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PROSPECTUS SUPPLEMENT
(To Prospectus Dated December 4, 1996)
$65,044,000.00
WILSHIRE MORTGAGE LOAN TRUST 1996-4
$24,200,000.00 6.40% Class A-1 Certificates
$13,000,000.00 6.75% Class A-2 Certificates
$11,000,000.00 7.03% Class A-3 Certificates
$16,844,000.00 7.51% Class A-4 Certificates
Mortgage Pass-Through Certificates, Series 1996-4
WILSHIRE SERVICING CORPORATION
SERVICER
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
DEPOSITOR
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The Mortgage Pass-Through Certificates, Series 1996-4 (the
"Certificates") will consist of four classes of senior Certificates, the
Class A-1 Certificates (the "Class A-1 Certificates"), the Class A-2
Certificates (the "Class A-2 Certificates"), the Class A-3 Certificates
(the "Class A-3 Certificates") and the Class A-4 Certificates (the "Class
A-4 Certificates", and together with the Class A-1 Certificates, the Class
A-2 Certificates and the Class A-3 Certificates, the "Class A
Certificates"), two classes of subordinate Certificates, the Class B
Certificates (the "Class B Certificates") and the Class C Certificates
(the "Class C Certificates", and together with the Class B Certificates,
the "Subordinate Certificates") and one class of residual Certificates,
the Class R Certificates (the "Class R Certificates"). Only the Class A
Certificates are offered hereby.
As more fully described herein, interest distributions on the Class A
Certificates will be based on the related Certificate Principal Balance (as
defined herein) thereof, at the rate applicable to the related Class (each, a
"Pass-Through Rate"). The Pass-Through Rate for the Class A-1 Certificates
will be fixed at 6.40% per annum (the "Class A-1 Pass-Through Rate"). The
Pass-Through Rate for the Class A-2 Certificates will be fixed at 6.75% per
annum (the "Class A-2 Pass-Through Rate"). The Pass-Through Rate for the
Class A-3 Certificates will be fixed at 7.03% per annum (the "Class A-3
Pass-Through Rate"). The Pass-Through Rate for the Class A-4 Certificates
will be fixed at 7.51% per annum (the "Class A-4 Pass-Through Rate").
The Certificates will represent undivided beneficial ownership interests
in a trust fund (the "Trust Fund") consisting primarily of a pool of fixed-
and adjustable-rate, closed-end, conventional, monthly pay, generally fully
amortizing mortgage loans (the "Mortgage Loans") secured by first or second
lien mortgages or deeds of trust (the "Mortgages") on one-to-four family
residential properties (the "Mortgaged Properties") held by Wilshire Mortgage
Loan Trust 1996-4 (the "Trust"). The Trust will be created pursuant to a
Pooling and Servicing Agreement (the "Pooling and Servicing Agreement") among
Wilshire Servicing Corporation, in its capacity as servicer of the Mortgage
Loans (the "Servicer"), Wilshire Financing Company, L.L.C., in its capacity
as unaffiliated seller of the Mortgage Loans (the "Unaffiliated Seller"),
Prudential Securities Secured Financing Corporation, in its capacity as
depositor of the Mortgage Loans (the "Depositor"), a backup servicer (the
"Backup Servicer") to be agreed upon by the Trustee and the Certificate
Insurer (as defined herein) and Bankers Trust Company of California, N.A., in
its capacity as trustee (the "Trustee"). The obligations of the Depositor,
the Unaffiliated Seller, the Trustee, the Backup Servicer and the Servicer
with respect to the Certificates will be limited to their respective
contractual obligations under the Pooling and Servicing Agreement.
FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING INVESTMENT IN THE
CERTIFICATES, SEE "RISK FACTORS" BEGINNING ON PAGE S-15 HEREIN AND BEGINNING
ON PAGE 12 IN THE PROSPECTUS.
On or before the issuance of the Certificates, the Unaffiliated Seller
will obtain from Financial Security Assurance Inc. (the "Certificate
Insurer") a certificate guaranty insurance policy (the "Certificate Insurance
Policy") in favor of the Trustee for the benefit of the Owners of the Class A
Certificates pursuant to which the Certificate Insurer will guarantee certain
payments as described herein.
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THE CLASS A CERTIFICATES WILL REPRESENT BENEFICIAL INTERESTS IN THE TRUST
FUND ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
DEPOSITOR, THE UNAFFILIATED SELLER, THE SERVICER, THE BACKUP SERVICER OR
ANY OF THEIR AFFILIATES. NEITHER THE CLASS A CERTIFICATES NOR THE
MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
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 Class A Certificates will be purchased by Prudential Securities
Incorporated (the "Underwriter") from the Depositor and will be offered by
the Underwriter from time to time in negotiated transactions or otherwise, at
varying prices to be determined at the time of sale. Proceeds to the
Depositor, including accrued interest, are expected to be approximately
99.94% of the aggregate principal balance of the Class A Certificates before
deducting expenses payable by the Depositor estimated to be $350,000. See
"Underwriting" herein.
The Class A Certificates are offered subject to prior sale, when, as,
and if accepted by the Underwriter and subject to the approval of certain
legal matters. It is expected that delivery of the Class A Certificates in
book-entry form will be made on or about December 30, 1996 only through the
facilities of DTC, CEDEL and Euroclear (each as defined herein).
PRUDENTIAL SECURITIES INCORPORATED
The date of this Prospectus Supplement is December 23, 1996
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(COVER CONTINUED FROM PREVIOUS PAGE)
Distributions on the Subordinate Certificates and the Class R
Certificates are subordinate to distributions on the Class A Certificates to
the extent described herein. Distributions of principal and interest payable
to each Class of the Class A Certificates will be made on the 25th day of
each month or, if the 25th day is not a business day, the first business day
thereafter (each, a "Distribution Date"), beginning January 27, 1997.
THE LAST SCHEDULED DISTRIBUTION DATE FOR THE CLASS A-1 CERTIFICATES IS
MAY 25, 2011, FOR THE CLASS A-2 CERTIFICATES IS JUNE 25, 2015, FOR THE CLASS
A-3 CERTIFICATES IS DECEMBER 25, 2017, AND FOR THE CLASS A-4 CERTIFICATES IS
DECEMBER 25, 2020 (EACH SUCH DATE, A "FINAL SCHEDULED DISTRIBUTION DATE").
IT IS EXPECTED THAT THE ACTUAL LAST DISTRIBUTION DATE FOR EACH CLASS OF
CERTIFICATES WILL OCCUR SIGNIFICANTLY EARLIER THAN SUCH LAST SCHEDULED
DISTRIBUTION DATES. IF PURCHASED AT A PRICE OTHER THAN PAR, A CLASS A
CERTIFICATE'S YIELD TO MATURITY WILL BE SENSITIVE TO THE RATE AND TIMING OF
PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) ON THE MORTGAGE LOANS, THE
MAJORITY OF WHICH MAY BE PREPAID AT ANY TIME WITHOUT PENALTY. INVESTORS IN
THE CLASS A CERTIFICATES SHOULD CONSIDER THE ASSOCIATED RISKS, INCLUDING, IN
THE CASE OF CLASS A CERTIFICATES PURCHASED AT A DISCOUNT (OR PREMIUM), THE
RISK THAT A SLOWER (OR FASTER) THAN ANTICIPATED RATE OF PAYMENTS IN RESPECT
OF PRINCIPAL (INCLUDING PREPAYMENTS) ON THE MORTGAGE LOANS COULD RESULT IN AN
ACTUAL YIELD THAT IS LOWER THAN ANTICIPATED. SEE "DESCRIPTION OF THE
CERTIFICATES -- FLOW OF FUNDS" IN THIS PROSPECTUS SUPPLEMENT AND "PREPAYMENT
AND YIELD CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
One or more elections will be made to treat certain assets of the Trust
as a real estate mortgage investment conduit (each a "REMIC") for federal
income tax purposes. As described more fully herein, each Class of Class A
Certificates will constitute "regular interests" in a REMIC. See "Certain
Federal Income Tax Consequences" herein and "Certain Federal Income Tax
Consequences -- REMIC Certificates" in the Prospectus.
Prior to their issuance there has been no market for the Class A
Certificates nor can there be any assurance that one will develop, or if it
does develop, that it will provide the Owners of the Class A Certificates
with liquidity or will continue. The Underwriter intends, but is not
obligated, to make a market in the Class A Certificates.
The Certificates offered by this Prospectus Supplement will be part of a
separate series of Certificates being offered by the Depositor pursuant to
its Prospectus dated December 4, 1996 of which this Prospectus Supplement is
a part and which accompanies this Prospectus Supplement. The Prospectus
contains important information regarding this offering which is not contained
herein, and prospective investors are urged to read the Prospectus and this
Prospectus Supplement in full.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS
A CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
In addition to the documents described in the Prospectus under
"Incorporation of Certain Information by Reference," the financial statements
of the Certificate Insurer included in, or as exhibits to, the following
documents which have been filed with the Securities and Exchange Commission
(the "Commission") by Financial Security Assurance Holdings Ltd. ("Holdings")
are hereby incorporated by reference in the Registration Statement of which
this Prospectus Supplement and the Prospectus form a part:
(a) Annual Report on Form 10-K for the year ended December 31, 1995, and
(b) Quarterly Reports on Form 10-Q for the periods ended March 31, 1996,
June 30, 1996 and September 30, 1996.
Copies of these documents may be obtained from the Depositor or the
Unaffiliated Seller upon request.
All financial statements of the Certificate Insurer included in
documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Certificates shall be deemed to be
incorporated by reference into this Prospectus Supplement and to be a part
hereof from the respective dates of filing of such documents.
S-2
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS. REFERENCE IS MADE TO THE "INDEX OF SIGNIFICANT
PROSPECTUS SUPPLEMENT DEFINITIONS" HEREIN AND "INDEX OF SIGNIFICANT DEFINITIONS"
IN THE PROSPECTUS FOR THE DEFINITIONS OF CERTAIN CAPITALIZED TERMS.
TRUST: Wilshire Mortgage Loan Trust 1996-4 (the "Trust").
CERTIFICATES OFFERED: Class A-1 Certificates (the "Class A-1
Certificates"), Class A-2 Certificates (the "Class
A-2 Certificates"), Class A-3 Certificates (the
"Class A-3 Certificates") and Class A-4
Certificates (the "Class A-4 Certificates" and
together with the Class A-1 Certificates, the
Class A-2 Certificates, and the Class A-3
Certificates, the "Class A Certificates").
DEPOSITOR: Prudential Securities Secured Financing Corporation
(the "Depositor"). See "The Depositor" in the
Prospectus.
UNAFFILIATED SELLER: Wilshire Financing Company L.L.C., a Delaware
limited liability company (the "Unaffiliated
Seller").
SERVICER: Wilshire Servicing Corporation, a Delaware
corporation (the "Servicer"). The Servicer's
principal executive offices are located at 1776
S.W. Madison Street, Portland, Oregon 97205, and
its phone number is (503) 223-5600. The Mortgage
Loans will be serviced by the Sub-Servicer (as
defined herein) pursuant to a Sub-Servicing
Agreement (the "Sub-Servicing Agreement") between
the Servicer and the Sub-Servicer.
SUB-SERVICER: Wilshire Credit Corporation, a Nevada corporation
("WCC" or the "Sub-Servicer"). WCC's principal
executive offices are located at 1776 S.W. Madison
Street, Portland, Oregon 97205, and its phone
number is (503) 223-5600.
TRUSTEE: Bankers Trust Company of California, N.A., a
national banking association (the "Trustee"). The
Trustee's principal executive offices are located
at 3 Park Plaza, 16th Floor, Irvine, California
92614.
ORIGINATORS: The Unaffiliated Seller and any entity from which
the Unaffiliated Seller, on or prior to the Closing
Date, acquires Mortgage Loans (including WCC) is an
"Originator" of the related Mortgage Loans for
purposes of this Prospectus Supplement. The
majority of the Mortgage Loans were purchased by
the Unaffiliated Seller as a pool (the "Purchased
Pool") from a single depository institution (the
"Bank"). On the Closing Date the Unaffiliated
Seller will sell the Mortgage Loans to the Depositor
and the Depositor will deposit the Mortgage Loans
in the Trust.
CUT-OFF DATE: The close of business on December 10, 1996 (the
"Cut-Off Date").
CLOSING DATE: On or about December 30, 1996 (such date, the
"Closing Date").
THE CERTIFICATES: The Mortgage Pass-Through Certificates, Series
1996-4 (the "Certificates") will consist of four
Classes of senior Certificates, the Class A-1
Certificates, the Class A-2 Certificates, the Class
A-3 Certificates and Class A-4 Certificates, two
Classes of subordinate Certificates, the Class B
Certificates (the "Class B Certificates") and the
Class C Certificates (the "Class C Certificates",
and together with the Class B Certificates, the
"Subordinate
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Certificates") and one class of residual
Certificates, the Class R Certificates (the "Class
R Certificates"), each a "Class". The Certificates
will be issued pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement")
to be dated as of December 11, 1996, among the
Servicer, the Unaffiliated Seller, the Depositor,
the Backup Servicer and the Trustee. Only the
Class A Certificates are offered hereby.
The Certificates will represent beneficial undivided
ownership interests in a trust fund (the "Trust
Fund") consisting primarily of a pool of fixed-
and adjustable-rate, closed-end, conventional,
monthly pay, generally fully amortizing mortgage
loans (the "Mortgage Loans") secured by first or
second lien mortgages or deeds of trust (the
"Mortgages") on one-to-four family residential
properties (the "Mortgaged Properties") to be
conveyed to the Trust on the Closing Date.
The Final Scheduled Distribution Date for the Class
A-1 Certificates is May 25, 2011, for the Class A-2
Certificates is June 25, 2015, for the Class A-3
Certificates is December 25, 2017 and for the Class
A-4 Certificates is December 25, 2020. It is
expected that the actual last Distribution Date for
each Class of Certificates will occur significantly
earlier than such scheduled Distribution Dates. See
"Prepayment and Yield Considerations" herein.
The Certificate Insurer does not directly or
indirectly guarantee any specified rate of
prepayments. See "Risk Factors" herein and in the
Prospectus.
DENOMINATIONS: The Class A Certificates are issuable in book entry
form in minimum denominations of original principal
amounts of $1,000 and integral multiples thereof.
THE MORTGAGE LOANS: Unless otherwise noted, all statistical percentages
in this Prospectus Supplement are approximate and
are measured by the aggregate scheduled unpaid
principal balance of the Mortgage Loans as of the
Cut-Off Date (the "Original Aggregate Principal
Balance"). See "Additional Information" herein.
The Mortgage Loans to be conveyed by the
Unaffiliated Seller to the Depositor and by the
Depositor to the Trust on the Closing Date consist
of 557 fixed-rate and 16 adjustable-rate Mortgage
Loans, comprising 97.66% and 2.34% of the Mortgage
Loans, respectively, on single-family homes (which
may be condominiums, manufactured homes or one-to-
four family residences) and multi-family properties,
including investment properties, 49.05%, 23.35% and
8.83% of which are located in the states of New
York, New Jersey and Connecticut, respectively.
The Mortgage Loans are secured by Mortgages of
which 98.31% are first mortgages or deeds of trust
and 1.69% are secured by second mortgages or deeds
of trust. The Mortgage Loans in the Trust are all
closed-end mortgage loans in that the mortgagee is
not required to make future advances thereunder. As
of the Cut-Off Date, the Mortgage Loans had an
aggregate principal balance of $67,722,349.18.
80.27% of the Mortgage Loans were purchased by the
Unaffiliated Seller from the Bank. 19.73% of the
Mortgage Loans were originated or purchased by WCC
in accordance with the 80/20 mortgage loan program
S-4
<PAGE>
(the "80/20 Program") and subsequently purchased by
the Unaffiliated Seller.
The Combined Loan-to-Value Ratio ("CLTV") of a
Mortgage Loan is equal to the ratio (expressed as a
percentage) of (x) the sum of the (i) original
principal balance of the Mortgage Loan and (ii) the
outstanding principal balances of any senior
mortgage loans (computed at the date of origination
of the Mortgage Loan) (y) the appraised value of the
Mortgaged Property at the time of origination. The
Loan-to-Value Ratio ("LTV") of a Mortgage Loan is
equal to the ratio (expressed as a percentage) of
the original principal balance of the Mortgage Loan
and the appraised value of the Mortgaged Property
at the time of origination.
The weighted average CLTV of the Mortgage Loans was
78.08% and the weighted average LTV was 76.75%.
99.18% of the Mortgage Loans require monthly
payments of principal that will fully amortize the
Mortgage Loans by their respective maturity date,
and 0.82% are Balloon Loans (as defined herein).
The weighted average remaining term to stated
maturity was 281 months, with a range from 34
months to 360 months. The average principal balance
of the Mortgage Loans was $118,189.09, with a range
from $5,375.46 to $1,232,419.77. 97.66% of the
Mortgage Loans have interest rates (each a
"Mortgage Rate") that are fixed (the "Fixed Rate
Mortgage Loans"), and 2.34% have Mortgage Rates that
are adjustable (the "Adjustable Rate Mortgage
Loans"). The Mortgage Rates on the Fixed Rate
Mortgage Loans ranged from 6.63% to 24.00% per
annum, with a weighted average Mortgage Rate of
10.00% per annum. The Mortgage Rates on the
Adjustable Rate Mortgage Loans ranged from 8.00%
to 10.50% per annum, with a weighted average
Mortgage Rate of 9.20% per annum. The Adjustable
Rate Mortgage Loans had gross margins ranging from
5.00% to 7.00%, with a weighted average gross
margin of 6.00%; lifetime rate caps, excluding one
capless Adjustable Rate Mortgage Loan, ranging from
13.25% to 16.88%, with a weighted average lifetime
rate cap of 15.03%; and lifetime rate floors
ranging from 5.00% to 10.25%, with a weighted
average lifetime rate floor of 8.23%.
GENERAL. The Mortgage Loans are not insured by
either primary or pool mortgage insurance
policies; however, certain distributions due to
the Owners (as defined herein) of the Class A
Certificates are insured by the Certificate
Insurance Policy. The Certificate Insurance
Policy will provide for 100% coverage of the
principal amount of, and scheduled interest
(net of Net Interest Shortfalls (as defined
herein)) due on, the Class A Certificates. See
"Credit Enhancement" in this Summary and "The
Certificate Insurance Policy and the
Certificate Insurer" herein. The Mortgage
Loans are not guaranteed by the Servicer, the
Backup Servicer, the Unaffiliated Seller, the
Depositor, any Originator or any of their
respective affiliates. The Mortgage Loans are
required to be serviced by the Servicer in
accordance with the terms of the Pooling and
Servicing Agreement and with reasonable care,
using that degree of skill and attention that
the Servicer exercises with respect to
comparable mortgage loans that it services for
itself and others. See "The Pooling and
Servicing Agreement" herein.
S-5
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CLASS A-1 ORIGINAL
CERTIFICATE PRINCIPAL
BALANCE: $24,200,000.00.
CLASS A-2 ORIGINAL
CERTIFICATE PRINCIPAL
BALANCE: $13,000,000.00.
CLASS A-3 ORIGINAL
CERTIFICATE PRINCIPAL
BALANCE: $11,000,000.00.
CLASS A-4 ORIGINAL
CERTIFICATE PRINCIPAL
BALANCE: $16,844,000.00.
CLASS A-1 PASS-THROUGH
RATE: 6.40% per annum.
CLASS A-2 PASS-THROUGH
RATE: 6.75% per annum.
CLASS A-3 PASS-THROUGH
RATE: 7.03% per annum.
CLASS A-4 PASS-THROUGH
RATE: 7.51% per annum.
DISTRIBUTIONS, GENERALLY: Distributions on the Certificates will be made on
the twenty-fifth day of each calendar month, or if
such day is not a business day, the next
succeeding business day (each, a "Distribution
Date") commencing January 27, 1997, to the Owners
of record. See "Description of the Class A
Certificates -- General" herein. The Owners of
record shall be such Owners as of the last day of
the calendar month immediately preceding the
calendar month in which such Distribution Date
occurs, whether or not such day is a business day
(each a "Record Date"). Distributions to an Owner
will be made in an amount equal to the product of
such Owner's Percentage Interest (as defined
herein) and the amount distributed in respect of
such Owner's Class of Certificates on such
Distribution Date.
The "Percentage Interest" represented by any
Certificate will be equal to the percentage
obtained by dividing the original Certificate
Principal Balance of such Certificate by the
original Certificate Principal Balance of all
Certificates of the same Class. The
"Certificate Principal Balance" of any
Certificate is equal to the principal balance
of such Certificate on the date of issuance
less any amounts actually distributed to the
Owner of such Certificate on account of
principal or allocated to such Certificate on
account of Realized Losses (as defined herein).
The Class A Distribution Amount (as defined
herein) for each Distribution Date (to the
extent funds are available therefor) shall be
allocated among the Class A Certificates in the
following amounts and in the following order of
priority:
(i) First, to the Owners of the Class A
Certificates, the Class A Current Interest (as
defined below under the heading "Distributions
of Interest") on a PRO RATA basis without any
priority among the Class A Certificates.
(ii) Second, to the Owners of the Class A
Certificates, the Class A Principal
Distribution Amount (as defined below under the
heading "Distributions of Principal") shall be
distributed sequentially as follows: (A) to
the Owners of the Class A-1 Certificates, until
the Certificate Principal Balance of the Class
A-1 Certificates is reduced to zero; (B) to the
Owners of the Class A-2 Certificates, until the
Certificate Principal Balance
S-6
<PAGE>
of the Class A-2 Certificates is reduced to
zero; (C) to the Owners of the Class A-3
Certificates, until the Certificate Principal
Balance of the Class A-3 Certificates is reduced
to zero; and (D) to the Owners of the Class A-4
Certificates, until the Certificate Principal
Balance of the Class A-4 Certificates is reduced
to zero.
DISTRIBUTIONS OF INTEREST: For each Distribution Date, the interest due with
respect to the Certificates will be the interest
which has accrued thereon at the related
Pass-Through Rate during the period from the 11th
day of the month immediately preceding the month
in which such Distribution Date occurs to the 10th
day of the month in which such Distribution Date
occurs. Each period referred to in the prior
sentence relating to the accrual of interest is
the "Accrual Period" for the Class A Certificates
and the amount of interest due on the Class A
Certificates on a Distribution Date, less
Prepayment Interest Shortfalls and Civil Relief
Act Shortfalls (each as defined herein) not
absorbed in full by deduction from the interest
then due on the Class B Certificates is the "Class
A Current Interest."
All calculations of interest on the Certificates
will be made on the basis of a 360-day year assumed
to consist of twelve 30-day months.
DISTRIBUTIONS OF PRINCIPAL: The following discussion makes use of a number of
technical defined terms which are defined under
"Description of the Class A Certificates --
Overcollateralization Provisions" and "-- Class A
Distributions and Insured Payments to the Owners
of the Class A Certificates" herein.
