Such title insurance policy does not
include the general exception for intervening liens which appeared
in the commitment for such title insurance.
(xxii) Hazard Insurance. The related
Mortgaged Property is insured by a fire and extended perils
insurance policy, issued by an insurance company which is rated A:V
or better by Best's Key Rating Guide (except with respect to (i)
Loan #38 and Loan #65 wherein such ratings were B++:XV and B++:XV,
respectively, and (ii) Loan #1 and Loan #2, wherein such insurance
was provided collectively by a consortium of 36 insurers, 35 of
which individually satisfy such rating requirement), providing
coverage against loss or damage sustained by reason of fire,
lightning, windstorm, hail, explosion, riot, riot attending a
strike, civil
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commotion, aircraft, vehicles and smoke, and, to the extent required
as of the date of origination of such Mortgage Loan by the
Originator consistent with the Originator's customary closing
requirements, against earthquake and other risks insured against for
which persons operating like properties in the locality of such
Mortgaged Property obtain insurance, in an amount not less than the
lesser of (A) the full replacement cost of all improvements to such
Mortgaged Property, and (B) the outstanding principal balance of
such Mortgage Loan, but in any event in an amount sufficient to
avoid the operation of any co-insurance provisions contained in such
insurance policy. The related Mortgage contains provisions
requiring the related borrower to maintain business interruption
and/or rental continuation coverage, except with respect to Loan #
25, Loan #23 and Loan #24 no such business interruption and/or
rental continuation insurance was required so long as S&P's debt
rating of the respective sole tenants of the related Mortgaged
Properties remains at least BBB or greater. If any material
improvement on such Mortgaged Property is located in an area
identified by the Federal Emergency Management Agency as having
special flood hazards under the National Flood Insurance Act of
1968, as amended, such Mortgaged Property is insured by a flood
insurance policy, issued by an insurance company acceptable to the
Originator, the Mortgage Loan Seller and PSRFC and meeting the
current requirements of the Federal Insurance Administration in an
amount not less than the lesser of (1) the stated principal amount
of the related Note, and (2) the maximum amount of insurance
available under the Flood Disaster Protection Act of 1973, as
amended. Each such insurance policy includes a lender's loss
payable endorsement in favor of the Servicer and requires at least
thirty (30) days' prior written notice to the Servicer of
termination or cancellation, and no such notice has been received by
the Servicer. Such insurance policies are in full force and effect
and will inure to the benefit of the Depositor as of the Loan
Purchase Closing Date. To the Mortgage Loan Seller's and Midland's
best knowledge, all premiums due and payable on such insurance
policies prior to the Loan Purchase Closing Date have been paid and
nothing has occurred that would materially impair the benefits of
coverage thereunder. In connection with the placement of any such
insurance, no commission, fee or other compensation has been or will
be received by the Originator or, to the Mortgage Loan Seller's and
Midland's best knowledge, any officer, director or employee of the
Originator. Such Mortgage obligates the related borrower to
maintain all such insurance or otherwise cause all such insurance to
be maintained, and, at such borrower's failure to do so, authorizes
the mortgagee to maintain such insurance at such borrower's cost and
expense and to seek reimbursement therefor from such borrower.
(xxiii) Loan-to-Value Ratio and Debt Service
Coverage Ratio. The Loan-to-Value Ratio for such Mortgage Loan does
not exceed 75%, except with respect to Loan #39 and Loan #2 wherein
the Loan-to-Value Ratios were 80.36% and 78.2%, respectively. The
Debt Service Coverage Ratio for such Mortgage Loan is not less than
1.20, except with respect to Loan #65, wherein the Debt Service
Coverage Ratio was 1.18.
(xxiv) No Construction or Rehabilitation
Mortgage Loans. Such Mortgage Loan was not made for the purpose of
financing the construction or substantial rehabilitation of the
related Mortgaged Property.
(xxv) UCC Financing Statements. One or
more Uniform Commercial Code financing statements covering all
furniture, fixtures, equipment and other personal property (A) which
are collateral under the related Mortgage or under a security or
similar agreement executed and delivered in connection with such
Mortgage Loan and (B) in which a security interest can be perfected
by the filing of Uniform Commercial Code financing statement(s)
under applicable law have been filed or recorded (or have been sent
for filing or recording) in all Uniform Commercial Code filing
offices necessary to the perfection under applicable law, of a
security interest in such furniture, fixtures, equipment and other
personal property.
(xxvi) Proceeds of Mortgage Loan. The
proceeds of such Mortgage Loan have not been used to satisfy, in
whole or in part, any debt owed or owing by the related borrower to
the Originator or the Mortgage Loan Seller or any affiliate of the
Originator or the Mortgage Loan Seller.
(xxvii) Default, Breach and Acceleration.
There is no monetary default, breach, violation or event of
acceleration existing under the related Mortgage or the related Note
and no event (other than failure to make payments due but not yet
delinquent) which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a monetary
default, breach, violation or event of acceleration. In addition,
to the best knowledge of the Mortgage Loan Seller and Midland, there
is no non-monetary default, breach, violation or event of
acceleration existing under such Mortgage or such Note and no event
which, with the passage of time or with notice and the expiration of
any grace or cure period, would constitute a non-monetary default,
breach, violation or event of acceleration. In accordance with the
terms of the related Mortgage Loan Documents, no person other than
the holder of such Note is permitted to declare an event of default
or accelerate the indebtedness under such Mortgage Loan Documents.
There is no monetary default and, to the best knowledge of the
Mortgage Loan Seller and Midland, there is no non-monetary default
on any other debt obligation of the related borrower owed or owing
to the Mortgage Loan Seller or any affiliate of the Mortgage Loan
Seller.
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(xxviii) Customary Provisions. The related
Note or the related Mortgage contains customary and enforceable
provisions such as to render the rights and remedies of the holder
thereof adequate for the practical realization against the related
Mortgaged Property of the benefits of the security, including but
not limited to judicial or, if applicable, non-judicial foreclosure.
(xxix) Mortgage Loan Terms. Principal
payments under the related Note commence no more than sixty days
after the proceeds of such Mortgage Loan are fully disbursed. The
interest rate on such Note is as set forth in the Mortgage Loan
Schedule. Such Note has a stated maturity, is payable on the first
day of each month (except with respect to (1) Loan #37, which is
payable on the sixth day of each month, and (2) Loan #28 (the
Seaport Participation), as to which the Participation Agreement
provides for remittances on the Business Day immediately preceding
the 25th day of each month) in equal monthly installments of
principal and interest (except with respect to (A) Loan #5 as to
which such monthly installments of principal and interest will
adjust in accordance with the adjustment of the amortization of such
Mortgage Loan as described below and (B) Loan #15, which provides
that the amount of the monthly installments of principal and
interest will increase on a specified date prior to maturity) with
interest calculated and payable in arrears, sufficient to amortize
the original principal balance of such Mortgage Loan fully over an
original term of not more than 25 years (or, with respect to Loan
#5, 35 years, which figure will reduce to 21 years for the remaining
term of such Mortgage Loan commencing three years after the
origination of such Mortgage Loan) from commencement of amortization
and does not provide for any grace period or cure period that
exceeds ten days with respect to the payment of monthly installments
of principal and interest, 30 days with respect to the payment of
other sums due under such Note or the related Mortgage or 60 days
with respect to the compliance with or performance of other terms or
conditions of such Note and Mortgage. The related Mortgage Loan
Documents do not provide for any negative amortization. The related
Mortgage provides for the appointment of a receiver for rents, or
the mortgagee's entry into possession of the related Mortgaged
Property, to collect rents in connection with an event of default or
acceleration. With respect to Loan #15, Loan #40, Loan #3 and Loan
#13, the mortgagee has the option to accelerate the maturity of each
such Mortgage Loan in the absence of an event of default during
either of one or two specific intervals of 12 consecutive months.
(xxx) Inspection. Except with respect to
the Acquired Mortgage Loan, the Originator has inspected the related
Mortgage Property or caused such Mortgaged Property to be inspected
in connection with the origination of such Mortgage Loan within the
six month period prior to the date on which the Mortgage Loan Seller
purchased such Mortgage Loan from the Originator. With respect to
the Acquired Mortgage Loan, Midland caused the related Mortgaged
Property to be inspected within the six month period prior to the
date on which the Mortgage Loan Seller purchased such Mortgage Loan
from Midland.
(xxxi) No Notice of Bankruptcy. The
Mortgage Loan Seller has no knowledge nor has it received any notice
that the related borrower is a debtor in any state or federal
bankruptcy or insolvency proceeding.
(xxxii) Access Routes. At the time of
origination of such Mortgage Loan, (A) the related borrower had
sufficient rights with respect to amenities, ingress and egress and
similar matters identified in the appraisal of the related Mortgaged
Property as being critical to the Appraised Value thereof and (B) to
the best of the Mortgage Loan Seller's and Midland's knowledge, such
Mortgaged Property was receiving adequate services from public or
private water, sewer and other utilities.
(xxxiii) Mortgage Loans Secured by Ground
Lease but Not Fee Interest. With respect to each Mortgage Loan that
is secured in whole or in part by the interest of the related
borrower as lessee under a ground lease of all or a portion of the
related Mortgaged Property, but the related fee interest in the
portion of such Mortgaged Property covered by such ground lease is
not subject or subordinate to the lien of the related Mortgage, the
Mortgage Loan Seller represents and warrants that:
(1) to the Mortgage Loan Seller's
and Midland's best knowledge: (A) such ground lease
is in full force and effect, (B) such ground lease or
a memorandum thereof has been recorded, (C) such
ground lease does not prohibit the interest of the
related lessee thereunder from being encumbered by
the related Mortgage, or a separate written agreement
permitting such encumbrance has been obtained, and
(D) there have been no material changes in the terms
of such ground lease except as set forth in written
instruments which are part of the related Mortgage
File;
(2) except as may be indicated in
the related title insurance policy, the related
lessee's leasehold interest in the portion of the
related Mortgaged Property covered by such
ground lease is not subject to any liens or
encumbrances superior to, or of equal priority
with, the related Mortgage;
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(3) the related lessee's interest in
such Ground Lease may be transferred to the Depositor
and its successors and assigns through foreclosure of
the related Mortgage or conveyance in lieu of
foreclosure and, thereafter, may be transferred to
another person by the mortgagee and its successors
and assigns, upon notice to, but without the consent
of, the related lessor (or, if any such consent is
required, either (A) it has been obtained prior to
the Loan Purchase Closing Date or (B) it is not to be
unreasonably withheld) provided such ground lease has
not been terminated and all amounts owed thereunder
have been paid;
(4) the related lessor is required to
give notice of any default under such ground lease by
the related lessee to the Mortgage Loan Seller either
under the terms of such ground lease (the related
lessor having received notice of the related
Mortgage) or under the terms of a separate written
agreement;
(5) the Mortgage Loan Seller is
entitled, under the terms of such ground lease or a
separate written agreement, to receive notice of any
default by the related lessee under such ground
lease, and after any such notice is entitled to the
time provided to the related lessee under such ground
lease to cure such default;
(6) the currently effective term of
such ground lease (excluding any extension or renewal
which is not binding on the lessor thereunder)
extends not less than ten years beyond the maturity
date of the related Mortgage Loan;
(7) such ground lease does not impose
any restrictions on subletting which the Mortgage
Loan Seller considered to be commercially
unreasonable at the time of origination of such
Mortgage Loan; and
(8) the Mortgage Loan Seller has not
received any notice that (A) the related lessor under
such ground lease is asserting a default by the
related lessee or an event of default thereunder or
(B) any event has occurred which, with the passage of
time, the giving of notice, or both (other than
rental or other payments being due, but not yet
delinquent), would result in a default or an event of
default under the terms of such ground lease.
(xxxiv) Mortgage Loans Secured by Both
Ground Lease and Fee Interest. With respect to each Mortgage Loan
that is secured in whole or in part by the interest of the related
borrower as the lessee under a ground lease of all or a portion of
the related Mortgaged Property, and as to which the related fee
interest in the portion of such Mortgaged Property covered by such
ground lease (the ``Fee Interest'') is subject or subordinate to the
lien of the related Mortgage, the Mortgage Loan Seller represents
and warrants that (A) such fact is set forth in the Mortgage Loan
Schedule and (B):
(1) such Fee Interest is subject or
subordinated of record to such Mortgage; and such
Mortgage does not by its terms provide that it will
be subordinated to the lien of any other mortgage or
encumbrance upon such Fee Interest; and
(2) except as disclosed in writing
in the related Mortgage File and as approved by the
Mortgage Loan Seller in writing in connection with
its purchase of such Mortgage Loan from the
Originator, upon occurrence of a default under the
terms of such Mortgage by the related borrower, any
right of the related lessor to cure such default
(granted to such lessor under any agreement binding
upon the Mortgage Loan Seller) would entitle such
lessor, prior to acceleration of the maturity of such
Mortgage Loan and the commencement of foreclosure of
such Mortgage, to be given notice of such default and
(a) no more than 30 days after such notice to cure
any default in the payment of principal or interest
or other monetary default under such Mortgage, and
(b) no more than 60 days after such notice to cure
any other default or, alternatively, to commence
proceedings to recover possession of such Mortgaged
Property plus a reasonable opportunity to cure such
default after such lessor's recovery of possession if
such lessor pursues such proceedings in good faith
and with due diligence.
(xxxv) Deed of Trust. With respect
to any related Mortgage that is a deed of trust or trust deed, a
trustee, duly qualified under applicable law to serve as such, has
either been properly designated and currently so serves or may be
substituted in accordance with applicable law. Except in connection
with a trustee's sale after default by the related borrower or in
connection with the release of the related Mortgaged Property
following the payment of such Mortgage Loan in full, no fees or
expenses are payable by the Mortgage Loan Seller, the Servicer or
the Depositor to such trustee.
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(xxxvi) Appraisal. The related Mortgage File
contains an appraisal of the related Mortgaged Property by an
appraiser, who, to the best knowledge of the Mortgage Loan Seller
and Midland, had no interest, direct or indirect, in such Mortgaged
Property or in any loan made on the security thereof; whose
compensation, under the terms of the appraiser's engagement, to the
best knowledge of the Mortgage Loan Seller and Midland, was not
(directly or indirectly) based upon the approval or disapproval of
such Mortgage Loan (other than a reduction of such compensation due
to an early termination of the engagement); and who (A) was MAI
certified or (B) was state-licensed or state-certified if required
by applicable law and was a member of, and had a professional
designation from, a nationally recognized appraisal organization
other than MAI. To the best knowledge of the Mortgage Loan Seller
and Midland, such appraisal satisfied Midland's customary
underwriting and closing requirements and procedures. The market
value used by the Mortgage Loan Seller in calculating the
Loan-to-Value Ratio of such Mortgage Loan was not greater than the
Appraised Value as set forth in such appraisal.
(xxxvii) Type of Mortgaged Property.
The related Mortgaged Property consists of an estate in fee simple
or leasehold estate in real property and improvements thereon as set
forth in the Mortgage Loan Schedule. Such Mortgaged Property is
improved as a commercial Mortgaged Property or a multifamily
Mortgaged Property as set forth on the Mortgage Loan Schedule.
(xxxviii) Mortgage Acceleration
Provisions. The related Mortgage contains a provision for the
acceleration of the payment of the unpaid principal balance of such
Mortgage Loan in the event that (A) the related Mortgaged Property
is sold or transferred without the prior written consent of the
mortgagee thereunder, except (1) with respect to Loan #83, Loan #57
and Loan #13 (each of which permits the related borrower to obtain a
release of portions of the related Mortgaged Property under the
limited circumstances set forth in the related Mortgage, including
the payment of a specified amount to be applied against the
outstanding principal balance of such Mortgage Loan and the
applicable prepayment consideration), (2) with respect to Loan #42
and Loan #11 (each of which permits the related borrower to obtain a
release of a portion of such Mortgaged Property under the limited
circumstances set forth in the related Mortgage without any required
payments or prepayment consideration), and (3) with respect to Loan
#60 (which permits the related borrower to obtain a release of a
portion of such Mortgaged Property under the limited circumstances
set forth in the related Mortgage, including the payment of a
specified amount to be applied against the outstanding principal
balance of the related Mortgage Loan, but without any prepayment
consideration), or (B) the related borrower encumbers the related
Mortgaged Property without the consent of the mortgagee thereunder,
except (1) with respect to Loan #61, Loan #25, Loan #23 and Loan #24
(each of which permits the sole tenant of the related Mortgaged
Property to encumber its leasehold interest with a leasehold
mortgage), (2) with respect to Loan #70, Loan #26, Loan #5, Loan #34
and Loan #11 (each of which permits secondary financing under the
limited circumstances set forth in the related Mortgage), and (3)
with respect to Loan #33 and #18 (each of which permits secondary
financing in connection with a wrap-around mortgage under the
limited circumstances set forth in the related Mortgage).
(xxxix) No Additional Collateral. The
related Note is not, and has not been, secured by any collateral
except the lien of the related Mortgage and the security interest of
any related security documents assigned pursuant to the related
Assignment of Mortgage, except (A) that each of the Notes applicable
to Loan #9 and Loan #22 is secured by all of the liens and security
interests obtained by the Mortgage Loan Seller in connection with
both such Mortgage Loans, (B) that each of the Notes applicable to
Loan #31 and Loan #53 is secured by all of the liens and security
interests obtained by the Mortgage Loan Seller in connection with
both such Mortgage Loans, (C) that each of the Notes applicable to
Loan #19 and Loan #56 is secured by all of the liens and security
interests obtained by the Mortgage Loan Seller in connection with
both such Mortgage Loans, (D) that each of the Notes applicable to
Loan #7, Loan #14 and Loan #12 is secured by all of the liens and
security interests obtained by the Mortgage Loan Seller in
connection with all three such Mortgage Loans, and (E) that each of
the Notes applicable to Loan #1 and Loan #2 is secured by all of the
liens and security interests obtained by the Mortgage Loan Seller in
connection with both such Mortgage Loans. Such Mortgage was not
given as collateral or security for the performance of obligations
of any person other than the related borrower, except (1) with
respect to the Mortgage Loans described in items (A) through (E)
above, and (2) with respect to Loan #24 wherein the related Mortgage
also secures the payment of a guaranty given by the related borrower
in connection with Loan #25.
(xl) Assignment of Leases, Rents and
Profits. Unless the related Mortgaged Property is occupied by the
related borrower, the Mortgage Loan Documents related to such
Mortgage Loan contain the provisions of an Assignment of Leases,
Rents and Profits or such borrower has delivered a separate
Assignment of Leases, Rents and Profits. Any related Assignment of
Leases, Rents and Profits incorporated within the related Mortgage
or set forth in a separate Mortgage Loan Document creates a valid
first priority assignment of, or security interest in, the right to
receive all payments due under the related leases, if any, subject
to the effect of bankruptcy, insolvency, reorganization,
receivership, moratorium or other laws relating to or affecting the
rights of creditors generally and general principles of equity
(regardless of whether considered in a
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proceeding in equity or at law); and no person other than the
related borrower owns any interest in the right to receive any
payments due under such leases that is superior to or of equal
priority with the mortgagee's interest therein.
(xli) REMIC. (A) Such Mortgage Loan is
directly secured by a mortgage on a real property, and (B) either
(1) substantially all of the proceeds of such Mortgage Loan were
used to acquire or improve or protect an interest in real property
that, at origination, was the only security for such Mortgage Loan,
or (2) if such Mortgage Loan has not been modified, other than
following a default, at origination, or, if such Mortgage Loan has
been ``substantially modified'' within the meaning of Section 1001
of the Code, on the date of such modification (unless such
modification may be disregarded under Treas. Reg. Sec.
1.860G-2(b)(3)), the fair market value of such real property was at
least equal to 80% of the principal amount of such Mortgage Loan at
origination or modification, whichever is applicable.
(xlii) Environmental Assessment. (A) In
connection with the origination of such Mortgage Loan, a Phase I
environmental assessment and report (an ``Environmental Report'')
and, if recommended by the Phase I Environmental Report, a Phase II
Environmental Report with respect to the related Mortgaged Property
were obtained from an independent environmental engineer or
consultant; and (B) such Environmental Report(s) did not indicate
the existence of conditions or circumstances respecting such
Mortgaged Property that would (1) constitute or result in a material
violation of any applicable Environmental Law, (2) impose any
material constraint on the operation of such Mortgaged Property or
require material change in the use thereof or (3) require clean-up,
remedial action or other response with respect to Hazardous
Materials on or affecting such Mortgaged Property under any
applicable Environmental Law, with the exception of conditions or
circumstances (a) which such Environmental Report(s) indicated could
be cleaned up, remediated or brought into compliance with applicable
Environmental Law by the taking of certain actions, and (b) either
(i) for which a hold-back or other escrow of funds not less than the
costs of taking such clean-up, remediation or compliance actions as
estimated in such Environmental Report(s) has been created to be
held by the Servicer or an escrow agent until such clean-up,
remediation or compliance actions have been taken, or (ii) for which
an environmental insurance policy in an amount satisfactory to the
Originator has been obtained by the related borrower or an indemnity
for such costs has been obtained from a potentially culpable party,
or (iii) such clean up, remediation or compliance actions in
compliance with applicable Environmental Law have been completed
prior to the closing of such Mortgage Loan. For purposes of this
Agreement, the term ``Hazardous Materials'' shall include, without
limitation, gasoline, petroleum products, explosives, radioactive
materials, polychlorinated biphenyls or related or similar
materials, asbestos or any material containing asbestos, and any
other substance or material as may be defined as a hazardous or
toxic substance under any applicable Environmental Law; and the term
``Environmental Law'' shall mean any environmental law, ordinance,
rule, regulation or order of a federal, state or local governmental
authority, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Section Section 9601 et seq.) (``CERCLA''), the
Hazardous Material Transportation Act, as amended (49 U.S.C. Section
Section 1801 et seq.), the Resource Conservation and Recovery Act,
as amended (42 U.S.C. Section Section 6901 et seq.), the Federal
Water Pollution Control Act, as amended (33 U.S.C. Section Section
1251 et seq.), the Clean Air Act, as amended (42 U.S.C. Section
Section 7401 et seq.) and the regulations promulgated pursuant
thereto. Neither Midland nor the Mortgage Loan Seller has taken any
action which would cause either such Mortgaged Property or the Trust
Fund under the Pooling and Servicing Agreement to become subject to
liability under CERCLA.
(xliii) Notice of Environmental Problem.
Other than with respect to any conditions identified in the Phase I
and/or Phase II Environmental Reports referred to in paragraph
(xlii) above, none of the Mortgage Loan Seller, the Originator or
the Servicer (A) has received actual notice from any federal, state
or other governmental authority of (1) any failure of the related
Mortgaged Property to comply with any applicable Environmental Laws
or (2) any known or threatened release of Hazardous Materials on or
from such Mortgaged Property in violation of Environmental Laws; or
(B) has received actual notice from the related borrower that (1)
such borrower has received any such notice from any such
governmental authority, (2) such Mortgaged Property fails to comply
with Environmental Laws, or (3) has received actual notice that
there is any known or threatened release of Hazardous Materials on
or from such Mortgaged Property in violation of Environmental Laws;
or (C) has any actual knowledge that (1) the related Mortgaged
Property fails to materially or significantly comply with any
applicable Environmental Law or (2) there has been any known or
threatened material or significant release of Hazardous Materials on
or from such Mortgaged Property in violation of any applicable
Environmental Law.
(xliv) No Untrue Information. No
statement, report, or other document furnished by or on behalf of
the Mortgage Loan Seller, Midland or any affiliate thereof in
writing (including writings in electronic form) pursuant to the
Mortgage Loan Purchase and Sale Agreement relating to such Mortgage
Loan contains any untrue statement by the Mortgage Loan Seller,
Midland or any affiliate thereof of any material fact or an omission
by the Mortgage Loan Seller, Midland or any affiliate thereof of a
material fact necessary to make the statements contained therein not
misleading. Based upon its review of its files and such inquiry
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as is customary by a prudent commercial mortgage lender, each of the
Mortgage Loan Seller and Midland does not know or have reason to
know that any such statement, report, or other document furnished by
or on behalf of the Mortgage Loan Seller, Midland or any affiliate
thereof in writing (including writings in electronic form) pursuant
to the Mortgage Loan Purchase and Sale Agreement relating to such
Mortgage Loan contains any untrue statement by any other person of
any material fact or an omission of a material fact necessary to
make the statements contained therein not misleading.
(xlv) Asset Concentration. No such
Mortgage Loan and no group of Mortgage Loans made to any borrowers
that are affiliates accounted for more than 7.4% of the aggregate of
the Principal Balances of all Mortgage Loans as of the Cut-off Date.
(xlvi) Due Qualification. Each holder of
the related Mortgage was, at all times that it was such holder, duly
organized, validly existing and in good standing under the laws of
its state of establishment or incorporation, as applicable, and was
duly qualified to transact business as a foreign limited
partnership, corporation or other entity, as applicable, and in good
standing in the state in which the related Mortgaged Property is
located to the extent necessary to ensure the enforceability of the
lien of such Mortgage on such Mortgaged Property.
(xlvii) Recourse. The related Mortgage Loan
Documents contain standard provisions providing for recourse against
the related borrower for damages sustained in connection with the
borrower's fraud, intentional misrepresentation or misappropriation
of any tenant security deposits or rent. The related Mortgage Loan
Documents contain provisions pursuant to which the related Borrower
has agreed to indemnify the mortgagee for damages resulting from
violations of Environmental Laws, except with respect to Loan #13
and Loan #51, in which such indemnity obligation is a non-recourse
obligation and is therefore limited to the related borrower's
interest in the related Mortgaged Property.
(xlviii) Underwriting and Origination
Policies and Procedures. The underwriting and closing policies and
procedures utilized by Midland with respect to each Midland Mortgage
Loan conformed, in all material respects, to Midland's customary
underwriting and closing policies and procedures in effect at the
time of the underwriting and origination of such Midland Mortgage
Loan, with such exceptions thereto as Midland believed to be
customarily acceptable to reasonable and prudent commercial mortgage
lenders.
(xlix) Leases. With respect to each Midland
Mortgage Loan: (1) prior to the origination of such Midland Mortgage
Loan, Midland obtained tenant estoppel certificates from all tenants
whose leases covered more than 10% of the net leasable area of the
related Mortgaged Property, and based upon such tenant estoppel
certificates, no defaults with respect to any such lease existed as
of the date of the related tenant estoppel certificate; and (2)
neither the Mortgage Loan Seller nor Midland has received any notice
of the existence of any such default under any such leases, or of
the existence of any condition, which, but for the passage of time
or the giving of notice, or both, would result in such a default
under the terms of such lease.
(l) Legal Opinions. The Mortgage File for
each Midland Mortgage Loan contains an opinion from counsel to the
related borrower which conforms in all material respects to the form
of opinion required by Midland in connection with the origination of
the Midland Mortgage Loans, containing only those modifications
which Midland believed to be customarily accepted by a reasonable
and prudent commercial mortgage lender to conform such opinion to
local laws and customs.
The Pooling and Servicing Agreement requires that the
Custodian, the Servicer, the Special Servicer or the Trustee notify the
Mortgage Loan Seller or Midland upon its becoming aware of any breach of
certain representations or warranties of the Mortgage Loan Seller or Midland in
the Mortgage Loan Purchase and Sale Agreement, or that any document required to
be included in the Mortgage File does not conform to the requirements of
Section 2.1 of the Pooling and Servicing Agreement. The Mortgage Loan Purchase
and Sale Agreement provides that, with respect to any such Mortgage Loan,
within 85 days after notice of such breach from the Custodian, the Servicer,
the Special Servicer or the Trustee, the Mortgage Loan Seller shall either (a)
repurchase such Mortgage Loan at its outstanding principal balance, plus
accrued interest from the Due Date as to which interest was last paid or was
advanced up to the Due Date in the month following the month in which such
repurchase occurs, the amount of any unreimbursed Advances, together with
interest thereon at the Advance Rate, relating to such Mortgage Loan, the
amount of any unpaid servicing compensation relating to such Mortgage Loan and
the amount of any expenses reasonably incurred by the Servicer, the Special
Servicer or the Trustee in respect of such repurchase obligation (such price,
the ``Repurchase Price'' or (b) promptly cure such breach in all material
respects, provided, however, if such defect or breach cannot be cured within
such 85 day period, so long as the Mortgage Loan Seller has commenced and is
diligently proceeding with the cure of such breach, such 85 day period shall be
extended for an additional 90 days; provided, further, that no such extension
shall be applicable unless the Mortgage Loan Seller delivers to the Depositor
(or its successor in interest) an officer's certificate (i) describing the
measures being taken to cure such breach, and (ii) stating that the Mortgage
Loan Seller believes such breach will be cured within such 90 days. Without
limiting the
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generality of the provisions described above, if a Mortgage Loan fails to
constitute a ``qualified mortgage'' within the meaning of the REMIC provisions
of the Code by reason of the breach of a representation, warranty or covenant
or by reason of missing or defective documentation, then no extension of the 85
day period in the preceding sentence shall apply. In the event the Mortgage
Loan Seller fails to cure or repurchase any Midland Mortgage Loan or the
Acquired Mortgage Loan which it is obligated to cure or repurchase because of a
breach of a representation or warranty which was also made by Midland in the
Mortgage Loan Purchase and Sale Agreement or because such Mortgage Loan fails
to constitute a ``qualified mortgage'' within the meaning of the REMIC
provisions of the Code by reason of a breach of such representation or warranty
within the applicable period described in the preceding two sentences, Midland
shall cure or repurchase such Mortgage Loan at the Repurchase Price within two
Business Days after the expiration of such applicable period. Notwithstanding
the foregoing, neither the Mortgage Loan Seller nor Midland shall have any
obligation to cure or repurchase the Seaport Participation at any time after
the Seaport Loan has been repurchased pursuant to a certain Mortgage Loan
Purchase and Sale Agreement dated July 26, 1995 among the Depositor, the
Mortgage Loan Seller and Midland.
The obligations of the Mortgage Loan Seller or
Midland, as applicable, to repurchase or cure constitute the sole remedies
available to holders of Certificates or the Trustee for a breach of a
representation or warranty by Mortgage Loan Seller or Midland. Neither the
Mortgage Loan Seller nor Midland nor the Depositor will be obligated to
purchase a Mortgage Loan if any of them defaults on its obligation to
repurchase or cure, except that, as described in the preceding paragraph,
Midland will be obligated to repurchase or cure under the Mortgage Loan
Purchase and Sale Agreement upon the failure of the Mortgage Loan Seller to do
so, and no assurance can be given that the Mortgage Loan Seller, Midland, or
the Depositor, as the case may be, will fulfill their respective obligations.
If such obligation is not met, as to a Mortgage Loan that is not a ``qualified
mortgage,'' the Upper-Tier REMIC and Lower-Tier REMIC may be disqualified. The
Servicer will also have no obligation to purchase a Mortgage Loan if the
Mortgage Loan Seller or Midland (unless Midland is the Servicer) fails to
fulfill its obligation to cure or repurchase.
SERVICING OF THE MORTGAGE LOANS; COLLECTION OF PAYMENTS
The Pooling and Servicing Agreement requires the
Servicer and the Special Servicer to service and administer the Mortgage Loans
(or in the case of the Special Servicer, the Specially Serviced Mortgage Loans
and REO Mortgage Loans) on behalf of the Trust Fund solely in the best
interests of and for the benefit of all of the Certificateholders and the
Trustee in accordance with the terms of the Pooling and Servicing Agreement and
the Mortgage Loans. In furtherance of and to the extent consistent with the
foregoing, except to the extent that the Pooling and Servicing Agreement
provides for a contrary specific course of action, each of the Servicer and the
Special Servicer are required to service and administer the Mortgage Loans in
the same manner as it services and administers similar mortgage assets in other
third-party portfolios, giving due consideration to customary and usual
standards of practice of prudent institutional commercial mortgage loan
servicers used with respect to loans comparable to the Mortgage Loans, and with
a view to the maximization of timely and complete recovery of principal and
interest on the Mortgage Loans but without regard to (i) any other relationship
that the Servicer, the Special Servicer, any sub-servicer or any affiliate of
the Servicer, the Special Servicer or any sub-servicer, may have with the
borrowers or any affiliate of such borrowers; (ii) the ownership of any
Certificate by the Servicer, the Special Servicer or any affiliate of either;
(iii) the Servicer's, the Trustee's or the Fiscal Agent's obligations, as
applicable, to make Advances or to incur servicing expenses with respect to the
Mortgage Loans; (iv) the Servicer's, the Special Servicer's or any
sub-servicer's right to receive compensation for its services under the Pooling
and Servicing Agreement or with respect to any particular transaction; or (v)
the ownership, servicing or management for others, by the Servicer, the Special
Servicer or any sub-servicer of any other mortgage loans or property. Each of
the Servicer and the Special Servicer is permitted, at its own expense, to
employ sub-servicers, agents or attorneys in performing any of its obligations
under the Pooling and Servicing Agreement, but will not thereby be relieved of
any such obligation, and will be responsible for the acts and omissions of any
such sub-servicers, agents or attorneys. The Pooling and Servicing Agreement
provides, however, that neither the Servicer nor the Special Servicer, nor any
of their directors, officers, general partners, employees or agents, shall have
any liability to the Trust Fund or the Certificateholders for taking any action
or refraining from taking an action in good faith, or for errors in judgment.
The foregoing provision would not protect the Servicer, the Special Servicer or
such person for the breach of any of the Servicer's or Special Servicer's
respective representations or warranties in the Pooling and Servicing
Agreement, any liability by reason of willful misfeasance, bad faith, fraud, or
negligence or against any specific liability imposed on the Servicer or the
Special Servicer for a breach of the servicing standards set forth in the
Pooling and Servicing Agreement in the performance of its duties or by reason
of its reckless disregard of obligations or duties under the Pooling and
Servicing Agreement.
The Pooling and Servicing Agreement requires the
Servicer and the Special Servicer to make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and
to the extent such procedures shall be consistent with the Pooling and
Servicing Agreement, to follow collection procedures as it would follow with
respect to mortgage loans comparable to the Mortgage Loans and held for any
other third-party account. Consistent with the above, the Servicer or the
Special Servicer, as applicable, may, in its discretion, waive any late payment
charge or penalty fee in connection with any delinquent Monthly Payment or
Balloon Payment with respect to any Mortgage Loan.
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With respect to each Mortgage Loan that provides for
prepayment at the option of the mortgagee, the Servicer, or the Special
Servicer, as applicable, shall exercise such option at the earliest possible
date as provided in the related Note and Mortgage Loan Documents.
ADVANCES
Subject to the limitations described below, the
Servicer will be obligated to advance (each such amount, a ``P&I Advance''), on
the Business Day preceding each Distribution Date (the ``Remittance Date''), an
amount equal to the total or any portion of the Monthly Payment on a Mortgage
Loan that was delinquent as of the close of business on the Business Day
preceding such Remittance Date, or, in the event of a default in the payment of
a Balloon Payment, the Assumed Scheduled Payment with respect to the related
Balloon Loan unless the Servicer determines that any such advance would be a
nonrecoverable Advance and delivers to the Trustee an Officer's Certificate and
accompanying documentation related to a determination of nonrecoverability as
required by the Pooling and Servicing Agreement. With respect to any
Distribution Date and any Seriously Delinquent Loan, P&I Advances will only be
made if and to the extent that Available Funds for such Distribution Date
(exclusive of any P&I Advance with respect to any Seriously Delinquent Loan)
are not sufficient to make full distributions in accordance with the Available
Funds Allocation to each Class of Certificates whose Certificate Balance would
not be reduced by the Anticipated Loss with respect to all Seriously Delinquent
Loans. A ``Seriously Delinquent Loan'' is any Mortgage Loan that (i) is 90
days or more delinquent (without regard to any grace period) or (ii) was 90
days or more delinquent (without regard to any grace period) and as to which
the related borrower has not made, since the most recent date on which such
Mortgage Loan was so delinquent, 24 consecutive Monthly Payments. On each
Remittance Date the Servicer is obligated to determine the excess, if any, of
(x) an amount equal to the sum of the following amounts with respect to such
Seriously Delinquent Loan: (i) the outstanding principal balance thereof that
is due and payable; (ii) the interest portion of any unreimbursed P&I Advances
with respect thereto; (iii) any unreimbursed Property Advances with respect
thereto; and (iv) any currently payable or delinquent property taxes with
respect thereto over (y) the appraised value of each Seriously Delinquent Loan
(based on an appraisal obtained upon such Mortgage Loan becoming 90 days
delinquent or as otherwise required pursuant to the Pooling and Servicing
Agreement) (the aggregate of such amounts for all Seriously Delinquent Loans,
the ``Anticipated Loss.'' Therefore, neither (i) the most subordinate Class
(or Classes) of Certificates outstanding at any time nor (ii) any other Class
of Certificates whose Certificate Balance would be reduced if Realized Losses
occurred in the amount of the Anticipated Loss with respect to all Seriously
Delinquent Loans will receive distributions on any Distribution Date on which
one or more Mortgage Loans is a Seriously Delinquent Loan unless Available
Funds for such Distribution Date (exclusive of any P&I Advances with respect to
any Seriously Delinquent Loans) exceed the amount necessary to make full
distributions in accordance with the Available Funds Allocation to each Class
of Certificates that is senior to such Class. In the event that more than one
Mortgage Loan is a Seriously Delinquent Loan, any such P&I Advances shall be
designated by the Servicer to have been made, first, with respect to Seriously
Delinquent Loans (excluding any REO Mortgage Loans) as to which the related
borrower is delinquent only in the payment of Monthly Payments; second, with
respect to Seriously Delinquent Loans (excluding any REO Mortgage Loans) as to
which the related Borrower is delinquent in the payment of a Balloon Payment;
and third, with respect to Seriously Delinquent Loans that are REO Mortgage
Loans; provided however, that any such designation shall be made first to those
Seriously Delinquent Loans in respect of which the Servicer reasonably
determines that such P&I Advance is most likely to be recoverable.
In addition to P&I Advances, the Servicer will also
be obligated (subject to the limitations described herein) to make cash
advances (``Property Advances,'' and together with P&I Advances, ``Advances'')
to pay delinquent real estate taxes, assessments and hazard insurance premiums
and to cover other similar costs and expenses necessary to protect and preserve
the security of the related Mortgage. The Servicer will not, however, be
obligated to advance from its own funds any amounts required to cure any
failure of any Mortgaged Property to comply with the Americans with
Disabilities Act of 1990, and all rules and regulations promulgated pursuant
thereto, or any applicable Environmental Law, or to contain, clean up or remedy
any environmental condition present at any Mortgaged Property.
If the Servicer fails to fulfill its obligation to
make any required Advance, the Trustee, acting in accordance with the servicing
standard, will be required to make the Advance subject to its determination of
recoverability. If the Trustee fails to make any such required Advance, the
Fiscal Agent will be required to make the Advance, subject to its determination
of recoverability. Both the Trustee and the Fiscal Agent will be entitled to
rely conclusively on any non-recoverability determination of the Servicer. See
``--The Trustee'' and ``--The Fiscal Agent'' below.
The obligation of the Servicer, the Trustee or the
Fiscal Agent, as applicable, to make Advances with respect to any Mortgage Loan
pursuant to the Pooling and Servicing Agreement continues through the
foreclosure of such Mortgage Loan and until the liquidation of the Mortgage
Loan or related Mortgaged Properties. Advances are intended to provide a
limited amount of liquidity, not to guarantee or insure against losses. None
of the Servicer, the Trustee or the Fiscal Agent will be required to make any
Advance that it determines will not be recoverable by the Servicer, the Trustee
or the Fiscal Agent, as applicable, out of related late payments, Insurance
Proceeds, Liquidation Proceeds and certain other collections with respect to
the Mortgage Loan as to which such Advances were made. To
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the extent that any borrower is not obligated under its Mortgage Loan Documents
to pay or reimburse any portion of any Advances that are outstanding with
respect to the related Mortgage Loan as a result of a modification of such
Mortgage Loan by the Special Servicer which forgives loan payments or other
expenses which the Servicer previously advanced, and the Servicer determines
that no other source of payment or reimbursement for such Advances is available
to it, such Advances shall be deemed to be nonrecoverable; provided, however,
in connection with the foregoing, the Servicer shall provide an Officer's
Certificate as described below. In addition, if the Servicer, the Trustee or
the Fiscal Agent, as applicable, determines that any Advance previously made
will not be recoverable from the foregoing sources, then the Servicer, the
Trustee or the Fiscal Agent, as applicable, will be entitled to reimburse
itself for such Advance, plus interest thereon, out of amounts on deposit in
the Collection Account prior to distributions on the Certificates. Any such
judgment or determination must be evidenced by an Officer's Certificate
delivered to the Trustee (or, in the case of the Trustee or the Fiscal Agent,
the Depositor) setting forth such judgment or determination of
nonrecoverability and the procedure and considerations of the Servicer, the
Trustee or the Fiscal Agent, as applicable, forming the basis of such
determination.
The Servicer, the Trustee or the Fiscal Agent, as
applicable, will be entitled to reimbursement for any Advance equal to the
amount of such Advance from (i) any collections on or in respect of the
particular Mortgage Loan or REO Property with respect to which each such
Advance was made or (ii) upon determining that such Advance is not recoverable
in the manner described in the preceding clause, from any other amounts from
time to time on deposit in the Collection Account.
The Servicer, the Trustee or the Fiscal Agent, as
applicable, will be entitled to receive interest at a rate equal to the Prime
Rate (as published in The Wall Street Journal from time to time) (the ``Advance
Rate'') on its outstanding Advances and will be authorized to pay itself such
interest monthly from general collections with respect to all of the Mortgage
Loans prior to any payment to holders of Certificates. If the interest on such
Advance is not offset by Default Interest a shortfall will result which will
have the same effect as a Realized Loss.
ACCOUNTS
Collection Account. The Servicer will, pursuant to
the Pooling and Servicing Agreement, establish and maintain a segregated
account (the ``Collection Account'') into which it will be required to deposit,
within one Business Day of receipt, all payments received by it on or in
respect of the Mortgage Loans.
Distribution Account. The Trustee will, pursuant to
the Pooling and Servicing Agreement, establish and maintain an account or
accounts (the ``Distribution Account'') in the name of the Trustee for the
benefit of the holders of Certificates. With respect to each Distribution Date,
the Servicer will deposit in the Distribution Account, to the extent of funds
on deposit in the Collection Account, on or before the Remittance Date an
aggregate amount of immediately available funds equal to the Available Funds.
To the extent not included in Available Funds, the Servicer will remit to the
Trustee all P&I Advances for deposit into the Distribution Account on the
related Remittance Date. See ``DESCRIPTION OF THE
CERTIFICATES--Distributions'' herein.
The Collection Account and the Distribution Account
will be held in the name of the Trustee (or, in the case of the Collection
Account, the Servicer on behalf of the Trustee) on behalf of the holders of
Certificates and the Trustee (and, in the case of the Collection Account, the
Servicer) will be authorized to make withdrawals therefrom. Each of the
Collection Account and the Distribution Account will be either (i) a segregated
account or accounts maintained with either a federally or state-chartered
depository institution or trust company the long term unsecured debt
obligations of which (or of such institution's parent holding company) are
rated by each of the Rating Agencies in the rating category equal to or greater
than the highest then-current rating assigned to a Class of Certificates then
outstanding at the time of any deposit therein, or (ii) a segregated trust
account or accounts maintained with a federal or state chartered depository
institution or trust company acting in its fiduciary capacity, having, in
either case, a combined capital and surplus of at least $50,000,000 and subject
to supervision or examination by federal or state authority, or otherwise
confirmed in writing by each of the Rating Agencies that the maintenance of
such account, shall not, in and of itself, result in a downgrading, withdrawal
or qualification of the rating then assigned by such Rating Agency to any Class
of Certificates (an ``Eligible Bank''). Amounts on deposit in such accounts
may be invested in certain United States government securities and other
high-quality investments specified in the Pooling and Servicing Agreement
(``Permitted Investments'').
WITHDRAWALS FROM THE COLLECTION ACCOUNT
The Servicer may make withdrawals from the Collection
Account for the following purposes, to the extent permitted and in the
priorities provided in the Pooling and Servicing Agreement: (i) to remit on or
before each Remittance Date to the Distribution Account an amount equal to
Available Funds and any Prepayment Premiums for such Distribution Date; (ii) to
pay or reimburse the Servicer, the Trustee or the Fiscal Agent, as applicable,
for Advances made by it and interest on Advances, the Servicer's right to
reimburse itself for items described in this clause (ii) being limited as
described herein under ``--Advances''; (iii) to pay on or before each
Remittance Date to the
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Servicer and Special Servicer the fee portion of the servicing compensation in
respect of the related Distribution Date, to be paid, in the case of the
Servicing Fee, from interest received on the related Mortgage Loan, and to pay
from time to time, to the Servicer, any interest or investment income earned on
funds deposited in the Collection Account, and pay the Servicer as additional
servicing compensation any Prepayment Interest Surplus received in the
preceding Collection Period and to pay the Servicer or the Special Servicer, as
applicable, any other amounts constituting servicing compensation; (iv) to pay
on or before each Distribution Date to the Depositor, the Mortgage Loan Seller,
Midland or other purchaser with respect to each Mortgage Loan or REO Property
that has previously been purchased or repurchased by it pursuant to the Pooling
and Servicing Agreement, all amounts received thereon during the related
Collection Period and subsequent to the date as of which the amount required to
effect such purchase or repurchase was determined; (v) to the extent not
reimbursed or paid pursuant to any of the above clauses, to reimburse or pay
the Servicer, the Special Servicer, the Trustee, the Depositor and/or the
Fiscal Agent, as applicable, for certain other unreimbursed expenses incurred
by or on behalf of such person pursuant to and to the extent reimbursable under
the Pooling and Servicing Agreement and to satisfy any indemnification
obligations of the Trust Fund under the Pooling and Servicing Agreement; (vi)
to pay to the Trustee amounts requested by it to pay taxes on certain net
income with respect to REO Properties; (vii) to withdraw any amount deposited
into the Collection Account that was not required to be deposited therein; and
(viii) to clear and terminate the Collection Account pursuant to a plan for
termination and liquidation of the Trust Fund.
ENFORCEMENT OF ``DUE-ON-SALE'' AND ``DUE-ON-ENCUMBRANCE'' CLAUSES
The Servicer or the Special Servicer, as applicable,
will be obligated to enforce the Trustee's rights under the ``due-on-sale''
clause in the related Mortgage to accelerate the maturity of the related
Mortgage Loan, unless such provision is not enforceable under applicable law or
enforcement thereof would result in a loss of insurance coverage under any
related insurance policy or such enforcement is reasonably likely to result in
meritorious legal action by the related borrower or to the extent the Servicer
or the Special Servicer, as applicable, acting in accordance with the servicing
standard described herein, determines that such enforcement is not in the best
interests of the Trust Fund. A ``due-on-sale'' or ``due-on-encumbrance''
clause may, under certain circumstances, be unenforceable against a borrower
which is a debtor in a case under the Bankruptcy Code.
If applicable law prohibits the enforcement of a
``due-on-sale'' clause or the Servicer or Special Servicer is (i) otherwise
prohibited from taking such action as described in the preceding paragraph or
(ii) determines that such enforcement is not in the best interests of the Trust
Fund, and, as a consequence, a Mortgage Loan is assumed, the original borrower
may be released from liability for the unpaid principal balance of the related
Mortgage Loan and interest thereon at the applicable Mortgage Rate during the
remaining term of such Mortgage Loan, the Servicer may accept payments in
respect of the Mortgage Loan from the new owner of the Mortgaged Property, and
the Servicer or the Special Servicer, as applicable, may enter into an
assumption agreement with a new purchaser whereby the new owner of the
Mortgaged Property will be substituted as the borrower and the original
borrower released, so long as (to the extent permitted by law) the new owner
satisfies the underwriting requirements customarily imposed by the Servicer, or
the Special Servicer, as applicable, as a condition to its approval of a
borrower on a new mortgage loan substantially similar to such Mortgage Loan.
In the event a Mortgage Loan is assumed as described in the preceding
sentences, the Trustee, the Servicer, and the Special Servicer, shall not
permit any modification of such Mortgage Loan other than as described above
under ``--Servicing of the Mortgage Loans; Collection of Payments'' or in
connection with a default or reasonably foreseeable default with respect to the
Mortgage Loan. The Servicer or Special Servicer, as applicable, shall be
entitled to retain as additional servicing compensation any assumption fees
paid by the original borrower or the new owner in connection with such
assumption. See ``CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND
CONTRACTS--The Mortgage Loans-Due-on-Sale Clauses'' in the Prospectus. A new
owner of the Mortgaged Property may be substituted or a junior or senior lien
allowed on the Mortgaged Property, without the consent of the Servicer, the
Special Servicer or the Trustee in a bankruptcy proceeding involving the
Mortgaged Property.
If any Mortgage Loan contains a provision in the
nature of a ``due-on-encumbrance'' clause, which, by its terms (i) provides
that such Mortgage Loan shall (or may at the related mortgagee's option) become
due and payable upon the creation of any lien or other encumbrance on such
Mortgaged Property, or (ii) requires the consent of the related mortgagee to
the creation of any such lien or other encumbrance on such Mortgaged Property,
then, for so long as such Mortgage Loan is included in the Trust Fund, the
Servicer or the Special Servicer, as applicable, on behalf of the Trust Fund,
shall enforce such provision and in connection therewith shall (x) accelerate
the payments due on such Mortgage Loan, or (y) withhold its consent to the
creation of any such lien or other encumbrance, as applicable, except, in each
case, to the extent that the Servicer or the Special Servicer, as applicable,
acting in accordance with the applicable servicing standard, determines that
such enforcement would not be in the best interests of the Trust Fund and
receives written confirmation from S&P that forbearance to enforce such
provision shall not result, in and of itself, in a downgrading, withdrawal or
qualification of the rating then assigned by S&P to any Class of Certificates.
Notwithstanding the foregoing, the Servicer or the Special Servicer, as
applicable, may forbear from enforcing any due-on-encumbrance provision in
connection with any junior or senior lien on the Mortgaged Property imposed in
connection with any bankruptcy proceeding involving the Mortgaged Property.
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INSPECTIONS; APPRAISALS
The Servicer or Special Servicer is required (at its
own expense) to inspect each Mortgaged Property at such times and in such
manner as are consistent with the servicing standards described herein, but
shall in any event (i) inspect each Mortgaged Property (x) at least once every
12 months commencing in January 1996 unless each of the Rating Agencies has
confirmed in writing that a longer period between inspections shall not result,
in and of itself, in a downgrading, withdrawal or qualification of the rating
then assigned by such Rating Agency to any Class of the Certificates or (y) if
the Servicer or the Special Servicer, as applicable, retains any Financial and
Lease Reporting Fees pursuant to the related Mortgage Loan, as soon as
practicable thereafter (except to the extent such property has been inspected
by the Servicer or the Special Servicer within the preceding 120 days), and
(ii) if any Monthly Payment becomes more than 60 days delinquent on any
Mortgage Loan and, if to do so is in the best interest of Certificateholders,
inspect each related Mortgaged Property as soon as practicable thereafter.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement requires the
Servicer and Special Servicer to cause a nationally recognized firm of
independent public accountants, which is a member of the American Institute of
Certified Public Accountants, to furnish to the Trustee, the Depositor and each
Rating Agency on or before March 31 of each year, beginning March 31, 1997, a
statement to the effect that such firm has examined certain documents and
records relating to the servicing of the Mortgage Loans for the preceding
twelve months and that their examination, conducted substantially in compliance
with the Uniform Single Attestation Program for Mortgage Bankers or the Audit
Program for Mortgages serviced for FHLMC, disclosed no exceptions or errors in
records relating to the servicing of the Mortgage Loans in accordance with the
terms of the Pooling and Servicing Agreement that in their opinion are
material, except for such exceptions as set forth in their statement.
The Pooling and Servicing Agreement also requires the
Servicer and the Special Servicer to deliver to the Trustee, the Depositor and
each Rating Agency, on or before March 31 of each year, beginning March 31,
1997, an officer's certificate of the Servicer or the Special Servicer, as
applicable, stating, among other things, that, to the best of such officer's
knowledge, the Servicer has fulfilled its obligations under the Pooling and
Servicing Agreement throughout the preceding year or, if there has been a
default, specifying each default known to such officer.
CERTAIN MATTERS REGARDING THE DEPOSITOR, THE SPECIAL SERVICER AND THE SERVICER
The Servicer or the Special Servicer may assign its
rights and delegate its duties and obligations under the Pooling and Servicing
Agreement in connection with the sale or transfer of a substantial portion of
its mortgage servicing or asset management portfolio, provided that certain
conditions are met including the written consent of the Trustee and written
confirmation by each of the Rating Agencies that such assignment and delegation
by the Servicer or the Special Servicer shall not, in and of itself, result in
a downgrading, withdrawal or qualification of the rating then assigned by such
Rating Agency to any Class of Certificates. The Pooling and Servicing
Agreement provides that the Servicer or the Special Servicer may not otherwise
resign from its obligations and duties as Servicer or Special Servicer,
thereunder, except upon the determination that performance of its duties is no
longer permissible under applicable law and provided that such determination is
evidenced by an opinion of counsel delivered to the Trustee. No such
resignation or removal may become effective until the Trustee or a successor
Servicer, or Special Servicer, as the case may be, has assumed the obligations
of the Servicer under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement also provides
that none of the Depositor, the Special Servicer, the Servicer, or any
director, officer, employee or agent of the Depositor, the Special Servicer, or
the Servicer (or any general partner of the Servicer or Special Servicer) will
be under any liability to the Trust Fund or the holders of Certificates for any
action taken or for refraining from the taking of any action in good faith
pursuant to the Pooling and Servicing Agreement, or for errors in judgment;
provided, however, that neither the Depositor, the Servicer, the Special
Servicer, nor any such person will be protected against any liability for a
breach of any representations or warranties under the Pooling and Servicing
Agreement or which would otherwise be imposed by reason of willful misfeasance,
bad faith, fraud or negligence (or, in the case of the Servicer or Special
Servicer, a breach of the servicing standards set forth in the Pooling and
Servicing Agreement) in the performance of duties thereunder or by reason of
reckless disregard of its respective obligations and duties thereunder. The
Pooling and Servicing Agreement further provides that the Depositor, the
Servicer, the Special Servicer and any director, officer, employee or agent of
the Depositor, the Special Servicer, and the Servicer (and any general partner
of the Servicer or Special Servicer) will be entitled to indemnification by the
Trust Fund for any loss, liability or expense incurred in connection with any
legal action relating to the Pooling and Servicing Agreement or the
Certificates other than any loss, liability or expense (i) incurred by reason
of its respective willful misfeasance, bad faith, fraud or negligence (or, in
the case of the Servicer or the Special Servicer, a breach of the servicing
standard set forth in the Pooling and Servicing Agreement) in the performance
of duties thereunder or by reason of reckless disregard of its respective
obligations and duties thereunder or (ii) imposed by any taxing authority which
loss, liability or expense is not specifically reimbursable pursuant to the
terms of the Pooling and Servicing Agreement or which results from a breach
(other than a breach with respect to
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which the Servicer or Special Servicer, as applicable would have no liability
under the standard set forth in the first sentence of this paragraph) by the
Servicer, the Special Servicer or its agents of its respective obligations
under the Pooling and Servicing Agreement.
In addition, the Pooling and Servicing Agreement
provides that none of the Depositor, the Special Servicer or the Servicer will
be under any obligation to appear in, prosecute or defend any legal action
unless such action is related to its duties under the Pooling and Servicing
Agreement and which in its opinion does not involve it in any expense or
liability. The Servicer may, however, in its discretion undertake any such
action which it may deem necessary or desirable with respect to the Pooling and
Servicing Agreement and the rights and duties of the parties thereto and the
interests of the holders of Certificates thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom (except
any liability related to the Servicer's or the Special Servicer's obligations
under Section 3.1(a) of the Pooling and Servicing Agreement )will be expenses,
costs and liabilities of the Trust Fund, and the Servicer or Special Servicer
will be entitled to be reimbursed therefor and to charge the Collection
Account.
The Depositor is not obligated to monitor or
supervise the performance of the Servicer or Special Servicer or the Trustee
under the Pooling and Servicing Agreement.
Any person into which the Servicer or the Special
Servicer may be merged or consolidated, or any person resulting from any merger
or consolidation to which the Servicer or the Special Servicer is a party, or
any person succeeding to the business of the Servicer or the Special Servicer,
will be the successor of the Servicer or the Special Servicer, as applicable,
under the Pooling and Servicing Agreement, and shall be deemed to have assumed
all of the liabilities and obligations of the Servicer or the Special Servicer,
as applicable, under the Pooling and Servicing Agreement, if each of the Rating
Agencies has confirmed in writing that such merger or consolidation and
succession shall not result in a downgrading, withdrawal or qualification of
the rating then-assigned by such Rating Agency to any Class of the
Certificates.
EVENTS OF DEFAULT
Events of default (each, an ``Event of Default'')
under the Pooling and Servicing Agreement consist, among other things, of (i)
any failure by the Servicer to remit to the Collection Account or any failure
by the Servicer to remit to the Trustee for deposit into the Distribution
Account any amount required to be so remitted pursuant to the Pooling and
Servicing Agreement; or (ii) any failure by the Servicer or Special Servicer
duly to observe or perform in any material respect any of its other covenants
or agreements or the breach of its representations or warranties (which breach
materially and adversely affects the interests of the Certificateholders, the
Trustee, the Servicer or the Special Servicer with respect to any Mortgage
Loan) under the Pooling and Servicing Agreement which continues unremedied for
30 days after the giving of written notice of such failure to the Servicer or
the Special Servicer, as applicable, by the Depositor or the Trustee, or to the
Servicer or Special Servicer, the Depositor and the Trustee by the holders of
Certificates evidencing Voting Rights of at least 25% of any affected Class; or
(iii) confirmation in writing by any of the Rating Agencies that the
then-current rating assigned to any Class of Certificates would be withdrawn,
downgraded or qualified unless the Servicer or Special Servicer is removed; or
(iv) certain events of insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings and certain actions by, on behalf of or
against the Servicer or Special Servicer indicating its insolvency or inability
to pay its obligations; or (v) any failure by the Servicer to make a required
Advance.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs and is continuing, then
the Trustee may, and at the direction of the holders of Certificates evidencing
at least 25% of the aggregate Voting Rights of all Certificates, the Trustee
shall, terminate all of the rights and obligations of the Servicer or the
Special Servicer, as the case may be, under the Pooling and Servicing Agreement
and in and to the Trust Fund. Notwithstanding the foregoing, upon any
termination of the Servicer or the Special Servicer, as applicable, under the
Pooling and Servicing Agreement the Servicer shall continue to be entitled to
receive all accrued and unpaid servicing compensation through the date of
termination plus, in the case of the Servicer, all Advances and interest
thereon as provided in the Pooling and Servicing Agreement.
On and after the date of termination, the Trustee
will succeed to all authority and power of the Servicer or the Special
Servicer, as applicable, under the Pooling and Servicing Agreement and will be
entitled to similar compensation arrangements to which the Servicer or the
Special Servicer, as applicable, would have been entitled. If the Trustee is
unwilling or unable so to act, or if the holders of Certificates evidencing at
least 51% of the aggregate Voting Rights so request or if neither the Trustee
nor the Fiscal Agent is rated at least ``AA'' by each of the Rating Agencies or
if the Trustee is not listed on S&P's list of approved servicers, the Trustee
must appoint, or petition a court of competent jurisdiction for the appointment
of, an established mortgage loan servicing institution with a net worth of at
least $15,000,000 and which is either FNMA or FHLMC approved, the appointment
of which will not result in the downgrading, withdrawal or qualification of the
rating or ratings then assigned to any Class of Certificates as
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evidenced in writing by each Rating Agency, to act as successor to the Servicer
or the Special Servicer, as applicable, under the Pooling and Servicing
Agreement. Pending such appointment, the Trustee is obligated to act in such
capacity. The Trustee and any such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
payable to the Servicer under the Pooling and Servicing Agreement.
No Certificateholder will have any right under the
Pooling and Servicing Agreement to institute any proceeding with respect to the
Pooling and Servicing Agreement or the Mortgage Loans, unless, with respect to
the Pooling and Servicing Agreement, such holder previously shall have given to
the Trustee a written notice of a default under the Pooling and Servicing
Agreement, and of the continuance thereof, and unless also the holders of
Certificates representing at least 25% of the aggregate Voting Rights allocated
to each affected Class shall have made written request of the Trustee to
institute such proceeding in its own name as Trustee under the Pooling and
Servicing Agreement and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee, for 30 days after its receipt of
such notice, request and offer of indemnity, shall have neglected or refused to
institute such proceeding.
The Trustee will have no obligation to institute,
conduct or defend any litigation under the Pooling and Servicing Agreement or
in relation thereto at the request, order or direction of any of the holders of
Certificates, unless such holders of Certificates shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
AMENDMENT
The Pooling and Servicing Agreement may be amended
from time to time by the Depositor, the Servicer, the Special Servicer, the
Trustee and the Fiscal Agent, without the consent of any of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement
any provisions therein that may be inconsistent with any other provisions
therein, (iii) to amend any provision thereof to the extent necessary or
desirable to maintain the rating or ratings assigned to each of the Classes of
Regular Certificates by each Rating Agency, or (iv) to make any other
provisions with respect to matters or questions arising under the Pooling and
Servicing Agreement, which shall not be inconsistent with the provisions of the
Pooling and Servicing Agreement and will not result in the downgrading,
withdrawal or qualification of the rating or ratings then assigned to any
outstanding Class of Certificates, as confirmed by each Rating Agency in
writing and, which, as evidenced by an Opinion of Counsel at the expense of the
party (other than the Trustee, unless such amendment modifies or otherwise
relates solely to the obligations, duties or rights of the Trustee) requesting
such amendment, shall not adversely affect in any material respect the
interests of any Certificateholder.
The Pooling and Servicing Agreement may also be
amended from time to time by the Depositor, the Servicer, the Special Servicer,
the Trustee and the Fiscal Agent with the consent of the Holders of each of the
Classes of Regular Certificates representing not less than 66 2/3% of the
aggregate Voting Rights allocated to each Class of Certificates affected by the
amendment for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the Pooling and Servicing Agreement or
of modifying in any manner the rights of the Certificateholders; provided,
however, that no such amendment shall: (i) reduce in any manner the amount of,
or delay the timing of, payments received on Mortgage Loans which are required
to be distributed on any Certificate without the consent of each affected
Certificateholder; (ii) change the percentages of Voting Rights of Holders of
Certificates which are required to consent to any action or inaction under the
Pooling and Servicing Agreement, without the consent of the Holders of all
Certificates then outstanding; or (ii) alter the servicing standard set forth
in the Pooling and Servicing Agreement or the obligations of the Servicer, the
Trustee or the Fiscal Agent to make a P&I Advance or Property Advance without
the consent of the Holders of all Certificates representing all of the Voting
Rights of the Class or Classes affected thereby.
Further, the Depositor, the Servicer, the Special
Servicer, the Trustee and the Fiscal Agent, at any time and from time to time,
without the consent of the Certificateholders, may amend the Pooling and
Servicing Agreement to modify, eliminate or add to any of its provisions to
such extent as shall be necessary to maintain the qualification of the Trust
REMICs as two separate REMICs, or to prevent the imposition of any additional
material state or local taxes, at all times that any Certificates are
outstanding; provided, however, that such action, as evidenced by an opinion of
counsel, is necessary or helpful to maintain such qualification or to prevent
the imposition of any such taxes, and would not adversely affect in any
material respect the interest of any Certificateholder.
No amendment shall cause either the Upper-Tier REMIC
or Lower-Tier REMIC to fail to qualify as a REMIC, as evidenced by an opinion
of counsel.
The ``Voting Rights'' assigned to each Class shall be
(i) 0% in the case of the Class R and Class LR Certificates, (ii) in the case
of any other Class of P&I Certificates, a percentage equal to the product of
(x) 95% on or prior to the EC Maturity Date and 97% thereafter and (y) a
fraction, the numerator of which is equal to the aggregate outstanding
Certificate Balance of such Class and the denominator of which is equal to the
aggregate
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outstanding Certificate Balances of all such Classes of Certificates; (iii) on
or prior to the EC Maturity Date, 2% in the case of the Class A-EC Certificates
and 0% thereafter; (iv) 1% in the Case of Class J-1 Certificates; and (v) 2% in
the case of Class J-2 Certificates. The Voting Rights of any Class of
Certificates shall be allocated among holders of Certificates of such Class in
proportion to their respective Percentage Interests, except that any
Certificate beneficially owned by the Depositor, the Servicer, the Special
Servicer, any borrower, the Trustee, a manager or any of their respective
affiliates will be deemed not to be outstanding; provided, however that,
Certificates beneficially owned by the Servicer, the Special Servicer, or any
affiliate thereof will be deemed to be outstanding in connection with any
required consent to an amendment of the Pooling and Servicing Agreement which
consent relates to an action which would materially adversely affect in any
material respect the interests of the Certificateholders of any Class while the
Servicer, the Special Servicer, or any such affiliate owns at least a 66 2/3
Percentage Interest in such Class.
REALIZATION UPON MORTGAGE LOANS
Appraisals for Specially Serviced Mortgage Loans.
Contemporaneously with the earliest of (i) the effective date of any
modification of the stated maturity, Mortgage Rate, principal balance or
amortization terms of any Specially Serviced Mortgage Loan or other
``significant'' modification (as defined in Section 1001 of the Code) of any
Mortgage Loan, as to which a default has occurred or is reasonably foreseeable,
(ii) the date 90 days after the occurrence of any uncured payment delinquency,
(iii) the date 180 days after a receiver is appointed in respect of a Mortgaged
Property, or (iv) the date a Mortgaged Property becomes an REO Property, the
Special Servicer shall obtain an appraisal of the Mortgaged Property or REO
Property, as the case may be, from an independent appraiser who is a member of
the Appraisal Institute (an ``Updated Appraisal'').
Following a default on a Balloon Payment, the Special
Servicer may grant successive extensions of up to 12 months each of the
defaulted Mortgage Loan; provided that the Special Servicer may not grant any
such successive extensions if, during the previous 12-month period, such
borrower was 60 days delinquent in payment of any principal or interest; and
provided further that if any extension is granted after the third successive
extension has been granted, such further extension shall only be granted with
the approval of the entity appointed to advise upon extensions, initially,
Midland Loan Services, L.P. (the ``Extension Advisor''). The Special Servicer
may not grant any extension that permits such borrower to make payments of
interest only for a period, in the aggregate, of greater than 12 months.
The Extension Advisor may be replaced at any time by
the Holders of 66 2/3% of the Voting Rights allocated to each Class of Regular
Certificates, other than the most subordinate such Class of Regular
Certificates, but may not be the Special Servicer. The Extension Advisor (if
other than Midland Loan Services, L.P.) shall be paid a fee of .04% of the
Scheduled Principal Balance of any Mortgage Loan as to which an extension is
requested that requires the Extension Advisor's approval. Such fee is payable
first from loan modification fees from the borrower under the related Mortgage
Loan and, to the extent such amounts are insufficient, from fees payable to the
Servicer and the Special Servicer.
Standards for Conduct Generally in Effecting
Foreclosure or the Sale of Defaulted Loans. In connection with any foreclosure
or other acquisition, any costs and expenses incurred in any such proceedings
shall be advanced by the Servicer as a Property Advance, unless the Servicer
determines that such Advance would constitute a Nonrecoverable Advance.
If the Special Servicer elects to proceed with a
non-judicial foreclosure in accordance with the laws of the state where the
Mortgaged Property is located, the Special Servicer shall not be required to
pursue a deficiency judgment against the related borrower, or any other liable
party if the laws of the state do not permit such a deficiency judgment after a
non-judicial foreclosure or if the Special Servicer determines, in its best
judgment, that the likely recovery if a deficiency judgment is obtained will
not be sufficient to warrant the cost, time, expense and/or exposure of
pursuing the deficiency judgment and such determination is evidenced by an
officers' certificate delivered to the Trustee.
Notwithstanding any provision to the contrary, the
Special Servicer shall not, on behalf of the Trust Fund, obtain title to a
Mortgaged Property as a result of or in lieu of foreclosure or otherwise, and
shall not otherwise acquire possession of, or take any other action with
respect to, any Mortgaged Property if, as a result of any such action, the
Trustee, for the Trust Fund or the holders of Certificates, would be considered
to hold title to, to be a ``mortgagee-in-possession'' of, or to be an ``owner''
or ``operator'' of, such Mortgaged Property within the meaning of CERCLA or any
comparable law, unless the Special Servicer has previously determined, based on
an updated environmental assessment report prepared by an independent person
who regularly conducts environmental audits, that: (i) such Mortgaged Property
is in compliance with applicable Environmental Laws or, if not, after
consultation with an environmental consultant that it would be in the best
economic interest of the Trust Fund to take such actions as are necessary to
bring such Mortgaged Property in compliance therewith and (ii) there are no
circumstances present at such Mortgaged Property relating to the use,
management or disposal of any hazardous materials for which investigation,
testing, monitoring, containment, clean-up or remediation could be required
under any currently effective federal, state or local law or regulation, or
that, if any such hazardous materials are present for which such action could
be required,
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after consultation with an environmental consultant it would be in the best
economic interest of the Trust Fund to take such actions with respect to the
affected Mortgaged Property.
In the event that title to any Mortgaged Property is
acquired in foreclosure or by deed in lieu of foreclosure, the deed or
certificate of sale shall be issued to the Trustee, or to its nominee on behalf
of the Trustee as the holder of the Lower-Tier Regular Interests and the
holders of Certificates. Notwithstanding any such acquisition of title and
cancellation of the related Mortgage Loan, such Mortgage Loan shall be
considered to be a Mortgage Loan held in the Trust Fund until such time as the
related REO Property shall be sold by the Trust Fund and shall be reduced only
by collections net of expenses.
If the Trust Fund acquires a Mortgaged Property by
foreclosure or deed-in-lieu of foreclosure upon a default of a Mortgage Loan,
the Pooling and Servicing Agreement provides that the Trustee (or the Special
Servicer, on behalf of the Trustee), must administer such Mortgaged Property so
that it qualifies at all times as ``foreclosure property'' within the meaning
of Code Section 860G(a)(8). The Pooling and Servicing Agreement also requires
that any such Mortgaged Property be managed and operated by an ``independent
contractor,'' within the meaning of applicable Treasury regulations, who
furnishes or renders services to the tenants of such Mortgaged Property.
Generally, the Lower-Tier REMIC will not be taxable on income received with
respect to the Mortgaged Property to the extent that it constitutes ``rents
from real property,'' within the meaning of Code Section 856(c)(3)(A) and
Treasury regulations thereunder. ``Rents from real property'' do not include
the portion of any rental based on the net income or gain of any tenant or
sub-tenant. NO DETERMINATION HAS BEEN MADE WHETHER RENT ON ANY OF THE
MORTGAGED PROPERTIES MEETS THIS REQUIREMENT. ``Rents from real property''
include charges for services customarily furnished or rendered in connection
with the rental of real property, whether or not the charges are separately
stated. Services furnished to the tenants of a particular building will be
considered as customary if, in the geographic market in which the building is
located, tenants in buildings which are of similar class are customarily
provided with the service. NO DETERMINATION HAS BEEN MADE WHETHER THE SERVICES
FURNISHED TO THE TENANTS OF THE MORTGAGED PROPERTIES ARE ``CUSTOMARY'' WITHIN
THE MEANING OF APPLICABLE REGULATIONS. It is therefore possible that a portion
of the rental income with respect to a Mortgaged Property owned by the Trust
Fund, presumably allocated based on the value of any non-qualifying services,
would not constitute ``rents from real property.'' In addition to the
foregoing, any net income from a trade or business operated or managed by an
independent contractor on a Mortgaged Property owned by the Lower-Tier REMIC,
including but not limited to a skilled nursing care business, will not
constitute ``rents from real property.'' Any of the foregoing types of income
may instead constitute ``net income from foreclosure property,'' which would be
taxable to the Lower-Tier REMIC at the highest marginal federal corporate rate
(currently 35%) and may also be subject to state or local taxes. Any such
taxes would be chargeable against the related income for purposes of
determining the net REO proceeds available for distribution to holders of
Certificates. See ``CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Taxation of REMIC
Income'' and ``--Taxes That May Be Imposed on the REMIC--Net Income from
Foreclosure Property'' herein.
The Special Servicer may offer to sell to any person
any Specially Serviced Mortgage Loan or any REO Property, if and when the
Special Servicer determines, consistent with the servicing standards set forth
in the Pooling and Servicing Agreement, that no satisfactory arrangements can
be made for collection of delinquent payments thereon and such a sale would be
in the best economic interests of the Trust Fund, but shall, in any event, so
offer to sell any REO Property no later than the time determined by the Special
Servicer to be sufficient to result in the sale of such REO Property within the
period specified in the Pooling and Servicing Agreement, including extensions
thereof. The Special Servicer shall give the Trustee not less than ten
Business Days' prior written notice of its intention to sell any Specially
Serviced Mortgage Loan or REO Property, in which case the Special Servicer
shall accept any offer received from any person that is determined by the
Special Servicer to be a fair price for such Specially Serviced Mortgage Loan
or REO Property, if the highest offeror is a person not affiliated with the
Special Servicer, or is determined to be such a price by the Trustee (which may
be based upon updated independent appraisals received by the Trustee or the
Special Servicer, as applicable), if the highest offeror is affiliated with the
Special Servicer. Notwithstanding anything to the contrary herein, neither the
Trustee, in its individual capacity, nor any of its affiliates may offer for or
purchase any Specially Serviced Mortgage Loan or any REO Property. In
addition, the Special Servicer may accept an offer which is not the highest
offer if it determines, in accordance with the servicing standard stated in the
Pooling and Servicing Agreement, that acceptance of such offer would be in the
best interests of the holders of Certificates (for example, if the prospective
buyer making the lower offer is more likely to perform its obligations, or the
terms offered by the prospective buyer making the lower offer are more
favorable).
OPTIONAL TERMINATION
The Special Servicer, and, if the Special Servicer
does not exercise its option, the holder of the Class LR Certificates
representing greater than a 50% Percentage Interest of the Class LR
Certificates, the Servicer and the Depositor, will have the option to purchase
all of the Mortgage Loans and all property acquired in respect of any Mortgage
Loan remaining in the Trust Fund, and thereby effect termination of the Trust
Fund and early retirement of the then outstanding Certificates, on any
Distribution Date on which the aggregate Scheduled Principal Balance of the
Mortgage Loans remaining in the Trust Fund is less than 10% of the aggregate
principal balance of such Mortgage
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Loans as of the Cut-off Date. The purchase price payable upon the exercise of
such option on such a Distribution Date will be an amount equal to not less
than the greater of (i) the sum of (A) 100% of the outstanding principal
balance of each Mortgage Loan included in the Trust Fund as of the last day of
the month preceding such Distribution Date; (B) the fair market value of all
other property included in the Trust Fund as of the last day of the month
preceding such Distribution Date, as determined by an independent appraiser as
of a date not more than 30 days prior to the last day of the month preceding
such Distribution Date; (C) all unpaid interest accrued on such principal
balance of each such Mortgage Loan (including any Mortgage Loan as to which
title to the related Mortgaged Property has been acquired) at the Mortgage Rate
to the last day of the month preceding such Distribution Date; and (D)
unreimbursed Advances with interest thereon at the Advance Rate and unpaid
Trust Fund expenses, or (ii) the aggregate fair market value of the Mortgage
Loans, and all other property acquired in respect of any Mortgage Loan in the
Trust Fund, on the last day of the month preceding such Distribution Date, as
determined by an independent appraiser as of a date not more than 30 days prior
to the last day of the month preceding such Distribution Date, together with
one month's interest thereon at the Mortgage Rate. See ``DESCRIPTION OF THE
CERTIFICATES--Additional Rights of the Residual Certificates'' herein.
AUCTION
On each of (i) the Distribution Date occurring in
September of each year from and including 2006 and (ii) any date after the
Distribution Date occurring in September 2006 on which the Trustee receives an
unsolicited bona fide offer to purchase all (but not less than all) of the
Mortgage Loans (each, an ``Auction Valuation Date''), the Trustee shall request
that four independent financial advisory or investment banking or investment
brokerage firms nationally recognized in the field of real estate analysis and
reasonably acceptable to the Servicer and the Special Servicer provide the
Trustee with an estimated value at which the Mortgage Loans and all other
property acquired in respect of any Mortgage Loan in the Trust Fund could be
sold pursuant to an auction. If the average of the three highest such
estimates received equals or exceeds the aggregate amount of the Certificate
Balance of all Certificates outstanding on the the Auction Valuation Date (the
``Aggregate Certificate Balance'') plus estimated Auction Fees (as hereafter
defined) and other expenses, the Trustee shall conduct an auction of the
Mortgage Loans. The Trustee shall, in such case, appoint an auction agent to
solicit offers from prospective purchasers, who must meet certain requirements
described in the Pooling and Servicing Agreement, to purchase all (but not less
than all) of the Mortgage Loans and such property, for a price not less than
the Aggregate Certificate Balance plus estimated Auction Fees and other
expenses. In determining the Aggregate Certificate Balance, all Certificates
owned by or on behalf of the Depositor, a property manager, the Servicer, the
Special Servicer, the Trustee, a Borrower or any affiliate thereof, shall be
included.
If the Trustee receives no bids which are qualified
pursuant to the terms of the Pooling and Servicing Agreement, the Trust Fund
shall not be terminated pursuant to these auction procedures. If the Trustee
receives qualified bids, the Trustee shall accept the highest of such bids and
shall sell the Mortgage Loans and such property to the successful bidder on or
before the Remittance Date immediately preceding the third Distribution Date
following the Auction Valuation Date (or such later Distribution Date
determined by the auction agent appointed in accordance with the immediately
preceding paragraph). Such sale shall effect a termination of the Trust Fund
and an early retirement of the then outstanding Certificates. The Trustee
shall be entitled to be reimbursed from the Collection Account for expenses
that it or any auction agent incurs in connection with an auction including all
fees and reasonable expenses of legal counsel and other professionals
(``Auction Fees'').
Any auction shall be conducted in accordance with
auction procedures to be developed by the auction agent in connection with such
auction, provided that such procedures shall include at a minimum provisions
substantially to the effect that: (i) no due diligence of the Servicer's, the
Special Servicer's or the Trustee's records with respect to the Mortgage Loans
may be conducted by any bidder prior to being notified that it has submitted
the highest bid; (ii) the auction agent is entitled to require that the highest
bidder provide a non-refundable good faith deposit sufficient to reimburse the
Trustee and the auction agent for all expenses in connection with the
evaluation of such bid and in connection with such highest bidder's due
diligence, (iii) each bidder may be required to enter into a confidentiality
agreement with the Servicer, the Special Servicer, the auction agent and the
Trustee prior to being permitted to conduct diligence, (iv) Borrowers on any of
the Mortgage Loans shall be prohibited from submitting bids, and (v) in the
event that the highest bidder withdraws, the next highest bidder shall be
permitted to conduct due diligence of the Servicer's, the Special Servicer's,
or the Trustee's records with respect to the Mortgage Loans as if it were the
highest bidder.
LOAN PORTFOLIO ANALYSIS SYSTEM
The Servicer will collect and maintain information
regarding the Mortgage Loans in a computerized database (the ``Loan Portfolio
Analysis System'' or ``LPAS''). The Servicer currently intends to provide
access to LPAS via on-line telephonic communication to Certificateholders,
persons identified by a Certificateholder as a prospective transferee and such
other persons deemed appropriate by Servicer. Information contained in LPAS
regarding the composition of the Mortgage Pool and certain other information
about the Mortgage Pool deemed appropriate by the Servicer will be updated
periodically.
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THE TRUSTEE
LaSalle National Bank, a nationally chartered bank with its
principal offices in Chicago, Illinois, will act as Trustee pursuant to the
Pooling and Servicing Agreement. The Trustee's corporate trust office is
located at 135 South LaSalle Street, Suite 200, Chicago, Illinois 60603.
The Trustee may resign at any time by giving written notice to
the Depositor, the Servicer, the Special Servicer and the Rating Agencies.
Upon such notice of the Trustee's resignation, the Fiscal Agent shall also be
deemed removed and, accordingly, the Servicer will appoint a successor trustee,
which appointment of successor trustee shall not result, in and of itself, in a
downgrading, withdrawal or qualification of the rating then assigned by the
Rating Agencies to any Class of the Certificates as confirmed in writing by
each of the Rating Agencies, and successor fiscal agent, which, if the
successor trustee is not rated at least ``AA'' by each Rating Agency, shall be
confirmed in writing by each of the Rating Agencies that such appointment of
such successor fiscal agent shall not result, in and of itself, in a
downgrading, withdrawal or qualification of the rating then assigned by such
Rating Agency to any Class of the Certificates. If no successor trustee and
successor fiscal agent is appointed within one month after the giving of such
notice of resignation, the resigning Trustee and departing Fiscal Agent may
petition any court of competent jurisdiction for appointment of a successor
trustee and successor fiscal agent.
The Depositor or the Servicer may remove the Trustee and the
Fiscal Agent if, among other things, the Trustee ceases to be eligible to
continue as such under the Pooling and Servicing Agreement or if at any time
the Trustee or the Fiscal Agent becomes incapable of acting, or is adjudged
bankrupt or insolvent, or a receiver of the Trustee or the Fiscal Agent or its
property is appointed or any public officer takes charge or control of the
Trustee or the Fiscal Agent or of its property. The holders of Certificates
evidencing aggregate Voting Rights of at least 51% may remove the Trustee and
the Fiscal Agent upon written notice to the Servicer, the Special Servicer, the
Depositor and the Trustee. Any resignation or removal of the Trustee and the
Fiscal Agent and appointment of a successor trustee and, if such trustee is not
rated at least ``AA'' by each Rating Agency, fiscal agent will not become
effective until acceptance of the appointment by the successor trustee and, if
necessary, fiscal agent.
Pursuant to the Pooling and Servicing Agreement, the Trustee
will be entitled to receive a monthly fee from the Servicer.
The Trust Fund indemnifies the Trustee against any and all
losses, liabilities, damages, claims or expenses (including reasonable
attorneys' fees) arising in respect of the Pooling and Servicing Agreement or
the Certificates (only to the extent that they are expressly reimbursable under
the Pooling and Servicing Agreement or are unanticipated expenses incurred by
the REMIC) other than those resulting from the negligence, fraud, bad faith or
intentional misconduct of the Trustee and those for which it is indemnified
pursuant to the last sentence of this paragraph. The Trustee will not be
required to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties under the Pooling and Servicing
Agreement, or in the exercise of any of its rights or powers, if in the
Trustee's opinion the repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Each of the Servicer
and the Special Servicer indemnifies the Trustee and certain related parties
for similar losses incurred related to the willful misconduct, fraud, bad faith
and/or negligence in the performance of its respective duties under the Pooling
and Servicing Agreement or by reason of reckless disregard of its respective
obligations and duties under the Pooling and Servicing Agreement.
DUTIES OF THE TRUSTEE
The Trustee, the Fiscal Agent, the Special Servicer and
Servicer will make no representation as to the validity or sufficiency of the
Pooling and Servicing Agreement, the Certificates, this Prospectus Supplement
or the validity, enforceability or sufficiency of the Mortgage Loans or related
documents. The Trustee and the Fiscal Agent will not be accountable for the
use or application by the Depositor of any Certificates or of the proceeds of
such Certificates, or for the use of or application of any funds paid to the
Depositor in respect of the assignment of the Mortgage Loans to the Trust Fund,
or any funds deposited in or withdrawn from the Collection Account or any other
account maintained by or on behalf of the Servicer, other than with respect to
any funds held by the Trustee.
If no Event of Default has occurred and after the curing of
all Events of Default which may have occurred, the Trustee is required to
perform only those duties specifically required under the Pooling and Servicing
Agreement. Upon receipt of the various certificates, reports or other
instruments required to be furnished to it, the Trustee is required to examine
such documents and to determine whether they conform on their face to the
requirements of the Pooling and Servicing Agreement.
If the Servicer fails to make any required Advance, the
Trustee, as acting or successor Servicer, will be required to make such Advance
to the extent that such Advance is not deemed to be nonrecoverable. The
Trustee shall be entitled to rely conclusively on any determination by the
Servicer that an Advance, if made, would be
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nonrecoverable. The Trustee will be entitled to reimbursement for each Advance
made by it in the same manner and to the same extent as the Servicer.
THE FISCAL AGENT
ABN AMRO Bank N.V., a Netherlands banking corporation and
the corporate parent of the Trustee, will act as Fiscal Agent for the Trustee
and will be obligated to make any Advance required to be made, and not made, by
the Trustee under the Pooling and Servicing Agreement, provided that the Fiscal
Agent shall not be obligated to make any Advance that it deems to be
nonrecoverable. The Fiscal Agent shall be entitled to rely conclusively on any
determination by the Servicer that an Advance, if made, would not be
recoverable. The Fiscal Agent will be entitled to reimbursement for each
Advance made by it in the same manner and to the same extent as the Trustee and
the Servicer. See ``--Advances'' herein.
The Fiscal Agent may not resign except in the event of the
resignation or removal of the Trustee or upon determination that it may no
longer perform such obligations and duties under applicable law. Any such
determination is required to be evidenced by an opinion of counsel to such
effect delivered to the Depositor and the Trustee. No resignation or removal
of the Fiscal Agent shall become effective until a successor fiscal agent shall
have assumed the Fiscal Agent's obligations and duties under the Pooling and
Servicing Agreement and it is confirmed in writing by each of the Rating
Agencies that the appointment of such successor fiscal agent shall not result,
in and of itself, in a downgrading, withdrawal or qualification of the rating
then assigned by such Rating Agency to any Class of the Certificates.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Pursuant to the Pooling and Servicing Agreement, the Servicer
will be entitled to receive a monthly servicing fee (the ``Servicing Fee'') for
each Mortgage Loan equal to a per annum rate of 0.25% (except for the seven
Mortgage Loans originated by ULLICO at a per annum rate of 0.14% and the
Acquired Mortgage Loan at a per annum rate of 0.125%) (the ``Servicing Fee
Rate'') on the then outstanding principal balance of such Mortgage Loan
calculated on the basis of a 360 day year consisting of twelve 30-day months.
The Servicing Fee relating to each Mortgage Loan will be retained by the
Servicer from payments and collections (including insurance proceeds and
liquidation proceeds) in respect of such Mortgage Loan. The Servicer will also
be entitled to retain as additional servicing compensation (i) all investment
income earned on amounts on deposit in the Reserve Accounts (to the extent
consistent with applicable law and the related Mortgage Loan Documents), the
Collection Account and the Distribution Account, (ii) all amounts collected
with respect to the Mortgage Loans (that are not Specially Serviced Mortgage
Loans) in the nature of late payment charges, late fees, loan service
transaction fees, extension fees, demand fees, modification fees, beneficiary
statement charges and similar fees and charges, and assumption fees and (iii)
Financial and Lease Reporting Fees (with respect to any Mortgage Loan that is
not a Specially Serviced Mortgage Loan and to the extent permitted under the
related Mortgage Loan) and any Prepayment Interest Surplus (to the extent not
offset against any Prepayment Interest Shortfall in accordance with the
provisions of the Pooling and Servicing Agreement).
The Servicer will pay all expenses incurred in connection with
its responsibilities under the Pooling and Servicing Agreement (subject to
reimbursement as described herein), including all fees of any sub-servicers
retained by it, all fees payable to the Trustee and the various expenses of the
Servicer specifically described herein.
SPECIAL SERVICING
It is anticipated that Lennar Partners, Inc. will initially be
appointed as special servicer (the ``Special Servicer'') to, among other
things, oversee the resolution of non-performing Mortgage Loans and act as
disposition manager of REO Properties. However, the holders of a majority of
the Voting Rights of the most subordinate Class of outstanding Regular
Certificates will be entitled to remove the Special Servicer without cause and
appoint a successor Special Servicer. Any termination fee payable to the
Special Servicer upon termination without cause will be paid by such holders,
and will not be an expense of the Trust Fund. Each of the Rating Agencies must
confirm in writing to the Trustee and Servicer that the appointment of such
successor Special Servicer will not cause any qualification, withdrawal, or
downgrading of the initial ratings assigned to any Class of rated Certificates.
The duties of the Special Servicer relate primarily to
Specially Serviced Mortgage Loans and to any REO Property. The Pooling and
Servicing Agreement will define a ``Specially Serviced Mortgage Loan'' to
include any Mortgage Loan (other than the Seaport Participation) with respect
to which: (i) the related borrower is 60 or more days delinquent in the payment
of principal and interest (regardless of whether in respect thereof P&I
Advances have been reimbursed); (ii) the borrower under which has expressed to
the Servicer an inability to pay or a hardship in paying the Mortgage Loan in
accordance with its terms; (iii) the Servicer has received notice that the
borrower has become the subject of any bankruptcy, insolvency or similar
proceeding, admitted in writing the inability to pay its debts as they come due
or made an assignment for the benefit of creditors; (iv) the Servicer has
received notice of a foreclosure or threatened foreclosure of any lien on the
Mortgaged Property securing the Mortgage Loan; (v) a default of which the
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Servicer has notice (other than a failure by the borrower to pay principal or
interest) and which materially and adversely affects the interests of the
Certificateholders has occurred and remained unremedied for the applicable
grace period specified in the Mortgage Loan (or, if no grace period is
specified, 60 days); provided, that a default requiring a Property Advance will
be deemed to materially and adversely affect the interests of
Certificateholders; (vi) the borrower has failed to make a Balloon Payment;
or(vii) the Servicer proposes to commence foreclosure or other workout
arrangements; provided, however, that a Mortgage Loan will cease to be a
Specially Serviced Mortgage Loan (a) with respect to the circumstances
described in clauses (i) and (vi) above, when the borrower thereunder has
brought the Mortgage Loan current (with respect to the circumstances described
in clause (vi), pursuant to any workout recommended by the Special Servicer,
and thereafter made three consecutive full and timely monthly payments), (b)
with respect to the circumstances described in clauses (ii), (iii), (iv) and
(vii) above, when such circumstances cease to exist, or (c) with respect to the
circumstances described in clause (v) above, when such default is cured;
provided, in either case, that at that time no circumstance exists (as
described above) that would cause the Mortgage Loan to continue to be
characterized as a Specially Serviced Mortgage Loan.
Pursuant to the Pooling and Servicing Agreement, the entity
acting as Special Servicer will be entitled to certain fees, including a
special servicing fee (the ``Special Servicing Fee'') equal to 1/12 of 0.35% on
a monthly basis of the Scheduled Principal Balance of each related Specially
Serviced Mortgage Loan. The Special Servicer will also receive, in addition to
the Special Servicing Fee, a disposition fee ( the ``Disposition Fee'') equal
to the product of (A) (x) the proceeds of the sale of any Specially Serviced
Mortgage Loan or REO Property minus (y) any broker's commission and related
brokerage referral fees and (B) (x) 1.5%, if such sale occurs within 12 months
following the date on which the Mortgage Loan initially became a Specially
Serviced Mortgage Loan or (y) 1.0%, if such sale occurs after such 12-month
period. Each of the foregoing fees, along with certain expenses related to
special servicing of a Mortgage Loan, shall be payable out of funds otherwise
available to pay principal on the Certificates. The Special Servicer will also
be entitled to retain as additional servicing compensation (i) all investment
income earned on amounts on deposit in any REO Account, and (ii) to the extent
permitted under the related Mortgage Loan, all amounts collected with respect
to the Specially Serviced Mortgage Loans in the nature of late payment charges,
late fees, Assumption Fees, loan modification fees, extension fees, Financial
and Lease Reporting Fees (to the extent such fees are not required to be
remitted to the related Borrower pursuant to the related Note), loan service
transaction fees, beneficiary statement charges, or similar items (but not
including any Default Interest or Prepayment Premiums), in each case to the
extent received with respect to any Specially Serviced Mortgage Loan and not
required to be deposited or retained in the Collection Account pursuant to the
Pooling and Servicing Agreement.
The Seaport Loan is subject to special servicing by the
special servicer under the Seaport Servicing Agreement. The Seaport
Participation Agreement is not subject to special servicing under the Pooling
and Servicing Agreement. Pursuant to the Seaport Participation Agreement, the
Mortgage Loan Seller, in its capacity as holder of the Seaport Participation,
has covenanted with the trustee under the Seaport Servicing Agreement to pay
(i) to the special servicer under the Seaport Servicing Agreement 49.3% of any
special servicing fee that becomes due with respect to the Seaport Loan if and
when the Seaport Loan becomes a specially serviced mortgage loan under the
Seaport Servicing Agreement and (ii) to the servicer under the Seaport
Servicing Agreement 49.3% of (x) the amount of any property advances incurred
with respect to the Seaport Loan under the Seaport Servicing Agreement that
have been deemed to be nonrecoverable advances thereunder and (y) the advance
interest amount which has accrued on any unreimbursed property advances
incurred with respect to the Seaport Loan under the Seaport Servicing
Agreement. The aforementioned covenant shall be binding upon the Trustee, as
assignee of the Seaport Participation. Such special servicing fee may be
withdrawn from the Collection Account as an expense of the Trust Fund pursuant
to the Pooling and Servicing Agreement.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will forward by mail to
each Certificateholder, with copies to the Depositor, Paying Agent, Servicer
and each Rating Agency, a statement as to such distribution setting forth for
each class:
(i) the Pooled Principal Distribution Amount and
the amount allocable to principal, included
in Available Funds;
(ii) The Class Interest Distribution Amount
distributable to such Class and the amount of
Available Funds allocable thereto, together
with any Class Interest Shortfall allocable
to such Class;
(iii) The amount of any P&I Advances by the
Servicer, the Trustee or the Fiscal Agent
included in the amounts distributed to such
Certificateholders;
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(iv) The Certificate Balance of each Class of
Certificates after giving effect to the
distribution of amounts in respect of the
Pooled Principal Distribution Amount on such
Distribution Date;
(v) Realized Losses and their allocation to the
Certificate Balance of any Class of
Certificates;
(vi) The Scheduled Principal Balance of the
Mortgage Loans as of the Due Date preceding
such Distribution Date;
(vii) The number and aggregate principal balance of
Mortgage Loans (A) delinquent one month, (B)
delinquent two months, (C) delinquent three
or more months, (D) as to which foreclosure
proceedings have been commenced and (E) that
otherwise constitute Specially Serviced
Mortgage Loans, and, with respect to each
Specially Serviced Mortgage Loan, the amount
of Property Advances made during the related
Collection Period, the amount of the P&I
Advance made on such Distribution Date, the
aggregate amount of Property Advances
theretofore made that remain unreimbursed and
the aggregate amount of P&I Advances
theretofore made that remain unreimbursed;
(viii) With respect to any Mortgage Loan that became
an REO Mortgage Loan during the preceding
calendar month, the principal balance of such
Mortgage Loan as of the date it became an REO
Mortgage Loan;
(ix) As of the Due Date preceding such
Distribution Date, as to any REO Property
sold during the related Collection Period,
the date on which the Special Servicer made a
Final Recovery Determination and the amount
of the proceeds of such sale deposited into
the Collection Account, and the aggregate
amount of REO Proceeds and Net REO Proceeds
(in each case other than Liquidation
Proceeds) revenues collected by the Special
Servicer with respect to each REO Property
during the related Collection Period and
credited to the Collection Account, in each
case identifying such REO Property by name;
(x) The outstanding principal balance of each REO
Mortgage Loan as of the close of business on
the immediately preceding Due Date and the
appraised value of the related REO Property
per the most recent appraisal obtained;
(xi) The amount of the Servicing Compensation paid
to the Servicer with respect to such
Distribution Date, and the amount of the
additional servicing compensation described
in Section 3.12(a) of the Pooling and
Servicing Agreement that was paid to the
Servicer with respect to such Distribution
Date;
(xii) The amount of any Special Servicing Fee or
Disposition Fee paid to the Special Servicer
with respect to such Distribution Date; and
(xiii) (A) The amount of Prepayment Premiums, if
any, received during the related Collection
Period, and (B) the amount of Default
Interest received during the related
Collection Period and the Net Default
Interest for such Distribution Date.
In the case of information furnished pursuant to subclauses
(i), (ii), (iii) and (xiii)(A) above, the amounts shall be expressed as a
dollar amount in the aggregate for all Certificates of each applicable Class
and for each Class of Certificates for a denomination of $1,000 initial
Certificate Balance.
Within a reasonable period of time after the end of each
calendar year, the Trustee shall furnish to each person who at any time during
the calendar year was a Holder of a Certificate (except for a Class R or Class
LR Certificate) a statement containing the information set forth in subclauses
(i) and (ii) above, aggregated for such calendar year or applicable portion
thereof during which such person was a Certificateholder. Such obligation of
the Trustee shall be deemed to have been satisfied to the extent that it
provided substantially comparable information pursuant to any requirements of
the Code as from time to time in force.
On each Distribution Date, the Trustee shall forward to each
Holder of a Class R or Class LR Certificate a copy of the reports forwarded to
the other Certificateholders on such Distribution Date and a statement setting
forth the amounts, if any, actually distributed with respect to the Class R or
Class LR Certificates on such Distribution Date.
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Within a reasonable period of time after the end of each
calendar year, the Trustee shall furnish to each person who at any time during
the calendar year was a Holder of a Class R or Class LR Certificate a
statement containing the information provided pursuant to the previous
paragraph aggregated for such calendar year or applicable portion thereof
during which such person was a Certificateholder. Such obligation of the
Trustee shall be deemed to have been satisfied to the extent that it
provided substantially comparable information pursuant to any requirements of
the Code as from time to time in force.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the anticipated
material federal income tax consequences of the purchase, ownership and
disposition of the Certificates. The discussion below does not purport to
address all federal income tax consequences that may be applicable to
particular categories of investors, some of which may be subject to special
rules. The authorities on which this discussion is based are subject to change
or differing interpretations, and any such change or interpretation could apply
retroactively. This discussion reflects the applicable provisions of the
Internal Revenue Code of 1986, as amended (the ``Code''), as well as
regulations (the ``REMIC Regulations'') promulgated by the U.S. Department of
the Treasury on December 23, 1992. Investors should consult their own tax
advisors in determining the federal, state, local and any other tax
consequences to them of the purchase, ownership and disposition of
Certificates.
Elections will be made to treat the assets of the Trust Fund
as two separate ``real estate mortgage investment conduits'' (each, a ``REMIC''
and, respectively, the ``Upper-Tier REMIC'' and ``Lower-Tier REMIC'') within
the meaning of Code Section 860D. Qualification as a REMIC requires ongoing
compliance with certain conditions. Assuming (i) the making of appropriate
elections, (ii) compliance with the Pooling and Servicing Agreement and (iii)
compliance with any changes in the law, including any amendments to the Code or
applicable Treasury regulations thereunder, in the opinion of O'Melveny &
Myers, each of the Upper-Tier REMIC and the Lower-Tier REMIC will qualify as a
REMIC.
The Lower-Tier REMIC will hold the Mortgage Loans (exclusive
of the Default Interest), proceeds therefrom, the Collection Account, the
Distribution Account and any REO Property, and will issue (i) certain
uncertificated Classes of regular interests (the ``Lower-Tier Regular
Interests'') to the Upper-Tier REMIC and (ii) the Class LR Certificates, which
will represent the sole Class of residual interests in the Lower-Tier REMIC.
The Upper-Tier REMIC will hold the Lower-Tier Regular Interests and the
Upper-Tier REMIC Distribution Account in which distributions thereon will be
deposited, and will issue (i) the Classes of regular interests represented by
the Classes of Regular Certificates and (ii) the Class R Certificates, which
will represent the sole Class of residual interests in the Upper-Tier REMIC.
STATUS OF THE CERTIFICATES
Certificates held by a mutual savings bank or a domestic
building and loan association will constitute ``qualifying real property
loans'' within the meaning of Code Section 593(d)(1) in the same proportion
that the assets of the Trust Fund would be so treated. Certificates held by a
real estate investment trust will constitute ``real estate assets'' within the
meaning of Code Section 856(c)(5)(A), and interest on the Regular Certificates
and income with respect to the Class R and Class LR Certificates will be
considered ``interest on obligations secured by mortgages on real property or
on interests in real property'' within the meaning of Code Section 856(c)(3)(B)
in the same proportion that, for both purposes, the assets of the Trust Fund
would be so treated. If at all times 95% or more of the assets of the Trust
Fund qualify for each of the foregoing treatments, the Certificates will
qualify for the corresponding status in their entirety. It is anticipated that
the 95% requirement will be met at all times that the Certificates are
outstanding with the result that the Certificates will qualify in their
entirety for the treatments described in the preceding sentence. For purposes
of Code Sections 593(d)(1) and 856(c)(5)(A), payments of principal and interest
with respect to the Mortgage Loans that are reinvested pending distribution to
holders of the Certificates qualify for such treatment. Certificates held by a
domestic building and loan association will constitute ``loans . . . secured by
an interest in real property which is . . . residential real property'' within
the meaning of Code Section 7701(a)(19)(C)(v) only in the percentage which the
Lower-Tier REMIC's basis in Mortgage Loans secured by multi-family residential
properties, nursing homes or congregate care facilities bears to the Lower-Tier
REMIC's basis in all the Mortgage Loans. Certificates held by a regulated
investment company will not constitute ``government securities'' within the
meaning of Code Section 851(b)(4)(A)(i). Certificates held by certain
financial institutions will constitute an ``evidence of indebtedness'' within
the meaning of Code Section 582(c)(1).
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QUALIFICATION AS A REMIC
In order for each of the Upper-Tier REMIC and the Lower-Tier
REMIC to qualify as a REMIC, there must be ongoing compliance on the part
of the REMICs with the requirements set forth in the Code. The Upper-Tier
REMIC and the Lower-Tier REMIC each must fulfill an asset test, which requires
that no more than a de minimis portion of their respective assets, as of the
close of the third calendar month beginning after the ``Startup Day'' (which for
purposes of this discussion is the date of issuance of the Certificates) and at
all times thereafter, may consist of assets other than ``qualified mortgages''
and ``permitted investments.'' The REMIC Regulations provide a ``safe harbor''
pursuant to which the de minimis requirement is met if at all times the
aggregate adjusted basis of the nonqualified assets is less than one percent of
the aggregate adjusted basis of all the REMICs assets. An entity that fails to
meet the safe harbor may nevertheless demonstrate that it holds no more than a
de minimis amount of nonqualified assets. A REMIC also must provide
``reasonable arrangements'' to prevent its residual interest from being held by
``disqualified organizations'' and applicable tax information to transferors or
agents that violate this requirement. Accordingly, the Pooling and Servicing
Agreement will contain provisions to assure that the asset and reasonable
arrangements tests will be met at all times that the Certificates are
outstanding.
A qualified mortgage is any obligation that is principally
secured by an interest in real property and that is either transferred to the
REMIC on the Startup Day or is purchased by the REMIC within a three-month
period thereafter pursuant to a fixed-price contract in effect on the Startup
Day. Qualified mortgages include (i) whole mortgage loans, such as the
Mortgage Loans, provided, in general, the fair market value of the real
property security (including buildings and structural components thereof) is at
least 80% of the principal balance of the Mortgage Loan either at origination
or as of the Startup Day (an original loan-to-value ratio of not more than 125%
with respect to the real property security), and (ii) regular interests in a
REMIC, such as the Lower-Tier Regular Interests held as assets by the
Upper-Tier REMIC. A mortgage loan that was not in fact principally secured by
real property must be disposed of within 90 days of discovery, or otherwise
ceases to be a qualified mortgage after such 90-day period.
Permitted investments include cash flow investments, qualified
reserve assets, and foreclosure property. A cash flow investment is any
investment, earning a return in the nature of interest, of amounts received on
or with respect to qualified mortgages for a temporary period, not exceeding 13
months, until the next scheduled distribution to holders of interests in the
REMIC. Neither REMIC will have a reserve fund. Foreclosure property is real
property acquired by the REMIC in connection with default or imminent default
of a qualified mortgage and generally held for not more than two years, with
extensions granted by the Internal Revenue Service. Because the principal
assets of the Upper-Tier REMIC will consist of the Lower-Tier Regular
Interests, it is not anticipated that the Upper-Tier REMIC will hold any
foreclosure property.
In addition to the foregoing requirements, the various
interests in a REMIC also must meet certain requirements. All of the interests
in a REMIC must be either of the following: (i) one or more Classes of regular
interests or (ii) a single Class of residual interests on which distributions,
if any, are made pro rata. A regular interest is an interest in a REMIC that
is issued on the Startup Day with fixed terms, is designated as a regular
interest, and unconditionally entitles the holder to receive a specified
principal amount (or other similar amount), and provides that interest payments
(or other similar amounts), if any, at or before maturity either are payable
based on a fixed rate or a qualified variable rate or consist of a specified,
nonvarying portion of the interest payments on some or all of the qualified
mortgages. A qualified variable rate includes a rate based on a weighted
average of rates on some or all of the REMIC's qualified mortgages, which in
turn bear a fixed rate or qualified variable rate. A specified portion of
interest payments includes the excess of interest on some or all of the REMIC's
qualified mortgages over a qualified variable rate. A residual interest is an
interest in a REMIC other than a regular interest that is issued on the Startup
Day and is designated as a residual interest. Accordingly, the Regular
Certificates will be considered to be regular interests in the Upper-Tier
REMIC, the Lower-Tier Regular Interests will be considered to be regular
interests in the Lower-Tier REMIC and the Class R and Class LR Certificates
will constitute the single Class of residual interests in the Upper-Tier REMIC
and Lower-Tier REMIC, respectively.
If, with respect to either the Upper-Tier REMIC or the
Lower-Tier REMIC, the Trust Fund fails to comply with one or more of the
ongoing requirements of the Code for REMIC status during any taxable year, the
Code provides that such entity will not be treated as a REMIC for such year and
thereafter. Furthermore, disqualification of the Lower-Tier REMIC would
automatically cause the Upper-Tier REMIC to fail to quality as a REMIC. In any
such event, an entity with multiple classes of ownership interests such as the
Trust Fund may be treated as a separate association taxable as a corporation
under Treasury regulations, and the Certificates may be treated as equity
interests therein. The Code, however, authorizes the Treasury Department to
issue regulations that address situations where failure to meet one or more of
the requirements for REMIC status occurs inadvertently and in good faith, and
disqualification of a REMIC would occur absent regulatory relief. Investors
should be aware, however, that the Conference Committee Report to the 1986 Act
indicates that the relief may be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the Trust Fund's income of
the Upper-Tier REMIC and Lower-Tier REMIC for the period of time in which the
requirements for REMIC status are not satisfied.
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TAXATION OF REGULAR CERTIFICATES
General. The Regular Certificates will be treated as newly
originated debt instruments for federal income tax purposes. In general,
interest paid or accrued, original issue discount (``OID'') and market
discount with respect to a Regular Certificate will be treated as ordinary
income to a holder of a Regular Certificate (each, a ``Regular
Certificateholder''), and principal payments on a Regular Certificate will be
treated as a return of capital to the extent of the Regular
Certificateholder's basis allocable thereto. Regular Certificateholders must
use the accrual method of accounting with regard to the Regular Certificates,
regardless of the method of accounting otherwise used by such Regular
Certificateholders.
Although not free from doubt, the Depositor believes that any
Prepayment Premiums allocated to a Class of Regular Certificates will represent
ordinary income to holders of such Class as such amounts accrue. It is not
certain for federal income tax purposes whether any portion of any investor's
basis in its Certificate must be allocated to the right to receive Prepayment
Premiums. It is anticipated that in reporting to investors, the Trustee will
take the position, unless required otherwise by applicable authority, that no
portion of a Prepayment Premium represents a return of basis and that no
portion thereof is reportable as income prior to the time such amounts become
due. Investors should consult their own tax advisors with respect to the
proper federal income tax treatment of Prepayment Premiums.
Original Issue Discount. Regular Certificateholders generally
must include OID in ordinary income for federal income tax purposes as it
accrues in accordance with the constant yield method, which takes into account
the compounding of interest, in advance of receipt of the cash attributable to
such income. The following discussion is based in part on temporary and final
Treasury regulations issued on February 2, 1994 (the ``OID Regulations'') and
proposed Treasury regulations issued on December 16, 1994 (the ``Proposed OID
Regulations'') under Code Sections 1271 through 1273 and 1275 and in part on
the provisions of the Tax Reform Act of 1986 (the ``1986 Act''). Regular
Certificateholders should be aware, however, that the OID Regulations and the
Proposed OID Regulations do not adequately address certain issues relevant to
prepayable securities, such as the Regular Certificates. To the extent such
issues are not addressed in such Regulations, the Depositor intends to apply
the methodology described in the Conference Committee Report to the 1986 Act.
No assurance can be provided that the Internal Revenue Service will not take a
different position as to those matters not currently addressed by the OID
Regulations and the Proposed OID Regulations. Moreover, the OID Regulations
include an anti-abuse rule allowing the Internal Revenue Service to apply or
depart from the OID Regulations where necessary or appropriate to ensure a
reasonable tax result in light of the applicable statutory provisions. A tax
result will not be considered unreasonable under the anti-abuse rule in the
absence of a substantial effect on the present value of a taxpayer's tax
liability. Investors are advised to consult their own tax advisors as to the
discussion herein and the appropriate method for reporting interest and OID
with respect to the Regular Certificates.
Each Regular Certificate will be treated as a single
installment obligation for purposes of determining the OID includible in a
Regular Certificateholder's income. The total amount of OID on a Regular
Certificate is the excess of the ``stated redemption price at maturity'' of the
Regular Certificate over its ``issue price.'' The issue price of each Class of
Regular Certificates is the first price at which a substantial amount of the
Regular Certificates of such Class is sold to investors (excluding bond houses,
brokers and underwriters). As provided in the REMIC Regulations (but not the
OID Regulations), the Trustee intends to treat the issue price of a Class as to
which there is no substantial sale as of the Startup Day as the offer price of
such Class as of the date such Class is priced. The issue price of a Class of
Regular Certificates (other than the Class J-1 Certificates) also includes the
amount paid by initial Regular Certificateholders for accrued interest that
relates to a period prior to the Issue Date of such Class, unless a Regular
Certificateholder elects on its federal income tax return to exclude such
amount from the issue price and to recover it on the first Distribution Date.
The stated redemption price at maturity of a Regular Certificate is the sum of
all payments provided thereby other than ``qualified stated interest.'' Under
the OID Regulations, qualified stated interest generally includes interest
payable at a single fixed rate if such interest payments are unconditionally
payable at intervals of one year or less during the entire term of the
obligation. The Trustee intends to include in the stated redemption price at
maturity of the Regular Certificates (other than the Class A-EC and Class J-2
Certificates) the portion of the interest distributed on the first Distribution
Date that exceeds the interest attributable to the number of days between the
issue date and such first Distribution Date (i.e., 4 days of interest).
Accordingly, the Trustee intends to treat all payments of interest on the Class
A-1, Class A-2, Class B, Class C, Class D, Class E, Class F, Class G and Class
H Certificates (other than 4 days of interest payable at the Pass-Through Rates
thereon payable on the first Distribution Date) as qualified stated interest
and consequently as not includible in the stated redemption price at maturity
of such Classes. Under the foregoing rules, it is anticipated that the Class
F, Class G and Class H Certificates will be issued with OID in an amount equal
to the excess of their initial Certificate Balances (plus 4 days of interest at
the Pass-Through Rate thereon) over their respective issue prices (including
accrued interest). In addition, the Class J-1 Certificates will be issued with
OID in an amount equal to the excess of the initial principal balance thereof
over their issue price. Furthermore, the Trustee intends to treat the Class
A-EC and Class J-2 Certificates as having no qualified stated interest.
Accordingly, the Class A-EC and Class J-2 Certificates will be considered to be
issued with OID in an amount equal to the excess of all distributions of
interest expected to be received thereon over their respective issue
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prices (including accrued interest). Any ``negative'' amounts of OID on the
Class A-EC or Class J-2 Certificates attributable to rapid prepayments with
respect to the Mortgage Loan will not be deductible currently, but may be
offset against future positive accruals of OID, if any. However, the holder of
a Class A-EC or Class J-2 Certificate may be entitled to a loss deduction to
the extent it becomes certain that such holder will not recover a portion of its
basis in such Certificate. No representation is made as to the timing or amount
of any such loss.
A holder of a Regular Certificate issued with OID generally
must include in gross income for any taxable year the sum of the ``daily
portions,'' as defined below, of the OID on the Regular Certificate accrued
during an accrual period for each day on which it holds the Regular
Certificate, including the date of purchase but excluding the date of
disposition. With respect to each Regular Certificate, a calculation will be
made of the OID that accrues during each successive full accrual period (or
shorter period from the date of original issue) that ends on the day prior to
each Distribution Date with respect to the Regular Certificates. OID is to be
calculated initially based on a schedule of maturity dates that takes into
account the level of prepayments in the manner to be specified in Treasury
regulations. The Conference Committee Report to the 1986 Act states that such
schedule is intended to be based on the assumed rate of prepayment of the
Mortgage Loans i.e., the assumptions described as Scenario 3 under the heading
``YIELD CONSIDERATIONS--Weighted Average Life of the Regular Certificates''
(the ``Prepayment Assumption''). The OID accruing in a full accrual period
will be the excess, if any, of (i) the sum of (a) the present value of all of
the remaining distributions to be made on the Regular Certificate as of the end
of that accrual period and (b) the distributions made on the Regular
Certificate during the accrual period that are included in the Regular
Certificate's stated redemption price at maturity, over (ii) the adjusted issue
price of the Regular Certificate at the beginning of the accrual period. The
present value of the remaining distributions referred to in the preceding
sentence is calculated based on (i) the yield to maturity of the Regular
Certificate as of the Startup Day, (ii) events (including actual prepayments)
that have occurred prior to the end of the accrual period and (iii) the
Prepayment Assumption. For these purposes, the adjusted issue price of a
Regular Certificate at the beginning of any accrual period equals the issue
price of the Regular Certificate, increased by the aggregate amount of OID with
respect to the Regular Certificate that accrued in all prior accrual periods
and reduced by the amount of distributions included in the Regular
Certificate's stated redemption price at maturity that were made on the Regular
Certificate that were attributable to such prior periods. The OID accruing
during any accrual period (as determined in this paragraph) will then be
divided by the number of days in the period to determine the daily portion of
OID for each day in the period. With respect to the short first accrual
period, the daily portions of OID will be determined according to the exact
method.
Under the method described above, the daily portions of OID
required to be included as ordinary income by a Regular Certificateholder
generally will increase to take into account any prepayments on the Regular
Certificates as a result of prepayments on the Mortgage Loans that exceed the
Prepayment Assumption, and generally will decrease (but not below zero for any
period) if the prepayments are slower than the Prepayment Assumption.
Acquisition Premium. A purchaser of a Regular Certificate at
a price greater than its adjusted issue price and less than its remaining
stated redemption price at maturity will be required to include in gross income
the daily portions of the OID on the Regular Certificate reduced pro rata by a
fraction, the numerator of which is the excess of its purchase price over such
adjusted issue price and the denominator of which is the excess of the
remaining stated redemption price at maturity over the adjusted issue price.
Alternatively, such a purchaser may elect to treat all such acquisition premium
under the constant yield method, as described below under the heading
``--Election to Treat All Interest Under the Constant Yield Method.''
Market Discount. A purchaser of a Regular Certificate also
may be subject to the market discount rules of Code Sections 1276 through 1278.
Under these Code sections and the principles applied by the OID Regulations in
the context of OID, ``market discount'' is the amount by which the purchaser's
original basis in the Regular Certificate is exceeded by the adjusted issue
price of such Regular Certificate at the time of purchase. Such purchaser
generally will be required to recognize ordinary income to the extent of
accrued market discount on such Regular Certificate as distributions includible
in the stated redemption price at maturity thereof are received, in an amount
not exceeding any such distribution. Such market discount would accrue in a
manner to be provided in Treasury regulations and should take into account the
Prepayment Assumption. The Conference Committee Report to the 1986 Act
provides that until such regulations are issued, such market discount would
accrue either (i) on the basis of a constant interest rate or (ii) either in
the ratio of interest accrued for the relevant period to the sum of interest
accrued for such period plus the remaining interest as of the end of such
period or in the ratio of OID accrued for the relevant period to the sum of the
OID accrued for such period plus the remaining OID as of the end of such
period. Such purchaser also generally will be required to treat a portion of
any gain on a sale or exchange of the Regular 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 as partial distributions in reduction of the stated
redemption price at maturity were received. Such purchaser will be required to
defer deduction of a portion of the excess of the interest paid or accrued on
indebtedness incurred to purchase or carry the Regular Certificate over the
interest (including OID) distributable thereon. The deferred portion of such
interest expense in any taxable year generally will not exceed the accrued
market discount on the Regular Certificate for such year. Any such deferred
interest expense is, in general, allowed as a deduction not later than the year
in which the related market
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discount income is recognized or the Regular Certificate is disposed of. As an
alternative to the inclusion of market discount in income on the foregoing
basis, the Regular Certificateholder may elect to include market discount in
income currently as it accrues on all market discount instruments acquired by
such Regular Certificateholder in that taxable year or thereafter, in which
case the interest deferral rule will not apply. See ``--Election to Treat All
Interest Under the Constant Yield Method'' below regarding an alternative manner
in which such election may be deemed to be made.
Market discount with respect to a Regular Certificate will be
considered to be zero if such market discount is less than 0.25% of the
remaining stated redemption price at maturity of such Regular Certificate
multiplied by the weighted average maturity of the Regular Certificate
remaining after the date of purchase, rounding down the date each payment
included in the stated redemption price at maturity is expected to be made to
the next lowest number of whole years. It appears that de minimis market
discount would generally be reported pro rata as principal payments are
received. Treasury regulations implementing the market discount rules have not
yet been issued, and investors should therefore consult their own tax advisors
regarding the application of these rules as well as the advisability of making
any of the elections with respect thereto. Investors should also consult
Revenue Procedure 92-67 concerning the elections to include market discount in
income currently and to accrue market discount on the basis of the constant
yield method.
Premium. A Regular Certificate purchased at a cost greater
than its remaining stated redemption price at maturity generally is considered
to be purchased at a premium. It is anticipated that the Class A-1, Class A-2,
Class B, Class C, Class D and Class E Certificates will be issued at a premium.
If a Regular Certificateholder holds such Regular Certificate as a ``capital
asset'' within the meaning of Code Section 1221, the Regular Certificateholder
may elect under Code Section 171 to amortize such premium under the constant
yield method. The Conference Committee Report to the 1986 Act indicates a
Congressional intent that the same rules that will apply to the accrual of
market discount on installment obligations will also apply to amortizing bond
premium under Code Section 171 on installment obligations such as the Regular
Certificates, although it is unclear whether the alternatives to the constant
yield method described above under ``Market Discount'' are available.
Amortizable bond premium will be treated as an offset to interest income on a
Regular Certificate rather than as a separate deduction item. See ``Election
to Treat All Interest Under the Constant Yield Method'' below regarding an
alternative manner in which the Code Section 171 election may be deemed to be
made. Because the stated redemption price at maturity of the Class A-EC and
Class J-2 Certificates includes all anticipated distributions with respect
thereto, it is unlikely that a Class A-EC and Class J-2 Certificate could be
purchased at a premium for federal income tax purposes.
Election to Treat All Interest Under the Constant Yield
Method. A holder of a debt instrument such as a Regular Certificate may elect
to treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument subject
to such an election, (i) ``interest'' includes stated interest, OID, de minimis
OID, market discount and de minimis market discount, as adjusted by any
amortizable bond premium or acquisition premium and (ii) the debt instrument is
treated as if the instrument were issued on the holder's acquisition date in
the amount of the holder's adjusted basis immediately after acquisition. It is
unclear whether, for this purpose, the initial Prepayment Assumption would
continue to apply or if a new prepayment assumption as of the date of the
holder's acquisition would apply. A holder generally may make such an election
on an instrument by instrument basis or for a class or group of debt
instruments. However, if the holder makes such an election with respect to a
debt instrument with amortizable bond premium or with market discount, the
holder is deemed to have made elections to amortize bond premium or to report
market discount income currently as it accrues under the constant yield method,
respectively, for all premium bonds held or market discount bonds acquired by
the holder in the same taxable year or thereafter. The election is made on the
holder's federal income tax return for the year in which the debt instrument is
acquired and is irrevocable except with the approval of the Internal Revenue
Service. Investors should consult their own tax advisors regarding the
advisability of making such an election.
Treatment of Losses. Holders of the Regular Certificates will
be required to report income with respect thereto on the accrual method of
accounting, without giving effect to delays or reductions in distributions
attributable to defaults or delinquencies on the Mortgage Loans, except to the
extent it can be established that such losses are uncollectible. As a result,
the amount of income reported by a holder of a Regular Certificate in any
period could significantly exceed the amount of cash distributed to such holder
in that period. The holder will eventually be allowed a loss (or will be
allowed to report a lesser amount of income) to the extent that the aggregate
amount of distributions on the Regular Certificate is reduced as a result of a
Mortgage Loan default. However, the timing and character of such losses or
reductions in income are uncertain and accordingly, holders of Regular
Certificates should consult their own tax advisors on this point.
Sale or Exchange of Regular Certificates. If a Regular
Certificateholder sells or exchanges a Regular Certificate, the Regular
Certificateholder will recognize gain or loss equal to the difference, if any,
between the amount received and its adjusted basis in the Regular Certificate.
The adjusted basis of a Regular Certificate generally will equal the cost of
the Regular Certificate to the seller, increased by any OID or market discount
previously included in the seller's gross income with respect to the Regular
Certificate and reduced by amounts included in the stated
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redemption price at maturity of the Regular Certificate that were previously
received by the seller, and by any amortized premium and by any previously
deducted losses.
Except as described above with respect to market discount, and
except as provided in this paragraph, any gain or loss on the sale or exchange
of a Regular Certificate realized by an investor who holds the Regular
Certificate as a capital asset will be capital gain or loss and will be
long-term or short-term depending on whether the Regular Certificate has been
held for the long-term capital gain holding period (more than one year). Such
gain will be treated as ordinary income (i) if the Regular Certificate is held
as part of a ``conversion transaction'' as defined in Code Section 1258(c), up
to the amount of interest that would have accrued on the Certificateholder's
net investment in the conversion transaction at 120% of the appropriate
applicable federal rate under Code Section 1274(d) in effect at the time the
taxpayer entered into the transaction minus any amount previously treated as
ordinary income with respect to any prior disposition of property that was held
as part of such transaction, (ii) in the case of a non-corporate taxpayer, to
the extent such taxpayer has made an election under Code Section 163(d)(4) to
have net capital gains taxed as investment income at ordinary income rates, or
(iii) to the extent that such gain does not exceed the excess, if any, of (a)
the amount that would have been includible in the gross income of the holder if
his yield on such Regular Certificate were 110% of the applicable federal rate
as of the date of purchase, over (b) the amount of income actually includible
in the gross income of such holder with respect to the Regular Certificate. In
addition, gain or loss recognized from the sale of a Regular Certificate by
certain banks or thrift institutions will be treated as ordinary income or loss
pursuant to Code Section 582(c). Capital gains of certain non-corporate
taxpayers are subject to a lower maximum tax rate than ordinary income of such
taxpayers. The maximum tax rate for corporations currently is the same with
respect to both ordinary income and capital gains. Certain proposed federal
legislation, not yet enacted, would reduce the maximum tax rate applicable to
the capital gains of corporations, would further reduce the maximum tax rate
applicable to the capital gains of individuals, and would restrict the
utilization of capital losses by individuals. There can be no assurance that
such legislation will be enacted.
TAXATION OF THE CLASS R AND CLASS LR CERTIFICATES
Prospective investors in the Class R Certificates or Class LR
Certificates should carefully read the following discussion. Prospective
investors are cautioned that the REMIC taxable income on the Class R and Class
LR Certificates and the tax liabilities thereon will exceed cash distributions
to the respective holders thereof during some or all periods, in which event
such holders must have sufficient sources of funds to pay such tax liabilities.
Due to the special tax treatment of REMIC residual interests, the after-tax
return on the Class R and Class LR Certificates may be zero or negative.
Unless otherwise indicated below, the term ``Residual Certificate'' or
``Residual Certificates'' means the Class R or Class LR Certificates, as the
case may be, the term ``Residual Holder'' means a holder of the Class R
Certificates with respect to the Upper-Tier REMIC and a holder of the Class LR
Certificates with respect to the Lower-Tier REMIC, and the term ``REMIC''
refers to either the Upper-Tier REMIC or Lower-Tier REMIC, as applicable.
Taxation of REMIC Income. Generally, the ``daily portions''
of REMIC taxable income or net loss will be includible as ordinary income or
loss in determining the federal taxable income of a Residual Holder, and will
not be taxed separately to the REMIC. The daily portions of REMIC taxable
income or net loss of a Residual Holder are determined by allocating the
REMIC's taxable income or net loss for each calendar quarter ratably to each
day in such quarter. REMIC taxable income is generally determined in the same
manner as the taxable income of an individual using the accrual method of
accounting except that (i) the limitation on deductibility of investment
interest expense and expenses for the production of income do not apply and
(ii) all bad loans will be deductible as business bad debts. The REMIC's gross
income includes interest, OID income, and market discount income, if any, on
the Mortgage Loans or Lower-Tier Regular Interests, as the case may be, reduced
by amortization of any premium on the Mortgage Loans or Lower-Tier Regular
Interests, as the case may be, plus income on reinvestment of cash flows plus
any cancellation of indebtedness income upon allocation of realized losses to
the Lower-Tier Regular Interests or the Regular Certificates, as the case may
be. The REMIC's deductions include interest and OID expense on the Lower-Tier
Regular Interests or the Regular Certificates, as the case may be, servicing
fees or other administrative expenses of the REMIC and realized losses on the
Mortgage Loans or Lower-Tier Regular Interests, as the case may be. The
requirement that a Residual Holder report its share of the taxable income or
net loss of the REMIC will continue until there are no Lower-Tier Regular
Interests or Regular Certificates of any Class outstanding.
The taxable income recognized by a Residual Holder in any
taxable year will be affected by, among other factors, the relationship between
the timing of recognition of interest and OID or market discount income or
amortization of premium with respect to the Mortgage Loans or the Lower-Tier
Regular Interests, on the one hand, and the timing of deductions for interest
(including OID) on the Lower-Tier Regular Interests or Regular Certificates, on
the other hand. Under the OID Regulations, the Lower-Tier Regular Interests
are to be treated as a single debt instrument for OID purposes because they
will be issued in a single transaction to a single holder (the Upper-Tier
REMIC). Accordingly, the Trustee will calculate the taxable income (or net
loss) of the Upper-Tier REMIC and Lower-Tier REMIC (and to report to the Class
R and Class LR Certificateholders) by treating the Lower-Tier Regular Interests
as a single debt instrument. Thus, the impact of the mismatch in timing of
income and deductions is expected
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to fall primarily on the Class R Certificateholders. As a result, in the event
that an interest in the Mortgage Loans or the Lower-Tier Regular Interests is
acquired by the respective REMIC at a discount, and such Mortgage Loans or
Lower-Tier Regular Interests are prepaid, a holder of the Class R Certificates
may recognize taxable income without being entitled to receive a corresponding
amount of cash because (i) the prepayment may be used in whole or in part to
make distributions in reduction of principal on the Regular Certificates, and
(ii) the discount on the Mortgage Loans and correspondingly on the Lower-Tier
Regular Interests which is includible in income may exceed the deduction allowed
upon such distributions on those Regular Certificates on account of any
unaccrued OID relating to those Regular Certificates. Because there is more
than one Class of Regular Certificates that distribute payments in reduction of
principal balance sequentially, this mismatching of income and deductions is
particularly likely to occur in the early years following issuance of the
Regular Certificates. If taxable income attributable to such a mismatching is
realized, in general, losses would be allowed in later years (although the
character of those losses may be different from the character of the income).
Consequently, a holder of the Class R Certificates must have sufficient other
sources of cash to pay any federal, state, or local income taxes due as a
result of such mismatching or unrelated deductions against which to offset such
income, subject to the discussion of ``excess inclusions'' below under
``--Limitations on Offset or Exemption of REMIC Income.'' It is unclear whether
the Lower-Tier REMIC will have any such phantom income followed by phantom
losses or rather will have phantom losses followed by phantom income.
Prospective investors in the Class LR Certificates should consult their own tax
advisors in this regard. SUCH TIMING DIFFERENCES MAY CAUSE A RESIDUAL HOLDER'S
AFTER-TAX YIELD TO BE ZERO OR NEGATIVE.
Basis and Losses. The amount of any net loss of the REMIC
that may be taken into account by a Residual Holder is limited to the adjusted
basis of the Residual Certificate as of the close of the quarter (or time of
disposition of the Residual Certificate if earlier), determined without taking
into account the net loss for the quarter. The initial adjusted basis of a
purchaser of a Residual Certificate is the amount, if any, paid for such
Residual Certificate. Such adjusted basis will be increased by the amount of
taxable income of the REMIC reportable by the Residual Holder and will be
decreased (but not below zero) first, by a cash distribution from the REMIC and
second, by the amount, if any, of loss of the REMIC reportable by the Residual
Holder. Any loss that is disallowed on account of this limitation may be
carried over in definitely by the Residual Holder for whom such loss was
disallowed and may be used by such Residual Holder only to offset any income
generated by the same REMIC. See ``--Sale or Exchange of a Residual
Certificate'' below regarding possible treatment of a loss upon termination of
the REMIC as a capital loss.
A Residual Certificate may have a negative value if the net
present value of anticipated tax liabilities exceeds the present value of
anticipated cash flows from the respective REMIC. The REMIC Regulations appear
to treat the issue price of the Residual Certificate as zero rather than such
negative amount for purposes of determining the REMIC's basis in its assets.
The preamble to the REMIC Regulations states that the Internal Revenue Service
may provide future guidance on the proper tax treatment of payments made by a
transferor of such a residual interest to induce the transferee to acquire the
interest, and Residual Holders should consult their own tax advisors in this
regard.
Treatment of Certain Items of REMIC Income and Expense.
Although REMIC income and expense will be computed in accordance with the Code
and applicable regulations, the authorities regarding the determination of
specific items of income and expense are subject to uncertainty and differing
interpretations. The Depositor makes no representation as to the specific
method that will be used for reporting income with respect to the Mortgage
Loans or Lower-Tier Regular Interests and expenses with respect to the
Lower-Tier Regular Interests and Regular Certificates. Different methods could
result in different timing of reporting of taxable income or net loss to a
Residual Holder or differences in capital gain versus ordinary income.
Original Issue Discount. Generally, the Upper-Tier REMIC's
deductions for OID will be determined in the same manner as OID income on
Regular Certificates as described above under ``--Taxation of Regular
Certificates--Original Issue Discount'' without regard to the de minimis rule
described therein. The same principles will apply to the aggregated Lower-Tier
Regular Interests held by the Upper-Tier REMIC, which will be treated as having
no qualified stated interest. See ``--Taxation of REMIC Income'' above
concerning the anticipated treatment of the Lower-Tier Regular Interests as a
single debt instrument for OID purposes.
Market Discount. Unless the de minimis rule applies, the
Lower-Tier REMIC will have market discount income in respect of the Mortgage
Loans if, in general, the basis of the Lower-Tier REMIC in the Mortgage Loans
is exceeded by their unpaid principal balances. The Lower-Tier REMIC's basis
in the Mortgage Loans is generally the fair market value of the Mortgage Loans
immediately after the transfer thereof to the Lower-Tier REMIC. The REMIC
Regulations provide that such basis is equal in the aggregate to the issue
price of all regular and residual interests in the REMIC. The accrued portion
of such market discount would be recognized currently as an item of ordinary
income. Market discount income generally will accrue on a constant yield
method.
Premium. If the basis of the Lower-Tier REMIC in the Mortgage
Loans exceeds the unpaid principal balance thereof, the Lower-Tier REMIC will
be considered to have acquired the Mortgage Loans at a premium equal
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to the amount of such excess. As stated above, the Lower-Tier REMIC's basis in
the Mortgage Loans is their fair market value immediately after their transfer
to the Lower-Tier REMIC, based on the aggregate of the issue prices of the
regular and residual interests in the Lower-Tier REMIC. In a manner analogous
to the discussion above under ``--Taxation of Regular Certificates--Acquisition
Premium,'' the Lower-Tier REMIC may elect under Code Section 171 to amortize
premium under a constant interest method. Amortizable bond premium, if any,
will be treated as an offset to interest income on the Mortgage Loans,
rather than as a separate deduction item.
Limitations on Offset or Exemption of REMIC Income. The Code
provides that a portion (and in some cases, all) of the REMIC taxable income
includible in determining the federal income tax liability of a Residual Holder
will be subject to special treatment. That portion, referred to as the ``excess
inclusion,'' is equal to the excess of REMIC taxable income for the calendar
quarter allocable to a Residual Certificate over the daily accruals for such
quarterly period of (i) 120% of the long-term applicable federal rate that
would have applied to the Residual Certificate (if it were a debt instrument)
on the Startup Day under Code Section 1274(d), multiplied by (ii) the adjusted
issue price of such Residual Certificate at the beginning of such quarterly
period. For this purpose, the adjusted issue price of the Residual Certificate
at the beginning of a quarter is the issue price of the Residual Certificate,
plus the amount of such daily accruals of REMIC income described in this
paragraph for all prior quarters, decreased (but not below zero) by any
distributions made with respect to such Residual Certificate prior to the
beginning of such quarterly period. Accordingly, if the issue price of a
Residual Certificate is zero, initially all of the REMIC taxable income is
excess inclusion income.
A Residual Holder's REMIC taxable income consisting of the
excess inclusion income generally may not be offset by other deductions,
including net operating loss carryforwards, on such Residual Holder's return.
Because neither the Class R nor the Class LR Certificates are considered to
have ``significant value,'' the exception to this rule in the case of certain
thrift institutions is inapplicable. Further, if the Residual Holder is an
organization subject to the tax on unrelated business income imposed by Code
Section 511, the Residual Holder's excess inclusions will be treated as
unrelated business taxable income of such Residual Holder for purposes of Code
Section 511. In addition, REMIC taxable income is subject to 30% withholding
tax with respect to certain persons who are not U.S. Persons, and the portion
thereof attributable to excess inclusion income is not eligible for any
reduction in the rate of withholding tax (by treaty or otherwise). The term
``U.S. Person'' means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or an estate or
trust that is subject to U.S. federal income tax regardless of the source of
income. See ``--Taxation of Certain Foreign Investors--Residual Certificates''
below. Finally, if a real estate investment trust or a regulated investment
company owns a Residual Certificate, a portion (allocated under Treasury
regulations yet to be issued) of dividends paid by the real estate investment
trust or regulated investment company could not be offset by net operating
losses of its shareholders, would constitute unrelated business taxable income
for tax-exempt shareholders, and would be ineligible for reduction of
withholding to certain persons who are not U.S. Persons.
TAX-RELATED RESTRICTIONS ON TRANSFER OF RESIDUAL CERTIFICATES
Disqualified Organizations. If any legal or beneficial
interest in a Residual Certificate is transferred to a Disqualified
Organization (as defined below), a tax would be imposed in an amount equal to
the product of (i) the present value of the total anticipated excess inclusion
income with respect to such Residual Certificate for periods after the transfer
and (ii) the highest marginal federal income tax rate applicable to
corporations. The REMIC Regulations provide that the anticipated excess
inclusion income is based on actual prepayment experience to the date of the
transfer and projected payments based on the Prepayment Assumption. The
present value rate equals the applicable federal rate under Code Section
1274(d) as of the date of the transfer for a term ending with the last calendar
quarter in which excess inclusions are expected to accrue. Such rate is
applied to the anticipated excess inclusions from the end of the remaining
calendar quarters in which they arise to the date of the transfer. Such a tax
generally would be imposed on the transferor of the Residual Certificate,
except that where such transfer is through an agent (including a broker,
nominee, or other middleman) for a Disqualified Organization, the tax would
instead be imposed on such agent. However, a transferor of a Residual
Certificate would in no event be liable for such tax with respect to a transfer
if the transferee furnishes to the transferor an affidavit stating that the
transferee is not a Disqualified Organization and, as of the time of the
transfer, the transferor does not have actual knowledge that such affidavit is
false. The tax also may be waived by the Internal Revenue Service if the
Disqualified Organization promptly disposes of the residual interest and the
transferor pays income tax at the highest corporate rate on the excess
inclusion for the period the Residual Certificate is actually held by the
Disqualified Organization.
In addition, if a ``Pass-Through Entity'' (as defined below)
has excess inclusion income with respect to a Residual Certificate during a
taxable year and a Disqualified Organization is the record holder of an equity
interest in such entity, then a tax is imposed on such entity equal to the
product of (i) the amount of excess inclusion income that is allocable to the
interest in the Pass-Through Entity during the period such interest is held by
such Disqualified Organization, and (ii) the highest marginal federal corporate
income tax rate. Such tax would be deductible from the ordinary gross income
of the Pass-Through Entity for the taxable year. The Pass-Through Entity would
not be liable for such tax if it has received an affidavit from such record
holder that it is not a Disqualified Organization or stating
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such holder's taxpayer identification number and, during the period such person
is the record holder of the Residual Certificate, the Pass-Through Entity does
not have actual knowledge that such affidavit is false.
For these purposes, (i) ``Disqualified Organization'' means
the United States, any state or political subdivision thereof, any
foreign government, any international organization, any agency or
instrumentality of any of the foregoing (provided, that such term does not
include an instrumentality if all of its activities are subject to tax and a
majority of its board of directors is not selected by any such governmental
entity), any cooperative organization furnishing electric energy or providing
telephone service to persons in rural areas as described in Code Section
1381(a)(2)(C), and any organization (other than a farmers' cooperative
described in Code Section 521) that is exempt from taxation under the Code
unless such organization is subject to the tax on unrelated business income
imposed by Code Section 511, and (ii) ``Pass-Through Entity'' means any
regulated investment company, real estate investment trust, common trust fund,
partnership, trust or estate and certain corporations operating on a
cooperative basis. Except as may be provided in Treasury regulations, any
person holding an interest in a Pass-Through Entity as a nominee for another
will, with respect to such interest, be treated as a Pass-Through Entity.
The Pooling and Servicing Agreement will provide that no legal
or beneficial interest in a Residual Certificate may be transferred or
registered unless, among other things, (i) the proposed transferee furnishes to
the Trustee an affidavit providing its taxpayer identification number and
stating that such transferee is the beneficial owner of the Residual
Certificate and is not a Disqualified Organization or Disqualified Non-U.S.
Person and is not purchasing such Residual Certificate on behalf of a
Disqualified Organization or Disqualified Non-U.S. Person (i.e., as a broker,
nominee, or middleman thereof) and (ii) the transferor provides a statement in
writing to the Trustee that it has no knowledge that the affirmations made by
the transferee pursuant to such affidavit is false. Moreover, the Pooling and
Servicing Agreement will provide that any attempted or purported transfer in
violation of these transfer restrictions will be null and void and will vest no
rights in any purported transferee. Each Residual Certificate will bear a
legend referring to such restrictions on transfer, and each Residual Holder
will be deemed to have agreed, as a condition of ownership thereof, to any
amendments to the Pooling and Servicing Agreement required under the Code or
applicable Treasury regulations to effectuate the foregoing restrictions.
``Disqualified Non-U.S. Person'' means with respect to a Class R or Class LR
Certificate, any Non-U.S. Person or agent thereof other than (i) a Non-U.S.
Person that holds the Class R or Class LR Certificate in connection with the
conduct of a trade or business within the United States and has furnished the
transferor and the Certificate Registrar with an effective Internal Revenue
Service Form 4224 or (ii) a Non-U.S. Person that has delivered to both the
transferor and the Certificate Registrar an opinion of a nationally recognized
tax counsel to the effect that the transfer of the Class R or Class LR
Certificate to it is in accordance with the requirements of the Code and the
regulations promulgated thereunder and that such transfer of the Class R or
Class LR Certificate will not be disregarded for federal income tax purposes.
Information necessary to compute an applicable excise tax must be furnished to
the Internal Revenue Service and to the requesting party within 60 days of the
request, and the Trustee may charge a fee for computing and providing such
information.
Noneconomic Residual Interests. The REMIC Regulations require
certain transfers of a Residual Certificate to be disregarded, in which case
the transferor would continue to be treated as the owner of the Residual
Certificate and thus would continue to be subject to tax on its allocable
portion of the net income of the REMIC. Under the REMIC Regulations, a
transfer of a noneconomic residual interest (as defined below) to a Residual
Holder (other than a Residual Holder who is not a U.S. Person, as defined
above) is disregarded for all federal income tax purposes if a significant
purpose of the transferor is to impede the assessment or collection of tax. A
residual interest in a REMIC (including a residual interest with a positive
value at issuance) is a ``noneconomic residual interest'' unless, at the time
of the transfer, (i) the present value of the expected future distributions on
the residual interest at least equals the product of the present value of the
anticipated excess inclusions and the highest corporate income tax rate in
effect for the year in which the transfer occurs, and (ii) the transferor
reasonably expects that the transferee will receive distributions from the
REMIC at or after the time at which taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes on each excess
inclusion. The anticipated excess inclusions and the present value rate are
determined in the same manner as set forth above under ``Disqualified
Organizations.'' Under these rules, applying the aggregation rule to the
Lower-Tier Regular Interests as described above under ``Taxation of REMIC
Income,'' it is anticipated that the Class R Certificates and the Class LR
Certificates will be noneconomic residual interests. The REMIC Regulations
explain that a significant purpose to impede the assessment or collection of
tax exists if the transferor, at the time of the transfer, either knew or
should have known that the transferee would be unwilling or unable to pay taxes
due on its share of the taxable income of the REMIC. A safe harbor is provided
if (i) the transferor conducted, at the time of the transfer, a reasonable
investigation of the financial condition of the transferee and found that the
transferee historically had paid its debts as they came due and found no
significant evidence to indicate that the transferee would not continue to pay
its debts as they came due in the future, and (ii) the transferee represents to
the transferor that it understands that, as the holder of the noneconomic
residual interest, the transferee may incur tax liabilities in excess of cash
flows generated by the interest and that the transferee intends to pay taxes
associated with holding the residual interest as they become due. The Pooling
and Servicing Agreement will require the transferee of a Residual Certificate
to certify to, among other things, the matters in the preceding sentence as
part of the affidavit described above under the heading ``Disqualified
Organizations'' and agree to provide the written certification prescribed in
the following sentence if it subsequently transfers a Residual Certificate.
The transferor must
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certify in writing to the Trustee and the Mortgage Servicer that, as of the
date of the transfer, it has no knowledge or reason to know that such
affirmations of the transferee are false.
Foreign Investors. The REMIC Regulations provide that the
transfer of a Residual Certificate that has ``tax avoidance potential''
to a ``foreign person'' will be disregarded for all federal tax purposes. This
rule appears intended to apply to a transferee who is not a U.S. Person, unless
such transferee's income is effectively connected with the conduct of a trade or
business within the United States. A Residual Certificate is deemed to have tax
avoidance potential unless, at the time of the transfer, (i) the future value of
expected distributions equals at least 30% of the anticipated excess inclusions
after the transfer, and (ii) the transferor reasonably expects that the
transferee will receive sufficient distributions from the REMIC at or after the
time at which the excess inclusions accrue and prior to the end of the next
succeeding taxable year for the accumulated withholding tax liability to be
paid. If the non-U.S. Person transfers the Residual Certificate back to a U.S.
Person, the transfer will be disregarded and the foreign transferor will
continue to be treated as the owner unless arrangements are made so that the
transfer does not have the effect of allowing the transferor to avoid tax on
accrued excess inclusions. Under these rules, applying the aggregation rule to
the Lower-Tier Regular Interests as described above under ``Taxation of REMIC
Income,'' it is anticipated that the Class R and Class LR Certificates will have
tax avoidance potential. Accordingly, the Pooling and Servicing Agreement will
provide that the Residual Certificates generally may not be transferred to a
person who is not a U.S. Person unless (i) such person holds such Class R
Certificate or Class LR Certificate in connection with the conduct of trade or
business within the United States and furnishes the transferor and the Trustee
with an effective Internal Revenue Service Form 4224 or (ii) the transferee
delivers to both the transferor and the Trustee an opinion of a nationally
recognized tax counsel to the effect that such transfer is in accordance with
the requirements of the Code and the regulations promulgated thereunder and that
such transfer of the Class R Certificate or Class LR Certificate will not be
disregarded for federal income tax purposes.
Sale or Exchange of a Residual Certificate. Upon the sale or
exchange of a Residual Certificate, the Residual Holder will recognize gain or
loss equal to the excess, if any, of the amount realized over the adjusted
basis (as described above under ``Basis and Losses'') of such Residual Holder
in such Residual Certificate at the time of the sale or exchange. In addition
to reporting the taxable income of the REMIC, a Residual Holder will have
taxable income to the extent that any cash distribution to it from the REMIC
exceeds such adjusted basis on that Distribution Date. Such income will be
treated as gain from the sale or exchange of the Residual Certificate. It is
unclear whether the termination of the REMIC will be treated as a sale or
exchange of a Residual Holder's Residual Certificate. If a termination were
treated as a sale or exchange, and if the Residual Holder had an adjusted basis
in its Residual Certificate remaining when its interest in the REMIC terminated
and held such Residual Certificate as a capital asset under Code Section 1221,
then it would recognize a capital loss at that time in the amount of such
remaining adjusted basis.
Any gain on the sale of a Residual Certificate will be treated
as ordinary income (i) if a Residual Certificate is held as part of a
``conversion transaction'' as defined in Code Section 1258(c), up to the amount
of interest that would have accrued on the Residual Certificateholder's net
investment in the conversion transaction at 120% of the appropriate applicable
federal rate in effect at the time the taxpayer entered into the transaction
minus any amount previously treated as ordinary income with respect to any
prior disposition of property that was held as a part of such transaction or
(ii) in the case of a non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d)(4) to have net capital gains taxed
as investment income at ordinary income rates. In addition, gain or loss
recognized from the sale of a Residual Certificate by certain banks or thrift
institutions will be treated as ordinary income or loss pursuant to Code
Section 582(c).
The Conference Committee Report to the 1986 Act provides that,
except as provided in Treasury regulations yet to be issued, the wash sale
rules of Code Section 1091 will apply to dispositions of residual interests
where the seller of the residual interest, during the period beginning six
months before the sale or disposition of the residual interest and ending six
months after such sale or disposition, acquires (or enters into any other
transaction that results in the application of Code Section 1091) any residual
interest in any REMIC or any interest in a ``taxable mortgage pool'' (such as a
non-REMIC owner trust) that is economically comparable to a residual interest.
Limitations on Deduction of Certain Expenses. A Residual
Holder who is an individual, estate, or trust will be subject to limitation
with respect to certain itemized deductions described in Code Section 67, to
the extent that such itemized deductions, in the aggregate, do not exceed 2% of
the investor's adjusted gross income. In addition, Code Section 68 provides
that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser of (i) 3% of the excess, if
any, of adjusted gross income over $100,000 ($50,000 in the case of a married
individual filing a separate return), subject to post-1991 adjustments for
inflation, or (ii) 80% of the amount of itemized deductions otherwise allowable
for such year. In the case of a REMIC, such deductions may include deductions
under Code Section 212 for the Servicing Fee and all administrative and other
non-interest expenses relating to the REMIC. Such an investor who holds a
Residual Certificate either directly or indirectly through certain pass-through
entities may have its pro rata share of such expenses allocated to it as
additional gross income, but may be subject to such limitation on deductions.
In addition, such expenses are not deductible at all for purposes of
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computing the alternative minimum tax, and as a result may cause such an
investor to be subject to significant additional tax liability. Temporary
Treasury regulations provide that the additional gross income and corresponding
amount of expenses generally are to be allocated entirely to the holder of a
Residual Certificate in the case of a REMIC that would not qualify as a
fixed investment trust in the absence of a REMIC election. As a result, Residual
Holders that are individuals, estates or trusts (in each case, holding Residual
Certificates either directly or indirectly through a grantor trust,
partnership, S corporation, or certain other pass-through entities described in
the foregoing temporary Treasury regulations) may have taxable income in excess
of cash distributions for the related period on the Residual Certificates.
Unless and until applicable authority provides otherwise, the Trustee intends
to treat all such expenses as incurred by the Lower-Tier REMIC and, therefore,
as allocable to the holder of the Class LR Certificates.
Mark to Market Regulations. Prospective purchasers of the
Residual Certificates should be aware that on January 3, 1995, the Internal
Revenue Service released proposed regulations (the ``Proposed Mark to Market
Regulations'') under Code Section 475 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 of a dealer, except to the
extent that the dealer has specifically identified a security as held for
investment. The Proposed Mark to Market Regulations provide that, for purposes
of this mark-to-market requirement, a Residual Certificate would not be treated
as a security and thus may not be marked to market. The Proposed Mark to
Market Regulations would apply to all Residual Certificates acquired on or
after January 4, 1995.
TAXES THAT MAY BE IMPOSED ON THE REMIC
Prohibited Transactions. Income from certain transactions by
the REMIC, called prohibited transactions, will not be part of the calculation
of income or loss includible in the federal income tax returns of Residual
Holders, but rather will be taxed directly to the REMIC at a 100% rate.
Prohibited transactions generally include (i) the disposition of a qualified
mortgage other than for (a) substitution within two years of the Startup Day
for a defective (including a defaulted) obligation (or repurchase in lieu of
substitution of a defective (including a defaulted) obligation at any time) or
for any qualified mortgage within three months of the Startup Day, (b)
foreclosure, default, or imminent default of a qualified mortgage, (c)
bankruptcy or insolvency of the REMIC, or (d) a qualified (complete)
liquidation, (ii) the receipt of income from assets that are not the type of
mortgages or investments that the REMIC is permitted to hold, (iii) the receipt
of compensation for services, or (iv) the receipt of gain from disposition of
cash flow investments other than pursuant to a qualified liquidation.
Notwithstanding (i) and (iv), it is not a prohibited transaction to sell REMIC
property to prevent a default on regular interests as a result of a default on
qualified mortgages or to facilitate a qualified liquidation or a clean-up
call. The REMIC Regulations indicate that the modification of a Mortgage Loan
generally will not be treated as a disposition if it is occasioned by a default
or reasonably foreseeable default, an assumption of the Mortgage Loan, or the
waiver of a due-on-sale or due-on encumbrance clause. It is not anticipated
that either REMIC will engage in any prohibited transaction.
Contributions to a REMIC After the Startup Day. In general, a
REMIC will be subject to a tax at a 100% rate on the value of any property
contributed to the REMIC after the Startup Day. Exceptions are provided for
cash contributions to the REMIC (i) during the three months following the
Startup Day, (ii) made to a qualified reserve fund by a Residual Holder, (iii)
in the nature of a guarantee, (iv) made to facilitate a qualified liquidation
or clean-up call, and (v) as otherwise permitted in Treasury regulations yet to
be issued. It is not anticipated that there will be any taxable contributions
to either REMIC.
Net Income from Foreclosure Property. The Lower-Tier REMIC
will be 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. Generally, property acquired by
foreclosure or deed in lieu of foreclosure would be treated as ``foreclosure
property'' for a period of two years, with possible extensions. Net income
from foreclosure property generally means gain from the sale of a foreclosure
property that is inventory property and gross income from foreclosure property
other than qualifying rents and other qualifying income for a real estate
investment trust. Examples of taxable net income from foreclosure property
include net income received as a result of the operation and management of a
trade or business on the foreclosure property by an independent contractor
(within the meaning of the rules applicable to real estate investment trusts),
income from the furnishing or rendering of services to the tenants of such
foreclosure property by such independent contractor, to the extent that such
services are not customarily furnished to tenants in properties of a similar
class in the geographic market in which the property is located, and rental
income based on the net profits of a tenant.
LIQUIDATION OF THE REMIC
If a REMIC adopts a plan of complete liquidation, within the
meaning of Code Section 860F(a)(4)(A)(i), which may be accomplished by
designating in the REMIC's final tax return a date on which such adoption is
deemed to occur, and sells all of its assets (other than cash) within a 90-day
period beginning on such date, the REMIC will recognize no gain or loss on the
sale of its assets, provided that the REMIC credits or distributes in
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liquidation all of the sale proceeds plus its cash (other than amounts retained
to meet claims) to holders of regular and residual interests within the 90-day
period.
ADMINISTRATIVE MATTERS
Treasury regulations provide that, except where there is a
single Residual Holder for an entire taxable year, a REMIC will be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination by the Internal Revenue Service of any
adjustments to, among other things, items of REMIC income, gain, loss, deduction
or credit in a unified administrative proceeding. If so required by the Code,
the holder of the largest percentage interest of each of the Class R and Class
LR Certificates will be obligated to act as the ``tax matters person'' for the
Upper-Tier REMIC and Lower-Tier REMIC, respectively. Any holder of a Class R or
Class LR Certificate, as a condition of its acceptance thereof, will be required
to irrevocably designate the Trustee as agent in performing the functions of the
tax matters person of the Upper-Tier REMIC and Lower-Tier REMIC, respectively.
TAXATION OF CERTAIN FOREIGN INVESTORS
Regular Certificates. Interest, including OID, distributable
to holders of Regular Certificates who are non-resident aliens, foreign
corporations, or other Non-U.S. Persons (i.e., any person who is not a U.S.
Person, will be considered ``portfolio interest'' and, therefore, generally
will not be subject to a 30% United States withholding tax, provided that such
Non-U.S. Person (i) is not a ``10-percent shareholder'' within the meaning of
Code Section 871(h)(3)(B) or a controlled foreign corporation described in Code
Section 881(c)(3)(C) with respect to the Trust Fund or the Depositor and (ii)
provides the Trustee, or the person who would otherwise be required to withhold
tax from such distributions under Code Section 1441 or 1442, with an
appropriate statement, signed under penalties of perjury, identifying the
beneficial owner and stating, among other things, that the beneficial owner of
the Regular Certificate is a Non-U.S. Person. If such statement, or any other
required statement, is not provided, 30% withholding will apply unless reduced
or eliminated pursuant to an applicable tax treaty or unless the interest on
the Regular Certificate is effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Person. In the latter
case, such Non-U.S. Person will be subject to United States federal income tax
at regular rates. Investors who are Non-U.S. Persons should consult their own
tax advisors regarding the specific tax consequences to them of owning a
Regular Certificate.
Residual Certificates. The Conference Committee Report to the
1986 Act indicates that amounts paid to Residual Holders who are Non-U.S.
Persons are treated as interest for purposes of the 30% (or lower treaty rate)
United States withholding tax. Treasury regulations provide that amounts
distributed to Residual Holders may generally qualify as ``portfolio
interest,'' subject to the conditions described in ``Regular Certificates''
above, but only to the extent that the assets of the REMIC to which the
Residual Certificate relates consist of obligations issued in ``registered
form'' within the meaning of Code Section 163(f)(1). Generally, the Mortgage
Loans will not be, but the Lower-Tier Regular Interests will be, considered
obligations issued in registered form. Furthermore, a Residual Holder will not
be entitled to any exemption from the 30% withholding tax (or lower treaty
rate) to the extent of that portion of REMIC taxable income that constitutes an
``excess inclusion.'' See ``--Taxation of the Class R and Class LR
Certificates--Limitations on Offset or Exemption of REMIC Income.'' If the
amounts paid to Residual Holders who are Non-U.S. Persons are effectively
connected with the conduct of a trade or business within the United States, by
such Non-U.S. Persons, 30% (or lower treaty rate) withholding will not apply.
Instead, the amounts paid to such Non-U.S. Persons will be subject to United
States federal income tax at regular rates. See ``--Taxation of the Class R
and Class LR Certificates--Tax-Related Restrictions on Transfers of Residual
Certificates--Foreign Investors'' above concerning the disregard of certain
transfers having ``tax avoidance potential.'' Transfers of Residual
Certificates to Non-U.S. Persons are generally prohibited unless the income
thereon is effectively connected as described above.
BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds
from the sale of the Regular Certificates to or through certain brokers, may be
subject to a ``backup'' withholding tax under Code Section 3406 at the rate of
31% on ``reportable payments'' (including interest distributions, OID, and,
under certain circumstances, principal distributions) unless the
Certificateholder complies with certain reporting and/or certification
procedures, including the provision of its taxpayer identification number to
the Trustee, its agent or the broker who effected the sale of the Regular
Certificate, or such Certificateholder is otherwise an exempt recipient under
applicable provisions of the Code. Any amounts to be withheld from
distribution on the Regular Certificates would be refunded by the Internal
Revenue Service or allowed as a credit against the Certificateholder's federal
income tax liability.
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REPORTING REQUIREMENTS
Each of the Upper-Tier REMIC and the Lower-Tier REMIC will
be required to maintain its books on a calendar year basis and to file
federal income tax returns in a manner similar to a partnership. The form for
such returns is Form 1066, U.S. Real Estate Mortgage Investment Conduit Income
Tax Return. The Trustee will be required to sign each REMIC's returns.
Reports of accrued interest, OID, if any, and information
necessary to compute the accrual of any market discount on the Regular
Certificates will be made annually to the Internal Revenue Service and to
individuals, estates, non-exempt and non-charitable trusts, and partnerships
who are either holders of record of Regular Certificates or beneficial owners
who own Regular Certificates through a broker or middleman as nominee. All
brokers, nominees and all other non-exempt holders of record of Regular
Certificates (including corporations, non-calendar year taxpayers, securities
or commodities dealers, real estate investment trusts, investment companies,
common trust funds, thrift institutions and charitable trusts) may request such
information for any calendar quarter by telephone or in writing by contacting
the person designated in Internal Revenue Service Publication 938 with respect
to the Upper-Tier REMIC and Lower-Tier REMIC. Holders through nominees must
request such information from the nominee.
The Internal Revenue Service's Form 1066 has an accompanying
Schedule Q, Quarterly Notice to Residual Interest Holders of REMIC Taxable
Income or Net Loss Allocation. Treasury regulations require that Schedule Q be
furnished by the Trust Fund to each Residual Holder by the end of the month
following the close of each calendar quarter (41 days after the end of a
quarter under proposed Treasury regulations) in which the REMIC is in
existence.
Treasury regulations require that, in addition to the
foregoing requirements, information must be furnished quarterly to Residual
Holders and filed annually with the Internal Revenue Service concerning Code
Section 67 expenses (see ``--Taxation of the Class R and Class LR
Certificates--Limitations on Deduction of Certain Expenses'' above) allocable
to such holders. Furthermore, under such regulations, information must be
furnished quarterly to Residual Holders, furnished annually to holders of
Regular Certificates, and filed annually with the Internal Revenue Service
concerning the percentage of the REMIC's assets meeting the qualified asset
tests described above under ``--Status of the Certificates.''
DUE TO THE COMPLEXITY OF THESE RULES AND THE CURRENT
UNCERTAINTY AS TO THE MANNER OF THEIR APPLICATION TO THE TRUST FUND AND
CERTIFICATEHOLDERS, IT IS PARTICULARLY IMPORTANT THAT POTENTIAL INVESTORS
CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX TREATMENT OF THEIR
ACQUISITION, OWNERSHIP AND DISPOSITION OF THE CERTIFICATES.
ERISA CONSIDERATIONS
GENERAL
The Class B, Class C, Class D, Class E, Class F, Class G,
Class H, Class J-1, Class J-2, Class R and Class LR Certificates may not be
purchased by or transferred to an employee benefit plan or other retirement
arrangement, including an individual retirement account or a Keogh plan, which
is subject to the Employee Retirement Income Security Act of 1974, as amended
(``ERISA'') or Section 4975 of the Code, or a governmental plan subject to any
federal, state or local law (``Similar Law'') which is, to a material extent,
similar to the foregoing provisions of ERISA or the Code (each, a ``Plan''), or
a collective investment fund in which such Plans are invested, other persons
acting on behalf of any such Plan or using the assets of any such Plan, or any
entity whose underlying assets include plan assets by reason of a Plan's
investment in the entity (within the meaning of Department of Labor Regulations
Section 2510.3-101) other than an insurance company using the assets of its
general account under circumstances whereby such purchase and the subsequent
holding of such Certificates would not constitute or result in a prohibited
transaction within the meaning of Section 406 or 407 of ERISA, Section 4975 of
the Code, or a materially similar characterization under any Similar Law.
Accordingly, the following discussion does not purport to discuss the
considerations under ERISA or Code Section 4975 with respect to the purchase,
holding or disposition of the Class B, Class C, Class D, Class E, Class F,
Class G, Class H, Class J-1, Class J-2, Class R and Class LR Certificates.
ERISA and the Code impose certain duties and restrictions on
Plans and certain persons who perform services for Plans. For example, unless
exempted, investment by a Plan in the Certificates may constitute or give rise
to a prohibited transaction under ERISA or the Code. There are certain
exemptions issued by the United States Department of Labor (the ``Department'')
that may be applicable to an investment by a Plan in the Offered Certificates,
including the individual administrative exemption described below.
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Before purchasing any Offered Certificates, a Plan fiduciary
should consult with its counsel and determine whether there exists any
prohibition to such purchase under the requirements of ERISA, whether the
individual administrative exemption (as described below) applies, including
whether the appropriate conditions set forth therein would be met, or whether
any statutory prohibited transaction exemption is applicable.
CERTAIN REQUIREMENTS UNDER ERISA
General. In accordance with ERISA's general fiduciary
standards, before investing in a Certificate a Plan fiduciary should determine
whether to do so is permitted under the governing Plan instruments and is
appropriate for the Plan in view of its overall investment policy and the
composition and diversification of its portfolio. A Plan fiduciary should
especially consider the ERISA requirement of investment prudence and the
sensitivity of the return on the Certificates to the rate of principal
repayments (including voluntary prepayments by the borrowers and involuntary
liquidations) on the Mortgage Loans, as discussed in ``YIELD CONSIDERATIONS''
herein.
Parties in Interest/Disqualified Persons. Other provisions of
ERISA (and corresponding provisions of the Code) prohibit certain transactions
involving the assets of a Plan and persons who have certain specified
relationships to the Plan (so-called ``parties in interest'' within the meaning
of ERISA or ``disqualified persons'' within the meaning of the Code). The
Depositor, the Servicer, the Special Servicer, or the Trustee or certain
affiliates thereof might be considered or might become ``parties in interest''
or ``disqualified persons'' with respect to a Plan. If so, the acquisition or
holding of Certificates by or on behalf of such Plan could be considered to
give rise to a ``prohibited transaction'' within the meaning of ERISA and the
Code unless an administrative exemption described below or some other exemption
is available. Special caution should be exercised before the assets of a Plan
are used to purchase a Certificate if, with respect to such assets, the
Depositor, the Servicer, the Special Servicer, or the Trustee or an affiliate
thereof, either: (a) has investment discretion with respect to the investment
of such assets of such Plan; or (b) has authority or responsibility to give or
regularly gives investment advice with respect to such assets for a fee and
pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such assets and that
such advice will be based on the particular investment needs of the Plan.
Delegation of Fiduciary Duty. Further, if the assets included
in the Trust Fund were deemed to constitute Plan assets, it is possible that a
Plan's investment in the Certificates might be deemed to constitute a
delegation, under ERISA, of the duty to manage Plan assets by the fiduciary
deciding to invest in the Certificates, and certain transactions involved in
the operation of the Trust Fund might be deemed to constitute prohibited
transactions under ERISA and the Code. Neither ERISA nor the Code define the
term ``plan assets.''
The U.S. Department of Labor (the ``Department'') has
published final regulations (the ``Regulations'') concerning whether or not a
Plan's assets would be deemed to include an interest in the underlying assets
of an entity (such as the Trust Fund) for purposes of the reporting and
disclosure and general fiduciary responsibility provisions of ERISA, as well as
for the prohibited transaction provisions of ERISA and the Code, if the Plan
acquires an ``equity interest'' (such as a Certificate) in such an entity.
Certain exceptions are provided in the Regulations whereby an
investing Plan's assets would be deemed merely to include its interest in the
Certificates instead of being deemed to include an interest in the underlying
assets of a Trust Fund. However, the Depositor cannot predict in advance, nor
can there be any continuing assurance, whether such exceptions may be met,
because of the factual nature of certain of the rules set forth in the
Regulations. For example, one of the exceptions in the Regulations states that
the underlying assets of an entity will not be considered ``plan assets'' if
less than 25% of the value of any class of equity interests is held by
``benefit plan investors,'' which are defined as Plans, IRAs, and employee
benefit plans not subject to ERISA (for example, governmental plans), but this
exception is tested immediately after each acquisition of an equity interest in
the entity whether upon initial issuance or in the secondary market.
ADMINISTRATIVE EXEMPTIONS
Individual Administrative Exemptions. The Department has
granted to the Underwriter an individual administrative exemption (Prohibited
Transaction Exemption 90-32, 55 Fed. Reg. 23147 (June 6, 1990)) referred to
herein as the ``Exemption,'' for certain mortgage-backed and asset backed
certificates underwritten in whole or in part by the Underwriter. The
Exemption might be applicable to the initial purchase, the holding, and the
subsequent resale by a Plan of certain certificates, such as the Class A-1
Certificates, Class A-2 Certificates and Class A-EC Certificates, underwritten
by the Underwriter, representing interests in pass-through trusts that consist
of certain receivables, loans and other obligations, provided that the
conditions and requirements of the Exemption are satisfied. The loans
described in the Exemption include mortgage loans such as the Mortgage Loans.
Among the conditions that must be satisfied for the Exemption
to apply are the following:
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(1) The acquisition of certificates by a Plan is on terms
(including the price for the certificates) that are at least as favorable to the
Plan as they would be in an arm's length transaction with an unrelated
party;
(2) The rights and interests evidenced by certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust fund;
(3) The certificates acquired by the Plan have received a
rating at the time of such acquisition that is one of the three highest generic
rating categories from any of S&P, Moody's, Duff & Phelps or Fitch;
(4) The trustee must not be an affiliate of any other
member of the Restricted Group (as defined below);
(5) The sum of all payments made to and retained by the
Underwriter in connection with the distribution of certificates represents not
more than reasonable compensation for underwriting the certificates. The sum
of all payments made to and retained by the depositor pursuant to the
assignment of the mortgage loans to the trust fund represents not more than the
fair market value of such mortgage loans. The sum of all payments made to and
retained by the master servicer and any other servicer represents not more than
reasonable compensation for such person's services under the pooling and
servicing agreement and reimbursement of such person's reasonable expenses in
connection therewith; and
(6) The Plan investing in the certificates is an
``accredited investor'' as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the 1933 Act.
The trust fund must also meet the following requirements:
(a) the corpus of the trust fund must consist solely of
assets of the type that have been included in other investment pools;
(b) certificates in such other investment pools must have
been rated in one of the three highest rating categories of S&P, Moody's, Fitch
or Duff & Phelps for at least one year prior to the Plan's acquisition of the
certificates pursuant to the Exemption; and
(c) certificates evidencing interests in such other
investment pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of the certificates pursuant to
the Exemption.
If the conditions of the Exemption are met, whether or not a
Plan's assets would be deemed to include an ownership interest in the Mortgage
Loans in the Mortgage Pool, the acquisition, holding and resale of the Class
A-1, Class A-2 or Class A-EC Certificates by Plans would be exempt from the
prohibited transaction provisions of ERISA and the Code.
Moreover, the Exemption can provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur if a
Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on the receivables, loans or
obligations held in the trust provided that, among other requirements, (a) in
the case of an acquisition in connection with the initial issuance of
certificates, at least fifty percent of each class of certificates in which
Plans have invested is acquired by persons independent of the Restricted Group
and at least fifty percent of the aggregate interest in the trust is acquired
by persons independent of the Restricted Group (as defined below); (b) such
fiduciary (or its affiliate) is an obligor with respect to five percent or less
of the fair market value of the obligations contained in the trust; (c) the
Plan's investment in certificates of any class does not exceed twenty-five
percent of all of the certificates of that class outstanding at the time of the
acquisitions; and (d) immediately after the acquisition no more than
twenty-five percent of the assets of the Plan with respect to which such person
is a fiduciary are invested in certificates representing an interest in one or
more trusts containing assets sold or served by the same entity.
The Exemption does not apply to the purchasing or holding of
Class A-1, Class A-2 or Class A-EC Certificates by Plans sponsored by the
Depositor, the Underwriter, the Trustee, the Servicer, the Special Servicer,
any obligor with respect to Mortgage Loans included in the Trust Fund
constituting more than five percent of the aggregate unamortized principal
balance of the assets in the Trust Fund, or any affiliate of such parties (the
``Restricted Group'').
THE CHARACTERISTICS OF THE CLASS B, CLASS C, CLASS D, CLASS E,
CLASS F, CLASS G, CLASS H, CLASS J-1, CLASS J-2, CLASS R AND CLASS LR
CERTIFICATES DO NOT MEET THE REQUIREMENTS OF THE EXEMPTION. ACCORDINGLY, SUCH
CERTIFICATES MAY NOT BE ACQUIRED BY A PLAN.
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Before purchasing a Class A-1, Class A-2 or Class A-EC
Certificate, a fiduciary of a plan should make its own determination as to the
availability of the exemptive relief provided by the Exemption or the
availability of any other prohibited transaction exemptions, and whether the
conditions of any such exemption will be applicable to the Class A-1, Class A-2
or Class A-EC Certificates.
Any fiduciary of a Plan (including an entity that is
deemed to hold Plan assets for purposes of ERISA and the Code) considering
whether to purchase a Class A-1, Class A-2 or Class A-EC Certificate should
also carefully review with its own legal advisors the applicability of the
fiduciary duty and prohibited transaction provisions of ERISA and the Code to
such investment.
A governmental plan as defined in Section 3(32) of ERISA is
not subject to ERISA, or Code Section 4975. However, such a governmental plan
may be subject to a federal, state, or local law, which is, to a material
extent, similar to the provisions of ERISA or Code Section 4975 (``Similar
Law''). A fiduciary of a governmental plan should make its own determination
as to the need for and the availability of any exemptive relief under any
Similar Law.
The sale of Class A-1, Class A-2 or Class A-EC Certificates to
a Plan is in no respect a representation by the Depositor or the Underwriter
that this investment meets all relevant legal requirements with respect to
investments by Plans generally or any particular Plan, or that this investment
is appropriate for Plans generally or any particular Plan.
UNRELATED BUSINESS TAXABLE INCOME; RESIDUAL CERTIFICATES
The purchase of a Residual Certificate by any employee benefit
plan qualified under Code Section 401(a) and exempt from taxation under Code
Section 501(a), including most varieties of ERISA Plans, may give rise to
``unrelated business taxable income'' as described in Code Sections 511-515 and
860E. Further, prior to the purchase of Residual Certificates, a prospective
transferee may be required to provide an affidavit to a transferor that it is
not, nor is it purchasing a Residual Certificate on behalf of, a ``Disqualified
Organization,'' which term as defined above includes certain tax-exempt
entities not subject to Code Section 511 including certain governmental plans,
as discussed above under the caption ``CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--Taxation of the Class R and Class LR Certificates--Tax-Related
Restrictions on Transfer of Residual Certificates--Disqualified
Organizations.''
LEGAL INVESTMENT
The Certificates will not constitute ``mortgage related
securities'' for purposes of the Secondary Mortgage Market Enhancement Act of
1984 (``SMMEA''). The appropriate characterization of the Certificates under
various legal investment restrictions, and thus the ability of investors
subject to these restrictions to purchase the Certificates, may be subject to
significant interpretive uncertainties.
The Depositor makes no representations as to the proper
characterization of the Certificates for legal investment purposes, financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase the Certificates under applicable legal
investment restrictions. These uncertainties may adversely affect the
liquidity of the Certificates. Accordingly, all institutions whose investment
activities are subject to legal investment laws and regulations, regulatory
capital requirements or review by regulatory authorities should consult with
their own legal advisors in determining whether and to what extent the
Certificates constitute a legal investment or are subject to investment,
capital or other restrictions.
PLAN OF DISTRIBUTION
Prudential Securities Incorporated (the ``Underwriter'') has
agreed, pursuant to an Underwriting Agreement dated December 22, 1995 (the
``Underwriting Agreement'') to purchase the Certificates from the Depositor, an
affiliate of the Underwriter. The Certificates will be offered by the
Underwriter in negotiated transactions or otherwise, on varying terms (which
may include the sale of separate financial instruments by the Underwriter or an
affiliate) and at varying prices, in each case to be determined at the time of
sale. The Underwriter may effect such transactions by selling such
Certificates to or through dealers, and such dealers may receive compensation
in the form of underwriting discounts, concessions or commissions from the
Underwriter or purchasers of the Certificates for whom they may act as agent.
Any dealers that participate with the Underwriter in the distribution of the
Certificates purchased by the Underwriter may be deemed to be underwriters, and
any discounts or commissions received by them or the Underwriter and any profit
on the resale of Certificates by them or the Underwriter may be deemed to be
underwriting discounts or commissions under the 1933 Act.
The Underwriting Agreement provides that the obligations of
the Underwriter are subject to certain conditions precedent and the Underwriter
will be obligated to purchase all of the Certificates if any are purchased.
The
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<PAGE> 125
Depositor has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the 1933 Act, or contribute to payments that the
Underwriter may be required to make in respect thereof.
The Depositor also has been advised by the Underwriter that
it currently expects to make a market in the Certificates, however, it
has no obligation to do so. Any market making may be discontinued at any time,
and there can be no assurance that an active public market for the Certificates
will develop. The Underwriter is an affiliate of the Depositor. For further
information regarding any offer or sale of the Certificates pursuant to this
Prospectus Supplement and Prospectus, see ``PLAN OF DISTRIBUTION'' in the
Prospectus.
USE OF PROCEEDS
The net proceeds from the sale of Certificates will be used by
the Depositor to pay the purchase price of the Mortgage Loans.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor
and for the Underwriter by O'Melveny & Myers.
RATINGS
It is a condition to issuance of the Certificates that the
Class A-1 and Class A-2 Certificates be rated ``AAA'' by each of Fitch, Duff &
Phelps and S&P; the Class A-EC Certificates be rated ``AAA'' by each of Fitch
and Duff & Phelps and ``AAAr'' by S&P; the Class B Certificates be rated
``AAA'' by Fitch, ``AA+'' by Duff & Phelps and ``AA'' by S&P; the Class C
Certificates be rated ``AA'' by each of Fitch and Duff & Phelps and ``A+'' by
S&P; the Class D Certificates be rated ``AA-'' by Fitch, ``A+'' by Duff &
Phelps and ``A-'' by S&P; the Class E Certificates be rated ``BBB'' by Fitch
and Duff & Phelps and ``BBB-'' by S&P; the Class F Certificates be rated
``BBB-'' by Fitch and Duff & Phelps; the Class G Certificates be rated ``BB''
by S&P and ``BB-'' by Fitch and Duff & Phelps; and the Class H Certificates be
rated ``B'' by S&P and ``B-'' by Fitch and Duff & Phelps. The Class J-1, Class
J-2, Class R and Class LR Certificates are unrated. S&P's rating of the Class
A-EC Certificates shall expire on the earlier to occur of (i) the EC Maturity
Date and (ii) the first Distribution Date on which the Class A-EC Notional
Component A is reduced to zero. Duff & Phelps' rating of the Class A-EC
Certificates shall expire on the earlier to occur of (i) the EC Maturity Date
and (ii) the first Distribution Date on which the Class A-EC Notional Balance
is reduced to zero.