The Owners of the Class A Certificates are
entitled to receive certain monthly
distributions of principal on each Distribution
Date which generally reflect collections of
principal during the prior calendar month. The
Certificate Insurance Policy only guarantees
the amount by which the sum of the Insured
Distribution Amount (as defined herein) exceeds
the Available Funds (after taking into account
the portion of the Class A Principal
Distribution Amount to be actually distributed
on such Distribution Date, without regard to
any Insured Payment (as defined herein) to be
made with respect to such Distribution Date) as
more fully described herein under "The
Certificate Insurance Policy and the
Certificate Insurer."
The credit enhancement provisions of the Trust
result in a limited acceleration of the
principal payments to the Owners of the Class A
Certificates; such credit enhancement
provisions are more fully described under
"Description of the Class A Certificates --
Overcollateralization Provisions" herein. Such
credit enhancement provisions are also expected
to accelerate and shorten the weighted average
lives of the Class A Certificates by increasing
the rate at which principal is distributed to
the Owners. See "Prepayment and Yield
Considerations" herein.
The Class A Certificates are divided into four
"sequential pay" classes such that the Owners of
the Class A-4 Certificates will receive no payments
of principal until the Certificate Principal
Balance of the Class A-3 Certificates has been
reduced to zero, the Owners of the Class A-3
Certificates will receive no payments of principal
until the Certificate Principal Balance of the
Class A-2 Certificates has been reduced to zero and
the Class A-2 Certificates will receive no payments
of principal until the Certificate Principal
Balance of the Class A-1 Certificates has been
reduced to zero.
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<PAGE>
On each Distribution Date, distributions in reduction of
the Certificate Principal Balance of the Class A
Certificates will be made in the amounts described herein.
The "Class A Principal Distribution Amount" with respect to
each Distribution Date is the lesser of:
(a) the Available Funds plus any Insured Payment minus the
Class A Current Interest; and
(b) (i) the sum, without any duplication, of:
(a) the principal portion of all scheduled monthly
payments on the Mortgage Loans due during the
related Remittance Period, to the extent actually
received by the Trustee on or prior to the related
Remittance Date or to the extent actually advanced
by the Servicer on or prior to the related
Remittance Date and the principal portion of all
full and partial principal prepayments made by the
respective Mortgagors during the related
Remittance Period;
(b) the scheduled principal balance of each Mortgage
Loan that either was repurchased by the
Unaffiliated Seller or purchased by the Servicer
on the related Remittance Date, to the extent such
scheduled principal balance is actually received
by the Trustee on or prior to the related
Remittance Date;
(c) any Substitution Amounts delivered by the
Unaffiliated Seller on the related Remittance Date
in connection with a substitution of a Mortgage
Loan (to the extent such Substitution Amounts
relate to principal), to the extent such
Substitution Amounts are actually received by the
Trustee on or prior to the related Remittance
Date;
(d) 100% of the principal balance of each Mortgage
Loan which became a Liquidated Mortgage Loan
during the related Remittance Period;
(e) the amount of any Subordination Deficit for such
Distribution Date;
(f) the proceeds received by the Trustee of any
termination of the Trust (to the extent such
proceeds relate to principal); and
(g) the amount of any Subordination Increase Amount
for such Distribution Date, to the extent of the
Net Monthly Excess Spread for such Distribution
Date; and
minus
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(ii) the amount of any Subordination Reduction Amount
for such Distribution Date consisting of the amount of
any Net Monthly Excess Cashflow to be distributed to
the Owners of the Class C Certificates.
In no event will the Class A Principal Distribution Amount
for any Distribution Date (x) be less than zero or (y) be
greater than the then-outstanding Certificate Principal
Balance of the Class A Certificates.
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The sum of the Class A Current Interest and the Class A
Principal Distribution Amount with respect to the Class A
Certificates and any Distribution Date is the "Class A
Distribution Amount" for the Class A Certificates and such
Distribution Date.
With respect to any Distribution Date, the sum of (i) the
Class A Current Interest, (ii) the amount of the
Subordination Deficit, if any, with respect to such
Distribution Date, and (iii) with respect to the
Distribution Date which is the Final Scheduled Distribution
Date, the outstanding Certificate Principal Balance for any
outstanding Class of Class A Certificates, is the "Insured
Distribution Amount" for such Distribution Date. The
"Insured Payment" for a Distribution Date will equal the
amount by which the Insured Distribution Amount with respect
to such Distribution Date exceeds the Available Funds for
such Distribution Date.
A "Liquidated Mortgage Loan" is, in general, a defaulted
Mortgage Loan as to which the Servicer has determined that
all amounts that it expects to recover on such Mortgage Loan
have been recovered (exclusive of any possibility of a
deficiency judgment). The Pooling and Servicing Agreement
requires that an amount equal to 100% of the principal
balance of each Mortgage Loan which becomes a Liquidated
Mortgage Loan during a Remittance Period will be distributed
as principal to the Owners of the Class A Certificates on
the immediately following Distribution Date. To the extent
that the Net Liquidation Proceeds with respect to any
Liquidated Mortgage Loan are less than 100% of the principal
balance thereof, such shortfall is a "Realized Loss". The
amount of Realized Losses occurring during a Remittance
Period will be funded, in effect, by the interest on the
Class B Certificates and the Net Monthly Excess Spread for
such Remittance Period.
Insured Payments, however, do not include Realized Losses
until such time as the aggregate cumulative Realized Losses
have created a Subordination Deficit. A "Subordination
Deficit" with respect to a Distribution Date is the amount,
if any, by which (x) the Certificate Principal Balance of
the Class A Certificates, after taking into account all
distributions to be made on such Distribution Date, exceeds
(y) the aggregate principal balances of the Mortgage Loans
as of the close of business on the Due Date in the calendar
month in which such Distribution Date occurs.
CREDIT ENHANCEMENT: The credit enhancement provided for the benefit of the
Owners of the Class A Certificates consists of (x)
subordination of the Subordinate Certificates, (y) the
overcollateralization mechanics which utilize the
internal cash flows of the Trust and (z) the Certificate
Insurance Policy.
SUBORDINATION OF THE SUBORDINATE CERTIFICATES. The rights of
the Owners of the Subordinate Certificates to receive
distributions with respect to the Mortgage Loans will be
subordinated, to the extent described herein, to the rights
of the Owners of the Class A Certificates. Pursuant to the
terms of the Pooling and Servicing Agreement, (i) there will
be no distributions of principal to the Owners of the Class
B Certificates until the Certificate Principal Balances of
all Classes of the Class A Certificates have been reduced to
zero and (ii) distributions to the Owners of the Class C
Certificates will be made only in periods in which (x) all
Realized Losses
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have been fully funded and (y) the Subordinated Amount is
equal to or greater than the Specified Subordinated Amount
applicable to such period. This subordination is intended
to enhance the likelihood of regular receipt by the Owners
of the Class A Certificates of the full amount of their
monthly payments of interest and principal and to afford
such Owners protection against losses on Liquidated
Mortgage Loans. The subordination provisions are expected
to result in an acceleration of the Class A Certificates
relative to the amortization of the Mortgage Loans held
by the Trust. See "Description of the Class A
Certificates - Overcollateralization Provisions" herein.
OVERCOLLATERALIZATION. In addition to the
overcollateralization provided by the Class B Certificate
Principal Balance (which is equal to $2,201,349.18
initially, and is not permitted to amortize until all
Classes of Class A Certificates have been paid in full), the
credit enhancement provisions of the Trust result in a
limited acceleration of the Class A Certificates relative to
the amortization of the Mortgage Loans until an
overcollateralization target, which is in excess of the
Class B Certificate Principal Balance, is met. The
accelerated amortization is achieved by the application of
certain excess interest to the payment of Class A
Certificate principal. This acceleration feature creates
overcollateralization in addition to that provided by the
Class B Certificate Principal Balance which results from the
excess of the aggregate scheduled principal balances of the
Mortgage Loans over the aggregate Certificate Principal
Balances of the Class A Certificates and the Class B
Certificates. Once the required level of
overcollateralization is reached, and subject to the
provisions described in the next paragraph, the acceleration
feature will cease, unless necessary to maintain the
required level of overcollateralization.
The Pooling and Servicing Agreement provides that, subject
to certain floors, caps and triggers, the required level of
overcollateralization may increase or decrease over time. An
increase would result in a temporary period of accelerated
amortization of the Class A Certificates to increase the
actual level of overcollateralization to its required level;
a decrease would result in a temporary period of decelerated
amortization to reduce the actual level of
overcollateralization to its required level.
See "Description of the Class A
Certificates--Overcollateralization Provisions" herein.
THE CERTIFICATE INSURANCE POLICY. The Unaffiliated Seller
will obtain the Certificate Insurance Policy, which is
noncancelable, in favor of the Trustee on behalf of the
Owners of the Class A Certificates. On each Distribution
Date, the Certificate Insurer will be required to make
available to the Trustee the amount by which the Insured
Distribution Amount exceeds the Available Funds as of such
Distribution Date. The Certificate Insurance Policy does not
guarantee to Owners of the Class A Certificates any
specified rate of Prepayments (as defined herein). See
"Credit Enhancement" in this Summary and "The Certificate
Insurance Policy and the Certificate Insurer" herein and
"Credit Support" in the Prospectus.
So long as there does not exist a failure by the Certificate
Insurer to make a required payment under the Certificate
Insurance Policy (such event, a
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"Certificate Insurer Default"), the
Certificate Insurer shall have the right
to exercise all rights of the Owners of
the Class A Certificates under the Pooling
and Servicing Agreement without any
consent of such Owners, and such Owners
may exercise such rights only with the
prior written consent of the Certificate
Insurer except as provided in the Pooling
and Servicing Agreement. In addition, the
Certificate Insurer will be entitled to
reimbursement for all Insured Payments.
CERTIFICATE INSURER: Financial Security Assurance Inc. (the
"Certificate Insurer"), a financial guaranty
insurance company organized under the laws of the
state of New York.
DELINQUENCY ADVANCES
AND COMPENSATING INTEREST: The Servicer will be obligated to make advances
(each a "Delinquency Advance") with respect to
delinquent payments of interest (calculated at the
related Mortgage Rate less the sum of the rate at
which the Servicing Fee (as defined herein) and
the Trustee's Fee (the sum of such rates, the
"Administrative Rate") on each Mortgage Loan, but
only to the extent (i) necessary to pay any
shortfall in Class A Current Interest arising
because of the insufficiency of Available Funds
and (ii) that such Delinquency Advances, in good
faith and in the Servicer's reasonable judgment,
are recoverable from the related Mortgage Loan.
Delinquency Advances are recoverable from (i)
future collections on the Mortgage Loan which gave
rise to the Delinquency Advance, (ii) Liquidation
Proceeds (as defined herein) for such Mortgage
Loan and (iii) from certain excess moneys which
would otherwise be paid to the Owners of the Class
C Certificates.
In addition, the Servicer will also be
required to deposit into the account
holding collections on the Mortgage Loans
(the "Principal and Interest Account"),
with respect to any full Prepayment
received on a Mortgage Loan during the
related Remittance Period, out of its own
funds without any right of reimbursement
therefor, Compensating Interest.
"Compensating Interest" is equal to the
difference between (x) 30 days' interest
at such Mortgage Loan's Mortgage Rate
(less the Administrative Rate) on the
principal balance of such Mortgage Loan as
of the first day of the related Remittance
Period and (y) to the extent not
previously advanced, the interest (less an
amount calculated at the Administrative
Rate) paid by the Mortgagor with respect
to such Mortgage Loan during such
Remittance Period; PROVIDED, HOWEVER, that
the Servicer will only pay Compensating
Interest to the extent that there is a
shortfall in the amount of Available Funds
necessary to pay the Class A Current
Interest and will not be required to pay
Compensating Interest with respect to any
Remittance Period in an amount in excess
of the aggregate Servicing Fee received by
the Servicer for such Remittance Period or
to cover shortfalls in collections of
interest due to curtailments. The excess
of the full amount of the Compensating
Interest due over the related Servicing
Fee is a "Prepayment Interest Shortfall").
The amount of any Prepayment Interest
Shortfall on any Distribution Date will be
deducted first from the amount of interest
then due on the Class B Certificate, with
any excess shortfall deducted from the
amount of interest due on the Class A
Certificates on such Distribution Date;
the payment of
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such amounts will not be covered by payments
under the Certificate Insurance Policy.
Any failure by the Servicer to remit to
the Trustee a Delinquency Advance or
Compensating Interest to the extent
required under the Pooling and Servicing
Agreement will constitute an event of
default under the Pooling and Servicing
Agreement (each, a "Servicer Event of
Default"), in which case, upon the removal
of the Servicer, the Trustee or the
successor servicer will be obligated to
make such advances in accordance with the
terms of the Pooling and Servicing
Agreement. See "Servicing of the Mortgage
Loans and Contracts -- Advances and
Limitations Thereon" in the Prospectus.
BOOK-ENTRY REGISTRATION OF
THE CLASS A CERTIFICATES: The Class A Certificates will initially be issued
in book-entry form. Persons acquiring beneficial
ownership interests in such Class A Certificates
("Beneficial Owners") may elect to hold their
interests through The Depository Trust Company
("DTC"), in the United States, or CEDEL, S.A.
("CEDEL") or The Euroclear System ("Euroclear"),
in Europe. Transfers within DTC, CEDEL or
Euroclear, as the case may be, will be in
accordance with the usual rules and operating
procedures of the relevant system. So long as the
Class A Certificates are Book-Entry Certificates
(as defined herein), such Certificates will be
evidenced by one or more Certificates registered
in the name of Cede & Co. ("Cede"), as the nominee
of DTC, or one of the European Depositaries (as
defined below). Cross-market transfers between
persons holding directly or indirectly through
DTC, on the one hand, and counterparties holding
directly or indirectly through CEDEL or Euroclear,
on the other, will be effected in DTC through
Citibank N.A. ("Citibank") or The Chase Manhattan
Bank ("Chase", and together with Citibank, the
"European Depositaries"), the relevant
depositaries of CEDEL and Euroclear, respectively,
and each a participating member of DTC. The Class
A Certificates will initially be registered in the
name of Cede. The interests of the Owners of such
Certificates will be represented by book-entries
on the records of DTC and participating members
thereof. No Beneficial Owner will be entitled to
receive a Definitive Certificate (as defined
herein) representing such person's interest,
except in the event that Definitive Certificates
are issued under the limited circumstances
described herein. All references in this
Prospectus Supplement to any Class A Certificates
reflect the rights of Beneficial Owners only as
such rights may be exercised through DTC and its
participating organizations for so long as such
Class A Certificates are held by DTC. See
"Description of the Class A
Certificates--Book-Entry Registration of the Class
A Certificates" herein and in Annex I hereto.
MONTHLY SERVICING FEE
AND TRUSTEE'S FEE:
Wilshire Servicing Corporation, as Servicer,
will retain a fee, payable on each Servicer
Remittance Date (as defined herein), and equal
to 0.375% per annum (the "Servicing Fee"),
payable monthly at one-twelfth the annual rate,
of the aggregate outstanding principal balance
of all Mortgage Loans as of the first day of
the related Remittance Period. If the Backup
Servicer is the servicer of the Mortgage Loans,
the Servicing Fee may increase to up to 0.50%
per annum.
On each Servicer Remittance Date the Trustee
will be entitled to receive a "Trustee's Fee"
equal to the product of (x) one-twelfth of
0.02% and (y) the
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aggregate outstanding principal balance of all
Mortgage Loans as of the first day of the
related Remittance Period.
OPTIONAL TERMINATION: The Pooling and Servicing Agreement provides that
a party to be named therein, at its option, acting
directly or through a permitted designee, will
have the right, in certain circumstances with the
approval of the Certificate Insurer, to purchase
from the Trust all the Mortgage Loans then held by
the Trust, at a price at least sufficient to cause
the payment in full of the amounts then
outstanding on the Class A Certificates, the Class
B Certificates and the Class C Certificates,
together with amounts then due and owing to the
Certificate Insurer, on any Remittance Date on or
after the Remittance Date on which the
then-outstanding aggregate principal balance of
the Mortgage Loans in the Trust has declined to
10% or less of the Original Aggregate Principal
Balance (as defined herein) (the "Optional
Termination Date"). Under certain circumstances
the Certificate Insurer may also exercise such
purchase rights if such party does not do so.
The Pooling and Servicing Agreement requires
that, within 90 days following the Optional
Termination Date, if the Servicer has not
exercised its optional termination right by
such date, the Trustee shall solicit bids for
the purchase (the "Auction Sale") of all
Mortgage Loans remaining in the Trust. In the
event that satisfactory bids are received as
described in the Pooling and Servicing
Agreement, the net sale proceeds will be
distributed to the Owners of the Certificates,
in the same order of priority as collections
received in respect of the Mortgage Loans. If
satisfactory bids are not received, the Trustee
shall decline to sell the Mortgage Loans and
shall not be under any obligation to solicit
any further bids or otherwise negotiate any
further sale of the Mortgage Loans. Such sale
and consequent termination of the Trust must
constitute a "qualified liquidation" of the
REMIC established by the Trust under Section
860F of the Internal Revenue Code of 1986, as
amended, including, without limitation, the
requirement that the qualified liquidation
takes place over a period not to exceed 90
days. See "The Pooling and Servicing Agreement
--Optional Termination" herein.
FEDERAL INCOME TAX ASPECTS: For federal income tax purposes one or more
elections will be made to treat the Trust as a
"real estate mortgage investment conduit" (the
"REMIC"). Each Class of Class A Certificates and
the Subordinate Certificates will be designated as
"regular interests" in the REMIC and will be
treated as debt instruments of the Trust for
federal income tax purposes. The REMIC will issue
the Class R Certificates, which will be designated
as the sole class of "residual interests" in the
REMIC. See "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
ERISA CONSIDERATIONS: As described under "ERISA Considerations" herein,
the Class A Certificates may be purchased by
employee benefit plans that are subject to the
Employee Retirement Income Security Act of 1974,
as amended ("ERISA"). See "ERISA Considerations"
herein and in the Prospectus.
LEGAL INVESTMENT
CONSIDERATIONS: The Class A Certificates will not constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"). Accordingly, many institutions with
legal authority to invest in comparably rated
securities based on first mortgage loans may not
be legally authorized to invest in the Class A
Certificates.
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CERTAIN LEGAL MATTERS: Certain legal matters relating to the validity of
the issuance of the Certificates will be passed
upon for the Unaffiliated Seller and the Servicer
by Proskauer, Rose, Goetz & Mendelsohn, New York,
New York, and for the Depositor and the
Underwriter by Dewey Ballantine, New York, New
York. Certain legal matters relating to the
Certificate Insurer and the Certificate Insurance
Policy will be passed upon for the Certificate
Insurer by Bruce Stern, General Counsel of the
Certificate Insurer.
RATINGS: It is a condition of the original issuance of
the Class A Certificates that the Class A
Certificates receive ratings of AAA by Standard
& Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. ("Standard &
Poor's"), and Aaa by Moody's Investors Service,
Inc. ("Moody's"). 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 entity. See "Ratings"
herein.
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<PAGE>
RISK FACTORS
Prospective investors in the Class A Certificates should consider the
following factors (as well as the factors set forth under "Risk Factors" in
the Prospectus) in connection with the purchase of the Class A Certificates.
PREPAYMENT AND MATURITY CONSIDERATIONS
Borrowers may prepay their loans at any time and are generally not
required to pay a prepayment fee. The rate of prepayments of the Mortgage
Loans cannot be predicted and may be affected by a wide variety of economic,
social and other factors, including state and federal income tax policies,
interest rates and the availability of alternative financing. Therefore, no
assurance can be given as to the level of prepayments that the Trust will
experience.
A number of factors, in addition to prepayment fees, may impact on the
prepayment behavior of a pool of loans such as the Mortgage Loans. One such
factor is the principal balance of the Mortgage Loans. A small principal
balance may be easier for a borrower to prepay than a large balance and
therefore may have a higher prepayment rate. In addition, in order to
refinance a first priority mortgage loan, the borrower must generally repay
any subordinate mortgage loans. However, a small principal balance may make
refinancing a Mortgage Loan at a lower interest rate less attractive to the
borrower as the perceived impact to the borrower of lower interest rates on
the size of the monthly payment may not be significant. Other factors that
might be expected to affect the prepayment rate include general economic
conditions and the general interest rate environment, possible future changes
affecting the deductibility for federal income tax purposes of interest
payments on mortgage loans, the amounts of, and interest rates on, the
underlying senior mortgage loans, and the tendency of borrowers to use first
priority mortgage loans as long-term financing for home purchase and second
mortgage loans as shorter-term financing for a variety of purposes, including
home improvement, education expenses and purchases of consumer durables such
as automobiles.
Prepayments may result from voluntary early payments by borrowers
(including payments in connection with refinancings of the related senior
mortgage loan or loans), sales of Mortgaged Properties subject to
"due-on-sale" clauses and liquidations due to default, as well as the receipt
of proceeds from physical damage. In addition, repurchases from the Trust of
Mortgage Loans required to be made by the Unaffiliated Seller under the
Pooling and Servicing Agreement will have the same effect on the Owners of
the Class A Certificates as a prepayment of the related Mortgage Loans.
Prepayments and such repurchases will also accelerate the Final Scheduled
Distribution Date of the Class A Certificates. All of the Mortgage Loans
contain "due-on-sale" provisions, and the Servicer will enforce such
provisions to the extent permitted by applicable law. In addition, if the
Unaffiliated Seller is unable to cure documentation defects or provide a
replacement Mortgage for the affected Mortgage Loans, affected Mortgage Loans
will be repurchased, and the Owners of the Class A Certificates will
experience a principal prepayment.See "Certain Legal Aspects of the Mortgage
Loans" herein.
In general, if prevailing interest rates fall significantly below the
interest rates for similar loans at the time of origination, fixed rate
mortgage loans may be subject to higher prepayment rates than if prevailing
rates remain at or above those at the time such Mortgage Loans were
originated. Should prepayments on the Mortgage Loans increase because of
such interest rate reductions, the average life and final maturity of the
Class A Certificates may be shortened. See "Prepayment and Yield
Considerations."
The weighted average life of a pool of loans is the average amount of
time that will elapse from the date such pool is formed until each dollar of
principal is scheduled to be repaid to the investors in such pool. Because
it is expected that there will be prepayments and defaults on the Mortgage
Loans, the actual weighted average life of the Class A Certificates is
expected to vary substantially from the weighted average remaining term to
stated maturity of the Mortgage Loans as set forth herein under "The Mortgage
Pool -- General." Certain information, based on specified prepayment
assumptions, as to the possible weighted average life of the Class A
Certificates is set forth herein under "Prepayment and Yield Considerations."
The Unaffiliated Seller has only limited records of the historical
prepayment experience of its portfolio of loans which the Unaffiliated Seller
believes does not provide meaningful information with respect to the Mortgage
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Loans. In any event, no assurance can be given that prepayments on the
Mortgage Loans will conform to any historical experience and no prediction
can be made as to the actual prepayment experience on the Mortgage Loans.