The Rating Agencies' ratings on mortgage pass-through
certificates address the likelihood of the receipt by holders of payments to
which they are entitled by the Rated Final Distribution Date. The Rating
Agencies' ratings take into consideration the credit quality of the mortgage
pool, structural and legal aspects associated with the Certificates, and the
extent to which the payment stream in the mortgage pool is adequate to make
payments required under the Certificates. Ratings on mortgage pass-through
certificates do not, however, represent an assessment of the likelihood, timing
or frequency of principal prepayments by borrowers or the degree to which such
prepayments (both voluntary and involuntary) might differ from those originally
anticipated. The security ratings do not address the possibility that
Certificateholders might suffer a lower than anticipated yield. In addition,
ratings on mortgage pass-through certificates do not address the likelihood of
receipt of Prepayment Premiums or the timing of the receipt thereof or the
likelihood of collection by the Servicer of Default Interest. In general, the
ratings thus address credit risk and not prepayment risk. As described herein,
the amounts payable with respect to the Class A-EC Certificates consist only of
interest. If the entire pool of Mortgage Loans were to prepay in the initial
month, with the result that the Class A-EC Certificateholders receive only a
single month's interest and thus suffer a nearly complete loss of their
investment, all amounts ``due'' to such Holders will nevertheless have been
paid, and such result is consistent with the ``AAA'' rating received on the
Class A-EC Certificates.
There can be no assurance as to whether any rating agency not
requested to rate the Certificates will nonetheless issue a rating and, if so,
what such rating would be. A rating assigned to the Certificates by a rating
agency that has not been requested by the Depositor to do so may be lower than
the rating assigned by the Rating Agencies pursuant to the Depositor's request.
The rating of the Certificates should be evaluated
independently from similar ratings on other types of securities. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
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<PAGE> 126
INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
DEFINITIONS PAGE
- ----------- ----
<S> <C>
1933 Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
1986 Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-111
1994 Net Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
ACMs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Acquired Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
Advance Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-97
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-96
Aggregate Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-104
Anticipated Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-96
Appraised Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-87
Appropriate Treasury Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
Assumed Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-7
Assumed Scheduled Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Auction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
Auction Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17, S-18, S-104
Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
Available Funds Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Balloon Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-32
Balloon Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-32
Book-Entry Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-71
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-93
Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Certificate Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-73
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-2, S-5
Class A-EC Notional Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
Class Interest Distribution Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13, S-63
Class Interest Shortfall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Class J-2 Notional Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
Class J-2 Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-109
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-97
Collection Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Commitment Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-87
Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
Condemnation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
Congregate Care Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-25
Congregate Care Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-25
Constant Prepayment Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-77
CPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-77
Cross-Collateralized Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
Cut-off Date Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8, S-25
Default Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-36, S-62
Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Definitive Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-71
Delivery Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Discount Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-69
Disposition Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-107
Disqualified Non-U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-117
Disqualified Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Distribution Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-97
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-61
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-8
Duff & Phelps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
EC Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-11
Eligible Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-97
</TABLE>
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<PAGE> 127
<TABLE>
<S> <C>
Environmental Consultant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
Environmental Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-93
Environmental Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-93
EPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19, S-121
Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-100
Extension Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-102
Fee Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-91
Fiscal Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Fitch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-93
Hotel Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-26
Hotel Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-26
Initial Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8, S-25
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Interest Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Lead Paint Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Lennar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
Light Industrial/Industrial Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-26
Light Industrial/Industrial Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
Loan Portfolio Analysis System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-104
Loan Purchase Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
Lockout Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
Lower-Tier Regular Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18, S-109
Lower-Tier REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-18, S-109
LPAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-104
LTV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Major Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-54
Master Mortgage Loan Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
Midland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-57
Mobile Home Park Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-26
Mobile Home Park Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-26
Monthly Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-32
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
Mortgage File . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-84
Mortgage Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-85
Mortgage Loan Purchase and Sale Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
Mortgage Loan Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-8, S-25
Mortgage Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-32
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Multifamily Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-25
Multifamily Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-25
Net Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Net REO Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Newly Originated Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-32
Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
Notional Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
Nursing Home Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-25
Nursing Home Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-25
Offered Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Office Building Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-26
Office Building Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-26
Office/Multifamily/Retail Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-26
Office/Multifamily/Retail Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-26
Office/Warehouse Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-26
Office/Warehouse Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
Official Warehouse Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-111
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-111
Originators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
</TABLE>
S-127
<PAGE> 128
<TABLE>
<S> <C>
P&I Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
P&I Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Participation Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
Pass-Through Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-116, S-117
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-64
Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-72
Percentage Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-97
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-121
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
Pooled Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
Pooled Principal Distribution Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Pooling and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-5, S-82
Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-112
Prepayment Interest Shortfall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
Prepayment Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
Principal Distribution Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
Principal Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Private Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Property Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-96
PSRFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
Rating Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Realized Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-69
Regular Certificateholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-111
Regular Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-18, S-120
Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-122
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-18, S-109, S-114
REMIC Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-109
Remittance Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-96
REO Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
REO Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
REO Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
Repurchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-94
Reserve Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
Residual Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-114
Residual Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-114
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-123
Retail Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-26
Retail Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Retail/Multifamily Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-26
Retail/Multifamily Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-26
Retail/Office Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-26
Retail/Office Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
S&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Scheduled Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-70
Seaport Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-8, S-25
Seaport Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-8, S-25
Seaport Participation Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
Seaport Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Self-Storage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-26
Self-Storage Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-26
Senior Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Seriously Delinquent Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-96
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-57
Servicer Mortgage File . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-84
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-106
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-106
Similar Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-121
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-124
Special Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-59, S-106
Special Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-107
Specially Serviced Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-106
Startup Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-110
Subordinate Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
</TABLE>
S-128
<PAGE> 129
<TABLE>
<S> <C>
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Trust REMICs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-6
Trustee Mortgage File . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-82
U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-116
ULLICO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-11
ULLICO Mortgage Loan Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-6, S-124
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-124
Underwritten Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Unscheduled Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Updated Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-102
Upper-Tier REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-18, S-109
USTs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-101
Weighted Average Net Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12, S-64
Whole Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-8, S-25
Yield Maintenance Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
Yield Maintenance Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
Zoning Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
</TABLE>
S-129
<PAGE> 130
ANNEX A
TABLE A: COLLATERAL PROPERTIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NET MOST
YEAR YEAR RENTABLE CURRENT RECENT RENT
LOAN # PROPERTY NAME PROPERTY TYPE BUILT RENOVATED SQ. FT. UNITS OCCUP. ROLL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Star Markets - Cambridge Retail 1953 1988 84,323 100.00% 10/1/95
2 Star Markets - Quincy Retail 1964 1995 102,764 100.00% 11/15/95
3 3307 M Street NW Commercial/Residential 1991 60,010 88.50% 11/1/95
4 Ceasar Figoni Properties Multifamily 1965 210,390 256 98.83% 10/18/95
5 2982 Grand Avenue Retail/Office 1995 36,493 96.12% 11/7/95
- ------------------------------------------------------------------------------------------------------------------------------------
6 Mountain Creek Manor Congregate Care 1986 109,463 143 95.80% 7/28/95
7 Gottschalks - Palmdale Retail 1990 117,952 100.00% 9/30/95
8 Garden Ridge Retail 1995 141,284 100.00% 9/1/95
9 Mack Park Apartments Multifamily 1986 198,456 226 94.69% 11/28/95
10 Park Villa Apartments Multifamily 1969 1994 228,450 259 96.53% 11/2/95
- ------------------------------------------------------------------------------------------------------------------------------------
11 Spruce Financial Center Office 1989 58,408 100.00% 8/31/95
12 Gottschalks - Yuba City Retail 1989 86,582 100.00% 7/15/95
13 Hydronautics Facility Industrial/Light Industrial 1979 1995 155,200 100.00% 9/28/95
14 Gottschalks - Eureka Retail 1989 89,171 100.00% 7/15/95
15 BJ's Wholesale Club Retail 1984 105,180 100.00% 11/7/95
- ------------------------------------------------------------------------------------------------------------------------------------
16 Stafford Plaza Shopping Center Retail 1974 96,109 96.56% 10/31/95
17 Riverdale Shopping Center Retail 1984 1994 148,664 99.37% 7/27/95
18 Lafourche Plaza Shopping Ctr Retail 1980 142,061 89.90% 11/1/95
19 The Bristol House Gracious
Retirement Living Congregate Care 1985 55,560 97 93.81% 9/30/95
20 Westwood Center II Office/Retail 1983 54,700 100.00% 11/3/95
- ------------------------------------------------------------------------------------------------------------------------------------
21 Corona Food 4 Less Retail 1989 52,924 100.00% 11/1/95
22 Kingswood Apartments Multifamily 1983 142,200 200 97.00% 11/20/95
23 Kash N' Karry Store # 725 Retail 1993 49,069 100.00% 7/31/95
24 Kash N' Karry Store # 733 Retail 1994 48,683 100.00% 7/31/95
25 Kash N' Karry Store # 720 Retail 1991 46,259 100.00% 7/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
26 Comfort Inn Hotel 1986 1994 43,100 122 64.02% 10/31/95
27 Rialto Food-4-Less Retail 1989 52,748 100.00% 11/1/95
28 Seaport Manor Congregate Care 1975 62,236 346 97.40% 10/31/95
29 Food 4 Less Supermarket Retail 1992 50,115 99.23% 10/1/95
30 McPherron Properties Multifamily 1963 140,372 220 94.09% 11/9/95
- ------------------------------------------------------------------------------------------------------------------------------------
31 Lost River Apartments Multifamily 1971 1990 110,480 128 99.22% 7/14/95
32 Leparc Apartments Multifamily 1972 1986 51,362 98 98.00% 8/1/95
33 Live Oaks Center Industrial/Light Industrial 1975 1992 100,576 95.12% 10/25/95
34 Union Plaza Office Building Office 1896 1987 60,550 98.47% 11/1/95
35 Frank's Nursery & Crafts Stores Retail 1971 37,266 100.00% 11/3/95
- ------------------------------------------------------------------------------------------------------------------------------------
36 Santa Monica Plaza Retail 1984 1994 18,792 100.00% 9/30/95
37 Highland Square Shopping Center Retail 1987 43,120 100.00% 10/1/95
38 Meadowbrook Mobile Home Park Mobile Home Park 1974 388 66.24% 10/30/95
39 University Village Apartments Multifamily 1988 90,914 108 97.22% 8/31/95
40 Univax Building Office/Warehouse 1977 46,831 100.00% 11/21/95
- ------------------------------------------------------------------------------------------------------------------------------------
41 Parkway Place Industrial/Light Industrial 1990 60,719 100.00% 11/1/95
42 Town Center Retail 1992 44,920 100.00% 9/15/95
43 Fairmount Centre Retail 1973 1990 60,500 88.10% 10/26/95
44 Mason Creek Center Retail 1984 50,050 94.40% 10/1/95
45 Andover Retail Retail 1960 1994 39,850 100.00% 9/30/95
- ------------------------------------------------------------------------------------------------------------------------------------
46 Westridge Office Park Office 1988 38,519 100.00% 10/1/95
47 Candelaria Industrial Industrial/Light Industrial 1973 67,174 100.00% 11/6/95
48 U-Store Self Storage 1985 52,872 764 78.66% 11/6/95
49 CVS Plaza Retail 1990 28,000 100.00% 10/3/95
50 Chicago Financial Center Office 1990 25,865 100.00% 11/3/95
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNEX A-1
<PAGE> 131
ANNEX A
TABLE A: COLLATERAL PROPERTIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NET MOST
YEAR YEAR RENTABLE CURRENT RECENT RENT
LOAN # PROPERTY NAME PROPERTY TYPE BUILT RENOVATED SQ. FT. UNITS OCCUP. ROLL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
51 Arizona Beverage
Distributing Company Industrial/Light Industrial 1959 1990 143,536 100.00% 11/1/95
52 Bering Village Shopping Center Retail 1982 35,429 95.72% 11/16/95
53 Stonecrest Apartments Multifamily 1971 1989 49,456 120 100.00% 7/14/95
54 Rowland Heights Auto Center Retail 1988 27,309 100.00% 11/7/95
55 Lakewood Apartments Multifamily 1973 1993 129,952 140 97.14% 9/22/95
- -----------------------------------------------------------------------------------------------------------------------------------
56 Walden Oaks Healthcare Center Nursing Home 1985 21,110 60 71.67% 6/30/95
57 Gerald Adams Properties Multifamily 1972 100,401 124 90.32% 10/12/95
58 Lightning Creek Shopping
Center & Apts Retail/Multifamily 1984 1990 82,419 99.00% 8/31/95
59 Macarthur Mills Office Park Office 1985 53,475 94.61% 10/1/95
60 Seagrass Cove Apartments Multifamily 1988 44,684 46 100.00% 7/31/95
- -----------------------------------------------------------------------------------------------------------------------------------
61 Wickes Furniture Retail 1977 1987 48,790 100.00% 10/12/95
62 815 South Main Street Industrial/Light Industrial 1978 1994 67,678 100.00% 6/23/95
63 Holly Hills Apartments Multifamily 1975 1992 98,092 100 98.00% 11/6/95
64 Oak Creek Apartments Multifamily 1972 1991 66,295 91 96.70% 11/1/95
65 Loveland Plaza Mobile Home Park Mobile Home Park 1966 1995 113 97.27% 10/30/95
- -----------------------------------------------------------------------------------------------------------------------------------
66 The Centers III Retail 1980 34,948 97.65% 10/26/95
67 Mark VI Apartments Multifamily 1970 1995 127,908 144 98.61% 11/3/95
68 8435-8447 Canoga Avenue Industrial/Light Industrial 1978 1994 64,518 100.00% 9/30/95
69 Ridgmar Manor Apartments Multifamily 1969 111,760 120 97.50% 10/4/95
70 Wellington Apartments Multifamily 1895 1984 59,480 58 100.00% 11/6/95
- -----------------------------------------------------------------------------------------------------------------------------------
71 National Self Storage - Alb-4 Self Storage 1980 1993 40,622 505 80.40% 9/25/95
72 Doug's Storage Self Storage 1974 106,635 1,079 64.97% 12/31/94
73 Abilene Village Shopping Center Retail 1983 29,223 100.00% 9/27/95
74 Stratford Manor Apartments Multifamily 1973 79,752 96 93.75% 10/19/95
75 Genesis Medical Center Office 1985 10,200 100.00% 11/13/95
- -----------------------------------------------------------------------------------------------------------------------------------
76 Witmer Industrial Estate Industrial/Light Industrial 1988 36,461 98.74% 9/15/95
77 April Lane Commerce Park Office/Warehouse 1985 58,000 93.10% 10/31/95
78 Windfern Industrial Park Industrial/Light Industrial 1986 60,000 100.00% 9/30/95
79 Hillsborough Office Building Office 1973 24,139 100.00% 11/7/95
80 Walgreens Plaza Retail 1955 1994 16,986 85.28% 10/1/95
- -----------------------------------------------------------------------------------------------------------------------------------
81 Greenhouse Apartments Multifamily 1977 36,432 37 100.00% 9/30/95
82 Maplewood Auto Mall Retail 1988 23,708 90.55% 9/30/95
83 Goffstown Village Apartments Multifamily 1972 67,009 84 98.81% 10/1/95
84 Chestnut Square Apartments Multifamily 1972 91,200 104 99.04% 9/1/95
85 Lyn Village Apartments Multifamily 1967 38,084 58 96.55% 10/1/95
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNEX A-2
<PAGE> 132
ANNEX A
TABLE B: PROPERTY LOCATIONS AND LTVS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
APPRAIS.
LOAN CUT-OFF DATE APPRAISED APPRAIS. APPRAIS. BALLOON BALLOON
# PROPERTY NAME PROPERTY CITY STATE BALANCE VALUE DATE LTV BALANCE LTV
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Star Markets - Cambridge Cambridge MA $ 8,250,000 $12,200,000 11/15/95 67.62% $5,377,493 44.08%
2 Star Markets - Quincy Quincy MA $ 8,115,800 $15,600,000 11/15/95 52.02% $5,290,020 33.91%
3 3307 M Street NW Washington DC $ 7,388,563 $11,200,000 9/29/95 65.97% $ 0 0.00%
4 Ceasar Figoni Properties East Patchogue NY $ 6,737,984 $12,450,000 7/23/93 54.12% $5,230,738 42.01%
5 2982 Grand Avenue Coconut Grove FL $ 6,550,000 $ 9,500,000 9/5/95 68.95% $6,076,140 63.96%
- ---------------------------------------------------------------------------------------------------------------------------------
6 Mountain Creek Manor Chattanooga TN $ 6,493,254 $11,300,000 10/1/95 57.46% $5,741,367 50.81%
7 Gottschalks - Palmdale Palmdale CA $ 6,064,807 $ 8,840,000 9/14/95 68.61% $4,085,008 46.21%
8 Garden Ridge Mesquite TX $ 5,500,000 $ 9,150,000 10/5/95 60.11% $3,722,592 40.68%
9 Mack Park Apartments Denton TX $ 5,350,000 $ 7,300,000 10/19/95 73.29% $4,710,593 64.53%
10 Park Villa Apartments Tulsa OK $ 4,750,000 $ 6,700,000 6/5/95 70.90% $4,377,978 65.34%
- ---------------------------------------------------------------------------------------------------------------------------------
11 Spruce Financial Center Riverside CA $ 4,500,000 $ 6,200,000 10/13/95 72.58% $3,421,855 55.19%
12 Gottschalks - Yuba City Yuba City CA $ 4,462,500 $ 6,900,000 5/9/95 64.67% $3,005,759 43.56%
13 Hydronautics Facility Oceanside CA $ 4,390,017 $ 7,150,000 9/28/95 61.40% $ 0 0.00%
14 Gottschalks - Eureka Eureka CA $ 4,351,262 $ 6,700,000 5/8/95 64.94% $2,910,742 43.44%
15 BJ's Wholesale Club Johnson RI $ 4,000,000 $ 5,500,000 10/1/95 72.73% $ 0 0.00%
- ---------------------------------------------------------------------------------------------------------------------------------
16 Stafford Plaza Shopping Center Houston TX $ 3,900,000 $ 5,350,000 10/5/95 72.90% $2,983,371 55.76%
17 Riverdale Shopping Center Little Rock AR $ 3,887,575 $ 7,000,000 3/25/95 55.54% $2,310,655 33.01%
18 Lafourche Plaza Shopping Ctr Thibodaux LA $ 3,750,000 $ 5,000,000 11/1/95 75.00% $2,370,633 47.41%
19 The Bristol House Gracious
Retirement Living Bristol VA $ 3,692,738 $ 5,100,000 9/1/95 72.41% $3,271,518 64.15%
20 Westwood Center II Bethesda MD $ 3,593,489 $ 5,400,000 7/10/95 66.55% $2,974,501 55.08%
- ---------------------------------------------------------------------------------------------------------------------------------
21 Corona Food 4 Less Corona CA $ 3,421,571 $ 4,880,000 7/25/95 70.11% $2,206,253 45.21%
22 Kingswood Apartments Denton TX $ 3,350,000 $ 4,835,000 10/19/95 69.29% $2,949,624 61.01%
23 Kash N' Karry Store # 725 Ocala FL $ 3,217,094 $ 4,300,000 7/31/95 74.82% $2,194,035 51.02%
24 Kash N' Karry Store # 733 Auburndale FL $ 3,187,168 $ 4,260,000 7/31/95 74.82% $2,173,626 51.02%
25 Kash N' Karry Store # 720 Gainesville FL $ 3,030,054 $ 4,050,000 7/31/95 74.82% $2,066,475 51.02%
- ---------------------------------------------------------------------------------------------------------------------------------
26 Comfort Inn Kingsport TN $ 2,975,580 $ 4,400,000 4/27/95 67.63% $1,358,232 30.87%
27 Rialto Food-4-Less Rialto CA $ 2,937,407 $ 4,210,000 7/25/95 69.77% $1,922,155 45.66%
28 Seaport Manor* Brooklyn NY $ 2,888,661 $ 5,617,920 4/1/95 51.42% $ 0 0.00%
29 Food 4 Less Supermarket Lincoln NE $ 2,800,000 $ 3,735,000 10/27/95 74.97% $1,945,155 52.08%
30 McPherron Properties St. Louis Area MO $ 2,795,102 $ 3,900,000 7/11/95 71.67% $2,324,099 59.59%
- ---------------------------------------------------------------------------------------------------------------------------------
31 Lost River Apartments Bowling Green KY $ 2,789,889 $ 3,740,000 2/28/95 74.60% $1,522,821 40.72%
32 Leparc Apartments Staten Island NY $ 2,700,000 $ 3,600,000 6/20/95 75.00% $2,233,446 62.04%
33 Live Oaks Center Casselberry FL $ 2,695,213 $ 3,800,000 7/28/95 70.93% $2,082,955 54.81%
34 Union Plaza Office Building Minneapolis MN $ 2,593,679 $ 3,500,000 7/12/95 74.11% $1,763,353 50.38%
35 Frank's Nursery & Crafts Stores Various MI $ 2,583,274 $ 3,450,000 8/22/95 74.88% $1,800,798 52.20%
- ---------------------------------------------------------------------------------------------------------------------------------
36 Santa Monica Plaza Los Angeles CA $ 2,500,000 $ 3,840,000 9/14/95 65.10% $1,910,152 49.74%
37 Highland Square Shopping Center Minnetonka MN $ 2,393,896 $ 3,600,000 6/19/95 66.50% $1,866,807 51.86%
38 Meadowbrook Mobile Home Park Pueblo County CO $ 2,360,000 $ 4,600,000 8/29/95 51.30% $1,922,764 41.80%
39 University Village Apartments Kansas City KS $ 2,250,000 $ 2,800,000 10/10/95 80.36% $2,013,321 71.90%
40 Univax Building Rockville MD $ 2,244,420 $ 3,600,000 5/3/95 62.35% $ 0 0.00%
- ---------------------------------------------------------------------------------------------------------------------------------
41 Parkway Place Vadnais Heights MN $ 2,196,113 $ 3,050,000 7/21/95 72.00% $1,698,198 55.68%
42 Town Center Harrisonburg VA $ 2,131,284 $ 3,300,000 8/25/95 64.58% $1,773,327 53.74%
43 Fairmount Centre Geddes NY $ 2,129,889 $ 2,850,000 5/15/95 74.73% $1,771,787 62.17%
44 Mason Creek Center Katy TX $ 2,023,194 $ 2,800,000 8/18/95 72.26% $1,559,515 55.70%
45 Andover Retail Danvers MA $ 2,020,044 $ 3,250,000 5/16/95 62.16% $1,371,353 42.20%
- ---------------------------------------------------------------------------------------------------------------------------------
46 Westridge Office Park Avon IN $ 1,900,000 $ 2,950,000 10/3/95 64.41% $1,454,725 49.31%
47 Candelaria Industrial Albuquerque NM $ 1,900,000 $ 2,990,000 10/17/95 63.55% $1,155,032 38.63%
48 U-Store Washington DC $ 1,900,000 $ 3,050,000 10/10/95 62.30% $ 823,910 27.01%
49 CVS Plaza West Deptford NJ $ 1,753,395 $ 2,575,000 8/17/95 68.09% $1,345,685 52.26%
50 Chicago Financial Center Riverside CA $ 1,700,000 $ 2,500,000 9/30/95 68.00% $1,303,130 52.13%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Seaport Manor had a total original loan amount of $5.915 million but has a
participation in this pool of only $2.915 million, with a cut-off date balance
of $2,888,661.26. Another series of the Depositor's commercial mortgage
pass-through certificates (the PSSFC 1995-C1 series) contained the remainder of
the total loan amount.
ANNEX A-3
<PAGE> 133
ANNEX A
TABLE B: PROPERTY LOCATIONS AND LTVS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
APPRAIS.
LOAN CUT-OFF DATE APPRAISED APPRAIS. APPRAIS. BALLOON BALLOON
# PROPERTY NAME PROPERTY CITY STATE BALANCE VALUE DATE LTV BALANCE LTV
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
51 Arizona Beverage
Distributing Company Phoenix AZ $ 1,695,280 $ 2,950,000 9/19/95 57.47% $ 0 0.00%
52 Bering Village Shopping Center Anchorage AK $ 1,673,009 $ 2,240,000 8/21/95 74.69% $ 751,217 33.54%
53 Stonecrest Apartments Lafayette IN $ 1,669,020 $ 2,240,000 3/2/95 74.51% $ 914,177 40.81%
54 Rowland Heights Auto Center Rowland Heights CA $ 1,650,000 $ 2,570,000 10/10/95 64.20% $ 0 0.00%
55 Lakewood Apartments Norman OK $ 1,500,000 $ 2,195,000 10/13/95 68.34% $ 969,027 44.15%
- ---------------------------------------------------------------------------------------------------------------------------------
56 Walden Oaks Healthcare Center San Antonio TX $ 1,497,664 $ 2,500,000 9/1/95 59.91% $ 640,438 25.62%
57 Gerald Adams Properties New Orleans
Area LA $ 1,495,500 $ 1,994,000 10/19/95 75.00% $ 905,788 45.43%
58 Lightning Creek Shopping
Center & Apts Oklahoma City OK $ 1,446,522 $ 2,190,000 6/29/95 66.05% $ 986,303 45.04%
59 Macarthur Mills Office Park Carrollton TX $ 1,410,158 $ 2,400,000 7/6/95 58.76% $1,179,246 49.14%
60 Seagrass Cove Apartments Pleasantville NJ $ 1,395,144 $ 2,100,000 4/3/95 66.44% $1,161,655 55.32%
- ---------------------------------------------------------------------------------------------------------------------------------
61 Wickes Furniture Aurora IL $ 1,381,505 $ 1,950,000 5/1/95 70.85% $ 611,759 31.37%
62 815 South Main Street Grapevine TX $ 1,346,450 $ 2,300,000 7/15/95 58.54% $1,044,165 45.40%
63 Holly Hills Apartments Denton TX $ 1,325,000 $ 2,965,000 10/19/95 44.69% $ 0 0.00%
64 Oak Creek Apartments Austin TX $ 1,323,792 $ 2,000,000 9/19/95 66.19% $ 873,331 43.67%
65 Loveland Plaza Mobile Home Park Loveland CO $ 1,300,000 $ 2,075,000 8/30/95 62.65% $1,059,150 51.04%
- ---------------------------------------------------------------------------------------------------------------------------------
66 The Centers III Lynnwood WA $ 1,300,000 $ 2,050,000 9/27/95 63.41% $ 992,098 48.40%
67 Mark VI Apartments Houston TX $ 1,275,000 $ 2,200,000 8/17/95 57.95% $ 979,638 44.53%
68 8435-8447 Canoga Avenue Canoga Park CA $ 1,244,609 $ 2,475,000 7/19/95 50.29% $ 778,138 31.44%
69 Ridgmar Manor Apartments Fort Worth TX $ 1,198,856 $ 1,900,000 9/19/95 63.10% $ 782,496 41.18%
70 Wellington Apartments Leominster MA $ 1,150,000 $ 1,900,000 7/26/95 60.53% $ 949,309 49.96%
- ---------------------------------------------------------------------------------------------------------------------------------
71 National Self Storage - Alb-4 Albuquerque NM $ 1,147,446 $ 1,775,000 6/28/95 64.64% $ 524,656 29.56%
72 Doug's Storage Florissant MO $ 1,086,299 $ 2,900,000 3/8/95 37.46% $ 0 0.00%
73 Abilene Village Shopping Center Abilene TX $ 1,050,000 $ 1,485,000 10/4/95 70.71% $ 803,927 54.14%
74 Stratford Manor Apartments Jackson MS $ 995,014 $ 1,540,000 4/3/95 64.61% $ 815,921 52.98%
75 Genesis Medical Center Phoenix AZ $ 921,584 $ 1,260,000 5/19/95 73.14% $ 709,472 56.31%
- ---------------------------------------------------------------------------------------------------------------------------------
76 Witmer Industrial Estate Niagara NY $ 899,163 $ 1,200,000 9/13/95 74.93% $ 688,063 57.34%
77 April Lane Commerce Park Columbus OH $ 898,380 $ 1,500,000 9/12/95 59.89% $ 692,515 46.17%
78 Windfern Industrial Park Houston TX $ 850,000 $ 1,275,000 5/23/95 66.67% $ 558,485 43.80%
79 Hillsborough Office Building Roseville MN $ 825,000 $ 1,100,000 10/6/95 75.00% $ 535,145 48.65%
80 Walgreens Plaza Middletown CT $ 787,315 $ 1,070,000 3/29/95 73.58% $ 530,619 49.59%
- ---------------------------------------------------------------------------------------------------------------------------------
81 Greenhouse Apartments Grand Junction CO $ 748,008 $ 1,300,000 6/20/95 57.54% $ 579,097 44.55%
82 Maplewood Auto Mall Maplewood MN $ 736,924 $ 1,200,000 5/5/95 61.41% $ 465,338 38.78%
83 Goffstown Village Apartments Goffstown
/Franklin NH $ 722,490 $ 1,300,000 3/14/95 55.58% $ 637,297 49.02%
84 Chestnut Square Apartments Midwest City OK $ 648,360 $ 945,000 4/25/95 68.61% $ 542,662 57.42%
85 Lyn Village Apartments Reynoldsburg OH $ 597,762 $ 1,180,000 5/17/95 50.66% $ 459,387 38.93%
- ---------------------------------------------------------------------------------------------------------------------------------
$222,286,173
</TABLE>
ANNEX A-4
<PAGE> 134
ANNEX A
TABLE C: COLLATERAL DEBT SERVICE, NOI AND CF
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL
LOAN DEBT UNDERWRITTEN UNDERWRITTEN UNDERWRITTEN
# PROPERTY NAME SERVICE VALUE NOI CASH FLOW
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Star Markets - Cambridge $803,188 $12,174,749 $1,217,475 $1,210,640
- -----------------------------------------------------------------------------------------------------------------------------------
2 Star Markets - Quincy $790,123 $10,378,033 $1,089,693 $1,074,558
- -----------------------------------------------------------------------------------------------------------------------------------
3 3307 M Street NW $784,740 $10,473,763 $1,047,376 $985,789
- -----------------------------------------------------------------------------------------------------------------------------------
4 Ceasar Figoni Properties $660,771 $ 9,604,555 $1,016,685 $1,016,685
- -----------------------------------------------------------------------------------------------------------------------------------
5 2982 Grand Avenue $587,612 $ 8,738,219 $873,822 $848,699
- -----------------------------------------------------------------------------------------------------------------------------------
6 Mountain Creek Manor $606,156 $ 9,198,052 $965,795 $965,795
- -----------------------------------------------------------------------------------------------------------------------------------
7 Gottschalks - Palmdale $631,359 $ 9,080,988 $862,693 $832,831
- -----------------------------------------------------------------------------------------------------------------------------------
8 Garden Ridge $632,637 $ 7,739,828 $773,984 $773,984
- -----------------------------------------------------------------------------------------------------------------------------------
9 Mack Park Apartments $490,837 $ 7,163,636 $680,545 $680,545
- -----------------------------------------------------------------------------------------------------------------------------------
10 Park Villa Apartments $436,166 $ 6,375,287 $573,776 $573,776
- -----------------------------------------------------------------------------------------------------------------------------------
11 Spruce Financial Center $437,373 $ 6,170,904 $647,945 $572,471
- -----------------------------------------------------------------------------------------------------------------------------------
12 Gottschalks - Yuba City $464,556 $ 6,883,187 $653,903 $631,448
- -----------------------------------------------------------------------------------------------------------------------------------
13 Hydronautics Facility $480,593 $ 5,946,225 $624,354 $624,354
- -----------------------------------------------------------------------------------------------------------------------------------
14 Gottschalks - Eureka $446,824 $ 6,744,641 $640,741 $618,716
- -----------------------------------------------------------------------------------------------------------------------------------
15 BJ's Wholesale Club $414,132 $ 5,620,548 $533,952 $533,952
- -----------------------------------------------------------------------------------------------------------------------------------
16 Stafford Plaza Shopping Center $385,399 $ 5,166,141 $542,445 $502,838
- -----------------------------------------------------------------------------------------------------------------------------------
17 Riverdale Shopping Center $409,679 $ 5,922,484 $651,473 $599,122
- -----------------------------------------------------------------------------------------------------------------------------------
18 Lafourche Plaza Shopping Ctr $411,616 $ 5,020,233 $552,226 $504,730
- -----------------------------------------------------------------------------------------------------------------------------------
19 The Bristol House Gracious Retirement Living $348,260 $ 5,098,849 $535,379 $535,379
- -----------------------------------------------------------------------------------------------------------------------------------
20 Westwood Center II $360,759 $ 4,825,162 $530,768 $492,756
- -----------------------------------------------------------------------------------------------------------------------------------
21 Corona Food 4 Less $325,427 $ 4,643,446 $464,345 $464,345
- -----------------------------------------------------------------------------------------------------------------------------------
22 Kingswood Apartments $307,346 $ 4,538,665 $431,173 $431,173
- -----------------------------------------------------------------------------------------------------------------------------------
23 Kash N' Karry Store # 725 $340,006 $ 4,300,000 $408,161 $408,161
- -----------------------------------------------------------------------------------------------------------------------------------
24 Kash N' Karry Store # 733 $336,843 $ 4,260,000 $404,951 $404,951
- -----------------------------------------------------------------------------------------------------------------------------------
25 Kash N' Karry Store # 720 $320,238 $ 4,050,000 $384,786 $384,786
- -----------------------------------------------------------------------------------------------------------------------------------
26 Comfort Inn $345,740 $ 4,537,000 $539,140 $539,140
- -----------------------------------------------------------------------------------------------------------------------------------
27 Rialto Food-4-Less $287,713 $ 3,993,894 $399,389 $399,389
- -----------------------------------------------------------------------------------------------------------------------------------
28 Seaport Manor** $330,022 $ 9,043,740 $904,374 $904,374
- -----------------------------------------------------------------------------------------------------------------------------------
29 Food 4 Less Supermarket $286,294 $ 3,737,248 $364,382 $364,382
- -----------------------------------------------------------------------------------------------------------------------------------
30 McPherron Properties $285,198 $ 3,864,620 $396,123 $396,123
- -----------------------------------------------------------------------------------------------------------------------------------
31 Lost River Apartments $294,938 $ 3,754,553 $394,228 $394,228
- -----------------------------------------------------------------------------------------------------------------------------------
32 Leparc Apartments $271,680 $ 3,577,072 $330,879 $330,879
- -----------------------------------------------------------------------------------------------------------------------------------
33 Live Oaks Center $273,232 $ 3,706,768 $407,744 $358,100
- -----------------------------------------------------------------------------------------------------------------------------------
34 Union Plaza Office Building $275,200 $ 3,467,390 $407,418 $349,692
- -----------------------------------------------------------------------------------------------------------------------------------
35 Frank's Nursery & Crafts Stores $265,737 $ 3,450,000 $354,787 $354,787
- -----------------------------------------------------------------------------------------------------------------------------------
36 Santa Monica Plaza $246,236 $ 3,344,208 $359,502 $339,725
- -----------------------------------------------------------------------------------------------------------------------------------
37 Highland Square Shopping Center $248,628 $ 3,210,044 $353,105 $342,084
- -----------------------------------------------------------------------------------------------------------------------------------
38 Meadowbrook Mobile Home Park $242,373 $ 3,471,262 $347,126 $347,126
- -----------------------------------------------------------------------------------------------------------------------------------
39 University Village Apartments $224,737 $ 3,010,781 $270,970 $270,970
- -----------------------------------------------------------------------------------------------------------------------------------
40 Univax Building $285,208 $ 3,370,950 $438,223 $402,805
- -----------------------------------------------------------------------------------------------------------------------------------
41 Parkway Place $222,996 $ 2,973,027 $341,898 $294,584
- -----------------------------------------------------------------------------------------------------------------------------------
42 Town Center $217,992 $ 2,960,018 $318,202 $293,231
- -----------------------------------------------------------------------------------------------------------------------------------
43 Fairmount Centre $216,661 $ 2,854,114 $313,953 $291,768
- -----------------------------------------------------------------------------------------------------------------------------------
44 Mason Creek Center $203,925 $ 2,798,624 $307,849 $283,836
- -----------------------------------------------------------------------------------------------------------------------------------
45 Andover Retail $213,661 $ 2,926,024 $321,863 $290,931
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
UNDER YTD 95 ADJUSTED 95 ADJUSTED 95
LOAN WRITTEN # OF ANNUAL'D YTD ANNUAL'D YTD
# PROPERTY NAME DSCR 1994 NOI 1994CF MTHS NOI* CF*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Star Markets - Cambridge 1.51
- ------------------------------------------------------------------------------------------------------------------------------------
2 Star Markets - Quincy 1.36
- ------------------------------------------------------------------------------------------------------------------------------------
3 3307 M Street NW 1.26 $526,366 $526,366
- ------------------------------------------------------------------------------------------------------------------------------------
4 Ceasar Figoni Properties 1.54 $1,216,479 $1,216,479 6 $1,294,854 $1,294,854
- ------------------------------------------------------------------------------------------------------------------------------------
5 2982 Grand Avenue 1.44 1 $1,139,712 $1,139,712
- ------------------------------------------------------------------------------------------------------------------------------------
6 Mountain Creek Manor 1.59 $917,238 $917,238 5 $1,004,877 $1,004,878
- ------------------------------------------------------------------------------------------------------------------------------------
7 Gottschalks - Palmdale 1.32
- ------------------------------------------------------------------------------------------------------------------------------------
8 Garden Ridge 1.22
- ------------------------------------------------------------------------------------------------------------------------------------
9 Mack Park Apartments 1.39 $699,785 $641,178 12 $734,384 $698,818
- ------------------------------------------------------------------------------------------------------------------------------------
10 Park Villa Apartments 1.32 12 $580,518 $335,511
- ------------------------------------------------------------------------------------------------------------------------------------
11 Spruce Financial Center 1.31 $655,201 $614,288 8 $746,213 $690,545
- ------------------------------------------------------------------------------------------------------------------------------------
12 Gottschalks - Yuba City 1.36
- ------------------------------------------------------------------------------------------------------------------------------------
13 Hydronautics Facility 1.30
- ------------------------------------------------------------------------------------------------------------------------------------
14 Gottschalks - Eureka 1.38
- ------------------------------------------------------------------------------------------------------------------------------------
15 BJ's Wholesale Club 1.29
- ------------------------------------------------------------------------------------------------------------------------------------
16 Stafford Plaza Shopping Center 1.30 $544,023 $544,023 10 $534,233 $534,434
- ------------------------------------------------------------------------------------------------------------------------------------
17 Riverdale Shopping Center 1.46 $776,071 $773,263 8 $695,506 $612,805
- ------------------------------------------------------------------------------------------------------------------------------------
18 Lafourche Plaza Shopping Ctr 1.23 $590,546 $588,239 9 $617,352 $559,101
- ------------------------------------------------------------------------------------------------------------------------------------
19 The Bristol House Gracious Retirement Living 1.54 $285,339 $284,339
- ------------------------------------------------------------------------------------------------------------------------------------
20 Westwood Center II 1.37 $510,370 $462,845 12 $557,507 $509,937
- ------------------------------------------------------------------------------------------------------------------------------------
21 Corona Food 4 Less 1.43 $462,618 $462,618 9 $504,277 $501,747
- ------------------------------------------------------------------------------------------------------------------------------------
22 Kingswood Apartments 1.40 $427,964 $379,085 12 $463,246 $420,680
- ------------------------------------------------------------------------------------------------------------------------------------
23 Kash N' Karry Store # 725 1.20
- ------------------------------------------------------------------------------------------------------------------------------------
24 Kash N' Karry Store # 733 1.20
- ------------------------------------------------------------------------------------------------------------------------------------
25 Kash N' Karry Store # 720 1.20
- ------------------------------------------------------------------------------------------------------------------------------------
26 Comfort Inn 1.56 $702,533 $702,533 10 $598,549 $598,549
- ------------------------------------------------------------------------------------------------------------------------------------
27 Rialto Food-4-Less 1.39 $411,531 $411,531 9 $463,047 $443,047
- ------------------------------------------------------------------------------------------------------------------------------------
28 Seaport Manor ** 1.35 $1,099,165 $1,099,165 6 $1,163,582 $1,163,582
- ------------------------------------------------------------------------------------------------------------------------------------
29 Food 4 Less Supermarket 1.27 $364,327 $364,327 12 $364,120 $364,120
- ------------------------------------------------------------------------------------------------------------------------------------
30 McPherron Properties 1.39 $441,273 $441,273 10 $435,131 $435,131
- ------------------------------------------------------------------------------------------------------------------------------------
31 Lost River Apartments 1.34 $551,628 $551,628 9 $541,296 $541,296
- ------------------------------------------------------------------------------------------------------------------------------------
32 Leparc Apartments 1.22 $5,602 ($73,398)
- ------------------------------------------------------------------------------------------------------------------------------------
33 Live Oaks Center 1.31 $419,257 $408,495 9 $402,789 $402,789
- ------------------------------------------------------------------------------------------------------------------------------------
34 Union Plaza Office Building 1.27 $492,427 $492,427 12 $483,354 $483,354
- ------------------------------------------------------------------------------------------------------------------------------------
35 Frank's Nursery & Crafts Stores 1.34
- ------------------------------------------------------------------------------------------------------------------------------------
36 Santa Monica Plaza 1.38 $407,017 $407,017 9 $388,661 $374,488
- ------------------------------------------------------------------------------------------------------------------------------------
37 Highland Square Shopping Center 1.38 $369,621 $367,484 8 $360,099 $360,099
- ------------------------------------------------------------------------------------------------------------------------------------
38 Meadowbrook Mobile Home Park 1.43 $273,055 $273,055 6 $276,383 $276,383
- ------------------------------------------------------------------------------------------------------------------------------------
39 University Village Apartments 1.21 $221,738 $221,738 6 $297,932 $278,120
- ------------------------------------------------------------------------------------------------------------------------------------
40 Univax Building 1.41 $485,683 $387,593 8 $566,096 $429,608
- ------------------------------------------------------------------------------------------------------------------------------------
41 Parkway Place 1.32 $339,424 $339,424 3 $379,656 $379,656
- ------------------------------------------------------------------------------------------------------------------------------------
42 Town Center 1.35 $206,723 $206,723 12 $334,196 $334,196
- ------------------------------------------------------------------------------------------------------------------------------------
43 Fairmount Centre 1.35 $348,420 $345,262 9 $326,295 $310,992
- ------------------------------------------------------------------------------------------------------------------------------------
44 Mason Creek Center 1.39 $351,532 $351,532 5 $346,138 $304,142
- ------------------------------------------------------------------------------------------------------------------------------------
45 Andover Retail 1.36 $59,047 $25,283 6 $254,298 $254,298
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Two fields that had appeared in the preliminary prospectus supplement, and
that were reported therein as annualized YTD NOI & CF, were removed from this
table. Please note that the relevant fields for Annualized NOI and CF appear
under field headings "Adjusted 95 Annual'd YTD NOI" and "Adjusted 95 Annual'd
YTD CF." The field headed "Financial Comments" addresses adjustments to the
annualized NOI and CF numbers.
** Seaport Manor had a total original loan amount of $5.915 million but has a
participation in this pool of only $2.915 million, with a cut-off date balance
of $2,888,661. Another series of the Depositor's commercial mortgage
pass-through certificates (the PSSFC 1995-C1 series) contained the remainder of
the total loan amount.
ANNEX A-5
<PAGE> 135
ANNEX A
TABLE C: COLLATERAL DEBT SERVICE, NOI AND CF
<TABLE>
<CAPTION>
LOAN
# FINANCIAL COMMENTS GENERAL COMMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 Starlease is 90% of total rent. Owner/occupant just This loan is cross collateralized and cross defaulted with
acquired property: no hist. F/S available. Star operates loan # 2 (Quincy). Combined DSCR and LTV are 1.43 and 72.6%
about 35 supermkts in Boston area. Senior Sub. Notes: CCC+ respectively.
(S&P) & Ba3 (Moody's).
- ------------------------------------------------------------------------------------------------------------------------------------
2 Star rent is 82% of total. Owner/occupant just acquired see above
property: no hist F/S available. Star is obligated under 20
year bond lease for entire property. Osco Drugs subleases
18,104 SF until 9/30/04. See Star credit ratings above.
- ------------------------------------------------------------------------------------------------------------------------------------
3 Mixed use office, retail, and residential; 1995 leases to
Georgetown U. and Mattress Discount account for dramatic CF
increase over 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
4
- ------------------------------------------------------------------------------------------------------------------------------------
5 Occupancy was stabilized at 99% with $385,000 escrow reserve Amortization during first three years based on 35 yr sched.
for new tenant. Actual physical occupancy 90%. Signed lease then amort changes to 21 year schedule and amortizes to
in place for vacant space, move in Jan 1, 1996. $5,388,318 at maturity.
- ------------------------------------------------------------------------------------------------------------------------------------
6
- ------------------------------------------------------------------------------------------------------------------------------------
7 Property is owner occupied.
- ------------------------------------------------------------------------------------------------------------------------------------
8 Single tenant. Newly constructed, commenced occupancy
9/1/95.
- ------------------------------------------------------------------------------------------------------------------------------------
9
- ------------------------------------------------------------------------------------------------------------------------------------
10 YTD cash flow reflects capital improvements.
- ------------------------------------------------------------------------------------------------------------------------------------
11 Grubb & Ellis will vacate 11.82% on 12/31/95. Homan and Lobb MCF has lien against restaurant & outparcel to be released
will absorb 6.39%. after Homan & Lobb move into their expansion space and
$500,000 2nd lien is paid off.
- ------------------------------------------------------------------------------------------------------------------------------------
12 Property is owner occupied.
- ------------------------------------------------------------------------------------------------------------------------------------
13 NNN leased, guaranteed by Nitto Denko (rated Baa1 by
Moody's; JCR: A+). Leased commercial 9/1/95, so no recent
historical financials.
- ------------------------------------------------------------------------------------------------------------------------------------
14 Property is owner occupied.
- ------------------------------------------------------------------------------------------------------------------------------------
15 NNN Leased. Occupied by BJ's Wholesale Club. Lease Months 1-48 are on 240 month amort sched. Note then pays on
guaranteed by TJX Corp (S&P: BBB; Moody's: Baa3.) Appraiser 144 month amort; annual debt service increases $482,100.
and ULLICO estimate market rents at $2/SF higher than in Amortizes fully.
place rent.
- ------------------------------------------------------------------------------------------------------------------------------------
16 NOI & CF incr'd after adjust. for taxes ($10,210), insur.
($3,185), rep. & maint. ($3,832), & common area maint.
($14,756) expenses that had been annualized.
- ------------------------------------------------------------------------------------------------------------------------------------
17 NOI & CF incr'd after a $24,280 adjust. for annualized
taxes. CF also incr'd after $41,351 adjust. for 1-time loan
fees that had been annualized.
- ------------------------------------------------------------------------------------------------------------------------------------
18
- ------------------------------------------------------------------------------------------------------------------------------------
19 Property purchased at foreclosure sale. 1994 financials from Actual constructed 99 units. Two units used for
previous borrower. Underwritten at stabilized projections. storage/office. Crossed with loan # 56 for combined DSCR of
Borrower guaranteed loan until stabilized NOI achieved. 1.11.
- ------------------------------------------------------------------------------------------------------------------------------------
20
- ------------------------------------------------------------------------------------------------------------------------------------
21
- ------------------------------------------------------------------------------------------------------------------------------------
22
- ------------------------------------------------------------------------------------------------------------------------------------
23 Single tenant property recently acquired by borrower from
tenant--no hist. F/S available. NASDAQ symbol: KASH. Net
1994 sales: $1.1 bln; net income: -$26 mln. Moody's: B2;
S&P: B-
- ------------------------------------------------------------------------------------------------------------------------------------
24 see Kash N' Karry above
- ------------------------------------------------------------------------------------------------------------------------------------
25 see Kash N' Karry above
- ------------------------------------------------------------------------------------------------------------------------------------
26
- ------------------------------------------------------------------------------------------------------------------------------------
27
- ------------------------------------------------------------------------------------------------------------------------------------
28 Note this is a $5,915,000 loan with $3,000,000 participation Participation between pool 1 & pool 2.
in Pool #1 and $2,915,000 in Pool #2.
- ------------------------------------------------------------------------------------------------------------------------------------
29
- ------------------------------------------------------------------------------------------------------------------------------------
30 Three properties securing one loan.
- ------------------------------------------------------------------------------------------------------------------------------------
31
- ------------------------------------------------------------------------------------------------------------------------------------
32 Property was in lease up during 1994. Was 20% occupied, now
96% occupied.
- ------------------------------------------------------------------------------------------------------------------------------------
33
- ------------------------------------------------------------------------------------------------------------------------------------
34
- ------------------------------------------------------------------------------------------------------------------------------------
35 Owner occupied. General Host Corp. operates about 266 Midland deviated from normal procedures & relied on 3d
Frank's stores. NYSE traded under GH. Moody's: B3. Fiscal party appraisals for value.
1995 Net Sales: $568 mln; net income: $8.6 mln.
- ------------------------------------------------------------------------------------------------------------------------------------
36
- ------------------------------------------------------------------------------------------------------------------------------------
37 Springing Guaranty Contract for Deed. Direct collect of all
rents.
- ------------------------------------------------------------------------------------------------------------------------------------
38 Borrower restructured rents 8/1/95 with no loss in tenancy.
- ------------------------------------------------------------------------------------------------------------------------------------
39 All excess cash flow went to the lender for the property and
was accounted for as an expense. CF incr'd after a $279,210
adjust. for 1-time cap ex. No change to NOI.
- ------------------------------------------------------------------------------------------------------------------------------------
40 NNN leased to Univax to 12/31/2003. Univax has $77/SF
invested in T.I.'s.
- ------------------------------------------------------------------------------------------------------------------------------------
41
- ------------------------------------------------------------------------------------------------------------------------------------
42 Personal guaranty of Interiors R Us as principal of
borrowing entity owning the company.
- ------------------------------------------------------------------------------------------------------------------------------------
43 Holdback of $77,500 until the property generates gross
income of $29,772/month for 6 months at a rental rate of at
least $5.80/SF.
- ------------------------------------------------------------------------------------------------------------------------------------
44 Annualized YTD cash flow reflects capital expenditures and
attorneys fees of $41,996 in first 5 months. CF incr'd after
$21,356 adjust. for 1-time cap ex & $37,439 adjust. for
1-time legal fees that had been annualized. No change to
NOI.
- ------------------------------------------------------------------------------------------------------------------------------------
45 Limited historical data as the property was purchased mid 94
and rehabbed with occupancy going from 26% to 100% since
acquisition.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNEX A-6
<PAGE> 136
ANNEX A
TABLE C: COLLATERAL DEBT SERVICE, NOI AND CF
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
ANNUAL UNDER
LOAN DEBT UNDERWRITTEN UNDERWRITTEN UNDERWRITTEN WRITTEN
# PROPERTY NAME SERVICE VALUE NOI CASH FLOW DSCR
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
46 Westridge Office Park $188,224 $2,593,388 $285,273 $257,986 1.37
- ---------------------------------------------------------------------------------------------------------
47 Candelaria Industrial $201,050 $2,690,924 $296,002 $279,508 1.39
- ---------------------------------------------------------------------------------------------------------
48 U-Store $205,284 $2,772,862 $305,015 $305,015 1.49
- ---------------------------------------------------------------------------------------------------------
49 CVS Plaza $174,577 $2,352,519 $241,133 $227,519 1.30
- ---------------------------------------------------------------------------------------------------------
50 Chicago Financial Center $168,966 $2,377,156 $255,544 $221,469 1.31
- ---------------------------------------------------------------------------------------------------------
51 Arizona Beverage Distributing Company $200,289 $2,475,790 $247,579 $240,379 1.20
- ---------------------------------------------------------------------------------------------------------
52 Bering Village Shopping Center $190,029 $2,589,717 $297,817 $266,796 1.40
- ---------------------------------------------------------------------------------------------------------
53 Stonecrest Apartments $177,503 $2,235,050 $234,679 $234,679 1.32
- ---------------------------------------------------------------------------------------------------------
54 Rowland Heights Auto Center $199,633 $2,396,466 $275,594 $263,778 1.32
- ---------------------------------------------------------------------------------------------------------
55 Lakewood Apartments $143,367 $2,017,688 $201,769 $201,769 1.41
- ---------------------------------------------------------------------------------------------------------
56 Walden Oaks Healthcare Center $158,379 $2,169,174 $238,609 $238,609 1.51
- ---------------------------------------------------------------------------------------------------------
57 Gerald Adams Properties $157,105 $2,045,065 $214,732 $214,732 1.37
- ---------------------------------------------------------------------------------------------------------
58 Lightning Creek Shopping Center & Apts $154,449 $2,003,597 $214,385 $191,600 1.24
- ---------------------------------------------------------------------------------------------------------
59 Macarthur Mills Office Park $146,235 $2,138,903 $235,279 $194,724 1.33
- ---------------------------------------------------------------------------------------------------------
60 Seagrass Cove Apartments $143,760 $1,856,842 $189,397 $189,397 1.32
- ---------------------------------------------------------------------------------------------------------
61 Wickes Furniture $152,996 $1,900,725 $228,087 $214,939 1.40
- ---------------------------------------------------------------------------------------------------------
62 815 South Main Street $137,618 $2,254,873 $264,948 $253,295 1.84
- ---------------------------------------------------------------------------------------------------------
63 Holly Hills Apartments $153,329 $2,821,855 $275,131 $275,131 1.79
- ---------------------------------------------------------------------------------------------------------
64 Oak Creek Apartments $132,020 $1,771,582 $168,300 $168,300 1.27
- ---------------------------------------------------------------------------------------------------------
65 Loveland Plaza Mobile Home Park $133,510 $1,578,993 $157,899 $157,899 1.18
- ---------------------------------------------------------------------------------------------------------
66 The Centers III $127,619 $1,745,334 $200,713 $175,443 1.37
- ---------------------------------------------------------------------------------------------------------
67 Mark VI Apartments $127,560 $1,702,823 $170,282 $170,282 1.33
- ---------------------------------------------------------------------------------------------------------
68 8435-8447 Canoga Avenue $138,646 $1,856,971 $204,266 $188,734 1.36
- ---------------------------------------------------------------------------------------------------------
69 Ridgmar Manor Apartments $116,925 $1,606,306 $152,599 $152,599 1.31
- ---------------------------------------------------------------------------------------------------------
70 Wellington Apartments $114,866 $1,796,931 $188,678 $188,678 1.64
- ---------------------------------------------------------------------------------------------------------
71 National Self Storage - Alb-4 $133,955 $1,654,325 $181,976 $181,976 1.36
- ---------------------------------------------------------------------------------------------------------
72 Doug's Storage $140,478 $1,837,417 $202,116 $202,116 1.44
- ---------------------------------------------------------------------------------------------------------
73 Abilene Village Shopping Center $104,018 $1,432,916 $164,785 $137,927 1.33
- ---------------------------------------------------------------------------------------------------------
74 Stratford Manor Apartments $ 95,901 $1,355,028 $125,340 $125,340 1.31
- ---------------------------------------------------------------------------------------------------------
75 Genesis Medical Center $ 92,089 $1,366,057 $136,606 $127,730 1.39
- ---------------------------------------------------------------------------------------------------------
76 Witmer Industrial Estate $ 88,791 $1,266,394 $132,971 $118,162 1.33
- ---------------------------------------------------------------------------------------------------------
77 April Lane Commerce Park $ 90,411 $1,339,853 $140,685 $122,917 1.36
- ---------------------------------------------------------------------------------------------------------
78 Windfern Industrial Park $ 84,136 $1,220,404 $134,244 $115,352 1.37
- ---------------------------------------------------------------------------------------------------------
79 Hillsborough Office Building $ 79,517 $1,258,587 $138,445 $118,525 1.49
- ---------------------------------------------------------------------------------------------------------
80 Walgreens Plaza $ 81,906 $1,059,062 $105,906 $104,352 1.27
- ---------------------------------------------------------------------------------------------------------
81 Greenhouse Apartments $ 76,083 $1,019,732 $101,973 $101,973 1.34
- ---------------------------------------------------------------------------------------------------------
82 Maplewood Auto Mall $ 83,762 $1,130,305 $124,334 $114,081 1.36
- ---------------------------------------------------------------------------------------------------------
83 Goffstown Village Apartments $ 74,505 $ 979,822 $102,881 $102,881 1.38
- ---------------------------------------------------------------------------------------------------------
84 Chestnut Square Apartments $ 67,607 $ 885,416 $ 92,969 $ 92,969 1.38
- ---------------------------------------------------------------------------------------------------------
85 Lyn Village Apartments $ 59,439 $ 882,392 $ 92,651 $ 92,651 1.56
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
YTD 95 ADJUSTED 95 ADJUSTED 95
LOAN # OF ANNUAL'D YTD ANNUAL'D YTD
# PROPERTY NAME 1994 NOI 1994CF MTHS NOI * CF *
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
46 Westridge Office Park $326,651 $326,651 9 $288,942 $288,942
- ----------------------------------------------------------------------------------------------------
47 Candelaria Industrial $324,740 $312,117 12 $336,305 $326,435
- ----------------------------------------------------------------------------------------------------
48 U-Store $272,882 $272,882 10 $308,782 $308,782
- ----------------------------------------------------------------------------------------------------
49 CVS Plaza $220,025 $191,906 10 $338,659 $309,890
- ----------------------------------------------------------------------------------------------------
50 Chicago Financial Center $371,545 $350,220 8 $352,022 $331,342
- ----------------------------------------------------------------------------------------------------
51 Arizona Beverage Distributing Company
- ----------------------------------------------------------------------------------------------------
52 Bering Village Shopping Center $341,815 $321,299 8 $331,623 $323,381
- ----------------------------------------------------------------------------------------------------
53 Stonecrest Apartments $372,255 $369,919 9 $400,181 $410,254
- ----------------------------------------------------------------------------------------------------
54 Rowland Heights Auto Center $289,272 $289,272 9 $327,404 $327,404
- ----------------------------------------------------------------------------------------------------
55 Lakewood Apartments $270,283 $197,157 12 $258,054 $232,442
- ----------------------------------------------------------------------------------------------------
56 Walden Oaks Healthcare Center $223,216 $223,216 5 $275,918 $275,918
- ----------------------------------------------------------------------------------------------------
57 Gerald Adams Properties $194,705 $184,096 6 $238,966 $238,966
- ----------------------------------------------------------------------------------------------------
58 Lightning Creek Shopping Center & Apts $269,666 $258,025 8 $274,341 $201,348
- ----------------------------------------------------------------------------------------------------
59 Macarthur Mills Office Park $262,453 $257,008 9 $257,431 $245,561
- ----------------------------------------------------------------------------------------------------
60 Seagrass Cove Apartments 5 $160,627 $160,627
- ----------------------------------------------------------------------------------------------------
61 Wickes Furniture $206,712 $206,712 9 $206,712 $206,712
- ----------------------------------------------------------------------------------------------------
62 815 South Main Street $165,452 $165,452 5
- ----------------------------------------------------------------------------------------------------
63 Holly Hills Apartments $280,198 $197,665 12 $298,050 $224,361
- ----------------------------------------------------------------------------------------------------
64 Oak Creek Apartments $153,379 $127,538 12 $233,772 $231,607
- ----------------------------------------------------------------------------------------------------
65 Loveland Plaza Mobile Home Park $169,600 $169,600 6 $170,907 $170,907
- ----------------------------------------------------------------------------------------------------
66 The Centers III $226,299 $224,503 6 $318,228 $309,768
- ----------------------------------------------------------------------------------------------------
67 Mark VI Apartments $260,683 $241,317 7 $240,614 $208,653
- ----------------------------------------------------------------------------------------------------
68 8435-8447 Canoga Avenue $190,340 $130,954 9 $245,073 $195,896
- ----------------------------------------------------------------------------------------------------
69 Ridgmar Manor Apartments $150,411 $150,411 12 $187,885 $187,885
- ----------------------------------------------------------------------------------------------------
70 Wellington Apartments $203,713 $197,463 9 $214,161 $214,161
- ----------------------------------------------------------------------------------------------------
71 National Self Storage - Alb-4 $191,843 $191,843 9 $172,315 $172,315
- ----------------------------------------------------------------------------------------------------
72 Doug's Storage $230,452 $230,452 8 $218,156 $218,156
- ----------------------------------------------------------------------------------------------------
73 Abilene Village Shopping Center $179,109 $179,109 12 $176,329 $176,329
- ----------------------------------------------------------------------------------------------------
74 Stratford Manor Apartments $121,122 $121,122 12 $142,809 $101,997
- ----------------------------------------------------------------------------------------------------
75 Genesis Medical Center $110,607 $110,607
- ----------------------------------------------------------------------------------------------------
76 Witmer Industrial Estate $138,040 $138,040 12 $135,570 $135,570
- ----------------------------------------------------------------------------------------------------
77 April Lane Commerce Park $137,683 $133,761 10 $133,915 $133,915
- ----------------------------------------------------------------------------------------------------
78 Windfern Industrial Park $137,068 $130,518 9 $151,084 $136,969
- ----------------------------------------------------------------------------------------------------
79 Hillsborough Office Building 10 $169,934 $158,057
- ----------------------------------------------------------------------------------------------------
80 Walgreens Plaza
- ----------------------------------------------------------------------------------------------------
81 Greenhouse Apartments $120,615 $120,615 8 $104,382 $ 92,555
- ----------------------------------------------------------------------------------------------------
82 Maplewood Auto Mall $110,138 $109,018 7 $115,011 $115,011
- ----------------------------------------------------------------------------------------------------
83 Goffstown Village Apartments $151,695 $136,613 9 $137,637 $ 44,501
- ----------------------------------------------------------------------------------------------------
84 Chestnut Square Apartments $ 89,645 $ 89,645 7 $ 88,681 $ 67,189
- ----------------------------------------------------------------------------------------------------
85 Lyn Village Apartments $ 79,677 $ 79,677 9 $107,005 $107,005
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Two fields that had appeared in the preliminary prospectus supplement, and
that were reported therein as annualized YTD NOI & CF, were removed from this
table.
Please note that the relevant fields for Annualized NOI and CF appear under
field headings "Adjusted 95 Annual'd YTD NOI" and "Adjusted 95 Annual'd YTD
CF."
The field headed "Financial Comments" addresses adjustments to the annualized
NOI and CF numbers.
ANNEX A-7
<PAGE> 137
ANNEX A
TABLE C: COLLATERAL DEBT SERVICE, NOI AND CF
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN
# FINANCIAL COMMENTS GENERAL COMMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
46 NOI & CF incr'd after $10,500 adjust. for software costs
incurred for conversion to a new accounting system. CF
incr'd further after $50,667 adjust. for 1-time loan costs.
- ------------------------------------------------------------------------------------------------------------------------------------
47
- ------------------------------------------------------------------------------------------------------------------------------------
48
- ------------------------------------------------------------------------------------------------------------------------------------
49 CVS Pharmacy has 35% of the center on a lease that expires
1/31/00.
- ------------------------------------------------------------------------------------------------------------------------------------
50
- ------------------------------------------------------------------------------------------------------------------------------------
51 NNN leased to 8th largest distributor of wines and spirits MCF stabilized Occ at 95% due to substantially below market
in the U.S. No current or historical financials available rent. Appraisal also estimated occupancy at 95%.
in files.
- ------------------------------------------------------------------------------------------------------------------------------------
52
- ------------------------------------------------------------------------------------------------------------------------------------
53
- ------------------------------------------------------------------------------------------------------------------------------------
54
- ------------------------------------------------------------------------------------------------------------------------------------
55 CF incr'd after $31,615 adjust. for 1-time cap ex
(including new vinyl siding in '93 & '94) that had been
annualized.
- ------------------------------------------------------------------------------------------------------------------------------------
56 Crossed with 940902237 for combined DSCR of 1.11.
- ------------------------------------------------------------------------------------------------------------------------------------
57 Some units out of service in 1994 due to repairs.
- ------------------------------------------------------------------------------------------------------------------------------------
58 Capital expend. shows $72,993 non-recurring for conversion
of retail space to multifamily. CF incr'd after $36,496
adjust for 1-time cap ex that had been ann'd. No NOI
change.
- ------------------------------------------------------------------------------------------------------------------------------------
59
- ------------------------------------------------------------------------------------------------------------------------------------
60 Recently completed project, just reaching stabilization. Our mortgage covers additional site capable of developing
Underwriter does not include value of undeveloped land additional 46 units. Borrower may obtain partial release
valued by appraisal at $300,000. upon payment of $225,000.
- ------------------------------------------------------------------------------------------------------------------------------------
61 YTD 95 NOI does not reflect increased rent begining 6/1/95. Single tenant: long term net lease. Rent incr'd 5/95;
adjusts every 30 months thereafter on CPI.
- ------------------------------------------------------------------------------------------------------------------------------------
62 New lease effective 9/1/95 with rent of $5.44 per sq. ft.
YTD '95 based upon company performance.
- ------------------------------------------------------------------------------------------------------------------------------------
63 Extensive renovation work in 94 including $82,532 for
landscaping, carpeting, parking lot.
- ------------------------------------------------------------------------------------------------------------------------------------
64 1994 NOI includes $29,301 paid for 1993 taxes.
- ------------------------------------------------------------------------------------------------------------------------------------
65
- ------------------------------------------------------------------------------------------------------------------------------------
66
- ------------------------------------------------------------------------------------------------------------------------------------
67
- ------------------------------------------------------------------------------------------------------------------------------------
68 Spent $59,386 in 1994 on leasing commissions and tenant
improvements for all three tenants.
- ------------------------------------------------------------------------------------------------------------------------------------
69
- ------------------------------------------------------------------------------------------------------------------------------------
70 CF incr'd after a $7,500 adjust. for leasing commissions
and a $47,501 adjust. for 1-time capital repairs. No change
to NOI.
- ------------------------------------------------------------------------------------------------------------------------------------
71
- ------------------------------------------------------------------------------------------------------------------------------------
72 General Ledger sheets as of 8/31/95 Additional up front holdback was not required due to low
LTV and high DSCR. 158795 s.f. includes RV space.
- ------------------------------------------------------------------------------------------------------------------------------------
73
- ------------------------------------------------------------------------------------------------------------------------------------
74 YTD cash flow $40,438 in refinancing costs.
- ------------------------------------------------------------------------------------------------------------------------------------
75 MCF underwritten cash flow utilizes average effective rent
over the term of the lease. Single tenant building with a
new 10 year lease that started 6/95 and expires 5/05.
- ------------------------------------------------------------------------------------------------------------------------------------
76
- ------------------------------------------------------------------------------------------------------------------------------------
77
- ------------------------------------------------------------------------------------------------------------------------------------
78
- ------------------------------------------------------------------------------------------------------------------------------------
79 Borrower purchased property 6/1/94 therefore no full year
'94 NOI and cash flow are available.
- ------------------------------------------------------------------------------------------------------------------------------------
80 Accumulating $35,000 over 5 yrs to retain wall + $500/month Single tenant with lease until 7/04. All income above P&I
over term for capital repairs. No hist. F/S. Net 1995 and reserves to principal until balance is reduced to what
sales: $10.4 bln; net income: $320.8 mln. NYSE ticker: WAG. the balance would have been had our loan amount been
1,968 stores in 30 states & Puerto Rico. $725,000.
- ------------------------------------------------------------------------------------------------------------------------------------
81 Annual'd YTD CF includes $11,827 (legal & closing costs due
to actual expenditures of $7,885 for 1st 8 months).
- ------------------------------------------------------------------------------------------------------------------------------------
82 NOI & CF incr'd after a $12,000 adjustment for excess
management fees.
- ------------------------------------------------------------------------------------------------------------------------------------
83 YTD NOI is net of full year taxes. YTD CF is net of $57,856
in non-recurring costs for ust tank pull, legal fees,
points, + other loan closing costs.
- ------------------------------------------------------------------------------------------------------------------------------------
84 $21,493 for drapes, carpet, paving and appliances in 1995.
CF incr'd after $15,352 adjust. for these 1-time cap
expenditures that had been annualized. No change to NOI.
- ------------------------------------------------------------------------------------------------------------------------------------
85 1994 CF reflects $21,623 in capital improvements. 1995 CF
incr'd after $17,868 adjust. for 1-time cap ex that had
been included in repairs & maint.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNEX A-8
<PAGE> 138
ANNEX A
TABLE D: MORTGAGE LOAN TERMS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ORIGINAL TERM REMAIN. REMAIN.
LOAN ORIGINAL CUT-OFF DATE INTEREST AMORT. TO MAT. AMORT. TERM TO BALLOON
# PROPERTY NAME BALANCE BALANCE RATE TERM MAT. DATE TERM MATURITY BALANCE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Star Markets - Cambridge $8,250,000 $ 8,250,000 8.59% 300 180 1/1/11 300 180 $5,377,493
2 Star Markets - Quincy $8,115,800 $ 8,115,800 8.59% 300 180 1/1/11 300 180 $5,290,020
3 3307 M Street NW $7,400,000 $ 7,388,563 8.75% 240 240 11/1/15 239 239 $ 0
4 Ceasar Figoni Properties $6,925,070 $ 6,737,984 8.35% 300 144 11/1/05 275 119 $5,230,738
5 2982 Grand Avenue $6,550,000 $ 6,550,000 8.51% 420 120 12/1/05 420 120 $6,076,140
- ------------------------------------------------------------------------------------------------------------------------------------
6 Mountain Creek Manor $6,500,000 $ 6,493,254 8.08% 300 84 11/1/02 299 83 $5,741,367
7 Gottschalks - Palmdale $6,075,000 $ 6,064,807 9.39% 300 180 10/1/10 298 178 $4,085,008
8 Garden Ridge $5,500,000 $ 5,500,000 8.05% 180 84 1/1/03 180 84 $3,722,592
9 Mack Park Apartments $5,350,000 $ 5,350,000 7.89% 300 84 12/1/02 300 84 $4,710,593
10 Park Villa Apartments $4,750,000 $ 4,750,000 7.90% 300 60 12/1/00 300 60 $4,377,978
- ------------------------------------------------------------------------------------------------------------------------------------
11 Spruce Financial Center $4,500,000 $ 4,500,000 8.57% 300 144 1/1/08 300 144 $3,421,855
12 Gottschalks - Yuba City $4,470,000 $ 4,462,500 9.39% 300 180 10/1/10 298 178 $3,005,759
13 Hydronautics Facility $4,400,000 $ 4,390,017 8.20% 204 204 11/1/12 203 203 $ 0
14 Gottschalks - Eureka $4,355,000 $ 4,351,262 9.23% 300 180 11/1/10 299 179 $2,910,742
15 BJ's Wholesale Club $4,000,000 $ 4,000,000 8.42% 240 191 11/1/11 191 191 $ 0
- ------------------------------------------------------------------------------------------------------------------------------------
16 Stafford Plaza Shopping Center $3,900,000 $ 3,900,000 8.77% 300 144 12/1/07 300 144 $2,983,371
17 Riverdale Shopping Center $3,900,000 $ 3,887,575 9.24% 276 180 9/1/10 273 177 $2,310,655
18 Lafourche Plaza Shopping Ctr $3,750,000 $ 3,750,000 8.65% 216 120 12/1/05 216 120 $2,370,633
19 The Bristol House Gracious
Retirement Living $3,696,500 $ 3,692,738 8.20% 300 84 11/1/02 299 83 $3,271,518
20 Westwood Center II $3,600,000 $ 3,593,489 8.94% 300 120 10/1/05 298 118 $2,974,501
- ------------------------------------------------------------------------------------------------------------------------------------
21 Corona Food 4 Less $3,425,000 $ 3,421,571 8.30% 300 180 11/1/10 299 179 $2,206,253
22 Kingswood Apartments $3,350,000 $ 3,350,000 7.89% 300 84 12/1/02 300 84 $2,949,624
23 Kash N' Karry Store # 725 $3,225,000 $ 3,217,094 9.57% 300 179 8/1/10 297 176 $2,194,035
24 Kash N' Karry Store # 733 $3,195,000 $ 3,187,168 9.57% 300 179 8/1/10 297 176 $2,173,626
25 Kash N' Karry Store # 720 $3,037,500 $ 3,030,054 9.57% 300 179 8/1/10 297 176 $2,066,475
- ------------------------------------------------------------------------------------------------------------------------------------
26 Comfort Inn $3,000,000 $ 2,975,580 9.93% 240 180 6/1/10 234 174 $1,358,232
27 Rialto Food-4-Less $2,943,000 $ 2,937,407 8.64% 300 180 10/1/10 298 178 $1,922,155
28 Seaport Manor * $2,915,000 $ 2,888,661 9.55% 234 234 12/1/14 228 228 $ 0
29 Food 4 Less Supermarket $2,800,000 $ 2,800,000 8.25% 240 120 12/1/05 240 120 $1,945,155
30 McPherron Properties $2,800,000 $ 2,795,102 9.14% 300 120 10/1/05 298 118 $2,324,099
- ------------------------------------------------------------------------------------------------------------------------------------
31 Lost River Apartments $2,800,000 $ 2,789,889 9.10% 264 180 9/1/10 261 177 $1,522,821
32 Leparc Apartments $2,700,000 $ 2,700,000 8.99% 300 120 12/1/05 300 120 $2,233,446
33 Live Oaks Center $2,700,000 $ 2,695,213 9.06% 300 144 10/1/07 298 142 $2,082,955
34 Union Plaza Office Building $2,600,000 $ 2,593,679 9.62% 300 180 9/1/10 297 177 $1,763,353
35 Frank's Nursery & Crafts Stores $2,587,500 $ 2,583,274 8.31% 240 120 11/1/05 239 119 $1,800,798
- ------------------------------------------------------------------------------------------------------------------------------------
36 Santa Monica Plaza $2,500,000 $ 2,500,000 8.73% 300 144 12/1/07 300 144 $1,910,152
37 Highland Square Shopping Center $2,400,000 $ 2,393,896 9.35% 300 144 9/6/07 297 141 $1,866,807
38 Meadowbrook Mobile Home Park $2,360,000 $ 2,360,000 8.31% 240 84 12/1/02 240 84 $1,922,764
39 University Village Apartments $2,250,000 $ 2,250,000 8.90% 300 84 12/1/02 300 84 $2,013,321
40 Univax Building $2,250,000 $ 2,244,420 9.70% 180 180 11/1/10 179 179 $ 0
- ------------------------------------------------------------------------------------------------------------------------------------
41 Parkway Place $2,200,000 $ 2,196,113 9.08% 300 144 10/1/07 298 142 $1,698,198
42 Town Center $2,135,000 $ 2,131,284 9.17% 300 120 10/1/05 298 118 $1,773,327
43 Fairmount Centre $2,137,500 $ 2,129,889 9.08% 300 120 8/1/05 296 116 $1,771,787
44 Mason Creek Center $2,025,000 $ 2,023,194 9.00% 300 144 11/1/07 299 143 $1,559,515
45 Andover Retail $2,025,000 $ 2,020,044 9.58% 300 180 9/1/10 297 177 $1,371,353
- ------------------------------------------------------------------------------------------------------------------------------------
46 Westridge Office Park $1,900,000 $ 1,900,000 8.80% 300 144 12/1/07 300 144 $1,454,725
47 Candelaria Industrial $1,900,000 $ 1,900,000 8.72% 240 144 12/1/07 240 144 $1,155,032
48 U-Store $1,900,000 $ 1,900,000 9.01% 240 180 12/1/10 240 180 $ 823,910
49 CVS Plaza $1,755,000 $ 1,753,395 8.85% 300 144 11/1/07 299 143 $1,345,685
50 Chicago Financial Center $1,700,000 $ 1,700,000 8.84% 300 144 12/1/07 300 144 $1,303,130
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Seaport Manor had a total original loan amount of $5.915 million but has a
participation in this pool of only $2.915 million, with a cut-off date balance
of $2,888,661.26. Another series of the Depositor's commercial mortgage
pass-through certificates (the PSSFC 1995-C1 series) contained the remainder of
the total loan amount.
ANNEX A-9
<PAGE> 139
ANNEX A
TABLE D: MORTGAGE LOAN TERMS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ORIGINAL TERM REMAIN. REMAIN.
LOAN ORIGINAL CUT-OFF DATE INTEREST AMORT. TO MAT. AMORT. TERM TO BALLOON
# PROPERTY NAME BALANCE BALANCE RATE TERM MAT. DATE TERM MATURITY BALANCE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
51 Arizona Beverage
Distributing Company $1,700,000 $ 1,695,280 8.45% 180 180 11/1/10 179 179 $ 0
52 Bering Village Shopping Center $1,680,000 $ 1,673,009 9.66% 240 180 9/1/10 237 177 $ 751,217
53 Stonecrest Apartments $1,675,000 $ 1,669,020 9.18% 264 180 9/1/10 261 177 $ 914,177
54 Rowland Heights Auto Center $1,650,000 $ 1,650,000 9.39% 192 192 12/1/11 192 192 $ 0
55 Lakewood Apartments $1,500,000 $ 1,500,000 8.37% 300 180 12/1/10 300 180 $ 969,027
- ------------------------------------------------------------------------------------------------------------------------------------
56 Walden Oaks Healthcare Center $1,500,000 $ 1,497,664 8.69% 240 180 11/1/10 239 179 $ 640,438
57 Gerald Adams Properties $1,495,500 $ 1,495,500 8.62% 240 144 12/1/07 240 144 $ 905,788
58 Lightning Creek
Shopping Center & Apts $1,450,000 $ 1,446,522 9.70% 300 180 9/1/10 297 177 $ 986,303
59 Macarthur Mills Office Park $1,415,000 $ 1,410,158 9.32% 300 120 8/1/05 296 116 $1,179,246
60 Seagrass Cove Apartments $1,400,000 $ 1,395,144 9.24% 300 121 9/1/05 296 117 $1,161,655
- ------------------------------------------------------------------------------------------------------------------------------------
61 Wickes Furniture $1,400,000 $ 1,381,505 9.17% 240 180 7/1/10 235 175 $ 611,759
62 815 South Main Street $1,350,000 $ 1,346,450 9.15% 300 144 9/1/07 297 141 $1,044,165
63 Holly Hills Apartments $1,325,000 $ 1,325,000 8.15% 180 180 12/1/10 180 180 $ 0
64 Oak Creek Apartments $1,325,000 $ 1,323,792 8.87% 300 180 11/1/10 299 179 $ 873,331
65 Loveland Plaza Mobile Home Park $1,300,000 $ 1,300,000 8.31% 240 84 12/1/02 240 84 $1,059,150
- ------------------------------------------------------------------------------------------------------------------------------------
66 The Centers III $1,300,000 $ 1,300,000 8.69% 300 144 12/1/07 300 144 $ 992,098
67 Mark VI Apartments $1,275,000 $ 1,275,000 8.92% 300 144 12/1/07 300 144 $ 979,638
68 8435-8447 Canoga Avenue $1,250,000 $ 1,244,609 9.38% 240 144 9/1/07 237 141 $ 778,138
69 Ridgmar Manor Apartments $1,200,000 $ 1,198,856 8.60% 300 180 11/1/10 299 179 $ 782,496
70 Wellington Apartments $1,150,000 $ 1,150,000 8.90% 300 120 12/1/05 300 120 $ 949,309
- ------------------------------------------------------------------------------------------------------------------------------------
71 National Self Storage - Alb-4 $1,152,000 $ 1,147,446 10.06% 240 180 9/1/10 237 177 $ 524,656
72 Doug's Storage $1,100,000 $ 1,086,299 9.83% 180 180 7/1/10 175 175 $0
73 Abilene Village Shopping Center $1,050,000 $ 1,050,000 8.80% 300 144 12/1/07 300 144 $ 803,927
74 Stratford Manor Apartments $1,000,000 $ 995,014 8.41% 300 120 7/1/05 295 115 $ 815,921
75 Genesis Medical Center $ 925,000 $ 921,584 8.86% 300 144 8/1/07 296 140 $ 709,472
- ------------------------------------------------------------------------------------------------------------------------------------
76 Witmer Industrial Estate $ 900,000 $ 899,163 8.75% 300 144 11/1/07 299 143 $ 688,063
77 April Lane Commerce Park $ 900,000 $ 898,380 8.97% 300 144 10/1/07 298 142 $ 692,515
78 Windfern Industrial Park $ 850,000 $ 850,000 8.79% 300 180 12/1/10 300 180 $ 558,485
79 Hillsborough Office Building $ 825,000 $ 825,000 8.47% 300 180 12/1/10 300 180 $ 535,145
80 Walgreens Plaza $ 790,000 $ 787,315 9.36% 300 180 8/1/10 296 176 $ 530,619
- ------------------------------------------------------------------------------------------------------------------------------------
81 Greenhouse Apartments $ 750,000 $ 748,008 9.09% 300 144 9/1/07 297 141 $ 579,097
82 Maplewood Auto Mall $ 740,000 $ 736,924 9.67% 240 144 9/1/07 237 141 $ 465,338
83 Goffstown Village Apartments $ 725,000 $ 722,490 9.25% 300 96 8/1/03 296 92 $ 637,297
84 Chestnut Square Apartments $ 650,000 $ 648,360 9.40% 300 120 9/1/05 297 117 $ 542,662
85 Lyn Village Apartments $ 600,000 $ 597,762 8.80% 300 144 8/1/07 296 140 $ 459,387
- ------------------------------------------------------------------------------------------------------------------------------------
$222,286,173
</TABLE>
* Seaport Manor had a total original loan amount of $5.915 million but has a
participation in this pool of only $2.915 million, with a cut-off date balance
of $2,888,661.26. Another series of the Depositor's commercial mortgage
pass-through certificates (the PSSFC 1995-C1 series) contained the remainder of
the total loan amount.
ANNEX A-10
<PAGE> 140
ANNEX A
TABLE E: RETAIL SUBCATEGORIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
CUT-OFF DATE
LOAN # PROPERTY NAME RETAIL SUB CATEGORIES BALANCE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Star Markets - Cambridge Food (Neighborhood *) $8,250,000
2 Star Markets - Quincy Food (Community) $8,115,800
3 3307 M Street NW Office/Retail/Multifamily $7,388,563
5 2982 Grand Avenue Apparel/Entertainment $6,550,000
7 Gottschalks - Palmdale Department (Anchor - super-regional mall *) $6,064,807
- ------------------------------------------------------------------------------------------------------------------------
8 Garden Ridge Specialty (Stand-alone adjacent to a super-regional mall) $5,500,000
12 Gottschalks - Yuba City Department (Anchor - regional mall) $4,462,500
14 Gottschalks - Eureka Department (Anchor - regional mall *) $4,351,262
15 BJ's Wholesale Club General merchandise (Stand-alone *) $4,000,000
16 Stafford Plaza Shopping Center Community $3,900,000
- ------------------------------------------------------------------------------------------------------------------------
17 Riverdale Shopping Center Community * $3,887,575
18 Lafourche Plaza Shopping Ctr Food (Community - anchored *) $3,750,000
20 Westwood Center II Retail/Office $3,593,489
21 Corona Food 4 Less Food (Community - anchored *) $3,421,571
23 Kash N' Karry Store # 725 Food (Neighborhood - anchored *) $3,217,094
- ------------------------------------------------------------------------------------------------------------------------
24 Kash N' Karry Store # 733 Food (Stand-alone *) $3,187,168
25 Kash N' Karry Store # 720 Food (Community - anchored *) $3,030,054
27 Rialto Food-4-Less Food (stand-alone building, part of anchored Community*) $2,937,407
29 Food 4 Less Supermarket Food (Stand-alone *) $2,800,000
35 Frank's Nursery & Crafts Stores Garden (mostly stand-alone) $2,583,274
- ------------------------------------------------------------------------------------------------------------------------
36 Santa Monica Plaza Neighborhood $2,500,000
37 Highland Square Shopping Center Community $2,393,896
42 Town Center Community $2,131,284
43 Fairmount Centre Neighborhood $2,129,889
44 Mason Creek Center Neighborhood * $2,023,194
- ------------------------------------------------------------------------------------------------------------------------
45 Andover Retail Apparel/Furniture $2,020,044
49 CVS Plaza Drug/Neighborhood $1,753,395
52 Bering Village Shopping Center Neighborhood $1,673,009
54 Rowland Heights Auto Center Automotive $1,650,000
58 Lightning Creek Shopping Center & Apts Multifamily/Retail $1,446,522
- ------------------------------------------------------------------------------------------------------------------------
61 Wickes Furniture Furniture (Stand-alone *) $1,381,505
73 Abilene Village Shopping Center Neighborhood $1,050,000
80 Walgreens Plaza Drug (Stand-alone *) $ 787,315
82 Maplewood Auto Mall Automotive $ 736,924
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Retail category as listed in NRB Shopping Center Directory, 36th Edition 1996.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
TYPE OF RETAIL % OF CUT-OFF DATE BALANCE
-------------------------------------------------------------------------
<S> <C>
Auto 1.07%
Community 5.54%
Neighborhood 4.22%
Department Store 6.69%
Drug 1.14%
Food 17.41%
Apparel/Home & Garden/Entertainment 5.64%
Mixed - office/multifamily/retail 5.59%
Specialty 2.47%
General Merchandise 1.80%
-------------------------------------------------------------------------
</TABLE>
ANNEX A-11
<PAGE> 141
ANNEX B: PREPAYMENT PROVISIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YIELD > OF YM OR % PREMIUM PERIOD
LOCKOUT MAINTENANCE PREPAYMENT (YEARS)
LOAN CUT-OFF DATE PERIOD PERIOD PREMIUM DURING FOLLOWING % PREMIUM AFTER YM
# PROPERTY NAME BALANCE (YEARS)(1) (YEARS)(2) YM PERIOD(3) YM PERIOD(4) PERIOD(4)
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
1 Star Markets - Cambridge $8,250,000 0 10 5.00% 4 5%,4%,3%,2%
2 Star Markets - Quincy $8,115,800 0 10 5.00% 4 5%,4%,3%,2%
3 3307 M Street NW $7,388,563 5 14.75 1.00% 0 0
4 Ceasar Figoni Properties $6,737,984 2 9 1.00% 0 0
5 2982 Grand Avenue $6,550,000 0 3 5.00% 5 5%,4%,3%,2%,1%
- -----------------------------------------------------------------------------------------------------------------------------------
6 Mountain Creek Manor $6,493,254 0 6 5.00% 0 0
7 Gottschalks - Palmdale $6,064,807 0 10 5.00% 0 0
8 Garden Ridge $5,500,000 0 5 5.00% 0 0
9 Mack Park Apartments $5,350,000 0 5 5.00% 1 5%
10 Park Villa Apartments $4,750,000 0 4 5.00% 0.5 1%
- -----------------------------------------------------------------------------------------------------------------------------------
11 Spruce Financial Center $4,500,000 0 8 5.00% 3 3%,2%,1%
12 Gottschalks - Yuba City $4,462,500 0 10 5.00% 0 0
13 Hydronautics Facility $4,390,017 4 13 1.50% 0 0
14 Gottschalks - Eureka $4,351,262 0 10 5.00% 0 0
15 BJ's Wholesale Club $4,000,000 5 10.75 2.00% 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
16 Stafford Plaza Shopping Center $3,900,000 0 4 5.00% 5 5%,4%,3%,2%,1%
17 Riverdale Shopping Center $3,887,575 0 10 5.00% 4.5 5%,4%,3%,2%,1%
18 Lafourche Plaza Shopping Ctr $3,750,000 0 3 5.00% 5 5%,4%,3%,2%,1%
19 The Bristol House Gracious
Retirement Living $3,692,738 0 6 5.00% 0 0
20 Westwood Center II $3,593,489 0 3 5.00% 5 5%,4%,3%,2%,1%
- -----------------------------------------------------------------------------------------------------------------------------------
21 Corona Food 4 Less $3,421,571 0 10 5.00% 0 0
22 Kingswood Apartments $3,350,000 0 5 5.00% 1 5%
23 Kash N' Karry Store # 725 $3,217,094 0 10 5.00% 4.5 5%,4%,3%,2%,1%
24 Kash N' Karry Store # 733 $3,187,168 0 10 5.00% 4.5 5%,4%,3%,2%,1%
25 Kash N' Karry Store # 720 $3,030,054 0 10 5.00% 4.5 5%,4%,3%,2%,1%
- -----------------------------------------------------------------------------------------------------------------------------------
26 Comfort Inn $2,975,580 0 0 0.00% 5 5%,4%,3%,2%,1%
27 Rialto Food-4-Less $2,937,407 0 10 5.00% 0 0
28 Seaport Manor(5) $2,888,661 0 10 5.00% 5 5%,4%,3%,2%,1%
29 Food 4 Less Supermarket $2,800,000 0 3 5.00% 5 5%,4%,3%,2%,1%
30 McPherron Properties $2,795,102 0 3 5.00% 5 5%,4%,3%,2%,1%
- -----------------------------------------------------------------------------------------------------------------------------------
31 Lost River Apartments $2,789,889 0 5 5.00% 5 5%,4%,3%,2%,1%
32 Leparc Apartments(6) $2,700,000 5 0 1.00% 4.75 5%,4%,3%,2%,1% (last
90 days of year 2005
open with no penalty)
33 Live Oaks Center $2,695,213 0 4 5.00% 5 5%,4%,3%,2%,1%
34 Union Plaza Office Building $2,593,679 0 5 5.00% 5 5%,4%,3%,2%,1%
35 Frank's Nursery & Crafts Stores $2,583,274 0 9.5 1.00% 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
36 Santa Monica Plaza $2,500,000 0 12 0.00% 0 0
37 Highland Square Shopping Center $2,393,896 0 4 5.00% 5 5%,4%,3%,2%,1%
38 Meadowbrook Mobile Home Park $2,360,000 0 2 5.00% 0 0
39 University Village Apartments $2,250,000 0 6 5.00% 0 0
40 Univax Building $2,244,420 5 10 2.00% 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
41 Parkway Place $2,196,113 0 4 5.00% 5 5%,4%,3%,2%,1%
42 Town Center $2,131,284 0 5 5.00% 4 4%,3%,2%,1%
43 Fairmount Centre $2,129,889 0 3 5.00% 5 5%,4%,3%,2%,1%
44 Mason Creek Center $2,023,194 0 4 5.00% 5 5%,4%,3%,2%,1%
45 Andover Retail $2,020,044 0 5 5.00% 5 5%,4%,3%,2%,1%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Number of years following origination.
(2) Number of years following expiration of the Lockout Period, or in the case
where there is no Lockout Period, following origination.
(3) During the Yield Maintenance Period, the Prepayment Premium is the greater
of (a) the Prepayment Premium for such Mortgage Loan, calculated by multiplying
the percentage in this column by the outstanding principal balance at time of
prepayment, or, (b) Yield Maintenance, calculated pursuant to the Yield
Maintenance formula set forth in the related Mortgage Loan Note.
(4) Commencing on the later of (a) the expiration of the Yield Maintenance
Period, (b) the expiration of the Lockout Period, or (c) origination.
(5) Seaport Manor had a total original loan amount of $5.915 million but has a
participation in this pool of only $2.915 million, with a cut-off date balance
of $2,888,661.26. Another series of the Depositor's commercial mortgage
pass-through certificates (the PSSFC 1995-C1 series) contained the remainder of
the total loan amount. This loan does not charge the greater of yield
maintenance or a fixed percentage; rather, the prepayment premium during the
10-year "Yield Maintenance Period" will be equal to a fixed percentage (5%)
only, followed by a premium that declines during years 11-15, by one percentage
point per year (5%, 4%, 3%, 2%, 1%).
(6) The prepayment premiums with respect to this Mortgage Loan, after the
applicable Lockout Period, will be followed by a premium that declines during
years 5-10, by one percentage point per year (5%, 4%, 3%, 2%, 1%, open in last
90 days). The information set forth in this Table of Annex B, with respect to
this Mortgage Loan describes a separate "prepayment charge" which will be due
and payable if the related borrower sells the Mortgaged Property during the
Lockout Period (wherein no prepayment is allowed) and the purchaser does not
assume, or take title to the Mortgaged Property subject to, this Mortgage Loan.
ANNEX B-1
<PAGE> 142
ANNEX B: PREPAYMENT PROVISIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YIELD > OF YM OR % PREMIUM PERIOD
LOCKOUT MAINTENANCE PREPAYMENT (YEARS)
LOAN CUT-OFF DATE PERIOD PERIOD PREMIUM DURING FOLLOWING % PREMIUM AFTER YM
# PROPERTY NAME BALANCE (YEARS)(1) (YEARS)(2) YM PERIOD(3) YM PERIOD(4) PERIOD(4)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
46 Westridge Office Park $1,900,000 0 10 5.00% 0 0
47 Candelaria Industrial $1,900,000 0 5 5.00% 5 5%,4%,3%,2%,1%
48 U-Store $1,900,000 0 5 5.00% 5 5%,4%,3%,2%,1%
49 CVS Plaza $1,753,395 0 4 5.00% 5 5%,4%,3%,2%,1%
50 Chicago Financial Center $1,700,000 0 4 5.00% 5 5%,4%,3%,2%,1%
- -----------------------------------------------------------------------------------------------------------------------------------
51 Arizona Beverage
Distributing Company $1,695,280 4 11 1.50% 0 0
52 Bering Village Shopping Center $1,673,009 0 5 5.00% 5 5%,4%,3%,2%,1%
53 Stonecrest Apartments $1,669,020 0 5 5.00% 5 5%,4%,3%,2%,1%
54 Rowland Heights Auto Center $1,650,000 0 5 5.00% 5 5%,4%,3%,2%,1%
55 Lakewood Apartments $1,500,000 0 7 5.00% 4 5%,4%,3%,2%
- -----------------------------------------------------------------------------------------------------------------------------------
56 Walden Oaks Healthcare Center $1,497,664 0 10 5.00% 0 0
57 Gerald Adams Properties $1,495,500 0 4 5.00% 5 5%,4%,3%,2%,1%
58 Lightning Creek Shopping
Center & Apts $1,446,522 0 5 5.00% 5 5%,4%,3%,2%,1%
59 Macarthur Mills Office Park $1,410,158 0 3 5.00% 5 5%,4%,3%,2%,1%
60 Seagrass Cove Apartments(6) $1,395,144 5 0 1.00% 4.333 5% (last 4 months of
year
2000),4%,3%,2%,1%
(last 90 days of year
2004 open with no
penalty)
- -----------------------------------------------------------------------------------------------------------------------------------
61 Wickes Furniture $1,381,505 0 5 5.00% 5 5%,4%,3%,2%,1%
62 815 South Main Street $1,346,450 0 4 5.00% 5 5%,4%,3%,2%,1%
63 Holly Hills Apartments $1,325,000 0 7 5.00% 7 5%,5%,5%,4%,3%,2%,1%
64 Oak Creek Apartments $1,323,792 0 8 5.00% 5 5%,4%,3%,2%,1%
65 Loveland Plaza Mobile Home Park $1,300,000 0 2 5.00% 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
66 The Centers III $1,300,000 0 4 5.00% 5 5%,4%,3%,2%,1%
67 Mark VI Apartments $1,275,000 0 4 5.00% 6 3%,3%,2%,2%,1%,1%
68 8435-8447 Canoga Avenue $1,244,609 0 4 5.00% 5 5%,4%,3%,2%,1%
69 Ridgmar Manor Apartments $1,198,856 0 10 5.00% 0 0
70 Wellington Apartments $1,150,000 0 3 5.00% 5 5%,4%,3%,2%,1%
- -----------------------------------------------------------------------------------------------------------------------------------
71 National Self Storage - Alb-4 $1,147,446 0 5 5.00% 5 5%,4%,3%,2%,1%
72 Doug's Storage $1,086,299 0 5 5.00% 5 5%,4%,3%,2%,1%
73 Abilene Village Shopping Center $1,050,000 0 4 5.00% 5 5%,4%,3%,2%,1%
74 Stratford Manor Apartments $995,014 0 3 5.00% 5 5%,4%,3%,2%,1%
75 Genesis Medical Center $921,584 0 4 5.00% 5 5%,4%,3%,2%,1%
- -----------------------------------------------------------------------------------------------------------------------------------
76 Witmer Industrial Estate $899,163 0 4 5.00% 5 5%,4%,3%,2%,1%
77 April Lane Commerce Park $898,380 0 4 5.00% 5 5%,4%,3%,2%,1%
78 Windfern Industrial Park $850,000 0 5 5.00% 4 5%,4%,3%,2%
79 Hillsborough Office Building $825,000 0 7 5.00% 5 5%,4%,3%,2%,1%
80 Walgreens Plaza $787,315 0 5 5.00% 5 5%,4%,3%,2%,1%
- -----------------------------------------------------------------------------------------------------------------------------------
81 Greenhouse Apartments $748,008 0 4 5.00% 5 5%,4%,3%,2%,1%
82 Maplewood Auto Mall $736,924 0 4 5.00% 5 5%,4%,3%,2%,1%
83 Goffstown Village Apartments $722,490 0 6 1.00% 1 1%
84 Chestnut Square Apartments $648,360 0 3 5.00% 5 5%,4%,3%,2%,1%
85 Lyn Village Apartments $597,762 0 4 5.00% 5 5%,4%,3%,2%,1%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Number of years following origination.
(2) Number of years following expiration of the Lockout Period, or in the case
where there is no Lockout Period, following origination.
(3) During the Yield Maintenance Period, the Prepayment Premium is the greater
of (a) the Prepayment Premium for such Mortgage Loan, calculated by multiplying
the percentage in this column by the outstanding principal balance at time of
prepayment, or, (b) Yield Maintenance, calculated pursuant to the Yield
Maintenance formula set forth in the related Mortgage Loan Note.
(4) Commencing on the later of (a) the expiration of the Yield Maintenance
Period, (b) the expiration of the Lockout Period, or (c) origination.
(5) Seaport Manor had a total original loan amount of $5.915 million but has a
participation in this pool of only $2.915 million, with a cut-off date balance
of $2,888,661.26. Another series of the Depositor's commercial mortgage
pass-through certificates (the PSSFC 1995-C1 series) contained the remainder of
the total loan amount. This loan does not charge the greater of yield
maintenance or a fixed percentage; rather, the prepayment premium during the
10-year "Yield Maintenance Period" will be equal to a fixed percentage (5%)
only, followed by a premium that declines during years 11-15, by one percentage
point per year (5%, 4%, 3%, 2%, 1%).
(6) The prepayment premiums with respect to this Mortgage Loan, after the
applicable Lockout Period, will be followed by a premium that declines during
years 5-10, by one percentage point per year (5%, 4%, 3%, 2%, 1%, open in last
90 days). The information set forth in this Table of Annex B, with respect to
this Mortgage Loan describes a separate "prepayment charge" which will be due
and payable if the related borrower sells the Mortgaged Property during the
Lockout Period (wherein no prepayment is allowed) and the purchaser does not
assume, or take title to the Mortgaged Property subject to, this Mortgage Loan.
ANNEX B-2
<PAGE> 143
PROSPECTUS
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
(DEPOSITOR)
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
Prudential Securities Secured Financing Corporation (the "Depositor") may
sell from time to time under this Prospectus and related Prospectus Supplements
Pass-Through Certificates (the "Certificates"), issuable in series (each, a
"Series") consisting of one or more classes (each, a "Class") of Certificates on
terms to be determined at the time of sale.
The Certificates of a Series will evidence the beneficial ownership
interests in a separate trust formed by the Depositor. Unless otherwise
specified in the applicable Prospectus Supplement, the property of each such
trust (for each Series, the "Trust Fund") will be comprised primarily of a pool
(the "Pool") of (i) promissory notes or other evidences of indebtedness secured
by first, second or more junior liens on fee simple or leasehold interests in
single family, multifamily or commercial properties, including installment sale
contracts with respect to any such properties, or participations in any of the
foregoing (the "Mortgage Loans"), (ii) mortgage-backed certificates and other
certificates ("GNMA Certificates") guaranteed by the Government National
Mortgage Association ("GNMA"), Mortgage Participation Certificates and other
certificates ("FHLMC Certificates") issued by the Federal Home Loan Mortgage
Corporation ("FHLMC"), Guaranteed Mortgage Pass-Through Securities, Stripped
Mortgage Backed Securities or other certificates ("FNMA Certificates") issued by
the Federal National Mortgage Association ("FNMA") or mortgage-backed
certificates that are not guaranteed by GNMA, FHLMC, FNMA ("Private
Mortgage-Backed Securities") (collectively, the "Mortgage Certificates"), or
(iii) manufactured housing conditional sales contracts and installment
agreements (the "Contracts"). The Mortgage Loans, Contracts or Mortgage
Certificates included in a Trust Fund will have been acquired from one or more
affiliates of the Depositor or from one or more Unaffiliated Sellers (as defined
herein) by the Depositor and conveyed by the Depositor to such Trust Fund. The
Mortgage Loans included in a Mortgage Pool or the Contracts included in a
Contract Pool of a Series will be serviced by a servicer (the "Servicer")
described in the applicable Prospectus Supplement.
The Certificates of a Series will consist of (i) one or more Classes of
Certificates representing fractional undivided interests in all the principal
payments and the interest payments, to the extent of the related Net Mortgage
Rates (as defined herein), Net Mortgage Certificate Rates (as defined herein) or
Net Contract Rates (as defined herein), on the related Mortgage Loans, Mortgage
Certificates or Contracts ("Standard Certificates"), (ii) one or more Classes of
Certificates ("Multi-Class Certificates") each of which will be assigned a
principal balance (a "Stated Amount") based on the value of future cash flows
from the related Trust Fund without distinction as to principal or interest or
may have no principal amount but may instead be assigned a notional amount (a
"Notional Amount") on which interest accrues, and each of which will bear
interest on the Stated Amount or Notional Amount thereof at a fixed rate (which
may be zero) specified in, or a variable rate determined as specified in, the
applicable Prospectus Supplement (the "Interest Rate") or (iii) one or more
Classes of Certificates representing fractional undivided interests in all or
specified portions of the principal payments and/or interest payments, to the
extent of the related Net Mortgage Interest Rate, on the related Mortgage Loans
("Stripped Certificates"). Any Class of Certificates may be divided into two or
more subclasses (each, a "Subclass") and any Class of Standard Certificates may
be divided into two or more Subclasses that consist of Multi-Class Certificates.
In addition, a Series of Certificates for which a REMIC (as defined herein)
election has been made will also include one Class or one Subclass of Residual
Certificates (as defined herein).
Any Series of Certificates may include one or more Classes or Subclasses of
Certificates (the "Subordinated Certificates") that are subordinate in right of
distributions to such rights of one or more of other Classes or Subclasses of
such Series (the "Senior Certificates"). If specified in the applicable
Prospectus Supplement, the relative interests of the Senior Certificates and the
Subordinated Certificates of a Series in the Trust Fund may be subject to
adjustment from time to time on the basis of distributions received in respect
thereof (the "Shifting Interest Certificates"). If so specified in the
applicable Prospectus Supplement, credit support may also be provided for any
Series of Certificates in the form of a guarantee, letter of credit, mortgage
pool insurance policy or other form of credit enhancement as described herein.
Although payment of the principal of and interest on the GNMA Certificates,
FHLMC Certificates and FNMA included in a Trust Fund will be guaranteed as
described herein, the Certificates of each Series will not represent an
obligation of or interest in and are not insured or guaranteed by GNMA, FHLMC,
FNMA or any other governmental agency or instrumentality, the Depositor, the
Servicer or any of their respective affiliates, except to the limited extent
described herein and in the related Prospectus Supplement. Neither the Mortgage
Loans nor the Contracts will be guaranteed or insured by any governmental agency
or instrumentality or, except as specified in the related Prospectus Supplement,
by any other person. The only obligations of the Depositor with respect to a
Series of Certificates will be pursuant to certain limited representations and
warranties made by the Depositor, to the extent described herein and in the
related Prospectus Supplement. The Servicer with respect to a Series of
Certificates relating to Mortgage Loans or Contracts will be named in the
related Prospectus Supplement. The principal obligations of a Servicer will be
limited to certain obligations pursuant to certain representations and
warranties and to its contractual servicing obligations.
An election will be made to treat each Trust Fund (or one or more segregated
pools of assets therein) underlying a Series which includes Multi-Class
Certificates as a "real estate mortgage investment conduit" (a "REMIC") for
federal income tax purposes. Such an election may also be made with respect to
any other Trust Fund (or a segregated pool of assets therein). Series of
Certificates for which a REMIC election has been made will include one or more
Classes or Subclasses which constitute "regular interests" in the REMIC
("Regular Certificates") and one Class or Subclass with respect to each REMIC
which constitutes the "residual interest" therein (the "Residual Certificates").
See "Certain Federal Income Tax Consequences."
There will have been no public market for the Certificates of any Series
prior to the offering thereof. No assurance can be given that such a market will
develop, or that if such a market does develop, it will provide
Certificateholders with liquidity of investment or will continue for the life of
the Certificates.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Certificates may be sold from time to time by the Depositor through
dealers or agents designated from time to time, through underwriting syndicates
led by one or more managing underwriters or through one or more underwriters
acting alone. See "Plan of Distribution." Affiliates of the Depositor may from
time to time act as agents or underwriters in connection with the sale of
Certificates. The terms of a particular offering will be set forth in the
Prospectus Supplement related to such offering.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES UNLESS
ACCOMPANIED BY THE PROSPECTUS SUPPLEMENT RELATING TO THE OFFERING OF SUCH
CERTIFICATES.
The date of this Prospectus is December 22, 1995.
<PAGE> 144
REPORTS
In connection with each distribution and annually, Certificateholders will
be furnished with statements containing information with respect to principal
and interest payments and the related Trust Fund, as described herein and in the
applicable Prospectus Supplement for such Series. Any financial information
contained in such reports will not have been examined or reported upon by an
independent public accountant. See "Servicing of the Mortgage Loans and
Contracts -- Reports to Certificateholders" and "Administration of the Mortgage
Certificates -- Reports to Certificateholders." The Servicer for each Series
relating to Mortgage Loans or Contracts will furnish periodic statements setting
forth certain specified information to the related Trustee and, in addition,
annually will furnish such Trustee with a statement from a firm of independent
public accountants with respect to the examination of certain documents and
records relating to the servicing of the Mortgage Loans or Contracts in the
related Trust Fund. See "Servicing of the Mortgage Loans and
Contracts -- Reports to the Trustee" and "-- Evidence as to Compliance." Copies
of the monthly and annual statements provided by the Servicer to the Trustee
will be furnished to Certificateholders of each Series upon request addressed to
Prudential Securities Secured Financing Corporation, One Seaport Plaza, 26th
Floor, New York, New York 10292, Attention: James Fadel (212) 214-1000.
AVAILABLE INFORMATION
The Depositor has filed a Registration Statement (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with the Securities and Exchange Commission (the "Commission") with respect to
the Certificates offered pursuant to this Prospectus. This Prospectus contains,
and the Prospectus Supplement for each Series of Certificates will contain, a
summary of the material terms of the documents referred to herein and therein,
but neither contains nor will contain all of the information set forth in the
Registration Statement of which this Prospectus is a part. For further
information, reference is made to such Registration Statement and any amendments
thereof and to the exhibits thereto. Copies of the Registration Statement may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 upon payment of the prescribed charges, or may be
examined free of charge at the Commission's offices, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at the regional offices of the Commission located at
Room 1400, 75 Park Place, New York, New York 10007 and Northwestern Atrium
Center, 500 West Madison Street, Suite 400, Chicago, Illinois 60661-2511.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination
of any offering of Certificates evidencing interests therein. The Depositor will
provide or cause to be provided without charge to each person to whom this
Prospectus is delivered in connection with the offering of one or more Classes
of Certificates, a list identifying all filings with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, since the
Depositor's latest fiscal year covered by its annual report on Form 10-K and a
copy of any or all documents or reports incorporated herein by reference, in
each case to the extent such documents or reports relate to one or more of such
Classes of such Certificates, other than the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Requests to the Depositor should be directed to: Prudential Securities Secured
Financing Corporation, One Seaport Plaza, 26th Floor, New York, New York 10292,
telephone number (212) 214-1000, Attention: James Fadel.
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SUMMARY OF PROSPECTUS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus, and by reference to the
information with respect to each Series of Certificates contained in the related
Prospectus Supplement. Certain capitalized terms used and not otherwise defined
herein shall have the meanings given elsewhere in this Prospectus.
Title of Securities............. Pass-Through Certificates (Issuable in
Series).
Depositor....................... Prudential Securities Secured Financing
Corporation, formerly known as P-B Secured
Financing Corporation (the "Depositor"), a
Delaware corporation, is a wholly-owned
limited purpose finance subsidiary of
Prudential Securities Group Inc. The
Depositor's principal executive offices are
located at One Seaport Plaza, 26th Floor, New
York, New York 10292, and its telephone
number is (212) 214-1000. See "The
Depositor."
Trustee......................... The Trustee with respect to a Series will be
specified in the related Prospectus
Supplement.
Servicer........................ The Servicer for each Series relating to
Mortgage Loans or Contracts will be specified
in the applicable Prospectus Supplement. The
Servicer will service the Mortgage Loans or
Contracts comprising each Trust Fund and
administer each Trust Fund pursuant to a
separate Pooling and Servicing Agreement
(each, a "Pooling and Servicing Agreement").
The Servicer may subcontract all or any
portion of its obligations as Servicer under
each Pooling and Servicing Agreement to
qualified subservicers (each, a
"Sub-Servicer") but the Servicer will not be
relieved thereby of its liability with
respect thereto. See "Servicing of the
Mortgage Loans and Contracts." No Servicer
will be employed with respect to any Series
relating exclusively to Mortgage
Certificates.
The Trust Funds................. The Trust Fund for each Series of
Certificates may consist of any combination
of Mortgage Pools, Mortgage Certificate Pools
and/or Contract Pools (each as defined
herein) and certain other related property,
as specified herein and in the applicable
Prospectus Supplement. Unless otherwise
specified in the applicable Prospectus
Supplement, each Mortgage Pool will be
comprised of single family, multifamily or
commercial Mortgage Loans or participations
in any of the foregoing. Unless otherwise
specified in the applicable Prospectus
Supplement, each Mortgage Certificate Pool
will consist of GNMA Certificates, FHLMC
Certificates, FNMA Certificates or Private
Mortgage-Backed Securities. Unless otherwise
specified in the applicable Prospectus
Supplement, each Contract Pool will consist
of fixed or adjustable rate manufactured
housing installment sales contracts and
installment loan agreements. Each Contract
may be secured by a new or used Manufactured
Home (as defined herein).
Each Mortgage Certificate included in a Trust
Fund will evidence an interest in a pool of
mortgage loans or in principal distributions
and interest distributions thereon. Any GNMA
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Certificates included in a Trust Fund will be
guaranteed as to full and timely payment of
principal and interest by GNMA, which
guarantee is backed by the full faith and
credit of the United States. Any FHLMC
Certificates included in a Trust Fund will be
guaranteed by FHLMC as to the timely payment
of interest and, unless otherwise provided in
the applicable Prospectus Supplement, as to
the ultimate collection of principal. Any
FNMA Certificates included in a Trust Fund
will be guaranteed as to timely payment of
scheduled principal and interest by FNMA. The
FHLMC Certificates and the FNMA Certificates
will not be backed, directly or indirectly,
by the full faith and credit of the United
States.
The particular characteristics of each Trust
Fund will be set forth in the applicable
Prospectus Supplement.
Description of the
Certificates.................... Each Series will consist of one or more
Classes of Certificates which may be (i)
Standard Certificates (ii) Multi-Class
Certificates or (iii) Stripped Certificates.
Any Class of Certificates may be divided into
two or more Subclasses and any Class of
Standard Certificates may be divided into
Subclasses which consist of Multi-Class
Certificates. The Depositor will cause each
Trust Fund (or one or more segregated pools
of assets therein) with respect to a Series
which includes Standard Certificates
redeemable on a random lot basis, Multi-Class
Certificates or Shifting Interest
Certificates to elect to be treated as a
REMIC. In addition, any Series with respect
to which an election has been made to treat
the Trust Fund (or one or more segregated
pools of assets therein) as a REMIC will
include one Class or one Subclass of Residual
Certificates as to each REMIC. The Residual
Certificates of a Series, if offered hereby,
will represent the right to receive
distributions with respect to the related
Trust Fund as specified in the related
Prospectus Supplement. Unless otherwise
specified in the applicable Prospectus
Supplement, the Certificates will be offered
only in fully-registered form. If so
specified in the applicable Prospectus
Supplement, Certificates offered hereby will
be issued in book-entry form through the
facilities of The Depository Trust Company.
A. Standard Certificates...... Unless otherwise provided in the applicable
Prospectus Supplement, Standard Certificates
of a Series will each evidence a fractional
undivided beneficial ownership interest in
the related Trust Fund and will entitle the
holder thereof to its proportionate share of
a percentage of all of the payments and other
receipts with respect to the principal of and
interest (to the extent of the applicable Net
Mortgage Rate, Net Mortgage Certificate Rate
or Net Contract Rate) on the related Mortgage
Loans, Mortgage Certificates or Contracts. If
specified in the applicable Prospectus
Supplement, with respect to any Class of
Standard Certificates of a Series for which a
REMIC election has been made, distributions
of principal may be allocated among the
Certificateholders of such Class on a pro
rata,
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random lot or such other basis as is
specified in such Prospectus Supplement.
B. Multi-Class Certificates... Multi-Class Certificates of a Series will
consist of Certificates each of which
evidences a beneficial ownership interest in
the related Trust Fund and will be assigned a
Stated Amount, which may be based on an
amount of principal of the underlying
Mortgage Loans, Mortgage Certificates or
Contracts or on the value of future cash
flows from the related Trust Fund without
distinction as to principal or interest and
an Interest Rate which may be a fixed rate
(which may be zero) or a variable rate or
which will otherwise accrue interest as
specified in the applicable Prospectus
Supplement. The holder of a Multi-Class
Certificate will be entitled to receive, to
the extent funds are available therefor,
interest payments on the outstanding Stated
Amount thereof at the applicable Interest
Rate or as otherwise specified in the
applicable Prospectus Supplement and
distributions in reduction of such Stated
Amount determined in the manner and applied
in the priority set forth in the applicable
Prospectus Supplement.
C. Stripped Certificates...... Stripped Certificates will each evidence an
undivided beneficial interest in the related
Trust Estate and will entitle the holder
thereof to its proportionate share of a
specified portion (which may be zero) of
principal payments and/or a specified portion
(which may be zero) of interest payments (to
the extent of the applicable Net Mortgage
Interest Rate) on the related Mortgage Loans.
Pooling and Servicing
Agreement....................... The Certificates of each Series will be
issued pursuant to a Pooling and Servicing
Agreement among the Depositor, the Servicer,
if any, and the Trustee.
Cut-Off Date.................... The date specified in the applicable
Prospectus Supplement.
Distribution Dates.............. Unless otherwise specified in the applicable
Prospectus Supplement, distributions on
Standard Certificates or Stripped
Certificates will be made on the 25th day
(or, if such day is not a business day, the
business day following the 25th day) of each
month, commencing with the month following
the month in which the applicable Cut-Off
Date occurs. Distributions on Multi-Class
Certificates will be made monthly, quarterly,
or semiannually, on the dates specified in
the applicable Prospectus Supplement. The
dates upon which such distributions are made
are referred to herein as the "Distribution
Dates."
Record Dates.................... Distributions will be made on each
Distribution Date set forth in the Prospectus
Supplement to Certificateholders of record at
the close of business on the last business
day of the month preceding the month in which
such Distribution Date occurs or such other
date as may be set forth in the Prospectus
Supplement (the "Record Date").
Interest........................ With respect to a Series of Certificates
consisting of Standard Certificates or
Stripped Certificates, unless otherwise
specified in the applicable Prospectus
Supplement, interest on the related
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<PAGE> 148
Mortgage Loans, Mortgage Certificates or
Contracts at the applicable pass-through rate
(the "Pass-Through Rate"), as set forth in
the applicable Prospectus Supplement, will be
passed through monthly on each Distribution
Date to holders thereof, in accordance with
the particular terms of each such
Certificate. Holders of Multi-Class
Certificates will receive distributions of
interest at the applicable Interest Rate, if
any, on the Stated Amount or Notional Amount
of such Certificates, or as otherwise
specified in the applicable Prospectus
Supplement, without regard to the Net
Mortgage Rates, Net Mortgage Certificate
Rates or Net Contract Rates on the underlying
Mortgage Loans, Mortgage Certificates or
Contracts. Unless otherwise specified in the
applicable Prospectus Supplement, the "Net
Mortgage Rate" for each Mortgage Loan in a
given period will equal the Mortgage Rate for
such Mortgage Loan in such period (the
"Mortgage Rate") less any Fixed Retained
Yield, and less the Servicing Fee (as defined
herein). Unless otherwise specified in the
applicable Prospectus Supplement, the "Net
Mortgage Certificate Rate" for each Mortgage
Certificate in a given period will equal the
Mortgage Certificate Rate for such Mortgage
Certificate in such period (the "Certificate
Rate") less any Fixed Retained Yield, and
less any fees payable to the Trustee for
administration of the related Trust Fund.
Unless otherwise specified in the applicable
Prospectus Supplement, the "Net Contract
Rate" for each Contract in a given period
will equal the Contract Rate for such
Contract in such period (the "Contract Rate")
less any Fixed Retained Yield, and less the
Servicing Fee. The "Servicing Fee" with
respect to each Mortgage Loan or Contract is
an amount reserved for servicing such
Mortgage Loan or Contract and administration
of the related Trust Fund.
Principal (including
prepayments).................... With respect to a Series of Certificates
consisting of Standard Certificates or
Stripped Certificates, unless otherwise
specified in the applicable Prospectus
Supplement, principal payments (including
prepayments received on each related Mortgage
Loan, Mortgage Certificate or Contract during
the month preceding the month in which a
Distribution Date occurs) will be passed
through to holders on such Distribution Date,
in accordance with the particular terms of
each such Certificate.
Distributions in Reduction of
Stated Amount................... With respect to each Class and Subclass of
Multi-Class Certificates, distributions in
reduction of Stated Amount will be made on
each Distribution Date to the holders of the
Certificates of such Class and Subclass then
entitled to receive such distributions until
the aggregate amount of such distributions
have reduced the Stated Amount of each such
Class and Subclass of Certificates to zero.
Distributions in reduction of Stated Amount
will be allocated among the Classes or
Subclasses of such Certificates in the manner
specified in the applicable Prospectus
Supplement. Distributions in reduction of
Stated Amount with respect to any Class or
Subclass of Multi-Class Certificates of a
Series may be made on a pro rata or random
lot
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<PAGE> 149
or such other basis as is specified in the
applicable Prospectus Supplement. See
"Description of the
Certificates -- Distributions to Multi-Class
Certificateholders."
Credit Enhancement
A. By Subordination........... A Series of Certificates may include one or
more Classes or Subclasses of Senior
Certificates and one or more Classes or
Subclasses of Subordinated Certificates. The
rights of the holders of Subordinated
Certificates of a Series to receive
distributions with respect to the related
Mortgage Loans, Mortgage Certificates or
Contracts will be subordinated to such rights
of the holders of the Senior Certificates of
the same Series to the extent (the
"Subordinated Amount") specified herein and
in the applicable Prospectus Supplement. This
subordination is intended to enhance the
likelihood of the timely receipt by the
Senior Certificateholders of their
proportionate share of scheduled monthly
principal and interest payments on the
related Mortgage Loans, Mortgage Certificates
or Contracts and to reduce the likelihood
that the Senior Certificateholders will
experience losses. The Prospectus Supplement
for Series of Certificates including a
subordination feature may also specify the
allocation of distributions and priority of
payments of principal, or Stated Amount, and
interest among one or more Classes or
Subclasses of Senior Certificates of such
Series. The protection afforded to Senior
Certificateholders of a Series will be
effected by a preferential right, as
specified in the applicable Prospectus
Supplement, of such Senior Certificateholders
to receive, on any Distribution Date, current
distributions on the related Mortgage Loans,
Mortgage Certificates or Contracts and (if so
specified in the applicable Prospectus
Supplement) by the establishment of a reserve
fund (the "Subordination Reserve Fund") for
such Series. Any Subordination Reserve Fund
may be funded initially with a deposit of
cash, instruments or securities in an amount
specified in the applicable Prospectus
Supplement and, if so specified in the
related Prospectus Supplement, may be
augmented by the retention of distributions
which otherwise would have been available for
distribution to the Subordinated
Certificateholders in the manner and to the
extent specified in the applicable Prospectus
Supplement. The Subordination Reserve Fund
for a Series may be funded and maintained in
such other manner as is specified in the
related Prospectus Supplement. The
maintenance of any Subordination Reserve Fund
would be intended to preserve the
availability of the subordination provided by
the Subordinated Certificates and to provide
liquidity, but in certain circumstances the
Subordination Reserve Fund could be depleted
and, if other amounts available for
distribution are insufficient, shortfalls in
distributions to the Senior
Certificateholders could result. Unless
otherwise specified in the related Prospectus
Supplement, until the Subordinated Amount is
reduced to zero, Senior Certificateholders
will be entitled to receive the amount of any
such shortfall, together with interest at the
applicable Pass-Through Rate, Interest Rate,
or at such other rate specified in the
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<PAGE> 150
applicable Prospectus Supplement, as the case
may be, on the next Distribution Date. Senior
Certificateholders will bear their pro rata
share of any losses realized on the related
Mortgage Loans, Mortgage Certificates or
Contracts in excess of the applicable
Subordinated Amount. If so specified in the
applicable Prospectus Supplement, the
protection afforded to holders of Senior
Certificates of a Series by the subordination
of certain rights of holders of Subordinated
Certificates of such Series to distributions
on the related Mortgage Loans, Mortgage
Certificates or Contracts may be effected by
a method other than that described above,
such as, in the event that the applicable
Trust Fund (or one or more segregated pools
of assets therein) elects to be treated as a
REMIC, the reallocation from time to time, on
the basis of distributions previously
received, of the respective percentage
interests of the Senior Certificates and the
Subordinated Certificates in the related
Trust Fund. See "Description of the
Certificates -- Distributions to Standard
Certificateholders -- Shifting Interest
Certificates."
B. By Other Methods........... The Certificates of any Series, or any one or
more Classes thereof, may be entitled to the
benefits of a guarantee, letter of credit,
mortgage pool insurance policy, surety bond
or other form of credit enhancement as
specified in the applicable Prospectus
Supplement. See "Description of the
Certificates" and "Credit Support."
Advances........................ Under the Pooling and Servicing Agreement for
each Series relating to Mortgage Loans or
Contracts, unless otherwise provided in the
applicable Prospectus Supplement, the related
Servicer will be obligated to make advances
of cash ("Advances") to the Certificate
Account (as defined herein) in the event of
delinquencies in payments on the Mortgage
Loans or Contracts to the extent described
herein and in the applicable Prospectus
Supplement and only to the extent that the
Servicer determines such Advances would be
recoverable from future payments and
collections on the Mortgage Loans or
Contracts. Any Advances made by the Servicer
will ultimately be reimbursable to the
Servicer from the Certificate Account. See
"Servicing of the Mortgage Loans and
Contracts -- Advances and Limitations
Thereon."
Early Termination............... If so specified in the related Prospectus
Supplement, a Series of Certificates may be
subject to early termination through the
repurchase of the assets in the related Trust
Fund by the person or persons, under the
circumstances and in the manner specified in
such Prospectus Supplement. See "Prepayment
and Yield Considerations."
Legal Investment................ If so specified in the Prospectus Supplement,
one or more classes of Certificates offered
pursuant to this Prospectus will constitute
"mortgage related securities" under the
Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"), so long as they are rated in
one of the two highest rating categories by
at least one nationally recognized
statistical rating organization. As "mortgage
related securities," such Certificates
offered
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pursuant to this Prospectus will constitute
legal investments for certain types of
institutional investors to the extent
provided in SMMEA, subject, in any case, to
any other regulations which may govern
investments by such institutional investors.
Since certain other classes of Certificates
offered pursuant to this Prospectus will not
[represent interests in] [be secured by]
qualifying mortgage loans, the [defined term
for Class or Series] will not constitute
"mortgage related securities" under SMMEA.
No representation is made as to the
appropriate characterization of the
[defined term for Class or Series] under any
laws relating to investment restrictions,
as to which investors should consult their
legal advisors. See "Legal Investment".
ERISA Limitations............... A fiduciary of any employee benefit plan
subject to the fiduciary responsibility
provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
including the prohibited transaction rules
thereunder, and to the corresponding
provisions of the Internal Revenue Code of
1986, as amended (the "Code"), should
carefully review with its own legal advisors
whether the purchase or holding of
Certificates could give rise to a transaction
prohibited or otherwise impermissible under
ERISA or the Code. See "ERISA
Considerations."
Federal Income Tax Status....... The federal income tax consequences of
investment in a Certificate of any Series
will vary depending upon the characteristics
of such Certificate. If so specified in the
applicable Prospectus Supplement, an election
may be made to have the Trust Fund (or one or
more segregated pools of assets therein) with
respect to a Series of Certificates treated
as a REMIC for federal income tax purposes.
See "Certain Federal Income Tax
Consequences."
Rating.......................... At the date of issuance of each Series of
Certificates, the Certificates offered hereby
will be rated in one of the four highest
rating categories by at least one statistical
rating organization that has been requested
by the Depositor to rate such Certificates (a
"Rating Agency").
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THE TRUST FUNDS
GENERAL
The Trust Fund for each Series of Certificates will consist primarily of a
Pool of Mortgage Loans (a "Mortgage Pool"), Mortgage Certificates (a "Mortgage
Certificate Pool") and/or Contracts (a "Contract Pool"). In addition, a Trust
Fund will also include (i) amounts held from time to time in the related
Certificate Account, (ii) the Depositor's interest in any primary mortgage
insurance, hazard insurance, title insurance and/or other insurance policies
relating to a Mortgage Loan or Contract, (iii) any property which initially
secured a Mortgage Loan and which has been acquired by foreclosure or trustee's
sale or deed in lieu of foreclosure or trustee's sale, (iv) any Manufactured
Home which initially secured a Contract and which is acquired by repossession,
(v) if applicable, and to the extent set forth in the applicable Prospectus
Supplement, any Subordination Reserve Fund and/or any other reserve fund, (vi)
if applicable, and to the extent set forth in the applicable Prospectus
Supplement, one or more guarantees, letters of credit, insurance policies, or
any other credit enhancement arrangement, and (vii) such other assets as may be
specified in the related Prospectus Supplement. Unless otherwise specified in
the applicable Prospectus Supplement, the Trust Fund will not include, however,
the portion of interest on the Mortgage Loans, Mortgage Certificates or
Contracts which constitutes the Fixed Retained Yield, if any. See "Fixed
Retained Yield" below.
THE MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Pool will consist of Mortgage Loans evidenced by promissory notes or
other evidences of indebtedness (the "Mortgage Notes") that provide for an
original term to maturity of not more than 40 years, for monthly payments and
for interest on the outstanding principal amounts thereof at a rate that is
either fixed or subject to adjustment as described in the related Prospectus
Supplement. If so specified in the applicable Prospectus Supplement, the
adjustable interest rate on certain of the Mortgage Loans will be convertible
into a fixed interest rate at the option of the mortgagor at the times and upon
the conditions specified therein ("Convertible Mortgage Loans"). The Mortgage
Loans may provide for fixed level payments or be GPM Loans, GEM Loans, Balloon
Loans or Buy-Down Loans (each as defined herein) or Mortgage Loans with other
payment characteristics as described in the related Prospectus Supplement. In
addition, the Mortgage Pools may include participation interests in Mortgage
Loans, in which event references herein to payments on Mortgage Loans underlying
such participations shall mean payments thereon allocable to such participation
interests, and the meaning of other terms relating to Mortgage Loans will be
similarly adjusted. Similarly, the Mortgage Pools may include Mortgage Loans
with respect to which a Fixed Retained Yield has been retained, in which event
references herein to Mortgage Loans and payments thereon shall mean the Mortgage
Loans exclusive of such Fixed Retained Yield. A "Fixed Retained Yield" in a
Mortgage Loan or Contract represents a specified portion of the interest payable
thereon. The Prospectus Supplement for a Series will specify whether there will
be any Fixed Retained Yield in any Mortgage Loan or Contract and, if so, the
owner thereof. See "Servicing of the Mortgage Loans and Contracts -- Fixed
Retained Yield." Unless otherwise specified in the related Prospectus
Supplement, the Mortgage Loans will be secured by promissory notes or other
evidences of indebtedness (the "Mortgages") creating first, second or more
junior liens on single family (i.e., one- to four-family) or multifamily (i.e.,
five or more dwelling units) residential properties, agricultural properties or
commercial properties, all of which will be located in any of the fifty states
or the District of Columbia. Multifamily properties may include mixed commercial
and residential structures. The Mortgage Loans may also consist of installment
contracts for the sale of real estate. If so provided in the applicable
Prospectus Supplement, a Mortgage Pool may also contain cooperative apartment
loans (the "Cooperative Loans") evidenced by promissory notes (the "Cooperative
Notes") secured by security interests in shares issued by private, non-profit,
cooperative housing corporations (the "Cooperatives") and in the related
proprietary leases or occupancy agreements granting exclusive rights to occupy
specific Cooperative Dwellings in such cooperatives' buildings. In the case of a
Cooperative Loan, the proprietary lease or occupancy agreement securing such
Cooperative Loan is generally subordinate to any blanket mortgage on the related
cooperative apartment building and/or the underlying land. Additionally, the
proprietary lease or occupancy agreement is subject to
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termination and the cooperative shares are subject to cancellation by the
cooperative if the tenant-stockholder fails to pay maintenance or other
obligations or charges owed by such tenant-stockholder.
Mortgage Loans may be entitled to the benefit of external credit
enhancement. Residential Mortgage Loans may be insured by the Federal Housing
Administration or its successors against defaults by the borrower in the payment
of principal and interest thereon, have a portion of principal and interest
payments guaranteed by the Department of Veterans Affairs or its successors or
be subject to other payment guarantees, including guarantees under the National
Housing Act. Payments on Mortgage Loans secured by multifamily or commercial
property may also be secured by assignments of rents and leases and liens on
equipment and other personal property. Mortgage Loans might also support other
Mortgage Loans through cross-collateralization or cross-default provisions.
Unless otherwise specified in the Prospectus Supplement for a Series, each
Mortgage Loan must have an original term of maturity of not less than 15 years
and not more than 40 years. Unless otherwise specified in the Prospectus
Supplement for a Series, no Mortgage Loan for residential property will have
had, at origination, a principal balance in excess of [$5,000,000] or a
Loan-to-Value Ratio in excess of 95%, and Mortgage Loans having Loan-to-Value
Ratios at the time of origination exceeding 80% will be supported by external
credit enhancement or be covered by primary mortgage insurance providing
coverage on at least the amount of each such mortgage loan in excess of 75% of
the original fair market value of the mortgaged property and remaining in force
until the principal balance of such Mortgage Loan is reduced to 80% of such
original fair market value. The "Loan-to-Value Ratio" is the ratio, expressed as
a percentage, of the principal amount of the Mortgage Loan outstanding at the
origination of such loan divided by the fair market value of the Mortgaged
Property. The fair market value of the Mortgaged Property securing any Mortgage
Loan is, unless otherwise specified in the applicable Prospectus Supplement, the
lesser of (x) the appraised value of the related Mortgaged Property determined
in an appraisal obtained by the originator at origination (or, in the case of a
refinancing, an appraisal obtained at the origination of the refinanced mortgage
loan) and (y) the sale price for such property.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at the levels which existed on the dates of origination
of the related Mortgage Loans. If the residential or commercial real estate
market should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans and any secondary financing on the
Mortgaged Properties in a particular Trust Fund become equal to or greater than
the value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. To the extent that such losses are not covered by
the methods of credit support or the insurance policies described herein, they
will be borne by holders of the Certificates of the Series evidencing interests
in such Trust Fund.
The Prospectus Supplement for each Series will set forth certain
characteristics of the related Mortgage Loans, which may include the aggregate
principal balance of the Mortgage Loans in the Mortgage Pool underlying such
Series as of the Cut-Off Date for such Series (the "Cut-Off Date Aggregate
Principal Balance"), the range of original terms to maturity of the Mortgage
Loans in the Mortgage Pool, the weighted average remaining term to stated
maturity at the Cut-Off Date of such Mortgage Loans, the earliest and latest
origination dates of such Mortgage Loans, the range of Mortgage Rates and Net
Mortgage Rates borne by such Mortgage Loans, the weighted average Net Mortgage
Rate at the Cut-Off Date of such Mortgage Loans, the range of debt service
coverage ratios for Mortgage Loans secured by multifamily or commercial
properties, the specific types of property securing commercial Mortgage Loans,
the percentage of such Mortgage Loans which had Loan-to-Value Ratios at the time
of origination of 80% or less, the percentage of such Mortgage Loans that had
Loan-to-Value Ratios at origination in excess of 80% and the highest outstanding
principal balance at origination of any such Mortgage Loan.
Unless otherwise specified in the applicable Prospectus Supplement, all of
the Mortgage Loans in a Trust Fund will have monthly payments due on the first
of each month (each, a "Due Date") and will, with respect to Mortgage Loans
secured by residential or multifamily properties, require at least monthly
payments of interest on any outstanding balance. If so specified in the
applicable Prospectus Supplement, Mortgage Loans
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may have Due Dates which occur on a date other than the first of each month. If
so specified in the applicable Prospectus Supplement, the Mortgage Pools may
include adjustable rate Mortgage Loans that provide for payment adjustments to
be made less frequently than adjustments in the Mortgage Rates. Each adjustment
in the Mortgage Rate which is not made at the time of a corresponding adjustment
in payments (and which adjusted amount of interest is not paid currently on a
voluntary basis by the mortgagor) will result in a decrease (if the Mortgage
Rate rises) or an increase (if the Mortgage Rate declines) in the rate of
amortization of the Mortgage Loan. Moreover, such payment adjustments on the
Mortgage Loans may be subject to certain limitations, as specified in the
Prospectus Supplement, which may also affect the rate of amortization on the
Mortgage Loan. As a result of such provisions, or in accordance with the payment
schedules of certain GPM Loans and other Mortgage Loans, the amount of interest
accrued in any month may equal or exceed the scheduled monthly payment on the
Mortgage Loan. In any such month, no principal would be payable on the Mortgage
Loan, and if the accrued interest exceeded the scheduled monthly payment, such
excess interest due would become "Deferred Interest" that is added to the
principal balance of the Mortgage Loan. Deferred Interest will bear interest at
the Mortgage Rate until paid. If such limitations prevent the payments from
being sufficient to amortize fully the Mortgage Loan by its stated maturity
date, a lump sum payment equal to the remaining unpaid principal balance will be
due on such stated maturity date. See "Prepayment and Yield Considerations."
The geographic distribution of Mortgaged Properties will be set forth in
the Prospectus Supplement. Unless otherwise specified in the applicable
Prospectus Supplement, the Mortgage Loans in each Mortgage Pool will be
permanent loans (as opposed to construction and land development loans) secured
by Mortgages on Mortgaged Properties comprising residential dwelling units
including detached homes, townhouses, planned unit developments, and
condominiums as well as commercial and mixed residential/commercial properties
including office buildings, retail buildings, warehouses, hotels and motels,
vehicle service facilities, industrial buildings, medical buildings and a
variety of other commercial properties as may be discussed in the related
Prospectus Supplement. Each Prospectus Supplement will set forth the percentage
of the Cut-Off Date Aggregate Principal Balance of the Mortgage Loans in the
Mortgage Pool which are secured by mortgages on (i) one-family detached
properties, (ii) two- to four-family units, (iii) multifamily properties, (iv)
condominium units, (v) properties located in planned unit developments, (vi)
townhouses, (vii) shares issued by cooperatives and the related proprietary
leases or occupancy agreements granting exclusive rights to occupy specified
units in such cooperatives' buildings, (viii) specified types of commercial
properties and (ix) other properties. Each Prospectus Supplement will also set
forth the percentage of the Cut-Off Date Aggregate Principal Balance of the
Mortgage Loans in the related Mortgage Pool representing the refinancing of
existing mortgage indebtedness. Finally, each Prospectus Supplement will also
set forth the percentage of Mortgage Loans which are secured by second or more
junior liens on commercial properties, multifamily residential properties,
residential properties and/or mixed residential/commercial properties. Unless
otherwise specified in a Prospectus Supplement, no Mortgage Loan in the Mortgage
Pool will be more than 30 days past due as of the Cut-Off Date.
If so specified in the applicable Prospectus Supplement, a Trust Fund may
contain Mortgage Loans subject to temporary buy-down plans (the "Buy-Down
Loans") pursuant to which the monthly payments made by the mortgagor during the
early years of the Mortgage Loan will be less than the scheduled monthly
payments on the Mortgage Loan. The resulting difference in payment will be
compensated for from an amount contributed by the seller of the related
Mortgaged Property or another source and, if so specified in the related
Prospectus Supplement, placed in a custodial account (the "Buy-Down Account") by
the Servicer. If the mortgagor on a Buy-Down Loan prepays such Mortgage Loan in
its entirety, or defaults on such Mortgage Loan and the Mortgaged Property is
sold in liquidation thereof, during the period when the mortgagor is not
obligated, on account of the buy-down plan, to pay the full monthly payment
otherwise due on such loan, the unpaid principal balance of such Buy-Down Loan
will be reduced by the amounts remaining in the Buy-Down Account with respect to
such Buy-Down Loan, and such amounts shall be deposited in the Certificate
Account (as defined herein), net of any amounts paid with respect to such
Buy-Down Loan by any insurer, guarantor or other person pursuant to a credit
enhancement arrangement described in the applicable Prospectus Supplement.
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If so specified in the applicable Prospectus Supplement, a Trust Fund may
include Mortgage Loans which are amortized over 30 years or some other term, or
which do not provide for amortization prior to maturity, but which have a
shorter term (each such Mortgage Loan, a "Balloon Loan") that causes the
outstanding principal balance of such Mortgage Loan to be due and payable at the
end of a certain specified period (the "Balloon Period"). If specified in the
applicable Prospectus Supplement, the originator of such Balloon Loan will be
obligated to refinance each such Balloon Loan at the end of its Balloon Period
at a new interest rate determined prior to the end of such Balloon Period by
reference to an index plus a margin specified in the related Mortgage Note. The
mortgagor is not, however, obligated to refinance the Balloon Loan through such
originator. In the event a mortgagor refinances a Balloon Loan, the new loan
will not be included in the Trust Fund. See "Prepayment and Yield
Considerations" herein. Some Mortgage Loans secured by multifamily or commercial
properties may provide for prepayment penalties, yield maintenance charges or a
lockout period during which prepayments are prohibited.
The terms of any Mortgage Loan secured by a multifamily or commercial
property may require the related mortgagor to pay additional interest or other
amounts (other than repayments of principal and interest at the Mortgage Rate)
measured or based upon (x) appreciation in the value of the related Mortgaged
Property, (y) gross receipts, gross profits, net receipts or net income with
respect to the related Mortgaged Property or (z) any minimum rate of return
requirement.
If so specified in the applicable Prospectus Supplement, a Trust Fund may
contain Mortgage Loans for which the Rental income of the property is based in
part on changes in the consumer price index, such changes potentially affecting
the payments due under the terms of the underlying note.
If specified in the Prospectus Supplement for any Series, the Mortgage
Loans included in the Trust Fund for such Series may provide that additional
amounts are to be advanced to or on behalf of the related Borrower upon the
satisfaction of certain conditions. If the obligation to make such advances is
assigned to the related Trust Fund, a reserve fund or other arrangement will be
provided therefor.
Mortgage Loans which are secured by junior mortgages are subordinate to the
rights of the mortgagees under the related senior mortgage or mortgages.
Accordingly, liquidation, insurance and condemnation proceeds received with
respect to the related mortgaged property will be available to satisfy the
outstanding balance of such a Mortgage Loan only to the extent that the claims
of the senior mortgages have been satisfied in full, including any related
liquidation and foreclosure costs. In addition, a junior mortgagee foreclosing
on its mortgage may be required to purchase the related mortgaged property for a
price sufficient to satisfy the claims of the holders of any senior mortgages
which are also being foreclosed. In the alternative, a junior mortgagee which
acquires title to a related mortgaged property, through foreclosure,
deed-in-lieu of foreclosure or otherwise may take the property subject to any
senior mortgages and continue to perform with respect to any senior mortgages,
in which case the junior mortgagee must comply with the terms of any senior
mortgages or risk foreclosure by the senior mortgagee.
If so specified in the applicable Prospectus Supplement, a loan pool may
include graduated equity mortgage loans ("GEM Loans"). GEM Loans are fixed rate,
fully amortizing mortgage loans which provide for monthly payments based on a
10- to 30-year amortization schedule, and which provide for scheduled annual
payment increases for a number of years and level payments thereafter. The full
amount of the scheduled payment increases during the early years is applied to
reduce the outstanding principal balance of such loans.
If so specified in the applicable Prospectus Supplement, a Mortgage Pool
may include graduated payment mortgage loans ("GPM Mortgage Loans"). GPM
Mortgage Loans provide for payments of monthly installments which increase
annually in each of a specified number of initial years and level monthly
payments thereafter. Payments during the early years are required in amounts
lower than the amounts which would be payable on a level debt service basis due
to the deferral of a portion of the interest accrued on the mortgage loan. Such
deferred interest is added to the principal balance of the mortgage loan and is
paid, together with interest thereon, in the later years of the obligation.
Because the monthly payments during the early years of such a GPM Mortgage Loan
are not sufficient to pay the full interest accruing on the GPM Mortgage Loan,
the interest payments on such GPM Mortgage Loan may not be sufficient in its
early years to meet its
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proportionate share of the distributions expected to be made on the related
Certificates. Thus, if the Mortgage Loans include GPM Mortgage Loans, the
Servicer will, unless otherwise specified in the Prospectus Supplement,
establish a reserve fund (the "GPM Fund") which (together with, if specified in
the related Prospectus Supplement, reinvestment income thereon) will be
sufficient to cover the amount by which payments of interest on such GPM
Mortgage Loan assumed in calculating distributions expected to be made on the
Certificates of such Series exceed scheduled interest payments according to the
relevant graduated payment mortgage plan for the period during which excess
occurs.
If so specified in the applicable Prospectus Supplement, a Trust Fund may
contain ARM buy-out loans ("ARM Buy-Outs") which are automatically repurchased
by the Seller upon the occurrence of either (i) a switch from a fixed-rate
mortgage to an adjustable-rate mortgage pursuant to the terms of the underlying
note or (ii) a switch from an adjustable rate to a fixed rate mortgage pursuant
to the terms of the underlying note.
If specific information respecting the Mortgage Loans to be included in a
Trust Fund is not known to the Depositor at the time the Certificates of a
Series are initially offered, more general information of the nature described
above will be provided in the Prospectus Supplement and final specific
information will be set forth in a Current Report on Form 8-K to be available to
investors on the date of issuance thereof and to be filed with the Commission
promptly after the initial issuance of such Certificates.
THE MORTGAGE CERTIFICATES
General
Unless otherwise specified in the applicable Prospectus Supplement, each
Mortgage Certificate Pool will consist of GNMA Certificates, FHLMC Certificates
FNMA Certificates or Private Mortgage-Backed Securities. Each Mortgage
Certificate will evidence an interest in a pool of mortgage loans or in
principal distributions and interest distributions thereon, as more fully
described below.
The Prospectus Supplement for each Series will set forth certain
characteristics of the related Mortgage Certificates, which may include the
aggregate principal balance of the Mortgage Certificates in the Mortgage
Certificate Pool underlying such Series as of the date of initial issuance of
such Series, the weighted average remaining term to stated maturity of such
Mortgage Certificates, the range of Mortgage Certificate Rates and Net Mortgage
Certificate Rates borne by such Mortgage Certificates, and the weighted average
Net Mortgage Certificate Rate of such Mortgage Certificates.
If specific information respecting the Mortgage Certificates to be included
in a Trust Fund is not known to the Depositor at the time the Certificates of a
Series are initially offered, more general information of the nature described
above will be provided in the Prospectus Supplement and final specific
information will be set forth in a Current Report on Form 8-K to be available to
investors on the date of issuance thereof and to be filed with the Commission
promptly after the initial issuance of such Certificates.
GNMA
GNMA is a wholly-owned corporate instrumentality of the United States
within the Department of Housing and Urban Development. Section 306(g) of Title
III of the National Housing Act of 1934, as amended (the "Housing Act"),
authorizes GNMA to guarantee the timely payment of the principal of, and
interest on, certificates that are based on and backed by pools of mortgage
loans insured by the Federal Housing Administration ("FHA") under the Housing
Act ("FHA Loans") or Title V of the Housing Act of 1949, or guaranteed by the
Department of Veterans Affairs ("VA") under the Servicemen's Readjustment Act of
1944, as amended ("VA Loans"), or Chapter 37 of Title 38, United States Code or
by pools of other eligible mortgage loans.
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 such guarantee, GNMA is authorized, under Section 306(d)
of the Housing Act, to borrow from the United States Treasury with no
limitations as to amount.
GNMA Certificates
All of the GNMA Certificates will be "fully modified pass-through"
mortgage-backed certificates issued and serviced by GNMA-approved issuers,
except as described below with respect to any SMBS Mortgage
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Certificates guaranteed by GNMA. The mortgage loans underlying GNMA Certificates
may consist of FHA Loans secured by mortgages on one-to four-family residential
properties or multifamily residential properties, VA Loans, and other mortgage
loans eligible for inclusion in mortgage pools underlying GNMA Certificates,
which may be level payment mortgage loans (including "buydown" mortgage loans),
or graduated payment mortgage loans, secured by first liens on one- to
four-family residential property.
The description of GNMA Certificates herein does not apply to any SMBS
Mortgage Certificates guaranteed by GNMA. See "FNMA Certificates" below. Any
SMBS Mortgage Certificates guaranteed by GNMA, which guarantee is substantially
identical to its guarantee of the GNMA Certificates described herein, may
constitute GNMA Certificates which can be included in a Trust Fund underlying a
Series of Certificates, and any differences between the terms of such SMBS
Mortgage Certificates and those of the GNMA Certificates described herein will
be described in the Prospectus Supplement relating to such Series of
Certificates.
Except in the case of GNMA Certificates backed by graduated payment
mortgage loans, each GNMA Certificate provides for the payment by or on behalf
of the issuer of the GNMA Certificate to the registered holder of such GNMA
Certificate of monthly payments of principal and interest equal to the
registered holder's proportionate interest in the aggregate amount of the
monthly scheduled principal and interest payments on each underlying eligible
mortgage loan, less servicing and guaranty fees in an aggregate amount equal to
the excess of the interest on such mortgage loans over the annual pass-through
rate of such GNMA Certificate. In addition, each payment to a GNMA
Certificateholder will include proportionate pass-through payments to such
holder of any prepayments of principal of the mortgage loans underlying the GNMA
Certificate and the holder's proportionate interest in the remaining principal
balance in the event of a foreclosure or other disposition of any such mortgage
loan.
GNMA Certificates may be issued under either the GNMA I program ("GNMA I
Certificates") or the GNMA II program ("GNMA II Certificates"). Although the
holder of a GNMA Certificate has essentially the same rights with respect to a
GNMA Certificate issued under either program, a principal difference between the
two programs is that under the GNMA I program, payments will be made directly by
the issuer of the GNMA I Certificate on the 15th of each month to the registered
holder, while under the GNMA II program, payments will be made to the registered
holder on the 20th of each month through Chemical Bank as paying agent. A
further difference between the two programs is that under the GNMA I program, an
individual GNMA issuer assembles a pool of mortgage loans against which it
issues and markets GNMA I Certificates, while under the GNMA II program,
multiple issuer pools may be formed through the aggregation of mortgage loan
packages of more than one GNMA issuer. Under this option, loan packages
submitted by various GNMA issuers for a particular issue date and interest rate
are aggregated into a single pool which backs a single issue of GNMA II
Certificates. However, single issuer pools may be formed under the GNMA II
program as well.
If specified in the related Prospectus Supplement, GNMA Certificates
included in a Trust Fund underlying a Series of Certificates may be held on
deposit at the Participants Trust Company ("PTC"), a limited trust company
organized under the banking law of the State of New York. PTC operates a private
sector, industry owned depository and settlement facility for book-entry
transfer of interests in GNMA Certificates. Distributions of principal of and
interest on each GNMA Certificate held through PTC will be credited by PTC to
the PTC participant to whose account the GNMA Certificate is credited.
All mortgage loans underlying a particular GNMA I Certificate must have the
same annual interest rate (except for pools of mortgage loans secured by mobile
homes). The annual pass-through rate on each GNMA I Certificate is equal to 50
basis points less than the annual interest rate on the mortgage loans included
in the pool of mortgage loans backing such GNMA I Certificate.
Mortgage loans underlying a particular GNMA II Certificate may have annual
interest rates that vary from each other by up to 100 basis points. The annual
pass-through rate on each GNMA II Certificate is between 50 and 150 basis points
less than the highest annual interest rate on the mortgage loans included in the
pool of mortgage loans backing such GNMA II Certificate.
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All of the GNMA Certificates included in a Trust Fund underlying a Series
of Certificates will have original terms to maturity of not more than 30 years
(but may have original terms to maturity of substantially less than 30 years).
In general, GNMA requires that at least 90% of the original principal amount of
the mortgage loans in the mortgage pool underlying a GNMA Certificate must be
mortgage loans with original terms to maturity of 20 years or more. However, in
certain circumstances, GNMA Certificates may be backed by pools of mortgage
loans at least 90% of the original principal amount of which have original terms
to maturity of at least 15 years.
Each mortgage loan in a pool underlying a GNMA Certificate, at the time
GNMA issues its guarantee commitment, must be originated no more than 12 months
prior to such commitment date.
The GNMA Certificates do not constitute a liability of, or evidence any
recourse against, the issuers of the GNMA Certificates, the Depositor, the
Servicer, or any of their respective affiliates, and the only recourse of a
registered holder, such as the Trustee or its nominee, is to enforce GNMA
guaranty of timely payment of principal and interest.
GNMA will have approved the issuance of each GNMA Certificate included in a
Trust Fund underlying a Series of Certificates, in accordance with a guaranty
agreement between GNMA and the servicer of the underlying mortgage loans, which
is the issuer of the GNMA Certificate. Pursuant to such agreement, such issuer
is required to advance its own funds in order to make timely payments of all
amounts due on the GNMA Certificate, even if the payments received by such
issuer on the mortgage loans backing the GNMA Certificate are less than the
amounts due on such GNMA Certificate. If such issuer is unable to make a payment
on a GNMA Certificate as it becomes due, it must promptly notify GNMA and
request GNMA to make such payment. Upon such notification and request, GNMA will
make such payment directly to the registered holder of the GNMA Certificate. In
the event no payment is made by such issuer and such issuer fails to notify and
request GNMA to make such payment, the registered holder of the GNMA Certificate
has recourse only against GNMA to obtain such payment. The Trustee or its
nominee, as the registered holder of a GNMA Certificate included in a Trust
Fund, is entitled to proceed directly against GNMA under the terms of the
guaranty agreement relating to such GNMA Certificate for any amounts that are
not paid when due under such GNMA Certificate.
The GNMA Certificates included in the Trust Fund underlying a Series of
Certificates may have characteristics and terms different from those described
above. Any such GNMA Certificates and the underlying mortgage loans will be
described in the related Prospectus Supplement.
FHLMC
FHLMC is a publicly held government-sponsored enterprise created pursuant
to Title III of the Emergency Home Finance Act of 1970, as amended (the "FHLMC
Act"). FHLMC's statutory mission is to provide stability in the secondary market
for home mortgages, to respond appropriately to the private capital market and
to provide ongoing assistance to the home mortgage secondary market and promote
nationwide access to residential mortgage credit by increasing the liquidity of
mortgage investments and improving the distribution of investment capital
available for home mortgage financing. The principal activity of FHLMC consists
of the purchase of first lien, conventional, residential mortgages and
participation interests in such mortgages from mortgage lending institutions and
the resale of the whole loans and participations so purchased in the form of
guaranteed mortgage securities.
All mortgages purchased by FHLMC must meet certain standards set forth in
the FHLMC Act. Among other things, the FHLMC Act provides that FHLMC may
purchase, so far as practicable, only mortgages that FHLMC deems to be of such
quality, type and class as to meet generally the purchase standards of private
institutional mortgage investors. This aspect of the FHLMC Act requires that the
mortgages purchased be readily marketable to institutional mortgage investors.
Although the Secretary of the Treasury of the United States has
discretionary authority to advance funds to FHLMC, neither the United States nor
any agency or instrumentality thereof is obligated to finance FHLMC's
obligations or assist FHLMC in any manner.
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FHLMC Certificates
In general, FHLMC Certificates represent direct or indirect interests in
pools of fixed or adjustable rate mortgages that FHLMC has acquired. FHLMC
Certificates include Mortgage Participation Certificates ("PCs"), Giant Mortgage
Participation Certificates ("Giant PCs") and Multiclass Mortgage Participation
Certificates ("Multiclass PCs"), which are described below. The Trust Fund
underlying a Series of Certificates may include any of these types of FHLMC
Certificates and also may include any other securities that are backed by
mortgages acquired by FHLMC and that have been issued or guaranteed by FHLMC in
substantially the same manner as the FHLMC Certificates described below.
PCs. PCs represent undivided interests in pools of mortgages, including
whole loans and participations, acquired by FHLMC. Substantially all of the
mortgages have original terms to maturity of 5 to 30 years and are secured by
first liens on single-family (1-to-4 unit) or multifamily (5 or more units)
residential properties.
The registered holder of a PC is entitled to receive, monthly, a pro rata
share of the principal payments on the related mortgages and interest at the
pass-through rate prescribed for that PC. Interest on the related mortgages in
excess of the pass-through rate for the PC is retained by mortgage servicers as
their servicing fee and by FHLMC as its management and guarantee fee.
FHLMC classifies PCs as either "Fixed Rate PCs" or "ARM PCs", depending on
the type of underlying mortgage; as either "Original PCs" or "Gold PCs",
depending on the payment delay of the PC; and as "Cash PCs", "MultiLender PCs"
or "Guarantor PCs", depending on the program under which FHLMC acquired the
mortgages and issued the PC.
Fixed Rate PCs are backed by fixed rate mortgages and bear interest at
fixed rates. ARM PCs are backed by adjustable rate mortgages. All of the
mortgages backing an ARM PC have interest rates that adjust periodically based
on one of various indices, usually a United States Treasury security index or a
cost of funds index. Each ARM PC bears interest at a rate that adjusts
periodically based on the same index as the related mortgages or by reference to
the weighted average interest rate of those mortgages.
Original PCs have a payment delay (the period between the first day of the
month in which the PC is issued and its initial payment date) of approximately
75 days. Gold PCs have a payment delay of approximately 45 days. Currently, all
ARM PCs are Original PCs. Most outstanding Fixed Rate PCs, and the vast majority
of the Fixed Rate PCs that have been issued since October 1990, are Gold PCs.
Cash PCs are backed by mortgages that FHLMC has purchased for cash from a
number of sellers under its Cash Program. MultiLender PCs are backed by, and
issued in exchange for, mortgages acquired by FHLMC from one or more sellers
under its MultiLender Swap Program and may also be backed by mortgages purchased
for cash under its Cash Program. Guarantor PCs are backed by, and issued in
exchange for, mortgages acquired from a single seller under FHLMC's Guarantor
Program. In general, the mortgages backing a Guarantor PC are less
geographically diverse than those backing a typical Cash PC or MultiLender PC.
From time to time, FHLMC has changed its pooling criteria as they relate to
the permissible interest rates of the mortgages backing a given PC. Its current
published criteria for Fixed Rate PCs are as follows:
<TABLE>
<CAPTION>
TYPE OF PC PERMITTED MORTGAGE INTEREST RATES
-------------------------- ---------------------------------------------------------
<S> <C>
Cash...................... 50 through 100 basis points higher than PC interest rate
MultiLender............... 25 through 125 basis points higher than PC interest rate
Guarantor................. PC interest rate (plus minimum required servicing fee)
through 250 basis points higher than PC interest rate
</TABLE>
Giant PCs. Giant PCs are pass-through securities that represent beneficial
ownership interests in pools formed by FHLMC consisting of other securities. In
most cases, the underlying securities are PCs, but Giant PCs also may be backed
by other Giant PCs, by one or more classes of Multiclass PCs or by GNMA
Certificates.
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Registered holders of the Giant PCs issued in respect of any pool are
entitled to receive all of the principal and interest payments on the pooled
securities. For some pools FHLMC issues a single class of Giant PCs ("Standard
Giant PCs") entitled to receive all of the principal and interest payments on
the underlying securities. For other pools FHLMC issues two or more classes of
Giant PCs ("Stripped Giant PCs"), each of which is entitled to receive interest
only, principal only, or a specified portion of both the principal and interest
payments on the underlying securities. Standard Giant PCs have essentially the
same payment characteristics as their underlying securities; all related classes
of Stripped Giant PCs, in combination, have essentially the same payment
characteristics as their underlying securities. In most cases, FHLMC allows a
holder of related classes of Stripped Giant PCs to "recombine" those classes
into a single Standard Giant PC or, in some instances, into different classes of
Stripped Giant PCs.
Multiclass PCs. Multiclass PCs are multiple-class securities, issued in
series, that are backed by pools formed by FHLMC consisting of mortgages or, in
most cases, other securities. FHLMC makes a REMIC election as to each such pool.
The pooled securities may include PCs, Giant PCs, GNMA Certificates, one or more
REMIC "regular interests" or any other type of security that is eligible for
inclusion in a REMIC and whose payments are derived from PCs.
The classes of each series of Multiclass PCs are entitled to receive the
principal and interest payments, in differing proportions and at differing
times, from the cash flows provided by the underlying mortgages or mortgage
securities. Classes of Multiclass PCs have a wide variety of payment
characteristics. The types of classes include, among others, so-called planned
amortization classes, targeted amortization classes, companion (or support)
classes, stripped classes, sequential pay classes, fixed rate classes, floating
rate classes, inverse floating rate classes and accrual (or "Z") classes. Each
series of Multiclass PCs includes at least one and, usually, a large number of
classes constituting REMIC "regular interests"; Multiclass PCs of any such class
may be included in the Trust Fund underlying a Series of Certificates.
Payments and Guarantees by FHLMC. FHLMC makes principal and interest
payments on the 15th of each month on all FHLMC Certificates except for those
backed by GNMA Certificates, in which case FHLMC makes payments on the 25th. The
payment on each payment date is made to the holder of record as of the last day
of the second preceding month in the case of Original PCs and Giant PCs backed
by Original PCs, the 14th of the preceding month in the case of Multiclass PCs
backed by Original PCs, or the last day of the preceding month in all other
cases. Substantially all FHLMC Certificates are maintained in book-entry form on
the book-entry system of the Federal Reserve Banks.
FHLMC guarantees the payment of interest and principal on all FHLMC
Certificates, as follows:
Gold PCs: FHLMC guarantees to each holder the timely payment of (i)
interest at the applicable PC interest rate on the principal balance of the
holder's Gold PC, as calculated by FHLMC and (ii) the scheduled "monthly
principal reduction" due on the related mortgages as calculated by FHLMC
(subject to certain adjustments), to the extent of the holder's pro rata
share of the principal balance of such mortgages. FHLMC also guarantees to
each holder of a Gold PC the ultimate collection of all principal of the
related mortgages, without offset or deduction, by the month of the
prescribed final payment date of such Gold PC.
Original PCs: FHLMC guarantees to each holder (i) the timely payment
of interest at the applicable PC interest rate on the principal balance of
the holder's Original PC, as calculated by FHLMC, (ii) the ultimate
collection of all principal of the related mortgages, without offset or
deduction, and (iii) in rare cases, the timely payment of monthly principal
scheduled to be paid under the amortization schedule applicable to each
mortgage, as reported by the servicer.
Giant PCs: FHLMC guarantees to each holder (i) the timely payment of
interest at the applicable Giant PC interest rate, (ii) the payment of the
principal amount of the holder's Giant PC as payments are made on the
underlying securities and (iii) in the case of a Giant PC backed by Gold
PCs, the reduction of the entire principal amount outstanding by the month
of the prescribed final payment date of such Giant PC.
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Multiclass PCs: FHLMC guarantees to each holder (i) the timely payment
of interest at the rate applicable to the holder's class of Multiclass PCs
or as otherwise described in the related FHLMC offering documents and (ii)
the payment of the principal amount of the holder's Multiclass PC as
described in the related FHLMC offering documents.
Currently, FHLMC may pay the amount due on account of its guarantee of
ultimate collection of principal on PCs at any time after default on an
underlying mortgage, but not later than 30 days after the latest of: (i)
foreclosure sale of the mortgaged property, (ii) if applicable, payment of an
insurance claim by the FHA or other mortgage insurer or payment of a guaranty
claim by the VA or other mortgage guarantor or (iii) the expiration of any right
of redemption that the borrower may have; and in no event later than one year
after an outstanding demand has been made upon the borrower for accelerated
payment of principal or for payment of principal at maturity.
The obligations of FHLMC under its guarantees of FHLMC Certificates are
obligations of FHLMC only. FHLMC Certificates, including any interest thereon,
are not guaranteed by the United States and do not constitute debts or
obligations of the United States or any agency or instrumentality of the United
States other than FHLMC.
The FHLMC Certificates included in a Trust Fund underlying a Series of
Certificates may have characteristics and terms different from those described
above. Any such FHLMC Certificates and the underlying mortgage loans will be
described in the related Prospectus Supplement.
See "Additional Information" as to the availability of further information
about FHLMC and FHLMC Certificates.
FNMA
FNMA is a federally chartered and privately owned corporation organized and
existing under the Federal National Mortgage Association Charter Act, as amended
(the "Charter Act"). FNMA was originally established in 1938 as a United States
government agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder-owned and privately managed corporation by
legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing mortgage
loans from lenders, thereby replenishing their funds for additional lending.
FNMA acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgage loans, thereby expanding
the total amount of funds available for housing, and helps to redistribute
mortgage funds from capital-surplus to capital-short areas. In addition, FNMA
issues mortgage-backed securities, primarily in exchange for pools of mortgage
loans from lenders.
Although the Secretary of the Treasury of the United States has
discretionary authority to advance funds to FNMA, neither the United States nor
any agency or instrumentality thereof is obligated to finance FNMA's obligations
or assist FNMA in any manner.
FNMA Certificates
FNMA Certificates are either Guaranteed Mortgage Pass-Through Certificates
("FNMA MBSs"), Guaranteed REMIC Pass-Through Certificates ("FNMA GRC") or
Stripped Mortgage Backed Securities ("FNMA SMBSs"). FNMA SMBSs, together with
any other similar Mortgage Certificates issued or guaranteed by FHLMC or GNMA,
are herein referred to as "SMBS Mortgage Certificates." The following discussion
of FNMA Certificates applies equally to both FNMA MBSs and FNMA SMBSs, except as
otherwise noted.
FNMA Certificates represent fractional undivided interests in a pool of
mortgage loans formed by FNMA. Certain FNMA SMBSs represent undivided interests
in pools of FNMA MBSs. Each mortgage loan must meet the applicable standards of
the FNMA purchase program. Mortgage loans comprising a pool are either provided
by FNMA from its own portfolio or purchased pursuant to the criteria of the FNMA
purchase
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program. Each FNMA MBS is issued pursuant to a trust indenture. Certain FNMA
SMBSs are issued pursuant to a trust indenture, while other FNMA SMBSs are
issued pursuant to a trust agreement.
The mortgage loans underlying the FNMA Certificates included in a Trust
Fund will consist of (i) conventional mortgage loans, or (ii) FHA Loans or VA
Loans. Such mortgage loans may be secured by either one- to four-family or
multifamily residential properties. According to the FNMA Prospectus, the
original maturities of substantially all of the level payment conventional
mortgage loans underlying a FNMA Certificate are expected to be between either 8
to 15 years or 20 to 30 years, and the original maturities of substantially all
of the level payment FHA Loans and VA Loans underlying FNMA Certificates are
expected to be 30 years.
FNMA SMBSs are issued in a series of two or more classes, with each class
representing a specified undivided fractional interest in principal
distributions and interest distributions (adjusted to the annual pass-through
rate for the series) on the underlying pool of mortgage loans. The fractional
interests of each class in principal and interest distributions are not
identical, but the classes in the aggregate represent 100% of the principal
distributions and interest distributions (adjusted to the annual pass-through
rate for the series) on the respective pool. Because of such difference between
the fractional interests in principal and interest of each class, the effective
rate of interest on the principal of each class of FNMA SMBS (or other SMBS
mortgage certificates) may be significantly higher or lower than the series
pass-through rate and/or the weighted average interest rate of the underlying
mortgage loans.
Mortgage loans underlying a FNMA Certificate may have annual interest rates
that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA MBS (and the annual pass-through rate for a series
payable with respect to a FNMA SMBS) is equal to the lowest interest rate of any
mortgage loan in the related pool, less a specified minimum annual percentage
representing servicing compensation and FNMA's guarantee fee. Under a regular
servicing option (pursuant to which the mortgagee or other servicer assumes the
entire risk of foreclosure losses), the annual interest rates on the mortgage
loans underlying a FNMA Certificate will generally be between 0.5% and 2.5%
greater than the annual pass-through rate for the related FNMA Certificate or
the annual pass-through rate for the related FNMA SMBS series; and under a
special servicing option (pursuant to which FNMA assumes the entire risk for
foreclosure losses), the annual interest rates on the mortgage loans underlying
a FNMA Certificate will generally be between 0.55% and 2.55% greater than the
annual pass-through rate for the related FNMA Certificate or the annual
pass-through rate for the related FNMA SMBS series.
FNMA guarantees to each registered holder of a FNMA Certificate that it
will distribute amounts representing such holder's proportionate share of
scheduled principal and interest at the applicable rate on the underlying
mortgage loans, and the full principal amount of any foreclosed or otherwise
finally liquidated mortgage loan, whether or not such amounts are actually
received. The obligations of FNMA under its guarantees are obligations solely of
FNMA and are not backed by, or entitled to, the full faith and credit of the
United States.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Certificates, FNMA Certificates evidencing interests in pools of
mortgage loans formed on or after May 1, 1985 (and all FNMA SMBSs) will be
available in book-entry form only. Distributions of principal of, and interest
on, each FNMA Certificate will be made by FNMA on the 25th day of each month to
the person in whose name the FNMA Certificate is entered on the books of the
Federal Reserve Bank of New York (or registered in the FNMA Certificate register
in the case of a fully registered FNMA Certificate) as of the close of business
on the last day of the preceding month. With respect to FNMA Certificates issued
in book-entry form, distributions will be made by wire, and with respect to
fully registered FNMA Certificates, distributions will be made by check.
The FNMA Certificates included in the Trust Fund underlying a Series of
Certificates may have characteristics and terms different from those described
above. Any such FNMA Certificates and the underlying mortgage loans will be
described in the related Prospectus Supplement.
See "Additional Information" as to the availability of further information
about FNMA and FNMA Certificates.
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Private Mortgage-Backed Securities
Private Mortgage-Backed Securities may consist of (a) mortgage pass-through
certificates evidencing an undivided interest in a pool of Mortgage Loans, or
(b) collateralized mortgage obligations secured by Mortgage Loans. Private
Mortgage-Backed Securities will have been issued pursuant to a pooling and
servicing agreement, an indenture or similar agreement. The seller/servicer of
the underlying Mortgage Loans will have entered into an agreement with a trustee
under an agreement (the "Trustee"). A Trustee or its agent, or a custodian, will
possess the Mortgage Loans underlying such Private Mortgage-Backed Security.
Mortgage Loans underlying a Private Mortgage-Backed Security will be serviced by
a servicer (the "Servicer") directly or by one or more subservicers who may be
subject to the supervision of the Servicer. The Servicer will be a FNMA or FHLMC
approved servicer and, if the FHA Loans underlie the Private Mortgage-Backed
Securities, approved by the Department of Housing and Urban Development ("HUD")
as an FHA mortgagee.
The issuer of the Private Mortgage-Backed Securities (the "Issuer") will be
a financial institution or other entity engaged generally in the business of
mortgage lending, a public agency or instrumentality of a state, local or
federal government, or a limited purpose corporation organized for the purpose
of, among other things, establishing trusts and acquiring and selling housing
loans to such trusts and selling beneficial interests in such trusts. If so
specified in the Prospectus Supplement, the Issuer may be an affiliate of the
Depositor. The obligations of the Issuer will generally be limited to certain
representations and warranties with respect to the assets conveyed by it to the
related trust. Unless otherwise specified in the related Prospectus Supplement,
the Issuer will not have guaranteed any of the assets conveyed to the related
trust or any of the Private Mortgage-Backed Securities issued under an
agreement. Additionally, although the Mortgage 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 Trustee or the Servicer. The Issuer or the Servicer may have
the right to repurchase assets underlying the Private Mortgaged-Backed
Securities after a certain date or under other circumstances specified in the
related Prospectus Supplement.
The Mortgage Loans underlying the Private Mortgage-Backed Securities may
consist of fixed rate, level payment, fully amortizing loans or graduated
payment mortgage loans, buydown loans, adjustable rate mortgage loans, or loans
having balloon or other special payment features. Such Mortgage Loans may be
secured by single family property, multifamily property, or commercial property,
manufactured homes or by an assignment of the proprietary lease or occupancy
agreement relating to a specific dwelling within a cooperative and the related
shares issued by such cooperative.
Credit support in the form of reserve funds, subordination of other private
mortgage certificates issued under the Agreement, letters of credit, insurance
policies, guarantees or other types of credit support may be provided with
respect to the Mortgage Loans underlying the Private Mortgage-Backed Securities
or with respect to the Private Mortgage-Backed Securities themselves.
The Prospectus Supplement for a Series of Certificates backed by Private
Mortgage-Backed Securities will specify (i) the aggregate approximate principal
amount and type of the Private Mortgage-Backed Securities to be included in the
Trust Fund, (ii) certain characteristics of the Mortgage Loans which comprise
the underlying assets for the Private Mortgage-Backed Securities including (A)
the payment features of such Mortgage Loans, (B) the approximate aggregate
principal balance, if known, of underlying Mortgage Loans insured or guaranteed
by a governmental entity, (C) the servicing fee or range of servicing fees with
respect to the Mortgage Loans, and (D) the minimum and maximum stated maturities
of the underlying Mortgage Loans at origination, (iii) the maximum original
term-to-stated maturity of the Private Mortgage-Backed Securities, (iv) the
weighted average term-to-stated maturity of the Private Mortgage-Backed
Securities, (v) the pass-through or certificate rate of the Private
Mortgage-Backed Securities, (vi) the weighted average pass-through or
certificate rate of the Private Mortgage-Backed Securities, (vii) the Issuer,
the Servicer, and
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the Trustee (viii) certain characteristics of credit support, if any, relating
to the Mortgage Loans underlying the Private Mortgage-Backed Securities or to
such Private Mortgage-Backed Securities themselves, (ix) the term on which the
underlying Mortgage Loans for such Private Mortgage-Backed Securities may, or
are required to, be purchased prior to their stated maturity or the stated
maturity of the Private Mortgage-Backed Securities and (x) the terms on which
Mortgage Loans may be substituted for those originally underlying the Private
Mortgage-Backed Securities.
Substitution of Mortgage Certificates
Unless otherwise specified in the applicable Prospectus Supplement and
subject to the limitations set forth in the Pooling and Servicing Agreement for
a Series of Certificates, the Depositor may at any time within three months of
the initial issuance of a Series of Certificates deliver to the Trustee other
Mortgage Certificates in substitution for any one or more of the Mortgage
Certificates initially included in the Trust Fund underlying such Series. Unless
otherwise specified in the related Prospectus Supplement, (i) the substitute
Mortgage Certificates will have an aggregate Pool Value that is at least equal
to the aggregate Pool Value of the Mortgage Certificates for which they are
substituted, (ii) only like kinds of Mortgage Certificates may be substituted
(e.g., a GNMA I Certificate for a GNMA I Certificate; a GPM Certificate for a
GPM Certificate; etc.), (iii) there can be no substitution for substitute
Mortgage Certificates, and (iv) no more than 40% of the Mortgage Certificates
initially included in a Trust Fund may be substituted. In addition to such
substitution of Mortgage Certificates, if and to the extent provided in the
Prospectus Supplement for a Series of Certificates, the Depositor may deposit
cash, cash equivalents, a letter of credit and/or other Mortgage Certificates on
an interim basis in lieu of the Mortgage Certificates expected to be included in
a Trust Fund. The terms of any substitution will not adversely affect the rating
or ratings of the Certificates of the related Series and will not delay the
final distribution date of any Class of such Series beyond its Last Scheduled
Distribution Date, but in certain circumstances described in the Prospectus
Supplement an interim deposit may have a material adverse effect upon investors
in the Certificates.
THE CONTRACTS
Unless otherwise specified in the applicable Prospectus Supplement, each
Contract Pool will consist of conventional manufactured housing installment
sales contracts and installment loan agreements (collectively, the "Contracts")
originated by a manufactured housing dealer in the ordinary course of business
and purchased by the Unaffiliated Seller. Unless otherwise specified in the
applicable Prospectus Supplement, each Contract will be secured by Manufactured
Homes (as defined below), each of which will be located in any of the fifty
states or the District of Columbia. Unless otherwise specified in the applicable
Prospectus Supplement, the Contracts will be fully amortizing and will bear
interest at a fixed or adjustable annual percentage rate (the "APR" or "Contract
Rate"). The Contract Pool may include Contracts with respect to which a Fixed
Retained Yield has been retained, in which event references herein to Contracts
and payments thereon shall mean the Contracts exclusive of such Fixed Retained
Yield. The Prospectus Supplement for a Series will specify whether there will be
any Fixed Retained Yield in any Contract, and if so, the owner thereof. See
"Fixed Retained Yield" below.
The Unaffiliated Seller of the Contracts will represent that the
Manufactured Homes securing the Contracts 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 designed to be used
as a dwelling with or without a permanent foundation when connected to the
required utilities, and includes the plumbing, heating, air-conditioning, and
electrical systems contained therein; except that such term shall include any
structure which meets all the requirements of [this] paragraph except the size
requirements and with respect to which the manufacturer voluntarily files a
certification required by the Secretary of Housing and Urban Development and
complies with the standards established under [this] chapter."
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Unless otherwise specified in the Prospectus Supplement for a Series, each
Contract must have an original term to maturity of not less than 1 year and not
more than 40 years. Unless otherwise specified in the Prospectus Supplement for
a Series, no Contract will have had, at origination, a principal balance in
excess of [$5,000,000] or a Loan-to-Value Ratio in excess of 95%. The
"Loan-to-Value Ratio" is the ratio, expressed as a percentage, of the principal
amount of the Contract outstanding at the origination of such loan divided by
the fair market value of the Manufactured Home. The fair market value of the
Manufactured Home securing any Contract is, unless otherwise specified in the
applicable Prospectus Supplement, either (x) the appraised value of the related
Manufactured Home determined in an appraisal obtained by the originator at
origination and (y) the sale price for such property, plus, in either case,
sales and other taxes and, to the extent financed, filing and recording fees
imposed by law, premiums for related insurance and prepaid finance charges.
Manufactured Homes, unlike site-built homes, generally depreciate in value.