THE PURCHASED POOL, LIMITED INFORMATION
80.27% of the Mortgage Loans were purchased by the Unaffiliated Seller
from the Bank. Only limited information was available concerning the
origination and servicing of the Mortgage Loans prior to such purchase, and
none of the Servicer, the Unaffiliated Seller or the Depositor were able
independently to verify such information as has been obtained and included
herein. The Mortgaged Properties securing the Mortgage Loans in the
Purchased Pool are located primarily in the states of New York, New Jersey
and Connecticut. As described below under "Geographic Concentration", the
losses on the Purchased Pool may be higher than if such Mortgage Loans were
more geographically diversified. In addition, the Mortgage Loans in the
Purchased Pool were primarily originated in 1989 and 1990 and thus are well
seasoned. Since the time of origination of the Purchased Pool, property
values in the states of New York, New Jersey and Connecticut have generally
declined. Thus, the loan-to-value ratios of the Mortgage Loans in the
Purchased Pool have risen since the time of origination.
None of the Servicer, the Unaffiliated Seller or the Depositor have been
able to obtain historical loss and delinquency statistics with respect to
loans originated and serviced by the Bank which they consider reliable and,
accordingly, no such statistics are included herein. The Unaffiliated Seller
is making certain representations and warranties regarding the Mortgage Loans
and is obligated to repurchase such Mortgage Loans as to which there is a
breach of such representations or warranties which materially adversely
affects the value of, or interest of the Trust in, such Mortgage Loan.
However, there is no assurance that such remedies will cure all problems that
may arise by reason of the limited information or documentation available
with respect to the Mortgage Loans and their origination and prior servicing.
Such problems could include failure of the Mortgage Loans to have been
originated in compliance with applicable law, industry standards, or the
Bank's own underwriting standards, or failure of the Mortgage Loans to have
been serviced by the Bank in accordance with such laws and standards, as well
as problems which, because of the limited information available currently
cannot be determined.
UNDERWRITING GUIDELINES, LIMITED OPERATING HISTORY AND POTENTIAL DELINQUENCIES
19.73% of the Mortgage Loans were purchased by the Unaffiliated Seller
from third parties or from WCC. The majority of these Mortgage Loans were
originated or purchased by WCC pursuant to the Mortgage Loan underwriting
guidelines of its "80/20" origination program (the "80/20 Program"), which
began in December, 1995. Due to the limited operating history of WCC as an
originator of Mortgage Loans, no assurance can be given concerning the
performance of the Mortgage Loans originated or purchased by WCC under the
80/20 Program. WCC markets loans, in part, to borrowers who, for one reason
or another, are not able, or do not wish, to obtain financing from
traditional sources such as commercial banks. To the extent that such loans
may be considered to be of a riskier nature than loans made by traditional
sources of financing, the Owners of the Certificates may be deemed to be at
greater risk than if the Mortgage Loans were made to other types of borrowers.
As described herein, WCC's underwriting standards generally are less
stringent than those of the Federal National Mortgage Association ("FNMA") or
the Federal Home Mortgage Corporation ("FHLMC") with respect to a borrower's
credit history and in certain other respects. A borrower's non-perfect
credit history may not preclude WCC from making a loan. As a result of this
approach to underwriting, the Mortgage Loans in the Mortgage Loan Pool may
experience higher rates of delinquencies, defaults and foreclosures than
mortgage loans underwritten in a manner which is more similar to the FNMA and
FHLMC guidelines.
GEOGRAPHIC CONCENTRATION
Certain geographic regions of the United States from time to time will
experience weaker regional economic conditions and housing markets, and,
consequently, will experience higher rates of loss and delinquency on loans
generally. Any concentration of the Mortgage Loans in such a region may
present risk considerations in addition to those generally present for
similar mortgage backed securities without such concentration. In
particular, approximately 49.05%, 23.35% and 8.83% of the Mortgage Loans by
Original Aggregate Principal Balance are secured by Mortgaged Properties
located in the states of New York, New Jersey and Connecticut respectively.
Because of the relative geographic concentration of the Mortgage Loans within
New York, New Jersey and
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Connecticut, losses on the Mortgage Loans may be higher than would be the
case if the Mortgage Loans were more geographically diversified. For
example, certain of the Mortgaged Properties may be more susceptible to
certain types of special hazards, such as natural disasters and major civil
disturbances, than residential properties located in other parts of the
country. In addition, the economies of New York, New Jersey and Connecticut
may be adversely affected to a greater degree than the economies of other
areas of the country by certain regional developments. Property values of
residential real estate generally have declined in New York, New Jersey and
Connecticut. If the New York, New Jersey and Connecticut residential real
estate markets continue to experience an overall decline, then the rates of
delinquencies, foreclosures and losses on the Mortgage Loans may be expected
to increase and such increase may be substantial.
BALLOON PAYMENTS
The majority of the Mortgage Loans have been originated at fixed interest
rates for fixed terms ranging from 36 months to 360 months. As of the
Cut-Off Date, approximately 0.82% of the Mortgage Loans are not fully
amortized over their terms and instead require substantial balloon payments
on their maturity dates ("Balloon Loans"). See "The Mortgage Pool." Because
the principal balance of such Mortgage Loans does not fully amortize over the
term of the Mortgage Loan, such Mortgage Loans may involve greater risks of
default than Mortgage Loans whose principal balance is fully amortized over
the term of the Mortgage Loan. The borrower's ability to pay the balloon
amount due at maturity of such a Mortgage Loan will depend on the borrower's
ability to obtain adequate refinancing or funds from other sources to repay
the Mortgage Loan.
The Unaffiliated Seller has had only a very limited historical default
experience with respect to its portfolio when loans with balloon payments
come due and the Unaffiliated Seller does not believe that the experience
provides meaningful information with respect to the Mortgage Loans.
Even assuming that the Mortgaged Properties provide adequate security for
the Mortgage Loans, substantial delays could be encountered in connection
with the liquidation of defaulted Mortgage Loans and corresponding delays in
the receipt of related proceeds by the Owners of the Class A Certificates
could occur.
NATURE OF COLLATERAL; SECOND LIEN MORTGAGE LOANS
As of the Cut-Off Date, approximately 1.69% of the Mortgage Loans are
secured by second liens which are subordinate to the rights of the mortgagee
under related senior mortgages. See "The Mortgage Pool." As a result, the
proceeds from any liquidation, insurance or condemnation proceedings will be
available to satisfy the principal balance of such a second Mortgage Loan
only to the extent that the claims, if any, of the first mortgagee are
satisfied in full, including any related foreclosure costs. In addition, a
mortgagee of a second mortgage may not foreclose on the Mortgaged Property
securing such mortgage unless it forecloses subject to the related first
mortgage, in which case it must either pay the entire amount of the first
mortgage to the applicable mortgagee at or prior to the foreclosure sale or
undertake the obligation to make payments on the first mortgage in the event
of default thereunder. In servicing home equity loans in its portfolio, it
is the Servicer's practice to satisfy or reinstate each such senior mortgage
at or prior to the foreclosure sale only to the extent that it determines any
amount so paid will be recoverable from future payments and collections on
the related loans or otherwise. The Trust will have no source of funds to
satisfy any senior mortgage or make payments due to any senior mortgagee.
General economic conditions have an impact on the ability of borrowers to
repay loans. Loss of earnings, illness and other similar factors may lead to
an increase in delinquencies and bankruptcy filings by borrowers. In the
event of bankruptcy of a mortgagor, it is possible that the Trust could
experience a loss with respect to such mortgagor's Mortgage Loan. In
conjunction with a mortgagor's bankruptcy, a bankruptcy court may suspend or
reduce the payments of principal and interest to be paid with respect to such
Mortgage Loan or permanently reduce the principal balance of such Mortgage
Loan, thus either delaying or permanently limiting the amount received by the
Trust with respect to such Mortgage Loan. Moreover, in the event a bankruptcy
court prevents the transfer of the related Mortgaged Property to the Trust,
any remaining balance on such Mortgage Loan may not be recoverable.
An overall decline in the residential real estate market could adversely
affect the values of the Mortgaged Properties such that the outstanding
principal balances, together with the primary senior financing thereon,
equals or exceeds the value of the Mortgaged Properties. Such a decline
would adversely affect the position of a second
S-17
<PAGE>
mortgagee before having such an effect on that of the related first
mortgagee. A rise in interest rates over a period of time and the general
condition of the Mortgaged Property as well as other factors may have the
effect of reducing the value of the Mortgaged Property from the appraised
value at the time the Mortgage Loan was originated. If there is a reduction
in value of the Mortgaged Property, the ratio of the amount of the Mortgage
Loan to the value of the Mortgaged Property may increase over what it was at
the time the Mortgage Loan was originated. Such an increase may reduce the
likelihood of liquidation or other proceeds being sufficient to satisfy the
Mortgage Loan after satisfaction of any senior liens.
Even assuming that the Mortgaged Properties provide adequate security for
the Mortgage Loans, substantial delays could be encountered in connection
with the liquidation of defaulted Mortgage Loans and corresponding delays in
the receipt of related proceeds by the Owners of the Class A Certificates.
An action to foreclose on the Mortgaged Property securing a Mortgage Loan is
regulated by state statutes and rules and is subject to many of the delays
and expenses of other lawsuits if defenses or counterclaims are interposed,
sometimes requiring several years to complete. Furthermore, in some states
an action to obtain a deficiency judgment is not permitted following a
nonjudicial sale of a Mortgaged Property. In the event of a default by a
Mortgagor, these restrictions, among other things, may impede the ability of
the Servicer to foreclose on or sell the Mortgaged Property or to obtain
proceeds on such a sale ("Liquidation Proceeds") ("Net Liquidation Proceeds"
are equal to Liquidation Proceeds minus expenses incurred by the Servicer on
such sale) sufficient to repay all amounts due on the related Mortgage Loan.
In addition, the Servicer will be entitled to deduct from collections
received during the preceding Remittance Period all expenses reasonably
incurred in attempting to recover amounts due on Liquidated Mortgage Loans
and not yet repaid, including payments to senior lienholders, legal fees and
costs of legal action, real estate taxes and maintenance and preservation
expenses, thereby reducing collections available to the Owners of the Class A
Certificates. See "Description of the Class A Certificates" herein.
Liquidation expenses with respect to defaulted loans do not vary directly
with the outstanding principal balance of the loan at the time of default.
Therefore, assuming that a servicer took the same steps in realizing upon a
defaulted loan having a small remaining principal balance as it would in the
case of a defaulted loan having a large remaining principal balance, the
amount realized after expenses of liquidation would be smaller as a
percentage of the outstanding principal balance of the small loan than would
be the case with the defaulted loan having a large remaining principal
balance. If the average outstanding principal balance of the Mortgage Loans
is relatively small, Net Liquidation Proceeds on Liquidated Mortgage Loans
may be small as a percentage of the principal balance of a Mortgage Loan.
PAYMENTS ON THE MORTGAGE LOANS
The scheduled monthly payment dates with respect to the Mortgage Loans
occur throughout a month. When a Prepayment in full is made on a Mortgage
Loan, the Mortgagor is charged interest only up to the date of such
Prepayment, instead of for a full month. However, such principal receipts
will only be passed through to the Owners of the Class A Certificates once a
month, on the Distribution Date which follows the calendar month in which
such Prepayment was received by the Servicer. The Servicer is obligated to
pay, without any right of reimbursement, those shortfalls in interest
collections payable on the Class A Certificates that are attributable to the
difference between the interest paid by a Mortgagor in connection with a
prepayment in full and 30 days' interest (such payment being "Compensating
Interest"); PROVIDED, HOWEVER, that the Servicer will only pay Compensating
Interest to the extent that there is a shortfall in the amount of Available
Funds necessary to pay the Class A Current Interest and will not be required
to pay Compensating Interest with respect to any Remittance Period in an
amount in excess of the aggregate Servicing Fee received by the Servicer for
such Remittance Period or to cover shortfalls in collections of interest due
to curtailments. The excess of the full amount of the Compensating Interest
due over the related Servicing Fee is a "Prepayment Interest Shortfall").
Prepayment Interest Shortfalls and Civil Relief Act Interest Shortfalls (as
defined herein) will not be covered by payments under the Certificate
Insurance Policy.
The sum of Prepayment Interest Shortfalls and Civil Relief Act Interest
Shortfalls (such amount, "Net Interest Shortfalls"), will be allocated to the
Owners of the Class B Certificates to reduce interest otherwise payable on
the Class B Certificates, and thereafter will be allocated among the Owners
of Class A Certificates on a pro rata basis to reduce the interest otherwise
payable on the Class A Certificates.
S-18
<PAGE>
LEGAL CONSIDERATIONS
Applicable state laws generally regulate interest rates and other
charges, require certain disclosures, and may require licensing of the
Originators. In addition, many states have other laws, such as consumer
protection laws, unfair and deceptive practices acts and debt collection
practices acts which may apply to the origination or collection of the
Mortgage Loans. Depending on the provisions of the applicable law,
violations of these laws may limit the ability of the Servicer to collect all
or part of the principal of or interest on the Mortgage Loans, may entitle
the borrower to a refund of amounts previously paid and, in addition, could
subject the Trust to damages and administrative enforcement. See "Certain
Legal Aspects of the Mortgage Loans and Contracts" in the Prospectus.
The Mortgage Loans are also subject to federal laws, including: (i) the
Federal Truth in Lending Act and Regulation Z promulgated thereunder as to
the Mortgage Loans, which require certain disclosures to the borrowers
regarding the terms of such Mortgage Loans; (ii) the Equal Credit Opportunity
Act and Regulation B promulgated thereunder as to the Mortgage Loans, which
prohibit discrimination on the basis of age, race, color, sex, religion,
marital status, national origin, receipt of public assistance or the exercise
of any right under the Consumer Credit Protection Act, in the extension of
credit; and (iii) the Fair Credit Reporting Act as to the Mortgage Loans,
which regulates the use and reporting of information related to the
borrower's credit experience.
Violations of certain provisions of these federal laws may limit the
ability of the Servicer to collect all or part of the principal of or
interest on the Mortgage Loans and in addition could subject the Trust to
damages and administrative enforcement. In addition, under the terms of the
Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the "Civil
Relief Act") or similar state legislation, the interest charged and the
ability of the Servicer to foreclose on loans to certain Mortgagors may be
limited. Generally, under the Civil Relief Act, a mortgagor who enters
military service after the origination of such mortgagor's mortgage loan
(including a mortgagor who was in reserve status and is called to active duty
after origination of the mortgage loan), shall not be charged interest
(including fees and charges) above an annual rate of 6% during the period of
such mortgagor's active duty status, unless a court orders otherwise upon
application of the lender. The Civil Relief Act applies to mortgagors who
are members of the Army, Navy, Air Force, Marines, National Guard, Reserves,
Coast Guard and officers of the U.S. Public Health Service assigned to duty
with the military. Because the Civil Relief Act applies to mortgagors who
enter military service (including reservists who are called to active duty)
after origination of the related mortgage loan, no information can be
provided as to the number of loans that may be affected by the Civil Relief
Act. Application of the Civil Relief Act would adversely affect, for an
indeterminate period of time until cessation of active duty status, the
ability of the Servicer to collect full amounts of interest on certain of the
Mortgage Loans to which it applies, if any. Any shortfall (such shortfall, a
"Civil Relief Act Interest Shortfall") in interest collections on any
Mortgage Loan resulting from the application of the Civil Relief Act will
result in a reduction of the amounts distributable to the Owners of the
Subordinate Certificates and potentially to the Owners of the Class A
Certificates, and would not be covered by Delinquency Advances or the
Certificate Insurance Policy. The Servicer is not obligated to offset any of
the Servicing Fee against, or to provide any other funds to cover, any Civil
Relief Act Interest Shortfall. In addition, the Civil Relief Act imposes
limitations which would impair the ability of the Servicer to foreclose on an
affected Mortgage Loan during the Mortgagor's period of active duty status
and, under certain circumstances, during an additional period thereafter.
See "Certain Legal Aspects of the Mortgage Loans" herein.
It is possible that some of the Mortgage Loans will be subject to the
Riegle Community Development and Regulatory Improvement Act of 1994 (the
"Riegle Act") which incorporates the Home Ownership and Equity Protection Act
of 1994. The Riegle Act adds certain additional provisions to the Truth in
Lending Act which additions are reflected in Regulation Z, the implementing
regulation of the Truth in Lending Act. These provisions impose additional
disclosure and other requirements on creditors with respect to certain
non-purchase money mortgage loans with high interest rates or high upfront
fees and charges. In general, mortgage loans within the purview of the
Riegle Act have annual percentage rates 10 percentage points over the yield
on Treasury Securities of comparable maturity and/or fees and points which
exceed the greater of 8% of the total loan amount or $400. These provisions
of the Riegle Act apply on a mandatory basis to all mortgage loans originated
on or after October 1, 1995. These provisions can impose specific statutory
liabilities upon creditors who fail to comply with their provisions and may
affect the enforceability of the related loans. In addition, any assignee of
the creditor would
S-19
<PAGE>
generally be subject to all claims and defenses that the consumer could
assert against the creditor, including, without limitation, the right to
rescind the mortgage loan.
RISK OF UNAFFILIATED SELLER OR DEPOSITOR INSOLVENCY
The Unaffiliated Seller believes that the transfer of the Mortgage Loans
by the Unaffiliated Seller to the Depositor and by the Depositor to the Trust
constitutes a sale by the Unaffiliated Seller to the Depositor and by the
Depositor to the Trust and, accordingly, that such Mortgage Loans will not be
part of the assets of the Unaffiliated Seller or the Depositor in the event
of the insolvency of the Unaffiliated Seller or the Depositor, as the case
may be, and will not be available to the creditors of the Unaffiliated Seller
or the Depositor, as the case may be. However, in the event of an insolvency
of the Unaffiliated Seller or the Depositor, it is possible that a bankruptcy
trustee or a creditor of the Unaffiliated Seller or the Depositor may argue
that the transaction between the Unaffiliated Seller and the Depositor or
between the Depositor and the Trust was a pledge of such Mortgage Loans in
connection with a borrowing by the Depositor or the Trust, as the case may
be, rather than a true sale. Such an attempt, even if unsuccessful, could
result in delays in distributions on the Certificates.
On the Closing Date, the Trustee, the Unaffiliated Seller, the Depositor,
the Rating Agencies and the Certificate Insurer will have received an opinion
of Dewey Ballantine, special counsel to the Depositor, with respect to the
true sale of the Mortgage Loans by the Unaffiliated Seller to the Depositor
and by the Depositor to the Trustee, in form and substance satisfactory to
the Certificate Insurer and the Rating Agencies.
THE MORTGAGE LOAN POOL
GENERAL
Unless otherwise noted, all references to statistical percentages in this
Prospectus Supplement appearing "as of the Cut-Off Date," together with all
dollar amount references herein to aggregate unpaid principal balances
appearing "as of the Cut-Off Date" have been calculated using the aggregate
scheduled unpaid principal balances of the Mortgage Loans as of the close of
business on the Cut-Off Date (the "Original Aggregate Principal Balance").
This subsection describes generally certain characteristics of the pool
of Mortgage Loans (the "Mortgage Loan Pool"). The Mortgage Loan Pool
consists of 97.66% of fixed-rate and 2.34% of adjustable-rate loans evidenced
by promissory notes (the "Notes") secured by deeds of trust, security deeds
or mortgages on the Mortgaged Properties, 49.05%, 23.35% and 8.83% of which
are located in the states of New York, New Jersey and Connecticut,
respectively. The Mortgaged Properties securing the Mortgage Loans consist
of single-family residences (which may be condominiums, manufactured homes or
one-to-four family residences) and multifamily properties, including
investment properties. The Mortgaged Properties may be owner-occupied (which
includes vacation homes), second homes or non-owner occupied investment
properties. The Mortgage Loan Pool consists of 98.31% of loans secured by
first lien mortgages on the related Mortgaged Properties and 1.69% of loans
secured by second liens on the related Mortgaged Properties.
The Mortgage Loans from the Purchased Pool were not 60 or more days
delinquent and the Mortgage Loans from the 80/20 Program were not more than
30 days delinquent.
99.18% of the Mortgage Loans require monthly payments of principal that
will fully amortize the Mortgage Loans by their respective stated maturity
dates, and 0.82% of the Mortgage Loans are Balloon Loans. As of the Cut-Off
Date, 0.84% of the Mortgage Loans have "step-up" Mortgage Rates. These
Mortgage Loans have fixed Mortgage Rates which are raised by a margin of
6.00% (one such Mortgage Loan "steps-up" by 3.00%). Such "step-up" occurs 12
months after origination.
As of the Cut-Off Date, the Fixed Rate Mortgage Loans had Mortgage Rates
ranging from 6.63% to 24.00% per annum, with a weighted average Mortgage Rate
of 10.00% per annum. The Adjustable Rate Mortgage Loans had Mortgage Rates
ranging from 8.00% to 10.50% per annum, with a weighted average Mortgage Rate
of 9.20% per annum. The Adjustable Rate Mortgage Loans had gross margins
ranging from 5.00% to 7.00%, with a weighted average gross margin of 6.00%;
lifetime rate caps, excluding one capless Adjustable Rate Mortgage
S-20
<PAGE>
Loan, ranging from 13.25% to 16.88%, with a weighted average lifetime rate
cap of 15.03%; and lifetime rate floors ranging from 5.00% to 10.25%, with a
weighted average lifetime rate floor of 8.23%.
As of the Cut-Off Date, the Mortgage Loans had original terms to stated
maturity ranging from 36 months to 360 months; had remaining terms to stated
maturity of 34 months to 360 months; had a weighted average original term to
stated maturity of 348 months; and had a weighted average remaining term to
stated maturity of 281 months.
The Mortgage Loans had CLTVs ranging from 13.25% to 109.01% and had LTVs
ranging from 8.22% to 109.01%, the weighted average CLTV of the Mortgage
Loans was 78.08% and the weighted average LTV was 76.75%.
S-21
<PAGE>
The following tables describe the Mortgage Loans and the related Mortgaged
Properties as of the Cut-off Date. Some of the aggregate percentages in the
following tables may not total 100% due to rounding.