Consequently, at any time after origination it is possible, especially in the
case of Contracts with high Loan-to-Value Ratios at origination, that the market
value of a Manufactured Home may be lower than the principal amount outstanding
under the related Contract.
The Prospectus Supplement for each Series will set forth certain
characteristics of the related Contracts, which may include the aggregate
principal balance of the Contracts in the Contract Pool underlying such Series
as of the Cut-Off Date for such Series (the "Cut-Off Date Aggregate Principal
Balance"), the range of original terms to maturity of the Contracts in the
Contract Pool, the weighted average remaining term to stated maturity at the
Cut-Off Date of such Contracts, the earliest and latest origination dates of
such Contracts, the range of Contract Rates and Net Contract Rates borne by such
Contracts, the weighted average Net Contract Rate at the Cut-Off Date of such
Contracts, the percentage of such Contracts which had Loan-to-Value Ratios at
the time of origination of 80% or less, the percentage of such Contracts that
had Loan-to-Value Ratios at origination in excess of 80% and the highest
outstanding principal balance at origination of any such Contract.
Unless otherwise specified in the applicable Prospectus Supplement, all of
the Contracts in a Trust Fund will have monthly payments due on the first of
each month (each, a "Due Date") and will be fully-amortizing Contracts. If so
specified in the applicable Prospectus Supplement, Contracts may have Due Dates
which occur on a date other than the first of each month. If so specified in the
applicable Prospectus Supplement, the Contract Pools may include adjustable rate
Contracts that provide for payment adjustments to be made less frequently than
adjustments in the Contract Rates. Each adjustment in the Contract Rate which is
not made at the time of a corresponding adjustment in payments (and which
adjusted amount of interest is not paid currently on a voluntary basis by the
obligor) will result in a decrease (if the Contract Rate rises) or an increase
(if the Contract Rate declines) in the rate of amortization of the Contract.
Moreover, such payment adjustments on the Contracts may be subject to certain
limitations, as specified in the Prospectus Supplement, which may also affect
the rate of amortization on the Contract. As a result of such provisions, the
amount of interest accrued in any month may equal or exceed the scheduled
monthly payment on the Contract. In any such month, no principal would be
payable on the Contract, and if the accrued interest exceeded the scheduled
monthly payment, such excess interest due would become "Deferred Interest" that
is added to the principal balance of the Contract. Deferred Interest will bear
interest at the Contract Rate until paid. If such limitations prevent the
payments from being sufficient to amortize fully the Contract by its stated
maturity date, a lump sum payment equal to the remaining unpaid principal
balance will be due on such stated maturity date. See "Prepayment and Yield
Considerations."
The geographic distribution of Manufactured Homes will be set forth in the
Prospectus Supplement. Each Prospectus Supplement will set forth the percentage
of the Cut-Off Date Aggregate Principal Balance of any Contracts in the Contract
Pool which are secured by Manufactured Homes which have become permanently
affixed to real estate. Each Prospectus Supplement will also set forth the
percentage of the Cut-Off Date Aggregate Principal Balance of the Contracts in
the related Contract Pool representing the refinancing of existing mortgage
indebtedness. Unless otherwise specified in a Prospectus Supplement, no Contract
in the Contract Pool will be more than 30 days past due as of the Cut-Off Date.
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If specific information respecting the Contracts to be included in a Trust
Fund is not known to the Depositor at the time the Certificates of a Series are
initially offered, more general information of the nature described above will
be provided in the Prospectus Supplement and final specific information will be
set forth in a Current Report on Form 8-K to be available to investors on the
date of issuance thereof and to be filed with the Commission promptly after the
initial issuance of such Certificates.
FIXED RETAINED YIELD
Fixed Retained Yield with respect to any Mortgage Loan, Mortgage
Certificate or Contract is that portion, if any, of interest at the Mortgage
Rate, Mortgage Certificate Rate or Contract Rate that is retained by the
Depositor or other owner thereof and not included in the related Trust Fund. The
Prospectus Supplement for a Series will specify whether a Fixed Retained Yield
has been retained with respect to the Mortgage Loans, Mortgage Certificates or
Contracts of such Series, and, if so, the owner thereof. If so, the Fixed
Retained Yield will be established on a loan-by-loan basis with respect to the
Mortgage Loans or Contracts and on a Certificate-by-Certificate basis with
respect to the Mortgage Certificates and will be specified in the schedule of
Mortgage Loans, Mortgage Certificates or Contracts attached as an exhibit to the
applicable Pooling and Servicing Agreement. The Servicer, with respect to
Mortgage Loans or Contracts, and the Trustee, with respect to Mortgage
Certificates, may deduct the Fixed Retained Yield from payments as received and
prior to deposit of such payments in the Certificate Account for such Series or
may (unless an election has been made to treat the Trust Fund (or one or more
segregated pools of assets therein) as a REMIC) withdraw the Fixed Retained
Yield from the Certificate Account after the entire payment has been deposited
in the Certificate Account. Notwithstanding the foregoing, any partial payment
or recovery of interest received by the Servicer relating to a Mortgage Loan or
Contract (whether paid by the mortgagor or obligor or received as Liquidation
Proceeds, Insurance Proceeds or otherwise), after deduction of all applicable
servicing fees, will be allocated between Fixed Retained Yield (if any) and
interest at the Net Mortgage Rate or Net Contract Rate on a pari passu basis.
INSURANCE POLICIES
Unless otherwise specified in the applicable Prospectus Supplement, the
Pooling and Servicing Agreement will require the Servicer to cause to be
maintained for each Mortgage Loan or Contract an insurance policy issued by a
generally acceptable insurer insuring the Mortgaged Property underlying such
Mortgage Loan or the Manufactured Home underlying such Contract against loss by
fire, with extended coverage (a "Standard Hazard Insurance Policy"). Unless
otherwise specified in the applicable Prospectus Supplement, the Pooling and
Servicing Agreement will require that such Standard Hazard Insurance Policy be
in an amount at least equal to the lesser of 100% of the insurable value of the
improvements which are a part of such Mortgaged Property or Manufactured Home or
the principal balance of such Mortgage Loan or Contract; provided, however, that
such insurance may not be less than the minimum amount required to fully
compensate for any damage or loss on a replacement cost basis. The Servicer will
also maintain on property acquired upon foreclosure, or deed in lieu of
foreclosure, of any Mortgage Loan, and on any Manufactured Home acquired by
repossession a Standard Hazard Insurance Policy in an amount that is at least
equal to the lesser of 100% of the insurable value of the improvements which are
a part of such property or the insurable value of such Manufactured Home or the
principal balance of the related Mortgage Loan or Contract plus, if required by
the applicable Pooling and Servicing Agreement, accrued interest and liquidation
expenses; provided, however, that such insurance may not be less than the
minimum amount required to fully compensate for any damage or loss on a
replacement cost basis. Any amounts collected under any such policies (other
than amounts to be applied to the restoration or repair of the Mortgaged
Property or Manufactured Home or released to the borrower in accordance with
normal servicing procedures) will be deposited in the Certificate Account.
The Standard Hazard Insurance Policies covering the Mortgaged Properties
generally will cover physical damage to, or destruction of, the improvements on
the Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm,
hail, riot, strike and civil commotion, subject to the conditions and exclusions
particularized in each policy. Because the Standard Hazard Insurance Policies
relating to such Mortgage
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Loans will be underwritten by different insurers and will cover Mortgaged
Properties located in various states, such policies will not contain identical
terms and conditions. The most significant terms thereof, however, generally
will be determined by state law and generally will be similar. Most such
policies typically will 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
reaction, wet or dry rot, vermin, rodents, insects or domestic animals,
hazardous wastes or hazardous substances, theft and, in certain cases,
vandalism. The foregoing list is merely indicative of certain kinds of uninsured
risks and is not intended to be all-inclusive.
The Standard Hazard Insurance Policies covering the Contracts will provide,
at a minimum, the same coverage as a standard form fire and extended coverage
insurance policy that is customary for manufactured housing in the state in
which the Manufactured Home is located.
The Servicer may maintain a blanket policy insuring against hazard losses
on all of the Mortgaged Properties or Manufactured Homes in lieu of maintaining
the required Standard Hazard Insurance Policies. The Servicer will be liable for
the amount of any deductible under a blanket policy if such amount would have
been covered by a required Standard Hazard Insurance Policy, had it been
maintained.
In general, if a Mortgaged Property or Manufactured Home is located in an
area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards (and such flood insurance has been made
available) the Pooling and Servicing Agreement will require the Servicer to
cause to be maintained a flood insurance policy meeting the requirements of the
current guidelines of the Federal Insurance Administration with a generally
acceptable insurance carrier. Generally, the Pooling and Servicing Agreement
will require that such flood insurance be in an amount not less than the lesser
of (i) the amount required to compensate for any loss or damage to the Mortgaged
Property on a replacement cost basis and (ii) the maximum amount of insurance
which is available under the federal flood insurance program.
Any losses incurred with respect to Mortgage Loans or Contracts due to
uninsured risks (including earthquakes, mudflows, floods, hazardous wastes and
hazardous substances) or insufficient hazard insurance proceeds could affect
distributions to the Certificateholders.
The Servicer will maintain or cause to be maintained with respect to each
Mortgage Loan a primary mortgage insurance policy in accordance with the
standards described in the "Mortgage Loans" above.
The Servicer shall obtain and maintain at its own expense and keep in full
force and effect a blanket fidelity bond and an error and omissions insurance
policy covering the Servicer's officers and employees as well as office persons
acting on behalf of the Servicer in connection with the servicing of the
Mortgage Loans.
Although the terms and conditions of primary mortgage insurance policies
differ, each primary mortgage insurance policy will generally cover losses up to
an amount equal to the excess of the unpaid principal amount of a defaulted
Mortgage Loan (plus accrued and unpaid interest thereon and certain approved
expenses) over a specified percentage of the value of the related Mortgage
Property.
As conditions precedent to the filing or payment of a claim under a primary
mortgage insurance policy, the insured will typically be required, in the event
of default by the mortgagor, among other things, to: (i) advance or discharge
(a) hazard insurance premiums and (b) as necessary and approved in advance by
the insurer, real estate taxes, protection and preservation expenses and
foreclosure and related costs; (ii) in the event of any physical loss or damage
to the Mortgaged Property, have the Mortgaged Property restored to at least its
condition at the effective date of the primary mortgage insurance policy
(ordinary wear and tear excepted); and (iii) if the insurer pays the entire
amount of the loss or damage, tender to the insurer good and merchantable title
to, and possession of, the Mortgaged Property.
Any mortgage insurance relating to the Contracts underlying a Series of
Certificates will be described in the related Prospectus Supplement.
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ACQUISITION OF THE MORTGAGE LOANS AND CONTRACTS FROM UNAFFILIATED SELLERS
The Mortgage Loans or Contracts underlying a Series of Certificates will be
purchased by the Depositor, either directly or through affiliates, from
Unaffiliated Sellers pursuant to a separate agreement (a "Loan Sale Agreement")
between the Depositor or such affiliate and each such Unaffiliated Seller. The
Depositor expects that, unless otherwise specified in the applicable Prospectus
Supplement, each Mortgage Loan or Contract so acquired will have been originated
by the originator thereof in accordance with the underwriting criteria specified
under "Underwriting Guidelines." Unless otherwise specified in the applicable
Prospectus Supplement, each Unaffiliated Seller must be an institution
experienced in originating and servicing conventional mortgage loans or
manufactured housing contracts in accordance with accepted practices and prudent
guidelines, and must maintain facilities to originate and service those loans
satisfactory to the Depositor. In addition, each Unaffiliated Seller must
satisfy certain criteria as to financial stability evaluated on a case by case
basis by the Depositor. Unless otherwise provided in the applicable Prospectus
Supplement, each Unaffiliated Seller pursuant to the related Loan Sale Agreement
will make certain representations and warranties to the Depositor in respect of
the Mortgage Loans or Contracts sold by such Unaffiliated Seller to the
Depositor as described herein under "Representations and Warranties" below.
Unless otherwise provided in the applicable Prospectus Supplement with respect
to each Series, the Depositor will assign all of its rights (except certain
rights of indemnification) and interest in the related Loan Sale Agreement to
the related Trustee for the benefit of the Certificateholders of such Series,
and the Unaffiliated Seller shall thereupon be liable to the Trustee for
defective Mortgage Loan or Contract documents or an uncured breach of such
Unaffiliated Seller's representations or warranties, to the extent described
below under "Assignment of the Mortgage Loans and Contracts" and
"Representations and Warranties."
ASSIGNMENT OF THE MORTGAGE LOANS, MORTGAGE CERTIFICATES AND CONTRACTS
At the time of the issuance of the Certificates of a Series, the Depositor
will cause the Mortgage Loans comprising the Mortgage Pool (including any
related rights to, or security interests in, leases, rents and personal
property), the Mortgage Certificates comprising the Mortgage Certificate Pool or
the Contracts comprising the Contract Pool included in the related Trust Fund to
be assigned to the Trustee, together with all principal and interest received by
or on behalf of the Depositor on or with respect to such Mortgage Loans,
Mortgage Certificates or Contracts after the Cut-Off Date, other than principal
and interest due on or before the Cut-Off Date and other than any Fixed Retained
Yield. The Trustee or its agent will, concurrently with such assignment,
authenticate and deliver the Certificates evidencing such Series to the
Depositor in exchange for the Mortgage Loans, Mortgage Certificates or
Contracts. Each Mortgage Loan, Mortgage Certificate or Contract will be
identified in a schedule appearing as an exhibit to the applicable Pooling and
Servicing Agreement. Each such schedule will include, among other things, the
unpaid principal balance as of the close of business on the applicable Cut-Off
Date, the scheduled monthly payment of principal, if any, and interest, the
maturity date and the Mortgage Rate, Mortgage Certificate Rate or Contract Rate
for each Mortgage Loan, Mortgage Certificate or Contract in the related Trust
Fund.
With respect to each Mortgage Loan in a Trust Fund, the mortgage or other
promissory note, any assumption, modification or conversion to fixed interest
rate agreement, a copy of any recorded UCC-1 financing statements and related
continuation statements, together with original executed UCC-2 or UCC-3
financing statements disclosing an assignment of a security interest in any
personal property constituting security for repayment of the Mortgage Loan to
the Trustee, an executed re-assignment of assignment of leases, rents and
profits to the Trustee if the assignment of leases, rents and profits is
separate from the Mortgage, a mortgage assignment in recordable form and the
recorded Mortgage (or other documents as are required under applicable law to
create a perfected security interest in the Mortgaged Property in favor of the
Trustee) will be delivered to the Trustee (or to a designated custodian);
provided that, in instances where recorded documents cannot be delivered due to
delays in connection with recording, copies thereof, certified by the Depositor
to be true and complete copies of such documents, sent for recording, may be
delivered and the original recorded documents will be delivered promptly upon
receipt. As to each Mortgage Loan for which there is primary mortgage insurance,
the certificate of primary mortgage insurance will be delivered to the Trustee.
The assignment of each Mortgage will be recorded promptly after the initial
issuance of Certificates
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for the related Trust Fund, except in states where, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in the Mortgage Loan against the claim of any subsequent
transferee or any successor to or creditor of the Depositor, any affiliate of
the Depositor or the originator of such Mortgage Loan.
With respect to any Mortgage Loans which are Cooperative Loans, the
Depositor will cause to be delivered to the Trustee (or to a designated
custodian) the related original Cooperative Note, the 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 cause to be filed in the appropriate office an
assignment and a refinancing statement evidencing the Trustee's security
interest in each Cooperative Loan.
With respect to each Contract, there will be delivered to the Trustee (or
to a designated Custodian) the original Contract and copies of documents and
instruments related to each Contract and the security interest in the property
securing each Contract. In order to give notice of the right, title and interest
of Certificateholders to the Contracts, the Depositor will cause a UCC-1
financing statement to be executed by the Depositor or the Unaffiliated Seller
identifying the Trustee as the secured party and identifying all Contracts as
collateral. Unless otherwise specified in the related Prospectus Supplement, the
Contracts will not be stamped or otherwise marked to reflect their assignment to
the Trust. Therefore, if, through negligence, fraud or otherwise, a subsequent
purchaser were able to take physical possession of the Contracts without notice
of such assignment, the interest of Certificateholders in the Contracts could be
defeated. See "Certain Legal Aspects of the Mortgage Loans and Contracts."
The Trustee (or the custodian hereinafter referred to) will hold such
documents relating to Mortgage Loans or Contracts in trust for the benefit of
Certificateholders of the related Series and will review such documents within
45 days of the date of the applicable Pooling and Servicing Agreement. Unless
otherwise provided in the applicable Prospectus Supplement, if any document is
not delivered or is found to be defective in any material respect or has not
been recorded as required by the applicable Loan Sale Agreement, the Trustee (or
such custodian) shall immediately notify the Servicer and the Depositor, and the
Servicer shall immediately notify the related Unaffiliated Seller. If the
Unaffiliated Seller cannot cure such omission or defect within 60 days after
receipt of such notice, the Unaffiliated Seller will be obligated, pursuant to
the related Loan Sale Agreement, either to repurchase the related Mortgage Loan
or Contract from the Trustee within 60 days after receipt of such notice, at a
price (the "Purchase Price") equal to the then unpaid principal balance thereof,
plus accrued and unpaid interest at the applicable Mortgage Rate or Contract
Rate (less any Fixed Retained Yield with respect to such Mortgage Loan or
Contract and less the rate, if any, of servicing compensation payable to the
Unaffiliated Seller with respect to such Mortgage Loan or Contract) through the
last day of the month in which such repurchase takes place or to substitute one
or more new Mortgage Loans or Contracts for such Mortgage Loan or Contract. In
the case of a Mortgage Loan or Contract so repurchased by an Unaffiliated
Seller, the Purchase Price will be deposited in the related Certificate Account.
In the case of a substitution, such substitution will be made in accordance with
the standards described in "" below.
There can be no assurance that an Unaffiliated Seller will fulfill this
repurchase or substitution obligation. The Servicer will be obligated to enforce
such obligation to the same extent as it must enforce the obligation of an
Unaffiliated Seller for a breach of representation or warranty as described
below under "Representations and Warranties." However, as in the case of an
uncured breach of such a representation or warranty, neither the Servicer
(unless the Servicer is the Unaffiliated Seller) nor the Depositor will be
obligated to purchase or substitute for such Mortgage Loan or Contract if the
Unaffiliated Seller defaults on its repurchase or substitution obligation,
unless such breach also constitutes a breach of the representations or
warranties of the Servicer or the Depositor, as the case may be. Unless
otherwise specified in the related Prospectus Supplement, this repurchase or
substitution obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for omission of, or a material defect in, a
constituent document.
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The Trustee will be authorized to appoint a custodian to maintain
possession of the documents relating to the Mortgage Loans or Contracts. The
custodian will keep such documents as the Trustee's agent under a custodial
agreement.
REPRESENTATIONS AND WARRANTIES
Each Unaffiliated Seller, pursuant to the related Loan Sale Agreement, will
have made representations and warranties in respect of the Mortgage Loans sold
by such Unaffiliated Seller. Unless otherwise specified in the related
Prospectus Supplement, each Unaffiliated Seller of Mortgage Loans will have
represented, among other things, substantially to the effect that (i)
immediately prior to the sale and transfer of such Mortgage Loans, the
Unaffiliated Seller had good title to, and was the sole owner of, each such
Mortgage Loan and there had been no other assignment or pledge thereof, (ii) as
of the date of such transfer, such Mortgage Loans are subject to no offsets,
defenses or counterclaims, (iii) each Mortgage Loan at the time it was made
complied in all material respects with applicable state and federal laws,
including usury, equal credit opportunity and disclosure laws, (iv) a lender's
policy of title insurance was issued on the date of the origination of each
Mortgage Loan and each such policy is valid and remains in full force and
effect, (v) as of the date of such transfer, each related Mortgage is a valid
lien on the related Mortgaged Property (subject only to (a) the lien of current
real property taxes and assessments, (b) covenants, conditions and restrictions,
rights of way, easements and other matters of public record as of the date of
the recording of such Mortgage, such exceptions appearing of record and either
being acceptable to mortgage lending institutions generally or specifically
reflected in the lender's policy of title insurance issued on the date of
origination and either (A) specifically referred to in the appraisal made in
connection with the origination of the related Mortgage Loan or (B) which do not
adversely affect the appraised value of the Mortgaged Property as set forth in
such appraisal, (c) other matters to which like properties are commonly subject
which do not materially interfere with the benefits of the security intended to
be provided by the Mortgage and (d) in the case of second or more junior loans
any senior loans of record as of the date of recording of the Equity Loan) and
such property is free of material damage and is in good repair, (vi) as of the
date of such transfer, no Mortgage Loan is 30 days or more delinquent in payment
and there are no delinquent tax or assessment liens against the related
Mortgaged Property that would permit a taxing authority to initiate foreclosure
proceedings, and (vii) with respect to each Mortgage Loan, if the Mortgaged
Property is located in an area identified by the Federal Emergency Management
Agency as having special flood hazards and subject in certain circumstances to
the availability of flood insurance under the federal flood insurance program,
such Mortgaged Property is covered by flood insurance meeting the requirements
of the applicable Pooling and Servicing Agreement.
Each Unaffiliated Seller, pursuant to the related Loan Sale Agreement, will
have made representations and warranties in respect of the Contracts sold by
such Unaffiliated Seller. Unless otherwise specified in the related Prospectus
Supplement, each Unaffiliated Seller of Contracts will have represented, among
other things, substantially to the effect that (i) immediately prior to the sale
and transfer of such Contracts, the Unaffiliated Seller had good title to, and
was the sole owner of, each such Contract and there had been no other assignment
or pledge thereof, (ii) as of the date of such transfer, such Contracts are
subject to no offsets, defenses or counterclaims, (iii) each Contract at the
time it was made complied in all material respects with applicable state and
federal laws, including usury, equal credit opportunity and disclosure laws,
(iv) as of the date of such transfer, each related Contract is a valid first
lien on the related Manufactured Home and such Manufactured Home is free of
material damage and is in good repair, (v) as of the date of such transfer, no
Contract is 30 days or more delinquent in payment and there are no delinquent
tax or assessment liens against the related Manufactured Home, and (vi) with
respect to each Contract, the Manufactured Home securing the Contract is covered
by a Standard Hazard Insurance Policy in the amount required by the Pooling and
Servicing Agreement and all premiums then due on such insurance have been paid
in full.
All of the representations and warranties of an Unaffiliated Seller in
respect of a Mortgage Loan or Contract will have been made as of the date on
which such Unaffiliated Seller sold the Mortgage Loan or Contract to the
Depositor. A substantial period of time may have elapsed between the date as of
which the representations and warranties were made and the later date of initial
issuance of the related Series of Certificates. Since the representations and
warranties referred to in the preceding paragraphs are the only
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representations and warranties that will be made by an Unaffiliated Seller, the
Unaffiliated Seller's repurchase obligation described below will not arise if,
during the period commencing on the date of sale of a Mortgage Loan or Contract
by the Unaffiliated Seller to the Depositor, the relevant event occurs that
would have given rise to such an obligation had the event occurred prior to sale
of the affected Mortgage Loan or Contract. However, the Depositor will not
include any Mortgage Loan or Contract in the Trust Fund for any series of
Certificates if anything has come to the Depositor's attention that would cause
it to believe that the representations and warranties of an Unaffiliated Seller
will not be accurate and complete in all material respects in respect of such
Mortgage Loan or Contract as of the date of initial issuance of the related
Series of Certificates.
The Depositor will, unless otherwise provided in the applicable Prospectus
Supplement, assign all of its rights (except certain rights to indemnification)
with respect to such representations and warranties pursuant to any related Loan
Sale Agreement to the Trustee for the benefit of the Certificateholders of the
related Series. The Servicer, or the Trustee if the Servicer is the Unaffiliated
Seller, will promptly notify the relevant Unaffiliated Seller of any breach of
any representation or warranty made by it in respect of a Mortgage Loan or
Contract which materially and adversely affects the interests of the
Certificateholders in such Mortgage Loan or Contract. Unless otherwise specified
in the related Prospectus Supplement, if such Unaffiliated Seller cannot cure
such breach within 60 days after notice from the Servicer or the Trustee, as the
case may be, then such Unaffiliated Seller will be obligated either (i) to
repurchase such Mortgage Loan or Contract from the Trust Fund at the applicable
Purchase Price or (ii) subject to the Trustee's approval and to the extent
permitted by the Pooling and Servicing Agreement, to substitute for such
Mortgage Loan or Contract (a "Deleted Loan") one or more Mortgage Loans or
Contracts, as the case may be (each, a "Substitute Loan"), but only if (i) with
respect to a Trust Fund (or one or more segregated pools of assets therein) for
which a REMIC election is to be made, such substitution is effected within two
years of the date of initial issuance of the Certificates or (ii) with respect
to a Trust Fund for which no REMIC election is to be made, such substitution is
effected within 120 days of the date of initial issuance of the Certificates.
Except as otherwise provided in the related Prospectus Supplement, any
Substitute Loan will, on the date of substitution, (i) have a Loan-to-Value
Ratio no greater than that of the Deleted Loan, (ii) have a Mortgage Rate or
Contract Rate not less than (and not more than 1% greater than) the Mortgage
Rate or Contract Rate of the Deleted Loan, (iii) have a Net Mortgage Rate or Net
Contract Rate not less than (and not more than 1% greater than) the Net Mortgage
Rate or Net Contract Rate of the Deleted Loan, (iv) have a remaining term to
maturity not greater than (and not more than one year less than) that of the
Deleted Loan and (v) comply with all of the representations and warranties set
forth in the related Loan Sale Agreement as of the date of substitution. If
substitution is to be made for a Deleted Loan with an adjustable Mortgage Rate
or Contract Rate, the Substitute Loan will also bear interest based on the same
index, margin, frequency and month of adjustment as the Deleted Loan. In the
event that one Substitute Loan is substituted for more than one Deleted Loan, or
more than one Substitute Loan is substituted for one or more Deleted Loans, then
the amount described in clause (i) will be determined on the basis of aggregate
principal balances (provided that in all events the tests for a "qualified
mortgage" as described in the second paragraph under the heading "Certain
Federal Income Tax Consequences -- Federal Income Tax Consequences for REMIC
Certificates -- Qualification as a REMIC" are met as to each Substituted Loan),
the rates described in clauses (ii) and (iii) with respect to Deleted Loans will
be determined on the basis of weighted average Mortgage Rates and Net Mortgage
Rates or Contract Rates and Net Contract Rates, as the case may be, and the
terms described in clause (iv) will be determined on the basis of weighted
average remaining terms to maturity. In the case of a Substitute Loan, the
mortgage file relating thereto will be delivered to the Trustee (or the
custodian) and the Unaffiliated Seller will pay an amount equal to the excess of
(i) the unpaid principal balance of the Deleted Loan, over (ii) the unpaid
principal balance of the Substitute Loan or Loans, together with interest on
such excess at the Mortgage Rate or Contract Rate to the next scheduled Due Date
of the Deleted Loan. Such amount will be deposited in the Certificate Account
for distribution to Certificateholders. Except in those cases in which the
Servicer is the Unaffiliated Seller, the Servicer will be required under the
applicable Pooling and Servicing Agreement to enforce this repurchase or
substitution obligation for the benefit of the Trustee and the holders of the
Certificates, following the practices it would employ in its good faith business
judgment were it the owner of such Mortgage Loan or Contract. This repurchase or
substitution
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obligation will constitute the sole remedy available to holders of Certificates
or the Trustee for a breach of representation by an Unaffiliated Seller.
Neither the Depositor nor the Servicer (unless the Servicer is the
Unaffiliated Seller) will be obligated to purchase or substitute for a Mortgage
Loan or Contract if an Unaffiliated Seller defaults on its obligation to do so,
and no assurance can be given that Unaffiliated Sellers will carry out their
respective repurchase obligations with respect to Mortgage Loans or Contracts.
If so specified in the applicable Prospectus Supplement, the Depositor, the
Servicer or another entity specified in the applicable Prospectus Supplement,
will make such representations and warranties as to the types and geographical
concentration of the Mortgage Loans or Contracts in the related Mortgage Pool or
Contract Pool and as to such other matters concerning such Mortgage Loans or
Contracts as may be described therein. Upon a breach of any such representation
or warranty which materially and adversely affects the interests of the
Certificateholders in a Mortgage Loan or Contract, the entity making such
representation or warranty will be obligated either to cure the breach in all
material respects, repurchase the Mortgage Loan or Contract at the Purchase
Price or substitute for such Mortgage Loan or Contract in the manner, and
subject to the conditions, described above regarding the obligations of
Unaffiliated Sellers with respect to missing or defective loan documents or the
breach of such Unaffiliated Sellers' representations and warranties. This
repurchase or substitution obligation constitutes the sole remedy available to
the Certificateholders or the Trustee for a breach of a representation or
warranty by the Depositor, the Servicer or such other party, respectively.
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each Series of Certificates will be issued pursuant to a Pooling and
Servicing Agreement among the Depositor, the Servicer, if the Series relates to
Mortgage Loans or Contracts, and the Trustee named in the related Prospectus
Supplement. The provisions of each Pooling and Servicing Agreement will vary
depending upon the nature of the Certificates to be issued thereunder and the
nature of the related Trust Fund. Forms of the Pooling and Servicing Agreements
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. The following summaries describe certain provisions of the
Certificates and the Pooling and Servicing Agreements; however, the summaries do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Pooling and Servicing
Agreement for each Series of Certificates and the applicable Prospectus
Supplement. Each Pooling and Servicing Agreement executed and delivered with
respect to each Series will be filed with the Commission as an exhibit to a
Current Report on Form 8-K promptly after issuance of the Certificates of such
Series. The Depositor will provide a copy of the Pooling and Servicing Agreement
(without exhibits) relating to any Series without charge upon written request of
a holder of a Certificate of such Series addressed to Prudential Securities
Secured Financing Corporation, 130 John Street, New York, New York 10038,
Attention: Norman Chaleff.
Each Series of Certificates will evidence the beneficial ownership interest
in the related Trust Fund created by the Depositor pursuant to the related
Pooling and Servicing Agreement. Each Series of Certificates will consist of one
or more Classes of Standard Certificates, Stripped Certificates or Multi-Class
Certificates. Any Class of Certificates may be divided into two or more
Subclasses and any Class of Standard Certificates may be divided into two or
more Subclasses that consist of Multi-Class Certificates. Any Class or Subclass
of Multi-Class Certificates may be Compound Interest Certificates. In addition,
each Series for which the Depositor has caused the related Trust Fund (or one or
more segregated pools of assets therein) to elect to be treated as a REMIC will
include one Class or one Subclass of Residual Certificates with respect to each
such REMIC which, if offered hereby, will represent the right to receive
distributions with respect to such Trust Fund as specified in the related
Prospectus Supplement.
Each Series of Certificates may include one or more Classes or Subclasses
of Certificates (the "Subordinated Certificates") that are subordinate in right
of distributions to one or more other Classes or Subclasses of Certificates (the
"Senior Certificates"). Two types of subordination arrangements for a Series
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which consists of two Classes of Standard Certificates are described herein. See
"Distributions to Standard Certificateholders." Any other type of subordination
arrangement for Standard Certificates, or any subordination arrangement for any
Class of Multi-Class Certificates or Stripped Certificates, will be described in
the applicable Prospectus Supplement. Certain Series or Classes of Certificates
may be covered by insurance policies or other forms of credit enhancement, in
each case as described herein and in the related Prospectus Supplement.
Although payment of the principal of and interest on the GNMA Certificates,
FHLMC Certificates and FNMA Certificates included in a Trust Fund will be
guaranteed as described herein, the Certificates will not be guaranteed or
insured by any governmental agency or instrumentality and, except as described
in the related Prospectus Supplement, the Mortgage Loans or Contracts included
in a Trust Fund will not be guaranteed or insured by any governmental agency or
instrumentality or any other insurer.
The Depositor will cause each Trust Fund (or one or more segregated pools
of assets therein) with respect to a Series which includes Standard Certificates
redeemable on a random lot basis, Multi-Class Certificates or Shifting Interest
Certificates to elect to be treated as a REMIC. The Depositor may cause any
other Trust Fund (or segregated pool of assets therein) to elect to be treated
as a REMIC. If such an election is made, such Series will consist of one or more
Classes or Subclasses of Certificates that will represent "regular interests"
within the meaning of Code Section 860G(a)(1) (such Certificates collectively
referred to as the "Regular Certificates") and one Class or one Subclass of
Certificates that will be designated as the "residual interest" with respect to
each REMIC within the meaning of Code Section 860G(a)(2) (the "Residual
Certificates") representing the right to receive distributions as specified in
the Prospectus Supplement for such Series. See "Certain Federal Income Tax
Consequences" herein. The related Prospectus Supplement will specify whether one
or more REMIC elections are to be made. Alternatively, the Pooling and Servicing
Agreement for a Series may provide that a REMIC election is to be made at the
discretion of the Depositor or the Servicer and may only be made if certain
conditions are satisfied. As to each Series with respect to which a REMIC
election is to be made, the Servicer and the Trustee will be obligated to take
certain actions in order to comply with applicable REMIC laws and regulations,
and no Certificateholder other than a holder of a Residual Certificate will be
liable for any prohibited transaction taxes under applicable REMIC laws and
regulations.
The Depositor may sell certain Classes or Subclasses of the Certificates of
a Series, including one or more Classes or Subclasses of Subordinated
Certificates or one Class or one Subclass of Residual Certificates, in privately
negotiated transactions exempt from registration under the Securities Act.
Alternatively, if so specified in the applicable Prospectus Supplement, the
Depositor may offer one or more Classes or Subclasses of the Subordinated
Certificates or the one Class or one Subclass of Residual Certificates of a
Series by means of this Prospectus and such Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement with
respect to a Series of Certificates, each Certificate offered hereby and by the
applicable Prospectus Supplement will be issued in fully registered form (each,
a "Definitive Certificate") and will be issued in the authorized denominations
as specified in the applicable Prospectus Supplement. The Certificates of a
Series offered hereby and by means of the applicable Prospectus Supplement will
be transferable and exchangeable at the office or agency maintained by the
Trustee or such other entity for such purpose set forth in the related
Prospectus Supplement. No service charge will be made for any transfer or
exchange of Certificates, but the Trustee or such other entity may require
payment of a sum sufficient to cover any tax or other governmental charge in
connection with such transfer or exchange. In the event that an election is made
to treat the Trust Fund (or one or more segregated pools of assets therein) as a
REMIC, no legal or beneficial interest in all or any portion of the "Residual
Certificates" thereof may be transferred without the receipt by the transferor
of any affidavit signed by the transferee stating that the transferee is not a
"Disqualified Organization" within the meaning of Code Section 860E(e)(5) or an
agent (including a broker, nominee, or other middleman) thereof. The Prospectus
Supplement with respect to a Series may specify additional transfer restrictions
with respect to the Residual Certificates. See "Certain Federal Income Tax
Consequences -- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Residual Certificates -- Tax-Related Restrictions on
Transfer of Residual Certificates." If so specified in the related Prospectus
Supplement, the Certificates of specified
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Classes or Subclasses of a Series may be issued in the form of book entries on
the records of The Depository Trust Company ("DTC") and participating members
thereof.
Distributions will be made on each of the Distribution Dates specified in
the applicable Prospectus Supplement for a Series to persons in whose name the
Certificates of such Series are registered at the close of business on the
related Record Date. Unless otherwise specified in the applicable Prospectus
Supplement, distributions to Certificateholders of all Series (other than the
final distribution in retirement of the Certificates) will be made by check
mailed to the address of the person entitled thereto as it appears on the
certificate register, except that, with respect to any holder of a Certificate
evidencing not less than the specified fractional undivided interest, notional
amount or Stated Amount set forth in such Prospectus Supplement, distributions
will be made by wire transfer in immediately available funds, provided that the
Trustee shall have been furnished with appropriate wiring instructions not less
than three business days (or such longer period as may be specified in the
related Prospectus Supplement) prior to the related Distribution Date. The final
distribution in retirement of Certificates will be made only upon presentation
and surrender of the Certificates at the office or agency maintained by the
Trustee or such other entity for such purpose, as specified in the final
distribution notice to Certificateholders.
A Series of Certificates will consist of one or more Classes of Standard
Certificates or Stripped Certificates (referred to hereinafter sometimes
collectively as "Percentage Certificates") or two or more Classes of Multi-Class
Certificates (each as described below).
PERCENTAGE CERTIFICATES
Each Series of Percentage Certificates may include one or more Classes of
Standard Certificates or Stripped Certificates, any Class of which may be
divided into two or more Subclasses. The Standard Certificates of each Class
will evidence fractional undivided interests in all of the principal and
interest (to the extent of the Net Mortgage Interest Rate) payments on the
Mortgage Loans comprising the Trust Fund related to such Series. Each holder of
a Standard Certificate of a Class will be entitled to receive its Certificate's
percentage interest of the portion of the Pool Distribution Amount (as defined
below) allocated to such Class. The percentage interest of each Standard
Certificate will be equal to the percentage obtained by dividing the aggregate
unpaid principal balance of the Mortgage Loans represented by such Standard
Certificate as of the Cut-Off Date by the aggregate unpaid principal balance of
the Mortgage Loans represented by all the Standard Certificates of the same
Class as of the Cut-Off Date.
The Stripped Certificates of each Class will evidence fractional undivided
interests in specified portions of the principal and/or interest payments on the
Mortgage Loans comprising the Trust Fund related to such Series. The holders of
the Stripped Certificates of each Class will be entitled to receive a portion
(which may be zero) as specified in the applicable Prospectus Supplement of the
principal distributions comprising the Pool Distribution Amount, and a portion
(which may be zero) as specified in the applicable Prospectus Supplement of the
interest distributions comprising the Pool Distribution Amount on each
Distribution Date.
In the case of Classes of Stripped Certificates representing interests in
interest distributions on the Mortgage Loans and not in principal distributions
on the Mortgage Loans, such Certificates will be denominated in notional
amounts. The aggregate original notional amount for a Class of such Certificates
will be equal to the aggregate unpaid principal balance (or a specified portion
thereof) of the Mortgage Loans as of the Cut-Off Date specified in the
applicable Prospectus Supplement. The notional amount of each such Stripped
Certificate will be used to calculate the holder's pro rata share of the
interest distributions on the Mortgage Loans allocated to that Class and for the
determination of certain other rights of holders of such Class of Stripped
Certificates and will not represent an interest in, or entitle any such holder
to any distribution with respect to, any principal distributions on the Mortgage
Loans. Each such Certificate's pro rata share of the interest distribution on
the Mortgage Loans on each Distribution Date will be calculated by multiplying
the interest distributions on the Mortgage Loans allocated to its Class by a
fraction, the numerator of which is the original notional amount of such
Stripped Certificates and the denominator of which is the aggregate original
notional amount of all the Stripped Certificates of its Class.
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The interest of a Class of Percentage Certificates representing an interest
in a Trust Fund (or a segregated pool of assets therein) with respect to which
an election to be treated as a REMIC has been made may be fixed as described
above or may vary over time as a result of prepayments received and losses
realized on the underlying Mortgage Loans. A Series of Percentage Certificates
comprised of Classes whose percentage interests in the Trust Fund may vary is
referred to herein as a Series of "Shifting Interest Certificates."
Distributions on, and subordination arrangements with respect to, Shifting
Interest Certificates are discussed below under the headings "Description of the
Certificates -- Distributions to Percentage Certificateholders -- Shifting
Interest Certificates" and "Credit Support -- Subordination -- Shifting Interest
Certificates."
MULTI-CLASS CERTIFICATES
Each Series may include one or more Classes or Subclasses of Multi-Class
Certificates. Each Multi-Class Certificate will be assigned a Stated Amount or
Notional Amount. The Stated Amount may be based on an amount of principal of the
underlying Mortgage Loans, Mortgage Certificates or Contracts or on the value of
future cash flows from the related Trust Fund, without distinction as to
principal and interest received on the Mortgage Loans, Mortgage Certificates or
Contracts. Interest on the Classes or Subclasses of Multi-Class Certificates
will be paid at rates specified in or determined as specified in the applicable
Prospectus Supplement, and will accrue in the manner specified therein. Any
Class or Subclass of Multi-Class Certificates may consist of Certificates on
which interest accrues but is not payable until such time as specified in the
applicable Prospectus Supplement ("Compound Interest Certificates"), and
interest accrued on any such Certificate will be added to the Stated Amount
thereof in the manner described therein.
The Stated Amount of a Multi-Class Certificate of a Series at any time will
represent the maximum specified dollar amount (exclusive of interest at the
related Interest Rate, if any) to which the holder thereof is entitled from the
cash flow on the Mortgage Loans, Mortgage Certificates or Contracts and other
assets in the Trust Fund for such Series and will decline to the extent
distributions in reduction of Stated Amount are received by such holder. The
initial Stated Amount of each Class within a Series of Multi-Class Certificates
will be specified in the applicable Prospectus Supplement.
DISTRIBUTIONS TO PERCENTAGE CERTIFICATEHOLDERS
Except as otherwise specified in the applicable Prospectus Supplement, on
or about the 15th day of each month in which a Distribution Date occurs (the
"Determination Date"), the Servicer will determine the amount of the payments or
other receipts on account of principal and interest on the Mortgage Loans,
Mortgage Certificates or Contracts which have been received and which will be
distributable to holders of Certificates on the next Distribution Date (as
further described below, the "Pool Distribution Amount"). The Pool Distribution
Amount will be allocated among the Classes or Subclasses of Percentage
Certificates of such Series in the manner described herein under "Description of
the Certificates -- Standard Certificates"; however, if such Certificates are
also composed of Senior Certificates and Subordinated Certificates, then the
Pool Distribution Amount will be allocated in accordance with the terms of the
applicable subordination arrangement. Two types of subordination arrangements
are described below for a Series which consists of two Classes of Standard
Certificates. Any other type of subordination arrangement employed for
Certificates of a Series will be described in the related Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Pool Distribution Amount" for a Distribution Date with respect to a Series of
Certificates as to which the relevant Trust Fund consists of Mortgage Loans or
Contracts will be the sum of all previously undistributed payments or other
receipts on account of principal (including principal prepayments, Net
Liquidation Proceeds (as defined herein), and Net Insurance Proceeds (as defined
herein), if any) and interest on the related Mortgage Loans or Contracts
received by the Servicer after the related Cut-Off Date (except for amounts due
on or prior to such Cut-Off Date), or received by the Servicer on or prior to
the Cut-Off Date but due after the Cut-Off Date, in either case received on or
prior to the Determination Date in the month in which such Distribution Date
occurs, plus (i) all Advances made by the Servicer, (ii) all withdrawals from
any Buy-Down Fund or other fund described in the related Prospectus Supplement,
if applicable, and (iii) all proceeds of Mortgage Loans or Contracts or
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<PAGE> 176
property acquired in respect thereof purchased or repurchased from the Trust
Fund as provided in the Pooling and Servicing Agreement ("Repurchase Proceeds"),
but excluding the following:
(a) amounts received as late payments of principal or interest
respecting which the Servicer previously has made one or more unreimbursed
Advances;
(b) any unreimbursed Advances with respect to Liquidated Mortgage
Loans (as defined herein) or Liquidated Contracts (as defined herein);
(c) those portions of each payment of interest on a particular
Mortgage Loan or Contract which represents (i) the Fixed Retained Yield, if
any, and (ii) the applicable Servicing Fee, as adjusted in respect of
Prepayment Interest Shortfalls as described in "Servicing of the Mortgage
Loans, Mortgage Certificates and Contracts -- Adjustment to Servicing
Compensation in Connection with Prepaid and Liquidated Mortgage Loans and
Contracts";
(d) all amounts representing scheduled payments of principal and
interest due after the Due Date occurring in the month in which such
Distribution Date occurs;
(e) all principal prepayments and all proceeds (including Liquidation
Proceeds, Insurance Proceeds and Repurchase Proceeds) of any Mortgage Loans
or Contracts, or property acquired in respect thereof, liquidated,
foreclosed, purchased or repurchased pursuant to the applicable Pooling and
Servicing Agreement, received on or after the Due Date occurring in the
month in which such Distribution Date occurs, and all related payments of
interest on such amounts;
(f) where permitted by the related Pooling and Servicing Agreement,
that portion of Liquidation Proceeds or Insurance Proceeds which represents
Fixed Retained Yield, if any, or any unpaid Servicing Fee to which the
Servicer is entitled;
(g) all amounts representing certain expenses reimbursable to the
Servicer and other amounts permitted to be withdrawn by the Servicer from
the Certificate Account, in each case pursuant to the applicable Pooling
and Servicing Agreement;
(h) all amounts in the nature of late fees, assumption fees,
prepayment fees and similar fees which the Servicer is entitled to retain
pursuant to the applicable Pooling and Servicing Agreement; and
(i) where permitted by the applicable Pooling and Servicing Agreement,
reinvestment earnings on payments received in respect of the Mortgage Loans
or Contracts.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Pool Distribution Amount" for a Distribution Date with respect to a Series of
Certificates as to which the relevant Trust Fund consists of Mortgage
Certificates will be the amount, if any, by which the aggregate Stated Amount of
the Certificates (before giving effect to any distribution in reduction of
Stated Amount on such Distribution Date) exceeds the aggregate Pool Value (as
defined herein) of the Mortgage Certificates included in the Trust Fund for such
Series as of the end of the period (a "Due Period") specified in the related
Prospectus Supplement, plus interest at the Net Mortgage Certificate Rate on the
aggregate Stated Amount of the Certificates (as so calculated). For purposes of
determining the Pool Distribution Amount, the aggregate Pool Value of the
Mortgage Certificates included in the Trust Fund will be reduced to take into
account all principal distributions thereon (including prepayments) received or
due to be received by the Trustee during the applicable Due Period.
Certificates other than Shifting Interest Certificates
With respect to a Series of Certificates which is comprised of one Class of
Standard Certificates which are Senior Certificates and one Class of Standard
Certificates which are Subordinated Certificates, the Servicer shall determine
the aggregate amount which would have been distributable to such Class of Senior
Certificates (the "Senior Class Distributable Amount") and the aggregate amount
which would have been distributable to such Class of Subordinated Certificates
(the "Subordinated Class Distributable Amount") assuming, among other things, no
delinquencies or losses on the Mortgage Loans or Contracts preceding such
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<PAGE> 177
Distribution Date and, based on the Pool Distribution Amount and such
Distributable Amounts, will determine the amount actually to be distributed to
each Class and Subclass.
Calculation of Distributable Amounts. If a Series of Certificates includes
one Class of Standard Certificates which are Senior Certificates and one Class
of Standard Certificates which are Subordinated Certificates, unless otherwise
specified in the applicable Prospectus Supplement, the Senior Class
Distributable Amount with respect to such Senior Certificates on a Distribution
Date will be an amount equal to the sum of:
(i) the aggregate undivided interest, expressed as a percentage and
specified in the applicable Prospectus Supplement, evidenced by such Class
of Senior Certificates (the "Senior Class Principal Portion") of:
(a) all scheduled payments of principal on each outstanding
Mortgage Loan or Contract that became due on the Due Date immediately
preceding such Distribution Date in accordance with the amortization
schedules of the related Mortgage Loans or Contracts (as adjusted to
give effect to any previous prepayments), whether or not such payments
were actually received by the Servicer (the aggregate of such scheduled
payments due on any such Due Date being referred to herein as "Scheduled
Principal");
(b) all principal prepayments received by the Servicer in the month
preceding the month in which such Distribution Date occurs;
(c) the Scheduled Principal Balance (as defined herein) of each
Mortgage Loan or Contract which was purchased from the Trust Fund as
provided in the Pooling and Servicing Agreement (as described in "The
Trust Funds" and "The Pooling and Servicing Agreement"), and of each
Mortgage Loan or Contract as to which the Servicer has determined that
all recoveries of Liquidation Proceeds and Insurance Proceeds have been
received (a "Liquidated Mortgage Loan" or "Liquidated Contract"), in
each case during the month preceding the month in which such
Distribution Date occurs, calculated as of the date each such Mortgage
Loan or Contract was purchased or calculated as of the date each such
Mortgage Loan or Contract became a Liquidated Mortgage Loan or
Liquidated Contract, as the case may be; and
(d) with respect to (1) the disposition of the Mortgaged Property
or Manufactured Home in connection with any Liquidated Mortgage Loan or
Contract, the amount by which Net Liquidation Proceeds and Net Insurance
Proceeds exceed the unpaid principal balance of such Mortgage Loan or
Contract and accrued but unpaid interest on such Mortgage Loan or
Contract at the Mortgage Rate or Contract Rate to the Due Date next
succeeding the last date of receipt of the Liquidation Proceeds and
Insurance Proceeds, and (2) the repurchase of Mortgage Loans or
Contracts in connection with an early termination of the Trust Fund (see
"The Pooling and Servicing Agreement -- Termination; Purchase of
Mortgage Loans, Mortgage Certificates and Contracts"), the amount by
which the repurchase price exceeds the aggregate unpaid principal
balances of the Mortgage Loans or Contracts in the related Trust Fund
and accrued but unpaid interest at the weighted average Mortgage Rate or
Contract Rate through the end of the month in which such repurchase
occurs (collectively, "Gain From Acquired Property"); and
(ii) interest at the Pass-Through Rate for the Class of Senior
Certificates from the second preceding Due Date (or the Cut-Off Date in the
case of the first Distribution Date) to the Due Date immediately preceding
such Distribution Date on the Senior Class Principal Portion of the
aggregate Scheduled Principal Balance of the Mortgage Loans or Contracts as
of the second preceding Due Date (or as of the Cut-Off Date in the case of
the first Distribution Date) whether or not such interest was actually
received by the Servicer; provided that Prepayment Interest Shortfall is
included only to the extent that funds for such purposes are available out
of Servicing Compensation; less
(iii) the Senior Class Principal Portion of any indemnification
payments made to the Servicer, the Depositor, or any officer, director,
employee or agent of either the Servicer or the Depositor since the
preceding Distribution Date as described under "Servicing of the Mortgage
Loans, Mortgage Certificates
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<PAGE> 178
and Contracts -- Certain Matters Regarding the Servicer and the Depositor"
below (the "Indemnification Payments").
Unless otherwise specified in the applicable Prospectus Supplement, the
Subordinated Class Distributable Amount with respect to a Distribution Date for
Percentage Certificates which are Subordinated Certificates will be an amount
equal to the sum of:
(i) the aggregate undivided interest, expressed as a percentage and
specified in the applicable Prospectus Supplement, evidenced by such
Subordinated Certificates (the "Subordinated Class Principal Portion") of:
(a) all Scheduled Principal;
(b) all principal prepayments received by the Servicer during the
month preceding the month in which such Distribution Date occurs;
(c) the Scheduled Principal Balance of each Mortgage Loan or
Contract which was purchased from the Trust Fund as provided in the
Pooling and Servicing Agreement (as described in "The Trust Funds" and
"The Pooling and Servicing Agreement"), and of each Mortgage Loan or
Contract which became a Liquidated Mortgage Loan or Liquidated Contract,
in each case during the month preceding the month in which such
Distribution Date occurs, determined as of the date each such Mortgage
Loan or Contract was purchased, or as of the date each such Mortgage
Loan or Contract became a Liquidated Mortgage Loan or Liquidated
Contract, as the case may be; and
(d) Gain From Acquired Property; and
(ii) interest at the Pass-Through Rate for the Class of Subordinated
Certificates from the second preceding Due Date (or from the Cut-Off Date
in the case of the first Distribution Date) to the Due Date immediately
preceding such Distribution Date on the Subordinated Class Principal
Portion of the Scheduled Principal Balance of the Mortgage Loans or
Contracts as of the second preceding Due Date (or as of the Cut-Off Date in
the case of the first Distribution Date), whether or not such interest was
actually received with respect to the Mortgage Loans or Contracts; provided
that Prepayment Interest Shortfall is included only to the extent that
funds for such purposes are available out of Servicing Compensation; less
(iii) the Subordinated Class Principal Portion of any Indemnification
Payments.
The foregoing is subject to the proviso that if one or more REMIC elections
are made with respect to a Series of Certificates, any Gain From Acquired
Property will not be included in the Distributable Amount of the Class of such
Series which consist of Regular Interests, but shall instead be paid in full to
the holders of the Residual Certificates of such Series.
Calculation of Amounts To Be Distributed. The Servicer will calculate, on
the related Determination Date, the portion of the Distributable Amount for each
Class of the Series that is actually available to be paid out of the Pool
Distribution Amount on the Distribution Date prior to any adjustments with
respect to subordination. The portion so available on a Distribution Date to the
Senior Certificateholders and to the Subordinated Certificateholders
(respectively, the "Senior Class Pro Rata Share" and the "Subordinated Class Pro
Rata Share") will, unless otherwise specified in the applicable Prospectus
Supplement, be the amount equal to the product of the Pool Distribution Amount
for such Distribution Date and a fraction, the numerator of which is the
Distributable Amount for such Class on such Distribution Date and the
denominator of which is the sum of the Distributable Amounts for such Series on
such Distribution Date.
So long as the Subordinated Amount is greater than zero, the holders of
Senior Certificates will be entitled to receive on any Distribution Date the
lesser of (a) the sum of the Senior Class Distributable Amount and the Senior
Class Carryover Shortfall (as defined below) and (b) the Senior Class Pro Rata
Share on such Distribution Date (the "Basic Senior Class Distribution"). In
addition, to the extent Senior Class Credit Enhancement is available, the
holders of Senior Certificates will be entitled to receive the amount, if any,
by which the Senior Class Distributable Amount plus any Senior Class Carryover
Shortfall (as
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<PAGE> 179
defined below) on such Distribution Date exceeds the Basic Senior Class
Distribution on such Distribution Date (such excess being referred to herein as
the "Senior Class Shortfall"). "Senior Class Credit Enhancement" includes: (a)
amounts otherwise distributable to the holders of Subordinated Certificates on
such Distribution Date and amounts available for such purpose in any
Subordination Reserve Fund pursuant to any subordination of the rights of any
holders of Subordinated Certificates as described below; and (b) any other
credit enhancement arrangement which shall be specified in the related
Prospectus Supplement. See "Credit Support." The "Senior Class Carryover
Shortfall" on any Distribution Date means the amount the holders of Senior
Certificates were entitled to receive on the prior Distribution Date over the
amount the holders of Senior Certificates actually received on such prior
Distribution Date, together with interest on the difference at the Pass-Through
Rate for the Senior Certificates from such prior Distribution Date through the
current Distribution Date.
At the time the Subordinated Amount, if any, is reduced to zero, Senior
Certificateholders will be entitled to the Senior Class Pro Rata Share on each
Distribution Date. In such event any remaining Senior Class Shortfall will cease
to be payable from available sources of credit enhancement, except that the
portion of such Senior Class Shortfall which is attributable to the accrual of
interest on any previous Senior Class Carryover Shortfall (the "Senior Class
Shortfall Accruals") shall continue to bear interest at the Pass-Through Rate
for the Senior Certificates, and the holders of Senior Certificates shall
continue to have a preferential right to be paid such amount from distributions
otherwise available for distribution to any holders of Subordinated
Certificates, until such amount (including interest thereon at the Pass-Through
Rate for the Senior Certificates) is paid in full. See "Credit
Support -- Subordination."
So long as the Subordinated Amount is greater than zero, the holders of
Subordinated Certificates will be entitled to receive on any Distribution Date
an amount equal to the excess of (a) the sum of (i) the Pool Distribution Amount
and (ii) all amounts released from the Subordination Reserve Fund for
distribution to the holders of Subordinated Certificates on such Distribution
Date over (b) the sum of (i) the Basic Senior Class Distribution, (ii) any
amounts required to be distributed to the holders of Senior Certificates
pursuant to the subordination of the rights of the holders of Subordinated
Certificates and (iii) amounts required to be deposited in the Subordination
Reserve Fund. See "Credit Support." At the time the Subordinated Amount, if any,
is reduced to zero, Subordinated Certificateholders will be entitled to the
Subordinated Class Pro Rata Share on each Distribution Date; provided, however,
that such amount to be distributed to the holders of Subordinated Certificates
shall be decreased to give effect to the preferential right of the holders of
Senior Certificates to receive Senior Class Shortfall Accruals as provided
herein.
The foregoing is subject to the proviso that if a REMIC election has been
made with respect to a Trust Fund (or a segregated pool of assets therein), the
Subordinated Certificateholders of the related Series will be entitled to the
sum of (a) the Subordinated Class Pro Rata Share, (b) all amounts in the
Subordination Reserve Fund (net of any amount required to be maintained as
liquidity for Advances) and (c) such other amounts, if any, as may be specified
in the related Prospectus Supplement (including, if such Certificates are
Residual Certificates, any Gain From Acquired Property).
Shifting Interest Certificates
On each Distribution Date for a Series which is comprised of two Classes of
Standard Certificates which are Shifting Interest Certificates, the holders of
record on the Record Date of the Senior Certificates thereof will be entitled to
receive, to the extent of the Pool Distribution Amount with respect to such
Distribution Date and prior to any distribution being made on the related
Subordinated Certificates, an amount equal to the Senior Class Distribution
Amount. The Senior Class Distribution Amount will (except as otherwise set forth
in the applicable Prospectus Supplement) be calculated for any Distribution Date
as the lesser of (x) the Pool Distribution Amount for such Distribution Date and
(y) the sum of:
(i) one month's interest at the applicable Pass-Through Rate on such
Class's outstanding principal balance (less, if specified in the applicable
Prospectus Supplement, (a) the amount of such interest constituting
Deferred Interest, if any, not then payable on the Mortgage Loans or
Contracts and (b) the amount by which the Prepayment Interest Shortfall
with respect to the preceding month exceeds the
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aggregate Servicing Fees relating to mortgagor or obligor payments or other
recoveries distributed on such Distribution Date, in each case allocated to
such Class on the basis set forth in the related Prospectus Supplement);
(ii) if distribution of the amount of interest calculated pursuant to
clause (i) above on prior Distribution Dates was not made in full on such
prior Distribution Dates, an amount equal to (a) the difference between (x)
the amount of interest which the holders of such Certificates would have
received on such prior Distribution Dates if there had been sufficient
funds available in the Certificate Account and (y) the amount of interest
actually distributed to such holders on such prior Distribution Dates,
together with interest on such difference (to the extent permitted by
applicable law) at the applicable Pass-Through Rate of such Class (the
"Unpaid Interest Shortfall") less (b) the aggregate amount distributed on
Distribution Dates subsequent to such prior Distribution Dates with respect
to the Unpaid Interest Shortfall;
(iii) such Class's percentage, calculated as provided in the related
Prospectus Supplement, of (a) all scheduled payments of principal due on
each outstanding Mortgage Loan or Contract that became due on the Due Date
occurring in the month in which such Distribution Date occurs, (b) all
partial principal prepayments received in the month preceding the month in
which such Distribution Date occurs and (c) except for Special Hazard
Mortgage Loans or Special Hazard Contracts covered by clause (iv) below,
the Scheduled Principal Balance of each Mortgage Loan or Contract which,
during the month preceding the month in which such Distribution Date
occurs, (i) was the subject of a principal prepayment in full, (ii) became
a Liquidated Mortgage Loan or Liquidated Contract or (iii) was purchased
from the Trust Fund as provided in the Pooling and Servicing Agreement (as
described in "The Trust Funds" and "The Pooling and Servicing Agreement");
and
(iv) if the Special Hazard Termination Date (as defined below) has
occurred as a result of cumulative net losses on Special Hazard Mortgage
Loans or Special Hazard Contracts exceeding the applicable Special Hazard
Loss Amount (as defined below), such Class's specified percentage of the
Net Liquidation Proceeds and Net Insurance Proceeds from any Mortgage Loan
or Contract that became a Special Hazard Mortgage Loan or Special Hazard
Contract during the month preceding the month in which such Distribution
Date occurs, less the total amount of delinquent installments of principal
in respect of such Special Hazard Mortgage Loan or Special Hazard Contract
that were previously the subject of distributions to the holders of such
Class of Certificates out of amounts otherwise distributable to the holders
of the related Subordinated Certificates and less the portion of such Net
Liquidation Proceeds and Net Insurance Proceeds allocable to interest on
the Senior Certificates;
provided that, if such Distribution Date falls on or after the Cross-Over Date
(i.e., the date on which the amount of principal payments on the Mortgage Loans
or Contracts to which the holders of the related Subordinated Certificates are
entitled has been reduced to zero as a result of the allocation of losses to the
Subordinated Certificates), then the Senior Class Distribution Amount will
instead equal the lesser of (x) the Pool Distribution Amount and (y) the sum of
the items referred to above plus the amount by which such Senior Certificates'
outstanding principal balance as of such Distribution Date exceeds the Pool
Scheduled Principal Balance as of such Distribution Date. The "Scheduled
Principal Balance" of a Mortgage Loan or Contract for any Distribution Date is
the unpaid principal balance of such Mortgage Loan or Contract as specified in
the amortization schedule at the time relating thereto (before any adjustment to
such schedule by reason of bankruptcy, moratorium or similar waiver or grace
period) as of the first day of the month preceding the month in which such
Distribution Date occurs after giving effect to the payment of principal due on
such first day of the month, any partial prepayments applied on or prior to such
first day of the month, the addition to the principal of such Mortgage Loan or
Contract on or prior to such first day of the month of any Deferred Interest,
and irrespective of any delinquency in payment by the mortgagor or obligor. The
"Pool Scheduled Principal Balance" as of any Distribution Date is the aggregate
of the Scheduled Principal Balances of all Mortgage Loans or Contracts in a
Trust Fund for such Distribution Date.
If so provided in the applicable Prospectus Supplement, the Class of Senior
Certificates will also be entitled to receive its specified percentage, referred
to in clauses (y)(iii)(b) and (y)(iii)(c)(i) above, of all
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partial principal prepayments and all principal prepayments in full on the
Mortgage Loans or Contracts in the related Trust Fund under the circumstances or
for the period of time specified therein, which will have the effect of
accelerating the amortization of the Class of Senior Certificates while
increasing the respective interest evidenced by the Class of Subordinated
Certificates in the related Trust Fund. Increasing the respective interest of
the Subordinated Certificates relative to that of the Senior Certificates is
intended to preserve the availability of the subordination provided by the
Subordinated Certificates.
If the Special Hazard Termination Date would occur on any Distribution Date
under the circumstances referred to in "Credit Support -- Subordination," the
Senior Class Distribution Amount for each Class and Subclass of Senior
Certificates of such Series calculated as set forth in the two preceding
paragraphs will be modified to the extent described in such section.
Amounts distributed to the Class of Senior Certificates on a Distribution
Date will be deemed to be applied first to the payment of current interest, if
any, due on such Certificates (i.e., the amount calculated pursuant to clause
(y)(i) of the third preceding paragraph), second to the payment of any Unpaid
Interest Shortfall (i.e., the amount calculated pursuant to clause (y)(ii) of
such paragraph) and third to the payment of principal, if any, due on such
Certificates (i.e., the aggregate of the amounts calculated pursuant to clauses
(y)(iii) and (y)(iv) of such paragraph).
As indicated above, in the event that the Pool Distribution Amount on any
Distribution Date is not sufficient to make the full distribution of current
interest to the holders of Senior Certificates entitled to payments of interest,
the difference between the amount of current interest which the holders of such
Certificates would have received on such Distribution Date if there had been
sufficient funds available and the amount actually distributed will be added to
the amount of interest which the holders of such Certificates are entitled to
receive on the next Distribution Date. Unless otherwise specified in the related
Prospectus Supplement, the amount of any such interest shortfall so carried
forward will bear interest (to the extent permitted by applicable law) at the
Pass-Through Rate applicable to such Certificates or at such other rate as
specified in the applicable Prospectus Supplement.
If the Pool Distribution Amount is insufficient on any Distribution Date to
make the full distribution of principal due to the holders of Senior
Certificates, the percentage of principal payments to which the holders of the
Senior Certificates would be entitled on the immediately succeeding Distribution
Date will be increased, as more fully described below under "Credit
Support -- Subordination -- Shifting Interest Certificates." This increase will
have the effect of reducing, as a relative matter, the respective interest of
the holders of the related Subordinated Certificates in future payments of
principal on the related Mortgage Loans or Contracts. If the Pool Distribution
Amount is not sufficient to make full distribution described above to the
holders of the Class of Senior Certificates on any Distribution Date, unless
otherwise provided in the applicable Prospectus Supplement, the holders of such
Class will share in the funds actually available in proportion to the respective
amounts that such Class would have received had the Pool Distribution Amount
been sufficient to make the full distribution of interest and principal due to
such Class.
Unless otherwise provided in the related Prospectus Supplement, on each
Distribution Date the holders of the related Class of Subordinated Certificates
of a Series will be entitled to receive, out of the Pool Distribution Amount,
all amounts remaining and available for distribution to them after deduction of
the amounts required to be distributed to the holders of all Senior Certificates
of such Series.
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EXAMPLE OF DISTRIBUTION TO STANDARD CERTIFICATEHOLDERS
The following chart sets forth an example of the application of the
foregoing provisions to the first two months of the related Trust Fund's
existence, assuming the Certificates are issued in the month of January, with a
Distribution Date on the 25th of each month and a Determination Date on the 15th
of each month:
<TABLE>
<S> <C>
January 1(A)................................. Cut-Off Date.
January 2 - January 31(B).................... The Servicer receives any principal
prepayments, Net Liquidation Proceeds, Net
Insurance Proceeds and Repurchase Proceeds.
January 31(C)................................ Record Date.
February 1 - February 15(D).................. The Servicer receives scheduled payments of
principal and interest due on February 1.
February 15(E)............................... Determination Date.
February 25(F)............................... Distribution Date.
</TABLE>
Succeeding monthly periods follow the pattern of (B) through (F), except that
the period in (B) begins on the first of the month.
(A) The initial unpaid principal balance of the Mortgage Loans or Contracts
in a Trust Fund would be the aggregate unpaid principal balance of the
Mortgage Loans or Contracts at the close of business on January 1,
after deducting principal payments due on or before such date. Those
principal payments due on or before January 1 and the related interest
payments would not be part of the Trust Fund and would be remitted by
the Servicer to the Depositor when received.
(B) Principal prepayments, Net Liquidation Proceeds, Net Insurance Proceeds
and Repurchase Proceeds received during this period would be credited
to the Certificate Account for distribution to Certificateholders on
the February 25 Distribution Date. To the extent funds are available
from the aggregate Servicing Fees relating to mortgagor payments or
other recoveries distributed on the related Distribution Date, the
Servicer would make an additional payment to Certificateholders with
respect to any Prepayment Interest Shortfall realized during this
period.
(C) Distributions in the month of February will be made to
Certificateholders of record at the close of business on this date.
(D) Scheduled monthly payments on the Mortgage Loans or Contracts due on
February 1 will be deposited in the Certificate Account as received by
the Servicer. Principal prepayments, Net Liquidation Proceeds, Net
Insurance Proceeds and Repurchase Proceeds received during this period,
will be deposited in the Certificate Account but will not be
distributed to Certificateholders on the February 25 Distribution Date.
Instead, such amounts will be credited to the Certificate Account for
distribution to Certificateholders on the March 25 Distribution Date.
(E) As of the close of business on February 15, a determination will be
made of the amounts of Advances and the amounts of principal and
interest which will be distributed to the Certificateholders. Those
scheduled payments due on or before February 1 which have been received
on or before February 15 and those principal prepayments, Net
Liquidation Proceeds, Net Insurance Proceeds and Repurchase Proceeds
received during the period commencing January 2 and ending on January
31 will be distributed to Certificateholders on the February 25
Distribution Date. In addition, the amounts payable in respect of any
form of credit enhancement will be calculated in accordance with the
related Pooling and Servicing Agreement.
(F) Unless otherwise so specified in the related Prospectus Supplement, the
Servicer or the Paying Agent, will make distributions to
Certificateholders on the 25th day of each month, or if such 25th day
is not a business day, on the next business day.
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DISTRIBUTIONS TO MULTI-CLASS CERTIFICATEHOLDERS
Valuation of Mortgage Loans, Mortgage Certificates and Contracts
If specified in the Prospectus Supplement relating to a Series of
Certificates having one or more Classes or Subclasses of Multi-Class
Certificates, for purposes of establishing the principal amount of Mortgage
Loans, Mortgage Certificates or Contracts that will be included in a Trust Fund
for such Series, each Mortgage Loan, Mortgage Certificate or Contract to be
included in such Trust Fund will be assigned an initial "Pool Value." Unless
otherwise specified in the applicable Prospectus Supplement, the Pool Value of
each Mortgage Loan, Mortgage Certificate or Contract in the Trust Fund for such
Series will be the Stated Amount of Certificates of such Series which, based
upon certain assumptions and regardless of any prepayments on such Mortgage
Loans or Contracts or on the mortgage loans underlying the Mortgage
Certificates, can be supported by the scheduled payments of principal and
interest on such Mortgage Loans, Mortgage Certificates or Contracts (net of the
Fixed Retained Yield on such Mortgage Loans, Mortgage Certificates or Contracts,
if any, and the applicable Servicing Fee), together with reinvestment earnings
thereon, if any, at the Assumed Reinvestment Rate for the period specified in
the related Prospectus Supplement and amounts available to be withdrawn (if
applicable) from any reserve fund for such Series, all as specified in the
applicable Prospectus Supplement. In calculating the Pool Value of a Mortgage
Loan, Mortgage Certificate or Contract included in the Trust Fund, future
distributions on such Mortgage Loan, Mortgage Certificate or Contract will be
determined based on scheduled payments on such Mortgage Loan, Mortgage
Certificate or Contract. Any similar Mortgage Loans, Mortgage Certificates or
Contracts may be aggregated into one or more groups (each, a "Pool Value Group")
each of which will be assigned an aggregate Pool Value calculated as if all such
Mortgage Loans, Mortgage Certificates or Contracts in the Pool Value Group
constituted a single loan having the highest interest rate and the longest
maturity of any such loan for such Pool Value Group. There are a number of
alternative means of determining the Pool Value of a Mortgage Loan, Mortgage
Certificate, Contract or Pool Value Group, including determinations based on the
discounted present value of the remaining scheduled payments of principal and
interest thereon and determinations based on the relationship between the
Mortgage Rates, Mortgage Certificate Rates or Contract Rates borne thereby and
the Interest Rates of the Multi-Class Certificates of the related Series. The
Prospectus Supplement for each Series will describe the method or methods (and
related assumptions) used to determine the Pool Values of the Mortgage Loans,
Mortgage Certificates or Contracts or the Pool Value Groups for such Series.
The "Assumed Reinvestment Rate" for a Series of Multi-Class Certificates
will be the highest rate permitted by the nationally recognized statistical
rating agency or agencies rating such Series of Multi-Class Certificates or a
rate insured by means of a surety bond, guaranteed investment contract or
similar arrangement satisfactory to such rating agency or agencies. If the
Assumed Reinvestment Rate is so insured, the related Prospectus Supplement will
set forth the terms of such arrangement.
Distributions of Interest
The Trustee will make distributions of interest on each Class of the
Multi-Class Certificates from the date and at the rates per annum (calculated on
the Stated Amount or Notional Amount of such Class) specified in, or as
otherwise determined in the manner set forth in, the related Prospectus
Supplement (and unless otherwise specified in such Prospectus Supplement,
calculated on the basis of a 360-day year of twelve 30-day months) and in
accordance with the priorities set forth in the related Prospectus Supplement.
Interest on all Classes of Multi-Class Certificates of a Series, other than
Compound Interest Certificates, will be distributed on the Distribution Dates
for such Series specified in the related Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, distributions of interest on
each Class of Compound Interest Certificates will be made on each Distribution
Date after the Stated Amount of all Multi-Class Certificates of such Series
having a Last Scheduled Distribution Date prior to the Last Scheduled
Distribution Date of such Class of Compound Interest Certificates has been
reduced to zero. Prior to that time, interest on such Class of Compound Interest
Certificates will be added to the Stated Amount thereof on each Distribution
Date. Such Class of Compound Interest Certificates will thereafter receive
distributions of interest on the Stated Amount thereof as so adjusted.
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Distributions in Reduction of Stated Amount for a Series of Multi-Class
Certificates not including a Subordination Feature
The Stated Amount of a Multi-Class Certificate of a Series at any time will
represent the maximum specified dollar amount (excluding interest distributions,
but including, in the case of Compound Interest Certificates, interest which has
not been distributed and which has been added to the Stated Amount thereof) to
which the holder thereof is entitled from the cash flow on the assets included
in the Trust Fund for such Series and will decline to the extent distributions
in reduction of Stated Amount are received by such holder. The initial Stated
Amount of each Class of Multi-Class Certificates will be specified in the
applicable Prospectus Supplement. On each Distribution Date, distributions in
reduction of Stated Amount of the Classes of Multi-Class Certificates will be
made, to the extent funds are available, to the holders of the Multi-Class
Certificates of such Series then entitled to receive such distributions, in the
order and in the amounts specified in the related Prospectus Supplement.
Distributions in reduction of Stated Amount may be allocated among Classes of
Multi-Class Certificates in order to provide limited protection to certain
Classes against an increase in the weighted average life of such Classes as a
result of a slower than expected or scheduled rate of principal prepayments on
the Mortgage Loans ("extension protection"). In addition, distributions in
reduction of Stated Amount may be allocated among Classes of Multi-Class
Certificates in order to provide limited protection to certain Classes against a
reduction in the weighted average life of such Classes as a result of a faster
than expected or scheduled rate or principal prepayments on the Mortgage Loans
("call protection"). By virtue of such allocations of distributions in reduction
of Stated Amount to provide extension protection and call protection to some
Classes, the weighted average lives of certain other Classes may be more greatly
affected by a faster or slower than expected or scheduled rate of principal
prepayments on the Mortgage Loans. See "Prepayment and Yield
Considerations -- Weighted Average Life of Certificates." Distributions in
reduction of Stated Amount with respect to any Class or Subclass of Multi-Class
Certificates will be made on a pro rata or random lot or such other basis as is
specified in the applicable Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Certificates, the aggregate amount that will be distributed in
reduction of Stated Amount to holders of Multi-Class Certificates of a Series
then entitled thereto on any Distribution Date for such Series will equal, to
the extent funds are available, the sum of (i) the Multi-Class Certificate
Distribution Amount (as defined herein) and (ii) if and to the extent specified
in the related Prospectus Supplement, the applicable percentage of the Spread
specified in such Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Multi-Class Certificate Distribution Amount" with respect to a Distribution
Date for a Series of Multi-Class Certificates will equal the amount, if any, by
which the Stated Amount of the Multi-Class Certificates of such Series (after
taking into account the amount of interest to be added to the Stated Amount of
any Class of Compound Interest Certificates on such Distribution Date and before
giving effect to any distributions in reduction of Stated Amount on such
Distribution Date) exceeds the Pool Value (as defined herein) of the Mortgage
Loans, Mortgage Certificates or Contracts included in the Trust Fund for such
Series as of the end of the period (a "Due Period") specified in the related
Prospectus Supplement. For purposes of determining the Multi-Class Certificate
Distribution Amount with respect to a Distribution Date for a Series of
Certificates having one or more Classes of Multi-Class Certificates, the Pool
Value of the Mortgage Loans, Mortgage Certificates or Contracts included in the
Trust Fund for such Certificates will be reduced to take into account all
distributions thereon received by the Trustee during the applicable Due Period.
Unless otherwise specified in the applicable Prospectus Supplement,
"Spread" with respect to a Distribution Date for a Series of Multi-Class
Certificates will be the excess of (a) the sum of (i) all payments of principal
and interest received on the related Mortgage Loans, Mortgage Certificates or
Contracts (net of the Fixed Retained Yield, if any, and the applicable Servicing
Fee, if any, with respect to such Mortgage Loans, Mortgage Certificates or
Contracts) in the Due Period applicable to such Distribution Date and, in the
case of the first Due Period, any amount deposited by the Depositor in the
Certificate Account on the Closing Date, (ii) income from reinvestment thereof,
if any, and (iii) to the extent specified in the applicable Prospectus
Supplement, the amount of cash withdrawn from any reserve fund or available
under any other form of credit enhancement for such Series since the prior
Distribution Date (or since the Closing Date, in the
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case of the first Distribution Date) and required to be deposited in the
Certificate Account for such Series, over (b) the sum of (i) all interest
required to be distributed on the Multi-Class Certificates of such Series on
such Distribution Date, (ii) the Multi-Class Certificate Distribution Amount for
such Distribution Date, (iii) if applicable, any Special Distributions (as
described below) in reduction of the Stated Amount of the Multi-Class
Certificates of such Series made since the preceding Distribution Date (or since
the Closing Date in the case of the first Distribution Date), including any
accrued interest distributed with such Special Distributions, (iv) all
administrative and other expenses relating to the Trust Fund payable during the
Due Period preceding such Distribution Date, other than such expenses which are
payable by the Servicer, if any, and (v) any amount required to be deposited
into any reserve fund. Reinvestment income on any reserve fund will not be
included in Spread except to the extent that reinvestment income is taken into
account in calculating the initial amount required to be deposited in such
reserve fund, if any.
If specified in the Prospectus Supplement relating to a Series for which
the related Mortgage Loans are secured by multifamily or commercial properties,
holders of certain Classes of Multi-Class Certificates of such Series may be
entitled to receive additional distributions of prepayment premiums paid by
Borrowers.
Subordination
The Prospectus Supplement relating to a Series which includes one or more
Classes or Subclasses of Multi-Class Certificates may specify that the rights of
one or more of such Classes or Subclasses (or the related Residual Certificates
of such Series) will be Senior to, or subordinated to, the rights of one or more
other Classes of Certificates of such Series.
If a Series which includes one or more Classes or Subclasses of Multi-Class
Certificates includes a subordination feature, on each Distribution Date,
distributions of interest, if any, will be made in accordance with the
preferential priorities specified in the related Prospectus Supplement and from
the date and at the Interest Rates specified therein or as otherwise specified
therein and distributions in reduction of Stated Amount, if any, will be made to
the holders of the Multi-Class Certificates in the amount and in the manner
specified in and in accordance with the preferential distribution provisions
described in the related Prospectus Supplement. If so specified in the related
Prospectus Supplement the Subordinated Amount will be reduced as the pool
experiences losses, as well as through seasoning and prepayment of the Mortgage
Loans or Contracts included in the Trust Fund.
Special Distributions
To the extent specified in the Prospectus Supplement relating to a Series
which includes Multi-Class Certificates which have less frequent than monthly
Distribution Dates, any such Class or Subclass having Stated Amounts may receive
special distributions in reduction of Stated Amount, together with accrued
interest on the amount of such reduction ("Special Distributions") in any month,
other than a month in which a Distribution Date occurs, if, as a result of
principal prepayments on the Mortgage Loans or Contracts or on the mortgage
loans underlying the Mortgage Certificates in the related Trust Fund and/or
reinvestment yields then available, the Trustee determines, based on assumptions
specified in the applicable Pooling and Servicing Agreement, that the amount of
cash anticipated to be available on the next Distribution Date for such Series
to be distributed to the holders of such Multi-Class Certificates may be less
than the sum of (i) the interest scheduled to be distributed to such holders and
(ii) the amount to be distributed in reduction of Stated Amount of such
Multi-Class Certificates on such Distribution Date. Any such Special
Distributions will be made in the same priority and manner as distributions in
reduction of Stated Amount would be made on the next Distribution Date.
To the extent specified in the related Prospectus Supplement, one or more
Classes of Certificates of a Series may be subject to special distributions in
reduction of the Stated Amount thereof at the option of the holders of such
Certificates, or to mandatory distributions by the Servicer. Any such
distributions with respect to a Series will be described in the applicable
Prospectus Supplement and will be on such terms and conditions as described
therein and specified in the Pooling and Servicing Agreement for such Series.
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Last Scheduled Distribution Date
The "Last Scheduled Distribution Date" for each Class of Multi-Class
Certificates of a Series having a Stated Amount, to the extent Last Scheduled
Distribution Dates are specified in the applicable Prospectus Supplement, is the
latest date on which (based upon the assumptions set forth in the applicable
Prospectus Supplement) the Stated Amount of such Class is expected to be reduced
to zero. Since the rate of distributions in reduction of Stated Amount of each
such Class of Multi-Class Certificates will depend upon, among other things, the
rate of payment (including prepayments) of the principal of the Mortgage Loans
or Contracts or the mortgage loans underlying the Mortgage Certificates in the
Trust Fund for such Series, the actual last Distribution Date for any such Class
may occur significantly earlier than its Last Scheduled Distribution Date. To
the extent of any delays in receipt of any payments, insurance proceeds or
liquidation proceeds with respect to the Mortgage Loans, Mortgage Certificates
or Contracts included in any Trust Fund, the last Distribution Date for any such
Class may occur later than its Last Scheduled Distribution Date. The rate of
payments on the Mortgage Loans, Mortgage Certificates or Contracts in the Trust
Fund for any Series of Certificates will depend upon their particular
characteristics, as well as on the prevailing level of Interest Rates from time
to time and other economic factors, and no assurance can be given as to the
actual prepayment experience of the Mortgage Loans, Mortgage Certificates or
Contracts. See "Prepayment and Yield Considerations" below.
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CREDIT SUPPORT
SUBORDINATION
Certificates other than Shifting Interest Certificates
If so specified in the Prospectus Supplement relating to a Series of
Certificates as to which the related Trust Fund consists of Mortgage Loans or
Contracts, other than a Series of Shifting Interest Certificates, the rights of
the holders of a Class of Subordinated Certificates to receive distributions
will be subordinated to the rights of the holders of a Class of Senior
Certificates, to the extent of the Subordinated Amount specified in such
Prospectus Supplement. The Subordinated Amount will be reduced by an amount
equal to Aggregate Losses and will be further reduced in accordance with a
schedule described in the applicable Prospectus Supplement. Aggregate Losses as
defined in the applicable Pooling and Servicing Agreement for any given period
will equal the aggregate amount of delinquencies, losses and other deficiencies
in the amounts due to the Senior Certificateholders paid or borne by the
Subordinated Certificateholders (but excluding any payments of Senior Class
Shortfall Accruals or interest thereon) ("Payment Deficiencies") during such
period, whether such aggregate amount results by way of withdrawals from the
Subordination Reserve Fund (including, prior to the time that the Subordinated
Amount is reduced to zero, any such withdrawal of amounts attributable to the
Initial Deposit, if any), reductions in amounts that would otherwise have been
distributable to the Subordinated Certificateholders on any Distribution Date,
or otherwise; less the aggregate amount of previous Payment Deficiencies
recovered by the related Trust Fund during such period in respect of the
Mortgage Loans or Contracts giving rise to such previous Payment Deficiencies,
including, without limitation, such recoveries resulting from the receipt of
delinquent principal or interest payments, Liquidation Proceeds and insurance
proceeds (net, in each case, of any applicable Fixed Retained Yield and any
unpaid Servicing Fee to which the Servicer is entitled, foreclosure costs and
other servicing costs, expenses and advances relating to such Mortgage Loans or
Contracts).
The protection afforded to the Senior Certificateholders by the
subordination feature described above will be effected both by the preferential
right, to the extent specified in the applicable Prospectus Supplement, of such
Senior Certificateholders to receive current distributions on the related
Mortgage Loans or Contracts that, but for such subordination, would otherwise
have been distributable to the Subordinated Certificateholders from the related
Trust Fund (to the extent of the Subordinated Amount for such Series) and
(unless otherwise specified in the applicable Prospectus Supplement) by the
establishment and maintenance of a Subordination Reserve Fund for such Series.
Unless otherwise specified in the applicable Prospectus Supplement, the
Subordination Reserve Fund will not be a part of the Trust Fund. The
Subordination Reserve Fund may be funded initially with an initial deposit by
the Depositor (the "Initial Deposit") in an amount set forth in the applicable
Prospectus Supplement. Following the initial issuance of the Certificates of a
Series and until the balance of the Subordination Reserve Fund (without taking
into account the amount of any Initial Deposit) first equals or exceeds the
Specified Subordination Reserve Fund Balance set forth in the applicable
Prospectus Supplement, and unless otherwise specified in the applicable
Prospectus Supplement, the Servicer will withhold all amounts that would
otherwise have been distributable to the Subordinated Certificateholders and
deposit such amounts (less any portions thereof required to be distributed to
Senior Certificateholders as described below) in the Subordination Reserve Fund.
The time necessary for the Subordination Reserve Fund of a Series to reach the
applicable Specified Subordination Reserve Fund Balance for such Series after
the initial issuance of the Certificates, and the period for which such balance
is maintained, will be affected by the prepayment, delinquency and foreclosure
or repossession experience of the Mortgage Loans or Contracts in the related
Trust Fund and cannot be accurately predicted. Unless otherwise specified in the
applicable Prospectus Supplement, after the amount in the Subordination Reserve
Fund (without taking into account the amount of any Initial Deposit) for a
Series first equals or exceeds the applicable Specified Subordination Reserve
Fund Balance, the Servicer will withhold from the Subordinated
Certificateholders and will deposit in the Subordination Reserve Fund such
portion of the principal payments on the Mortgage Loans or Contracts otherwise
distributable to the Subordinated Certificateholders as may be necessary to
maintain the Subordination Reserve Fund (without taking into account the amount
of any Initial Deposit) at the Specified Subordination Reserve Fund Balance. The
Prospectus Supplement for each Series will set forth the amount of
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the Specified Subordination Reserve Fund Balance applicable from time to time
and the extent, if any, to which the Specified Subordination Reserve Fund
Balance may be reduced. Unless otherwise specified in the applicable Prospectus
Supplement, the Specified Subordination Reserve Fund Balance for a Series will
not be required to exceed the Subordinated Amount.
If on any Distribution Date while the Subordinated Amount exceeds zero,
there is a Senior Class Shortfall, the Senior Class Certificateholders will be
entitled to receive from current payments on the Mortgage Loans or Contracts
that would otherwise have been distributable to Subordinated Certificateholders
the amount of such Senior Class Shortfall. If such current payments are
insufficient, an amount equal to the lesser of: (i) the entire amount on deposit
in the Subordination Reserve Fund available for such purpose; or (ii) the amount
necessary to cover the Senior Class Shortfall will be withdrawn from the
Subordination Reserve Fund. Amounts representing investment earnings on amounts
held in the Subordination Reserve Fund will not be available to make payments to
the Senior Certificateholders. If current payments on the Mortgage Loans or
Contracts and amounts available in the Subordination Reserve Fund are
insufficient to pay the entire Senior Class Shortfall, then amounts held in the
Certificate Account for future distributions will be distributed as necessary to
the Senior Certificateholders.
In the event the Subordination Reserve Fund is depleted before the
Subordinated Amount is reduced to zero, the Senior Certificateholders will
continue to have a preferential right, to the extent specified in the applicable
Prospectus Supplement, to receive current distributions of amounts that would
otherwise have been distributable to the Subordinated Certificateholders to the
extent of the then Subordinated Amount.
After the Subordinated Amount is reduced to zero, the Senior
Certificateholders of a Series will, unless otherwise specified in the
applicable Prospectus Supplement, nonetheless have a preferential right to
receive payment of Senior Class Shortfall Accruals and interest which has
accrued thereon from amounts that would otherwise have been distributable to the
Subordinated Certificateholders. The Senior Certificateholders will otherwise
bear their proportionate share of any losses realized on the Trust Fund in
excess of the Subordinated Amount.
Unless otherwise specified in the related Prospectus Supplement, amounts
held from time to time in the Subordination Reserve Fund for a Series will be
held for the benefit of the Senior Certificateholders and Subordinated
Certificateholders of such Series until withdrawn from the Subordination Reserve
Fund as described below; provided, however, that the portion of the Initial
Deposit, if any, which has not been recovered by the Servicer and any
undistributed investment earnings attributable thereto will continue to be the
property of the Servicer and will ultimately be recoverable by the Servicer.