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE % OF AGGREGATE
NUMBER OF UNPAID UNPAID
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Arizona. . . . . . . . . . . . 22 $ 1,120,485.56 1.65%
California . . . . . . . . . . 24 2,101,094.92 3.10
Colorado . . . . . . . . . . . 3 173,825.18 0.26
Connecticut. . . . . . . . . . 51 5,981,171.84 8.83
Delaware . . . . . . . . . . . 2 127,220.84 0.19
Florida. . . . . . . . . . . . 1 36,649.92 0.05
Idaho. . . . . . . . . . . . . 3 130,432.82 0.19
Kansas . . . . . . . . . . . . 3 160,392.26 0.24
Louisiana. . . . . . . . . . . 1 53,553.52 0.08
Maryland . . . . . . . . . . . 6 557,496.02 0.82
Missouri . . . . . . . . . . . 7 284,127.10 0.42
Nevada . . . . . . . . . . . . 1 96,541.10 0.14
New Hampshire. . . . . . . . . 1 73,447.36 0.11
New Jersey . . . . . . . . . . 151 15,810,099.77 23.35
New Mexico . . . . . . . . . . 3 241,606.74 0.36
New York . . . . . . . . . . . 192 33,219,887.42 49.05
Oklahoma . . . . . . . . . . . 10 302,399.59 0.45
Oregon . . . . . . . . . . . . 50 4,176,138.18 6.17
Pennsylvania . . . . . . . . . 9 507,264.60 0.75
Tennessee. . . . . . . . . . . 2 52,348.12 0.08
Texas. . . . . . . . . . . . . 7 662,685.96 0.98
Utah . . . . . . . . . . . . . 3 189,808.87 0.28
Virginia . . . . . . . . . . . 2 279,610.42 0.41
Washington . . . . . . . . . . 17 1,277,605.30 1.89
Wisconsin. . . . . . . . . . . 1 51,381.07 0.08
Wyoming. . . . . . . . . . . . 1 55,074.70 0.08
--- -------------- -------
Total . . . . . . . . . . 573 $67,722,349.18 100.00%
--- -------------- -------
--- -------------- -------
</TABLE>
S-22
<PAGE>
DISTRIBUTION OF ORIGINAL TERMS
<TABLE>
<CAPTION>
AGGREGATE % OF AGGREGATE
NUMBER OF UNPAID UNPAID
RANGE OF ORIGINAL TERMS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
24 less than Term less than or equal to 36 . . . . . . . 1 $ 315,355.58 0.47%
168 less than Term less than or equal to 180. . . . . . . 93 3,908,269.78 5.77
348 less than Term less than or equal to 360. . . . . . . 479 63,498,723.82 93.76
--- -------------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . 573 $67,722,349.18 100.00%
--- -------------- -------
--- -------------- -------
</TABLE>
DISTRIBUTION OF REMAINING TERMS TO STATED MATURITY
<TABLE>
<CAPTION>
AGGREGATE % OF AGGREGATE
NUMBER OF UNPAID UNPAID
RANGE OF MONTHS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
24 less than Term less than or equal to 36. . . . . . . 1 $ 315,355.58 0.47%
84 less than Term less than or equal to 96. . . . . . . 15 770,556.35 1.14
96 less than Term less than or equal to 108. . . . . . . 21 1,815,592.71 2.68
168 less than Term less than or equal to 180. . . . . . . 57 1,322,120.72 1.95
264 less than Term less than or equal to 276. . . . . . . 150 22,989,589.36 33.95
276 less than Term less than or equal to 288. . . . . . . 189 26,419,904.70 39.01
288 less than Term less than or equal to 300. . . . . . . 11 2,365,539.11 3.49
348 less than Term less than or equal to 360. . . . . . . 129 11,723,690.65 17.31
--- -------------- ------
Total. . . . . . . . . . . . . . . . . . . . . . . . 573 $67,722,349.18 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
S-23
<PAGE>
DISTRIBUTION OF ORIGINAL PRINCIPAL BALANCES
<TABLE>
<CAPTION>
AGGREGATE % OF AGGREGATE
NUMBER OF UNPAID UNPAID
RANGE OF ORIGINAL PRINCIPAL BALANCE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
$ 5,000 less than Balance less than or equal to $10,000 . . . . 6 $ 43,623.82 0.06%
10,000 less than Balance less than or equal to 15,000. . . . . 15 177,166.69 0.26
15,000 less than Balance less than or equal to 20,000. . . . . 18 292,376.30 0.43
20,000 less than Balance less than or equal to 25,000. . . . . 10 219,885.98 0.32
25,000 less than Balance less than or equal to 30,000. . . . . 8 211,232.15 0.31
30,000 less than Balance less than or equal to 35,000. . . . . 9 284,444.22 0.42
35,000 less than Balance less than or equal to 40,000. . . . . 11 393,875.10 0.58
40,000 less than Balance less than or equal to 45,000. . . . . 20 828,296.51 1.22
45,000 less than Balance less than or equal to 50,000. . . . . 23 1,059,663.56 1.56
50,000 less than Balance less than or equal to 55,000. . . . . 18 875,061.14 1.29
55,000 less than Balance less than or equal to 60,000. . . . . 15 821,359.30 1.21
60,000 less than Balance less than or equal to 65,000. . . . . 21 1,273,178.90 1.88
65,000 less than Balance less than or equal to 70,000. . . . . 13 855,318.97 1.26
70,000 less than Balance less than or equal to 75,000. . . . . 17 1,122,526.35 1.66
75,000 less than Balance less than or equal to 80,000. . . . . 14 1,023,399.25 1.51
80,000 less than Balance less than or equal to 85,000. . . . . 14 1,124,855.21 1.66
85,000 less than Balance less than or equal to 90,000. . . . . 16 1,350,411.93 1.99
90,000 less than Balance less than or equal to 95,000. . . . . 11 977,469.76 1.44
95,000 less than Balance less than or equal to 100,000 . . . . 19 1,711,746.56 2.53
100,000 less than Balance less than or equal to 105,000 . . . . 17 1,627,671.05 2.40
105,000 less than Balance less than or equal to 110,000 . . . . 13 1,339,689.13 1.98
110,000 less than Balance less than or equal to 115,000 . . . . 15 1,590,920.90 2.35
115,000 less than Balance less than or equal to 120,000 . . . . 9 1,019,832.56 1.51
120,000 less than Balance less than or equal to 125,000 . . . . 16 1,807,959.19 2.67
125,000 less than Balance less than or equal to 130,000 . . . . 15 1,768,563.29 2.61
130,000 less than Balance less than or equal to 135,000 . . . . 8 974,280.69 1.44
135,000 less than Balance less than or equal to 140,000 . . . . 9 1,180,904.11 1.74
140,000 less than Balance less than or equal to 145,000 . . . . 11 1,431,636.65 2.11
145,000 less than Balance less than or equal to 150,000 . . . . 13 1,744,695.80 2.58
150,000 less than Balance less than or equal to 200,000 . . . . 50 7,982,816.58 11.79
200,000 less than Balance less than or equal to 250,000 . . . . 58 11,881,770.59 17.54
250,000 less than Balance less than or equal to 300,000 . . . . 32 7,926,851.60 11.70
300,000 less than Balance less than or equal to 350,000 . . . . 19 5,864,397.98 8.66
350,000 less than Balance less than or equal to 400,000 . . . . 4 1,449,979.97 2.14
400,000 less than Balance less than or equal to 450,000 . . . . 1 420,769.42 0.62
450,000 less than Balance less than or equal to 500,000 . . . . 4 1,831,298.20 2.70
500,000 less than Balance . . . . . . . . . . . . . . . . . . . 1 1,232,419.77 1.82
--- -------------- ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 573 $67,722,349.18 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
S-24
<PAGE>
DISTRIBUTION OF CURRENT PRINCIPAL BALANCES
<TABLE>
<CAPTION>
AGGREGATE % OF AGGREGATE
NUMBER OF UNPAID UNPAID
RANGE OF CURRENT PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
$ 5,000 less than Balance less than or equal to $10,000. . . . . . . 6 $ 43,623.82 0.06%
10,000 less than Balance less than or equal to 15,000 . . . . . . . 21 260,146.61 0.38
15,000 less than Balance less than or equal to 20,000 . . . . . . . 12 209,396.38 0.31
20,000 less than Balance less than or equal to 25,000 . . . . . . . 10 219,885.98 0.32
25,000 less than Balance less than or equal to 30,000 . . . . . . . 12 321,682.06 0.48
30,000 less than Balance less than or equal to 35,000 . . . . . . . 10 324,863.15 0.48
35,000 less than Balance less than or equal to 40,000 . . . . . . . 14 528,537.05 0.78
40,000 less than Balance less than or equal to 45,000 . . . . . . . 23 990,871.95 1.46
45,000 less than Balance less than or equal to 50,000 . . . . . . . 25 1,197,167.17 1.77
50,000 less than Balance less than or equal to 55,000 . . . . . . . 16 835,920.20 1.23
55,000 less than Balance less than or equal to 60,000 . . . . . . . 13 747,111.45 1.10
60,000 less than Balance less than or equal to 65,000 . . . . . . . 22 1,374,180.97 2.03
65,000 less than Balance less than or equal to 70,000 . . . . . . . 17 1,153,424.55 1.70
70,000 less than Balance less than or equal to 75,000 . . . . . . . 18 1,308,027.64 1.93
75,000 less than Balance less than or equal to 80,000 . . . . . . . 9 698,285.58 1.03
80,000 less than Balance less than or equal to 85,000 . . . . . . . 20 1,643,457.83 2.43
85,000 less than Balance less than or equal to 90,000 . . . . . . . 17 1,493,543.54 2.21
90,000 less than Balance less than or equal to 95,000 . . . . . . . 15 1,384,311.03 2.04
95,000 less than Balance less than or equal to 100,000. . . . . . . 18 1,763,270.95 2.60
100,000 less than Balance less than or equal to 105,000 . . . . . . 17 1,744,546.33 2.58
105,000 less than Balance less than or equal to 110,000 . . . . . . 16 1,719,379.29 2.54
110,000 less than Balance less than or equal to 115,000 . . . . . . 12 1,356,649.21 2.00
115,000 less than Balance less than or equal to 120,000 . . . . . . 16 1,881,248.70 2.78
120,000 less than Balance less than or equal to 125,000 . . . . . . 12 1,473,307.24 2.18
125,000 less than Balance less than or equal to 130,000 . . . . . . 10 1,275,953.07 1.88
130,000 less than Balance less than or equal to 135,000 . . . . . . 10 1,326,305.75 1.96
135,000 less than Balance less than or equal to 140,000 . . . . . . 12 1,647,268.02 2.43
140,000 less than Balance less than or equal to 145,000 . . . . . . 12 1,714,301.35 2.53
145,000 less than Balance less than or equal to 150,000 . . . . . . 8 1,177,722.39 1.74
150,000 less than Balance less than or equal to 200,000 . . . . . . 57 10,122,316.72 14.95
200,000 less than Balance less than or equal to 250,000 . . . . . . 48 10,723,704.79 15.83
250,000 less than Balance less than or equal to 300,000 . . . . . . 20 5,420,681.26 8.00
300,000 less than Balance less than or equal to 350,000 . . . . . . 17 5,385,604.07 7.95
350,000 less than Balance less than or equal to 400,000 . . . . . . 2 771,165.69 1.14
400,000 less than Balance less than or equal to 450,000 . . . . . . 2 861,218.88 1.27
450,000 less than Balance less than or equal to 500,000 . . . . . . 3 1,390,848.74 2.05
500,000 less than Balance. . . . . . . . . . . . . . . . 1 1,232,419.77 1.82
--- -------------- ------
Total . . . . . . . . . . . . . . . . . . . . . . . 573 $67,722,349.18 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
S-25
<PAGE>
DISTRIBUTION OF GROSS MORTGAGE RATES
(FIXED RATE MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % OF AGGREGATE
NUMBER OF UNPAID UNPAID
RANGE OF GROSS MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
6.50% less than Rate less than or equal to 7.00%. . . . . . . . . . 5 $ 678,640.94 1.03%
7.00 less than Rate less than or equal to 7.50. . . . . . . . . . . 20 2,966,086.43 4.48
7.50 less than Rate less than or equal to 7.75. . . . . . . . . . . 19 2,842,599.66 4.30
7.75 less than Rate less than or equal to 8.00. . . . . . . . . . . 31 4,201,676.64 6.35
8.00 less than Rate less than or equal to 8.25. . . . . . . . . . . 20 4,581,664.29 6.93
8.25 less than Rate less than or equal to 8.50. . . . . . . . . . . 18 2,771,092.95 4.19
8.50 less than Rate less than or equal to 8.75. . . . . . . . . . . 18 3,137,358.57 4.74
8.75 less than Rate less than or equal to 9.00. . . . . . . . . . . 10 2,353,294.89 3.56
9.00 less than Rate less than or equal to 9.25. . . . . . . . . . . 23 2,864,511.52 4.33
9.25 less than Rate less than or equal to 9.50. . . . . . . . . . . 7 824,562.60 1.25
9.50 less than Rate less than or equal to 9.75. . . . . . . . . . . 8 1,267,694.88 1.92
9.75 less than Rate less than or equal to 10.00 . . . . . . . . . . 9 1,442,907.32 2.18
10.00 less than Rate less than or equal to 10.25. . . . . . . . . . 10 1,174,650.26 1.78
10.25 less than Rate less than or equal to 10.50. . . . . . . . . . 47 4,283,965.57 6.48
10.50 less than Rate less than or equal to 10.75. . . . . . . . . . 55 6,588,622.14 9.96
10.75 less than Rate less than or equal to 11.00. . . . . . . . . . 60 8,671,042.26 13.11
11.00 less than Rate less than or equal to 11.25. . . . . . . . . . 46 5,067,701.92 7.66
11.25 less than Rate less than or equal to 11.50. . . . . . . . . . 27 2,534,254.81 3.83
11.50 less than Rate less than or equal to 11.75. . . . . . . . . . 15 1,640,403.92 2.48
11.75 less than Rate less than or equal to 12.00. . . . . . . . . . 34 2,371,400.95 3.59
12.00 less than Rate less than or equal to 12.25. . . . . . . . . . 9 660,183.35 1.00
12.25 less than Rate less than or equal to 12.50. . . . . . . . . . 5 441,906.89 0.67
12.50 less than Rate less than or equal to 12.75. . . . . . . . . . 9 1,020,864.89 1.54
12.75 less than Rate less than or equal to 13.00. . . . . . . . . . 6 571,264.66 0.86
13.00 less than Rate less than or equal to 13.25. . . . . . . . . . 1 57,747.52 0.09
13.75 less than Rate less than or equal to 14.00. . . . . . . . . . 1 279,948.91 0.42
14.75 less than Rate less than or equal to 15.00. . . . . . . . . . 15 299,181.68 0.45
16.75 less than Rate less than or equal to 17.00. . . . . . . . . . 2 30,852.40 0.05
17.50 less than Rate less than or equal to 18.00. . . . . . . . . . 11 175,155.37 0.26
19.50 less than Rate less than or equal to 20.00. . . . . . . . . . 3 80,415.85 0.12
20.50 less than Rate less than or equal to 21.00. . . . . . . . . . 10 191,992.77 0.29
23.50 less than Rate less than or equal to 24.00. . . . . . . . . . 3 61,616.43 0.09
--- -------------- ------
Total. . . . . . . . . . . . . . . . . . . . . . . . 557 $66,135,263.24 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
S-26
<PAGE>
DISTRIBUTION OF GROSS MORTGAGE RATES
(ADJUSTABLE RATE MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % OF AGGREGATE
NUMBER OF UNPAID UNPAID
RANGE OF GROSS MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
7.75% less than Rate less than or equal to 8.00%. . . . . . . . . . 1 $ 183,776.61 11.58%
8.25 less than Rate less than or equal to 8.50. . . . . . . . . . . 2 162,800.25 10.26
8.50 less than Rate less than or equal to 8.75. . . . . . . . . . . 2 482,775.42 30.42
9.25 less than Rate less than or equal to 9.50. . . . . . . . . . . 2 133,384.05 8.40
9.50 less than Rate less than or equal to 9.75. . . . . . . . . . . 3 218,570.22 13.77
9.75 less than Rate less than or equal to 10.00 . . . . . . . . . . 3 168,693.70 10.63
10.00 less than Rate less than or equal to 10.25 . . . . . . . . . 1 94,556.34 5.96
10.25 less than Rate less than or equal to 10.50. . . . . . . . . . 2 142,529.35 8.98
-- ------------- ------
Total . . . . . . . . . . . . . . . . . . . . . . . 16 $1,587,085.94 100.00%
-- ------------- ------
-- ------------- ------
</TABLE>
DISTRIBUTION OF GROSS MARGINS
(ADJUSTABLE RATE MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % OF AGGREGATE
NUMBER OF UNPAID UNPAID
RANGE OF GROSS MARGINS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
4.50% less than Margin less than or equal to 5.00%. . . . . . . . . 3 $ 445,443.77 28.07%
5.00 less than Margin less than or equal to 5.50. . . . . . . . . . 3 153,885.82 9.70
5.50 less than Margin less than or equal to 6.00. . . . . . . . . . 2 192,942.13 12.16
6.00 less than Margin less than or equal to 6.50. . . . . . . . . . 4 267,858.73 16.88
6.50 less than Margin less than or equal to 7.00. . . . . . . . . . 4 526,955.49 33.20
-- ------------- ------
Total . . . . . . . . . . . . . . . . . . . . . . . . 16 $1,587,085.94 100.00%
-- ------------- ------
-- ------------- ------
</TABLE>
DISTRIBUTION OF LIFETIME RATE CAPS
(ADJUSTABLE RATE MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % OF AGGREGATE
NUMBER OF UNPAID UNPAID
RANGE OF LIFETIME RATE CAPS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
No Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 $ 183,776.61 11.58%
13.00% less than Cap less than or equal to 13.50% . . . . . . . . . 1 304,399.35 19.18
14.00 less than Cap less than or equal to 14.50 . . . . . . . . . . 3 241,606.74 15.22
14.50 less than Cap less than or equal to 15.00 . . . . . . . . . . 1 178,376.07 11.24
15.00 less than Cap less than or equal to 15.50 . . . . . . . . . . 1 63,137.58 3.98
15.50 less than Cap less than or equal to 16.00 . . . . . . . . . . 4 294,892.26 18.58
16.00 less than Cap less than or equal to 16.50 . . . . . . . . . . 3 227,040.74 14.31
16.50 less than Cap less than or equal to 17.00 . . . . . . . . . . 2 93,856.59 5.91
-- ------------- ------
Total . . . . . . . . . . . . . . . . . . . . . . . . 16 $1,587,085.94 100.00%
-- ------------- ------
-- ------------- ------
</TABLE>
S-27
<PAGE>
DISTRIBUTION OF LIFETIME RATE FLOORS
(ADJUSTABLE RATE MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % OF AGGREGATE
NUMBER OF UNPAID UNPAID
RANGE OF LIFETIME RATE FLOORS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------------- -------------- ----------------- ----------------
<S> <C> <C> <C>
4.50% LESS THAN Floor LESS THAN OR EQUAL TO 5.00%. . . . . . 1 $ 78,806.49 4.97%
6.50 LESS THAN Floor LESS THAN OR EQUAL TO 7.00 . . . . . . 2 295,502.28 18.62
7.00 LESS THAN Floor LESS THAN OR EQUAL TO 7.50 . . . . . . 2 355,473.93 22.40
8.00 LESS THAN Floor LESS THAN OR EQUAL TO 8.50 . . . . . . 1 98,571.87 6.21
8.50 LESS THAN Floor LESS THAN OR EQUAL TO 9.00 . . . . . . 2 242,098.93 15.25
9.00 LESS THAN Floor LESS THAN OR EQUAL TO 9.50 . . . . . . 2 133,384.05 8.40
9.50 LESS THAN Floor LESS THAN OR EQUAL TO 10.00. . . . . . 5 288,692.05 18.19
10.00 LESS THAN Floor LESS THAN OR EQUAL TO 10.50. . . . . . 1 94,556.34 5.96
-- ------------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . 16 $1,587,085.94 100.00%
-- ------------- -------
-- ------------- -------
</TABLE>
DISTRIBUTION OF LTV'S
<TABLE>
<CAPTION>
AGGREGATE % OF AGGREGATE
NUMBER OF UNPAID UNPAID
RANGE OF LTV's MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
5.00% LESS THAN LTV LESS THAN OR EQUAL TO 10.00%. . . . . . 7 $ 138,366.87 0.20%
10.00 LESS THAN LTV LESS THAN OR EQUAL TO 15.00 . . . . . . 11 233,465.19 0.34
15.00 LESS THAN LTV LESS THAN OR EQUAL TO 20.00 . . . . . . 39 841,499.89 1.24
25.00 LESS THAN LTV LESS THAN OR EQUAL TO 30.00 . . . . . . 1 35,426.84 0.05
30.00 LESS THAN LTV LESS THAN OR EQUAL TO 35.00 . . . . . . 1 73,948.56 0.11
35.00 LESS THAN LTV LESS THAN OR EQUAL TO 40.00 . . . . . . 3 189,906.23 0.28
40.00 LESS THAN LTV LESS THAN OR EQUAL TO 45.00 . . . . . . 2 511,236.21 0.75
45.00 LESS THAN LTV LESS THAN OR EQUAL TO 50.00 . . . . . . 7 715,927.89 1.06
50.00 LESS THAN LTV LESS THAN OR EQUAL TO 55.00 . . . . . . 8 447,693.51 0.66
55.00 LESS THAN LTV LESS THAN OR EQUAL TO 60.00 . . . . . . 13 1,307,660.30 1.93
60.00 LESS THAN LTV LESS THAN OR EQUAL TO 65.00 . . . . . . 19 3,546,752.05 5.24
65.00 LESS THAN LTV LESS THAN OR EQUAL TO 70.00 . . . . . . 25 3,237,915.81 4.78
70.00 LESS THAN LTV LESS THAN OR EQUAL TO 75.00 . . . . . . 79 9,173,596.28 13.55
75.00 LESS THAN LTV LESS THAN OR EQUAL TO 80.00 . . . . . . 245 32,043,454.86 47.32
80.00 LESS THAN LTV LESS THAN OR EQUAL TO 85.00 . . . . . . 17 2,567,975.38 3.79
85.00 LESS THAN LTV LESS THAN OR EQUAL TO 90.00 . . . . . . 94 12,378,890.01 18.28
90.00 LESS THAN LTV LESS THAN OR EQUAL TO 95.00 . . . . . . 1 204,203.71 0.30
100.00 LESS THAN LTV . . . . . . . . . . . . . . . . . . . . 1 74,429.59 0.11
--- -------------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . 573 $67,722,349.18 100.00%
--- --------------- -------
--- --------------- -------
</TABLE>
S-28
<PAGE>
DISTRIBUTION OF CLTV'S
<TABLE>
<CAPTION>
AGGREGATE % OF AGGREGATE
NUMBER OF UNPAID UNPAID
RANGE OF CLTV's MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
10.00% LESS THAN CLTV LESS THAN OR EQUAL TO 15.00% . . . . . 1 $ 33,179.50 0.05%
15.00 LESS THAN CLTV LESS THAN OR EQUAL TO 20.00. . . . . . 1 34,799.37 0.05
25.00 LESS THAN CLTV LESS THAN OR EQUAL TO 30.00. . . . . . 1 35,426.84 0.05
30.00 LESS THAN CLTV LESS THAN OR EQUAL TO 35.00. . . . . . 1 73,948.56 0.11
35.00 LESS THAN CLTV LESS THAN OR EQUAL TO 40.00. . . . . . 3 189,906.23 0.28
40.00 LESS THAN CLTV LESS THAN OR EQUAL TO 45.00. . . . . . 2 511,236.21 0.75
45.00 LESS THAN CLTV LESS THAN OR EQUAL TO 50.00. . . . . . 7 715,927.89 1.06
50.00 LESS THAN CLTV LESS THAN OR EQUAL TO 55.00. . . . . . 8 447,693.51 0.66
55.00 LESS THAN CLTV LESS THAN OR EQUAL TO 60.00. . . . . . 13 1,307,660.30 1.93
60.00 LESS THAN CLTV LESS THAN OR EQUAL TO 65.00. . . . . . 19 3,546,752.05 5.24
65.00 LESS THAN CLTV LESS THAN OR EQUAL TO 70.00. . . . . . 25 3,237,915.81 4.78
70.00 LESS THAN CLTV LESS THAN OR EQUAL TO 75.00. . . . . . 79 9,173,596.28 13.55
75.00 LESS THAN CLTV LESS THAN OR EQUAL TO 80.00. . . . . . 246 32,053,807.59 47.33
80.00 LESS THAN CLTV LESS THAN OR EQUAL TO 85.00. . . . . . 18 2,580,389.41 3.81
85.00 LESS THAN CLTV LESS THAN OR EQUAL TO 90.00. . . . . . 102 12,533,239.21 18.51
90.00 LESS THAN CLTV LESS THAN OR EQUAL TO 95.00. . . . . . 14 449,016.92 0.66
95.00 LESS THAN CLTV LESS THAN OR EQUAL TO 100.00 . . . . . 32 723,423.91 1.07
100.00 LESS THAN CLTV. . . . . . . . . . . . . . . . . . . . 1 74,429.59 0.11
--- -------------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . 573 $67,722,349.18 100.00%
--- -------------- -------
--- -------------- -------
</TABLE>
The LTV's and CLTV's shown above were calculated based upon the appraised
values of the Mortgaged Properties at the time of origination (the "Appraised
Values"), the balance of the Mortgage Loan at the time of origination and the
senior liens, if any, at the time of origination. No assurance can be given
that such Appraised Values of the Mortgaged Properties have remained or will
remain at their levels on the dates of origination of the related Mortgage
Loans. If property values decline such that the outstanding balances of the
Mortgage Loans, together with the outstanding balances of any senior Mortgage
Loans, 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 heretofore experienced by the Servicer and by the mortgage lending
industry in general.