Amounts withdrawn from the Subordination Reserve Fund for a Series and
deposited in the Certificate Account for such Series will be charged first
against amounts in the Subordination Reserve Fund other than the Initial
Deposit, if any, for such Series, and thereafter against such Initial Deposit.
If so specified in the related Prospectus Supplement, if the Subordinated
Amount for a Series is reduced to zero and funds remain in the Subordination
Reserve Fund, an amount (the "Advance Reserve") equal to the lesser of (i) the
amount of the Initial Deposit and (ii) such funds remaining in the Subordination
Reserve Fund at the time the Subordinated Amount is reduced to zero, will remain
in the Subordination Reserve Fund and be available in certain circumstances for
withdrawal to make Advances.
Any amounts in the Subordination Reserve Fund for a Series on a
Distribution Date in excess of the Specified Subordination Reserve Fund Balance
on such date prior to the time the Subordinated Amount for such Series is
reduced to zero, and any amounts remaining in the Subordination Reserve Fund for
such Series upon termination of the trust created by the applicable Pooling and
Servicing Agreement, will be paid, unless otherwise specified in the applicable
Prospectus Supplement, to the Subordinated Certificateholders of such Series in
accordance with their pro rata ownership thereof, or, in the case of a Series
with respect to which an election has been made to treat the Trust Fund as a
REMIC, first to the Residual Certificateholders (to the extent of any portion of
the Initial Deposit, if any, and undistributed reinvestment earnings
attributable thereto), and second to the Subordinated Certificateholders of such
Series, in each case in accordance with
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their pro rata ownership thereof. Amounts permitted to be distributed from the
Subordination Reserve Fund for a Series will no longer be subject to any claims
or rights of the Senior Certificateholders of such Series.
Funds in the Subordination Reserve Fund for a Series will be invested as
provided in the applicable Pooling and Servicing Agreement in certain types of
eligible investments ("Eligible Investments"). If an election has been made to
treat the Trust Fund (or one or more pools of segregated assets therein) as a
REMIC, no more than 30% of the income or gain of the Subordination Reserve Fund
in any taxable year may be derived from the sale or other disposition of
investments held for less than three months in the Subordination Reserve Fund.
The earnings on such investments will be withdrawn and paid to the Subordinated
Certificateholders of such Series or to the holders of the Residual
Certificates, in the event that an election has been made to treat the Trust
Fund (or a pool of segregated assets therein) with respect to such Series as a
REMIC, in accordance with their respective interests. Investment income earned
on amounts held in the Subordination Reserve Fund will not be available for
distribution to the Senior Certificateholders or otherwise subject to any claims
or rights of the Senior Certificateholders.
Eligible Investments for monies deposited in the Subordination Reserve Fund
will be specified in the applicable Pooling and Servicing Agreement and, unless
otherwise provided in the applicable Prospectus Supplement, will mature no later
than the next Distribution Date.
Holders of Subordinated Certificates of a Series will not be required to
refund any amounts which have been properly distributed to them, regardless of
whether there are sufficient funds to distribute to Senior Certificateholders
the amounts to which they are entitled.
If specified in the related Prospectus Supplement, the Subordination
Reserve Fund may be funded in any other manner acceptable to each Rating Agency
and consistent with an election, if any, to treat the Trust Fund (or one or more
pools of segregated assets therein) for such Series as a REMIC, as will be more
fully described in such Prospectus Supplement.
Shifting Interest Certificates
If specified in the applicable Prospectus Supplement, the rights of the
holders of the Subordinated Certificates of a Series of Shifting Interest
Certificates to receive distributions with respect to the Mortgage Loans or
Contracts in the related Trust Fund will be subordinated to such rights of the
holders of the Senior Certificates of such Series to the extent described below,
except as otherwise set forth in such Prospectus Supplement. This subordination
is intended to enhance the likelihood of regular receipt by holders of Senior
Certificates of the full amount of scheduled monthly payments of principal and
interest due them and to provide limited protection to the holders of the Senior
Certificates against losses due to mortgagor or obligor defaults.
The protection afforded to the holders of Senior Certificates of such a
Series by the subordination feature described above will be effected by the
preferential right of such holders to receive, prior to any distribution being
made in respect of the related Subordinated Certificates, current distributions
on the related Mortgage Loans or Contracts of principal and interest due them on
each Distribution Date out of the funds available for distribution on such date
in the related Certificate Account and, to the extent described below, by the
right of such holders to receive future distributions on the Mortgage Loans or
Contracts that would otherwise have been payable to the holders of Subordinated
Certificates.
Losses realized on Liquidated Mortgage Loans or Liquidated Contracts (other
than certain Liquidated Mortgage Loans that are Special Hazard Mortgage Loans or
Liquidated Contracts that are Special Hazard Contracts as described below) will
be allocated to the holders of Subordinated Certificates through a reduction of
the amount of principal payments on the Mortgage Loans or Contracts to which
such holders are entitled. Prior to the Cross-Over Date, holders of Senior
Certificates of each Class entitled to a percentage of principal payments on the
related Mortgage Loans or Contracts will be entitled to receive, as part of
their respective Senior Class Distribution Amounts payable on each Distribution
Date in respect of each Mortgage Loan or Contract that became a Liquidated
Mortgage Loan or Liquidated Contract in the preceding month (subject to the
additional limitation described below applicable to Liquidated Mortgage Loans
that are
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Special Hazard Mortgage Loans or Liquidated Contracts that are Special Hazard
Contracts), their respective shares of the Scheduled Principal Balance of each
such Liquidated Mortgage Loan or Liquidated Contract, together with interest
accrued at the Pass-Through Rate for such Class, irrespective of whether Net
Liquidation Proceeds and Net Insurance Proceeds realized thereon are sufficient
to cover such amount. For a description of the full Senior Class Distribution
Amount payable to holders of Senior Certificates of each Series, see
"Description of the Certificates -- Distributions to Standard
Certificateholders -- Shifting Interest Certificates."
On each Distribution Date occurring on or after the Cross-Over Date,
holders of Senior Certificates of each Class entitled to a percentage of
principal payments will generally receive, as part of their respective Senior
Class Distribution Amounts, only their respective shares of the Net Liquidation
Proceeds and Net Insurance Proceeds actually realized in respect of the
applicable Liquidated Mortgage Loans or Liquidated Contracts after reimbursement
to the Servicer of any previously reimbursed Advances made in respect of such
Liquidated Mortgage Loans or Liquidated Contracts. See "Description of the
Certificates -- Distributions to Standard Certificateholders -- Shifting
Interest Certificates."
In the event that a Mortgage Loan becomes a Liquidated Mortgage Loan or a
Contract becomes a Liquidated Contract as a result of a hazard not insured
against under a Standard Hazard Insurance Policy (a "Special Hazard Mortgage
Loan" or "Special Hazard Contract"), the holders of Senior Certificates of each
Class entitled to a percentage of principal payments on the related Mortgage
Loans or Contracts will be entitled to receive in respect of each Mortgage Loan
or Contract which became a Special Hazard Mortgage Loan or Special Hazard
Contract in the preceding month, as part of their respective Senior Class
Distribution Amounts payable on each Distribution Date prior to the Special
Hazard Termination Date, their respective shares of the Scheduled Principal
Balance of such Mortgage Loan or Contract, together with interest accrued at the
applicable Pass-Through Rate, rather than their respective shares of Net
Liquidation Proceeds and Net Insurance Proceeds actually realized. The Special
Hazard Termination Date for a Series of Certificates will be the earlier to
occur of (i) the date on which cumulative net losses in respect of Special
Hazard Mortgage Loans or Special Hazard Contracts exceed the Special Hazard Loss
Amount specified in the applicable Prospectus Supplement or (ii) the Cross-Over
Date. Since the amount of the Special Hazard Loss Amount for a Series of
Certificates is expected to be significantly less than the amount of principal
payments on the Mortgage Loans or Contracts to which the holders of the
Subordinated Certificates of such Series are initially entitled (such amount
being subject to reduction, as described above, as a result of allocation of
losses on other Liquidated Mortgage Loans or Liquidated Contracts as well as
Special Hazard Mortgage Loans or Special Hazard Contracts), the holders of
Subordinated Certificates of such Series will bear the risk of losses in the
case of Special Hazard Mortgage Loans or Special Hazard Contracts to a lesser
extent than they will bear losses on other Liquidated Mortgage Loans or
Liquidated Contracts. Once the Special Hazard Termination Date has occurred,
holders of Senior Certificates of each Class entitled to payments of principal
will be entitled to receive, as part of their respective Senior Class
Distribution Amounts, only their respective shares of Net Liquidation Proceeds
and Net Insurance Proceeds realized on Special Hazard Mortgage Loans or Special
Hazard Contracts (less the total amount of delinquent installments in respect of
each Special Hazard Mortgage Loan or Special Hazard Contract that were
previously the subject of distributions to the holders of the Senior
Certificates and less the portion of such Net Liquidation Proceeds and Net
Insurance Proceeds allocable to interest). The outstanding principal balance or
notional amount of each such Class will, however, be reduced by such Class's
specified percentage of the Scheduled Principal Balance of each such Special
Hazard Mortgage Loan or Special Hazard Contract. See "Description of the
Certificates -- Distributions to Standard Certificateholders -- Shifting
Interest Certificates."
If the cumulative net losses on all Mortgage Loans or Contracts in a Trust
Fund that have become Special Hazard Mortgage Loans or Special Hazard Contracts
in the months prior to the month in which a Distribution Date occurs would
exceed the Special Hazard Loss Amount for a Series of Certificates, that portion
of the Senior Class Distribution Amount as of such Distribution Date for each
Class of Senior Certificates of such Series entitled to a percentage of
principal payments on the Mortgage Loans or Contracts in the related Trust Fund
attributable to Mortgage Loans or Contracts which became Special Hazard Mortgage
Loans or Special Hazard Contracts in the month preceding the month of such
Distribution Date
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will be calculated not on the basis of the Scheduled Principal Balances of such
Special Hazard Mortgage Loans or Special Hazard Contracts but rather will be
computed as an amount equal to the lesser of (a) such Class's percentage,
calculated as provided in the related Prospectus Supplement, of the Scheduled
Principal Balance of such Special Hazard Mortgage Loans or Special Hazard
Contracts and (b) the sum of (i) the excess of the Special Hazard Loss Amount
over the cumulative net losses on all Mortgage Loans or Contracts that became
Special Hazard Mortgage Loans or Special Hazard Contracts in months prior to the
month of such Distribution Date and (ii) the excess of (a) the product of the
percentage of principal payments to which such Class is entitled multiplied by
the aggregate Net Liquidation Proceeds and Net Insurance Proceeds (net of the
portion of each thereof allocable to interest) of the Mortgage Loans or
Contracts which became Special Hazard Mortgage Loans or Special Hazard Contracts
in the month preceding the month of such Distribution Date over (b) the total
amount of delinquent installments in respect of such Special Hazard Mortgage
Loans or Special Hazard Contracts that were previously the subject of
distributions to such Class paid out of amounts otherwise distributable to the
holders of the related Subordinated Certificates.
Although the subordination feature described above is intended to enhance
the likelihood of timely payment of principal and interest to the holders of
Senior Certificates, shortfalls could result in certain circumstances. For
example, a shortfall in the payment of principal otherwise due the holders of
Senior Certificates could occur if losses realized on the Mortgage Loans or
Contracts in a Trust Fund were exceptionally high and were concentrated in a
particular month. See "Description of the Certificates -- Distributions to
Standard Certificateholders -- Shifting Interest Certificates" for a description
of the consequences of any shortfall of principal or interest.
The holders of Subordinated Certificates will not be required to refund any
amounts previously properly distributed to them, regardless of whether there are
sufficient funds on a subsequent Distribution Date to make a full distribution
to holders of each Class of Senior Certificates of the same Series.
OTHER CREDIT ENHANCEMENT
In addition to subordination as discussed above, credit enhancement may be
provided with respect to any Series of Certificates in any other manner which
may be described in the applicable Prospectus Supplement, including, but not
limited to, credit enhancement through an alternative form of subordination
and/or one or more of the methods described below.
Limited Guarantee
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, credit enhancement may be provided in the form of a limited
guarantee issued by a guarantor named therein.
Letter of Credit
Alternative credit support with respect to a Series of Certificates may be
provided by the issuance of a letter of credit by the bank or financial
institution specified in the applicable Prospectus Supplement. The coverage,
amount and frequency of any reduction in coverage provided by a letter of credit
issued with respect to a Series of Certificates will be set forth in the
Prospectus Supplement relating to such Series.
Pool Insurance Policies
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Depositor will obtain a pool insurance policy for the Mortgage
Loans or Contracts in the related Trust Fund. The pool insurance policy will
cover any loss (subject to the limitations described in a related Prospectus
Supplement) by reason of default to the extent a related Mortgage Loan or
Contract is not covered by any primary mortgage insurance policy. The amount and
terms of any such coverage will be set forth in the Prospectus Supplement.
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Special Hazard Insurance Policies or Other Forms of Support for Special Hazard
Losses
If so specified in the applicable Prospectus Supplement, for each Series of
Certificates as to which a pool insurance policy is provided, the Depositor will
also obtain a special hazard insurance policy for the related Trust Fund in the
amount set forth in such Prospectus Supplement. The special hazard insurance
policy will, subject to the limitations described in the applicable Prospectus
Supplement, protect against loss by reason of damage to Mortgaged Properties or
Manufactured Homes caused by certain hazards not insured against under the
standard form of hazard insurance policy for the respective states in which the
Mortgaged Properties or Manufactured Homes are located. The amount and terms of
any such coverage will be set forth in the Prospectus Supplement.
Surety Bonds
If so specified in the Prospectus Supplement relating to a Series of
Certificates, credit support with respect to one or more Classes of Certificates
of a Series may be provided by the issuance of a surety bond issued by a
financial guarantee insurance company specified in the applicable Prospectus
Supplement. The coverage, amount and frequency of any reduction in coverage
provided by a surety bond will be set forth in the Prospectus Supplement
relating to such Series.
Fraud Coverage
If so specified in the applicable Prospectus Supplement, losses resulting
fraud, dishonesty or misrepresentation in connection with the origination or
sale of the Mortgage Loans or Contracts may be covered to a limited extent by
representations and warranties to the effect that no such fraud, dishonesty or
misrepresentation had occurred, by a reserve fund, letter of credit, or other
method. The amount and terms of any such coverage will be set forth in the
Prospectus Supplement.
Mortgagor Bankruptcy Bond
If so specified in the applicable Prospectus Supplement, losses resulting
from a bankruptcy proceeding relating to a mortgagor or obligor affecting the
Mortgage Loans or Contracts in a Trust Fund with respect to a Series of
Certificates will be covered under a mortgagor bankruptcy bond (or any other
instrument that will not result in a downgrading of the rating of the
Certificates of a Series by the Rating Agency that rated such Series). Any
mortgagor bankruptcy bond or such other instrument will provide for coverage in
an amount meeting the criteria of the Rating Agency rating the Certificates of
the related Series, which amount will be set forth in the related Prospectus
Supplement. The amount and terms of any such coverage will be set forth in the
Prospectus Supplement.
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PREPAYMENT AND YIELD CONSIDERATIONS
PASS-THROUGH RATES AND INTEREST RATES
Any Class of Certificates of a Series may have a fixed Pass-Through Rate or
Interest Rate, or a Pass-Through Rate or Interest Rate which varies based on
changes in an index or based on changes with respect to the underlying Mortgage
Loans, Mortgage Certificates or Contracts (such as, for example, varying on the
basis of changes in the weighted average Net Mortgage Rate, Net Mortgage
Certificate Rate or Net Contract Rate of the underlying Mortgage Loans, Mortgage
Certificates or Contracts) or may receive interest payments with respect to the
underlying Mortgage Loans, Mortgage Certificates or Contracts in such other
manner specified in the applicable Prospectus Supplement.
The Prospectus Supplement for each Series will specify the range and the
weighted average of the Mortgage Rates, Mortgage Certificate Rates or Contract
Rates and Net Mortgage Rates, Net Mortgage Certificate Rates or Net Contract
Rates for the Mortgage Loans, Mortgage Certificates or Contracts underlying such
Series as of the Cut-Off Date. Unless otherwise specified in the related
Prospectus Supplement, each monthly interest payment on a Mortgage Loan or
Contract will generally be calculated as the product of one-twelfth of the
applicable Mortgage Rate or Contract Rate at the time of such calculation and
the then unpaid principal balance on such Mortgage Loan or Contract. The Net
Mortgage Rate or Net Contract Rate with respect to each Mortgage Loan or
Contract will be similarly calculated on a loan-by-loan basis, by subtracting
from the applicable Mortgage Rate or Contract Rate, the Fixed Retained Yield, if
any, payable to the Depositor or other person or entity specified in the
Prospectus Supplement and any Servicing Fee applicable to each Mortgage Loan or
Contract. If the Trust Fund includes adjustable-rate Mortgage Loans or Contracts
or includes Mortgage Loans or Contracts with different Net Mortgage Rates or Net
Contract Rates, the weighted average Net Mortgage Rate or Net Contract Rate may
vary from time to time as set forth below. See "The Trust Funds." The Prospectus
Supplement for a Series will also specify the initial Pass-Through Rate or
Interest Rate for each Class of Certificates of such Series having a
Pass-Through Rate or Interest Rate and will specify whether each such
Pass-Through Rate or Interest Rate is fixed or is variable.
The Net Mortgage Rate or Net Contract Rate for any adjustable rate Mortgage
Loan or Contract will change with any changes in the index specified in the
related Prospectus Supplement on which such Mortgage Rate or Contract Rate
adjustments are based, subject to any applicable periodic or aggregate caps or
floors on the related Mortgage Rate or Contract Rate or other limitations
described in the related Prospectus Supplement. The weighted average Net
Mortgage Rate or Net Contract Rate with respect to any Series may vary due to
changes in the Net Mortgage Rates or Net Contract Rates of adjustable rate
Mortgage Loans or Contracts, to the timing of the Mortgage Rate or Contract Rate
readjustments of such Mortgage Loans or Contracts and to different rates of
payment of principal of fixed or adjustable rate Mortgage Loans or Contracts
bearing different Mortgage Rates or Contract Rates.
If the Trust Fund for a Series includes adjustable rate Mortgage Loans or
Contracts, any limitations on the periodic changes in a mortgagor's or obligor's
monthly payment, any limitations on the adjustments to the Net Mortgage Rates or
Mortgage Rates or to the Net Contract Rates or Contract Rates, any provision
that could result in Deferred Interest and the effects, if any, thereof on the
yield on Certificates of the related Series will be discussed in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, no
distribution of principal and only a partial distribution of interest will be
made to Certificateholders with respect to a negatively amortizing Mortgage Loan
or Contract. Distribution of the portion of scheduled interest at the applicable
Net Mortgage Rate or Net Contract Rate representing Deferred Interest with
respect to such Mortgage Loan or Contract will be passed through to the
Certificateholders on the Distribution Date following the Due Date on which it
is received. Such Deferred Interest will bear interest at the Net Mortgage Rate
or Net Contract Rate for such Mortgage Loan or Contract. For federal income tax
purposes, Deferred Interest may constitute interest income to the Trust Fund and
to Certificateholders at the time that it accrues, rather than at the time that
it is paid. See "Certain Federal Income Tax Consequences -- Federal Income Tax
Consequences for Certificates as to Which No REMIC Election Is Made -- Deferred
Interest," "-- Federal Income Tax Consequences for
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REMIC Certificates -- Taxation of Regular Certificates -- Deferred Interest" and
"-- Taxation of Residual Certificates -- Deferred Interest."
SCHEDULED DELAYS IN DISTRIBUTIONS
At the date of initial issuance of the Certificates of each Series offered
hereby, the initial purchasers of a Class of Certificates (other than certain
Classes of Residual Certificates) will be required to pay accrued interest at
the applicable Pass-Through Rate or Interest Rate for such Class from the
Cut-Off Date for such Series to, but not including, the date of issuance. With
respect to Standard Certificates, the effective yield to Certificateholders will
be below the yield otherwise produced by the applicable Pass-Through Rate
because while interest will accrue at such Pass-Through Rate from the first day
of each month through the last day of such month (unless otherwise specified in
the related Prospectus Supplement), principal and interest distributions with
respect to such month will not be made until the 25th day (or if such 25th day
is not a business day, the business day immediately following such 25th day) of
the month following the month of accrual (or until such other Distribution Date
specified in the applicable Prospectus Supplement). If so specified in the
related Prospectus Supplement, a Class of Multi-Class Certificates may be
entitled to distributions on each Distribution Date of interest accrued during a
period (an "Interest Accrual Period" specified in such Prospectus Supplement
ending on such Distribution Date or ending on a date preceding such Distribution
Date. In the latter case the effective yield to such Certificateholders will be
below the yield otherwise produced by the applicable initial public offering
prices and Interest Rates because (i) on the first Distribution Date the time
period upon which interest payable is calculated will be less than the time
elapsed since the commencement of accrual of interest, (ii) the interest that
accrues during the Interest Accrual Period will not be paid until a date
following such Interest Accrual Period specified in the related Prospectus
Supplement, and (iii) during each Interest Accrual Period following the first
Interest Accrual Period, in the case of a Class of Multi-Class Certificates
currently receiving distributions in reduction of Stated Amount, interest is
based upon a Stated Amount which is less than the Stated Amount of such
Certificates actually outstanding, since the distribution in reduction of Stated
Amount made on the following Distribution Date is deemed to have been made, for
interest accrual purposes only, at the end of the preceding Interest Accrual
Period. The Prospectus Supplement for each Series of Certificates will set forth
the nature of any scheduled delays in distribution and the impact on the yield
of such Certificates.
INTEREST SHORTFALLS DUE TO PRINCIPAL PREPAYMENTS
When a Mortgage Loan or Contract is prepaid in full, the mortgagor or
obligor pays interest on the amount prepaid only to the date of prepayment and
not thereafter. Similarly, Liquidation Proceeds and Insurance Proceeds are also
likely to include interest only to the time of payment. When a Mortgage Loan or
Contract is prepaid in part, and such prepayment is applied as of a date other
than the Due Date occurring in the month of receipt or the Due Date occurring in
the month following the month of receipt, the mortgagor or obligor pays interest
on the amount prepaid only to the date of prepayment and not thereafter. The
effect of the foregoing is to reduce the aggregate amount of interest which
would otherwise be passed through to Certificateholders if such Mortgage Loan or
Contract were outstanding, or if such partial prepayment were applied, on the
succeeding Due Date. To mitigate this reduction in yield, the Pooling and
Servicing Agreement relating to a Series will provide, unless otherwise
specified in the applicable Prospectus Supplement, that with respect to any
principal prepayment or liquidation of any Mortgage Loan or Contract underlying
the Certificates of such Series, the Servicer will pay into the Certificate
Account for such Series to the extent funds are available for such purpose from
the related aggregate Servicing Fees (or portion thereof as specified in the
related Prospectus Supplement) which the Servicer is entitled to receive
relating to mortgagor or obligor payments or other recoveries distributed on the
related Distribution Date, such amount, if any, as may be necessary to assure
that the amount paid into the Certificate Account with respect to such Mortgage
Loan or Contract includes an amount equal to interest at the Net Mortgage Rate
or Net Contract Rate for such Mortgage Loan or Contract for the period from the
date of such prepayment or liquidation to but not including the next Due Date.
See "Servicing of the Mortgage Loans and Contracts -- Adjustment to Servicing
Compensation in Connection with Prepaid and Liquidated Mortgage Loans and
Contracts."
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WEIGHTED AVERAGE LIFE OF CERTIFICATES
Weighted average life of a Certificate refers to the average amount of time
that will elapse from the date of issuance of the Certificate until each dollar
in reduction of the principal amount or Stated Amount of such Certificate is
distributed to the investor. The weighted average life and the yield to maturity
of any Class of the Certificates of a Series will be influenced by, among other
things, the rate at which principal on the Mortgage Loans, Contracts or mortgage
loans underlying the Mortgage Certificates included in the Mortgage Pool,
Contract Pool or Mortgage Certificate Pool for such Certificate is paid, which
is determined by scheduled amortization and prepayments (for this purpose, the
term "prepayments" includes prepayments and liquidations due to default,
casualty, condemnation and the like).
The Mortgage Loans or Contracts may be prepaid in full or in part at any
time. Unless otherwise specified in the applicable Prospectus Supplement or as
described in the following paragraph, no Mortgage Loan or Contract will provide
for a prepayment penalty and all fixed rate Mortgage Loans or Contracts will
contain due-on-sale clauses permitting the holder to accelerate the maturity of
the Mortgage Loan or Contract upon conveyance of the Mortgaged Property or
Manufactured Home.
Some of the Mortgage Loans which are secured by multifamily or commercial
properties may provide for a lockout period during which prepayments are
prohibited or for the payment of a prepayment premium, penalty or charge in
connection with a prepayment or for some other form of yield maintenance
charges. Such provisions may significantly reduce the rate of prepayments that
might otherwise be expected to occur with respect to such Mortgage Loans. If
specified in the Prospectus Supplement relating to any Series, holders of
certain Classes of Certificates of such Series may be entitled to receive
additional distributions of prepayment premiums paid by Borrowers. Such
additional distributions may offset to some extent any reduction in yield such
holders might otherwise realize as a result of principal prepayments. Unless
otherwise specified in the related Prospectus Supplement, in certain
circumstances the servicers will have the right pursuant to the Agreement to
agree to modify the stated maturity of Mortgage Loans secured by multifamily or
commercial properties up to but not beyond a date specified in such Prospectus
Supplement. Alternatively, the servicer will have the right to commence
collection proceedings with respect to any defaulted Mortgage Loan.
Some of the Mortgage Loans may call for Balloon Payments. Balloon Payments
involve a greater degree of risk than fully amortizing loans because the ability
of the borrower to make a Balloon Payment typically will depend upon its ability
either to refinance the loan or to sell the related Mortgaged Property. The
ability of a borrower to accomplish either of these goals will be affected by a
number of factors, including the level of available mortgage rates at the time
of the attempted sale or refinancing, the borrower's equity in the related
Mortgaged Property, the financial condition of the borrower and operating
history of the related Mortgaged Property, tax laws, prevailing economic
conditions and the availability of credit for commercial real estate projects
generally.
Some of the Mortgage Loans included in the Trust Fund may, in the event one
or more are required to be repurchased or otherwise removed from the Trust Fund,
require the payment of a release premium.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The Prospectus Supplement for each Series which
includes more than one Class or Subclass of Multi-Class Certificates will
describe one or more such prepayment standards or models and will contain tables
setting forth the weighted average life of each such Class or Subclass and the
percentage of the original aggregate Stated Amount of each such Class or
Subclass that would be outstanding on specified Distribution Dates for such
Series based on the assumptions stated in such Prospectus Supplement, including
assumptions that prepayments on the Mortgage Loans or Contracts or mortgage
loans underlying the Mortgage Certificates are made at rates corresponding to
various percentages of the prepayment standard or model specified in the related
Prospectus Supplement.
There is, however, no assurance that prepayment of the Mortgage Loans or
Contracts or mortgage loans underlying the Mortgage Certificates underlying a
Series of Certificates will conform to any level of the prepayment standard or
model specified in the related Prospectus Supplement. A number of economic,
geographic, social and other factors may affect prepayment experience. These
factors may include homeowner
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mobility, economic conditions, changes in mortgagor's or obligor's housing
needs, job transfers, unemployment, mortgagor's or obligor's net equity in the
properties securing the mortgages or contracts, servicing decisions,
enforceability of due-on-sale clauses, market interest rates, the magnitude of
related taxes, and the availability of funds for refinancing. In general,
however, if prevailing interest rates fall significantly below the Mortgage
Rates or Contract Rates on the Mortgage Loans or Contracts underlying a Series
of Certificates, or the mortgage rates on the mortgage loans underlying the
Mortgage Certificates, the prepayment rates of such Mortgage Loans, Contracts or
mortgage loans are likely to be higher than if prevailing rates remain at or
above the rates borne by such Mortgage Loans, Contracts or mortgage loans. It
should be noted that Certificates of a Series may evidence an interest in a
Trust Fund with different Mortgage Rates, Mortgage Certificate Rates or Contract
Rates. Accordingly, the prepayment experience of such Certificates will to some
extent be a function of the mix of Mortgage Rates, Mortgage Certificate Rates or
Contract Rates of the Mortgage Loans, Mortgage Certificates or Contracts. In
addition, the terms of the Pooling and Servicing Agreement will require the
Servicer to enforce any due-on-sale clause to the extent specified therein. See
"Servicing of the Mortgage Loans and Contracts -- Enforcement of Due-on-Sale
Clauses; Realization Upon Defaulted Mortgage Loans and Contracts" and "Certain
Legal Aspects of the Mortgage Loans and Contracts -- Due-On-Sale Clauses" for a
description of certain provisions of each Pooling and Servicing Agreement and
certain legal developments that may affect the prepayment experience on the
Mortgage Loans or Contracts.
A lower rate of principal prepayments than anticipated would negatively
affect the total return to investors in any Certificates of a Series that are
offered at a discount to their principal amount or, if applicable, their parity
price, and a higher rate of principal prepayments than anticipated would
negatively affect the total return to investors in the Certificates of a Series
that are offered at a premium to their principal amount or, if applicable, their
parity price. Parity price is the price at which a Certificate will yield its
coupon, after giving effect to any payment delay. In addition, the yield to
investors in a Class of Certificates which bears interest at a variable Interest
Rate or at a variable Pass-Through Rate, will also be affected by changes in the
index on which any such variable Interest Rate, or variable Pass-Through Rate is
based. Changes in the index may not correlate with changes in prevailing
mortgage interest rates or financing rates for manufactured housing, and the
effect, if any, thereof on the yield of the Certificates will be discussed in
the related Prospectus Supplement. The yield on certain types of Certificates
may be particularly sensitive to prepayment rates, and further information with
respect to yield on such Certificates will be included in the applicable
Prospectus Supplement.
At the request of the mortgagor or obligor, the Servicer may refinance the
Mortgage Loans or Contracts in any Trust Fund by accepting prepayments thereon
and making new loans secured by a Mortgage on the same property or a security
interest in the same Manufactured Home. Upon such refinancing, the new loans
will not be included in the Trust Fund. A mortgagor or obligor may be legally
entitled to require the Servicer to allow such a refinancing. Any such
refinancing will have the same effect as a prepayment in full of the related
Mortgage Loan or Contract.
The Depositor may be obligated and the applicable Unaffiliated Seller will
be obligated, under certain circumstances, to repurchase certain of the Mortgage
Loans or Contracts. In addition, the terms of certain insurance policies
relating to the Mortgage Loans or Contracts may permit the applicable insurer to
purchase delinquent Mortgage Loans or Contracts. The proceeds of any such
repurchase will be deposited in the related Certificate Account and such
repurchase will have the same effect as a prepayment in full of the related
Mortgage Loan or Contract. See "The Trust Funds -- Assignment of the Mortgage
Loans, Mortgage Certificates and Contracts." In addition, if so specified in the
applicable Prospectus Supplement, the Servicer will have the option to purchase
all, but not less than all, of the Mortgage Loans, Mortgage Certificates or
Contracts in any Trust Fund under the limited conditions specified in such
Prospectus Supplement. For any Series of Certificates for which an election has
been made to treat the Trust Fund (or one or more segregated pools of assets
therein) as a REMIC, any such purchase may be effected only pursuant to a
"qualified liquidation," as defined in Code Section 860F(a)(4)(A). See "The
Pooling and Servicing Agreement -- Termination; Purchase or other Disposition of
Mortgage Loans, Mortgage Certificates and Contracts."
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USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement,
substantially all of the net proceeds from the sale of each Series of
Certificates will be used by the Depositor for the purchase of the Mortgage
Loans, Mortgage Certificates or Contracts represented by the Certificates of
such Series or to reimburse amounts previously used to effect such a purchase,
the costs of carrying the related Mortgage Loans, Mortgage Certificates or
Contracts until the sale of the Certificates and other expenses connected with
pooling the related Mortgage Loans, Mortgage Certificates or Contracts and
issuing the Certificates.
THE DEPOSITOR
Prudential Securities Secured Financing Corporation, formerly known as P-B
Secured Financing Corporation (the "Depositor"), was incorporated in the State
of Delaware on August 26, 1988 as a wholly-owned, limited purpose finance
subsidiary of Prudential Securities Group Inc. (a wholly-owned indirect
subsidiary of The Prudential Insurance Company of America). The Depositor's
principal executive offices are located at 130 John Street, New York, New York
10038. Its telephone number is (212) 214-7435.
As described herein under "The Trust Funds -- Assignment of the Mortgage
Loans, Mortgage Certificates and Contracts" and " -- Representations and
Warranties", the only obligations, if any, of the Depositor with respect to a
Series of Certificates may be pursuant to certain limited representations and
warranties and limited undertakings to repurchase or substitute Mortgage Loans
or Contracts under certain circumstances. Unless otherwise specified in the
applicable Prospectus Supplement, the Depositor will have no servicing
obligations or responsibilities with respect to any Mortgage Pool, Mortgage
Certificate Pool, Contract Pool or Trust Fund. The Depositor does not have, nor
is it expected in the future to have, any significant assets.
As specified in the related Prospectus Supplement the Servicer with respect
to any Series of Certificates relating to Mortgage Loans or Contracts may be an
affiliate of the Depositor. As described under "The Trust Funds," the Depositor
anticipates that it may acquire Mortgage Loans, Mortgage Certificates and
Contracts through or from an affiliate.
Neither the Depositor nor Prudential Securities Group Inc. nor any of its
affiliates, including The Prudential Insurance Company of America, will insure
or guarantee the Certificates of any Series.
UNDERWRITING GUIDELINES
MORTGAGE LOANS SECURED BY RESIDENTIAL PROPERTIES
The Depositor expects that all Mortgage Loans included in a Mortgage Pool
will have been originated in accordance with the underwriting procedures
described herein, subject to such variations as are specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, all or a representative sample of the Mortgage Loans comprising the
Mortgage Pool for a Series will be reviewed by or on behalf of the Depositor to
determine compliance with such underwriting procedures and standards and
compliance with other requirements for inclusion in the related Mortgage Pool.
Except as otherwise set forth in the related Prospectus Supplement, it is
expected that each originator of Mortgage Loans will have applied, in a standard
procedure which complies with applicable federal and state law and regulations,
underwriting procedures that are intended to evaluate the mortgagor's credit
standing and repayment ability, and the value and adequacy of the Mortgaged
Property as collateral. Except as specified in the related Prospectus
Supplement, a prospective mortgagor will have been required to fill out an
application designed to provide to the original lender pertinent credit
information. As part of the description of the mortgagor's financial condition,
the mortgagor will have been required to provide a current balance sheet
describing assets and liabilities and a statement of income and expenses, as
well as 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. In addition, an employment verification will have been obtained in
the case of individual borrowers which reports the mortgagor's current salary,
length of such employment and whether it was
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expected that the mortgagor will continue such employment in the future. If a
prospective borrower was self-employed, the mortgagor will have been required to
submit copies of signed tax returns. The mortgagor may also have been required
to authorize verification of deposits at financial institutions where the
mortgagor has demand or savings accounts.
In determining the adequacy of the Mortgaged Property as collateral, an
appraisal will have been made of each Mortgaged Property considered for
financing. Each appraiser will have been selected in accordance with
predetermined guidelines established by or acceptable to the Unaffiliated Seller
for appraisers. The appraiser will have been required to inspect the Mortgaged
Property and verify that it was in good condition and that construction, if new,
has been completed. The appraisal is based on the market value of the comparable
properties, the estimated rental income (if considered applicable by the
appraiser) and the cost of replacing the Mortgaged Property.
In determining the adequacy of the Mortgaged Property as collateral, the
originator shall, in the case of second or more junior loans, look at the
combined Loan-to-Value Ratio in determining whether the Mortgage Loan exceed
lending guidelines. Furthermore, when considering such second or more junior
loans, confirm that payment has been timely made on the senior liens.
Once all applicable employment, credit and property information was
received, a determination will have been made as to whether the prospective
mortgagor had sufficient monthly income available (i) to meet its monthly
obligations on the Mortgage Loan (determined on the basis of the monthly
payments due in the year of origination) and other expenses related to the
Mortgaged Property (such as property taxes and hazard insurance) and (ii) in the
case of individual mortgagors, to meet monthly housing expenses and other
financial obligations and monthly living expenses. When two individuals cosign
loan documents, the income and expenses of both individuals may be included in
the computation. Except as otherwise specified in the related Prospectus
Supplement, underwriting guidelines generally similar to traditional
underwriting guidelines used by FNMA and FHLMC which were in effect at the time
of origination of each Mortgage Loan will generally have been used, except that
the ratios at origination of the amounts described in clauses (i) and (ii) above
to the applicant's stable monthly gross income may exceed in certain cases the
then applicable FNMA and FHLMC guidelines. With respect to a vacation or second
home, no income derived from the property will have been considered for
underwriting purposes.
Other credit considerations may cause departure from the traditional
guidelines. If the Loan-to-Value Ratio and/or term of the Mortgage Loan is less
than a percentage specified in the related Prospectus Supplement, certain
aspects of review relating to monthly income assets may be forgone and standard
ratios of monthly or total expenses to gross income may not be applied. The
Depositor may permit an Unaffiliated Seller's underwriting standards to
otherwise vary in certain cases to the extent specified in the related
Prospectus Supplement.
The Mortgaged Properties may be located in states where, in general, a
lender providing credit on a single-family property may not seek a deficiency
judgment against the mortgagor but rather must look solely to the property for
repayment in the event of foreclosure. The Depositor will require that the
Unaffiliated Sellers represent and warrant that underwriting standards applied
to each Mortgage Loan purchased by the Depositor from such Unaffiliated Seller
(including Mortgage Loans secured by Mortgaged Properties located in
anti-deficiency states) require that the value of the property being financed,
as indicated by the appraisal, currently supports and is anticipated to support
in the future the outstanding principal balance of such Mortgage Loan.
Certain of the types of loans which may be included in the Mortgage Pools
are recently developed and may involve additional uncertainties not present in
traditional types of loans. For example, certain of such Mortgage Loans may
provide for escalating or variable payments by the mortgagor. These types of
Mortgage Loans are underwritten on the basis of a judgment that mortgagors will
have the ability to make larger monthly payments in subsequent years. In some
instances, however, a mortgagor's income may not be sufficient to make loan
payments as such payments increase.
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No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the real estate market should experience an overall
decline in property values such that the outstanding principal balances of the
Mortgage Loans, and any secondary financing on the Mortgaged Properties, in a
particular Mortgage Pool become equal to or greater than the value of the
Mortgaged Properties, the actual rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced in the mortgage lending
industry. In addition, adverse economic conditions (which may or may not affect
real property values) may affect the timely payment by mortgagors of scheduled
payments of principal and interest on the Mortgage Loans and, accordingly, the
actual rates of delinquencies, foreclosures and losses with respect to any
Mortgage Pool. To the extent that such losses are not covered by subordination
provisions, insurance policies or other credit support, such losses will be
borne, at least in part, by the holders of the Certificates of the related
series.
MORTGAGE LOANS SECURED BY MULTIFAMILY AND COMMERCIAL PROPERTIES
The underwriting guidelines utilized in connection with the origination of
the multifamily and commercial loans underlying a Series of Certificates will be
described in the related Prospectus Supplement.
CONTRACTS
The underwriting guidelines utilized in connection with the origination of
the Contracts underlying a Series of Certificates will be described in the
related Prospectus Supplement.
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SERVICING OF THE MORTGAGE LOANS AND CONTRACTS
The following summaries describe certain provisions of the Pooling and
Servicing Agreements which relate to Trust Funds comprised of Mortgage Loans or
Contracts. The summaries do not purport to be complete and are subject to and
are qualified in their entirety by reference to, all the provisions of the
Pooling and Servicing Agreement for each Series and the related Prospectus
Supplement, which may further modify the provisions summarized below. The
provisions of each Pooling and Servicing Agreement will vary depending upon the
nature of the Certificates to be issued thereunder and the nature of the related
Trust Fund. Each Pooling and Servicing Agreement executed and delivered with
respect to each Series will be filed with the Commission as an exhibit to a
Current Report on Form 8-K promptly after issuance of the Certificates of such
Series.
THE SERVICER
The Servicer under each Pooling and Servicing Agreement will be named in
the related Prospectus Supplement. The entity serving as Servicer may be an
affiliate of the Depositor and may have other normal business relationships with
the Depositor or the Depositor's affiliates. The Servicer with respect to each
Series will service the Mortgage Loans or Contracts contained in the Trust Fund
for such Series. For Trust Funds comprised of Mortgage Loans, the Servicer will
be a seller/servicer approved by FNMA or FHLMC. Any Servicer may delegate its
servicing responsibilities to one or more sub-servicers (each a "Sub-Servicer"),
but will not be relieved of its liabilities with respect thereto.
The Servicer will make certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
related Pooling and Servicing Agreement. An uncured breach of such a
representation or warranty that in any respect materially and adversely affects
the interests of the Certificateholders will constitute an Event of Default by
the Servicer under the related Pooling and Servicing Agreement. See "The Pooling
and Servicing Agreement -- Events of Default -- Mortgage Loans or Contracts" and
" -- Rights Upon Event of Default -- Mortgage Loans or Contracts."
PAYMENTS ON MORTGAGE LOANS AND CONTRACTS
The Servicer or the Trustee will, as to each Series of Certificates,
establish and maintain, or cause to be established and maintained, a separate
trust account or accounts in the name of the Trustee (collectively, the
"Certificate Account"), which must be maintained with a depository institution
(the "Certificate Account Depository") acceptable to the Rating Agency rating
the Certificates of such Series. Such account or accounts will be maintained
with a Certificate Account Depository (i) whose long-term debt obligations at
the time of any deposit therein are rated not lower than the rating on the
related Series of Certificates at the time of the initial issuance thereof, (ii)
the deposits in which are insured by the Federal Deposit Insurance Corporation
(the "FDIC") through either the Bank Insurance Fund or the Savings Association
Insurance Fund (to the limit established by the FDIC) and the uninsured deposits
in which accounts are otherwise secured such that, as evidenced by an opinion of
counsel, the Trustee for the benefit of the Certificateholders of the related
Series has a claim with respect to funds in the Certificate Account for such
Series, or a perfected security interest in any collateral (which shall be
limited to Eligible Investments) securing such funds, that is superior to the
claims of any other depositor or general creditor of the Certificate Account
Depository with which the Certificate Account is maintained or (iii) which is
otherwise acceptable to the Rating Agency or Agencies.
A Certificate Account may be maintained as an interest bearing or a
non-interest bearing account, or the funds held therein may be invested pending
each succeeding Distribution Date in certain Eligible Investments. Any such
Eligible Investments shall mature not later than the business day preceding the
next Distribution Date and no such investment shall be sold or disposed of prior
to the maturity date of such Eligible Investment; however, in the event that an
election has been made to treat the Trust Fund (or a segregated pool of assets
therein) with respect to a Series as a REMIC, no such Eligible Investments will
be sold or disposed of at a gain prior to maturity unless the Servicer has
received an opinion of counsel or other evidence satisfactory to it that such
sale or disposition will not cause the Trust Fund (or segregated pool of assets)
to be subject to the tax on "prohibited transactions" imposed by Code Section
860F(a)(1), otherwise subject the
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Trust Fund (or segregated pool of assets) to tax, or cause the Trust Fund (or
segregated pool of assets) to fail to qualify as a REMIC. Unless otherwise
provided in the related Prospectus Supplement, any interest or other income
earned on funds in the Certificate Account will be paid to the Servicer or its
designee as additional servicing compensation. All losses from any such
investment will be deposited by the Servicer into the Certificate Account
immediately as realized. If permitted by the Rating Agency or Agencies and so
specified in the related Prospectus Supplement, a Certificate Account may
contain funds relating to more than one Series of Certificates.
Each Sub-Servicer servicing a Mortgage Loan or Contract will be required by
the Servicer to establish and maintain one or more separate accounts which may
be interest bearing and which comply with the standards with respect to
Certificate Accounts set forth above (collectively, the "Sub-Servicing
Account"). Each Sub-Servicer will be required to credit to the related
Sub-Servicing Account on a daily basis the amount of all proceeds of Mortgage
Loans or Contracts received by the Sub-Servicer, less its servicing
compensation. The Sub-Servicer shall remit to the Servicer by wire transfer of
immediately available funds all funds held in the Sub-Servicing Account with
respect to each Mortgage Loan or Contract on a monthly remittance date which
shall occur on or before two business days preceding the Determination Date
occurring in such month.
The Servicer will deposit in the Certificate Account for each Series of
Certificates any amounts representing scheduled payments of principal and
interest on the Mortgage Loans or Contracts due after the applicable Cut-Off
Date but received prior thereto, and, on a daily basis, the following payments
and collections received or made by it with respect to the Mortgage Loans or
Contracts subsequent to the applicable Cut-Off Date (other than payments due on
or before the Cut-Off Date):
(i) all payments on account of principal, including prepayments, and
interest, net of any portion thereof retained by a Sub-Servicer as its
servicing compensation and net of any Fixed Retained Yield;
(ii) all amounts received by the Servicer in connection with the
liquidation of defaulted Mortgage Loans or Contracts or property acquired
in respect thereof, whether through foreclosure sale or otherwise,
including payments in connection with defaulted Mortgage Loans or Contracts
received from the mortgagor or obligor other than amounts required to be
paid to the mortgagor or obligor pursuant to the terms of the applicable
Mortgage Loan or Contract or otherwise pursuant to law ("Liquidation
Proceeds"), and further reduced by expenses incurred in connection with
such liquidation, other reimbursed servicing costs associated with such
liquidation, certain amounts applied to the restoration, preservation or
repair of the Mortgaged Property or Manufactured Home, any unreimbursed
Advances with respect to such Mortgage Loan or Contract and, in the
discretion of the Servicer, but only to the extent of the amount permitted
to be withdrawn from the Certificate Account, any unpaid Servicing Fees, in
respect of the related Mortgage Loans or Contracts or the related Mortgaged
Properties or Manufactured Homes ("Net Liquidation Proceeds");
(iii) all proceeds received by the Servicer under any title, hazard or
other insurance policy covering any such Mortgage Loan or Contract
("Insurance Proceeds"), other than proceeds to be applied to the
restoration or repair of the related Mortgaged Property or Manufactured
Home or released to the mortgagor or obligor in accordance with the
applicable Pooling and Servicing Agreement, and further reduced by expenses
incurred in connection with collecting on related insurance policies, any
unreimbursed Advances with respect to such Mortgage Loan or Contract and in
the discretion of the Servicer, but only to the extent of the amount
permitted to be withdrawn from the Certificate Account, any unpaid
Servicing Fees, in respect of such Mortgage Loan or Contract ("Net
Insurance Proceeds");
(iv) all amounts required to be deposited therein from any related
reserve fund, and amounts available under any other form of credit
enhancement applicable to such Series;
(v) all Advances made by the Servicer;
(vi) all amounts withdrawn from Buy-Down Funds or other funds
described in the related Prospectus Supplement, if any, with respect to the
Mortgage Loans or Contracts, in accordance with the terms of the respective
agreements applicable thereto;
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(vii) all Repurchase Proceeds; and
(viii) all other amounts required to be deposited therein pursuant to
the applicable Pooling and Servicing Agreement.
Notwithstanding the foregoing, the Servicer will be entitled, at its
election, either (a) to withhold and pay itself the applicable Servicing Fee
and/or to withhold and pay to the owner thereof any Fixed Retained Yield from
any payment or other recovery on account of interest as received and prior to
deposit in the Certificate Account or (b) to withdraw the applicable Servicing
Fee and/or any Fixed Retained Yield from the Certificate Account after the
entire payment or recovery has been deposited therein; however, with respect to
each Trust Fund (or a segregated pool of assets therein) as to which a REMIC
election has been made, the Servicer will, in each instance, withhold and pay to
the owner thereof the Fixed Retained Yield prior to deposit of the related
payment or recovery in the Certificate Account.
Advances, amounts withdrawn from any reserve fund, and amounts available
under any other form of credit enhancement will be deposited in the Certificate
Account not later than the business day preceding the Distribution Date on which
such amounts are required to be distributed. All other amounts will be deposited
in the Certificate Account not later than the business day next following the
day of receipt and posting by the Servicer.
If the Servicer deposits in the Certificate Account for a Series any amount
not required to be deposited therein, it may at any time withdraw such amount
from such Certificate Account.
The Servicer is permitted, from time to time, to make withdrawals from the
Certificate Account for the following purposes, to the extent permitted in the
applicable Pooling and Servicing Agreement:
(i) to reimburse itself for Advances;
(ii) to reimburse itself from Liquidation Proceeds for expenses
incurred by the Servicer in connection with the liquidation of any
defaulted Mortgage Loan or Contract or property acquired in respect thereof
and for amounts expended in good faith in connection with the restoration
of damaged property, to reimburse itself from Insurance Proceeds for
expenses incurred by the Servicer in connection with the restoration,
preservation or repair of the related Mortgage Properties or Manufactured
Homes and expenses incurred in connection with collecting on the related
insurance policies and, to the extent that Liquidation Proceeds or
Insurance Proceeds after such reimbursement are in excess of the unpaid
principal balance of the related Mortgage Loans or Contracts together with
accrued and unpaid interest thereon at the applicable Net Mortgage Rate or
Net Contract Rate through the last day of the month in which such
Liquidation Proceeds or Insurance Proceeds were received, to pay to itself
out of such excess the amount of any unpaid Servicing Fees and any
assumption fees, late payment charges or other mortgagor or obligor charges
on the related Mortgage Loans or Contracts;
(iii) to pay to itself the applicable Servicing Fee and/or pay the
owner thereof any Fixed Retained Yield, in the event the Servicer is not
required, and has elected not, to withhold such amounts out of any payment
or other recovery with respect to a particular Mortgage Loan or Contract
prior to the deposit of such payment or recovery in the Certificate
Account;
(iv) to reimburse itself and the Depositor for certain expenses
(including taxes paid on behalf of the Trust Fund) incurred by and
recoverable by or reimbursable to it or the Depositor, as the case may be;
(v) to pay to the Depositor or the Unaffiliated Seller with respect to
each Mortgage Loan or Contract or property acquired in respect thereof that
has been repurchased by the Depositor or the Unaffiliated Seller, as the
case may be, all amounts received thereon and not distributed as of the
date as of which the purchase price of such Mortgage Loan or Contract was
determined;
(vi) to pay itself any interest earned on or investment income earned
with respect to funds in the Certificate Account (all such interest or
income to be withdrawn not later than the next Distribution Date);
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(vii) to make withdrawals from the Certificate Account in order to
make distributions to Certificateholders; and
(viii) to clear and terminate the Certificate Account.
The Servicer will be authorized to appoint a paying agent (the "Paying
Agent") to make distributions, as agent for the Servicer, to Certificateholders
of a Series. If the Paying Agent for a Series is the Trustee of such Series,
such Paying Agent will be authorized to make withdrawals from the Certificate
Account in order to make distributions to Certificateholders. If the Paying
Agent for a Series is not the Trustee for such Series, the Servicer will, prior
to each Distribution Date, deposit in immediately available funds in an account
designated by the Paying Agent the amount required to be distributed to the
Certificateholders on such Distribution Date.
The Servicer will cause any Paying Agent which is not the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
agrees with the Trustee that such Paying Agent will:
(1) hold all amounts deposited with it by the Servicer for
distribution to Certificateholders in trust for the benefit of
Certificateholders until such amounts are distributed to Certificateholders
or otherwise disposed of as provided in the applicable Pooling and
Servicing Agreement;
(2) give the Trustee notice of any default by the Servicer in the
making of such deposit; and
(3) at any time during the continuance of any such default, upon
written request of the Trustee, forthwith pay to the Trustee all amounts
held in trust by such Paying Agent.
ADVANCES AND LIMITATIONS THEREON
Unless otherwise provided in the applicable Prospectus Supplement, the
Servicer will advance on or before the business day preceding each Distribution
Date its own funds (an "Advance") or funds held in the Certificate Account for
future distribution or withdrawal and which are not included in the Pool
Distribution Amount for such Distribution Date, in an amount equal to the
aggregate of payments of principal and interest which were due during the
related Due Period, that were delinquent on the Determination Date and were not
advanced by any Sub-Servicer, to the extent that the Servicer determines that
such advances will be reimbursable from late collections, Insurance Proceeds,
Liquidation Proceeds or otherwise.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the Class or Classes of Certificates entitled
thereto, rather than to guarantee or insure against losses. Unless otherwise
provided in the applicable Prospectus Supplement, advances of the Servicer's
funds will be reimbursable only out of related recoveries on the Mortgage Loans
or Contracts respecting which such amounts were advanced, or from any amounts in
the Certificate Account to the extent that the Servicer shall determine that any
such advances previously made are not ultimately recoverable from late
collections, Insurance Proceeds, Liquidation Proceeds or otherwise. If advances
have been made by the Servicer from excess funds in the Certificate Account, the
Servicer will replace such funds in the Certificate Account on any future
Distribution Date to the extent that funds in the Certificate Account on such
Distribution Date are less than payments required to be made to
Certificateholders on such date.
ADJUSTMENT TO SERVICING COMPENSATION IN CONNECTION WITH PREPAID AND LIQUIDATED
MORTGAGE LOANS AND CONTRACTS
When a mortgagor or obligor prepays a Mortgage Loan or Contract in full,
the mortgagor or obligor pays interest on the amount prepaid only to the date on
which such principal prepayment is made. Similarly, Liquidation Proceeds from a
Mortgaged Property or Manufactured Home will not include interest for any period
after the date on which the liquidation took place, and Insurance Proceeds may
include interest only to the date of settlement of the related claims. Further,
when a Mortgage Loan or Contract is prepaid in part, and such prepayment is
applied as of a date other than a Due Date, the mortgagor or obligor pays
interest on the amount prepaid only to the date of prepayment and not
thereafter. The effect of the foregoing is to reduce the aggregate amount of
interest which would otherwise be passed through to Certificateholders if such
Mortgage Loan or Contract were outstanding, or if such partial prepayment were
applied, on the succeeding Due Date. Unless otherwise specified in the
applicable Prospectus Supplement, in order to mitigate the adverse affect to
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Certificateholders of a Series resulting from the prepayment or liquidation of a
Mortgage Loan or Contract or settlement of an insurance claim with respect
thereto, the amount of the aggregate Servicing Fees will be reduced by an amount
equal to the accrual of interest on any prepaid or liquidated Mortgage Loan or
Contract at the Net Mortgage Rate for such Mortgage Loan or the Net Contract
Rate for such Contract from the date of its prepayment or liquidation or the
date of such insurance settlement to the next Due Date (the "Prepayment Interest
Shortfall"). Such reductions in the aggregate Servicing Fees will be made by the
Servicer with respect to the Mortgage Loans or Contracts under the applicable
Pooling and Servicing Agreement, but only to the extent that the aggregate
Prepayment Interest Shortfall does not exceed the aggregate Servicing Fees
relating to mortgagor or obligor payments or other recoveries distributed on the
related Distribution Date. The amount of the offset against the aggregate
Servicing Fees will be included in the scheduled distributions to
Certificateholders on the Distribution Date on which the related principal
prepayments, Liquidation Proceeds or Insurance Proceeds are passed through to
Certificateholders. See "Prepayment and Yield Considerations." Payments with
respect to any Prepayment Interest Shortfall will not be obtained by means of
any subordination of the rights of Subordinated Certificateholders or any other
credit enhancement arrangement (except to the extent such credit enhancement
pays interest with respect to a Mortgage Loan or Contract in excess of the
related Net Mortgage Rate or Net Contract Rate and such excess would otherwise
be paid to the Servicer as a Servicing Fee).
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified or modified in the related Pooling and Servicing
Agreement for each Series, a statement setting forth the following information,
if applicable, will be included with each distribution to Certificateholders of
record of such Series:
(i) to each holder of a Certificate other than a Multi-Class
Certificate, the amount of such distribution allocable to principal of the
related Mortgage Loans or Contracts, separately identifying the aggregate
amount of any principal prepayments included therein, the amount of such
distribution allocable to interest on the related Mortgage Loans or
Contracts, and the aggregate unpaid principal balance of the Mortgage Loans
or Contracts after giving effect to the principal distributions on such
Distribution Date;
(ii) to each holder of a Multi-Class Certificate on which an interest
distribution and a distribution in reduction of Stated Amount are then
being made, the amount of such interest distribution and distribution in
reduction of Stated Amount, and the Stated Amount of each Class after
giving effect to the distribution in reduction of Stated Amount made on
such Distribution Date;
(iii) to each holder of a Multi-Class Certificate on which a
distribution of interest only is then being made, the aggregate Stated
Amount of Certificates outstanding of each Class after giving effect to the
distribution in reduction of Stated Amount made on such Distribution Date
and on any Special Distribution Date occurring subsequent to the last such
report and after including in the aggregate Stated Amount the Stated Amount
of the Compound Interest Certificates, if any, outstanding and the amount
of any accrued interest added to the Stated Amount of such Compound
Interest Certificates on such Distribution Date;
(iv) to each holder of a Multi-Class Certificate which is a Compound
Interest Certificate (but only if such holder shall not have received a
distribution of interest equal to the entire amount of interest accrued on
such Certificate with respect to such Distribution Date),
(a) the information contained in the report delivered pursuant to
clause (ii) above;
(b) the interest accrued on such Class of Compound Interest
Certificates with respect to such Distribution Date and added to the
Stated Amount of such Compound Interest Certificate; and
(c) the Stated Amount of such Class of Compound Interest
Certificates after giving effect to the addition thereto of all interest
accrued thereon;
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(v) to each holder of a Certificate, the aggregate amount of the
Servicing Fees paid with respect to such Distribution Date;
(vi) to each holder of a Certificate, the amount by which the
Servicing Fee has been reduced by the aggregate Prepayment Interest
Shortfall for the related Distribution Date;
(vii) the aggregate amount of any Advances by the Servicer included in
the amounts actually distributed to the Certificateholders;
(viii) to each holder of each Senior Certificate (other than a
Shifting Interest Certificate):
(a) the amount of funds, if any, otherwise distributable to
Subordinated Certificateholders and the amount of any withdrawal from
the Subordination Reserve Fund, if any, included in amounts actually
distributed to Senior Certificateholders;
(b) the Subordinated Amount remaining and the balance in the
Subordination Reserve Fund, if any, following such distribution; and
(c) the amount of any Senior Class Shortfall with respect to, and
the amount of any Senior Class Carryover Shortfall outstanding prior to,
such Distribution Date;
(ix) to each holder of a Certificate entitled to the benefits of
payments under any form of credit enhancement or from any reserve fund
other than the Subordination Reserve Fund:
(a) the amounts so distributed under any such form of credit
enhancement or from any such reserve fund on the applicable Distribution
Date; and
(b) the amount of coverage remaining under any such form of credit
enhancement and the balance in any such fund, after giving effect to any
payments thereunder and other amounts charged thereto on the
Distribution Date;
(x) in the case of a Series of Certificates with a variable
Pass-Through Rate, such Pass-Through Rate;
(xi) the book value of any collateral acquired by the Trust Fund
through foreclosure or otherwise; and
(xii) the number and aggregate principal amount of Mortgage Loans or
Contracts one month and two or more months delinquent.
In addition, within a reasonable period of time after the end of each
calendar year, a report will be furnished to each Certificateholder of record at
any time during such calendar year (a) as to the aggregate of amounts reported
pursuant to clauses (i) through (xii) above, as applicable, for such calendar
year or, in the event such person was a Certificateholder of record during a
portion of such calendar year, for the applicable portion of such year and (b)
such other information as required to enable Certificateholders to prepare their
tax returns. In the event that an election has been made to treat the Trust Fund
(or one or more segregated pools of assets therein) as a REMIC, the Trustee with
respect to a Series will be required to sign the federal income tax returns with
respect to such REMIC. See "Certain Federal Income Tax Consequences -- Federal
Income Tax Consequences for REMIC Certificates -- Administrative Matters."
REPORTS TO THE TRUSTEE
No later than 15 days after each Distribution Date for a Series, the
Servicer will provide the Trustee of such Series with a report setting forth the
status of the related Certificate Account and the related Subordination Reserve
Fund, if any, and any other reserve fund as of the close of business on such
Distribution Date, stating that all distributions required to be made by the
Servicer under the applicable Pooling and Servicing Agreement have been made (or
if any required distribution has not been made by the Servicer, specifying the
nature and status thereof) and showing, for the period covered by such
statement, the aggregate of deposits to and withdrawals from the Certificate
Account for each category of deposits and withdrawals specified in the Pooling
and Servicing Agreement. Such statement shall also include information as to (i)
the
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aggregate unpaid principal balances of all the Mortgage Loans or Contracts as of
the close of business on the last day of the month preceding the month in which
such Distribution Date occurs (or such other day as may be specified in the
applicable Pooling and Servicing Agreement); and (ii) the amount of any
Subordination Reserve Fund and any other reserve fund, as of such Distribution
Date (after giving effect to the distributions on such Distribution Date).
Copies of such reports may be obtained by Certificateholders upon request in
writing addressed to the related Trustee at its mailing address provided in the
related Prospectus Supplement.
COLLECTION AND OTHER SERVICING PROCEDURES
The Servicer, directly or through Sub-Servicers, will make reasonable
efforts to collect all payments called for under the Mortgage Loans or Contracts
and will, consistent with the applicable Pooling and Servicing Agreement and any
applicable agreement governing any form of credit enhancement, follow such
collection procedures as it follows with respect to mortgage loans or
manufactured housing contracts serviced by it that are comparable to the
Mortgage Loans or Contracts, as the case may be. Consistent with the above, the
Servicer may, in its discretion, (i) waive any prepayment charge, assumption
fee, late payment charge or any other charge in connection with the prepayment
of a Mortgage Loan or Contract and (ii) arrange with a mortgagor or obligor a
schedule for the liquidation of deficiencies running for not more than six
months after the applicable Due Date.
Pursuant to the Pooling and Servicing Agreement, the Servicer, to the
extent permitted by law, will establish and maintain or will cause to be
established and maintained one or more escrow accounts (collectively, the
"Servicing Account") in which the Servicer will be required to deposit or cause
to be deposited payments by mortgagors or obligors, as applicable, for taxes,
assessments, mortgage and hazard insurance premiums and other comparable items.
Withdrawals from the Servicing Account may be made to effect timely payment of
taxes, assessments, mortgage and hazard insurance, to refund to mortgagors or
obligors amounts determined to be overages, to pay interest to mortgagors or
obligors on balances in the Servicing Account, if required, to repair or
otherwise protect the Mortgaged Properties or Manufactured Homes and to clear
and terminate such account. The Servicer will be responsible for the
administration of each Servicing Account. The Servicer will be obligated to
advance certain amounts which are not timely paid by mortgagors or obligors, to
the extent that the Servicer determines that such amounts will be recoverable
out of Insurance Proceeds, Liquidation Proceeds, or otherwise. Alternatively, if
specified in the applicable Pooling and Servicing Agreement, in lieu of
establishing a Servicing Account, the Servicer may procure a performance bond or
other form of insurance coverage, in an amount acceptable to the Rating Agency
rating the related Series of Certificates, covering loss occasioned by the
failure to escrow such amounts.
ENFORCEMENT OF DUE-ON-SALE CLAUSES; REALIZATION UPON DEFAULTED MORTGAGE LOANS
AND CONTRACTS
Each Pooling and Servicing Agreement will provide that, when any Mortgaged
Property or Manufactured Home is conveyed by the mortgagor or obligor, the
Servicer will exercise its rights to accelerate the maturity of such Mortgage
Loan or Contract under any "due-on-sale" clause applicable thereto, if any,
unless (a) it is not exercisable under applicable law or (b) such exercise would
result in loss of insurance coverage with respect to such Mortgage Loan or
Contract. In any such case, the Servicer is authorized to take or enter into an
assumption and modification agreement from or with the person to whom such
Mortgaged Property or Manufactured Home has been or is about to be conveyed,
pursuant to which such person becomes liable under the Mortgage Note or Contract
and, unless prohibited by applicable state law, the mortgagor or obligor remains
liable thereon, provided that the Mortgage Loan or Contract will continue to be
covered by any pool insurance policy and any related primary mortgage insurance
policy, and the Mortgage Rate or Contract Rate with respect to such Mortgage
Loan or Contract and the payment terms shall remain unchanged. The Servicer will
also be authorized, with the prior approval of any pool insurer and any primary
mortgage insurer, if any, to enter into a substitution of liability agreement
with such person, pursuant to which the original mortgagor or obligor is
released from liability and such person is substituted as mortgagor or obligor
and becomes liable under the Mortgage Note or Contract.
The Servicer is obligated under the Pooling and Servicing Agreement for
each Series to realize upon defaulted Mortgage Loans or Contracts to the extent
provided therein. However, in the case of foreclosure or
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of damage to a Mortgaged Property or Manufactured Home from an uninsured cause,
the Servicer is not required to expend its own funds to foreclose, repossess or
restore any damaged property, unless it reasonably determines (i) that such
foreclosure, repossession or restoration will increase the proceeds to
Certificateholders of such Series of liquidation of the Mortgage Loan or
Contract after reimbursement of the Servicer for its expenses and (ii) that such
expenses will be recoverable to it through Liquidation Proceeds or Insurance
Proceeds. In the event that the Servicer has expended its own funds for
foreclosure or to restore damaged property, it will be entitled to charge the
Certificate Account for such Series an amount equal to all costs and expenses
incurred by it.
The Servicer may foreclose against property securing a defaulted Mortgage
Loan either by foreclosure, by sale or by strict foreclosure and in the event a
deficiency judgment is available against the mortgagor or other person (see
"Certain Legal Aspects of the Mortgage Loans and Contracts -- The Mortgage
Loans -- Anti-Deficiency Legislation and Other Limitations on Lenders" for a
description of the availability of deficiency judgments), may proceed for the
deficiency. It is anticipated that in most cases the Servicer will not seek
deficiency judgments against any mortgagor or obligor, and the Servicer is not
required under the Pooling and Servicing Agreement to seek deficiency judgments.
With respect to a Trust Fund (or one or more segregated pools of assets
therein) as to which a REMIC election has been made, if the Trustee acquires
ownership of any Mortgaged Property or Manufactured Home as a result of a
default or imminent default of any Mortgage Loan or Contract secured by such
Mortgaged Property or Manufactured Home, the Trustee generally will be required
to dispose of such property within two years following its acquisition by the
Trust Fund. The Servicer also will be required to administer the Mortgaged
Property or Manufactured Home in a manner which does not cause the Mortgaged
Property or Manufactured Home to fail to qualify as "foreclosure property"
within the meaning of Code Section 860G(a)(8) or result in the receipt by the
Trust Fund of any "net income from foreclosure property" within the meaning of
Code Section 860G(c). In general, this would preclude the holding of the
Mortgaged Property or Manufactured Home as a dealer in such property or the
receipt of rental income based on the profits of the lessee.
The Servicer may modify, waive or amend the terms of any Mortgage Loan or
Contract without the consent of the Trustee or any Certificateholder. Such
modification, waiver or amendment shall only be given if the Servicer determines
that it is in the best interests of Certificateholders and, generally, only if
the Mortgage Loan is in default or the Service has determined that default is
reasonably foreseeable.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
For each Series of Certificates, the Servicer will be entitled to be paid
the Servicing Fee on the related Mortgage Loans or Contracts until termination
of the applicable Pooling and Servicing Agreement, subject, unless otherwise
specified in the applicable Prospectus Supplement, to adjustment as described
under "Adjustment to Servicing Compensation in Connection with Prepaid and
Liquidated Mortgage Loans and Contracts" above. The Servicer, at its election,
will pay itself the Servicing Fee for a Series with respect to each Mortgage
Loan or Contract by (a) withholding the Servicing Fee from any scheduled payment
of interest prior to deposit of such payment in the Certificate Account for such
Series or (b) withdrawing the Servicing Fee from the Certificate Account after
the entire interest payment has been deposited in the Certificate Account. The
Servicer may also pay itself out of the Liquidation Proceeds or Insurance
Proceeds with respect to a Mortgage Loan or Contract, or withdraw from the
Certificate Account, the Servicing Fee in respect of such Mortgage Loan or
Contract or other recoveries with respect thereto to the extent provided in the
applicable Pooling and Servicing Agreement. The Servicing Fee with respect to
the Mortgage Loans or Contracts underlying the Certificates of a Series will be
specified in the applicable Prospectus Supplement. Any additional servicing
compensation in the form of prepayment charges, assumption fees, late payment
charges or otherwise will be retained by the Servicer to the extent not required
to be deposited in the Certificate Account.
In addition to amounts payable to any Sub-Servicer, the Servicer will pay
all expenses incurred in connection with the servicing of the Mortgage Loans or
Contracts underlying a Series, including, without
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limitation, payment of the hazard insurance policy premiums and fees or other
amounts payable pursuant to any applicable agreement for the provision of credit
enhancement for such Series, payment of the fees and disbursements of the
Trustee and any custodian, fees due to the independent accountants and expenses
incurred in connection with distributions and reports to Certificateholders.
However, certain of these expenses may be reimbursable to the Servicer pursuant
to the terms of the applicable Pooling and Servicing Agreement. In addition, the
Servicer will be entitled to reimbursement for certain expenses incurred by it
in connection with the liquidation of defaulted Mortgage Loans or Contracts. In
the event that claims are either not made or are not fully paid from any
applicable form of credit enhancement, the related Trust Fund will suffer a loss
to the extent that Net Liquidation Proceeds and Net Insurance Proceeds are less
than the principal balance of the related Mortgage Loan or Contract, plus
accrued interest thereon at the Net Mortgage Rate or Net Contract Rate. In
addition, the Servicer will be entitled to reimbursement of expenditures
incurred by it in connection with the restoration of any Mortgaged Property or
Manufactured Home, such right of reimbursement being prior to the rights of the
Certificateholders to receive Liquidation Proceeds and Insurance Proceeds. The
Servicer is also entitled to reimbursement from the Certificate Account of
Advances, of advances made by it to pay taxes or insurance premiums with respect
to any Mortgaged Property or Manufactured Home and of certain losses against
which it is indemnified by the Trust Fund.
EVIDENCE AS TO COMPLIANCE
The Mortgage Loans
Each Pooling and Servicing Agreement will provide that on or before a
specified date in each year, beginning with the first such date occurring at
least six months after the related Cut-Off Date, a firm of independent public
accountants will furnish a statement to the Trustee to the effect that, on the
basis of the examination by such firm conducted substantially in compliance with
either the Uniform Single Audit Program for Mortgage Bankers or the Audit
Program for Mortgages serviced for FHLMC, the servicing by or on behalf of the
Servicer of mortgage loans under pooling and servicing agreements substantially
similar to each other (including the related Pooling and Servicing Agreement)
was conducted in compliance with the terms of such agreements other than
exceptions that are immaterial and any significant exceptions of errors in
records that, in the opinion of the firm, either the Audit Program for Mortgages
serviced for FHLMC, or paragraph 4 of the Uniform Single Audit Program for
Mortgage Bankers, requires it to report. In rendering its statement such firm
may rely, as to matters relating to the direct servicing of mortgage loans by
Sub-Servicers, upon comparable statements for examinations conducted
substantially in compliance with the Uniform Single Audit Program for Mortgage
Bankers or the Audit Program for Mortgages serviced for FHLMC (rendered within
one year of such statement) of firms of independent public accountants with
respect to the related Sub-Servicer.
The Contracts
Each Pooling and Servicing Agreement relating to a Series of Certificates
representing interests in a Contract Pool will provide that on or before a
specified date in each year, beginning with the first such date after the
related Cut-Off Date, a firm of independent public accountants will furnish a
statement to the Trustee to the effect that such firm is of the opinion that the
system of internal accounting controls in effect on the date of such statement
relating to the servicing procedures performed by the Servicer under the Pooling
and Servicing Agreement, taken as a whole, was sufficient for the prevention and
detection of errors and irregularities which would be material to the assets of
the Trust Fund and that nothing has come to their attention that would cause
them to believe that such servicing has not been conducted in compliance with
the provisions of the Pooling and Servicing Agreement, other than such
exceptions as shall be set forth in such report.
Each Pooling and Servicing Agreement will also provide for delivery to the
Trustee annually on or before the specified date therein, a statement signed by
two officers of the Servicer to the effect that the Servicer has fulfilled its
obligations under the Pooling and Servicing Agreement throughout the preceding
year or, if there has been a default in the fulfillment of any such obligation,
describing each such default.
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Copies of the annual accountants' statement and the statement of officers
of the Servicer may be obtained by Certificateholders without charge upon
written request to the Servicer at the address of the Servicer set forth in the
related Prospectus Supplement.
CERTAIN MATTERS REGARDING THE SERVICER AND THE DEPOSITOR
The Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement for each Series (other than its duties as
Certificate Registrar for such Series, if it is acting as such), except upon its
determination that its duties thereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities of a type and nature presently carried on by it. No such
resignation will become effective until the Trustee for such Series or a
successor Servicer has assumed the Servicer's obligations and duties under the
Pooling and Servicing Agreement. If the Servicer resigns for any of the
foregoing reasons and the Trustee is unable or unwilling to assume
responsibility for servicing the Mortgage Loans or Contracts, it may appoint
another institution as Servicer, as described under "The Pooling and Servicing
Agreement -- Rights Upon Event of Default -- Mortgage Loans or Contracts" below.
The Pooling and Servicing Agreement will provide that neither the
Depositor, the Servicer (if the Series of Certificates relates to Mortgage Loans
or Mortgage Contracts) nor any director, officer, employee or agent of either of
them will be under any liability to the Trust Fund or the Certificateholders,
for the taking of any action or for refraining from the taking of any action in
good faith pursuant to the Pooling and Servicing Agreement, or for errors in
judgment; provided, however, that none of the Depositor, the Servicer or any
director, officer, employee or agent of the Depositor or Servicer will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of his or
its duties or by reason of reckless disregard of his or its obligations and
duties thereunder. The Pooling and Servicing Agreement will further provide that
the Depositor, the Servicer and any director, officer, employee or agent of
either of them shall be entitled to indemnification by the Trust Fund and will
be held harmless against any loss, liability or expense incurred in connection
with any legal action relating to the Pooling and Servicing Agreement or the
Certificates other than any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or gross negligence in the performance of his or
its duties thereunder or by reason of reckless disregard of his or its
obligations and duties thereunder. In addition, the Pooling and Servicing
Agreement will provide that the Depositor and the Servicer will not be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its duties under the Pooling and Servicing Agreement and that in
its opinion may involve it in any expense or liability. The Depositor and the
Servicer may, however, in its discretion, undertake any such action deemed by it
necessary or desirable with respect to the Pooling and Servicing Agreement and
the rights and duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Fund, and the Servicer will be entitled to be
reimbursed therefor out of the Certificate Account, and any loss to the Trust
Fund arising from such right of reimbursement will be allocated pro rata among
the various Classes of Certificates unless otherwise specified in the applicable
Pooling and Servicing Agreement.
Any person into which the Servicer may be merged or consolidated, or any
person resulting from any merger, conversion or consolidation to which the
Servicer is a party, or any person succeeding to the business through the
transfer of substantially all of its assets, or otherwise, of the Servicer will
be the successor of the Servicer under the Pooling and Servicing Agreement for
each Series provided that such successor or resulting entity is qualified to
service mortgage loans for FNMA or FHLMC and that the applicable Rating Agency's
rating of any Certificates for such Series in effect immediately prior to such
event is not adversely affected thereby.
The Servicer also has the right to assign its rights and delegate its
duties and obligations under the Pooling and Servicing Agreement for each Series
(A) in connection with a sale or transfer of a substantial portion of its
mortgage or manufactured housing servicing portfolio; provided that (i) in the
case of a transfer by a Servicer of Mortgage Loans, the purchaser or transferee
accepting such assignment or delegation is qualified to service mortgage loans
for FNMA or FHLMC, (ii) the purchaser or transferee is reasonably
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satisfactory to the Depositor and the Trustee for such Series and executes and
delivers to the Depositor and the Trustee an agreement, in form and substance
reasonably satisfactory to the Depositor and the Trustee, which contains an
assumption by such purchaser or transferee of the due and punctual performance
and observance of each covenant and condition to be performed or observed by the
Servicer under the Pooling and Servicing Agreement from and after the date of
such agreement; and (iii) the applicable Rating Agency's rating of any
Certificates for such Series in effect immediately prior to such assignment,
sale or transfer is not qualified, downgraded or withdrawn as a result of such
assignment, sale or transfer or (B) to any affiliate of the Servicer, provided
that the conditions contained in clauses (i) through (iii) above are met. In the
case of any such assignment or delegation, the Servicer will be released from
its obligations under the Pooling and Servicing Agreement except for liabilities
and obligations incurred prior to such assignment and delegation.
ADMINISTRATION OF THE MORTGAGE CERTIFICATES
The following summaries describe certain provisions of the Pooling and
Servicing Agreements which relate to Trust Funds comprised of Mortgage
Certificates. The summaries do not purport to be complete and are subject to and
are qualified in their entirety by reference to, all the provisions of the
Pooling and Servicing Agreement for each Series and the related Prospectus
Supplement, which may further modify the provisions summarized below. The
provisions of each Pooling and Servicing Agreement will vary depending upon the
nature of the Certificates to be issued thereunder. Each Pooling and Servicing
Agreement executed and delivered with respect to each Series will be filed with
the Commission as an exhibit to a Current Report on Form 8-K promptly after
issuance of the Certificates of such Series.
GENERAL
The Trustee under each Pooling and Servicing Agreement will administer the
Trust Fund. The Trustee will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Pooling and Servicing Agreement. An uncured
breach of such a representation or warranty that in any respect materially and
adversely affects the interests of the Certificateholders will constitute an
Event of Default under the related Pooling and Servicing Agreement. See "The
Pooling and Servicing Agreement -- Events of Default -- Mortgage Certificates"
and "-- Rights Upon Event of Default -- Mortgage Certificates."
PAYMENTS ON MORTGAGE CERTIFICATES
The Trustee will, as to each Series of Certificates, establish and
maintain, or cause to be established and maintained a Certificate Account with a
Certificate Account Depository meeting the requirements set forth under
"Servicing of the Mortgage Loans and Contracts -- Payments on Mortgage Loans and
Contracts." A Certificate Account may be maintained in an interest bearing or a
non-interest bearing account, or the funds held therein may be invested pending
such succeeding Distribution Date in certain Eligible Investments conforming to
the description thereof under "Servicing of the Mortgage Loans and
Contracts -- Payments on Mortgage Loans and Contracts." Unless otherwise
provided in the related Prospectus Supplement, any interest or other income
earned on funds in the Certificate Account will be paid to the Trustee as
additional compensation. If permitted by the Rating Agency or Agencies and so
specified in the related Prospectus Supplement, a Certificate Account may
contain funds relating to more than one Series of Certificates.
The Trustee will deposit in the Certificate Account for each Series of
Certificates (i) all monthly interest and principal distributions on the
Mortgage Certificates, (ii) all amounts required to be deposited therein from
any related reserve fund, (iii) any reinvestment income thereon, and (iv) any
other accounts required to be deposited therein pursuant to the applicable
Pooling and Servicing Agreement.
Notwithstanding the foregoing, the Trustee will be entitled, at its
election, either (a) to withhold and pay to the owner thereof any Fixed Retained
Yield from any payment on account of interest as received and prior to deposit
in the Certificate Account or (b) to withdraw any Fixed Retained Yield from the
Certificate Account after the entire payment has been deposited therein;
however, with respect to each Trust Fund (or a segregated pool of assets
therein) as to which a REMIC election has been made, the Trustee will, in each
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instance, withhold and pay to the owner thereof the Fixed Retained Yield prior
to deposit of the related payment in the Certificate Account.
Amounts withdrawn from any reserve fund will be deposited in the
Certificate Account not later than the business day preceding the Distribution
Date on which such amounts are required to be distributed. All other amounts
will be deposited into the Certificate Account upon receipt by the Trustee.
The Trustee will make withdrawals from the Certificate Account (i) in order
to make distributions to Certificateholders; (ii) to pay the owner thereof any
Fixed Retained Yield, in the event the Trustee is not required, and has elected
not, to withhold such amounts out of any payment with respect to a Mortgage
Certificate prior to the deposit of such payment into the Certificate Account,
(iii) to pay to itself its fee for acting as Trustee and any expenses
reimbursable to it, to the extent contemplated by the applicable Pooling and
Servicing Agreement, (iv) to pay itself any interest earned on or investment
income earned with respect to funds in the Certificate Account (all such
interest or income to be withdrawn not later than the next Distribution Date),
and (v) to clear and terminate the Certificate Account.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified or modified in the related Pooling and Servicing
Agreement for each Series, a statement setting forth the following information,
if applicable, will be included with each distribution to Certificateholders of
record of such Series:
(i) to each holder of a Certificate other than a Multi-Class
Certificate, the amount of such distribution allocable to principal of the
related Mortgage Certificates, the amount of such distribution allocable to
interest on the related Mortgage Certificates, the aggregate amount of
Servicing Fees paid on such Distribution Date, and the aggregate unpaid
principal balance of the Mortgage Certificates after giving effect to the
principal distributions on such Distribution Date;
(ii) to each holder of a Multi-Class Certificate on which an interest
distribution and a distribution in reduction of Stated Amount are then
being made, the amount of such interest distribution and distribution in
reduction of Stated Amount, and the Stated Amount of each Class after
giving effect to the distribution in reduction of Stated Amount made on
such Distribution Date;
(iii) to each holder of a Multi-Class Certificate on which a
distribution of interest only is then being made, the aggregate Stated
Amount of Certificates outstanding of each Class after giving effect to the
distribution in reduction of Stated Amount made on such Distribution Date
and on any Special Distribution Date occurring subsequent to the last such
report and after including in the aggregate Stated Amount the Stated Amount
of the Compound Interest Certificates, if any, outstanding and the amount
of any accrued interest added to the Stated Amount of such Compound
Interest Certificates on such Distribution Date;
(iv) to each holder of a Multi-Class Certificate which is a Compound
Interest Certificate (but only if such holder shall not have received a
distribution of interest equal to the entire amount of interest accrued on
such Certificate with respect to such Distribution Date),
(a) the information contained in the report delivered pursuant to
clause (ii) above;
(b) the interest accrued on such Class of Compound Interest
Certificates with respect to such Distribution Date and added to the
Stated Amount of such Compound Interest Certificate; and
(c) the Stated Amount of such Class of Compound Interest
Certificates after giving effect to the addition thereto of all interest
accrued thereon;
(v) to each holder of a Certificate entitled to the benefits of
payments from any reserve fund:
(a) the amounts so distributed from any such reserve fund on the
applicable Distribution Date; and
(b) the balance in any such fund, after giving effect to any
payments thereunder and other amounts charged thereto on the
Distribution Date.
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In addition, within a reasonable period of time after the end of each
calendar year, a report will be furnished to each Certificateholder of record at
any time during such calendar year (a) as to the aggregate of amounts reported
pursuant to clauses (i) through (v) above, as applicable, for such calendar year
or, in the event such person was a Certificateholder of record during a portion
of such calendar year, for the applicable portion of such year and (b) such
other information as required to enable Certificateholders to prepare their tax
returns. In the event that an election has been made to treat the Trust Fund (or
one or more segregated pools of assets therein) as a REMIC, the Trustee with
respect to a Series will be required to sign the federal income tax returns with
respect to such REMIC. See "Certain Federal Income Tax Consequences -- Federal
Income Tax Consequences for REMIC Certificates -- Administrative Matters."
CERTAIN MATTERS REGARDING THE TRUSTEE
The Trustee may not resign from its obligations and duties under the
Pooling and Servicing Agreement for each Series, except (i) upon its
determination that its duties thereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities of a type and nature presently carried on by it or (ii) with
the written consent of the Depositor. No resignation will become effective until
the appointment of a successor trustee and the acceptance of such appointment by
the successor trustee. Any successor trustee must meet the qualifications
described below under "The Pooling and Servicing Agreement -- The Trustee."
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THE POOLING AND SERVICING AGREEMENT
EVENTS OF DEFAULT
Mortgage Loans or Contracts
Events of Default under the Pooling and Servicing Agreement for each Series
of Certificates relating to Mortgage Loans or Contracts include (i) any failure
by the Servicer to remit to the Trustee or to any Paying Agent for distribution
to Certificateholders any required payment which continues unremedied for 5
days; (ii) any failure by the Servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the Pooling and
Servicing Agreement which continues unremedied for 30 days (or 10 days in the
case of a failure to maintain any pool insurance policy required to be
maintained pursuant to the Pooling and Servicing Agreement) after the giving of
written notice of such failure to the Servicer by the Trustee, or to the
Servicer and Trustee by the holders of Certificates of such Series having voting
rights allocated to such Certificates ("Voting Interests") aggregating not less
than 25% of the Voting Interests represented by all Certificates for such
Series; (iii) any breach of representation or warranty of the Servicer relating
to such Servicer's authority to enter into, and its ability to perform its
obligations under, such Pooling and Servicing Agreement; (iv) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings and certain actions by the Servicer indicating its
insolvency, reorganization or inability to pay its obligations and (v) if
specified in the applicable Pooling and Servicing Agreement, any failure by the
Servicer to remit to the Trustee the amount of any Advance by the business day
preceding the applicable Distribution Date.
Mortgage Certificates
Events of Default under the Pooling and Servicing Agreement for each Series
of Certificates relating to Mortgage Certificates include (i) any failure by the
Trustee to distribute to Certificateholders any required payment which continues
unremedied for 5 days; (ii) any failure by the Trustee duly to observe or
perform in any material respect any other of its covenants or agreements in the
Pooling and Servicing Agreement which continues unremedied for 30 days after the
giving of written notice of such failure to the Trustee by the holders of
Certificates of such Series having Voting Interests aggregating not less than
25% of the Voting Interests represented by all Certificates of such Series and
(iii) any breach of representation or warranty of the Trustee relating to such
Trustee's authority to enter into, and its ability to perform its obligations
under, such Pooling and Servicing Agreement.
RIGHTS UPON EVENT OF DEFAULT
Mortgage Loans or Contracts
So long as an Event of Default remains unremedied under the Pooling and
Servicing Agreement for a Series of Certificates relating to Mortgage Loans or
Contracts, the Trustee for such Series or holders of Certificates of such Series
evidencing not less than 25% of the Voting Interests in the Trust Fund for such
Series may terminate all of the rights and obligations of the Servicer under the
Pooling and Servicing Agreement and in and to the Mortgage Loans, Mortgage
Certificates or Contracts (other than the Servicer's right to recovery of any
Initial Deposit for such Series and other expenses and amounts advanced pursuant
to the terms of the Pooling and Servicing Agreement, which rights the Servicer
will retain under all circumstances), whereupon the Trustee will succeed to all
the responsibilities, duties and liabilities of the Servicer under the Pooling
and Servicing Agreement and will be entitled to monthly servicing compensation
not to exceed the aggregate Servicing Fees, together with the other servicing
compensation in the form of assumption fees, late payment charges or otherwise
as provided in the Pooling and Servicing Agreement. In the event that the
Trustee is unwilling or unable so to act, it may select, pursuant to the private
or public bid procedure described in the applicable Pooling and Servicing
Agreement, or petition a court of competent jurisdiction to appoint, (i) in the
case of a Servicer of Mortgage Loans or Mortgage Certificates, a housing and
home finance institution, bank or mortgage servicing institution with a net
worth of at least $15,000,000 and which is a FNMA- and FHLMC-approved
seller/servicer or (ii) in the case of a Servicer of Contracts, an institution
with a net worth of at least $15,000,000 which has serviced for at least one
year immediately prior
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thereto a portfolio of manufactured housing loans of not less than $100,000,000,
to act as successor to the Servicer under the provisions of the Pooling and
Servicing Agreement relating to the servicing of the Mortgage Loans, Mortgage
Certificates or Contracts. In the event such public bid procedure is utilized,
the successor Servicer would be entitled to servicing compensation in an amount
equal to the aggregate Servicing Fees, together with the other servicing
compensation in the form of assumption fees, late payment charges or otherwise,
as provided in the Pooling and Servicing Agreement, and the Servicer would be
entitled to receive the net profits, if any, realized from the sale of its
servicing rights and obligations under the Pooling and Servicing Agreement.
During the continuance of any Event of Default under the Pooling and
Servicing Agreement for a Series of Certificates relating to Mortgage Loans or
Contracts, the Trustee for such Series will have the right to take action to
enforce its rights and remedies and to protect and enforce the rights and
remedies of the Certificateholders of such Series, and holders of Certificates
evidencing not less than 25% of the Voting Interests for such Series may direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred upon the Trustee.
However, the Trustee will not be under any obligation to pursue any such remedy
or to exercise any of such trusts or powers unless such Certificateholders have
offered the Trustee reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred by the Trustee thereby. Also, the Trustee
may decline to follow any such direction if the Trustee determines that the
action or proceeding so directed may not lawfully be taken or would be unjustly
prejudicial to the nonassenting Certificateholders or if, under certain
circumstances, the Trustee receives conflicting directions from different groups
of Certificateholders.
No Certificateholder of a Series, solely by virtue of such holder's status
as a Certificateholder, will have any right under the Pooling and Servicing
Agreement for such Series to institute any proceeding with respect to the
Pooling and Servicing Agreement, unless such holder previously has given to the
Trustee for such Series written notice of default and unless the holders of
Certificates evidencing not less than 25% of the Voting Interests for such
Series have made written request upon the Trustee to institute such proceeding
in its own name as Trustee thereunder and have offered to the Trustee reasonable
indemnity and the Trustee for 60 days has neglected or refused to institute any
such proceeding.
Mortgage Certificates
So long as an Event of Default remains unremedied under the Pooling and
Servicing Agreement for a Series of Certificates relating to Mortgage
Certificates, the holders of Certificates of such Series evidencing not less
than 25% of the Voting Interests in the Trust Fund for such Series may terminate
all of the rights and obligations of the Trustee under the Pooling and Servicing
Agreement and name and appoint, in writing, a successor to succeed to all the
responsibilities, duties and liabilities of the Trustee under the Pooling and
Servicing Agreement. Any successor trustee must meet the qualifications
described below under "The Trustee."
AMENDMENT
Each Pooling and Servicing Agreement may be amended by the Depositor, the
Servicer (with respect to a Series of Certificates relating to the Mortgage
Loans or Contracts) and the Trustee without the consent of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement any
provision therein that may be inconsistent with any other provision therein,
(iii) to modify, eliminate or add to any of its provisions to such extent as
shall be necessary to maintain the qualification of the Trust Fund (or one or
more segregated pools of assets therein) as a REMIC at all times that any
Certificates are outstanding or to avoid or minimize the risk of the imposition
of any tax on the Trust Fund pursuant to the Code that would be a claim against
the Trust Fund, provided that the Trustee has received an opinion of counsel to
the effect that such action is necessary or desirable to maintain such
qualification or to avoid or minimize the risk of the imposition of any such tax
and such action will not, as evidenced by such opinion of counsel, adversely
affect in any material respect the interests of any Certificateholder, (iv) to
change the timing and/or nature of deposits into the Certificate Account,
provided that such change will not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of any Certificateholder
and that such change will not adversely
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affect the then current rating assigned to any Certificates, as evidenced by a
letter from each Rating Agency to such effect, (v) to add to, modify or
eliminate any provisions therein restricting transfers of certain Certificates,
which are inserted in response to the Code provisions described below under
"Certain Federal Income Tax Consequences -- Federal Income Tax Consequences for
REMIC Certificates -- Taxation of Residual Certificates -- Tax-Related
Restrictions on Transfer of Residual Certificates," or (vi) to make any other
provisions with respect to matters or questions arising under such Pooling and
Servicing Agreement that are not inconsistent with the provisions thereof,
provided that such action will not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of the Certificateholders
of the related Series. The Pooling and Servicing Agreement may also be amended
by the Depositor, the Servicer, where applicable, and the Trustee with the
consent of the holders of Certificates evidencing interests aggregating not less
than 66 2/3% of the Voting Interests evidenced by the Certificates affected
thereby, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of such Pooling and Servicing Agreement or
of modifying in any manner the rights of the Certificateholders; provided,
however, that no such amendment may (i) reduce in any manner the amount of, or
delay the timing of, any payments received on or with respect to Mortgage Loans,
Mortgage Certificates or Contracts that are required to be distributed on any
Certificates, without the consent of the holder of such Certificate, (ii)
adversely affect in any material respect the interests of the holders of a Class
or Subclass of Certificates of a Series in a manner other than that set forth in
clause (i) above without the consent of the holders of Certificates aggregating
not less than 66 2/3% of the Voting Interests evidenced by such Class or
Subclass, or (iii) reduce the aforesaid percentage of the Certificates, the
holders of which are required to consent to such amendment, without the consent
of the holders of all Certificates of the Class or Subclass affected then
outstanding. Notwithstanding the foregoing, the Pooling and Servicing Agreement
may be amended by the Depositor, the Servicer, where applicable, and the Trustee
provided that such action is approved by holders of Certificates evidencing 100%
of the Percentage Interest of each Class that, as evidenced by an opinion of
counsel, is adversely affected in any material respect by such action. For
purposes of giving any such consent (other than a consent to an action which
would adversely affect in any material respect the interests of the
Certificateholders of any Class, while the Servicer or any affiliate thereof is
the holder of Certificates aggregating not less than 66 2/3% of the Percentage
Interest of such Class), any Certificates registered in the name of the Servicer
or any affiliate thereof shall be deemed not to be outstanding. Notwithstanding
the foregoing, the Trustee will not consent to any such amendment if such
amendment would subject the Trust Fund to tax or cause the Trust Fund (or one or
more segregated pools of assets therein) to fail to qualify as a REMIC.
TERMINATION; PURCHASE OR OTHER DISPOSITION OF MORTGAGE LOANS, MORTGAGE
CERTIFICATES AND CONTRACTS
The obligations created by the Pooling and Servicing Agreement for a Series
of Certificates will terminate upon the earlier of (i) the later of the final
payment or other liquidation of the last Mortgage Loan, Mortgage Certificate or
Contract subject thereto and the disposition of all property acquired upon
foreclosure of any such Mortgage Loan or Contract and (ii) any purchase or
disposition described in the following paragraph. In no event, however, will the
trust created by the Pooling and Servicing Agreement continue beyond the
expiration of 21 years from the death of the last survivor of certain persons
named in such Pooling and Servicing Agreement. For each Series of Certificates,
the Trustee will give written notice of termination of the Pooling and Servicing
Agreement to each Certificateholder, and the final distribution will be made
only upon surrender and cancellation of the Certificates at an office or agency
appointed by the Depositor and specified in the notice of termination.
If so provided in the related Prospectus Supplement, the Pooling and
Servicing Agreement for each Series of Certificates will permit, but not
require, the person or persons specified in such Prospectus Supplement to
purchase from the Trust Fund for such Series, or will require the Trust Fund to
sell, all remaining Mortgage Loans, Mortgage Certificates or Contracts at the
time subject to the Pooling and Servicing Agreement at a price specified in such
Prospectus Supplement. In the event that an election has been made to treat the
related Trust Fund (or one or more segregated pools of assets therein) as a
REMIC, any such purchase or disposition will be effected only upon receipt by
the Trustee of an opinion of counsel that such purchase (i) will be part of a
"qualified liquidation" or other evidence as defined in Code Section
860F(a)(4)(A), (ii) will not otherwise subject the Trust Fund (or segregated
asset pool) to tax, or
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(iii) will not cause the Trust Fund (or segregated asset pool) to fail to
qualify as a REMIC. The exercise of such right or such disposition will effect
early retirement of the Certificates of that Series, but the right so to
purchase may be exercised, or the obligation to sell will arise, only after the
aggregate principal balance of the Mortgage Loans, Mortgage Certificates or
Contracts for such Series at the time of purchase is less than a specified
percentage of the aggregate principal balance at the Cut-Off Date for the
Series, or after the date set forth in the related Prospectus Supplement. See
"Prepayment and Yield Considerations."
THE TRUSTEE
The Trustee under each Pooling and Servicing Agreement will be named in the
applicable Prospectus Supplement. The commercial bank or trust company serving
as Trustee may have normal banking relationships with the Depositor, the
Servicer or any of their respective affiliates.
With respect to a Series of Certificates relating to Mortgage Loans or
Contracts, the Trustee may resign at any time, in which event the Servicer will
be obligated to appoint a successor trustee. With respect to a Series of
Certificates relating to Mortgage Certificates, see "Administration of the
Mortgage Certificates -- Certain Matters Regarding the Trustee." The Servicer
(with respect to a Series of Certificates relating to Mortgage Loans or
Contracts) or the Depositor (with respect to a Series of Certificates relating
to Mortgage Certificates) may also remove the Trustee if the Trustee ceases to
be eligible to act as Trustee under the Pooling and Servicing Agreement, if the
Trustee becomes insolvent or in order to change the situs of the Trust Fund for
state tax reasons. Upon becoming aware of such circumstances, the Servicer or
Depositor, as the case may be, will become obligated to appoint a successor
trustee. The Trustee may also be removed at any time by the holders of
Certificates evidencing not less than 51% of the Voting Interest in the Trust
Fund, except that, any Certificate registered in the name of the Depositor, the
Servicer or any affiliate thereof will not be taken into account in determining
whether the requisite Voting Interest in the Trust Fund necessary to effect any
such removal has been obtained. Any resignation and removal of the Trustee, and
the appointment of a successor trustee, will not become effective until
acceptance of such appointment by the successor trustee. The Trustee, and any
successor trustee, will have a combined capital and surplus, or shall be a
member of a bank holding system with an aggregate combined capital and surplus,
of at least $50,000,000 and will be subject to supervision or examination by
federal or state authorities.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of certain legal aspects of
mortgage loans and manufactured housing contracts which are general in nature.
Because such legal aspects are governed by applicable state law (which laws may
differ substantially), the summaries do not purport to be complete nor to
reflect the laws of any particular state, nor to encompass the laws of all
states in which the security for the Mortgage Loans or Contracts is situated.
The summaries are qualified in their entirety by reference to the applicable
federal and state laws governing the Mortgage Loans or Contracts.
THE MORTGAGE LOANS
General
The Mortgage Loans will, in general, be secured by either first, second or
more junior mortgages, deeds of trust, deeds to secure debt, or other similar
security agreements depending upon the prevailing practice in the state in which
the underlying property is located. A mortgage creates a lien upon the real
property described in the mortgage. There are two parties to a mortgage: the
mortgagor, who is the borrower; and the mortgagee, who is the lender. In a
mortgage state instrument, the mortgagor delivers to the mortgagee a note or
bond evidencing the loan and the mortgage. Although a deed of trust is similar
to a mortgage, a deed of trust has three parties: a borrower called the trustor
(similar to a mortgagor), a lender called the beneficiary (similar to a
mortgagee), and a third-party grantee called the trustee. Under a deed of trust,
the borrower grants the property, irrevocably until the debt is paid, in trust,
generally with a power of sale, to the trustee to secure payment of the loan. A
deed to secure debt typically has two parties. By executing a deed to secure
debt, the grantor conveys title to, as opposed to merely creating a lien upon,
the subject property to the grantee until
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such time as the underlying debt is repaid, generally with a power of sale as
security for the indebtedness evidenced by the related note. If the mortgagor
under a mortgage is a land trust, there is an additional party because legal
title to the property is held by a land trustee under a land trust agreement for
the benefit of the mortgagor. At origination of a Mortgage Loan involving a land
trust, the mortgagor executes a separate undertaking to make payments on the
note. The mortgagee's authority under a mortgage, the trustee's authority under
a deed of trust and the grantee's authority under a deed to secure debt are
governed by the express provisions of the mortgage, the law of the state in
which the real property is located, certain federal laws (including, without
limitation, the Soldiers' and Sailors' Civil Relief Act of 1940, as amended)
and, in some cases, in deed of trust transactions, the directions of the
beneficiary. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages" or "deeds of trust."
The real property covered by a mortgage is most often the fee estate in
land and improvements. However, a mortgage may encumber other interests in real
property such as a tenant's interest in a lease of land or improvements, or
both, and the leasehold estate created by such lease. A mortgage covering an
interest in real property other than the fee estate requires special provisions
in the instrument creating such interest or in the mortgage to protect the
mortgagee against termination of such interest before the mortgage is paid.
Foreclosure
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right of foreclosure is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming. After the completion of a judicial foreclosure proceeding, the
court may issue a judgment of foreclosure and appoint a receiver or other
officer to conduct the sale of the property. In some states, mortgages may also
be foreclosed by advertisement, pursuant to a power of sale provided in the
mortgage. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by nonjudicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest of record in the real property, including any junior
lienholders. If the deed of trust is not reinstated within any applicable cure
period, a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers. In addition,
some state laws require that a copy of the notice of sale be posted on the
property and sent to all parties having an interest of record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other 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. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, which may be recovered by a lender.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses are raised or counterclaims are interposed, and sometimes
requires several years to complete.
Also, a third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the value of such property
at the time of sale, due to, among other things, redemption rights which may
exist and the possibility of physical deterioration of the property during the
foreclosure proceedings. Potential buyers may be reluctant to purchase property
at a foreclosure sale as a result of the 1980 decision of the United States
Court of Appeals for the Fifth Circuit in Durrett v. Washington National
Insurance Company and other decisions that have followed its reasoning. The
court in Durrett held that even a
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non-collusive, regularly conducted foreclosure sale was a fraudulent transfer
under the federal Bankruptcy Code, as amended from time to time (11 U.S.C.) and,
therefore, could be rescinded in favor of the bankrupt's estate, if (a) the
foreclosure sale was held while the debtor was insolvent and not more than one
year prior to the filing of the bankruptcy petition and (b) the price paid for
the foreclosed property did not represent "fair consideration" ("reasonably
equivalent value" under the Bankruptcy Code). Although the reasoning and result
of Durrett in respect of the Bankruptcy Code was rejected by the United States
Supreme Court in May 1994, the case could nonetheless be persuasive to a court
applying a state fraudulent conveyance law which has provisions similar to those
construed in Durrett. For these reasons, it is common for the lender to purchase
the mortgaged property for an amount equal to the underlying debt and accrued
and unpaid interest plus the expenses of foreclosure. Generally, state law
controls the amount of foreclosure costs and expenses that may be recovered by a
lender. Thereafter, subject to the borrower's right in some states to remain in
possession during a redemption period, if applicable, the lender will become the
owner of the property and have both the benefits and burdens of ownership of the
mortgaged property. For example, the lender will have the obligation to pay debt
service on any senior mortgages, to pay taxes, obtain casualty insurance and to
make such repairs at its own expense as are necessary to render the property
suitable for sale. Frequently, the lender employs a third party management
company to manage and operate the property. The cost of operating and
maintaining a commercial or multifamily residential property may be significant
and may be greater than the income derived from that property. The costs of
management and operation of those mortgaged properties that are restaurants,
hotels, nursing homes or congregate care facilities may be particularly
significant because of the expertise, knowledge and, with respect to hotels,
nursing homes or congregate care facilities, licensing and regulatory
compliance, required to run such operations and the effect that foreclosure and
a change in ownership may have on the public's and the industry's (including
franchisors') perception of the quality of such operations. The lender will
commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property. Moreover, a lender commonly incurs
substantial legal fees and court costs in acquiring a mortgaged property through
contested foreclosure and/or bankruptcy proceedings. Furthermore, a few states
require that any environmental contamination at certain types of properties be
cleaned up before a property may be resold. In addition, a lender may be
responsible under federal or state law for the cost of cleaning up a mortgaged
property that is environmentally contaminated. See "-- Environmental Risks."
Generally state law controls the amount of foreclosure expenses and costs,
including attorneys' fees, that may be recovered by a lender. Certain losses may
be reduced by the receipt of mortgage insurance proceeds.
The proceeds received by the referee or trustee from the sale are generally
applied first to the costs, fees and expenses of sale and then in satisfaction
of the indebtedness secured by the mortgage under which the sale was conducted.
Any proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the borrower is in default. Any additional
proceeds are generally payable to the borrower. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
Foreclosure on Shares of Cooperatives
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the cooperative's certificate of incorporation and by-laws, as well as
in the proprietary lease or occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such tenant-
stockholder. The proprietary lease or occupancy agreement generally permits the
cooperative to terminate such lease or agreement in the event an obligor fails
to make payments or defaults in the performance of covenants required
thereunder. Typically, the lender and the cooperative enter into a recognition
agreement which establishes the rights and obligations of both parties in the
event of a default by the tenant-stockholder on its obligations under the
proprietary lease or occupancy agreement. A default by the tenant-stockholder
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under the proprietary lease or occupancy agreement will usually constitute a
default under the security agreement between the lender and the
tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
Foreclosure on the cooperative shares is accomplished by a sale in
accordance with the provisions of Article 9 of the Uniform Commercial Code (the
"UCC") and the security agreement relating to those shares. Article 9 of the UCC
requires that a sale be conducted in a "commercially reasonable" manner. Whether
a foreclosure 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 foreclosure. Generally, a sale conducted according to the
usual practice of banks selling similar collateral will be considered reasonably
conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "Anti-Deficiency Legislation and
Other Limitations on Lenders" below.
Rights of Redemption
In some states, after sale pursuant to a deed of trust and/or foreclosure
of a mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
most states where the right of redemption is available, statutory redemption may
occur upon payment of the foreclosure purchase price, accrued interest and
taxes. In some states, the right to redeem is an equitable right. The effect of
a right of redemption is to diminish the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser at a foreclosure sale, or of any purchaser from the
lender subsequent to judicial foreclosure or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has run.
Under the REMIC Regulations (hereinafter defined) currently in effect,
property acquired by foreclosure generally must not be held for more than two
years by any Trust Fund that has elected to be treated as one or more REMICs
(hereinafter defined). With respect to any election that is made to qualify the
Trust Fund, or a portion thereof, as a REMIC, the Pooling and Servicing
Agreement will permit foreclosed property to be held for more than two years if
the Trustee receives (a) an extension from the Internal Revenue Service or (b)
an opinion of counsel to the effect that holding such property for such period
is permissible under the REMIC Regulations. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES -- Federal Income Tax Consequences of REMIC Certificates."
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Junior Mortgages; Rights of Senior Mortgages
The Mortgage Loans are secured by mortgages or deeds of trust some of which
are junior to other mortgages or deeds of trust held by other lenders or
institutional investors. The rights of the Trust (and therefore the
Certificateholders), as mortgagee under a junior mortgage or beneficiary under a
junior deed of trust, are subordinate to those of the mortgagee under the senior
mortgage or beneficiary under the senior deed of trust, including the prior
rights of the senior mortgagee to receive hazard insurance and condemnation
proceeds and to cause the property securing the Mortgage Loan to be sold upon
default of the mortgagor or trustor, thereby extinguishing the junior
mortgagee's or junior beneficiary's lien unless the junior mortgagee or junior
beneficiary asserts its subordinate interest in the property in foreclosure
litigation and, possibly, satisfies the defaulted senior mortgage or deed of
trust. As discussed more fully below, a junior mortgagee or junior beneficiary
may satisfy a defaulted senior loan in full and, in some states, may cure such
default and loan. In most states, no notice of default is required to be given
to a junior mortgagee or junior beneficiary and junior mortgagees or junior
beneficiaries are seldom given notice of defaults or senior mortgages. In order
for a foreclosure action in some states to be effective against a junior
mortgagee or junior beneficiary, the junior mortgagee or junior beneficiary must
be named in any foreclosure action, thus giving notice to junior lienors. It is
standard practice of the Sellers to protect their interest by attending any sale
of which they have notice or appearing and bidding for, or redeeming, the
property if it is in their best interest to do so.
The standard form of the mortgage or deed of trust used by most
institutional lenders, (including the Sellers), confers on the mortgagee or
beneficiary the right both to receive all proceeds collected under any hazard
insurance policy and all awards made in connection with any condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage or deed of trust. 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 any
underlying senior mortgages will have the prior right to collect and apply any
insurance proceeds payable under a hazard insurance policy to restore or repair
the property if feasible, and to collect any remaining insurance proceeds or any
award of damages in connection with the condemnation and to apply the same to
the indebtedness secured by the senior mortgages or deeds of trust. Proceeds in
excess of the amount of senior mortgage indebtedness, in most cases, may be
applied to the indebtedness of a junior mortgage or trust deed.
The form of mortgage or deed of trust used by most institutional lenders
typically contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust. The
priority of any advance made under the clause depends, in some states, on
whether the advance was an "obligatory" or "optional" advance. If the mortgagee
or beneficiary is obligated to advance the additional amounts, the advance is
entitled to receive the same priority as amounts initially advanced under the
mortgage or deed of trust, notwithstanding the fact that there may be junior
mortgages or deeds of trust and other liens which intervene between the date of
recording of the mortgage or deed of trust and the date of the future advance,
and, in some states, notwithstanding that the mortgagee or beneficiary had
actual knowledge of such intervening junior mortgages or deeds of trust and
other liens at the time of the advance. Where the mortgagee or beneficiary is
not obligated to advance additional amounts or, in some states, has actual
knowledge of the intervening junior mortgages or deeds of trust and other liens,
the advance will be subordinate to such intervening junior mortgages or deeds of
trust and other liens. Priority of advances under a "future advance" clause
rests, in some states, on state statutes giving priority to all advances made
under the loan agreement to a "credit limit" amount stated in the recorded
mortgage.
Another provision sometimes included in the form of the mortgage or deed of
trust used by institutional lenders (and included in some of the forms used by
the Sellers) obligates the mortgagor or trustor to pay, before delinquency, all
taxes and assessments on the property and, when due, all encumbrances, charges
and liens on the property which appear prior to the mortgage or deed of trust,
to provide and maintain fire insurance on the property, to maintain and repair
the property and not to commit or permit any waste thereof, and to appear in and
defend any action or proceeding purporting to affect the property or the rights
of the mortgagee or beneficiary under the mortgage or deed of trust. Upon a
failure of the mortgagor or trustor to perform any of these obligations, the
mortgagee or beneficiary is given the right under certain mortgages or
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deeds of trust to perform the obligations itself, at its election, with the
mortgagor or trustor agreeing to reimburse the mortgagee or beneficiary for any
sums expended by the mortgagee or beneficiary on behalf of the mortgagor or
trustor. All sums so expended by the mortgagee or beneficiary become part of the
indebtedness secured by the mortgage or deed of trust.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the former
borrower equal in most cases to the difference between the amount due to the
lender and the net amount realized upon the foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result of
low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
Generally, Article 9 of the UCC governs foreclosure on cooperative shares
and the related proprietary lease or occupancy agreement and foreclosure on the
beneficial interest in a land trust. 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 Mortgage Loan secured by
shares of a cooperative, would be such shares and the related proprietary lease
or occupancy agreement) was conducted in a commercially reasonable manner.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, in a Chapter
13 proceeding under the Federal Bankruptcy Code, when a court determines that
the value of a home is less than the principal balance of the loan, the court
may prevent a lender from foreclosing on the home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the value
of the home as it exists at the time of the proceeding, leaving the lender as a
general unsecured creditor for the difference between that value and the amount
of outstanding indebtedness. A bankruptcy court may grant the debtor a
reasonable time to cure a payment default, and in the case of a mortgage loan
not secured by the debtor's principal residence, also may reduce the monthly
payments due under such mortgage loan, change the rate of interest and alter the
mortgage loan repayment schedule. Certain court decisions have applied such
relief to claims secured by the debtor's principal residence.
The Internal Revenue Code of 1986, as amended, provides priority to certain
tax liens over the lien of the mortgage or deed of trust. The laws of some
states provide priority to certain tax liens over the lien of the mortgage of
deed of trust. Certain environmental protection laws may also impose liability
for cleanup expenses on owners by foreclosure or real property, which liability
may exceed the value of the property involved. Numerous federal and some state
consumer protection laws impose substantive requirements upon
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mortgage lenders in connection with the origination, servicing and the
enforcement of mortgage loans. These 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 and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who fail to
comply with the provisions of the law. In some cases, this liability may affect
assignees of the mortgage loans.
"Due-on-Sale" Clauses
The forms of note, mortgage and deed of trust relating to conventional
Mortgage Loans may contain a "due-on-sale" clause permitting acceleration of the
maturity of a loan if the borrower transfers its interest in the property. In
recent years, court decisions and legislative actions placed substantial
restrictions on the right of lenders to enforce such clauses in many states.
However, effective October 15, 1982, Congress enacted the Garn-St Germain
Depository Institutions Act of 1982 (the "Act") which purports to preempt state
laws which prohibit the enforcement of "due-on-sale" clauses by providing among
other matters, that "due-on-sale" clauses in certain loans (which loans may
include the Mortgage Loans) made after the effective date of the Act are
enforceable, within certain limitations as set forth in the Act and the
regulations promulgated thereunder. "Due-on-sale" clauses contained in mortgage
loans originated by federal savings and loan associations or federal savings
banks are fully enforceable pursuant to regulations of the Office of Thrift
Supervision ("OTS"), as successor to the Federal Home Loan Bank Board ("FHLBB"),
which preempt state law restrictions on the enforcement of such clauses.
Similarly, "due-on-sale" clauses in mortgage loans made by national banks and
federal credit unions are now fully enforceable pursuant to preemptive
regulations of the Office of the Comptroller of the Currency and the National
Credit Union Administration, respectively.
The Act created a limited exemption from its general rule of enforceability
for "due-on-sale" clauses in certain mortgage loans ("Window Period Loans")
which were originated by non-federal lenders and made or assumed in certain
states ("Window Period States") during the period, prior to October 15, 1982, in
which that state prohibited the enforcement of "due-on-sale" clauses by
constitutional provision, statute or statewide court decision (the "Window
Period"). Though neither the Act nor the FHLBB regulations promulgated
thereunder actually names the Window Period States, FHLMC has taken the
position, in prescribing mortgage loan servicing standards with respect to
mortgage loans which it has purchased, that the Window Period States were:
Arizona, Arkansas, California, Colorado, Georgia, Iowa, Michigan, Minnesota, New
Mexico, Utah and Washington. Under the Act, unless a Window Period State took
action by October 15, 1985, the end of the Window Period, to further regulate
enforcement of "due-on-sale" clauses in Window Period Loans, "due-on-sale"
clauses would become enforceable even in Window Period Loans. Five of the Window
Period States (Arizona, Minnesota, Michigan, New Mexico and Utah) have taken
actions which restrict the enforceability of "due-on-sale" clauses in Window
Period Loans beyond October 15, 1985. The actions taken vary among such states.
By virtue of the Act, the Servicer may generally be permitted to accelerate
any conventional Mortgage Loan which contains a "due-on-sale" clause upon
transfer of an interest in the property subject to the mortgage or deed of
trust. With respect to any Mortgage Loan secured by a residence occupied or to
be occupied by the borrower, this ability to accelerate will not apply to
certain types of transfers, including (i) the granting of a leasehold interest
which has a term of three years or less and which does not contain an option to
purchase, (ii) a transfer to a relative resulting from the death of a borrower,
or a transfer where the spouse or children becomes an owner of the property in
each case where the transferee(s) will occupy the property, (iii) a transfer
resulting from a decree of dissolution of marriage, legal separation agreement
or from an incidental property settlement agreement by which the spouse becomes
an owner of the property, (iv) the creation of a lien or other encumbrance
subordinate to the lender's security instrument which does not relate to a
transfer of rights of occupancy in the property (provided that such lien or
encumbrance is not created pursuant to a contract for deed), (v) a transfer by
devise, descent or operation of law on the death of a joint tenant or tenant by
the entirety, and (vi) other transfers as set forth in the Act and the
regulations thereunder. The extent of the effect of the Act on the average lives
and delinquency rates of the Mortgage Loans cannot be predicted. See "Prepayment
and Yield Considerations."
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Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ("Title V"), provides that state usury limitations shall
not apply to certain types of residential first mortgage loans originated by
certain lenders after March 31, 1980. The OTS (as successor to the FHLBB) is
authorized to issue rules and regulations and to publish interpretations
governing implementation of Title V. The statute authorized any state to
reimpose Stated Rate limits by adopting before April 1, 1983, a law or
constitutional provision which expressly rejects application of the federal law.
Fifteen states have adopted laws reimposing or reserving the right to impose
interest rate limits. In addition, even where Title V is not so rejected, any
state is authorized to adopt a provision limiting certain other loan charges.
Unless otherwise specified in the applicable Prospectus Supplement, each
Unaffiliated Seller will represent and warrant in the related Loan Sale
Agreement that all Mortgage Loans sold by such Unaffiliated Seller to the
Depositor were originated in full compliance with applicable state laws,
including usury laws. See "The Trust Funds -- Representations and Warranties."
Adjustable Rate Loans
The laws of certain states may provide that mortgage notes relating to
adjustable rate loans are not negotiable instruments under the Uniform
Commercial Code. In such event, the Trustee will not be deemed to be a "holder
in due course" within the meaning of the Uniform Commercial Code and may take
such a mortgage note subject to certain restrictions on its ability to foreclose
and to certain contractual defenses available to a mortgagor.
Enforceability of Certain Provisions
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon late charges which a lender may collect
from a borrower for delinquent payments. Certain states also limit the amounts
that a lender may collect from a borrower as an additional charge if the loan is
prepaid. Under the Pooling and Servicing Agreement, late charges and prepayment
fees (to the extent permitted by law and not waived by the Servicer) will be
retained by the Servicer as additional servicing compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial remedies
that may be 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 lenders to reinstate loans or recast payment schedules to
accommodate borrowers who are suffering from temporary financial disability. In
some cases, courts have limited the right of lenders to foreclose if the default
under the mortgage instrument is not monetary, such as the borrower failing to
adequately maintain the property or the borrower executing a second mortgage or
deed of trust affecting the property. In other cases, some courts have been
faced with the issue whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that borrowers under
deeds of trust receive notices in addition to the statutorily-prescribed minimum
requirements. For the most part, these cases have upheld the notice provisions
as being reasonable or have found that the sale by a trustee under a deed of
trust or under a mortgage having a power of sale does not involve sufficient
state action to afford constitutional protections to the borrower.
Leases and Rents
Some multifamily or commercial loans may be secured by an assignment of
leases and rents, either through a separate document of assignment or as
incorporated in the mortgage. Under such assignments, the borrower under a
mortgage loan typically assigns its right, title and interest as landlord under
each lease and
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the income derived therefrom to the lender, while retaining a license to collect
the rents for so long as there is no default. In the event the borrower
defaults, the license terminates and the lender is entitled to collect rents.
Some state laws may require that the lender take possession of the property and
obtain judicial appointment of a receiver before becoming entitled to collect
rents. In addition, if bankruptcy or similar proceedings are commenced by or in
respect of the borrower, the lender's ability to collect the rents may be
adversely affected. In the event of borrower default, the amount of rent the
lender is able to collect from the tenants can significantly affect the value of
the lender's security interest.
Personalty
Certain types of mortgaged properties are likely to derive a significant
part of their value from personal property that does not constitute 'fixtures'
under applicable state real property law, and hence, would not be subject to the
lien of a mortgage. Such property is generally pledged or assigned as security
to the lender under the Uniform Commercial Code. In order to perfect its
security interest therein, the lender generally must file Uniform Commercial
Code financing statements and, to maintain perfection of such security interest,
file continuation statements, generally every five years.
Subordinate Financing
If the borrower encumbers the mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the borrower
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the borrower (as junior loans often do) and the
senior loan does not, the borrower may be more likely to repay sums due on the
junior loan than those due 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
borrower 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 any existing junior lender is harmed or the borrower is
additionally burdened. Third, if the borrower 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
proceedings by the senior lender.
Leasehold Risks
Some of the Mortgage Loans may be secured by a mortgage on a ground lease.
Leasehold mortgages are subject to certain risks not associated with mortgage
loans secured by the fee estate of the borrower. The most significant of these
risks is that the ground lease creating the leasehold estate could terminate,
thereby depriving the leasehold mortgagee of its security. The ground lease may
terminate if, among other reasons, the ground lessee breaches or defaults in its
obligations under the ground lease or there is a bankruptcy of the ground lessee
or the ground lessor. This risk may be minimized if the ground lease contains
certain provisions protective of the leasehold mortgagee, but the ground leases
that secure the Mortgage Loans at issue may not contain some of these protective
provisions, and mortgages may not contain the other protections discussed in the
next paragraph. Protective ground lease provisions include the right of the
leasehold mortgagee to receive notices from the ground lessor of any defaults by
the borrower under the ground lease; the right to cure such defaults, with
adequate cure periods; if a default is not susceptible of cure by the leasehold
mortgagee, the right to acquire the leasehold estate through foreclosure or
otherwise; the ability of the ground lease to be assigned to and by the
leasehold mortgagee or purchaser at a foreclosure sale and for the concomitant
release of the ground lessee's liabilities thereunder; and the right of the
leasehold mortgagee to enter into a new ground lease with the ground lessor on
the same terms and conditions as the old ground lease in the event of a
termination of the ground lease. An additional manner in which to minimize the
risks associated with a mortgage on a ground lease is to obtain a mortgage on
the fee estate in addition to the mortgage on the ground lease. Additional
protection is afforded to the lender, because if the ground lease is terminated,
the lender may nonetheless possess rights contained in the fee mortgage.
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In addition to the foregoing protections, a leasehold mortgage may prohibit
the ground lessee from treating the ground lease as terminated in the event of
the ground lessor's bankruptcy and rejection of the ground lease in the lessor's
bankruptcy case. As further protection, a leasehold mortgage may provide for the
assignment of the debtor-ground lessee's right to reject the lease in a ground
lessee bankruptcy case, although the enforceability of such a provision has not
been established. Without the protections described in this and the foregoing
paragraph, a leasehold mortgagee may be more likely to lose the collateral
securing its leasehold mortgage. In addition, the terms and conditions of a
leasehold mortgage are subject to the terms and conditions of the ground lease.
Although certain rights given to a ground lessee can be limited by the terms of
a leasehold mortgage, the rights of a ground lessee or a leasehold mortgagee
with respect to, among other things, insurance, casualty and condemnation
proceeds will be governed by the provisions of the ground lease, unless
otherwise agreed to by the ground lessee and leasehold mortgagee.
THE CONTRACTS
General
As a result of the assignment of the Contracts to the Trustee, the Trust
Fund will succeed collectively to all of the rights (including the right to
receive payment on the Contracts) and will assume the obligations of the obligee
under the Contracts. Each Contract evidences both (a) the obligation of the
obligor to repay the loan evidenced thereby, and (b) the grant of a security
interest in the Manufactured Home to secure repayment of such loan. Certain
aspects of both features of the Contracts are described more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code (the "UCC") in effect in the states in which the Manufactured
Homes initially were registered. Pursuant to the UCC, the sale of chattel paper
is treated in a manner similar to perfection of a security interest in chattel
paper. Under the Pooling and Servicing Agreement, the Servicer will transfer
physical possession of the Contracts to the Trustee or a designated custodian or
may retain possession of the Contracts as custodian for the Trustee. In
addition, the Servicer will make an appropriate filing of a UCC-1 financing
statement in the appropriate states to give notice of the Trustee's ownership of
the Contracts. Unless otherwise specified in the related Prospectus Supplement,
the Contracts will not be stamped or marked otherwise to reflect their
assignment from the Depositor to the Trustee. Therefore, if through negligence,
fraud or otherwise, a subsequent purchaser were able to take physical possession
of the Contracts without notice of such assignment, the Trustee's interest in
Contracts could be defeated.
Security Interests in the Manufactured Homes
The Manufactured Homes securing the Contracts may be located in all 50
states. Security interests in manufactured homes may be perfected either by
notation of the secured party's lien on the certificate of title or by delivery
of the required documents and payment of a fee to the state motor vehicle
authority, depending on state law. In some nontitle states, perfection pursuant
to the provisions of the UCC is required. The Servicer may effect such notation
or delivery of the required documents and fees, and obtain possession of the
certificate of title, as appropriate under the laws of the state in which any
manufactured home securing a manufactured housing conditional sales contract is
registered. In the event the Servicer fails, due to clerical errors, to effect
such notation or delivery, or files the security interest under the wrong law
(for example, under a motor vehicle title statute rather than under the UCC, in
a few states), the Certificateholders may not have a first priority security
interest in the Manufactured Home securing a Contract. As manufactured homes
have become larger and often have been attached to their sites without any
apparent intention to move them, courts in many states have held that
manufactured homes, under certain circumstances, may become subject to real
estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate law.
In order to perfect a security interest in a manufactured home under real estate
laws, the secured party must file either a "fixture filing" under the provisions
of the UCC or a real estate mortgage under the real estate laws of the state
where the home is located. These filings must be made in the real estate records
office of the county where the home is located. Substantially all of the
Contracts contain provisions prohibiting the borrower from permanently attaching
the Manufactured Home to its site. So long as the borrower does not
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violate this agreement, a security interest in the Manufactured Home will be
governed by the certificate of title laws or the UCC, and the notation of the
security interest on the certificate of title or the filing of a UCC financing
statement will be effective to maintain the priority of the security interest in
the Manufactured Home. If, however, a Manufactured Home is permanently attached
to its site, other parties could obtain an interest in the Manufactured Home
which is prior to the security interest originally retained by the Unaffiliated
Seller and transferred to the Depositor. With respect to a Series of
Certificates and if so described in the related Prospectus Supplement, the
Servicer may be required to perfect a security interest in the Manufactured Home
under applicable real estate laws. The Servicer will represent that at the date
of the initial issuance of the related Certificates it has obtained a perfected
first priority security interest by proper notation or delivery of the required
documents and fees with respect to substantially all of the Manufactured Homes
securing the Contracts.
The Depositor will cause the security interests in the Manufactured Homes
to be assigned to the Trustee on behalf of the Certificateholders. Unless
otherwise specified in the related Prospectus Supplement, neither the Depositor
nor the Trustee will amend the certificates of title to identify the Trustee or
the Trust Fund as the new secured party, and neither the Depositor nor the
Servicer will deliver the certificates of title to the Trustee or note thereon
the interest of the Trustee. Accordingly, the Servicer (or the Unaffiliated
Seller) will continue to be named as the secured party on the certificates of
title relating to the Manufactured Homes. In many states, such assignment is an
effective conveyance of such security interest without amendment of any lien
noted on the related certificate of title and the new secured party succeeds to
the Depositor's rights as the secured party. However, in some states there
exists a risk that, in the absence of an amendment to the certificate of title,
such assignment of the security interest in the Manufactured Home might not be
effective or perfected or that, in the absence of such notation or delivery to
the Trustee, the assignment of the security interest in the Manufactured Home
might not be effective against creditors of the Servicer (or the Unaffiliated
Seller) or a trustee in bankruptcy of the Servicer (or the Unaffiliated Seller).
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Servicer (or
the Unaffiliated Seller) on the certificate of title or delivery of the required
documents and fees will be sufficient to protect the Certificateholders against
the rights of subsequent purchasers of a Manufactured Home or subsequent lenders
who take a security interest in the Manufactured Home. If there are any
Manufactured Homes as to which the security interest assigned to the Trustee is
not perfected, such security interest would be subordinate to, among others,
subsequent purchasers for value of Manufactured Homes and holders of perfected
security interests. There also exists a risk in not identifying the Trustee as
the new secured party on the certificate of title that, through fraud or
negligence, the security interest of the Certificateholders could be released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter until the owner re-registers the Manufactured Home in such state. If
the owner were to relocate a Manufactured Home to another state and not
re-register the Manufactured Home in such state, and if steps are not taken to
re-perfect the Trustee's security interest in such state, the security interest
in the Manufactured Home would cease to be perfected. A majority of states
generally require surrender of a certificate of title to re-register a
Manufactured Home; accordingly, the Trustee must surrender possession if it
holds the certificate of title to such Manufactured Home or, in the case of
Manufactured Homes registered in states which provide for notation of lien, the
Servicer would receive notice of surrender if the security interest in the
Manufactured Home is noted on the certificate of title. Accordingly, the Trustee
would have the opportunity to re-perfect its security interest in the
Manufactured Home in the state of relocation. In states which do not require a
certificate of title for registration of a manufactured home, re-registration
could defeat perfection. In the ordinary course of servicing the manufactured
housing conditional sales contracts, the Servicer takes steps to effect such re-
perfection upon receipt of notice of re-registration or information from the
obligor as to relocation. Similarly, when an obligor under a manufactured
housing conditional sales contract sells a manufactured home, the Trustee (or
its custodian) must surrender possession of the certificate of title or the
Servicer will receive
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notice as a result of its lien noted thereon and accordingly will have an
opportunity to require satisfaction of the related manufactured housing
conditional sales contract before release of the lien. Under the Pooling and
Servicing Agreement, the Servicer is obligated to take steps, at the Servicer's
expense, as are necessary to maintain perfection of security interests in the
Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home and liens for personal property taxes take priority over a
perfected security interest. The Unaffiliated Seller will represent in the
Pooling and Servicing Agreement that it has no knowledge of any such liens with
respect to any Manufactured Home securing payment on any Contract. However, such
liens could arise at any time during the term of a Contract. No notice will be
given to the Trustee or Certificateholders in the event such a lien arises.
Enforcement of Security Interests in Manufactured Homes
The Servicer on behalf of the Trustee, to the extent required by the
related Pooling and Servicing Agreement, may take action to enforce the
Trustee's security interest with respect to Contracts in default by repossession
and resale of the Manufactured Homes securing such defaulted Contracts. So long
as the Manufactured Home has not become subject to the real estate law, a
creditor can repossess a Manufactured Home securing a Contract by voluntary
surrender, by "self-help" repossession that is "peaceful" (i.e., without breach
of the peace) or, in the absence of voluntary surrender and the ability to
repossess without breach of the peace, by judicial process. The holder of a
Contract must give the debtor a number of days' notice, which varies from 10 to
30 days depending on the state, prior to commencement of any repossession. The
UCC and consumer protection laws in most states place restrictions on
repossession sales, including requiring prior notice to the debtor and
commercial reasonableness in effecting such a sale. The law in most states also
requires that the debtor be given notice of any sale prior to resale of the unit
so that the debtor may redeem at or before such resale. In the event of such
repossession and resale of a Manufactured Home, the Trustee would be entitled to
be paid out of the sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency on repossession and
resale of the manufactured home securing such a debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments, and in many
cases the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission
is intended to defeat the ability of the transferor of a consumer credit
contract which is the seller of goods which gave rise to the transaction (and
certain related lenders and assignees) to transfer such contract free of notice
of claims by the debted thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses which the debtor could
assert against the seller of goods. Liability under this rule is limited to
amounts paid under a Contract; however, the obligor also may be able to assert
the rule to set off remaining amounts due as a defense against a claim brought
by the Trustee against such obligor. Numerous other federal and state consumer
protection laws impose requirements applicable to the origination and lending
pursuant to the Contracts, including the Truth in Lending Act, the Federal Trade
Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the
Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and the
Uniform Consumer Credit Code. In the case of some of these laws, the failure to
comply with their provisions may affect the enforceability of the related
Contract.
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Transfers of Manufactured Homes; Enforceability of "Due-on-Sale" Clauses
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Servicer and permit the
acceleration of the maturity of the Contracts by the Servicer upon any such sale
or transfer that is not consented to.
In the case of a transfer of a Manufactured Home after which the Servicer
desires to accelerate the maturity of the related Contract, the Servicer's
ability to do so will depend on the enforceability under state law of the
"due-on-sale" clause. The Garn-St Germain Depository Institutions Act of 1982
preempts, subject to certain exceptions and conditions, state laws prohibiting
enforcement of "due-on-sale" clauses applicable to the Manufactured Homes.
Consequently, in some states the Servicer may be prohibited from enforcing a
"due-on-sale" clause in respect of certain Manufactured Homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan which is secured
by a first lien on certain kinds of manufactured housing. The Contracts would be
covered if they satisfy certain conditions, among other things, governing the
terms of any prepayments, late charges and deferral fees and requiring a 30-day
notice period prior to instituting any action leading to repossession of the
related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
The Unaffiliated Seller will represent that all of the Contracts comply with
applicable usury law.
Formaldehyde Litigation with Respect to Contracts
A number of lawsuits have been brought in the United States alleging
personal injury from exposure to the chemical formaldehyde, which is present in
many building materials, including such components of manufactured housing as
plywood flooring and wall paneling. Some of these lawsuits were brought against
manufacturers of manufactured housing, suppliers of component parts, and related
persons in the distribution process. Depositor is aware of a limited number of
cases in which plaintiffs have won judgments in these lawsuits.
The holder of any Contract secured by a Manufactured Home with respect to
which a formaldehyde claim has been successfully asserted may be liable to the
obligor for the amount paid by the obligor on the related Contract and may be
unable to collect amounts still due under the Contract. The successful assertion
of such claim constitutes a breach of a representation or warranty of the person
specified in the related Prospectus Supplement, and the Certificateholders would
suffer a loss only to the extent that (i) such person breached its obligation to
repurchase the Contract in the event an obligor is successful in asserting such
a claim, and (ii) such person, the Servicer or the Trustee were unsuccessful in
asserting any claim of contribution or subrogation on behalf of the
Certificateholders against the manufacturer or other persons who were directly
liable to the plaintiff for the damages. Typical products liability insurance
policies held by manufacturers and component suppliers of manufactured homes may
not cover liabilities arising from formaldehyde in manufactured housing, with
the result that recoveries from such manufacturers, suppliers or other persons
may be limited to their corporate assets without the benefit of insurance.
INSTALLMENT CONTRACTS
Mortgage Loans and Contracts
The Mortgage Loan and Contracts may also consist of Installment Contracts.
Under an Installment Contract the seller (hereinafter referred to in this
Section as the "lender") retains legal title to the property
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and enters into an agreement with the purchaser (hereinafter referred to in this
Section as the "borrower" for the payment of the purchase price, plus interest,
over the term of such contract. Only after full performance by the borrower of
the contract is the lender obligated to convey title to the real estate to the
purchaser. As with mortgage or deed of trust financing, during the effective
period of the Installment Contract, the borrower is generally responsible for
maintaining the property in good condition and for paying real estate taxes,
assessments and hazard insurance premiums associated with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to the terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated, and
the buyer's equitable interest in the property is forfeited. The lender in such
a situation does not have to foreclose in order to obtain title to the property,
although in some cases a quiet title action is in order if the borrower has
filed the Installment Contract in local land records and an ejectment action may
be necessary to recover possession. In a few states, particularly in cases of
borrower default during the early years of an Installment Contract, the courts
will permit ejectment of the buyer and a forfeiture of his or her interest in
the property. However, most state legislatures have enacted provisions by
analogy to mortgage law protecting borrowers under Installment Contracts from
the harsh consequences of forfeiture. Under such statute, a judicial or
nonjudicial foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace period during which
the contract may be reinstated upon full payment of the default amount and the
borrower may have a post-foreclosure statutory redemption right. In other
states, courts in equity may permit a borrower with significant investment in
the property under an Installment Contract for the sale of real estate to share
in the proceeds of sale of the property after the indebtedness is repaid or may
otherwise refuse to enforce the forfeiture clause. Nevertheless, generally
speaking, the lender's procedures for obtaining possession and clear title under
an Installment Contract for the sale of real estate in a given state are simpler
and less time-consuming and costly than are the procedures for foreclosing and
obtaining clear title to a mortgaged property.
Environmental Risks
Real property pledged for a Mortgaged Loan or Contract as security to a
lender may be subject to unforeseen environmental risks. Of particular concern
may be those mortgaged properties which have been the site of manufacturing,
industrial or disposal activity. Such environmental risks may give rise to (a) a
diminution in value of property securing any Mortgage Loan or the inability to
foreclose against such property or (b) in certain circumstances as more fully
described below, liability for clean-up costs or other remedial actions, which
liability could exceed the value of such property or the principal balance of
the related Mortgage Loan.
Under the laws of certain states, failure to perform the remediation
required or demanded by the state of any condition or circumstance that (i) may
pose an imminent or substantial endangerment to the public health or welfare or
the environment, (ii) may result in a release or threatened release of any
Hazardous Material, or (iii) may give rise to any environmental claim or demand
(each such condition or circumstance, or "Environmental Condition") may give
rise to a lien on the property to ensure the reimbursement of remedial costs
incurred by the state. In several states such lien has priority over the lien of
an existing mortgage against such property. The value of a Mortgaged Property as
collateral for a Mortgage Loan could therefore be adversely affected by the
existence of any such Environmental Condition.
The state of the law is currently unclear as to whether and under what
circumstances clean-up costs, or the obligation to take remedial actions, could
be imposed on a secured lender such as the Trust Fund. Under the laws of some
states and under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), a lender may be liable as an
"owner or operator" for costs of addressing releases or threatened releases of
hazardous substances on a mortgaged property if such lender or its agents or
employees have participated in the management of the operations of the borrower,
even though CERCLA's definition of "owner or operator", however, is a person
"who without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest" (the
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"secured-creditor exemption"). This exemption for holders of a security interest
such as a secured lender applies only when the lender seeks to protect its
security interest in the contaminated facility or property. Thus, if a lender's
activities begin to encroach on the actual management of such facility or
property, the lender faces potential liability as an "owner or operator" under
CERCLA. Similarly, when a lender forecloses and takes title to a contaminated
facility or property (whether it holds the facility or property as an investment
or leases it to a third party), the lender may incur potential CERCLA liability.
A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly construed
the CERCLA secured-creditor exemption. The court stated that a lender need not
have involved itself in the day-to-day operations of the mortgaged property or
in decisions relating to hazardous waste in order to be liable under CERCLA;
rather, liability could attach to a lender if its involvement in the management
of the property was sufficiently broad to support the inference that it had the
capacity to influence the borrower's treatment of hazardous waste. Such capacity
to influence could be inferred if the lender's involvement in the borrower's
financial management was at all significant. A subsequent decision by the United
States Court of Appeals for the Ninth Circuit, In re Bergsoe Metal Corp., ruled
that a secured lender had no liability absent "some actual management of the
facility" on the part of the lender. The First Circuit and Fourth Circuit have
subsequently held that secured lenders may take title to contaminated collateral
(for example, at a foreclosure sale or after the borrower's default in a
sale-leaseback arrangement) without incurring liability under CERCLA if the
secured lenders proceed to sell the property. The United States Environmental
Protection Agency (the "EPA") issued a rule interpreting the scope of the
secured-creditor exemption, but that rule was overturned by the United States
Court of Appeals for the District of Columbia Circuit in Kelley v. EPA on the
ground that the EPA had no authority to issue the rule. The Kelley ruling does
not preclude the EPA from adopting the interpretation advanced in its rule for
purposes of its own enforcement proceedings, but it allows private parties suing
under CERCLA to advance the more limited scope of the secured-creditor exemption
articulated in Fleet Factors. The scope of the secured-creditor exemption is
thus unclear.
If a Mortgage Pool consists of Mortgage Properties secured by multifamily
or commercial properties, the related Agreement will provide that the Servicer,
acting on behalf of the Trust Fund, may not acquire title to, or possession of,
a Mortgaged Property underlying a Mortgage Loan, take over its operation or take
any other action that might subject the Trust Fund to liability under CERCLA or
comparable laws unless the Servicer has previously determined, based upon a
phase I or other specified environmental assessment prepared by a person who
regularly conducts such environmental assessments, that the Mortgaged Property
or Manufactured Home is in compliance with applicable environmental laws and
that there are no circumstances relating to use, management or disposal of any
hazardous materials for which investigation, monitoring, containment, clean-up
or remediation could be required under applicable environmental laws, or that it
would be in the best economic interest of the Trust Fund to take such actions as
are necessary to bring the Mortgaged Property or Manufactured Home into
compliance therewith or as may be required under such laws. This requirement
effectively precludes enforcement of the security for the related Note until a
satisfactory environmental assessment is obtained or any required remedial
action is taken, reducing the likelihood that the Trust Fund will become liable
for any Environmental Condition affecting a Mortgaged Property or Manufactured
Home, but making it more difficult to realize on the security for the Mortgage
Loan or Contract. However, there can be no assurance that any environmental
assessment obtained by the Servicer will detect all possible Environmental
Conditions or that the other requirements of the related Agreement, even if
fully observed by the Servicer, will in fact insulate the Trust Fund from
liability for Environmental Conditions.
If a lender is or becomes liable for clean-up costs, it may bring an action
for contribution against the current owners or operators, the owners or
operators at the time of on-site disposal activity or any other party who
contributed to the environmental hazard, but such persons or entities may be
bankrupt or otherwise judgment proof. Furthermore, such action against the
borrower may be adversely affected by the limitations on recourse in the
documents in the Mortgage Document File. Similarly, in some states
anti-deficiency legislation and other statutes requiring the lender to exhaust
its security before bringing a personal action against the borrower-trustor (see
"Anti-Deficiency Legislation and Other Limitations on Lenders" below) may
curtail the lender's ability to recover from its borrower the environmental
clean-up and other related costs and liabilities incurred by the lender.
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SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of such borrower's Mortgage Loan or Contract (including a
borrower who is a member of the National Guard or is in reserve status at the
time of the origination of the Mortgage Loan or Contract and is later called to
active duty) may not be charged interest above an annual rate of 6% during the
period of such borrower's active duty status, unless a court orders otherwise
upon application of the lender. It is possible that such action could have an
effect, for an indeterminate period of time, on the ability of the Servicer to
collect full amounts of interest on certain of the Mortgage Loans or Contracts
in a Trust Fund. Any shortfall in interest collections resulting from the
application of the Relief Act could result in losses to the holders of the
Certificates of the related Series. In addition, the Relief Act imposes
limitations which would impair the ability of the Servicer to foreclose on an
affected Mortgage Loan or Contract during the borrower's period of active duty
status. Thus, in the event that such a Mortgage Loan or Contract goes into
default, there may be delays and losses occasioned by the inability to realize
upon the Mortgaged Property or Manufactured Home in a timely fashion.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property by means of a forfeiture
proceeding 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: (a) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (b) the lender was, at the
time of 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.
In addition, there may be other state or municipal laws providing for
forfeiture of mortgaged properties.
TYPE OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type and
use of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of the
operation, maintenance, control and financing of health care institutions.
Mortgages on Mortgaged Properties which are owned by the Borrower under a
condominium form of ownership are subject to the declaration, by-laws and other
rules and regulations of the condominium association. Mortgaged Properties which
are hotels or motels may present additional risk to the lender in that: (i)
hotels and motels are typically operated pursuant to franchise, management and
operating agreements which may be terminable by the operator; and (ii) the
transferability of the hotel's operating, liquor and other licenses to the
entity acquiring the hotel either through purchase or foreclosure is subject to
the vagaries of local law requirements. In addition, Mortgaged Properties which
are multifamily residential properties may be subject to rent control laws,
which could impact the future cash flows of such properties. Finally, Mortgaged
Properties which are financed in the installment sales contract method may leave
the holder of the note exposed to tort and other claims as the true owner of the
property which could impact the availability of cash to pass through to
investors.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as
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hotels, restaurants, shopping centers, hospitals, schools and social service
center establishments) must remove architectural and communication barriers
which are structural in nature from existing places of public accommodation to
the extent "readily achievable." In addition, under the ADA, alterations to a
place of public accommodation or a commercial facility are to be made so that,
to the maximum extent feasible, such altered portions are readily accessible to
and usable by disable individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable Person. In addition to imposing a possible
financial burden on the Borrower in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the Borrower as owner or landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
Borrower of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the Borrower is subject.
CERTAIN MATTERS RELATING TO INSOLVENCY
The Unaffiliated Seller of the Mortgage Loans or Contracts and the
Depositor intend that the transfer of such Mortgage Loans or Contracts to the
Trust Fund constitute a sale rather than a pledge of the Mortgage Loans or
Contracts to secure indebtedness of the seller of the Mortgage Loans or
Contracts. However, if the Unaffiliated Seller were to become a debtor under the
federal bankruptcy code or be placed in a conservatorship or receivership under
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"), as the case may be, it is possible that a creditor, receiver,
conservator or trustee-in-bankruptcy of such seller may argue that the sale of
the Mortgage Loans or Contracts by the Unaffiliated Seller is a pledge of the
Mortgage Loans or Contracts rather than a sale. This position, if argued or
accepted by a court, could result in a delay in or reduction of distributions to
the related Certificateholders.
Under FIRREA the FDIC as receiver or conservator of a Servicer subject to
its jurisdiction may enforce a contract notwithstanding any provision of the
contract providing for termination thereof by reason of the insolvency of, or
appointment of a receiver or conservator for, the Servicer. Consequently,
provisions in a Pooling and Servicing Agreement providing for an Event of
Default upon certain events of insolvency, receivership or conservatorship of
the Servicer may not be enforceable against the FDIC as receiver or conservator
to the extent that the exercise of such rights is based solely upon the
insolvency of or appointment of a receiver or conservator for the Servicer. In
addition, the FDIC may transfer the assets and liabilities of an institution in
receivership or conservatorship to another institution.
BANKRUPTCY LAWS
Numerous statutory provisions, including the federal bankruptcy laws and
state laws affording relief to debtors, may interfere with or affect the ability
of the secured mortgage lender to obtain payment of the loan, to realize upon
collateral and/or enforce a deficiency judgment. For example, under federal
bankruptcy law, virtually all actions (including foreclosure actions and
deficiency judgment proceedings) are automatically stayed upon the filing of the
bankruptcy petition, and, often, no interest or principal payments are made
during the course of the bankruptcy proceeding. The delay and the consequences
thereof caused by or on behalf of a junior lienor may stay the senior lender
from taking action to foreclose out such junior lien. In a case under the
Bankruptcy Code, the lender is precluded from foreclosing without authorization
from the bankruptcy court. In addition, a court with federal bankruptcy
jurisdiction may permit a debtor through his or her Chapter 11 or Chapter 13
rehabilitative plan to cure a monetary default in respect of a mortgage loan on
the debtor's residence by paying arrearages within a reasonable time period and
reinstating the original mortgage 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
paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have suggested that such modifications may include
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reducing the amount of each monthly payment, changing the rate of interest,
altering the repayment schedule, and reducing the lender's security interest to
the value of the residence, thus leaving the lender in the position of a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan.
Federal bankruptcy law may also interfere with or affect the ability of the
secured mortgage lender to enforce an assignment by a mortgagor of rent and
leases related to the Mortgaged Property if the related mortgagor is in a
bankruptcy proceeding. Under Section 362 of the Bankruptcy Code, the mortgagee
will be stayed from enforcing the assignment, and the legal proceedings
necessary to resolve the issue can be time-consuming and may result in
significant delays in the receipt of the rents. Rents may also escape an
assignment thereof (i) if the assignment is not fully perfected under state law
prior to commencement of the bankruptcy proceeding, (ii) to the extent such
rents are used by the borrower to maintain the mortgaged property, or for other
court authorized expenses, or (iii) to the extent other collateral may be
substituted for the rents.
To the extent a mortgagor's ability to make payment on a mortgage loan is
dependent on payments under a lease of the related property, such ability may be
impaired by the commencement of a bankruptcy proceeding relating to a lessee
under such lease. Under the federal bankruptcy laws, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy against
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order with
respect to a default under the lease that occurred prior to the filing of the
lessee's petition.
In addition, federal bankruptcy law generally provides that a trustee or
debtor in possession in a bankruptcy or reorganization case under the Bankruptcy
Code may, subject to approval of the court (a) assume the lease and retain it or
assign it to a third party or (b) reject the lease. If the lease is assumed, the
trustee or debtor in possession (or assignee, if applicable) must cure any
defaults under the lease, compensate the lessor for its losses and provide the
lessor with "adequate assurance" of future performance. Such remedies may be
insufficient, however, as the lessor may be forced to continue under the lease
with a lessee that is a poor credit risk or an unfamiliar tenant if the lease
was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. Furthermore, there is likely to be a period of time between the date
upon which a lessee files a bankruptcy petition and the date upon which the
lease is assumed or rejected. Although the lessee is obligated to make all lease
payments currently with respect to the post-petition period, there is a risk
that such payments will not be made due to the lessee's poor financial
condition. If the lease is rejected, the lessor will be treated as an unsecured
creditor with respect to its claim for damages for termination of the lease and
the mortgagor must relet the mortgage property before the flow of lease payments
will recommence. In addition, pursuant to Section 502(b)(6) of the Bankruptcy
Code, a lessor's damages for lease rejection are limited by a formula.
In a bankruptcy or similar proceeding, action may be taken seeking the
recovery as a preferential transfer to the Trust Fund of any payments made by
the mortgagor under the related Mortgage Loan. Moreover, some recent court
decisions suggest that even a non-collusive, regularly conducted foreclosure
sale may be challenged in a bankruptcy proceeding as a "fraudulent conveyance,"
regardless of the parties' intent, if a bankruptcy court determines that the
mortgaged property has been sold for less than fair consideration while the
mortgagor was insolvent and within one year (or within any longer state statutes
of limitations if the trustee in bankruptcy elects to proceed under state
fraudulent conveyance law) of the filing of bankruptcy.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership, and disposition of the
Certificates. The discussion below does not purport to address all federal
income tax consequences that may be applicable to particular categories of
investors, some of which may be subject to special rules. The authorities on
which this discussion is based are subject to change or differing
interpretations, and any such change or interpretation could apply
retroactively. This discussion reflects the enactment of the Tax Reform Act of
1986 (the "1986 Act") and the Technical and Miscellaneous
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Revenue Act of 1988 ("TAMRA"), as well as regulations (the "REMIC Regulations")
promulgated by the U.S. Department of the Treasury on December 23, 1992, and
generally effective for REMICs with startup days on or after November 12, 1991.
Investors should consult their own tax advisors in determining the federal,
state, local, and any other tax consequences to them of the purchase, ownership,
and disposition of the Certificates, particularly with respect to federal income
tax changes effected by the 1986 Act, TAMRA and the REMIC Regulations.
For purposes of this discussion, where the applicable Prospectus Supplement
provides for a Fixed Retained Yield with respect to the Mortgage Loans, Mortgage
Certificates or Contracts of a Series of Certificates, references to the
Mortgage Loans, Mortgage Certificates or Contracts will be deemed to refer to
that portion of the Mortgage Loans, Mortgage Certificates or Contracts held by
the Trust Fund, which does not include the Fixed Retained Yield. For purposes of
this discussion, references to the "principal amount" or "principal balance" of
a Certificate will be deemed to refer to the Stated Amount in the case of
Multi-Class Certificates. For purposes of this discussion, unless otherwise
specified, the term "Mortgage Loans" will be used to refer to Mortgage Loans,
Contracts and mortgage loans underlying the Mortgage Certificates.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
GENERAL
With respect to a particular Series of Certificates, an election may be
made to treat the Trust Fund (or one or more segregated pools of assets therein)
as one or more REMICs within the meaning of Code Section 860D. A Trust Fund or a
portion or portions thereof as to which one or more REMIC elections will be made
will be referred to as a "REMIC Pool." For purposes of this discussion,
Certificates of a Series as to which one or more REMIC elections are made, which
will include all Multi-Class Certificates and may include Standard Certificates
or Stripped Certificates or both, are referred to as "REMIC Certificates" and
will consist of one or more Classes of "Regular Certificates" and one Class of
"Residual Certificates" in the case of each REMIC Pool. Qualification as a REMIC
requires ongoing compliance with certain conditions. With respect to each Series
of REMIC Certificates, Cadwalader, Wickersham & Taft, counsel to the Depositor,
has advised the Depositor that in the firm's opinion, assuming (i) the making of
an appropriate election, (ii) compliance with the Pooling and Servicing
Agreement, and (iii) compliance with any changes in the law, including any
amendments to the Code or applicable Treasury regulations thereunder, each REMIC
Pool will qualify as a REMIC. In such case, the Regular Certificates will be
considered to be "regular interests" in the REMIC Pool and generally will be
treated for federal income tax purposes as if they were newly originated debt
instruments, and the Residual Certificates will be considered to be "residual
interests" in the REMIC Pool. The Prospectus Supplement for each Series of
Certificates will indicate whether one or more REMIC elections with respect to
the related Trust Fund will be made, in which event references to "REMIC" or
"REMIC Pool" herein shall be deemed to refer to each such REMIC Pool.
STATUS OF REMIC CERTIFICATES
REMIC Certificates held by a mutual savings bank or a domestic building and
loan association will constitute "qualifying real property loans" within the
meaning of Code Section 593(d)(1) in the same proportion that the assets of the
REMIC Pool would be so treated. REMIC Certificates held by a domestic building
and loan association will constitute either "a regular or residual interest in a
REMIC" within the meaning of Code Section 7701(a)(19)(C)(xi) in the same
proportion that the assets of the REMIC Pool would be treated as "loans . . .
secured by an interest in real property which is . . . residential real
property" (such as single family or multifamily properties, but not commercial
properties) within the meaning of Code Section 7701(a)(19)(C)(v) or as other
assets described in Code Section 7701(a)(19)(C), and otherwise will not qualify
for such treatment. REMIC Certificates held by a real estate investment trust
will constitute "real estate assets" within the meaning of Code Section
856(c)(5)(A), and interest on the REMIC Certificates will be considered
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Code Section 856(c)(3)(B) in the same
proportion that, for both purposes, the assets and income of the REMIC Pool
would be so treated. If at all times 95% or more of the
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assets of the REMIC Pool qualify for the foregoing respective treatments, the
REMIC Certificates will qualify for the corresponding status in their entirety.
For purposes of Code Sections 593(d)(1) and 856(c)(5)(A), payments of principal
and interest on the Mortgage Loans that are reinvested pending distribution to
holders of Certificates qualify for such treatment. Where two REMIC Pools are
part of a tiered structure they will be treated as one REMIC for purposes of the
tests described above respecting asset ownership of more or less than 95%. The
principal amount of any Buy-Down Loan included in a REMIC Pool qualifying for
the foregoing treatments may be required to be reduced by the amount of the
related Buy-Down Fund. REMIC Certificates held by a regulated investment company
will not constitute "Government securities" within the meaning of Code Section
851(b)(4)(A)(i). REMIC Certificates held by certain financial institutions will
constitute an "evidence of indebtedness" within the meaning of Code Section
582(c)(1).
QUALIFICATION AS A REMIC
In order for the REMIC Pool to qualify as a REMIC, there must be ongoing
compliance on the part of the REMIC Pool with the requirements set forth in the
Code. The REMIC Pool must fulfill an asset test, which requires that no more
than a de minimis portion of the assets of the REMIC Pool (as of the close of
the third calendar month beginning after the "Startup Day" (which for purposes
of this discussion is the date of issuance of the REMIC Certificates) and at all
times thereafter) may consist of assets other than "qualified mortgages" and
"permitted investments." The REMIC Regulations provide a "safe harbor" pursuant
to which the de minimis requirement is met if at all times the aggregate
adjusted basis of the nonqualified assets is less than 1 percent of the
aggregate adjusted basis of all the REMIC Pool's assets. An entity that fails to
meet the safe harbor may nevertheless demonstrate that it holds no more than a
de minimis amount of nonqualified assets. A REMIC also must provide "reasonable
arrangements" to prevent its residual interest from being held by "disqualified
organizations" and applicable tax information to transferors or agents that
violate this requirement. See "Taxation of Residual Certificates -- Tax-Related
Restrictions on Transfer of Residual Certificates -- Disqualified
Organizations."
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day in exchange for the regular and residual interests in the REMIC
Pool or is purchased by the REMIC Pool within a three-month period thereafter
pursuant to a fixed-price contract in effect on the Startup Day. Qualified
mortgages include whole mortgage loans, such as the Mortgage Loans, certificates
of beneficial interest in a grantor trust that holds mortgage loans, such as the
Mortgage Certificates, regular interests in another REMIC, such as Mortgage
Certificates in a trust as to which a REMIC election has been made, loans
secured by timeshare interests and loans secured by shares held by a tenant
stockholder in a cooperative housing corporation, provided, in general, (i) the
fair market value of the real property security (including buildings and
structural components thereof) is at least 80% of the principal balance of the
related Mortgage Loan or mortgage loan underlying a Mortgage Certificate either
at origination or as of the Startup Day (an original loan-to-value ratio of not
more than 125% with respect to the real property security) or (ii) substantially
all the proceeds of the Mortgage Loan or the underlying mortgage loan were used
to acquire, improve or protect an interest in real property that, at the
origination date, was the only security for the Mortgage Loan or underlying
Mortgage loan. A qualified mortgage includes a qualified replacement mortgage,
which is any property that would have been treated as a qualified mortgage if it
were transferred to the REMIC Pool on the Startup Day and that is received
either (i) in exchange for any qualified mortgage within a three-month period
thereafter or (ii) in exchange for a "defective obligation" within a two-year
period thereafter. A "defective obligation" includes (i) a mortgage in default
or as to which default is reasonably foreseeable, (ii) a mortgage as to which a
representation or warranty made at the time of transfer to the REMIC Pool has
been breached, (iii) a mortgage that was fraudulently procured by the mortgagor,
and (iv) a mortgage that was not in fact principally secured by real property
(but only if such mortgage is disposed of within 90 days of discovery). A
mortgage loan that is "defective" as described in clause (iv) that is not sold
or, if within two years of the Startup Day, exchanged, within 90 days of
discovery, ceases to be a qualified mortgage after such 90-day period.
The REMIC Regulations provide that obligations secured by interests in
manufactured housing which qualify as "single family residences" within the
meaning of Code Section 25(e)(10) may be treated as
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"qualified mortgages" of a REMIC. Under Code Section 25(e)(10), the term "single
family residence" includes any manufactured home which has a minimum of 400
square feet of living space and a minimum width in excess of 102 inches and
which is of a kind customarily used at a fixed location. The Depositor will
represent and warrant that each of the Manufactured Homes securing the Contracts
meets this definition of "single family residence."
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is any investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13 months,
until the next scheduled distribution to holders of interests in the REMIC Pool.
A qualified reserve asset is any intangible property held for investment that is
part of any reasonably required reserve maintained by the REMIC Pool to provide
for payments of expenses of the REMIC Pool or to provide additional security for
payments due on the regular or residual interests that otherwise may be delayed
or defaulted upon because of default (including delinquencies) on the qualified
mortgages, lower than expected reinvestment returns, prepayment interest
shortfalls and certain other contingencies. The reserve fund will be
disqualified if more than 30 percent of the gross income from the assets in such
fund for the year is derived from the sale of property held for less than three
months, unless required to prevent a default on the regular interests caused by
a default on one or more qualified mortgages. A reserve fund must be reduced
"promptly and appropriately" as payments on the Mortgage Loans are received.
Foreclosure property is real property acquired by the REMIC Pool in connection
with default or imminent default of a qualified mortgage and generally held for
not more than two years, with extensions granted by the Internal Revenue
Service.
In addition to the foregoing requirements, the various interests in a REMIC
Pool also must meet certain requirements. All of the interests in a REMIC Pool
must be either of the following: (i) one or more classes of regular interests or
(ii) a single class of residual interests on which distributions, if any, are
made pro rata. A regular interest is an interest in a REMIC Pool that is issued
on the Startup Day with fixed terms, is designated as a regular interest, and
unconditionally entitles the holder to receive a specified principal amount (or
other similar amount), and provides that interest payments (or other similar
amounts), if any, at or before maturity either are payable based on a fixed rate
or at a qualified variable rate or consist of a specified, nonvarying portion of
the interest payments on qualified mortgages. Such a specified portion may
consist of a fixed number of basis points, a fixed percentage of the total
interest, or a qualified variable or inverse variable rate on some or all of the
qualified mortgages. The specified principal amount of a regular interest that
provides for interest payments consisting of a specified, nonvarying portion of
interest payments on qualified mortgages may be zero. A residual interest is an
interest in a REMIC Pool other than a regular interest that is issued on the
Startup Day and is designated as a residual interest. An interest in a REMIC
Pool may be treated as a regular interest even if payments of principal with
respect to such interest are subordinated to payments on other regular interests
or the residual interest in the REMIC Pool, and are dependent on the absence of
defaults or delinquencies on qualified mortgages or permitted investments, lower
than reasonably expected returns on permitted investments, expenses incurred by
the REMIC Pool or prepayment interest shortfalls. Accordingly, the Regular
Certificates of a Series will constitute one or more classes of regular
interests, and the Residual Certificates with respect to each REMIC Pool in that
Series will constitute a single class of residual interests on which
distributions are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable year,
the Code provides that the entity will not be treated as a REMIC for such year
and thereafter. In this event, an entity with multiple classes of ownership
interests may be treated as a separate association taxable as a corporation
under Treasury regulations, and the Regular Certificates may be treated as
equity interests therein. The Code, however, authorizes the Treasury Department
to issue regulations that address situations where failure to meet one or more
of the requirements for REMIC status occurs inadvertently and in good faith, and
disqualification of the REMIC Pool would occur absent regulatory relief.
Investors should be aware, however, that the Conference Committee Report to the
1986 Act indicates that the relief may be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the REMIC Pool's income for
the period of time in which the requirements for REMIC status are not satisfied.
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TAXATION OF REGULAR CERTIFICATES
General
In general, interest paid or accrued, original issue discount, and market
discount on a Regular Certificate will be treated as ordinary income to a holder
of the Regular Certificate (the "Regular Certificateholder"), and principal
payments on a Regular Certificate will be treated as a return of capital to the
extent of the Regular Certificateholder's basis in the Regular Certificate
allocable thereto. Regular Certificateholders must use the accrual method of
accounting with regard to Regular Certificates, regardless of the method of
accounting otherwise used by such Regular Certificateholders.
Original Issue Discount
Compound Interest Certificates will be, and certain of the Regular
Certificates of other Classes of a Series may be, issued with "original issue
discount" within the meaning of Code Section 1273(a). Holders of any Class or
Subclass of Regular Certificates having original issue discount generally must
include original issue discount in ordinary income for federal income tax
purposes as it accrues, in accordance with a constant interest method that takes
into account the compounding of interest, in advance of receipt of the cash
attributable to such income. The following discussion is based in part on
proposed Treasury regulations issued on December 21, 1992 under Code Sections
1271 through 1273 and 1275 (the "Proposed OID Regulations") and in part on the
provisions of the 1986 Act. Regular Certificateholders should be aware, however,
that the Proposed OID Regulations do not adequately address certain issues
relevant to prepayable securities, such as the Regular Certificates, and are
subject to change and are not binding authority before being adopted as final or
temporary regulations. The Proposed OID Regulations are proposed to be effective
for debt instruments issued on or after the date 60 days after the date the
Proposed OID Regulations are finalized, and prior proposed regulations have been
withdrawn.
Under the Proposed OID Regulations, each Regular Certificate (except to the
extent described below with respect to a Regular Certificate on which principal
is distributed in a single installment or by lots of specified principal amounts
upon the request of a Certificateholder or by random lot (a "Retail Class
Certificate")) will be treated as a single installment obligation for purposes
of determining the original issue discount includible in a Regular
Certificateholder's income. The total amount of original issue discount on a
Regular Certificate is the excess of the "stated redemption price at maturity"
of the Regular Certificate over its "issue price." The issue price of a Regular
Certificate offered pursuant to this Prospectus is the price at which a
substantial amount of Regular Certificates of that Class are first sold to the
public. The issue price of a Regular Certificate also includes the amount paid
by an initial Regular Certificateholder for accrued interest that relates to a
period prior to the issue date of the Regular Certificate. The stated redemption
price at maturity of a Regular Certificate always includes the principal amount
of the Regular Certificate, but generally will not include distributions of
interest if such interest distributions constitute "qualified stated interest."
Under the Proposed OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or a qualified variable rate as
described below, provided that such interest payments are unconditionally
payable at intervals of one year or less during the entire term of the Regular
Certificate. No distributions on a Compound Interest Certificate, or on other
Regular Certificates with respect to which interest distributions may be
deferred and added to principal, will constitute qualified stated interest, and,
accordingly, the stated redemption price at maturity of such Regular
Certificates includes not only their principal balances but also all other
distributions (whether denominated as accrued interest or current interest) to
be received thereon. Where the interval between the issue date and the first
Distribution Date on a Regular Certificate is either longer or shorter than the
interval between subsequent Distribution Dates, all or part of the interest
foregone, in the case of the longer interval, and all of the additional
interest, in the case of the shorter interval, will be included in the stated
redemption price at maturity and tested under the de minimis rule described
below. The Proposed OID Regulations suggest that all interest on a long first
period Regular Certificate that is issued with non-de minimis OID will be
treated as OID[, but the Depositor does not intend to follow this approach
unless and until required to do so by final regulations]. Regular
Certificateholders should consult their own tax advisors to determine the issue
price and stated redemption price at maturity of a Regular Certificate.
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Under a de minimis rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than 0.25%
of the stated redemption price at maturity of the Regular Certificate multiplied
by the weighted average maturity of the Regular Certificate. For this purpose,
the weighted average maturity of the Regular Certificate is computed as the sum
of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution is
scheduled to be made by a fraction, the numerator of which is the amount of each
distribution included in the stated redemption price at maturity of the Regular
Certificate and the denominator of which is the stated redemption price at
maturity of the Regular Certificate. Although currently unclear, it appears that
the schedule of such distributions should be determined in accordance with the
assumed rate of prepayment of the Mortgage Loans and the anticipated
reinvestment rate, if any, relating to the Regular Certificates (the "Prepayment
Assumption"). The Prepayment Assumption with respect to a Series of Regular
Certificates will be set forth in the related Prospectus Supplement. Holders
generally must report de minimis OID pro rata as principal payments are
received, and such income will be capital gain if the Regular Certificate is
held as a capital asset. However, under the Proposed OID Regulations, accrual
method holders would be able to elect to accrue all de minimis OID as well as
market discount under a constant interest method. See "Market Discount" below
concerning the effect of an election to accrue market discount income currently.
A Regular Certificateholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the original
issue discount on the Regular Certificate accrued during an accrual period for
each day on which it holds the Regular Certificate, including the date of
purchase but excluding the date of disposition. The Depositor will treat the
monthly period ending on each Distribution Date as the accrual period. With
respect to each Regular Certificate, a calculation will be made of the original
issue discount that accrues during each successive full accrual period (or
shorter period from the date of original issue) that ends on the related
Distribution Date on the Regular Certificate. The Conference Committee Report to
the 1986 Act states that the rate of accrual of original issue discount is
intended to be based on the Prepayment Assumption. Other than as discussed below
with respect to a Retail Class Certificate, the original issue discount accruing
in a full accrual period would be the excess, if any, of (i) the sum of (a) the
present value of all of the remaining distributions to be made on the Regular
Certificate as of the end of that accrual period that are included in the
Regular Certificate's stated redemption price at maturity, and (b) the
distributions made on the Regular Certificate during the accrual period that are
included in the Regular Certificate's stated redemption price at maturity, over
(ii) the adjusted issue price of the Regular Certificate at the beginning of the
accrual period. The present value of the remaining distributions referred to in
the preceding sentence is calculated based on (i) the yield to maturity of the
Regular Certificate at the issue date, (ii) events (including actual
prepayments) that have occurred prior to the end of the accrual period, and
(iii) the Prepayment Assumption. For these purposes, the adjusted issued price
of a Regular Certificate at the beginning of any accrual period equals the issue
price of the Regular Certificate, increased by the aggregate amount of original
issue discount with respect to the Regular Certificate that accrued in all such
prior periods, and reduced by the amount of distributions included in the
Regular Certificate's stated redemption price at maturity that were made on the
Regular Certificate in such prior periods. The original issue discount accruing
during any accrual period (as determined in this paragraph) will then be divided
by the number of days in the period to determine the daily portion of original
issue discount for each day in the period. With respect to an initial accrual
period shorter than a full accrual period, the daily portions of original issue
discount must be determined according to an appropriate allocation under any
reasonable method.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Mortgage Loans
that exceed the Prepayment Assumption, and generally will decrease (but not
below zero for any period) if the prepayments are slower than the Prepayment
Assumption. To the extent specified in the applicable Prospectus Supplement, an
increase in prepayments on the Mortgage Loans with respect to a Series of
Regular Certificates can result in both a change in the priority of principal
payments with respect to certain Classes of Regular Certificates and either an
increase or decrease in the daily portions of original issue discount with
respect to such Regular Certificates.
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In the case of a Retail Class Certificate, although not entirely clear, the
yield to maturity of such Certificate should be determined based upon the
anticipated payment characteristics of the Class as a whole under the Prepayment
Assumption. In general, the original issue discount accruing on each Retail
Class Certificate in a full accrual period would be its allocable share of the
original issue discount with respect to the entire Class, as determined in
accordance with the preceding paragraph. However, in the case of a distribution
in retirement of the entire unpaid principal balance of any Retail Class
Certificate (or portion of such unpaid principal balance), (a) the remaining
unaccrued original issue discount allocable to such Certificate (or to such
portion) will accrue at the time of such distribution, and (b) the accrual of
original issue discount allocable to each remaining Certificate of such Class
(or the remaining unpaid principal balance of a partially redeemed Retail Class
Certificate after a distribution of principal has been received) will be
adjusted by reducing the present value of the remaining payments on such Class
and the adjusted issue price of such Class to the extent attributable to the
portion of the unpaid principal balance thereof that was distributed.
A purchaser of a Regular Certificate at a price greater than its adjusted
issue price will be required to include in gross income the daily portions of
the original issue discount on the Regular Certificate reduced pro rata by a
fraction, the numerator of which is the excess of its purchase price over such
adjusted issue price and the denominator of which is the excess of the remaining
stated redemption price at maturity over the adjusted issue price.
Variable Rate Regular Certificates
Regular Certificates may provide for interest based on a variable rate.
Under the Proposed OID Regulations, interest is treated as payable at a variable
rate and not as contingent interest if, generally, (i) the issue price does not
exceed the original principal balance, and (ii) the interest compounds or is
payable at least annually at current values of certain objective rates measured
by or based on lending rates for newly borrowed funds or on the price of
actively traded property or an index of the prices of such property. The
variable interest generally will be qualified stated interest to the extent it
is unconditionally payable at least annually and, to the extent successive
qualified floating rates or a fixed rate followed by a qualified floating rate
are used, interest is not significantly accelerated or deferred. Because of
effective date rules, qualified variable rates for REMIC purposes do not appear
to be as broad as for OID purposes without further clarification from the
Internal Revenue Service. The Internal Revenue Service has provided guidance in
Notice 93-11, however, that a rate that meets the definition in the Proposed OID
Regulations of a "qualified floating rate" (i.e. a rate variations in which can
reasonably be expected to measure contemporaneous variations in the cost of
newly borrowed funds) is a qualifed variable rate for REMIC purposes.
Accordingly, under the REMIC Regulations, a Regular Certificate (i) bearing a
variable rate tied to a qualified floating rate (or the highest, lowest or
average of two or more qualified floating rates) including a rate based on the
average cost of funds of one or more financial institutions, or that represents
a weighted average of rates on some or all of the qualified mortgages that bear
either a fixed rate or a qualified floating rate, including such a rate that is
subject to one or more caps or floors, or (ii) bearing one or more such variable
rates for one or more periods, or one or more fixed rates for one or more
periods, qualifies as a regular interest in a REMIC.
The amount of original issue discount with respect to a Regular Certificate
bearing a variable rate of interest will accrue in the manner described above
under "Original Issue Discount," with the yield to maturity and future payments
on such Regular Certificate to be determined by assuming that interest will be
payable for the life of the Regular Certificate at a reasonable fixed rate that,
taking into account any actual discount from par, provides a yield to maturity
that approximates the applicable Federal rate under Code Section 1274(d).
Ordinary income reportable for any period will be adjusted based on subsequent
changes in the applicable interest rate index.
Although unclear at present, the Depositor intends to treat Regular
Certificates bearing an interest rate that is a weighted average of the net
interest rates on Mortgage Loans having adjustable rates as having qualified
stated interest. In such case, the applicable index used to compute interest on
the Mortgage Loans or Mortgage Certificates in effect on the issue date (or
possible the pricing date) will be deemed to be in effect beginning with the
period in which the first weighted average adjustement date occurring after the
issue date occurs. If the Pass-Through Rate for one or more periods is less than
it would be based upon the fully indexed
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rate, the excess of the interest payments projected at the assumed index over
interest projected at such initial rate will be tested under the de minimis
rules as described above. Adjustements will be made in each accrual period
either increasing or decreasing the amount of ordinary income reportable to
reflect the actual Pass-Through Rate on the Regular Certificate.
Deferred Interest
Any Deferred Interest that accrues with respect to a Class of Regular
Certificates will constitute income to the holders of such Regular Certificates
prior to the time distributions of cash with respect to such Deferred Interest
are made. It is unclear, under the Proposed OID Regulations, whether the full
amount of the Deferred Interest that accrues with respect to such Regular
Certificates for any period must be recognized as interest income for that
period or whether the Internal Revenue Service will take the position that all
or a portion of the Deferred Interest, or all interest with respect to the
Regular Certificate, must be included in the stated redemption price at maturity
of the Regular Certificate and accounted for as original issue discount. Unless
and until required otherwise by applicable authority, the Depositor intends to
treat all interest on a Regular Certificate as to which there may be Deferred
Interest as includible in the stated redemption price at maturity thereof.
Because interest on Regular Certificates must in any event be accounted for
under an accrual method by the holders of such Regular Certificates, applying
the latter analysis would result only in a slight difference in the timing of
the inclusion in income of interest on such Regular Certificates.
Market Discount
A purchaser of a Regular Certificate also may be subject to the market
discount rules of Code Sections 1276 through 1278. Under these Code sections and
the principles applied by the Proposed OID Regulations in the context of
original issue discount, "market discount" is the amount by which the
purchaser's original basis in the Regular Certificate (i) is exceeded by the
then-current principal amount of the Regular Certificate, or (ii) in the case of
a Regular Certificate having original issue discount, is exceeded by the
adjusted issue price of such Regular Certificate at the time of purchase. Such
purchaser generally will be required to recognize ordinary income to the extent
of accrued market discount on such Regular Certificate as distributions
includible in the stated redemption price at maturity thereof are received, in
an amount not exceeding any such distribution. Such market discount would accrue
in a manner to be provided in Treasury regulations and should take into account
the Prepayment Assumption. The Conference Committee Report to the 1986 Act
provides that until such regulations are issued, such market discount would
accrue either (i) on the basis of a constant interest rate, or (ii) in the ratio
of stated interest distributable in the relevant period to the sum of the
interest for such period plus the remaining interest as of the end of such
period, or in the case of a Regular Certificate issued with original issue
discount, in the ratio of original issue discount accrued for the relevant
period to the sum of the original issue discount accrued for such period plus
the remaining original issue discount as of the end of such period. Such
purchaser also generally will be required to treat a portion of any gain on a
sale or exchange of the Regular 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 as partial distributions in reduction of the stated redemption
price at maturity were received. Such purchaser will be required to defer
deduction of all or a portion of the excess of the interest paid or accrued on
indebtedness incurred or continued to purchase or carry the Regular Certificate
over the interest distributable thereon. The deferred portion of the interest
expense generally will not exceed the accrued market discount on the Regular
Certificate for such year. Any such deferred interest expense is, in general,
allowed as a deduction not later than the year in which the related market
discount income is recognized or the Regular Certificate is disposed of. As an
alternative to the inclusion of market discount in income on the foregoing
basis, the Regular Certificateholder may elect to include market discount in
income currently as it accrues on all market discount instruments acquired by
such Regular Certificateholder in that taxable year or thereafter, in which case
the interest deferral rule will not apply.