S-29
<PAGE>
DISTRIBUTION OF PROPERTY TYPES
<TABLE>
<CAPTION>
AGGREGATE % OF AGGREGATE
NUMBER OF UNPAID UNPAID
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
1-4 Family . . . . . . . . . . . . 345 $44,050,622.88 65.05%
Manufactured Home. . . . . . . . . 67 3,316,130.50 4.90
Multi-Family . . . . . . . . . . . 22 3,827,698.42 5.65
Condo. . . . . . . . . . . . . . . 139 16,527,897.38 24.41
--- -------------- ------
Total . . . . . . . . . . . . 573 $67,722,349.18 100.00%
--- -------------- -------
--- -------------- -------
</TABLE>
DISTRIBUTION OF OCCUPANCY STATUS
<TABLE>
<CAPTION>
AGGREGATE % OF AGGREGATE
NUMBER OF UNPAID UNPAID
OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Owner Occupied . . . . . . . . . . 498 $60,376,338.00 89.15%
Second Home. . . . . . . . . . . . 1 315,355.58 0.47
Non-Owner Occupied . . . . . . . . 74 7,030,655.60 10.38
--- -------------- -------
Total . . . . . . . . . . . . 573 $67,722,349.18 100.00%
--- -------------- -------
--- -------------- -------
</TABLE>
INTEREST PAYMENTS ON THE MORTGAGE LOANS
The Mortgage Loans in the Trust are Actuarial Loans. An "Actuarial Loan"
provides for amortization of the loan over a series of fixed level payment
monthly installments. Each monthly installment consists of an amount of
interest equal to 1/12 of the coupon of the loan multiplied by the unpaid
principal balance of the loan, and an amount of principal equal to the
remainder of the monthly payment. Scheduled monthly payments made by
obligors on Actuarial Loans either earlier or later than the scheduled due
dates thereof will not affect the amortization schedule or the relative
application of such payments to principal and interest.
THE UNAFFILIATED SELLER
The Unaffiliated Seller is a Delaware limited liability company. The
Unaffiliated Seller's principal executive offices are located at 1776 S.W.
Madison Street, Portland, Oregon 97205. Its telephone number is (503)
223-5600. WMFC LLC, a Delaware limited liability company, holds a 99%
membership interest in the Unaffiliated Seller; Portland Servicing
Corporation, a Nevada corporation and an affiliate of Wilshire Credit
Corporation holds the remaining 1% membership interest in the Unaffiliated
Seller. The Unaffiliated Seller has been established as a limited-purpose
entity and is intended to be bankruptcy remote. Accordingly, the
Unaffiliated Seller's certificate of formation and operating agreement and
certain covenants made by it provide that (a) it will not engage in business
with, or incur liabilities to, any other entity (other than as contemplated
in connection with this offering) which may bring bankruptcy proceedings
against the Unaffiliated Seller; and (b) the risk that it will be
consolidated into the bankruptcy proceedings of any other entity is
diminished. The Unaffiliated Seller will have no significant assets. The
Unaffiliated Seller was organized under the laws of the State of Delaware in
November 1995. The Unaffiliated Seller was organized as a special purpose
limited liability company, designed principally to acquire and transfer
mortgage loans.
The only obligations, if any, of the Unaffiliated Seller with respect to
the Certificates will be pursuant to certain representations and warranties
with respect to the Mortgage Loans. The Unaffiliated Seller will be liable
S-30
<PAGE>
only with respect to the representations and warranties made with respect to
the Mortgage Loans. The Unaffiliated Seller will not have on the Closing
Date, nor is it expected in the future to have, any significant assets.
However, any repurchase obligations of the Unaffiliated Seller with respect
to such representations and warranties will be backed by a guaranty of WFSG
(as defined herein).
THE SERVICER
Wilshire Servicing Corporation, a Delaware corporation (the "Servicer"),
is a wholly owned subsidiary of Wilshire Financial Services Group, Inc.
("WFSG"), a publicly traded company engaged in a wide variety of activities
including the acquisition, origination, ownership and securitization of loan
portfolios, recently formed to engage in the loan servicing business and to
continue the loan servicing business conducted by Wilshire Credit
Corporation, an affiliate of WFSG, once the Servicer has obtained all
necessary licenses (which is currently expected to be approximately two to
three years from the date of this Prospectus Supplement). The Servicer will
retain Wilshire Credit Corporation to act as its sub-servicer with respect to
the Mortgage Loans until such time as the Servicer is fully licensed.
THE SUB-SERVICER
The information set forth in this section has been provided by Wilshire
Credit Corporation, and neither the Depositor nor the Underwriter makes any
representations or warranties as to the accuracy or completeness of such
information.
GENERAL
The Sub-Servicer, Wilshire Credit Corporation, a Nevada corporation, is a
privately held corporation based in Portland, Oregon. Wilshire Credit
Corporation is a member of a group of private affiliated companies which
engage in the ownership, servicing and securitization of financial assets.
Wilshire Credit Corporation's principal executive offices are located at 1776
S.W. Madison Street, Portland, Oregon 97205. The telephone number of such
offices is (503) 223-5600. As of December 31, 1995, Wilshire Credit
Corporation's fiscal year end, the total assets of Wilshire Credit
Corporation and a group of affiliated companies, other than the Bank
Affiliates (as defined herein) (the "Wilshire Private Group") equaled
$231,582,810 (unaudited). Shareholder's equity in the Wilshire Private Group
totaled $3,035,103 (unaudited) as of December 31, 1995. Total revenues and
net income for the 12-month period ended December 31, 1995 equaled
$10,651,473 (unaudited) and $1,670,931 (unaudited), respectively. No
separately audited financial information has been made available with respect
to Wilshire Credit Corporation apart from the Wilshire Private Group.
Wilshire Credit Corporation was formed in May 1989 to manage the Wilshire
Private Group's activities in the loan and lease servicing business and to
service a third party's heavy industrial equipment leasing portfolio which
consisted of leases of containers, railroad cars and other similar equipment.
In 1990, Wilshire Credit Corporation began to expand its activities by
acquiring portfolios of financial assets from the Resolution Trust
Corporation, the Federal Deposit Insurance Corporation and other parties and
selling participation in such portfolios to institutional investors while
retaining the servicing rights and a participation in the overall return on
such portfolios. As of September 30, 1996, Wilshire Credit Corporation has
acquired, and is providing servicing for, more than 409 portfolios of
financial assets having total principal and accrued interest in excess of
$1.8 billion. Portfolios acquired by Wilshire Credit Corporation include
performing, non-performing and charged-off consumer and commercial loans or
receivables, including home mortgage loans, home equity loans, commercial
real estate loans, commercial and business loans, auto loans, manufactured
housing loans, marine or boat loans and consumer loans. Wilshire Credit
Corporation services loans originated or acquired by its public affiliates,
First Bank of Beverly Hills, F.S.B. and Girard Savings Bank, F.S.B.
(together, the "Bank Public Affiliates") and several third parties.
S-31
<PAGE>
80/20 PROGRAM UNDERWRITING GUIDELINES
As more fully described below under "QUALIFICATIONS OF ORIGINATORS,"
there are various types of Originators that may participate in WCC's 80/20
Program. Under WCC's 80/20 Program, WCC has purchased and originated the
Mortgage Loans pursuant to standard underwriting guidelines according to
WCC's originator guide, as modified from time to time, used by WCC and
affiliated and unaffiliated Originators (the "WCC's Guidelines"). The
underwriting guidelines are described below.
WCC'S GUIDELINES. WCC's Guidelines are revised continuously based on
opportunities and prevailing conditions in the nonconforming credit
residential mortgage market, as well as the expected market for the resulting
Certificates.
Substantially all loans originated or purchased by WCC are subjected to
WCC's Guidelines. The underwriting process is intended to assess both the
prospective borrower's creditworthiness, capacity to repay and collateral.
The fixed-rate and adjustable-rate loans are generally fully amortized over a
fifteen or thirty year schedule. The properties securing the loans are
primarily single family detached, owner occupied residences. Occasionally,
loans are originated or acquired on condominiums or townhouses. No land
loans are originated or acquired.
The weighted average CLTV of WCC's loans will not exceed 100%. The CLTV
is defined as the ratio, expressed as a percentage, of the sum of the
original principal balance of a Mortgage Loan and the principal balance at
the time of origination of such Mortgage Loan of any mortgage loan which has
a prior lien against the Mortgaged Property (a "Senior Mortgage Loan"),
regardless of any lesser amount actually outstanding (computed at the time of
the origination of the Mortgage Loan) to the appraised value of the related
Mortgaged Property at the time of origination of the Mortgage Loan. Complete
documentation for any senior deeds of trust are reviewed and approved by
WCC's underwriting staff. Negative amortization on underlying loans will
disqualify a borrower's loan application.
Generally, the borrower is required to have an acceptable credit history
given the amount of equity available, the strength of the employment history
and income stability. Income, employment, and deed of trust status is
verified for each applicant by telephone and/or written inquiry, examination
of tax returns, pay check stubs, court supported documents or bank
statements. Self-employed applicants provide tax returns for two years on
their businesses and personal and business financial statements.
The value of each property proposed as security for a mortgage loan is
determined by a full appraisal. Such appraisals are completed by an
appraiser licensed or certified by the state where the property is located.
The results of an appraisal are documented on FNMA-approved forms and include
a diagram of the dwelling, the calculation of square footage, a location map,
and photos of the front and rear of the property as well as a street view of
the property. The appraisal documentation is supplemented with appropriate
clarifying comments regarding such matters as market influences and property
condition. Review appraisals are frequently requested on all properties by
WCC approved review appraisers.
Certain laws protect loan applicants by offering them a timeframe after
loan documents are signed, termed the rescission period, during which the
applicant has the right to cancel the loan. The rescission period must have
expired prior to funding a loan and may not be waived by the applicant except
as permitted by law.
WCC's Guidelines require title insurance coverage issued by an approved
American Land Title Association or California Land Title Association title
insurance company on each loan WCC originates or purchases. WCC, the related
Originator and their assignees are generally named as the insureds. Title
insurance policies indicate the lien position of the mortgage loan and
protect the insured against loss if the title or lien position is not as
indicated.
The applicant is required to secure hazard insurance in an amount
sufficient to cover the new loan and any prior mortgage. If the sum of the
outstanding first mortgage, if any, and the related loan exceeds replacement
value, insurance equal to replacement value may be accepted. WCC or its
designee is required to ensure that its name and address is properly added to
the "Mortgagee Clause" of the insurance policy. In the event WCC or the
related Originator's name is added to a "Loss Payee Clause" and the policy
does not provide for written notice of policy changes of cancellation, an
endorsement adding such provision is required.
S-32
<PAGE>
APPROVED GUIDELINES. WCC may acquire Mortgage Loans underwritten
pursuant to underwriting guidelines that may differ from WCC's Guidelines
(such guidelines, the "Approved Guidelines"). Certain of the Mortgage Loans
have been acquired in negotiated transactions, and such negotiated
transactions are governed by agreements ("Master Loan Transfer Agreements")
relating to ongoing acquisitions of Mortgage Loans by WCC from Originators
who will represent that the Mortgage Loans have been originated in accordance
with underwriting guidelines agreed to by WCC; WCC will review or cause to be
reviewed all of the Mortgage Loans in any delivery of Mortgage Loans from the
related Originator for conformity with the Approved Guidelines.
The underwriting standards utilized in negotiated transactions and Master
Loan Transfer Agreements may vary from WCC's Guidelines. The Approved
Guidelines are designed to provide an underwriter with information to
evaluate either the security for the related Mortgage Loan, which security
consists primarily of the borrower's repayment ability, or the adequacy of
the Mortgaged Property as collateral, or a combination of both. Moreover,
there can be no assurance that every Mortgage Loan was originated in
conformity with the applicable Approved Guidelines in all material respects,
or that the quality or performance of Mortgage Loans underwritten pursuant to
varying guidelines as described above will be equivalent under all
circumstances.
QUALITY CONTROL. WCC's quality control department reviews in its
entirety every loan file originated or purchased. Loan files are reviewed
prior to approval for completeness, accuracy, and compliance with WCC's
underwriting criteria and applicable regulations.
QUALIFICATIONS OF ORIGINATORS. Each Originator from which a Mortgage
Loan is acquired has been accepted by WCC for participation in WCC's 80/20
Program. Originators that enter into Master Loan Transfer Agreements and
which meet the following qualifications are hereinafter referred to as
"Participating Originators." As of the date of approval, each Participating
Originator is generally required to have a specified minimum level of
experience in originating mortgage loans.
WCC may waive or modify any of the foregoing requirements for
Participating Originators. Among affiliated and unaffiliated Originators,
only Participating Originators may enter into Master Loan Transfer Agreements
with WCC. WCC will make directly, or will guarantee compliance with, any
representations and warranties made by any affiliated or unaffiliated
Originator with respect to the Mortgage Loans originated by it and acquired
by a Trust.
All affiliated and unaffiliated Originators are required to originate
mortgage loans in accordance with the applicable underwriting standards.
However, with respect to any Originator, some of the generally applicable
underwriting standards described herein and in WCC's Guidelines may be
modified or waived with respect to certain Mortgage Loans originated by such
Originators.
REPRESENTATIONS BY ORIGINATORS. Each Originator has made representations
and warranties in respect of the Mortgage Loans sold by such Originator.
Such representations and warranties include, among other things, that at the
time of the sale by the Originator of each Mortgage Loan to WCC: (i) the
information with respect to each Mortgage Loan is true and correct as of the
related date of sale; (ii) each Mortgage Loan was underwritten in accordance
with WCC's Guide; (iii) each Mortgage Loan has, at the date of sale, either a
title insurance policy or a title insurance binder or certificate and, if
necessary, an applicable assignment endorsement; (iv) each Mortgage Loan is
secured by a valid and subsisting lien of record on the Mortgaged Property
having the priority agreed upon; (v) each Originator held good and
indefeasible title to, and was the sole owner of, each Mortgage Loan conveyed
by such Originator; and (vi) each Mortgage Loan was originated in accordance
with law and is the valid, legal and binding obligation of the related
Mortgagor.
WCC will assign to the Trustee for the benefit of the Owners of the
Certificates all of its right, title and interest in the Loan Purchase
Agreement insofar as any such agreement relates to the representations and
warranties made by an Originator in respect of such Mortgage Loan and any
remedies provided for breach of such representations and warranties. If WCC
cannot cure a breach of any representation or warranty made by it in respect
of a Mortgage Loan that materially and adversely affects the interests of the
Owners of the Certificates in such Mortgage Loan within a time period
specified in the Pooling and Servicing Agreement, WCC will be obligated to
purchase from the Trust such Mortgage Loan at the Repurchase Price.
S-33
<PAGE>
SERVICING
DELINQUENCY AND FORECLOSURE STATISTICS. No information is provided
herein with respect to the Sub-Servicer's mortgage loan servicing portfolio.
The Sub-Servicer's servicing portfolio was acquired from, and originated by,
a variety of institutions. The Sub-Servicer does not believe that the
information regarding the delinquency, loss and foreclosure experience of its
servicing portfolio is likely to be a meaningful indicator of the
delinquency, loss and foreclosure experience of the Mortgage Loans. For
example, the delinquency and loss experience of the Sub-Servicer's servicing
portfolio may include (i) loans and financial assets acquired from entities
other than those by which the Mortgage Loans were originated, (ii) loans and
financial assets from the same or different entities originated pursuant to
different underwriting standards and (iii) loans and financial assets having
a geographic distribution that varies from the geographic distribution of the
Mortgage Loans. In addition, the Sub-Servicer's consolidated servicing
portfolio includes loans with a variety of payment and other characteristics
that may not correspond to those of the Mortgage Loans.
USE OF PROCEEDS
The Unaffiliated Seller will sell the Mortgage Loans to the Depositor and
the Depositor will sell the Mortgage Loans to the Trust concurrently with the
delivery of the Certificates. Net proceeds from the sale of the Certificates
will be applied by the Trust to the purchase of the Mortgage Loans from the
Depositor. Such net proceeds will represent the purchase price to be paid by
the Depositor to the Unaffiliated Seller for the Mortgage Loans.
PREPAYMENT AND YIELD CONSIDERATIONS
The weighted average life of, and, if purchased at other than par
(disregarding, for purposes of this discussion, the effects on a Certificate
Owner's yield resulting from the timing of the settlement date and those
considerations discussed below under "Payment Delay Feature of the
Certificates"), the yield to maturity on an Offered Certificate will be
directly related to the rate of payment of principal of the Mortgage Loans,
including for this purpose voluntary payment in full of Mortgage Loans prior
to stated maturity (a "Prepayment"), liquidations due to defaults, casualties
and condemnations, and repurchases of Mortgage Loans by the Unaffiliated or
by the Certificate Insurer. The actual rate of principal prepayments on pools
of mortgage loans is influenced by a variety of economic, tax, geographic,
demographic, social, legal and other factors and has fluctuated considerably
in recent years. In addition, the rate of principal prepayments may differ
among pools of mortgage loans at any time because of specific factors
relating to the mortgage loans in the particular pool, including, among other
things, the age of the mortgage loans, the geographic locations of the
properties securing the loans, the extent of the mortgagors' equity in such
properties, and changes in the mortgagors' housing needs, job transfers and
unemployment.
The timing of changes in the rate of prepayments may significantly affect
the actual yield to investors, even if the average rate of principal
prepayments is consistent with the expectations of investors. In general, the
earlier the payment of principal of the Mortgage Loans, the greater the
effect on an investor's yield to maturity. As a result, the effect on an
investor's yield of principal prepayments occurring at a rate higher (or
lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Class A Certificates will not be
offset by a subsequent like reduction (or increase) in the rate of principal
prepayments. Investors must make their own decisions as to the appropriate
prepayment assumptions to be used in deciding whether to purchase any of the
Class A Certificates. Neither the Unaffiliated Seller nor the Depositor
makes any representations or warranties as to the rate of prepayment or the
factors to be considered in connection with such determination.
PROJECTED PREPAYMENTS AND YIELDS FOR CLASS A CERTIFICATES
If purchased at other than par, the yield to maturity on an Offered
Certificate will be affected by the rate of payment of principal of the
Mortgage Loans. If the actual rate of payments on the Mortgage Loans is
slower than the rate anticipated by an investor who purchases an Offered
Certificate at a discount, the actual yield to such investor will be lower
than such investor's anticipated yield. If the actual rate of payments on the
Mortgage Loans is faster than the rate anticipated by an investor who
purchases an Offered Certificate at a premium, the actual yield to such
investor will be lower than such investor's anticipated yield.
S-34
<PAGE>
97.66% of the Mortgage Loans are fixed rate Mortgage Loans. The rate of
prepayments with respect to conventional fixed rate mortgage loans has
fluctuated significantly in recent years. In general, if prevailing interest
rates fall significantly below the interest rates on fixed rate mortgage
loans, such mortgage loans are likely to be subject to higher prepayment
rates than if prevailing rates remain at or above the interest rates on such
mortgage loans. Conversely, if prevailing interest rates rise appreciably
above the interest rates on fixed rate mortgage loans, such mortgage loans
are likely to experience a lower prepayment rate than if prevailing rates
remain at or below the interest rates on such mortgage loans.
The Final Scheduled Distribution Date for each Class of the Class A
Certificates is as follows: Class A-1 Certificates, May 25, 2011, Class A-2
Certificates, June 25, 2015, Class A-3 Certificates, December 25, 2017, and
for the Class A-4 Certificates, December 25, 2020. For the Class A-1
Certificates, the Class A-2 Certificates, the Class A-3 Certificates and the
Class A-4 Certificates, the Final Scheduled Distribution Date for each
Certificate is calculated as of the date on which the related original
Certificate Principal Balance, as set forth under the Modeling Assumptions
described below, less all amounts previously distributed as principal, would
be reduced to zero assuming that no Prepayments are received on the Mortgage
Loans, that scheduled payments of principal and interest on each Mortgage
Loan are timely received, that no Realized Losses occur on the Mortgage
Loans, that no excess cashflow will be used to make accelerated payments of
principal, that the Pass-Through Rate for each Certificate is as listed under
the Modeling Assumptions, and that there is no optional termination by the
party named in the Pooling and Servicing Agreement or by the Certificate
Insurer on the Trust. The weighted average life of each Class of Class A
Certificates is likely to be shorter, and the actual final Distribution Date
with respect to each Class of Class A Certificates could occur significantly
earlier than the Final Scheduled Distribution Date because (i) Prepayments
are likely to occur which shall be applied to the payment of the Certificate
Principal Balance of the Class A Certificates, (ii) Net Monthly Excess Spread
to the extent available will be applied as an accelerated payment of
principal on the Class A Certificates up to the Specified Subordinated Amount
and (iii) the Servicer or, in limited circumstances, the Certificate Insurer,
may cause a termination of the Trust when the aggregate outstanding principal
balance of the Mortgage Loans in the Trust has declined to 10% or less of the
Original Aggregate Principal Balance and if the Servicer or the Certificate
Insurer does not exercise such right, the Trustee shall offer the Mortgage
Loans in an auction sale.
Prepayments on mortgage loans are commonly measured relative to a
prepayment model or standard. The model used in this Prospectus Supplement
("Constant Prepayment Rate" or "CPR") is a prepayment assumption (the
"Prepayment Assumption") which represents an assumed annualized rate of
prepayment relative to the then-outstanding principal balance on a pool of
new mortgage loans. As used in the table below, 0% CPR indicates no
prepayments 16% indicates prepayments at an annual rate of 16%, and so on.