By analogy to the Proposed OID Regulations, market discount with respect to
a Regular Certificate will be considered to be zero if such market discount is
less than 0.25% of the remaining stated redemption price at maturity of such
Regular Certificate multiplied by the weighted average maturity of the Regular
Certificate
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(determined as described above in the fourth paragraph under "Original Issue
Discount") remaining after the date of purchase. Treasury regulations
implementing the market discount rules have not yet been issued, and therefore
investors should consult their own tax advisors regarding the application of
these rules as well as the advisability of making any of the elections with
respect thereto. Investors should also consult Revenue Procedure 92-67
concerning the elections to include market discount in income currently and to
accrue market discount on the basis of a constant interest rate.
Premium
A Regular Certificate, other than a Compound Interest Certificate,
purchased at a cost greater than its remaining stated redemption price at
maturity generally is considered to be purchased at a premium. If the Regular
Certificateholder holds such Regular Certificate as a "capital asset" within the
meaning of Code Section 1221, the Regular Certificateholder may elect under Code
Section 171 to amortize such premium under the constant interest method. The
Conference Committee Report to the 1986 Act indicates a Congressional intent
that the same rules that will apply to the accrual of market discount on
installment obligations will also apply to amortizing bond premium under Code
Section 171 on installment obligations such as the Regular Certificates,
although it is unclear whether the alternatives to the constant interest method
described above under "Market Discount" are available. Amortizable bond premium
will be treated as an offset to interest income on the Regular Certificates
rather than a separate deduction item.
Sale or Exchange of Regular Certificates
If a Regular Certificateholder sells or exchanges a Regular Certificate,
the Regular Certificateholder will recognize gain or loss equal to the
difference, if any, between the amount received and its adjusted basis in the
Regular Certificate. The adjusted basis of a Regular Certificate generally will
equal the cost of the Regular Certificate to the seller, increased by any
original issue discount or market discount previously included in the seller's
gross income with respect to the Regular Certificate and reduced by amounts
included in the stated redemption price at maturity of the Regular Certificate
that were previously received by the seller and by any amortized premium.
Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate as
a capital asset will be capital gain or loss and will be long-term or short-term
depending on whether the Regular Certificate has been held for the long-term
capital gain holding period (currently more than one year). Such gain will be
treated as ordinary income if there was an "intention to call" the Regular
Certificate prior to maturity. The Proposed OID Regulations state that the
presence of a sinking fund or optional call does not give rise to such an
intention, and the Depositor does not believe such an intention is otherwise
present, although the application of these rules to Retail Class Certificates is
unclear. In addition, such gain will be treated as ordinary income to the extent
that such gain does not exceed the excess, if any, of (i) the amount that would
have been includible in the gross income of the holder if his yield on such
Regular Certificate were 110 percent of the applicable Federal rate under Code
Section 1274(d) as of the date of purchase, over (ii) the amount of income
actually includible in the gross income of such holder with respect to the
Regular Certificate. In addition, gain or loss recognized from the sale of a
Regular Certificate by certain banks or thrift institutions will be treated as
ordinary income or loss pursuant to Code Section 582(c). The preferential rates
applicable to long-term capital gains were eliminated by the 1986 Act. However,
the Revenue Reconciliation Act of 1990 restored a preferential rate applicable
to long-term capital gains with respect to certain individuals.
TAXATION OF RESIDUAL CERTIFICATES
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss will be
includible as ordinary income or loss in determining the federal taxable income
of holders of Residual Certificates ("Residual Holders"), and will not be taxed
separately to the REMIC Pool. The daily portions of REMIC taxable
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income or net loss of a Residual Holder are determined by allocating the REMIC
Pool's taxable income or net loss for each calendar quarter ratably to each day
in such quarter and by allocating such daily portion among the Residual Holders
in proportion to their respective holdings of Residual Certificates in the REMIC
Pool on such day. REMIC taxable income is generally determined in the same
manner as the taxable income of an individual using the accrual method of
accounting except that (i) the limitation on deductibility of investment
interest expense and expenses for the production of income do not apply, (ii)
all bad loans will be deductible as business bad debts, and (iii) the limitation
on the deductibility of interest and expenses related to tax-exempt income will
apply. REMIC taxable income generally means the REMIC Pool's gross income,
including interest, original issue discount income, and market discount income,
if any, on the Mortgage Loans, plus income on reinvestment of cash flows and
reserve assets, minus deductions, including interest and original issue discount
expense on the Regular Certificates, servicing fees on the Mortgage Loans or the
Mortgage Certificates and other administrative expenses of the REMIC Pool, and
amortization of premium, if any, with respect to the Mortgage Loans. The
requirement that Residual Holders report their pro rata share of taxable income
or net loss of the REMIC Pool will continue until there are no Certificates of
any class of the related Series outstanding.
The taxable income recognized by a Residual Holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
recognition of interest and original issue discount or market discount income or
amortization of premium with respect to the Mortgage Loans, on the one hand, and
the timing of deductions for interest (including original issue discount) on the
Regular Certificates, on the other hand. In the event that an interest in the
Mortgage Loans is acquired by the REMIC Pool at a discount, and one or more of
such Mortgage Loans is prepaid, the Residual Holder may recognize taxable income
without being entitled to receive a corresponding amount of cash because (i) the
prepayment may be used in whole or in part to make distributions in reduction of
principal on the Regular Certificates, and (ii) the discount on the Mortgage
Loans which is includible in income may exceed the deduction allowed upon such
distributions on those Regular Certificates on account of any unaccrued original
issue discount relating to those Regular Certificates. When there is more than
one Class of Regular Certificates that distribute principal sequentially, this
mismatching of income and deductions is particularly likely to occur in the
early years following issuance of the Regular Certificates when distributions in
reduction of principal are being made in respect of earlier Classes of Regular
Certificates to the extent that such Classes are not issued with substantial
discount. If taxable income attributable to such a mismatching is realized, in
general, losses would be allowed in later years as payments on the later Classes
of Regular Certificates are made. Taxable income may also be greater in earlier
years than in later years as a result of the fact that interest expense
deductions, expressed as a percentage of the outstanding principal amount of
such a Series of Regular Certificates, may increase over time as distributions
of principal are made on the lower yielding Classes of Regular Certificates,
whereas, to the extent the REMIC Pool contains fixed rate Mortgage Loans,
interest income with respect to any given Mortgage Loan will remain constant
over time as a percentage of the outstanding principal amount of that loan.
Consequently, Residual Holders must have sufficient other sources of cash to pay
any federal, state, or local income taxes due as a result of such mismatching or
unrelated deductions against which to offset such income, subject to the
discussion of "excess inclusions" below under "Limitations on Offset or
Exemption of REMIC Income." The timing of such mismatching of income and
deductions described in this paragraph, if present with respect to a Series of
Certificates, may have a significant adverse effect upon a Residual Holder's
after-tax rate of return. In addition, a Residual Holder's taxable income during
certain periods may exceed the income reflected by such Residual Holder for such
periods in accordance with generally accepted accounting principles. Investors
should consult their own accountants concerning the accounting treatment of
their investment in Residual Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into account
by the Residual Holder is limited to the adjusted basis of the Residual
Certificate as of the close of the quarter (or time of disposition of the
Residual Certificate if earlier), determined without taking into account the net
loss for the quarter. The initial adjusted basis of a purchaser of a Residual
Certificate is the amount paid for such Residual Certificate. Such adjusted
basis will be increased by the amount of taxable income of the REMIC Pool
reportable by the
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Residual Holder and will be decreased (but not below zero), first, by a cash
distribution from the REMIC Pool and, second, by the amount of loss of the REMIC
Pool reportable by the Residual Holder. Any loss that is disallowed on account
of this limitation may be carried over indefinitely by the Residual Holder for
whom such loss was disallowed and may be used by such Residual Holder only to
offset any income generated by the same REMIC Pool.
A Residual Holder will not be permitted to amortize directly the cost of
its Residual Certificate as an offset to its share of the taxable income of the
related REMIC Pool. However, that taxable income will not include cash received
by the REMIC Pool that represents a recovery of the REMIC Pool's basis in its
assets. Such recovery of basis by the REMIC Pool will have the effect of
amortization of the issue price of the Residual Certificates over their life.
However, in view of the possible acceleration of the income of Residual Holders
described above under "Taxation of REMIC Income," the period of time over which
such issue price is effectively amortized may be longer than the economic life
of the Residual Certificates.
A Residual Certificate may have a negative value, if the net present value
of anticipated tax liabilities exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of such a residual
interest as zero rather than such negative amount for purposes of determining
the REMIC Pool's basis in its assets. The preamble to the REMIC Regulations
states that the Internal Revenue Service may provide future guidance on the
proper tax treatment of payments made by a transferor of such a residual
interest to induce the transferee to acquire the interest, and Residual Holders
should consult their own tax advisors in this regard.
Further, to the extent the initial adjusted basis of a Residual Holder
(other than an original holder) in the Residual Certificate is greater than the
corresponding portion of the REMIC Pool's basis in the Mortgage Loans, the
Residual Holder will not recover a portion of such basis until termination of
the REMIC Pool unless otherwise provided in subsequent legislation or future
Treasury regulations. The REMIC Regulations currently in effect do not so
provide. See "Treatment of Certain Items of REMIC Income and Expense -- Market
Discount" below regarding the basis of Mortgage Loans to the REMIC Pool and
"Sale or Exchange of a Residual Certificate" below regarding possible treatment
of a loss upon termination of the REMIC Pool as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
Original Issue Discount. Generally, the REMIC Pool's deductions for
original issue discount will be determined in the same manner as original issue
discount income on Regular Certificates as described above under "Taxation of
Regular Certificates -- Original Issue Discount" and "Variable Rate Regular
Certificates," without regard to the de minimis rule described therein.
Deferred Interest. Any Deferred Interest that accrues with respect to any
adjustable rate Mortgage Loans held by the REMIC Pool will constitute income to
the REMIC Pool and will be treated in a manner similar to the Deferred Interest
that accrues with respect to Regular Certificates as described above under
"Taxation of Regular Certificates -- Deferred Interest."
Market Discount. The REMIC Pool will have market discount income in
respect of Mortgage Loans if, in general, the basis of the REMIC Pool in such
Mortgage Loans is exceeded by their unpaid principal balances. The REMIC Pool's
basis in such Mortgage Loans is generally the fair market value of the Mortgage
Loans immediately after the transfer thereof to the REMIC Pool. The REMIC
Regulations provide that such basis is equal in the aggregate to the issue
prices of all regular and residual interests in the REMIC Pool. In respect of
Mortgage Loans that have market discount to which Code Section 1276 applies, the
accrued portion of such market discount would be recognized currently as an item
of REMIC Pool ordinary income. Market discount income generally should accrue in
the manner described above under "Taxation of Regular Certificates -- Market
Discount." However, the rules of Code Section 1276 concerning market discount
income will not apply in the case of Mortgage Loans originated on or prior to
July 18, 1984, if any. With respect to such Mortgage Loans, market discount is
generally includible in REMIC taxable income or ordinary gross income pro rata
as principal payments are received. The deduction of a portion of the interest
expense on the Regular Certificates allocable to such discount may be deferred
until such discount is included
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in income, and any gain on the sale or exchange thereof will be treated as
ordinary income to the extent of the deferred interest deductible at that time.
Premium. Generally, if the basis of the REMIC Pool in the Mortgage Loans
exceeds the unpaid principal balances thereof, the REMIC Pool will be considered
to have acquired such Mortgage Loans at a premium equal to the amount of such
excess. As stated above, the REMIC Pool's basis in Mortgage Loans is the fair
market value of the Mortgage Loans immediately after the transfer thereof to the
REMIC Pool based on the aggregate of the issue prices of the regular and
residual interests in the REMIC Pool. In a manner analogous to the discussion
above under "Taxation of Regular Certificates -- Premium," a Residual Holder who
holds a Mortgage Loan as a capital asset under Code Section 1221 may elect under
Code Section 171 to amortize premium on Mortgage Loans originated after
September 27, 1985 under a constant interest method. Amortizable bond premium
will be treated as an offset to interest income on the Mortgage Loans, rather
than as a separate deduction item. To the extent that mortgagors on the Mortgage
Loans are individuals, Code Section 171 will not be available for premium on
Mortgage Loans originated on or prior to September 27, 1985. Premium with
respect to such Mortgage Loans may be deductible in accordance with a reasonable
method regularly employed by the holder thereof. The allocation of such premium
pro rata among principal payments should be considered a reasonable method;
however, the Internal Revenue Service may argue that such premium should be
allocated in a different manner, such as allocating such premium entirely to the
final payment of principal.
Limitations on Offset or Exemption of REMIC Income
The Code provides that, to the extent provided in Treasury regulations, if
the aggregate value of the Residual Certificates relative to the aggregate value
of the Regular Certificates and Residual Certificates is considered to be
"significant," as described below, then a portion (but not all) of the REMIC
taxable income includible in determining the federal income tax liability of a
Residual Holder will be subject to special treatment. That portion, referred to
as the "excess inclusion," is equal to the excess of REMIC taxable income for
the calendar quarter allocable to a Residual Certificate over the daily accruals
for such quarterly period of (i) 120% of the long-term applicable Federal rate
that would have applied to the Residual Certificate (if it were a debt
instrument) on the Startup Day under Code Section 1274(d), multiplied by (ii)
the adjusted issue price of such Residual Certificate at the beginning of such
quarterly period. For this purpose, the adjusted issue price of a Residual
Certificate at the beginning of a quarter is the issue price of the Residual
Certificate, plus the amount of the daily accruals of REMIC income for all prior
quarters, decreased by any distributions made with respect to such Residual
Certificate prior to the beginning of such quarterly period. Although the
Conference Committee Report to the 1986 Act indicates that the value of all
REMIC Residual Certificates would be considered significant in cases where such
value is at least 2% of the aggregate value of the Regular Certificates and
Residual Certificates, the REMIC Regulations have not adopted such a general
rule. Accordingly, the portion of the REMIC's taxable income that will be
treated as excess inclusions will be determined by the preceding formula, with
the effect that such excess inclusions will be a larger portion of such income
as the relative value of the Residual Certificates diminishes.
The portion of a Residual Holder's REMIC taxable income consisting of the
excess inclusion generally may not be offset by other deductions, including net
operating loss carryforwards, on such Residual Holder's return. Further, if the
Residual Holder is an organization subject to the tax on unrelated business
income imposed by Code Section 511, the Residual Holder's excess inclusion will
be treated as unrelated business taxable income of such Residual Holder for
purposes of Code Section 511. In addition, REMIC taxable income is subject to
30% withholding tax with respect to certain persons who are not U.S. Persons (as
defined below under "Tax-Related Restrictions on Transfer of REMIC Residual
Certificates -- Foreign Investors"), and the portion thereof attributable to
excess inclusions is not eligible for any reduction in the rate of withholding
tax (by treaty or otherwise). See "Taxation of Certain Foreign
Investors -- Residual Certificates" below. Finally, if a real estate investment
trust or a regulated investment company owns a Residual Certificate, a portion
allocated under Treasury regulations yet to be issued), of dividends paid by the
real estate investment trust or regulated investment company could not be offset
by net operating losses of its
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shareholders, would constitute unrelated business taxable income for tax-exempt
shareholders, and would be ineligible for reduction of withholding to certain
persons who are not U.S. Persons.
An exception to the inability of a Residual Holder to offset excess
inclusions with unrelated deductions and net operating losses applies to Code
Section 593 institutions ("thrift institutions"). For purposes of applying this
rule, all members of an affiliated group filing a consolidated return are
treated as one taxpayer, except that thrift institutions to which Code Section
593 applies, together with their subsidiaries formed to issue REMICs, are
treated as separate corporations. Furthermore, the Code provides that
regulations may disallow the ability of a thrift institution to use deductions
to offset excess inclusions if necessary or appropriate to prevent avoidance of
tax. A thrift institution may not so offset its excess inclusions unless the
Residual Certificates have "significant value," which requires that (i) the
Residual Certificates have an issue price that is at least equal to 2% of the
aggregate of the issue prices of all Residual Certificates and Regular
Certificates with respect to the REMIC Pool, and (ii) the anticipated weighted
average life of the Residual Certificates is at least 20% of the anticipated
weighted average life of the REMIC Pool. The anticipated weighted average life
of the Residual Certificates is based on all distributions anticipated to be
received with respect thereto (using the Prepayment Assumption). The anticipated
weighted average life of the REMIC Pool is the aggregate weighted average life
of all classes of interests therein (computed using all anticipated
distributions on a regular interest with nominal or no principal). Finally, an
ordering rule under the REMIC Regulations provides that a thrift institution may
only offset its excess inclusion income with deductions after it has first
applied its deductions against income that is not excess inclusion income. If
applicable, the Prospectus Supplement with respect to a Series will set forth
whether the Residual Certificates are expected to have "significant value"
within the meaning of the REMIC Regulations.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as defined
below), a tax would be imposed in an amount equal to the product of (i) the
present value of the total anticipated excess inclusions with respect to such
Residual Certificate for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The REMIC
Regulations provide that the anticipated excess inclusions are based on actual
prepayment experience to the date of the transfer and that projected payments
are based on the Prepayment Assumption. The present value rate equals the
applicable Federal rate under Code Section 1274(d) as of the date of the
transfer for a term ending with the last calendar quarter in which excess
inclusions are expected to accrue. Such rate is applied to the anticipated
excess inclusions from the end of the remaining calendar quarters in which they
arise to the date of the transfer. Such a tax generally would be imposed on the
transferor of the Residual Certificate, except that where such transfer is
through an agent (including a broker, nominee, or other middleman) for a
Disqualified Organization, the tax would instead be imposed on such agent.
However, a transferor of a Residual Certificate would in no event be liable for
such tax with respect to a transfer if the transferee furnishes to the
transferor an affidavit that the transferee is not a Disqualified Organization
and, as of the time of the transfer, the transferor does not have actual
knowledge that such affidavit is false. The tax also may be waived by the
Treasury Department if the Disqualified Organization promptly disposes of the
residual interest and the transferor pays income tax at the highest corporate
rate on the excess inclusion for the period the residual interest is actually
held by the Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions on the Residual Certificate that are allocable
to the interest in the Pass-Through Entity during the period such interest is
held by such Disqualified Organization, and (ii) the highest marginal federal
corporate income tax rate. Such tax would be applied against (and operate to
reduce) the amount included in gross income with respect to the Residual
Certificate for the taxable year. The Pass-Through Entity would not be liable
for such tax if it has received an affidavit from such record holder that it is
not a Disqualified Organization or stating such holder's taxpayer identification
number and, during the period such person is the
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record holder of the Residual Certificate, the Pass-Through Entity does not have
actual knowledge that such affidavit is false.
For these purposes, (i) "Disqualified Organization" means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
of its activities are subject to tax and a majority of its board of directors is
not selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under the Code unless such organization is subject to the tax or
unrelated business income imposed by Code Section 511, and (ii) "Pass-Through
Entity" means any regulated investment company, real estate investment trust,
common trust fund, partnership, trust, or estate and certain corporations
operating on a cooperative basis. Except as may be provided in Treasury
regulations, any person holding an interest in a Pass-Through Entity as a
nominee for another will, with respect to such interest, be treated as a
Pass-Through Entity.
The Pooling and Servicing Agreement with respect to a Series will provide
that no legal or beneficial interest in a Residual Certificate may be
transferred unless (i) the proposed transferee provides to the Depositor and the
Trustee an affidavit to the effect that such transferee is not a Disqualified
Organization and is not purchasing such Residual Certificate on behalf of a
Disqualified Organization (i.e., as a broker, nominee or middleman thereof), and
(ii) the transferor provides a statement in writing to the Depositor and the
Trustee that it has no actual knowledge that such affidavit is false. Moreover,
the Pooling and Servicing Agreement will provide that any attempted or purported
transfer in violation of these transfer restrictions will be null and void and
will vest no rights in any purported transferee. Each Residual Certificate with
respect to a Series will bear a legend referring to such restrictions on
transfer, and each holder of a Residual Certificate will be deemed to have
agreed, as a condition of ownership thereof, to any amendments to the related
Pooling and Servicing Agreement required under the Code or applicable Treasury
regulations to effectuate the foregoing restrictions. Information necessary to
compute an applicable excise tax must be furnished to the Internal Revenue
Service and to the requesting party within 60 days of the request, and the
Depositor or the Trustee may charge a fee for computing and providing such
information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the Residual Certificates and thus would
continue to be subject to tax on its allocable portion of the net income of the
REMIC Pool. Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" (as defined below) to a Residual Holder (other than a Residual Holder
who is not a U.S. Person, as defined below under "Foreign Investors") is
disregarded for all federal income tax purposes if a significant purpose of the
transfers is to impede the assessment or collection of tax. A residual interest
in a REMIC (including a residual interest with a positive value as issuance) is
a "noneconomic residual interest" unless, at the time of the transfer, (i) the
present value of the expected future distributions on the residual interest at
least equals the product of the present value of the anticipated excess
inclusions and the highest corporate income tax rate in effect for the year in
which the transfer occurs, and (ii) the transferor reasonably expects that the
transferee will receive distributions from the REMIC at or after the time at
which taxes accrue on the anticipated excess inclusions in an amount sufficient
to satisfy the accrued taxes on each excess inclusion. The anticipated excess
inclusions and the present value rate are determined in the same manner as set
forth above under "Disqualified Organizations." The REMIC Regulations explain
that a significant purpose to impede the assessment or collection of tax exists
if the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of the REMIC. A safe harbor is provided if (i) the
transferor conducted, at the time of the transfer, a reasonable investigation of
the financial condition of the transferee and found that the transferee
historically had paid its debts as they came due and found no significant
evidence to indicate that the transferee would not continue to pay its debts as
they came due in the future, and (ii) the transferee represents to the
transferor that it understands that, as the holder of the non-economic residual
interest, the transferee may incur tax liabilities in excess of any cash flows
generated by the interest and that the transferee intends to pay taxes
associated with holding the residual
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interest as they become due. The Pooling and Servicing Agreement with respect to
a Series will require the transferee of a REMIC Residual Certificate to certify
to the matters in the preceding sentence as part of the affidavit described
above under the heading "Disqualified Organizations."
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended to
apply to a transferee who is not a "U.S. Person" (as defined below), unless such
transferee's income is effectively connected with the conduct of a trade or
business within the United States. A Residual Certificate is deemed to have tax
avoidance potential unless, at the time of the transfer, (i) the future value of
expected distributions equals at least 30% of the anticipated excess inclusions
after the transfer, and (ii) the transferor reasonably expects that the
transferee will receive sufficient distributions from the REMIC Pool at or after
the time at which the excess inclusions accrue and prior to the end of the
succeeding taxable year for the accumulated withholding tax liability to be
paid. If the non-U.S. Person transfers the Residual Certificate back to a U.S.
Person, the transfer will be disregarded and the foreign transferor will
continue to be treated as the owner unless arrangements are made so that the
transfer does not have the effect of allowing the transferor to avoid the
transferor to avoid tax on accrued excess inclusions.
The Prospectus Supplement relating to the Certificates of a Series may
provide that a Residual Certificate may not be purchased by or transferred to
any person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate or trust that
is subject to U.S. federal income tax regardless of the source of its income.
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual Holder
will recognize gain or loss equal to the excess, if any, of the amount realized
over the adjusted basis (as described above under "Taxation of Residual
Certificates -- Basis and Losses") of such Residual Holder in such Residual
Certificate at the time of the sale or exchange. In addition to reporting the
taxable income of the REMIC Pool, a Residual Holder will have taxable income to
the extent that any cash distribution to it from the REMIC Pool exceeds such
adjusted basis on that Distribution Date. Such income will be treated as gain
from the sale or exchange of the Residual Certificate. It is possible that the
termination of the REMIC Pool may be treated as a sale or exchange of a Residual
Holder's Residual Certificate, in which case, if the Residual Holder has an
adjusted basis in its Residual Certificate remaining when its interest in the
REMIC Pool terminates, and if it holds such Residual Certificate as a capital
asset under Code Section 1221, then it will recognize a capital loss at that
time in the amount of such remaining adjusted basis.
The Conference Committee Report to the 1986 Act provides that, except as
provided in Treasury regulations yet to be issued, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Certificates where the
seller of the Residual Certificate, during the period beginning six months
before the sale or disposition of the Residual Certificate and ending six months
after such sale or disposition, acquires (or enters into any other transaction
that results in the application of Section 1091) any residual interest in any
REMIC or any interest in a "taxable mortgage pool" (such as a non-REMIC owner
trust) that is economically comparable to a Residual Certificate.
TAXES THAT MAY BE IMPOSED ON THE REMIC POOL
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss includible
in the federal income tax returns of Residual Holders, but rather will be taxed
directly to the REMIC Pool at a 100% rate. Prohibited transactions generally
include (i) the disposition of a qualified mortgage other than for (a)
substitution within two years of the Startup Day for a defective, including a
defaulted, obligation (or the repurchase in lieu of substitution of a defective,
including a defaulted, obligation at any time), or for any qualified mortgage
within three months of the Startup Day,
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(b) foreclosure, default, or reasonably foreseeable default of a qualified
mortgage, (c) bankruptcy or insolvency of the REMIC Pool, or (d) a qualified
(complete) liquidation, (ii) the receipt of income from assets that are not the
type of mortgages or investments that the REMIC Pool is permitted to hold, (iii)
the receipt of compensation for services, or (iv) the receipt of gain from
disposition of cash flow investments other than pursuant to a qualified
liquidation. Notwithstanding (i) and (iv), it is not a prohibited transaction to
sell REMIC Pool property to prevent a default on Regular Certificates as a
result of a default on qualified mortgages or to facilitate a clean-up call
(generally, an optional termination to save administrative costs when no more
than a small percentage of the Certificates is outstanding). The REMIC
Regulations indicate that the modification of a Mortgage Loan generally will not
be treated as a disposition if it is occasioned by a default or reasonably
foreseeable default, an assumption of the Mortgage Loan, the waiver of a
due-on-sale clause or the conversion of an interest rate by a mortgagor pursuant
to the terms of a convertible adjustable rate Mortgage Loan. The REMIC
Regulations also provide that the modification of mortgage loans underlying a
Mortgage Certificate will not be treated as a modification of the Mortgage
Certificate, provided the Mortgage Certificate trust was not created to avoid
prohibited transaction rules.
Contributions to the REMIC Pool After the Startup Day
In general, a REMIC Pool will be subject to tax at a 100% rate on the value
of any property contributed to the REMIC Pool after the Startup Day. Exceptions
are provided for cash contributions to a REMIC Pool (i) during the three months
following the Startup Day, (ii) made to a qualified reserve fund by a Residual
Holder, (iii) in the nature of a guarantee, (iv) made to facilitate a qualified
liquidation or clean-up call, and (v) as otherwise permitted in Treasury
regulations yet to be issued.
Net Income from Foreclosure Property
A REMIC Pool is 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. Generally, property acquired by
deed in lieu of foreclosure would be treated as "foreclosure property" for a
period of two years, with possible extensions. Net income from foreclosure
property generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
LIQUIDATION OF THE REMIC POOL
If a REMIC Pool adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC Pool's final tax return a date on which such adoption is deemed to
occur, and sells all of its assets (other than cash) within a 90-day period
beginning on the date of the adoption of the plan of liquidation, then the REMIC
Pool will recognize no gain or loss on the sale of its assets, provided that the
REMIC Pool credits or distributes in liquidation all of the sale proceeds plus
its cash (other than amounts retained to meet claims) to holders of Regular
Certificates and Residual Holders within the 90-day period.
ADMINISTRATIVE MATTERS
The REMIC Pool's books must be maintained on a calendar year basis and the
federal income tax returns for a REMIC Pool must be filed in a manner similar to
a partnership for federal income tax purposes. The form for such information
return is Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax
Return. The Trustee of the REMIC Pool with respect to a Series will be required
to sign the REMIC Pool's returns. Treasury regulations provide that, except
where there is a single Residual Holder for an entire taxable year, the REMIC
Pool will be subject to the procedural and administrative rules of the Code
applicable to partnerships, including the determination by the Internal Revenue
Service of any adjustments to, among other things, items of REMIC income, gain,
loss, deduction, or credit in a unified administrative proceeding. Unless
otherwise specified in the applicable Prospectus Supplement, the Servicer will
be obligated to act as the REMIC Pool's "tax matters person," as defined in
applicable Treasury regulations, with respect to the REMIC Pool, in its capacity
as either Residual Holder or agent of the Residual Holders. If the Code or
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applicable Treasury regulations do not permit the Servicer to act as tax matters
person in its capacity as agent of the Residual Holders, the Residual Holder
owning the largest residual interest, or such other person specified pursuant to
Treasury regulations, will be required to act as tax matters person.
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
An investor who is an individual, estate, or trust will be subject to
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such itemized deductions, in the aggregate, do not exceed
two percent of the investor's adjusted gross income. In addition, Code Section
68 provides that itemized deductions otherwise allowable for a taxable year of
an individual taxpayer will be reduced by the lesser of (i) 3% of the excess, if
any, of adjusted gross income over $100,000 ($50,000 in the case of a married
individual filing a separate return) (subject to adjustment for inflation), or
(ii) 80% of the amount of itemized deductions otherwise allowable for such year.
In the case of a REMIC Pool, such deductions may include deductions under Code
Section 212 for the Servicing Fee and all administrative and other expenses
relating to the REMIC Pool, or any similar expenses allocated to the REMIC Pool
with respect to a regular interest it holds in another REMIC. Such investors who
hold REMIC Certificates either directly or indirectly through certain
pass-through entities may have their pro rata share of such expenses allocated
to them as additional gross income, but may be subject to such limitation on
deductions. In addition, such expenses are not deductible at all for purposes of
computing the alternative minimum tax and may cause such investors to be subject
to significant additional tax liability. Temporary Treasury regulations provide
that the additional gross income and corresponding amount of expenses generally
are to be allocated entirely to the holders of Residual Certificates in the case
of a REMIC Pool that would not qualify as a fixed investment trust in the
absence of a REMIC election. However, such additional income and limitation on
deductions will apply to the allocable portion of such expenses to holders of
Regular Certificates, as well as to holders of Residual Certificates, where such
Regular Certificates are similar to pass-through certificates in a fixed
investment trust. In general, such allocable portion will be determined based on
the ratio that a Regular Certificateholder's income, determined on a daily
basis, bears to the income of all holders of Regular Certificates and Residual
Certificates with respect to the REMIC Pool. As a result, individuals, estates,
or trusts holding REMIC Certificates (either directly or indirectly through a
grantor trust, partnership, S corporation, REMIC, or certain other pass-through
entities described in the foregoing temporary Treasury regulations), issued in a
single class may have taxable income or alternative minimum taxable income in
excess of the amount of interest income at the pass-through rate on such Regular
Certificates for the related period or in excess of distributions of cash for
the related period on Residual Certificates.
TAXATION OF CERTAIN FOREIGN INVESTORS
Regular Certificates
Interest, including original issue discount, distributable to Regular
Certificateholders who are nonresident aliens, foreign corporations, or other
Non-U.S. Persons (i.e., any persons who are not U.S. Persons, as defined above),
will be considered "portfolio interest" and, therefore, generally will not be
subject to 30% United States withholding tax, provided that such Non-U.S. Person
(i) is not a "10-percent shareholder" within the meaning of Code Section
871(h)(3)(B) with respect to the Issuer, or a controlled foreign corporation
described in Code Section 881(c)(3)(C) and (ii) provides the Trustee, or the
person who would otherwise be required to withhold tax from such distributions
under Code Section 1441 or 1442, with an appropriate statement, signed under
penalties of perjury, identifying the beneficial owner and stating, among other
things, that the beneficial owner of the Regular Certificate is a Non-U.S.
Person. If such statement, or any other required statement, is not provided, 30%
withholding will apply unless reduced or eliminated pursuant to an applicable
tax treaty or unless the interest on the Regular Certificate is effectively
connected with the conduct of a trade or business within the United States by
such Non-U.S. Person. In the latter case, such Non-U.S. Person will be subject
to United States federal income tax at regular rates. Investors who are Non-U.S.
Persons should consult their own tax advisors regarding the specific tax
consequences to them of owning a Regular Certificate.
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Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts paid
to Residual Holders who are Non-U.S. Persons are treated as interest for
purposes of the 30% (or lower treaty rate) United States withholding tax.
Treasury regulations provide that amounts distributed to Residual Holders may
qualify as "portfolio interest," subject to the conditions described in "Regular
Certificates" above, but only to the extent that (i) the Mortgage Loans were
issued after July 18, 1984 and (ii) the Trust Estate or segregated pool of
assets therein (as to which a separate REMIC election will be made), to which
the Residual Certificate relates, consists of obligations issued in "registered
form" within the meaning of Code Section 163(f)(1). Generally, Mortgage Loans
will not be, but Mortgage Certificates and regular interests in another REMIC
Pool will be, considered obligations issued in registered form. Furthermore, a
Residual Holder will not be entitled to any exemption from the 30% withholding
tax (or lower treaty rate) to the extent of that portion of REMIC taxable income
that constitutes an "excess inclusion." See "Taxation of Residual
Certificates -- Limitations on Offset or Exemption of REMIC Income." If the
amounts paid to Residual Holders who are Non-U.S. Persons are effectively
connected with the conduct of a trade or business within the United States by
such Non-U.S. Persons, 30% (or lower treaty rate) withholding will not apply.
Instead, the amounts paid to such Non-U.S. Persons will be subject to United
States federal income tax at regular rates. If 30% (or lower treaty rate)
withholding is applicable, such amounts will be taken into account for purposes
of withholding only when paid or otherwise distributed (or when the Residual
Certificate is disposed of) under rules similar to withholding upon disposition
of debt instruments that have original issue discount. See "Taxation of Residual
Certificates -- Tax-Related Restrictions on Transfer of Residual
Certificates -- Foreign Investors" above concerning the disregard of certain
transfers having "tax avoidance potential." Investors who are Non-U.S. Persons
should consult their own tax advisors regarding the specific tax consequences to
them of owning a Residual Certificate.
BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds from the sale
of the Regular Certificates to or through certain brokers, may be subject to a
"backup" withholding tax under Code Section 3406 of 31% on "reportable payments"
(including interest distributions, original issue discount, and, under certain
circumstances, principal distributions) unless the Regular Certificateholder
complies with certain reporting and/or certification procedures, including the
provision of its taxpayer identification number to the Trustee, its agent, or
the broker who effected the sale of the Regular Certificates, or such Regular
Certificateholder is otherwise an exempt recipient under applicable provisions
of the Code. Any amounts to be withheld from distribution on the Regular
Certificates would be refunded by the Internal Revenue Service or allowed as a
credit against the Regular Certificateholder's federal income tax liability.
REPORTING REQUIREMENTS
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of market discount will be made annually to the
Internal Revenue Service and to individuals, estates, non-exempt and
non-charitable trusts, and partnerships who are either holders of record of
Regular Certificates or beneficial owners who own Regular Certificates through a
broker or middleman as nominee. All brokers, nominees and all other non-exempt
holders of record of Regular Certificates (including corporations, non-calendar
year taxpayers, securities or commodities dealers, real estate investment
trusts, investment companies, common trust funds, thrift institutions and
charitable trusts) may request such information for any calendar quarter by
telephone or in writing by contacting the person designated in Internal Revenue
Service Publication 938 with respect to a particular Series of Regular
Certificates. Holders through nominees must request such information from the
nominee.
The Internal Revenue Service's Form 1066 has an accompanying Schedule Q,
Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net
Loss Allocation. Treasury regulations require that Schedule Q be furnished by
the REMIC Pool to each Residual Holder by the end of the month following the
close of each calendar quarter (41 days after the end of a quarter under
proposed Treasury regulations) in which the REMIC Pool is in existence.
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Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual Holders,
furnished annually, if applicable, to holders of Regular Certificates, and filed
annually with the Internal Revenue Service concerning Code Section 67 expenses
(see "Limitations on Deduction of Certain Expenses" above) allocable to such
holders. Furthermore, under such regulations, information must be furnished
quarterly to Residual Holders, furnished annually to holders of Regular
Certificates, and filed annually with the Internal Revenue Service concerning
the percentage of the REMIC Pool's assets meeting the qualified asset tests
described above under "Status of REMIC Certificates."
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FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES
AS TO WHICH NO REMIC ELECTION IS MADE
STANDARD CERTIFICATES
General
In the event that a Trust Fund (or a segregated pool of assets therein)
with respect to a Series of Standard Certificates does not elect to be treated
as a REMIC, the Trust Fund will be classified as a grantor trust under subpart
E, Part 1 of subchapter J of the Code and not as an association taxable as a
corporation or a "taxable mortgage pool" within the meaning of Code Section
7701(i). Where there is no Fixed Retained Yield with respect to the Mortgage
Loans underlying such Series of Standard Certificates and where such
Certificates are not designated as Stripped Certificates, as described below
under "Stripped Certificates," the holder of each such Certificate will be
treated as the owner of a pro rata undivided interest in the ordinary income and
corpus portions of the Trust Fund represented by his Standard Certificate and
will be considered the beneficial owner of a pro rata undivided interest in each
of the Mortgage Loans, subject to the discussion below under "Recharacterization
of Servicing Fees." Accordingly, the holder of a Standard Certificate of a
particular Series (a "Standard Certificateholder") will be required to report on
its federal income tax return its pro rata share of the entire income from the
Mortgage Loans represented by its Standard Certificate, including interest at
the coupon rate, original issue discount (if any), prepayment fees, assumption
fees, and late payment charges received by the Servicer, in accordance with such
Standard Certificateholder's method of accounting. A Standard Certificateholder
generally will be able to deduct its share of the Servicing Fee and all
administrative and other expenses of the Trust Fund in accordance with its
method of accounting, provided that such amounts are reasonable compensation for
services rendered to that Trust Fund. However, investors who are individuals,
estates, or trusts who own Standard Certificates, either directly or indirectly
through certain pass-through entities, will be subject to limitation with
respect to certain itemized deductions described in Code Section 67, including
deductions under Code Section 212, for the Servicing Fee and all such
administrative and other expenses of the Trust Fund, to the extent that such
deductions, in the aggregate, do not exceed two percent of an investor's
adjusted gross income. In addition, Code Section 68 provides that itemized
deductions otherwise allowable for a taxable year of an individual taxpayer will
be reduced by the less of (i) 3% of the excess, if any, of adjusted gross income
over $100,000 ($50,000 in the case of a married individual filing a separate
return) (subject to adjustment for inflation), of (ii) 80% of the amount of
itemized deductions otherwise allowable for such year. As a result, such
investors holding Standard Certificates, directly or indirectly through a
pass-through entity, might have aggregate taxable income in excess of the
aggregate amount of cash received as interest or discount on such Standard
Certificates. In addition, such expenses are not deductible at all for purposes
of computing the alternative minimum tax and may cause such investors to be
subject to significant additional tax liability. Moreover, where there is Fixed
Retained Yield with respect to the Mortgage Loans underlying a Series of
Standard Certificates or where the servicing fees are in excess of reasonable
servicing compensation, the transaction may be subject to the application of the
"stripped bond" and "stripped coupon" rules of the Code, as described below
under "Stripped Certificates" and "Recharacterization of Servicing Fees,"
respectively.
Tax Status
Cadwalader, Wickersham & Taft has advised the Depositor that, except as
discussed below with respect to Buy-Down Loans:
1. A Standard Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) will be
considered to represent "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v), provided
that the property securing the Mortgage Loans represented by that Standard
Certificate is of the type described in such section of the Code.
2. A Standard Certificate owned by a financial institution described
in Code Section 593(a) will be considered to represent "qualifying real
property loans" within the meaning of Code Section 593(d)(1),
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provided that the property securing the Mortgage Loans represented by that
Standard Certificate is of the type described in such section of the Code.
A Standard Certificate owned by a real estate investment trust will be
considered to represent "real estate assets" within the meaning of Code
Section 856(c)(5)(A) to the extent that the assets of the related Trust
Fund consist of qualified assets, and interest income on such assets will
be considered "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B).
4. A Standard Certificate owned by a REMIC will be considered to
represent an "obligation (including any participation or certificate of
beneficial ownership therein) which is principally secured by an interest
in real property" within the meaning of Code Section 860G(a)(3)(A) to the
extent that the assets of the related Trust Fund consist of "qualified
mortgages" within the meaning of Code Section 860G(a)(3).
An issue arises as to whether Buy-Down Loans may be characterized in their
entirety under the Code provisions cited in the immediately preceding paragraph.
Code Section 593(d)(1)(C) provides that the term "qualifying real property loan"
does not include a loan "to the extent secured by a deposit in or share of the
taxpayer." the application of this provision to a Buy-Down Fund is uncertain,
but it may require that a taxpayer's investment in a Buy-Down Loan be reduced by
the Buy-Down Fund. As to the treatment of Buy-Down Loans as "qualifying real
property loans" under Code Section 594(d) if the exception of Code Section
593(d)(1)(C) is inapplicable, as "loans . . . secured by an interest in real
property" under Code Section 7701(a)(19)(C)(v), as "real estate assets" under
code Section 856(c)(5)(A), and as "obligation[s] . . . principally secured by an
interest in real property" under Code Section 860G(a)(3)(A), there is indirect
authority supporting treatment of an investment in a Buy-Down Loan as entirely
secured by real property if the fair market value of the real property securing
the loan exceeds the principal amount of the loan at the time of issuance or
acquisition, as the case may be. there is no assurance that the treatment
described above is proper. Accordingly, Standard Certificateholders are urged to
consult their own tax advisors concerning the effects of such arrangements on
the characterization of such Standard Certificateholder's investment for federal
income tax purposes.
Premium and Discount
Standard Certificateholders are advised to consult with their tax advisors
as to the federal income tax treatment of premium and discount arising either
upon initial acquisition of Standard Certificates or thereafter.
Premium. The treatment of premium incurred upon the purchase of a Standard
Certificate will be determined generally as described above under "Federal
Income Tax Consequences for REMIC Certificates -- Taxation of Residual
Certificates -- Premium."
Original Issue Discount. The Internal Revenue Service has stated in
published rulings that, in circumstances similar to those described herein, the
original issue discount rules will be applicable to a Standard
Certificateholder's interest in those Mortgage Loans as to which the conditions
for the application of those sections are met. Rules regarding periodic
inclusion of original issue discount income are applicable to mortgages of
corporations originated after May 27, 1969, mortgages of noncorporate mortgagors
(other than individuals) originated after July 1, 1982, and mortgages of
individuals originated after March 2, 1984. Under the Proposed OID Regulations,
such original issue discount could arise by the charging of points by the
originator of the mortgages in an amount greater than the statutory de minimis
exception, including a payment of points that is currently deductible by the
borrower under applicable Code provisions or, under certain circumstances, by
the presence of "teaser rates" on the Mortgage Loans.
Original issue discount generally must be reported as gross income as it
accrues under a constant interest method, in advance of the cash attributable to
such income. However, Code Section 1272 provides for a reduction in the amount
of original issue discount includible in the income of an obligation holder that
acquires the obligation after its initial issuance at a price greater than the
sum of the original issue price and
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the previously accrued original issue discount, less prior payments of
principal. Accordingly, if such Mortgage Loans acquired by a Standard
Certificateholder are purchased at a price equal to the then unpaid principal
amount of such Mortgage Loans, no original issue discount attributable to the
difference between the issue price and the original principal amount of such
Mortgage Loans (i.e., points) will be includible by such holder.
Market Discount. Standard Certificateholders also will be subject to the
market discount rules to the extent that the conditions for application of those
sections are met. Market discount on the Mortgage Loans will be determined and
will be reported as ordinary income generally in the manner described above
under "Federal Income Tax Consequences for REMIC Certificates -- Taxation of
Residual Certificates -- Market Discount."
Deferred Interest. Any deferred Interest that accrues with respect to a
Standard Certificate will constitute income to the holder of such Standard
Certificate prior to the time distributions of cash with respect to such
Deferred Interest are made. It is unclear, under the Proposed Regulations,
whether the full amount of the Deferred Interest that accrues with respect to
such Standard Certificate for any period must be recognized as income for that
period or whether the Internal Revenue Service will take the position that all
or a portion of the Deferred Interest must be included in the stated redemption
price at maturity of the Standard Certificate and accounted for as original
issue discount. If the Standard Certificateholders report income of the Trust
Fund on the cash method of accounting rather than the accrual method of
accounting, applying the latter analysis may result in a slight acceleration in
the timing of the inclusion in income of interest on such Standard Certificate.
Recharacterization of Servicing Fees
If the Servicing Fees paid to the Servicer were deemed to exceed reasonable
servicing compensation, the amount of such excess would be nondeductible under
code Section 162 or 212. In this regard, there are no authoritative guidelines
for federal income tax purposes as to either the maximum amount of servicing
compensation that may be considered reasonable in the context of this or similar
transactions or whether, in the case of the Mortgage Loans, the reasonableness
of servicing compensation should be determined on a weighted average or
loan-by-loan basis. If a loan-by-loan basis is appropriate, the likelihood that
such amount would exceed reasonable servicing compensation as to some of the
Mortgage Loans would be increased.
Recently issued Internal Revenue Service guidance indicates that a
servicing fee in excess of reasonable compensation ("excess servicing") will
cause the Mortgage Loans to be treated under the "stripped bond" rules. Such
guidance provides safe harbors for servicing deemed to be reasonable and
requires taxpayers to demonstrate that the value of servicing fees in excess of
such amounts is not greater than the value of the services provided.
Accordingly, if the Internal revenue Service's approach is upheld, a
Servicer who receives a servicing fee in excess of such amounts would be viewed
as retaining an ownership interest in a portion of the interest payments on the
Mortgage Loans. Under the rules of Code Section 1286, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from the right to receive some or all of the principal payments on
the obligation would result in treatment of such Mortgage Loans as "stripped
coupons" and "stripped bonds." Subject to the de minimis rule discussed below
under "-- Stripped Certificates," each stripped bond or stripped coupon could be
considered for this purpose as a non-interest bearing obligation issued on the
date of issue of the Standard Certificates, and the original issue discount
rules of the Code would apply to the holder thereof. While Standard
Certificateholders would still be treated as owners of beneficial interest in a
grantor trust for federal income tax purposes, the corpus of such trust could be
viewed as excluding the portion of the Mortgage Loans the ownership of which is
attributed to the Servicer, or as including such portion as a second class of
equitable interest. Applicable Treasury regulations treat such an arrangement as
a fixed investment trust, since the multiple classes of trust interests should
be treated as merely facilitating direct investments in the trust assets and the
existence of multiple classes of ownership interests is incidental to that
purpose. In general, such a recharacterization should not have any significant
effect upon the timing of amount of income reported by a Standard
Certificateholder, except that the income
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reported by a cash method holder may be slightly accelerated. See "Stripped
Certificates" below for a further description of the federal income tax
treatment of stripped bonds and stripped coupons.
In the alternative, the amount, if any, by which the servicing fees paid to
the Servicer are deemed to exceed reasonable compensation for servicing could be
treated as deferred payments of purchase price by the Standard Certificateholder
to the Depositor to purchase its undivided interest in the Mortgage Loans. In
such event, the present value of such additional payments might be included in
the Standard Certificateholder's basis in such undivided interests for purposes
of determining whether the Standard Certificate was acquired at a discount, at
par, or at a premium. Under this alternative, Standard Certificateholders may
also be entitled to a deduction for unstated interest with respect to each
deferred payment. The Internal Revenue Service may take the position that the
specific statutory provisions of Code Section 1286 described above override the
alternative described in this paragraph. Standard Certificateholders are advised
to consult their tax advisors as to the proper treatment of the amounts paid to
the Servicer as set forth herein as servicing compensation or under either of
the alternatives set forth above.
Sale or Exchange of Non-REMIC Certificates
Upon sale or exchange of a Standard Certificate, a Standard
Certificateholder will recognize gain or loss equal to the difference between
the amount realized in the sale and its aggregate adjusted basis in the Mortgage
Loans and other assets represented by the Standard Certificate. In general, the
aggregate adjusted basis will equal the Standard Certificateholder's cost of the
Standard Certificate, increased by the amount of any income previously reported
with respect to the Standard Certificate and decreased by the amount of any
losses previously reported with respect to the Standard Certificate and the
amount of any distributions received thereon. Except as provided above with
respect to market discount on any Mortgage Loans, and except for certain
financial institutions subject to the provisions of Code Section 582(c), any
such gain or loss would be capital gain or loss if the Standard Certificate was
held as a capital asset. The preferential rates applicable to long-term capital
gains were eliminated by the Tax Reform Act of 1986 but were restored by the
Revenue Reconciliation Act of 1990 with respect to certain individuals.
STRIPPED CERTIFICATES
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership of
the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
Certificates that are subject to those rules will be referred to as "Stripped
Certificates." The Certificates will be subject to those rules if (i) the
Depositor or any of its affiliates retains (for its own account or for purposes
of resale), in the form of Fixed Retained Yield or otherwise, an ownership
interest in a portion of the payments on the Mortgage Loans, (ii) the Depositor
or any of its affiliates is treated as having an ownership interest in the
Mortgage Loans to the extent it is paid (or retains) servicing compensation in
an amount greater than arm's length consideration for servicing the Mortgage
Loans (see "Standard Certificates -- Recharacterization of Servicing Fees"
above), and (iii) a Class of Certificates is issued in two or more subclasses
representing the right to non-pro rata percentages of the interest and principal
payments on the Mortgage Loans.
In general, a holder of a Stripped Certificate (a "Stripped
Certificateholder") will be considered to own "stripped bonds" with respect to
its pro rata share of all or a portion of the principal payments on each
Mortgage Loan and/or "stripped coupons" with respect to its pro rata share of
all or a portion of the interest payments on each Mortgage Loan, including the
Stripped Certificate's allocable share of the servicing fees paid to the
Servicer, to the extent that such fees represent reasonable compensation for
services rendered. See discussion above under "Standard
Certificates -- Recharacterization of Servicing Fees." For this purpose the
servicing fees will be allocated to the Stripped Certificates in proportion to
the respective offering price of each Class (or Subclass) of Stripped
Certificates. The holder of a Stripped Certificate generally will be entitled to
a
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deduction each year in respect of the servicing fees, as described above under
"Standard Certificates -- General," subject to the limitation described therein.
Code Section 1286 generally treats a stripped bond or a stripped coupon
generally as an obligation issued at an original issue discount on the date that
such stripped interest is purchased. Although the treatment of Stripped
Certificates for federal income tax purposes is not clear in certain respects at
this time, particularly where such Stripped Certificates are issued with respect
to a Mortgage Pool containing variable-rate Mortgage Loans, the Depositor has
been advised by counsel that (i) the Trust Fund will be treated as a grantor
trust under subpart E, Part I of subchapter J of the Code and not as an
association taxable as a corporation or a "taxable Mortgage pool" within the
meaning of Code Section 7701(i), and (ii) each Stripped Certificate should be
treated as a single installment obligation for purposes of calculating original
issue discount and gain or loss on disposition. This treatment is based on the
interrelationship of Code Section 1286, Code Sections 1272 through 1275, and the
Proposed OID Regulations. While under Code Section 1286 computations with
respect to Stripped Certificates arguably should be made in one of the ways
described below under "Taxation of Stripped Certificates -- Possible Alternative
Characterizations," the Proposed OID Regulations state, in general, that two or
more debt instruments issued by a single issuer to a single investor in a single
transaction should be treated as a single debt instrument. Accordingly, for OID
purposes, all payments on any Stripped Certificates should be aggregated and
treated as though they were made on a single debt instrument. The Pooling and
Servicing Agreement requires that the Trustee make and report all computations
described below using this aggregate approach, unless substantial legal
authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992 provide for
treatment of a Stripped Certificate as a single debt instrument issued on the
date it is originated for purposes of calculating any original issue discount.
In addition, under these regulations, a Stripped Certificate that represents a
right to payments of both interest and principal may be viewed either as issued
with original issue discount or market discount (as described below), at a de
minimis original issue discount, or, presumably, at a premium. This treatment
suggests that the interest component of such a Stripped Certificate will be
required to account for any discount as market discount rather than original
issue discount if either (i) the initial discount with respect to the Stripped
Certificate was treated as zero under the de minimis rule, or (ii) no more than
100 basis points in excess of reasonable servicing is stripped off the related
Mortgage Loans. Any such market discount would be reportable as described above
under "Federal Income Tax Consequences for REMIC Certificates -- Taxation of
Regular Certificates -- Market Discount," without regard to the de minimis rule
therein. Pursuant to Revenue Procedure 91-49, issued August 8, 1991, investors
using a method of accounting inconsistent with the above treatment must change
their method of accounting and request the consent of the Internal Revenue
Service to such change on a statement attached to their first timely federal
income tax return for the first tax year ending after August 8, 1991.
Status of Stripped Certificates
No specific legal authority exists as to whether the character of the
Stripped Certificates, for federal income tax purposes, will be the same as that
of the Mortgage Loans. Although the issue is not free from doubt, counsel has
advised the Depositor that Stripped Certificates owned by applicable holders
should be considered to represent "qualifying real property loans" within the
meaning of Code Section 593(d)(1), "real estate assets" within the meaning of
Code Section 856(c)(5)(A), obligation[s] . . . principally secured by an
interest in real property within the meaning of Code Section 860G(a)(3)(A) and
"loans . . . secured by an interest in real property" within the meaning of Code
Section 7701(a)(19)(C)(v), and interest (including original issue discount)
income attributable to Stripped Certificates should be considered to represent
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B), provided that in each case the Mortgage
Loans and interest on such Mortgage Loans qualify for such treatment. The
application of such Code provisions to Buy-Down Loans are uncertain. See
"Standard Certificates -- Tax Status" above.
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Taxation of Stripped Certificates
Original Issue Discount. Except as described above under "General," each
Stripped Certificate will be considered to have been issued at an original issue
discount for federal income tax purposes. Original issue discount with respect
to a Stripped Certificate must be included in ordinary income as it accrues, in
accordance with a constant interest method that takes into account the
compounding of interest, which may be prior to the receipt of the cash
attributable to such income. Based in part on the Proposed OID Regulations and
the amendments to the original issue discount sections of the Code made by the
1986 Act, counsel has advised the Depositor that the amount of original issue
discount required to be included in the income of a holder of a Stripped
Certificate in any taxable year likely will be computed generally as described
above under "Federal Income Tax Consequences for REMIC Certificates -- Taxation
of Regular Certificates -- Original Issue Discount" and "-- Variable Rate
Regular Certificates." However, with the apparent exception of a Stripped
Certificate issued with de minimis original issue discount, as described above
under "General," the issue price of a Stripped Certificate will be the purchase
price paid by each holder thereof, and the stated redemption price at maturity
will include the aggregate amount of the payments to be made on the Stripped
Certificate to such Stripped Certificateholder, presumably under the Prepayment
Assumption.
If the Mortgage Loans prepay at a rate either faster or slower than that
under the Prepayment Assumption, a Stripped Certificateholder's recognition of
original issue discount will be either accelerated or decelerated and the amount
of such original issue discount will be either increased or decreased depending
on the relative interests in principal and interest on each Mortgage Loan
represented by such Stripped Certificateholder's Stripped Certificate. While the
matter is not free from doubt, the holder of a Stripped Certificate should be
entitled in the year that it becomes certain (assuming no further prepayments)
that the holder will not recover a portion of its adjusted basis in such
Stripped Certificate to recognize an ordinary loss equal to such portion of
unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Certificates will not be
made if the Mortgage Loans are prepaid could lead to the interpretation that
such interest payments are "contingent" within the meaning of proposed Treasury
regulations issued April 8, 1986, (the "Prior Proposed OID Regulations"). If the
rules of the Prior Proposed OID Regulations relating to contingent payments
apply, treatment of a Stripped Certificate under such rules depends on whether
the aggregate amount of principal payments, if any, to be made on the Stripped
Certificate is less than or greater than its issue price. If the aggregate
principal payments are greater than or equal to the issue price, the principal
payments would be treated as a separate installment obligation issued at a price
equal to the purchase price for the Stripped Certificate. In such case, original
issue discount would be calculated and accrued under the method described above
without consideration of the interest payments with respect to the Stripped
Certificate. Such payments of interest would be includible in the Stripped
certificateholder's gross income in the taxable year in which the amounts become
fixed. If the aggregate amount of principal payments to be made on the Stripped
Certificate is less than its issue price, each payment of principal would be
treated as a return of basis. Each payment of interest would be treated as
includible in gross income to the extent of the applicable Federal rate under
Code Section 1274(d), as applied to the adjusted basis of the Stripped
Certificate, while amounts received in excess of the applicable Federal rate, as
applied to the adjusted basis of the Stripped Certificate, would be
characterized as a return of basis until the total amount of interest payments
treated as a return of basis equalled the excess of the purchase price over the
aggregate stated principal payments. Any additional interest payments thereafter
would be treated as ordinary income. While not free from doubt, counsel for the
Depositor believes that uncertainty as to the payment of interest arising as a
result of the possibility of prepayment of the Mortgage Loans should not cause
the contingent payment rules under the Proposed OID Regulations to apply to
interest with respect to the Stripped Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "Federal Income Tax Consequences for REMIC Certificates -- Taxation
of Regular Certificates -- Sale or Exchange of Regular Certificates." To the
extent that a subsequent purchaser's purchase price is exceeded by the
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remaining payments on the Stripped Certificates, such subsequent purchaser will
be required for federal income tax purposes to accrue and report such excess as
if it were original issue discount in the manner described above, unless such
obligation is treated as a market discount bond as described above under
"General." It is not clear for this purpose whether the assumed prepayment rate
that is to be used in the case of a Stripped Certificateholder other than an
original Stripped Certificateholder should be the Prepayment Assumption or a new
rate based on the circumstances at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. When an investor
purchases more than one Class of Stripped Certificates, it is currently unclear
whether for federal income tax purposes such Classes of Stripped Certificates
should be treated separately or aggregated for purposes of the rules described
above.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates discussed above are not the only possible interpretations
of the applicable Code provisions. For example, the Stripped Certificateholder
may be treated as the owner of (i) one installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to principal
on each Mortgage Loan and a second installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to interest
on each Mortgage Loan, or (ii) as many stripped bonds or stripped coupons as
there are scheduled payments of principal and/or interest on each Mortgage Loan,
or (iii) a separate installment obligation for each Mortgage Loan, representing
the Stripped Certificate's pro rata share of payments of principal and/or
interest to be made with respect thereto. Alternatively, the holder of one or
more Classes of Stripped Certificates may be treated as the owner of a pro rata
fractional undivided interest in each Mortgage Loan to the extent that such
Stripped Certificate, or Classes of Stripped Certificates in the aggregate,
represent the same pro rata portion of principal and interest on each such
Mortgage Loan, and a stripped bond or stripped coupon (as the case may be),
treated as an installment obligation or contingent payment obligation, as to the
remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations less
likely to be applicable. the preamble to those regulations states that they are
premised on the assumption that an aggregation approach is appropriate for
determining whether original issue discount on a stripped bond or stripped
coupon is de minimis, and solicits comments on appropriate rules for aggregating
stripped bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Trustee will furnish, within a reasonable time after the end of each
calendar year, to each Standard Certificateholder or Stripped Certificateholder
at any time during such year, such information (prepared on the basis described
above) as the Trustee deems to be necessary or desirable to enable such
Certificateholders to prepare their federal income tax returns. Such information
will include the amount of original issue discount accrued on Certificates held
by persons other than Certificateholders exempted from the reporting
requirements. the amount required to be reported by the Trustee may not be equal
to the proper amount of original issue discount required to be reported as
taxable income by a Certificateholder, other than an original Certificateholder.
The Trustee will also file such original issue discount information with the
Internal Revenue Service. If a Certificateholder fails to supply an accurate
taxpayer identification number or if the Secretary of the Treasury determines
that a Certificateholder has not reported all interest and dividend income
required to be shown on his federal income tax return, 31% backup withholding
may be required in respect of any payments, as described above under "Federal
Income Tax Consequences for REMIC Certificates -- Backup Withholding."
TAXATION OF CERTAIN FOREIGN INVESTORS
To the extent that a Standard Certificate or Stripped Certificate evidences
ownership in Mortgage Loans that are issued on or before July 18, 1984, interest
or original issue discount paid by the person required to withhold tax under
Code Section 1441 or 1442 to nonresident aliens, foreign corporations, or other
non-U.S.
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persons ("foreign persons") generally will be subject to 30% United States
withholding tax, or such lower rate as may be provided for interest by an
applicable tax treaty. Accrued original issue discount or market discount
recognized by the Standard Certificateholder or Stripped Certificateholder on
the sale or exchange of such a Certificate also will be subject to federal
income tax at the same rate.
Treasury Regulations provide that interest or original issue discount paid
by the Trustee or other withholding agent to a foreign person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will be
subject to the same certification requirements, described above under "Federal
Income Tax Consequences for REMIC Certificates -- Taxation of Certain Foreign
Investors -- Regular Certificates."
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on those employee benefit plans to which it applies
("Plans") and on those persons who are fiduciaries with respect to such Plans.
The following is a general discussion of such requirements, and certain
applicable exceptions to and administrative exemptions from such requirements.
Before purchasing any Certificates, a Plan fiduciary should determine
whether there exists any prohibition to such purchase under the requirements of
ERISA, whether prohibited transaction exemptions such as PTE 83-1 or any
individual administrative exemption (as described below) applies, including
whether the appropriate conditions set forth therein would be met, or whether
any statutory prohibited transaction exemption is applicable, and further should
consult the applicable Prospectus Supplement relating to such Series of
Certificates.
CERTAIN REQUIREMENTS UNDER ERISA
General
In accordance with ERISA's general fiduciary standards. before investing in
a Certificate a Plan fiduciary should determine whether to do so is permitted
under the governing Plan instruments and is appropriate for the Plan in view of
its overall investment policy and the composition and diversification of its
portfolio. A Plan fiduciary should especially consider the ERISA requirement of
investment prudence and the sensitivity of the return on the Certificates to the
rate of principal repayments (including prepayments) on the Mortgage Loans or
Contracts, as discussed in the related Prospectus Supplement and in "Prepayment
and Yield Considerations" herein.
Parties in Interest/Disqualified Persons. Other provisions of ERISA (and
corresponding provisions of the Code) prohibit certain transactions involving
the assets of a Plan and persons who have certain specified relationships to the
Plan (so-called "parties in interest" within the meaning of ERISA or
"disqualified persons" within the meaning of the Code). The Depositor, the
Servicer (if any) or the Trustee or certain affiliates thereof might be
considered or might become "parties in interest" or "disqualified persons" with
respect to a Plan. If so, the acquisition or holding of Certificates by or on
behalf of such Plan could be considered to give rise to a "prohibited
transaction" within the meaning of ERISA and the Code unless an administrative
exemption described below or some other exemption is available.
Special caution should be exercised before the assets of a Plan are used to
purchase a Certificate if, with respect to such assets, the Depositor, the
Servicer (if any) or the Trustee or an affiliate thereof either: (a) has
investment discretion with respect to the investment of such assets of such
Plan; or (b) has authority or responsibility to give, or regularly gives
investment advice with respect to such assets for a fee and pursuant to an
agreement or understanding that such advice will serve as a primary basis for
investment decisions with respect to such assets and that such advice will be
based on the particular investment needs of the Plan.
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Delegation of Fiduciary Duty
Further, if the assets included in a Trust Fund were deemed to constitute
Plan assets, it is possible that a Plan's investment in the Certificates might
be deemed to constitute a delegation, under ERISA, of the duty to manage Plan
assets by the fiduciary deciding to invest in the Certificates, and certain
transactions involved in the operation of the Trust Fund might be deemed to
constitute prohibited transactions under ERISA and the Code. Neither ERISA or
the Code define the term "plan assets."
The U.S. Department of Labor (the "Department") has published final
regulations (the "Regulations") concerning whether or not a Plan's assets would
be deemed to include an interest in the underlying assets of an entity (such as
a Trust Fund) for purposes of the reporting and disclosure and general fiduciary
responsibility provisions of ERISA, as well as for the prohibited transaction
provisions of ERISA and the Code, if the Plan acquires an "equity interest"
(such as a Certificate) in such entity.
Certain exceptions are provided in the Regulations whereby an investing
Plan's assets would be deemed merely to include its interest in the Certificates
instead of being deemed to include an interest in the assets of a Trust Fund or
be deemed merely to include its interest in the Certificates. However, it cannot
be predicted in advance nor can there be any continuing assurance whether such
exceptions may be met, because of the factual nature of certain of the rules set
forth in the Regulations. For example, one of the exceptions in the Regulations
states that the underlying assets of an entity will not be considered "plan
assets" if, immediately after the most recent acquisition of any equity interest
in the entity, whether or not from the issuer or an underwriter, less than 25%
of the value of each class of equity interest is held by "benefit plan
investors," which are defined as Plans, individual retirement accounts, and
employee benefit plans not subject to ERISA (for example, governmental plans),
but this exception is tested immediately after each acquisition of an equity
interest in the entity whether upon initial issuance or in the secondary market.
ADMINISTRATIVE EXEMPTIONS
Individual Administrative Exemptions. Several underwriters of
mortgage-backed securities have applied for and obtained ERISA prohibited
transaction exemptions (each, an "Individual Exemption") which are in some
respects broader than Prohibited Transaction Class Exemption 83-1 (described
below). Such exemptions can only apply to mortgage-backed securities which among
other conditions, are sold in an offering with respect to which such underwriter
serves as the sole or a managing underwriter, or as a selling or placement
agent. If such an Individual Exemption might be applicable to a Series of
Certificates, the related Prospectus Supplement will refer to such possibility.
An Individual Exemption does not apply to Plans sponsored by the Restricted
Group (as defined below) or the Trustee.
Some of the conditions that must be satisfied for an Individual Exemption
to apply are the following:
(1) The rights and interests evidenced by Certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
Certificates of the Trust Fund;
(2) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is one of the three highest generic
rating categories from either Standard & Poors Corporation ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), Duff & Phelps Rating Co. ("D&P") or
Fitch Investors Service, Inc. ("Fitch");
(3) The Trustee must not be an affiliate of any of the Depositor, the
underwriter specified in the applicable Prospectus Supplement, the Servicer
(if any), any obligor with respect to Mortgage Loans included in the Trust
Fund constituting more than five percent of the aggregate unamortized
principal balance of the assets in the Trust Fund, or any affiliate of such
parties (the "Restricted Group"); and
(4) The Plan investing in the Certificates is 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.
If the conditions to an Individual Exemption are met, whether or not a
Plan's assets would be deemed to include an ownership interest in the Mortgage
Loans in a Mortgage Pool, the acquisition, holding and resale of the
Certificates by Plans would be exempt from the prohibited transaction provisions
of ERISA and the Code.
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Moreover, an Individual Exemption can provide relief from certain
self-dealing/conflict of interest prohibited transactions, only if, among other
requirements, (i) a Plan's investment in Certificates of any class does not
exceed twenty-five percent of all of the Certificates of that Class outstanding
at the time of the acquisition and (ii) immediately after the acquisition no
more than twenty-five percent of the assets of the Plan with respect to which
such person is a fiduciary are invested in Certificates representing an interest
in one or more trusts containing assets sold or served by the same person.
PTE 83-1. Prohibited Transaction Class Exemption 83-1 for Certain
Transactions Involving Mortgage Pool Investment Trusts ("PTE 83-1") permits
certain transactions involving the creation, maintenance and termination of
certain residential mortgage pools and the acquisition and holding of certain
residential mortgage pool pass-through certificates by Plans, whether or not the
Plan's assets would be deemed to include an ownership interest in the mortgages
in the mortgage pool, and whether or not such transactions would otherwise be
prohibited under ERISA.
The term "mortgage pool pass-through certificate" is defined in PTE 83-1 as
"a certificate representing a beneficial undivided fractional interest in a
mortgage pool and entitling the holder of such a certificate to pass-through
payment of principal and interest from the pooled mortgage loans, less any fees
retained by the pool sponsor." It appears that, for purposes of PTE 83-1, the
term "mortgage pool pass-through certificate" would include Certificates issued
in a single Class or in multiple classes that evidence a beneficial undivided
fractional interest in a mortgage pool of one- to four-family residential
mortgage loans and entitle the holder thereof to both a specified percentage of
future interest payments (after permitted deductions) and a specified percentage
of future principal payments.
However, it appears that PTE 83-1 does or might not apply to the purchase
and holding of (a) Certificates that evidence the beneficial ownership only of a
specified percentage of future interest payments (after permitted deductions) on
a Trust Fund or only of a specified percentage of future principal payments on a
Trust Fund, (b) Residual Certificates, (c) Certificates evidencing ownership
interests in a Trust Fund which includes Mortgage Loans secured by multifamily
residential properties or shares issued by cooperative housing corporations, or
(d) Certificates which are subordinated to other classes of Certificates of such
Series. Accordingly, unless exemptive relief other than PTE 83-1 applies, Plans
should not purchase any such Certificates.
Further, it is not clear whether PTE 83-1 applies to Certificates
evidencing ownership interests in a Mortgage Pool consisting of FHLMC
Certificates, GNMA Certificates or FNMA Certificates. In such circumstances, the
Depositor may structure the offering of any such Series of Certificates and the
operation of the Mortgage Pool, and take such other actions as are necessary, to
minimize the risk of occurrence of ERISA prohibited transactions.
PTE 83-1 sets forth certain "general conditions" and "specific conditions"
to its applicability. Section 11 of PTE 83-1 sets forth the following general
conditions to the application of the exemption: (i) the maintenance of a system
of insurance or other protection for the pooled mortgage loans or the property
securing such loans, and for indemnifying certificateholders against reductions
in pass-through payments due to property damage or defaults in loan payments;
(ii) the existence of a pool trustee who is not an affiliate of the pool
sponsor; and (iii) a requirement that the sum of all payments made to and
retained by the pool sponsor, and all funds inuring to the benefit of the pool
sponsor as a result of the administration of the mortgage pool, must represent
not more than adequate consideration for selling the mortgage loans plus
reasonable compensation for services provided by the pool sponsor to the pool.
The system of insurance or protection referred to in clause (i) above must
provide such protection and indemnification up to an amount not less than the
greater of 1% of the aggregate unpaid principal balance of the pooled mortgages
or the unpaid principal balance of the largest mortgage in the pool. It should
be noted that in promulgating PTE 83-1 (and a predecessor exemption), the
Department did not have under its consideration interests in pools of the exact
nature as some of the Certificates described herein.
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EXEMPT PLANS
Employee benefit plans which are governmental plans (as defined in Section
3(32) of ERISA), and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements and assets of such plans may be invested
in Senior Certificates without regard to the ERISA considerations described
above, subject to the provisions of other applicable federal and state law.
UNRELATED BUSINESS TAXABLE INCOME -- RESIDUAL CERTIFICATES
The purchase of a Residual Certificate by such plans, or by most varieties
of ERISA Plans, may give rise to "unrelated business taxable income" as
described in Code Sections 511-515 and 860E. Further, prior to the purchase of
Residual Certificates, a prospective transferee may be required to provide an
affidavit to a transferor that it is not a "Disqualified Organization" which
term includes certain tax-exempt entities not subject to Code Section 511,
including certain governmental plans, as discussed herein under the caption
"Certain Federal Income Tax Consequences -- Federal Income Tax Consequences for
REMIC Certificates -- Income Tax Consequences for REMIC Certificates -- Taxation
of Residual Certificates -- Tax-Related Restrictions on Transfer of Residual
Certificates."
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is particularly important that potential
investors who are Plan fiduciaries carefully consider the consequences under
ERISA of their acquisition and ownership of Certificates.
The sale of Certificates to a Plan is in no respect a representation by the
Depositor or the applicable underwriter that this investment meets all relevant
legal requirements with respect to investments by Plans generally or any
particular Plan, or that this investment is appropriate for Plans generally or
any particular Plan.
LEGAL INVESTMENT
If specified in the related Prospectus Supplement, the Certificates of one
or more classes offered pursuant to this Prospectus will constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984, as amended ("SMMEA"), so long as they are rated in one of the two
highest rating categories by at least one nationally recognized statistical
rating organization. As "mortgage related securities," such Certificates will
constitute legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including, but not limited
to, state-chartered savings banks, commercial banks, savings and loan
associations and insurance companies, as well as trustees and state government
employee retirement systems) created pursuant to or existing under the laws of
the United States or of any state (including the District of Columbia and Puerto
Rico) whose authorized investments are subject to state regulation to the same
extent that, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any agency or instrumentality
thereof constitute legal investments for such entities. Pursuant to SMMEA, a
number of states enacted legislation, on or before the October 3, 1991 cutoff
for such enactments, limiting to varying extents the ability of certain entities
(in particular, insurance companies) to invest in "mortgage related securities,"
in most cases by requiring the affected investors to rely solely upon existing
state law, and not SMMEA. Accordingly, the investors affected by such
legislation will be authorized to invest in the Certificates only to the extent
provided in such legislation.
SMMEA also amended the legal investment authority of federally
chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal
with mortgage related securities without limitation as to the percentage of
their assets represented thereby, federal credit unions may invest in mortgage
related securities, and national banks may purchase mortgage related securities
for their own account without regard to the limitations generally applicable to
investment securities set forth in 12 U.S.C. [spade] 24 (Seventh), subject in
each case to such regulations as the applicable federal regulatory authority
may prescribe. In this connection, federal credit unions should review National
Credit Union Administration (the "NCUA") Letter to Credit Unions No. 96, as
modified by Letter No. 108,
120
<PAGE> 263
which includes guidelines to assist federal credit unions in making investment
decisions for mortgage related securities. The NCUA has adopted rules, effective
December 2, 1991, which prohibit federal credit unions from investing in certain
mortgage related securities (including securities such as certain series,
Classes or Subclasses of Certificates), except under limited circumstances.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities" dated
January 28, 1992 (the "Policy Statement") of the Federal Financial Institutions
Examination Council. The Policy Statement, which has been adopted by the Board
of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Comptroller of the Currency and the Office of Thrift
Supervision, effective February 10, 1992, and by the NCUA (with certain
modifications), effective June 26, 1992, prohibits depository institutions from
investing in certain "high-risk" mortgage securities (including securities such
as certain series, Classes or Subclasses of Certificates), except under limited
circumstances, and sets forth certain investment practices deemed to be
unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as certain series, Classes or Subclasses may be deemed unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not
"interest-bearing" or "income-paying," and, with regard to any Certificates
issued in book-entry form, provisions which may restrict or prohibit investments
in securities which are issued in book-entry form.
OTHER CLASSES OF CERTIFICATES OFFERED PURSUANT TO THIS PROSPECTUS WILL NOT
CONSTITUTE "MORTGAGE RELATED SECURITIES" UNDER SMMEA BECAUSE THEY WILL NOT
REPRESENT BENEFICIAL OWNERSHIP INTERESTS IN QUALIFYING MORTGAGE LOANS UNDER
SMMEA. THE APPROPRIATE CHARACTERIZATION OF THOSE CERTIFICATES UNDER VARIOUS
LEGAL INVESTMENT RESTRICTIONS, AND THUS THE ABILITY OF INVESTORS SUBJECT TO
THESE RESTRICTIONS TO PURCHASE THE CERTIFICATES, MAY BE SUBJECT TO SIGNIFICANT
INTERPRETIVE UNCERTAINTIES. ALL INVESTORS WHOSE INVESTMENT AUTHORITY IS SUBJECT
TO LEGAL RESTRICTIONS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE
WHETHER, AND TO WHAT EXTENT, THE CERTIFICATES WILL CONSTITUTE LEGAL INVESTMENTS
FOR THEM.
NO REPRESENTATION IS MADE AS TO THE PROPER CHARACTERIZATION OF THE
CERTIFICATES FOR LEGAL INVESTMENT OR FINANCIAL INSTITUTION REGULATORY PURPOSES,
OR AS TO THE ABILITY OF PARTICULAR INVESTORS TO PURCHASE CERTIFICATES UNDER
APPLICABLE LEGAL INVESTMENT RESTRICTIONS. THE UNCERTAINTIES DESCRIBED ABOVE MAY
(AND ANY UNFAVORABLE FUTURE DETERMINATIONS CONCERNING LEGAL INVESTMENT OR
FINANCIAL INSTITUTION REGULATORY CHARACTERISTICS OF THE CERTIFICATES ADVERSELY
AFFECT THE LIQUIDITY OF THE NON-SMMEA CERTIFICATES.
INVESTORS SHOULD CONSULT WITH THEIR OWN LEGAL ADVISORS IN DETERMINING
WHETHER AND TO WHAT EXTENT THE CERTIFICATES CONSTITUTE LEGAL INVESTMENTS FOR
SUCH INVESTORS.
PLAN OF DISTRIBUTION
The Depositor may sell the Certificates offered hereby in Series either
directly or through underwriters. The related Prospectus Supplement or
Prospectus Supplements for each Series will describe the terms of the offering
for that Series and will state the public offering or purchase price of each
Class of Certificates of such Series, or the method by which such price is to be
determined, and the net proceeds to the Depositor from such sale.
If the sale of any Certificates is made pursuant to an underwriting
agreement pursuant to which one or more underwriters agree to act in such
capacity, such Certificates will be acquired by such underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices to be determined at the time of sale or at the
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time of commitment therefor. Firm commitment underwriting and public reoffering
by underwriters may be done through underwriting syndicates or through one or
more firms acting alone. The specific managing underwriter or underwriters, if
any, with respect to the offer and sale of a particular Series of Certificates
will be set forth on the cover of the Prospectus Supplement related to such
Series and the members of the underwriting syndicate, if any, will be named in
such Prospectus Supplement. The Prospectus Supplement will describe any
discounts and commissions to be allowed or paid by the Depositor to the
underwriters, any other items constituting underwriting compensation and any
discounts and commissions to be allowed or paid to the dealers. The obligations
of the underwriters will be subject to certain conditions precedent. Unless
otherwise provided in the related Prospectus Supplement, the underwriters with
respect to a sale of any Class of Certificates will be obligated to purchase all
such Certificates if any are purchased. Pursuant to each such underwriting
agreement, the Depositor will indemnify the related underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act of 1933").
If any Certificates are offered other than through underwriters pursuant to
such underwriting agreements, the related Prospectus Supplement or Prospectus
Supplements will contain information regarding the terms of such offering and
any agreements to be entered into in connection with such offering.
Purchasers of Certificates, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act of 1933 in connection with reoffers and sales by
them of Certificates. Certificateholders should consult with their legal
advisors in this regard prior to any such reoffer and sale.
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Depositor, any affiliate thereof or any other person or
persons specified therein may purchase some or all of one or more Classes of
Certificates of such Series from the underwriter or underwriters or such other
person or persons specified in such Prospectus Supplement Such purchaser may
thereafter from time to time offer and sell, pursuant to this Prospectus and the
related Prospectus Supplement, some or all of such Certificates so purchased,
directly, through one or more underwriters to be designated at the time of the
offering of such Certificates, through dealers acting as agent and/or principal
as in such other manner as may be specified in the related Prospectus
Supplement. Such offering may be restricted in the manner specified in such
Prospectus Supplement. Such transactions may be effected at market prices
prevailing at the time of sale, at negotiated prices or at fixed prices. Any
underwriters and dealers participating in such purchaser's offering of such
Certificates may receive compensation in the form of underwriting discounts or
commissions from such purchaser and such dealers may receive commissions from
the investors purchasing such Certificates for whom they may act as agent (which
discounts or commissions will not exceed those customary in those types of
transactions involved). Any dealer that participates in the distribution of such
Certificates may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, and any commissions and discounts received by such
dealer and any profit on the resale of such Certificates by such dealer might be
deemed to be underwriting discounts and commissions under the Securities Act of
1933.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by Cadwalader,
Wickersham & Taft, New York, New York.
RATING
At the date of issuance of each Series of Certificates, the Certificates
offered hereby will be rated in one of the two highest categories by at least
one Rating Agency. See "Ratings" in the related Prospectus Supplement. A
securities rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the assigning rating
agency. Each securities rating should be evaluated independently of any other
rating.
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ADDITIONAL INFORMATION
Copies of the Registration Statement of which this Prospectus forms a part
and the exhibits thereto are on file at the offices of the Commission in
Washington, D.C. Copies may be obtained at rates prescribed by the Commission
upon request to the Commission, and may be inspected, without charge, at the
offices of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. See
"Available Information."
Copies of FHLMC's most recent Offering Circular for FHLMC Certificates,
FHLMCs Information Statement and the most recent Supplement to such Information
Statement and any quarterly report made available by FHLMC can be obtained by
writing or calling the Investor Inquiry Department at FHLMC at 8200 Jones Branch
Drive, McLean Virginia 22102 (outside Washington, D.C. metropolitan area,
telephone 800-336-FMPC; within Washington, D.C. metropolitan area, telephone
703-759-8160). The Depositor has not and will not participate in the preparation
of FHLMC's Offering Circulars, Information Statements or Supplements.
Copies of FNMA's most recent Prospectus for FNMA Certificates and FNMA's
annual report and quarterly financial statements are well as other financial
information are available from the Senior Vice President for Investor Relations
of FNMA, 3900 Wisconsin Avenue, N.W., Washington, D.C. 20016 (202-752-7115). The
Depositor has not and will not participate in the preparation of FNMA's
Prospectuses.
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INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------------------------------------------------ ------
<S> <C>
Advance Reserve..................................................................... 46
Advances............................................................................ 8, 61
ARM Buy-Outs........................................................................ 14
Balloon Loan........................................................................ 13
Balloon Period...................................................................... 13
Book Entry-Certificates............................................................. S-3
Buy-Down Loans...................................................................... 12
CERCLA.............................................................................. 87
Certificate Account................................................................. 58
Certificate Account Depository...................................................... 58
Certificate Rate.................................................................... 6
Certificates........................................................................ 1
Class............................................................................... 1
Code................................................................................ 9
Commission.......................................................................... 2
Contract Pool....................................................................... 10
Contract Rate....................................................................... 6
Contracts........................................................................... 1
Convertible Mortgage Loans.......................................................... 10
Cooperatives........................................................................ 10
Cooperative Loans................................................................... 10
Cooperative Notes................................................................... 10
Cut-Off Date Aggregate Principal Balance............................................ 11
Deferred Interest................................................................... 12
Depositor........................................................................... 1,3
Distribution Date................................................................... 5
DTC................................................................................. 32
Due Date............................................................................ 11
Eligible Investments................................................................ 47
EPA................................................................................. 88
ERISA............................................................................... 9
FHA................................................................................. 14
FHA Loans........................................................................... 14
FHLMC............................................................................... 1
FHLMC Act........................................................................... 16
FHLMC Certificate................................................................... 1
FNMA................................................................................ 1
FNMA Certificate.................................................................... 1
GEM Loans........................................................................... 13
GNMA................................................................................ 1
GNMA Certificate.................................................................... 1
GPM Fund............................................................................ 14
GPM Mortgage Loans.................................................................. 13
Housing Act......................................................................... 14
Initial Deposit..................................................................... 45
Insurance Proceeds.................................................................. 59
</TABLE>
124
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<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------------------------------------------------ ------
<S> <C>
Interest Accrual Period............................................................. 52
Interest Rate....................................................................... 1
Liquidation Proceeds................................................................ 59
Loan-to-Value Ratio................................................................. 11
Mortgage Certificate Pool........................................................... 10
Mortgage Certificates............................................................... 1
Mortgage Loans...................................................................... 1
Mortgage Notes...................................................................... 10
Mortgage Pool....................................................................... 10
Mortgage Rate....................................................................... 6
Mortgaged Properties................................................................ S-11
Mortgages........................................................................... 10
Multi-Class Certificates............................................................ 1
Net Contract Rate................................................................... 6
Net Insurance Proceeds.............................................................. 59
Net Liquidation Proceeds............................................................ 59
Net Mortgage Certificate Rate....................................................... 6
Notional Amount..................................................................... 1
Pass-Through Rate................................................................... 6
Paying Agent........................................................................ 61
Payment Deficiencies................................................................ 45
PC's................................................................................ 17
Pool................................................................................ 1
Pool Distribution Amount............................................................ S-15
Pooling and Servicing Agreement..................................................... 3
Prepayment Interest Shortfall....................................................... 62
Private Mortgage Backed Securities.................................................. 1
PTC................................................................................. 15
Rating Agency....................................................................... 9
Record Date......................................................................... 5
Registration Statement.............................................................. 2
Regular Certificate................................................................. 1
REMIC............................................................................... 1
Residual Certificate................................................................ 1
Securities Act...................................................................... 2
Senior Certificates................................................................. 1
Series.............................................................................. 1
Servicer............................................................................ 1
Servicing Fee....................................................................... 6
Servicing Account................................................................... 64
Shifting Interest Certificate....................................................... 1
SMMEA............................................................................... 8
Special Hazard Contract............................................................. 48
Special Hazard Mortgage Loan........................................................ 48
Standard Certificates............................................................... 1
Stated Amount....................................................................... 1
Stripped Certificates............................................................... 1
Subclass............................................................................ 1
</TABLE>
125
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<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------------------------------------------------ ------
<S> <C>
Subordinated Amount................................................................. 7
Subordinated Certificates........................................................... 1
Subordination Reserve Fund.......................................................... 7
Sub-Servicer........................................................................ 3,58
TAMRA............................................................................... 92
Trust Fund.......................................................................... 1
UCC................................................................................. 77
Unaffiliated Sellers................................................................ S-1
VA.................................................................................. 14
VA Loans............................................................................ 14
Voting Interests.................................................................... 71
</TABLE>
126
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===============================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR BY THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, THE SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE
TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information........................... S-4
Summary......................................... S-5
Risk Factors.................................... S-22
Description of the Mortgage Pool................ S-25
The Servicer and the Mortgage Loan Seller....... S-57
The Special Servicer............................ S-59
Description of the Certificates................. S-60
Yield Considerations............................ S-73
The Pooling and Servicing Agreement............. S-82
Certain Federal Income Tax Consequences......... S-109
ERISA Considerations............................ S-121
Legal Investment................................ S-124
Plan of Distribution............................ S-124
Use of Proceeds................................. S-125
Legal Matters................................... S-125
Ratings......................................... S-125
Index of Significant Definitions................ S-126
Annex A......................................... A-1
Annex B......................................... B-1
PROSPECTUS
Reports......................................... 2
Available Information........................... 2
Incorporation of Certain Information by
Reference..................................... 2
Summary of Prospectus........................... 3
The Trust Funds................................. 10
Description of the Certificates................. 30
Credit Support.................................. 45
Prepayment and Yield Considerations............. 51
Use of Proceeds................................. 55
The Depositor................................... 55
Underwriting Guidelines......................... 55
Servicing of the Mortgage Loans and Contracts... 58
Administration of the Mortgage Certificates..... 68
The Pooling and Servicing Agreement............. 71
Certain Legal Aspects of the Mortgage Loans and
Contracts..................................... 74
Certain Federal Income Tax Consequences......... 91
ERISA Considerations............................ 117
Legal Investment................................ 120
Plan of Distribution............................ 121
Legal Matters................................... 122
Rating.......................................... 122
Additional Information.......................... 123
Index of Significant Definitions................ 124
</TABLE>
===============================================================================
===============================================================================
$112,789,000 (APPROXIMATE)
PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION
DEPOSITOR
MIDLAND COMMERCIAL FUNDING CORP.
MORTGAGE LOAN SELLER
MIDLAND LOAN SERVICES, L.P.
SERVICER
CLASS A-1, CLASS C, CLASS D, CLASS E
COMMERCIAL MORTGAGE
PASS-THROUGH CERTIFICATES
SERIES 1995 -- MCF-2
------------------------
PROSPECTUS SUPPLEMENT
------------------------
PRUDENTIAL SECURITIES INCORPORATED
DECEMBER 22, 1995
================================================================================