The Prepayment Assumption does not purport to be a historical description of
prepayment experience or a prediction of the anticipated rate of prepayment
of any pool of mortgage loans, including the related Mortgage Loans.
The tables entitled "Weighted Average Lives" have been prepared on the
basis of the following assumptions (collectively, the "Modeling
Assumptions"): (i) the Mortgage Loans prepay at the indicated percentage of
the related Prepayment Assumption; (ii) distributions on the Class A
Certificates are received, in cash, on the 25th day of each month, commencing
January 27, 1997; (iii) no defaults or delinquencies in, or modifications,
waivers or amendments respecting, the payment by the Mortgagors of principal
and interest on the Mortgage Loans occur; (iv) scheduled payments are assumed
to be received on the first day of each month commencing in January 1997 (or
as set forth in the following table) and prepayments represent payment in
full of individual Mortgage Loans and are assumed to be received on the last
day of each month, commencing in December 1996 (or as set forth in the
following table) and include 30 days' interest thereon; (v) the Class A
Certificates are purchased on December 30, 1996; (vi) the original
Certificate Principal Balance and Pass-Through Rate of the Class A-1
Certificates are equal to $24,200,000.00 and 6.40%, respectively, the
original Certificate Principal Balance and Pass-Through Rate of the Class A-2
Certificates are equal to $13,000,000.00 and 6.75%, respectively, the
original Certificate Principal Balance and Pass-Through Rate of the Class A-3
Certificates are equal to $11,000,000.00 and 7.03%, respectively, the
original Certificate Principal Balance and Pass-Through Rate of the Class A-4
Certificates are equal to $17,321,000.00 and 7.51%, respectively, and the
original Certificate Principal Balance and Pass-Through Rate of the Class B
Certificates are equal to $2,201,349.18 and 6.868%, respectively; and (vii)
the Trust Fund consists of Mortgage Loans having the following
characteristics:
S-35
<PAGE>
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
WEIGHTED WEIGHTED AVERAGE REMAINING REMAINING WEIGHTED
AVERAGE MORTGAGE TERM TO TERM TO AVERAGE
POOL PRINCIPAL MORTGAGE RATE NET OF AMORTIZATION BALLOON SEASONING
NUMBER BALANCE RATE SERVICING FEE (MONTHS) (MONTHS) (MONTHS)
- ------ ------- ---- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1 $1,075,509.34 9.176% 8.751% 357 N/A 3
2 511,576.60 9.241 8.816 353 N/A 7
3 566,818.77 14.270 13.845 177 N/A 3
4 3,220,323.73 11.426 11.001 115 N/A 65
5 61,911,637.88 9.885 9.460 290 N/A 70
6 436,482.86 9.541 9.116 357 73 3
-------------
$67,722,349.18
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE NET WEIGHTED FIRST RESET
POOL GROSS AVERAGE NET LIFETIME AVERAGE INTEREST RESET FREQUENCY
NUMBER MARGIN LIFETIME CAP FLOOR ADJUSTMENT CAP (MONTHS) (MONTHS) INDEX CODE
- ------ ------ ------------ ----- ---------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 6.377% 15.001% 7.837% 1.177% 3 6 6 Month LIBOR
2 5.201 13.922 7.736 1.360 10 6 6 Month LIBOR
3 N/A N/A N/A N/A 8 Only Once Step Payment
</TABLE>
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a Certificate until each dollar of
principal of such Certificate will be repaid to the investor. The weighted
average life of the Class A Certificates will be influenced by the rate at
which principal payments on the Mortgage Loans are paid, which may be in the
form of scheduled amortization or prepayments (for this purpose, the term
"prepayment" includes prepayments, liquidations due to default or early
termination of the Trust). The weighted average lives of the Class A
Certificates also will be influenced by the overcollateralization of the
Class A Certificates because collections payable to the Subordinate
Certificates as principal are limited by the Pooling and Servicing Agreement
and are applied as principal prepayments to the Class A Certificates until
the outstanding aggregate principal balance of the Class A Certificates is
less than the aggregate outstanding principal balance of the Mortgage Loans
by the Specified Subordinated Amount. These prepayments have the effect of
accelerating the amortization of the Class A Certificates, thereby shortening
their respective weighted average lives.
Based on the foregoing Modeling Assumptions, the tables below indicate
the weighted average life of each Class of the Class A Certificates, assuming
that the Mortgage Loans prepay according to the indicated percentages of the
related Prepayment Assumption:
PREPAYMENT ASSUMPTIONS
<TABLE>
<CAPTION>
ASSUMPTION I ASSUMPTION II ASSUMPTION III ASSUMPTION IV ASSUMPTION V
------------ ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Constant Prepayment Rate: 0% 10% 16% 23% 30%
</TABLE>
S-36
<PAGE>
WEIGHTED AVERAGE LIVES
CLASS A-1
WEIGHTED
PREPAYMENT AVERAGE LIFE EARLIEST RETIREMENT
ASSUMPTION (YEARS)(1) DATE(2)
---------- ------------ -------
I . . . . . . 7.392 9/25/10
II . . . . . . 1.518 4/25/00
III . . . . . . 0.993 2/25/99
IV . . . . . . 0.705 6/25/98
V . . . . . . 0.543 2/25/98
(1) Assuming no early termination of the Trust.
(2) Assuming early termination of the Trust at the date when the aggregate
principal balances of the Mortgage Loans decline to a level equal to or
less than 10% of the Original Aggregate Principal Balance.
CLASS A-2
WEIGHTED
PREPAYMENT AVERAGE LIFE EARLIEST RETIREMENT
ASSUMPTION (YEARS)(1) DATE(2)
---------- ------------ -------
I . . . . . 15.994 12/25/14
II . . . . . 4.627 1/25/03
III . . . . . 2.989 11/25/00
IV . . . . . 2.061 9/25/99
V . . . . . 1.544 12/25/98
(1) Assuming no early termination of the Trust.
(2) Assuming early termination of the Trust at the date when the aggregate
principal balances of the Mortgage Loans decline to a level equal to or
less than 10% of the Original Aggregate Principal Balance.
CLASS A-3
WEIGHTED
PREPAYMENT AVERAGE LIFE EARLIEST RETIREMENT
ASSUMPTION (YEARS)(1) DATE(2)
---------- ------------ -------
I . . . . . 19.442 9/25/17
II . . . . . 7.525 3/25/06
III . . . . . 4.981 2/25/03
IV . . . . . 3.446 4/25/01
V . . . . . 2.545 3/25/00
(1) Assuming no early termination of the Trust.
(2) Assuming early termination of the Trust at the date when the aggregate
principal balances of the Mortgage Loans decline to a level equal to or
less than 10% of the Original Aggregate Principal Balance.
S-37
<PAGE>
CLASS A-4
WEIGHTED
PREPAYMENT AVERAGE LIFE EARLIEST RETIREMENT
ASSUMPTION (YEARS)(1) DATE(2)
---------- ------------ -------
I . . . . . 22.438 3/25/20
II . . . . . 13.807 5/25/13
III . . . . . 9.620 7/25/08
IV . . . . . 6.805 2/25/05
V . . . . . 5.125 2/25/03
(1) Assuming no early termination of the Trust.
(2) Assuming early termination of the Trust at the date when the aggregate
principal balances of the Mortgage Loans decline to a level equal to or
less than 10% of the Original Aggregate Principal Balance.
There is no assurance that prepayments will occur, or, if they do occur,
that they will occur at any constant percentage or in accordance with any of
the aforementioned Prepayment Assumptions.
PAYMENT DELAY FEATURE OF CLASS A CERTIFICATES
The effective yield to the Owners of the Class A Certificates will be
lower than the yield otherwise produced by the related Class A Pass-Through
Rate and the purchase price of such Certificates because principal and
interest distributions will not be payable to such holders until at least the
25th day of the month following the month of accrual (without any additional
distributions of interest or earnings thereon in respect of such delay).
ADDITIONAL INFORMATION
A current report on Form 8-K will be available to purchasers of the Class
A Certificates and will be filed and incorporated by reference to the
Registration Statement, together with the Pooling and Servicing Agreement
with the Commission within fifteen days after the initial issuance of the
Class A Certificates. In the event Mortgage Loans are removed from or added
to the mortgage pool as set forth in the preceding paragraph, such removal or
addition will be noted in the current report on Form 8-K. Also, the
Depositor intends to file certain additional yield tables and other
computational materials with respect to the Certificates with the Commission
in a report on Form 8-K. Such tables and materials were prepared at the
request of certain prospective investors, based on assumptions provided by,
and satisfying the special requirements of, such prospective investors. Such
tables and assumptions may be based on assumptions that differ from the
Modeling Assumptions. Accordingly, such tables and other materials may not
be relevant to or appropriate for investors other than those specifically
requesting them.
DESCRIPTION OF THE CLASS A CERTIFICATES
GENERAL
The Certificates will consist of the Class A-1 Certificates, the Class
A-2 Certificates, the Class A-3 Certificates, the Class A-4 Certificates, the
Class B Certificates, the Class C Certificates and the Class R Certificates.
The Certificates will be issued by Wilshire Mortgage Loan Trust 1996-4, a
trust to be organized under the laws of the State of New York. Only the
Class A Certificates are offered hereby. The Subordinate Certificates and the
Class R Certificates are not being offered hereby. The Class A Certificates
together with the Subordinate Certificates and the Class R Certificates are
herein referred to as the "Certificates."
Persons in whose name a Certificate is registered in the register
maintained by the Trustee ("Offered Interest Holders") are the "Owners" of
the Certificates. For so long as the Class A Certificates are in book-entry
form with DTC, the only "Owner" of the Class A Certificates as the term
"Owner" is used in the Pooling and Servicing Agreement will be Cede. No
Offered Interest Holder will be entitled to receive a definitive certificate
representing such person's interest in the Trust, except in the event that
physical Certificates are issued under limited circumstances set forth in the
Pooling and Servicing Agreement. All references herein to the Owners of Class A
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<PAGE>
Certificates shall mean and include the rights of Offered Interest Holders,
as such rights may be exercised through DTC and its participating
organizations, except as otherwise specified in the Pooling and Servicing
Agreement.
The Class A Certificates will evidence the right to receive on each
Distribution Date the Class A Distribution Amount, in each case until the
related Certificate Principal Balance has been reduced to zero. The Class B
Certificates will not be entitled to payments of principal until the
Certificate Principal Balance of each Class of Class A Certificates is
reduced to zero. The Owners of the Class C Certificates will be entitled to
receive distributions of residual Net Monthly Excess Cashflow.
The Insured Distribution Amount due to the Owners of the Class A
Certificates on each Distribution Date is insured by the Certificate Insurer
pursuant to the Certificate Insurance Policy. See "The Certificate Insurance
Policy and the Certificate Insurer" herein.
DISTRIBUTION DATES
The Pooling and Servicing Agreement will require that the Trustee create
and maintain a Certificate Account, to be established as a trust account held
by the trust department of the Trustee (the "Certificate Account"). All funds
in the Certificate Account shall be invested and reinvested by the Trustee
for the benefit of the Servicer, in investments permitted under the Pooling
and Servicing Agreement ("Eligible Investments").
Three Business Days prior to the related Distribution Date (or, if such
day is not a business day, the immediately preceding business day) (the
"Remittance Date") the Servicer is required to withdraw from the Principal
and Interest Account and remit to the Trustee, for deposit in the Certificate
Account, the Monthly Remittance Amount. The "Monthly Remittance Amount" is
equal to (a) the sum of (i) the balance on deposit in the Principal and
Interest Account as of the close of business on the related Determination
Date, (ii) all Delinquency Advances and Compensating Interest (collectively,
the "Advances") and (iii) certain amounts required to be deposited by the
Servicer in the Certificate Account, including Loan Purchase Prices and
amounts necessary to remedy the shortfall in principal balance of any
replacement Mortgage Loan ("Substitution Amounts"), reduced by (b) the sum of
(i) scheduled payments on the Mortgage Loans collected but due after the
related Due Date, (ii) reinvestment income on amounts in the Principal and
Interest Account, (iii) all amounts reimbursable to the Servicer and (iv) any
unscheduled payments, including Mortgagor prepayments on the Mortgage Loans
and Net Liquidation Proceeds occurring in the month of such Distribution
Date. The "Due Dates" occur throughout the month with respect to any
Distribution Date, the "Determination Date" is the 18th day of the month in
which such Distribution Date occurs or, if such day is not a business day,
the immediately preceding business day. "Remittance Period" means the period
beginning on the eleventh day of the calendar month immediately preceding the
month in which the related Remittance Date occurs and ending on the tenth day
of the month in which such Remittance Date occurs. See "The Pooling and
Servicing Agreement -- Payments on Mortgage Loans and Contracts" in the
Prospectus.
A Prepayment Interest Shortfall for any Distribution Date is equal to the
aggregate shortfall, if any, in collections of interest (adjusted to the
related net Mortgage Rates) resulting from principal prepayments in full on
the Mortgage Loans received in the corresponding Remittance Period. Such
shortfalls will result because interest on prepayments in full is distributed
only to the date of prepayment. The Servicer will be obligated to apply
amounts otherwise payable to it as servicing compensation in any month to
cover any shortfalls in collections (such payment, "Compensating Interest")
of one full month's interest at the applicable net Mortgage Rate resulting
from principal prepayments in full; PROVIDED, HOWEVER, the Servicer will only
pay Compensating Interest to the extent that there is a shortfall in the
amount of Available Funds necessary to pay the Class A Current Interest and
will not be required to pay Compensating Interest with respect to any
Remittance Period in an amount in excess of the aggregate Servicing Fee
received by the Servicer for such Remittance Period. The Servicer is not
obligated to cover any shortfalls in collections of interest for prepayments
in part. Such prepayments in part are applied to reduce the outstanding
principal balance of the related Mortgage Loan as of the Due Date in the
month of prepayment.
DISTRIBUTIONS
Distributions on the Certificates will be made on each Distribution Date
to Owners of record of the Certificates as of the immediately preceding
Record Date in an amount equal to the product of such Owner's Percentage
Interest and the amount distributed in respect of such Owner's Class of such
Certificates on such
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<PAGE>
Distribution Date. The "Percentage Interest" represented by any Offered
Certificate will be equal to the percentage obtained by dividing the Original
Certificate Principal Balance of such Offered Certificate by the Original
Certificate Principal Balance of all Certificates of the same Class.
OVERCOLLATERALIZATION PROVISIONS
OVERCOLLATERALIZATION RESULTING FROM CASH FLOW STRUCTURE. The Pooling and
Servicing Agreement requires that, on each Distribution Date, Net Monthly
Excess Spread be applied on such Distribution Date as an accelerated payment
of principal on the Class A Certificates, but only to the limited extent
hereafter described. The "Net Monthly Excess Spread" equals (i) the excess
if any of (x) Available Funds over (y) the sum of (I) the interest which
accrues on the Class A Certificates and the Class B Certificates during the
Accrual Period, (II) the amount described in clauses (b)(i)(a) through
(b)(i)(f) of the definition of "Class A Principal Distribution Amount" and
(III) the premiums due to the Certificate Insurer with respect to the
Certificate Insurance Policy minus (ii) any portion of the Monthly Excess
Spread which is used to reimburse the Certificate Insurer on account of prior
Insured Payments.
Pursuant to the Pooling and Servicing Agreement, Net Monthly Excess
Spread is required to be applied as a payment of principal on the Class A
Certificates until the Subordinated Amount has increased to its required
level. "Subordinated Amount" means, with respect to any Distribution Date,
the excess of (x) the aggregate principal balances of the Mortgage Loans as
of the close of business on the last day of the preceding Remittance Period
after taking into account payments of principal received on the Mortgage
Loans during such Remittance Period over (y) the aggregate Certificate
Principal Balance of the Class A Certificates and the Class B Certificates as
of such Distribution Date (and assuming all distributions are made on such
Distribution Date). Any amount of Net Monthly Excess Spread actually
applied as a payment of principal is a "Subordination Increase Amount". The
required level of the Subordinated Amount with respect to a Distribution Date
is the "Specified Subordinated Amount" with respect to such Distribution
Date. The Pooling and Servicing Agreement generally provides that the
Specified Subordinated Amount may, over time, decrease, or increase, subject
to certain floors, caps and triggers.
The application of Net Monthly Excess Spread to principal has the effect
of accelerating the amortization of the Class A Certificates relative to the
amortization of the Mortgage Loans. To the extent that any Net Monthly
Excess Spread is not so used, the Pooling and Servicing Agreement provides
that it will be paid to the Owners of the Class C Certificates.
In the event that the required level of the Specified Subordinated Amount
is permitted to decrease or "step down" on a Distribution Date in the future,
the Pooling and Servicing Agreement provides that a portion of the principal
which would otherwise be distributed to the Owners of the Class A
Certificates on such Distribution Date shall be distributed to the Owners of
the Class C Certificates on such Distribution Date. This has the effect of
decelerating the amortization of the Class A Certificates relative to the
amortization of the Mortgage Loans, and of reducing the related Subordinated
Amount. "Excess Subordinated Amount" means, with respect to any Distribution
Date, the excess of (x) the Subordinated Amount that would apply on such
Distribution Date after taking into account all distributions to be made on
such Distribution Date (except for any distributions of Subordination
Reduction Amounts as described in this paragraph) over (y) the Specified
Subordinated Amount for such Distribution Date. If, on any Distribution Date,
the Excess Subordinated Amount is, or, after taking into account all other
distributions to be made on such Distribution Date would be, greater than
zero (i.e., the Subordinated Amount is or would be greater than the Specified
Subordinated Amount), then any amounts relating to principal which would
otherwise be distributed to the Owners of the Class A Certificates on such
Distribution Date shall instead be distributed to the Owners of the Class C
Certificates in an amount equal to the lesser of (x) the Excess Subordinated
Amount and (y) the amount available for distribution on account of principal
with respect to the Class A Certificates on such Distribution Date, such
amount being the "Subordination Reduction Amount" for such Distribution Date.
With respect to any Distribution Date, the sum of the Net Monthly Excess
Spread plus the Subordination Reduction Amount is the "Net Monthly Excess
Cashflow".
The Pooling and Servicing Agreement provides that, while the Class A
Certificates are outstanding, on any Distribution Date all amounts (subject
to the discussion in the preceding paragraph) collected on account of
principal on the Mortgage Loan Pool (other than any such amount applied to
the payment of a Subordination Reduction Amount) prior to related Remittance
Date and in respect of the related Remittance Period will be distributed to
the
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Owners of the Class A Certificates on such Distribution Date. The Pooling and
Servicing Agreement further provides that an amount equal to 100% of the
principal balance of any Mortgage Loan which became a Liquidated Loan during
a Remittance Period will be required to be distributed as principal to the
Owners of the Class A Certificates on the related Distribution Date. The
effect of the foregoing is to allocate losses on the Mortgage Loan Pool to
the Owners of the Subordinated Certificates by reducing, or eliminating
entirely, payments of Monthly Excess Cashflow and of Subordination Reduction
Amounts which such Owners would otherwise receive.
OVERCOLLATERALIZATION AND THE CERTIFICATE INSURANCE POLICY. The Pooling
and Servicing Agreement defines a "Subordination Deficit" with respect to a
Distribution Date to be the amount, if any, by which (x) the Certificate
Principal Balance of the Class A Certificates, after taking into account all
distributions to be made on such Distribution Date, exceeds (y) the aggregate
principal balances of the Mortgage Loans as of the close of business on the
last day of the prior Remittance Period. The Pooling and Servicing Agreement
requires the Trustee to make a claim for an Insured Payment under the
Certificate Insurance Policy not later than the third Business Day prior to
any Distribution Date as to which the Trustee has determined that a
Subordination Deficit will occur for the purpose of applying the proceeds of
such Insured Payment as a payment of principal to the Owners of the Class A
Certificates on such Distribution Date. The Certificate Insurance Policy thus
guarantees ultimate, rather than current, payment of the amounts of any
losses on the Mortgage Loan Pool to the Owners of the Class A Certificates.
Investors in the Class A Certificates should realize that, under extreme loss
or delinquency scenarios, they may temporarily receive no distributions of
principal.
FLOW OF FUNDS
On the Business Day prior to each Distribution Date (such date, the
"Servicer Remittance Date") the Servicer shall direct the Trustee, from
amounts then on deposit in the Principal and Interest Account and relating to
Mortgage Loan collections with respect to the prior Remittance Period plus
the amount of any related Delinquency Advances and Compensating Interest, and
together with any proceeds resulting from a termination of the Trust (such
aggregate amount, the "Total Available Funds") to apply such Total Available
Funds as follows:
(i) FIRST, to pay to the Servicer the Servicing Fee then due;
(ii) SECOND, to pay to the Trustee the Trustee's Fee then due;
and
(iii) THIRD, to transfer the remaining Total Available Funds
(such remaining amounts, the "Available Funds") to the
Certificate Account held by the Trustee under the
Pooling and Servicing Agreement (the "Certificate
Account").
On each Distribution Date, the Trustee shall distribute, from the
Available Funds on deposit in the Certificate Account, plus any related
Insured Payment on deposit in the Certificate Account, as follows:
(a) to the Owners of the Class A Certificates an amount equal to the
Class A Current Interest;
(b) to the Owners of the Class A Certificates, an amount equal to the
Class A Principal Distribution Amount (excluding any
Subordination Increase Amount);
(c) to the Certificate Insurer, any amounts then owing to the
Certificate Insurer on account of prior Insured Payments,
together with other amounts due to the Certificate Insurer
pursuant to the Insurance Agreement (including the premium
amount) which have not been previously paid (such amounts,
collectively, the "Insurer Amount") as of such Distribution Date;
(d) to the Owners of the Class B Certificates, an amount equal to the
interest due on the Class B Certificates, including any shortfall
of such interest carried forward from the previous Distribution
Date;
(e) to the Owners of the Class A Certificates as a payment of
principal, an amount equal to the Subordination Increase Amount;
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(f) after the Certificate Principal Balance of each Class of Class A
Certificates has been reduced to zero, from amounts on deposit in
the Certificate Account (not including Insured Payments), to the
Owners of the Class B Certificates an amount equal to principal
due on the Class B Certificates;
(g) to the Servicer, an amount equal to any unreimbursed Delinquency
Advances and unreimbursed Servicing Advances; and
(h) to the Owners of the Class C Certificates, the Net Monthly Excess
Cashflow remaining on such Distribution Date, if any.
REPORT TO OWNERS OF CERTIFICATES
Pursuant to the Pooling and Servicing Agreement, on each Distribution
Date the Trustee will deliver to the Servicer, the Certificate Insurer, each
Owner of a Certificate and the Depositor a written report containing
information, including, without limitation, the amount of the distribution on
such Distribution Date, the amount of such distribution allocable to
principal and allocable to interest, the aggregate Certificate Principal
Balance of the Class A Certificates as of such Distribution Date, the amount
of any Insured Payment included in such distribution on such Distribution
Date and such other information as required by the Pooling and Servicing
Agreement.
CREDIT ENHANCEMENT DOES NOT APPLY TO PREPAYMENT RISK
In general, the protection afforded by the subordination provisions and
by the Certificate Insurance Policy is protection for credit risk and not for
prepayment risk. The subordination provisions may not be adjusted, nor may a
claim be made under the Certificate Insurance Policy to guarantee or insure
that any particular rate of prepayment is experienced by the Trust.
CLASS A DISTRIBUTIONS AND INSURED PAYMENTS TO THE OWNERS OF THE CLASS A
CERTIFICATES
No later than three Business Days prior to each Distribution Date, the
Trustee will be required to determine the amount of Available Funds to be on
deposit in the Certificate Account on such Distribution Date. If the Insured
Distribution Amount with respect to any Distribution Date exceeds the
Available Funds for such Distribution Date, the Trustee will be required to
draw the amount of such insufficiency from the Certificate Insurer under the
Certificate Insurance Policy. The Trustee will be required to deposit to the
Certificate Account the amount of any Insured Payment made by the Certificate
Insurer. The Pooling and Servicing Agreement provides that amounts which
cannot be distributed to the Owners of the Class A Certificates as a result
of proceedings under the United States Bankruptcy Code or similar insolvency
laws will not be considered in determining the amount of Total Available
Funds with respect to any Distribution Date.
BOOK ENTRY REGISTRATION OF THE CLASS A CERTIFICATES
The Class A Certificates will be book-entry Certificates (the "Book-Entry
Certificates"). Beneficial Owners may elect to hold their Book-Entry
Certificates directly through DTC in the United States, or CEDEL or Euroclear
(in Europe) if they are participants of such systems ("Participants"), or
indirectly through organizations which are Participants. The Book-Entry
Certificates will be issued in one or more certificates per class of Class A
Certificates which in the aggregate equal the principal balance of such Class
A Certificates and will initially be registered in the name of Cede & Co.,
the nominee of DTC. CEDEL and Euroclear will hold omnibus positions on
behalf of their Participants through customers' securities accounts in
CEDEL's and Euroclear's names on the books of their respective depositaries
which in turn will hold such positions in customers' securities accounts in
the depositaries' names on the books of DTC. Citibank will act as depositary
for CEDEL and Chase will act as depositary for Euroclear (in such capacities,
individually the "Relevant Depositary" and collectively the "European
Depositaries"). Investors may hold such beneficial interests in the
Book-Entry Certificates in minimum denominations representing principal
amounts of $1,000 and in integral multiples in excess thereof. Except as
described below, no Beneficial Owner will be entitled to receive a physical
certificate representing such Certificate (a "Definitive Certificate").
Unless and until Definitive Certificates are issued, it is anticipated that
the only "Owner" of such Book-Entry Certificates will be Cede & Co., as
nominee of DTC. Beneficial Owners will not be Owners as that term is used
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in the Pooling and Servicing Agreement. Beneficial Owners are only permitted
to exercise their rights indirectly through Participants and DTC.
The Beneficial Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that
maintains the Beneficial Owner's account for such purpose. In turn, the
Financial Intermediary's ownership of such Book-Entry Certificate will be
recorded on the records of DTC (or of a participating firm that acts as agent
for the Financial Intermediary, whose interest will in turn be recorded on
the records of DTC, if the Beneficial Owner's Financial Intermediary is not a
DTC Participant and on the records of CEDEL or Euroclear, as appropriate).
Beneficial Owners will receive all distributions of principal of, and
interest on, the Book-Entry Certificates from the Trustee through DTC and DTC
Participants. While such Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required
to make book-entry transfers among Participants on whose behalf it acts with
respect to such Certificates and is required to receive and transmit
distributions of principal of, and interest on, such Certificates.
Participants and indirect participants with whom Beneficial Owners have
accounts with respect to Book-Entry Certificates are similarly required to
make book-entry transfers and receive and transmit such distributions on
behalf of their respective Beneficial Owners. Accordingly, although
Beneficial Owners will not possess certificates, the Rules provide a
mechanism by which Beneficial Owners will receive distributions and will be
able to transfer their interests.
Beneficial Owners will not receive or be entitled to receive certificates
representing their respective interests in the Class A Certificates, except
under the limited circumstances described below. Unless and until Definitive
Certificates are issued, Beneficial Owners who are not Participants may transfer
ownership of Class A Certificates only through Participants and indirect
participants by instructing such Participants and indirect participants to
transfer such Class A Certificates, by book-entry transfer, through DTC for the
account of the purchasers of such Class A Certificates, which account is
maintained with their respective Participants. Under the Rules and in
accordance with DTC's normal procedures, transfers of ownership of such Class A
Certificates will be executed through DTC and the accounts of the respective
Participants at DTC will be debited and credited. Similarly, the Participants
and indirect participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Beneficial Owners.
Because of time zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL
or Euroclear as a result of sales of securities by or through a CEDEL
Participant (as defined below) or Euroclear Participant (as defined below) to
a DTC Participant will be received with value on the DTC settlement date but
will be available in the relevant CEDEL or Euroclear cash account only as of
the business day following settlements in DTC. For information with respect
to tax documentation procedures relating to the Certificates, see "Certain
Federal Income Tax Consequences -- Taxation of Certain Foreign Investors" and
"-- Backup Withholding" in the Prospectus and "Global Clearance, Settlement
and Tax Documentation Procedures--Certain U.S. Federal Income Tax
Documentation Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). The relevant European international clearing system will,
if the transaction meets its settlement requirements, deliver instructions to
the Relevant Depositary to take action to effect final settlement on its
behalf by delivering or receiving securities in DTC, and making or receiving
payment in
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accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver
instructions directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC
Participant in the Book-Entry Certificates, whether held for its own account
or as a nominee for another person. In general, beneficial ownership of
Book-Entry Certificates will be subject to the rules, regulations and
procedures governing DTC and DTC Participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participant organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by
the Luxembourg Monetary Institute. CEDEL Participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and
certain other organizations. Indirect access to CEDEL is also available to
others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a CEDEL Participant, either
directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement
of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 32
currencies, including United States dollars. Euroclear includes various
other services, including securities lending and borrowing and interfaces
with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. Euroclear
is operated by the Brussels, Belgium, office of Morgan Guaranty Trust Company
of New York (the "Euroclear Operator"), under contract with Euroclear
Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and
all Euroclear Securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the Cooperative. The Cooperative
establishes policy for Euroclear on behalf of Euroclear Participants.
Euroclear Participants include banks (including central banks), securities
brokers and dealers and other professional financial intermediaries. Indirect
access to Euroclear is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is a branch of a New York banking corporation
which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are
held on a fungible basis without attribution of specific certificates to
specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants, and has no
record of or relationship with persons holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for
crediting the amount of such payments to the accounts of the applicable DTC
Participants in accordance with DTC's normal procedures. Each DTC
Participant will be responsible for disbursing such payment to the Beneficial
Owners of the Book-Entry Certificates that it represents and to each
Financial
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Intermediary for which it acts as agent. Each such Financial Intermediary
will be responsible for disbursing funds to the Beneficial Owners of the
Book-Entry Certificates that it represents.
Under a book-entry format, Beneficial Owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede. Distributions with
respect to Certificates held through CEDEL or Euroclear will be credited to
the cash accounts of CEDEL Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. Because DTC can only act on behalf of Financial Intermediaries,
the ability of a Beneficial Owner to pledge Book-Entry Certificates to
persons or entities that do not participate in the Depository system, or
otherwise take actions in respect of such Book-Entry Certificates, may be
limited due to the lack of physical certificates for such Book-Entry
Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such Certificates in the
secondary market since certain potential investors may be unwilling to
purchase Certificates for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust provided by the Servicer to Cede,
as nominee of DTC, may be made available to Beneficial Owners upon request,
in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such Beneficial Owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by
the holders of the Book-Entry Certificates under the Pooling and Servicing
Agreement only at the direction of one or more Financial Intermediaries to
whose DTC accounts the Book-Entry Certificates are credited, to the extent
that such actions are taken on behalf of Financial Intermediaries whose
holdings include such Book-Entry Certificates. CEDEL or the Euroclear
Operator, as the case may be, will take any action permitted to be taken by
an Owner under the Pooling and Servicing Agreement on behalf of a CEDEL
Participant or Euroclear Participant only in accordance with its relevant
rules and procedures and subject to the ability of the Relevant Depositary to
effect such actions on its behalf through DTC. DTC may take actions, at the
direction of the related Participants, with respect to some Class A
Certificates which conflict with actions taken with respect to other Class A
Certificates.
None of the Depositor, the Unaffiliated Seller, the Servicer or the
Trustee 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 held by Cede, as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Definitive Certificates will be issued to Beneficial Owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a)
DTC or the Unaffiliated Seller advises the Trustee in writing that DTC is no
longer willing, qualified or able to discharge properly its responsibilities
as a nominee and depository with respect to the Book-Entry Certificates and
the Unaffiliated Seller or the Trustee is unable to locate a qualified
successor, (b) the Unaffiliated Seller, at its sole option, elects to
terminate a book-entry system through DTC or (c) DTC, at the direction of the
Beneficial Owners representing a majority of the outstanding Percentage
Interests of the Class A Certificates, advises the Trustee in writing that
the continuation of a book-entry system through DTC (or a successor thereto)
is no longer in the best interests of Beneficial Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Beneficial
Owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Owners under the Pooling and Servicing Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among Participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
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CERTAIN ACTIVITIES
The Trust has not and will not: (i) issue securities (except for the
Certificates); (ii) borrow money; (iii) make loans; (iv) invest in securities
for the purpose of exercising control; (v) underwrite securities; (vi) except as
provided in the Pooling and Servicing Agreement, engage in the purchase and sale
(or turnover) of investments; (vii) offer securities in exchange for property
(except Certificates for the Mortgage Loans); or (viii) repurchase or otherwise
reacquire its securities. See "Servicing of the Mortgage Loans and Contracts --
Reports To Certificateholders" in the Prospectus for information regarding
reports to the Owners.
THE CERTIFICATE INSURANCE POLICY AND THE CERTIFICATE INSURER
The following summary of the terms of the Certificate Insurance Policy does
not purport to be complete and is qualified in its entirety by reference to the
Certificate Insurance Policy. A form of the Certificate Insurance Policy may be
obtained, upon request, from the Depositor.
THE CERTIFICATE INSURANCE POLICY
Simultaneously with the issuance of the Certificates, the Certificate
Insurer will deliver the Certificate Insurance Policy to the Trustee for the
benefit of the Owners of the Class A Certificates. Under the Certificate
Insurance Policy, the Certificate Insurer will irrevocably and unconditionally
guarantee payment on each Distribution Date to the Trustee for the benefit of
the Owners of the Class A Certificates, as applicable, of the Insured
Distribution Amounts with respect to the Class A Certificates calculated in
accordance with the original terms of the Class A Certificates when issued and
without regard to any amendment or modification of the Class A Certificates or
the Pooling and Servicing Agreement except amendments or modifications to which
the Certificate Insurer has given its prior written consent. The "Insured
Distribution Amount" for each Distribution Date will be the sum of (i) the Class
A Current Interest with respect to such Distribution Date, (ii) the
Subordination Deficit, if any, for such Distribution Date, and (iii) with
respect to the Distribution Date which is the Final Scheduled Distribution Date,
the outstanding Class A Certificate Principal Balance (without duplication to
the amount specified in clause (ii)). In addition, with respect to any
Distribution Date occurring on a date when an event of default under the
Insurance Agreement (as defined herein) has occurred and is continuing or a date
on or after the first date on which a claim is made under the Certificate
Insurance Policy, the Certificate Insurer at its sole option, may pay any or all
of the outstanding Class A Certificate Principal Balance. Prepayment Interest
Shortfalls and Civil Relief Act Interest Shortfalls will not be covered by
payments under the Certificate Insurance Policy.
Payment of claims under the Certificate Insurance Policy will be made by
the Certificate Insurer following Receipt by the Certificate Insurer of the
appropriate notice for payment on the later to occur of (a) 12:00 noon, New York
City time, on the second Business Day following Receipt of such notice for
payment, and (b) 12:00 noon, New York City time, on the relevant Distribution
Date.
If any payment of an amount guaranteed by the Certificate Insurer pursuant
to the Certificate Insurance Policy is avoided as a preference payment under
applicable bankruptcy, insolvency, receivership or similar law, the Certificate
Insurer will pay such amount out of the funds of the Certificate Insurer on the
later of (a) the date when due to be paid pursuant to the Order referred to
below or (b) the first to occur of (i) the fourth Business Day following Receipt
by the Certificate Insurer from the Trustee of (A) a certified copy of the order
of the court or other governmental body which exercised jurisdiction to the
effect that an Owner of a Class A Certificate is required to return principal or
interest distributed with respect to a Class A Certificate during the term of
the Certificate Insurance Policy because such distributions were avoidable
preferences under applicable bankruptcy law (the "Order"), (B) a certificate of
the Owner(s) of the Class A Certificate(s) that the Order has been entered and
is not subject to any stay, and (C) an assignment duly executed and delivered by
the Owner(s) of the Class A Certificate(s), in such form as is reasonably
required by the Certificate Insurer and provided to the Owner(s) of the Class A
Certificate(s) by the Certificate Insurer, irrevocably assigning to the
Certificate Insurer all rights and claims of the Owner(s) of the Class A
Certificate(s) relating to or arising under the Class A Certificates against the
debtor which made such preference payment or otherwise with respect to such
preference payment, or (ii) the date of Receipt by the Certificate Insurer from
the Trustee of the items referred to in clauses (A), (B) and (C) above if, at
least four Business Days prior to such date of Receipt, the Certificate Insurer
shall have Received written notice
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from the Trustee that such items were to be delivered on such date and such
date was specified in such notice. Such payment shall be disbursed to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order and not to the Trustee or any Owner of a Class A Certificate
directly (unless an Owner of a Class A Certificate has previously paid such
amount to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Order, in which case such payment shall be disbursed
to the Trustee for distribution to the Owner of such Class A Certificate upon
proof of such payment reasonably satisfactory to the Certificate Insurer).
The terms "Receipt" and "Received," with respect to the Certificate
Insurance Policy, means actual delivery to the Certificate Insurer and to its
fiscal agent appointed by the Certificate Insurer at its option, if any, prior
to 12:00 noon, New York City time, on a Business Day; delivery either on a day
that is not a Business Day or after 12:00 noon, New York City time, shall be
deemed to be Receipt on the next succeeding Business Day. If any notice or
certificate given under the Certificate Insurance Policy by the Trustee is not
in proper form or is not properly completed, executed or delivered, it shall be
deemed not to have been Received, and the Certificate Insurer or the fiscal
agent shall promptly so advise the Trustee and the Trustee may submit an amended
notice.
Under the Certificate Insurance Policy, "Business Day" means any day other
than (i) a Saturday or Sunday or (ii) a day on which banking institutions in the
City of New York, New York or the State of New York, are authorized or obligated
by law or executive order to be closed. The Certificate Insurer's obligations
under the Certificate Insurance Policy to make Insured Payments shall be
discharged to the extent funds are transferred to the Trustee as provided in the
Certificate Insurance Policy, whether or not such funds are properly applied by
the Trustee.
The Certificate Insurer shall be subrogated to the rights of each Owner of
a Class A Certificate to receive payments of principal and interest, as
applicable, with respect to distributions on the Class A Certificates to the
extent of any payment by the Certificate Insurer under the Certificate Insurance
Policy. To the extent the Certificate Insurer makes Insured Payments, either
directly or indirectly (as by paying through the Trustee), to the Owners of the
Class A Certificates, the Certificate Insurer will be subrogated to the rights
of the Owners of the Class A Certificates, as applicable, with respect to such
Insured Payment and shall be deemed to the extent of the payments so made to be
a registered Owner of a Class A Certificate for purposes of payment.
Claims under the Certificate Insurance Policy will rank equally with any
other unsecured debt and unsubordinated obligations of the Certificate Insurer
except for certain obligations in respect of tax and other payments to which
preference is or may become afforded by statute. Claims against the Certificate
Insurer under the Certificate Insurance Policy constitute pari passu claims
against the general assets of the Certificate Insurer. The terms of the
Certificate Insurance Policy cannot be modified or altered by any other
agreement or instrument, or by the merger, consolidation or dissolution of the
Depositor. The Certificate Insurance Policy may not be cancelled or revoked
prior to payment in full of the Class A Certificates. The Certificate Insurance
Policy is governed by the laws of the State of New York. The Certificate
Insurance Policy is not covered by the Property/Casualty Insurance Security Fund
specified in Article 76 of the New York Insurance Law.
To the fullest extent permitted by applicable law, the Certificate Insurer
agrees under the Certificate Insurance Policy not to assert, and waives, for the
benefit of each Owner of a Class A Certificate, all its rights (whether by
counterclaim, setoff or otherwise) and defenses (including, without limitation,
the defense of fraud), whether acquired by subrogation, assignment or otherwise,
to the extent that such rights and defenses may be available to the Certificate
Insurer to avoid payment of its obligations under the Certificate Insurance
Policy in accordance with the express provisions of the Certificate Insurance
Policy.
Pursuant to the terms of the Pooling and Servicing Agreement, unless a
Certificate Insurer Default exists, the Certificate Insurer shall be deemed to
be the Owner of the Class A Certificates for all purposes (other than with
respect to payment on the Certificates), will be entitled to exercise all rights
of the Owners of the Class A Certificates thereunder, without the consent of the
Owners of such Certificates, and the Owners of the Class A Certificates may
exercise such rights only with the prior written consent of the Certificate
Insurer. In addition, the Certificate Insurer will, as a third party
beneficiary to the Pooling and Servicing Agreement, have, among others, the
following rights: (i) the right to give notices of breach or to terminate the
rights and obligations of the Servicer under the Pooling and Servicing Agreement
in the event of a Servicer Event of Default and to institute proceedings
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against the Servicer; (ii) the right to consent to or direct any waivers of
defaults by the Servicer; (iii) the right to remove the Trustee pursuant to
the Pooling and Servicing Agreement; (iv) the right to direct the actions of
the Trustee during the continuation of a Servicer default; (v) the right to
require the Unaffiliated Seller to repurchase Mortgage Loans for breach of
representation and warranty or defect in documentation; (vi) the right to
direct foreclosures upon the failure of the Servicer to do so in accordance
with the Pooling and Servicing Agreement; (vii) the right to direct all
matters relating to a bankruptcy or other insolvency proceeding involving the
Unaffiliated Seller; and (viii) the right to direct the Trustee to
investigate certain matters. The Certificate Insurer's consent will be
required prior to, among other things, (i) the removal of the Trustee, (ii)
the appointment of any successor Trustee or Servicer or (iii) any amendment
to the Pooling and Servicing Agreement.
The Depositor, the Unaffiliated Seller, the Servicer and the Certificate
Insurer will enter into an Insurance and Indemnity Agreement (the "Insurance
Agreement") pursuant to which the Servicer will agree to reimburse, with
interest, the Certificate Insurer for amounts paid pursuant to claims under the
Certificate Insurance Policy. The Servicer will further agree to pay the
Certificate Insurer all reasonable charges and expenses which the Certificate
Insurer may pay or incur relative to any amounts paid under the Certificate
Insurance Policy or otherwise in connection with the transaction and to
indemnify the Certificate Insurer against certain liabilities. Except to the
extent provided therein, amounts owing under the Insurance Agreement will be
payable solely from the Trust Fund. An "event of default" under the Insurance
Agreement will constitute an "event of default" under the Pooling and Servicing
Agreement and allow the Certificate Insurer, among other things, to direct the
Trustee to terminate the Servicer. An "event of default" under the Insurance
Agreement includes (i) the Unaffiliated Seller's, the Depositor's or the
Servicer's failure to pay when due any amount owed under the Insurance
Agreement, the Pooling and Servicing Agreement, or certain other documents, (ii)
the inaccuracy or incompleteness in any material respect of any representation
or warranty of the Unaffiliated Seller, the Depositor or the Servicer in the
Insurance Agreement, the Pooling and Servicing Agreement or certain other
documents, (iii) the Unaffiliated Seller's, the Depositor's or the Servicer's
failure to perform or to comply in any material respect with any covenant or
agreement in the Insurance Agreement, the Pooling and Servicing Agreement and
certain other documents, (iv) a finding or ruling by a governmental authority or
agency that the Insurance Agreement, the Pooling and Servicing Agreement or
certain other documents are not binding on the Unaffiliated Seller, the
Depositor or the Servicer, (v) the Unaffiliated Seller's, the Depositor's or the
Servicer's failure to pay its debts in general or the occurrence of certain
events of insolvency or bankruptcy with respect to the Unaffiliated Seller or
the Servicer, and (vi) the occurrence of certain "performance test violations"
designed to measure the performance of the Mortgage Loans.
THE CERTIFICATE INSURER
The following information has been obtained from Financial Security
Assurance, Inc. (hereinafter in this section, the "Certificate Insurer" or
"Financial Security") and has not been verified by the Unaffiliated Seller, the
Depositor or the Underwriter. No representation or warranty is made by the
Unaffiliated Seller, the Depositor or the Underwriter with respect thereto.
GENERAL
Financial Security is a monoline insurance company incorporated in 1984
under the laws of the State of New York. Financial Security is licensed to
engage in the financial guaranty insurance business in all 50 states, the
District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of an
issuer's securities -- thereby enhancing the credit rating of those
securities -- in consideration for the payment of a premium to the insurer.
Financial Security and its subsidiaries principally insure asset-backed,
collateralized and municipal securities. Asset-backed securities are generally
supported by residential mortgage loans, consumer or trade receivables,
securities or other assets having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds and
sale/leaseback obligation bonds. Municipal securities consist largely of
general obligation bonds, special revenue bonds and other special obligations of
state and local governments. Financial Security insures both newly issued
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securities sold in the primary market and outstanding securities sold in the
secondary market that satisfy Financial Security's underwriting criteria.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprises Holdings, Inc.,
U S WEST Capital Corporation and The Tokio Marine and Fire Insurance Co., Ltd.
No shareholder of Holdings is obligated to pay any debt of Financial Security or
any claim under any insurance policy issued by Financial Security or to make any
additional contribution to the capital of Financial Security.
The principal executive offices of Financial Security are located at 350
Park Avenue, New York, New York 10022, and its telephone number at that location
is (212) 826-0100.
REINSURANCE
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security or
any of its domestic operating insurance company subsidiaries are reinsured
among such companies on an agreed-upon percentage substantially proportional
to their respective capital, surplus and reserves, subject to applicable
statutory risk limitations. In addition, Financial Security reinsures a
portion of its liabilities under certain of its financial guaranty insurance
policies with other reinsurers under various quota share treaties and on a
transaction-by-transaction basis. Such reinsurance is utilized by Financial
Security as a risk management device and to comply with certain statutory and
rating agency requirements; it does not alter or limit Financial Security's
obligations under any financial guaranty insurance policy.
RATING OF CLAIMS-PAYING ABILITY
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc. and "AAA" by Standard & Poor's Ratings Services, Nippon
Investors Service Inc. and Standard & Poor's (Australia) Pty. Ltd. Such ratings
reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies. See "Ratings."
CAPITALIZATION
The following table sets forth the capitalization of Financial Security and
its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of September 30, 1996 (in thousands):
SEPTEMBER 30,
1996
(UNAUDITED)
-------------
Deferred Premium Revenue (net of
prepaid reinsurance premiums). . . . . . . . . . . . $358,145
----------
Shareholder's Equity:
Common Stock . . . . . . . . . . . . . . . . . . 15,000
Additional Paid-In Capital . . . . . . . . . . . 666,470
Unrealized Gain on Investments (net of
deferred income taxes). . . . . . . . . . . 2,482
Accumulated Earnings . . . . . . . . . . . . . . 111,231
----------
Total Shareholder's Equity . . . . . . . . . . . . $795,183
----------
Total Deferred Premium Revenue and
Shareholder's Equity. . . . . . . . . . . . . . $1,153,328
----------
----------
For further information concerning Financial Security, see the Consolidated
Financial Statements of Financial Security and Subsidiaries, and the notes
thereto, incorporated by reference herein. Copies of the
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statutory quarterly and annual statements filed with the State of New York
Insurance Department by Financial Security are available upon request to the
State of New York Insurance Department.
INSURANCE REGULATION
Financial Security is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, Financial Security and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial
guaranty insurance corporation licensed to do business in the State of New York,
Financial Security is subject to Article 69 of the New York Insurance Law which,
among other things, limits the business of each such insurer to financial
guaranty insurance and related lines, requires that each such insurer maintain a
minimum surplus to policyholders, establishes contingency, loss and unearned
premium reserve requirements for each such insurer, and limits the size of
individual transactions ("single risks") and the volume of transactions
("aggregate risks") that may be underwritten by each such insurer. Other
provisions of the New York Insurance Law, applicable to non-life insurance
companies such as Financial Security, regulate, among other things, permitted
investments, payment of dividends, transactions with affiliates, mergers,
consolidations, acquisitions or sales of assets and incurrence of liability for
borrowings.
THE POOLING AND SERVICING AGREEMENT
In addition to the provisions of the Pooling and Servicing Agreement
summarized elsewhere in this Prospectus Supplement, there is set forth below a
summary of certain other provisions of the Pooling and Servicing Agreement.
FORMATION OF THE TRUST
On the Closing Date, the Trust will be created and established pursuant to
the Pooling and Servicing Agreement. On such date, the Unaffiliated Seller will
sell without recourse the Mortgage Loans to the Depositor, the Depositor will
sell without recourse the Mortgage Loans to the Trust and the Trust will issue
the Class A Certificates to the Owners thereof pursuant to the Pooling and
Servicing Agreement.
The property of the Trust shall include all money, instruments and other
property to the extent such money, instruments and other property are subject or
intended to be held in trust for the benefit of the Owners, and all proceeds
thereof, including, without limitation, (i) the Mortgage Loans, (ii) such
amounts, including Eligible Investments, as from time to time may be held by the
Trustee in the Certificate Account and by the Servicer in the Principal and
Interest Account (except as otherwise provided in the Pooling and Servicing
Agreement), to be created pursuant to the Pooling and Servicing Agreement, (iii)
any property, the ownership of which has been effected on behalf of the Trust as
a result of foreclosure or acceptance by the Servicer of a deed in lieu of
foreclosure and that has not been withdrawn from the Trust, (iv) any insurance
policies relating to the Mortgage Loans and any rights of the Unaffiliated
Seller under any insurance policies, (v) Net Liquidation Proceeds with respect
to any Liquidated Mortgage Loan, and (vi) the rights of the Unaffiliated Seller
against any Originator pursuant to the related Master Loan Transfer Agreement
(collectively, the "Trust Fund").
The Class A Certificates will not represent an interest in, or an
obligation of, nor will the Mortgage Loans be guaranteed by, any Originator, the
Unaffiliated Seller, the Depositor, the Servicer or the Trustee.
ASSIGNMENT OF THE LOANS; REPRESENTATIONS AND WARRANTIES
On the Closing Date, the Depositor will sell, transfer, convey and assign
the Loans to the Trustee, without recourse, together with (i) all rights to any
payments received in respect of any of the Mortgage Loans after the Cut-Off Date
other than late receipts of scheduled monthly payments on the Actuarial Loans
that were due prior to the Cut-Off Date and (ii) all scheduled monthly payments
in respect of the Actuarial Loans that were due on or after the Cut-Off Date but
received prior to the Cut-Off Date. The Mortgage Loans will be described on a
schedule attached to the Pooling and Servicing Agreement (the "Schedule of
Mortgage Loans").
In connection with the sale of the Mortgage Loans on the Closing Date, the
Unaffiliated Seller will be required to deliver to the Trustee the promissory
notes evidencing the Loans, the related mortgages or deeds of
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trust or other documents evidencing a lien on the Mortgaged Property and
certain other documents relating to the Loans. The Trustee will agree, for
the benefit of the Owners of the related Class A Certificates and the
Certificate Insurer, to review each such file within 60 days after the
Closing Date to ascertain whether all required documents (or certified copies
of documents) have been executed and received.
In addition to the foregoing, the Servicer, is required to submit for
recording, within 180 days of the Closing Date (or, if original recording
information is unavailable, within such later period as is permitted by the
Pooling and Servicing Agreement) assignments of the Mortgages to the Trustee in
the appropriate jurisdictions.
Under an agreement (the "Loan Purchase Agreement") between the Unaffiliated
Seller and the Depositor for the sale of the Loans from the Unaffiliated Seller
to the Depositor, the Unaffiliated Seller will agree that in the event of a
breach of any representation or warranty made by it which materially and
adversely affects the value of, or the interests of the Owners of the Class A
Certificates in, any Mortgage Loan transferred by the Unaffiliated Seller
(without regard to the benefits of the Certificate Insurance Policy) or the
interests of the Certificate Insurer therein (any such Loan being a "Defective
Loan"), the Unaffiliated Seller will repurchase the Defective Loan at a price
equal to the then outstanding principal balance of such Loan and accrued and
unpaid interest thereon, together with any outstanding Advances (the "Repurchase
Price").
Under the Pooling and Servicing Agreement, the Depositor will assign all of
its right, title and interest in such representations and warranties (including
the Unaffiliated Seller's repurchase obligations) to the Trustee. None of the
Depositor, the Unaffiliated Seller or the Trustee will make any representations
or warranties with respect to the Mortgage Loans and neither will have any
obligations to repurchase, or make substitutions for Defective Loans.
SERVICING OF THE MORTGAGE LOANS
Pursuant to the Pooling and Servicing Agreement, the Servicer will be
required to service and administer the Mortgage Loans assigned to the Trust as
more fully set forth below.
Unless otherwise specified herein or in the Pooling and Servicing Agreement
with respect to specific obligations of the Servicer, the Servicer shall service
and administer the Mortgage Loans in accordance with the servicing, collection
and investor reporting systems and procedures set forth in the Servicer's
current servicing guide, together with certain additional provisions required by
the Certificate Insurer (the "Servicing Standards").
The duties of the Servicer include, without limitation, collecting and
posting of all payments, responding to inquiries by obligors or by federal,
state or local government authorities with respect to the Mortgage Loans,
investigating delinquencies, reporting tax information to obligors in accordance
with its customary practices and all applicable law, accounting for collections
and furnishing monthly and annual statements to the Trustee with respect to
distributions and making Delinquency Advances, Servicing Advances and
Compensating Interest to the extent described herein.
The Servicer (i) may execute and deliver any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge and all
other comparable instruments, with respect to the Mortgage Loans and with
respect to the related Mortgaged Property, (ii) may consent to any modification
of the terms of any Note not expressly prohibited hereby if the effect of any
such modification will not materially and adversely affect the security afforded
by the related Mortgaged Property or reduce the amount of, or slow (other than
as permitted by the Pooling and Servicing Agreement) the timing of receipt of,
any payments required thereunder and (iii) may institute foreclosure proceedings
or obtain a deed-in-lieu of foreclosure so as to convert the ownership of such
Mortgaged Property, and to hold or cause to be held title to such Mortgaged
Property, in the name of the Servicer on behalf of the Trust.
The Pooling and Servicing Agreement permits the Servicer to modify and
extend the maturity of a Balloon Loan which matures and which is not otherwise
paid in full at such maturity date by the related Obligor; PROVIDED, that the
rescheduled final maturity date of such Mortgage Loan is not one year beyond the
original maturity date, the related Mortgage Rate is not decreased and the
obligor does not receive any additional proceeds. Such modified and extended
Balloon Loans will be permitted to remain in the Trust.
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The Servicer may perform any of its servicing responsibilities with respect
to all or certain of the Mortgage Loans through a sub-servicer as it may from
time to time designate, but no such designation of a sub-servicer shall serve to
release the Servicer from any of its obligations under the Pooling and Servicing
Agreement. The Mortgage Loans will initially be serviced by the Sub-Servicer
pursuant to a sub-servicing agreement with the Servicer.
Upon removal or resignation of the Servicer, the Backup Servicer will be
required to serve as successor servicer. If the Backup Servicer is prevented by
law from acting as successor servicer, the Trustee may solicit bids for a
successor servicer, and pending the appointment of a successor servicer as a
result of soliciting such bids, the Trustee will be required to serve as
successor servicer. If the Trustee is unable to obtain a qualifying bid, the
Trustee will be required to appoint, or petition a court of competent
jurisdiction to appoint, an eligible successor. Any such successor servicer
shall assume all of the related responsibilities, duties or liabilities of the
Servicer on the date on which it becomes the Servicer, but shall not assume any
of the liabilities incurred prior to such date. Each successor servicer must be
acceptable to the Certificate Insurer.
COLLECTION OF CERTAIN LOAN PAYMENTS. The Servicer shall, as required by
the Servicing Standards, make all reasonable efforts to collect payments called
for under the terms and provisions of the Mortgage Loans, and shall, to the
extent such procedures shall be consistent with the Pooling and Servicing
Agreement, follow such collection procedures with respect to the Mortgage Loans
as it follows with respect to comparable mortgage loans in its own servicing
portfolio; PROVIDED, that the Servicer shall always at least follow collection
procedures that are consistent with or better than the Servicing Standards.
Consistent with the foregoing, the Servicer may in its discretion, generally (i)
waive any assumption fees, late payment charges, charges for checks returned for
insufficient funds, prepayment fees, if any, or other fees which may be
collected in the ordinary course of servicing the Mortgage Loans, (ii) if an
obligor is in default or if default is reasonably foreseeable because of an
obligor's financial condition, arrange with the obligor a schedule for the
payment of delinquent payments due on the Mortgage Loan; PROVIDED, HOWEVER, the
Servicer may not reschedule the payment of delinquent payments more than three
times in any twelve consecutive months with respect to any obligor or (iii)
modify payments of monthly principal and interest on any Mortgage Loan becoming
subject to the terms of the Civil Relief Act, in accordance with the Servicer's
general policies relating to comparable loans subject to the Civil Relief Act;
PROVIDED, HOWEVER, that the Certificate Insurer must consent to any
modifications affecting Mortgage Loans totalling more than 7.5% of the original
principal balance of the Mortgage Loans.
The Servicer is required to establish and maintain an account the benefit
of the Trust (such account, the "Lockbox Account") into which all collections
(other than Delinquency Advances and amounts relating to Compensating Interest)
are to be deposited by the close of business on the next business day following
the business day on which such collections are received.
The Servicer shall instruct, or cause any sub-servicer to instruct, all
obligors to make payments only to the Lockbox Account, unless, due to special
collection circumstances such payment must be made to the Servicer, in which
event such amounts shall be deposited by the Servicer in the Lockbox Account.
The Servicer shall instruct the Lockbox Bank to remit all amounts received for
deposit in the Lockbox Account to the Principal and Interest Account on the next
business day following receipt of such amounts.
Not later than 12:00 noon Pacific time on the eighteenth calendar day of
each month (or the immediately preceeding business day if such calendar day
falls on a Saturday or a Sunday or a holiday), the Servicer shall deliver or
cause to be delivered to the Trustee a monthly servicing report (the "Servicing
Report") on computer readable magnetic tape or diskette. This report shall also
contain (i) a summary report of Mortgage Loan payment activity for such month,
(ii) exception payment reports for Mortgage Loans with respect to which
scheduled payments due in such month were not made and (iii) a trial balance in
the form of a computer tape.
DELINQUENCY ADVANCES, PREPAYMENT INTEREST SHORTFALLS AND SERVICING
ADVANCES. If, at or prior to the end of each Remittance Period, the interest
portion of any monthly payment due on any Mortgage Loan during such Remittance
Period has not been received and transferred to the Principal and Interest
Account, the Servicer shall, to the extent that such Delinquency Advance is
necessary to pay any shortfall in Class A Current Interest arising because of
the insufficiency of Available Funds, make an advance to the Principal and
Interest Account
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(a "Delinquency Advance") related Servicer Remittance Date in an amount equal
to the amount of the interest portion of such delinquent monthly payment not
later than the related Servicer Remittance Date; PROVIDED, HOWEVER, that the
Servicer will not be required to make any such Delinquency Advance if it
determines in reasonable good faith that such Delinquency Advance would not
be recoverable from collections with respect to such Mortgage Loan, which
determination shall be evidenced by delivery to the Trustee of an officer's
certificate to such effect. For purposes of the Pooling and Servicing
Agreement, the delinquent interest portion of such monthly payment shall be
deemed to include an amount equal to the interest portion of such monthly
payment that would have been due on a Mortgage Loan in respect of which the
related Mortgage Property has been repossessed or foreclosed upon and which
has not yet become a Liquidated Mortgage Loan.
The Servicer will advance all "out-of-pocket" costs and expenses incurred
in the performance of its servicing obligations with respect to the Mortgage
Loans, including, but not limited to, the cost of (i) preservation expenses on
the Mortgaged Property Loan Collateral, (ii) any enforcement or judicial
proceedings, including foreclosures, and any reasonable legal expenses in
connection with the assertion by an obligor of any claim or defense that the
obligor may have had against the originator in connection with the sale,
financing or construction of such obligor's home and which the obligor asserts
against the Servicer and (iii) the management and liquidation of "REO" property,
but in each case shall only pay such costs and expenses to the extent the
Servicer reasonably believes such costs and expenses will be recovered from the
related Mortgage Loan and will increase Net Liquidation Proceeds on the related
Mortgage Loan. Each such expenditure, exclusive of overhead, will constitute a
"Servicing Advance."
If, with respect to any Distribution Date and as a result of Prepayments
received with respect to the Mortgage Loans held in the Trust during the related
Remittance Period, the amount of interest due on such Mortgage Loans is
decreased such that the Available Funds are insufficient to fund the full amount
of the Class A Current Interest due on such Distribution Date, the Servicer will
be required to remit to the Principal and Interest Account the lesser of (x) the
amount of such insufficiency due to such Prepayments and (y) the aggregate
Servicing Fee due to the Servicer on such Distribution Date with respect to such
Trust. The Servicer will be required to remit such amount (each such amount,
"Compensating Interest") not later than the related Servicer Remittance Date.
The excess of the full amount of the Compensating Interest due over the related
Servicing Fee is a "Prepayment Interest Shortfall".
The amount of any Prepayment Interest Shortfall on any Distribution Date
will be deducted first from the amount of interest then due on the Class B
Certificate, with any excess shortfall deducted from the amount of interest due
on the Class A Certificates on such Distribution Date; the payment of such
amounts will not be covered by payments under the Certificate Insurance Policy.
MAINTENANCE OF INSURANCE. The Servicer shall cause to be maintained with
respect to each Mortgage a hazard insurance policy with a generally acceptable
carrier that provides for fire and extended coverage, and which provides for a
recovery by the Servicer on behalf of the Trustee and its assignees of insurance
proceeds relating to such Mortgage Loan, in an amount not less than the least of
(i) the outstanding principal balance of the Mortgage Loan, (ii) the minimum
amount required to compensate for damage or loss on a replacement cost basis and
(iii) the full insurable value of the improvements which are a part of the
related Mortgage Property, but in any case not less than the amount necessary to
avoid the application of any co-insurance clause.
If the Mortgage Loan relates to Mortgaged Property located in an area
identified in the Federal Register by the Federal Emergency Management Agency as
having special flood hazards and if such loan has been specifically identified
as being in such an area in the Schedule of Mortgage Loans or other writing
delivered to the Servicer by the Originator, the Servicer shall cause to be
maintained with respect thereto a flood insurance policy in a form meeting the
requirements of the current guidelines of the Federal Insurance Administration
with a generally acceptable carrier in an amount that provides for coverage, and
which provides for a recovery by the Servicer on behalf of the related Trust of
insurance proceeds relating to such Mortgage Loan, in an amount not less than
the least of (i) the outstanding principal balance of the Mortgage Loan, (ii)
the minimum amount required to fully compensate for damage or loss to the
improvements which are a part of the related Mortgaged Property on a replacement
cost basis and (iii) the maximum amount of insurance that is available under the
Flood
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Disaster Protection Act of 1973, but in each case in an amount not less than
such amount as is necessary to avoid the application of any co-insurance
clause contained in the related hazard insurance policy.
In the event that the Servicer shall obtain and maintain a blanket policy
insuring against fire, flood and hazards of extended coverage on all of the
Mortgage Loans, then, to the extent such policy names the Servicer as loss payee
and provides coverage in an amount equal to the aggregate principal balance of
the Mortgage Loans without co-insurance, the Servicer shall be deemed
conclusively to have satisfied its obligations with respect to fire, flood and
hazard insurance coverage. Such blanket policy may contain a deductible clause,
in which case the Servicer shall, in the event that there shall have been a loss
which would have been covered by such policy, deposit in the Principal and
Interest Account from the Servicer's own funds the difference, if any, between
the amount that would have been payable under a policy described in the
preceding paragraph and the amount paid under such blanket policy.
DUE-ON-SALE CLAUSES; ASSUMPTION AND SUBSTITUTION AGREEMENTS. When any
Mortgaged Property has been or is about to be conveyed by the obligor (whether
by absolute conveyance or by contract of sale, and whether or not the obligor
remains liable), the Servicer shall, to the extent it has knowledge of such
conveyance or prospective conveyance, exercise the related Trust's rights to
accelerate the maturity of the related Loan under any "due-on-sale" clause
contained in the related Mortgage Loan or Note; PROVIDED, (x) that the Servicer
shall not exercise any such right if the "due-on-sale" clause, in the reasonable
belief of the Servicer, is not enforceable under applicable law or if the
Servicer is prohibited by law from doing so or (y) that the Servicer may not
exercise any such right if the Certificate Insurer does not object to such right
being waived.
The Servicer may also allow for an assumption agreement in the case of a
defaulted Mortgage Loan, or a Mortgage Loans as to which a default is imminent,
under the same standards as set forth above in the first paragraph under
"Collection of Certain Mortgage Payments", and subject to certain limitations on
the aggregate amount of Mortgage Loans subject to such assumptions, as set forth
in the related Pooling and Servicing Agreement.
REALIZATION UPON DEFAULTED LOANS. The Servicer shall, consistent with the
Servicing Standards, foreclose upon or otherwise comparably effect the ownership
in the name of the Servicer on behalf of the related Trust of Mortgaged Property
relating to defaulted Mortgage Loans as to which no satisfactory arrangements
can be made for collection of delinquent payments. In connection with such
foreclosure or other conversion, the Servicer shall exercise such rights and
powers vested in it hereunder, and use the same degree of care and skill in
their exercise or use, as prudent mortgage lenders would exercise or use under
the circumstances in the conduct of their own affairs, including, but not
limited to, advancing funds for the payment of taxes and insurance premiums.
The foregoing is subject to the proviso that the Servicer shall not advance its
own funds unless it shall reasonably believe in good faith that it is
recoverable and doing so will increase Net Liquidation Proceeds on the Mortgage
Loans. Notwithstanding the foregoing, with respect to any Mortgage Loan as to
which the Servicer has received notice of, or has actual knowledge of, the
presence of any toxic or hazardous substance on the related Mortgaged Property
(a "Potentially Hazardous Property"), the Servicer shall not, on behalf of the
Trust, either (i) obtain title to such Mortgaged Property as a result of or in
lieu of foreclosure or otherwise, or (ii) otherwise acquire possession of, or
take any other action with respect to, such Mortgaged Property, if, as a result
of any such action, the Trust would be considered to hold title to, be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of, such
Mortgaged Property within the meaning of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA") from
time to time, or any comparable law. The Servicer shall not be required to make
Advances with respect to a Mortgage Loan relating to a Potentially Hazardous
Property. In the event the Servicer requires any professional guidance with
respect to CERCLA, the Servicer may, at its own expense, obtain an opinion of
counsel experienced in CERCLA matters, and shall be fully protected in relying
on any such opinion of counsel.
The Servicer shall determine with respect to each defaulted Mortgage Loan
when it has recovered, whether through trustee's sale, foreclosure sale or
otherwise, all amounts (other than from deficiency judgments) it expects to
recover from or on account of such defaulted Mortgage Loan, whereupon such
Mortgage Loan shall become a "Liquidated Mortgage Loan".
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SERVICING COMPENSATION. As compensation for its activities the Servicer
shall be entitled to the Servicing Fee and certain ancillary servicing income
such as late charges, insufficient funds charges, modification and assumption
fees, penalties, etc., from amounts available therefor in the Principal and
Interest Account. The Servicer is also entitled to receive, monthly, the net
investment earnings on amounts on deposit in the Principal and Interest Account,
and is responsible for any losses on such investments without any right of
reimbursement with respect to such losses.
The right to receive the Servicing Fee may not be transferred in whole or
in part except in connection with the transfer of all of the Servicer's
responsibilities and obligations under the Pooling and Servicing Agreement.
REMOVAL AND RESIGNATION OF SERVICER
The Certificate Insurer may, pursuant to the Pooling and Servicing
Agreement, remove the Servicer upon the occurrence and continuation beyond the
applicable cure period of any of the following events, and the Trustee, at the
direction of the majority of the Owners of Class A Certificates, with the
consent of the Certificate Insurer, may remove the Servicer upon the occurrence
and continuation beyond the applicable cure period of any of the following
events:
(i) any failure by the Servicer (a) to deposit to the Principal and
Interest Account all collections received by the Servicer directly within
two Business Days following the Business Day on which such amounts are
received and are determined by the Servicer to relate to the Mortgage Loans
(unless not required by the terms of the Pooling and Servicing Agreement)
or (b) to deposit to the Principal and Interest Account Delinquency
Advances and Compensating Interest as required by the Pooling and Servicing
Agreement by the related Servicer Remittance Date; or
(ii) failure on the part of the Servicer to observe or perform any
term, covenant or agreement in the Pooling and Servicing Agreement (other
than those covered by clause (a) above), which materially adversely affects
the rights of the Owners of the Certificates or the Certificate Insurer and
which continues unremedied for 30 days after the date on which written
notice of such failure, requiring the same to be remedied, shall have been
given to the Servicer by the Trustee, the Certificate Insurer or the Owners
of the Class A Certificates who hold Class A Certificates evidencing in
aggregate greater than 25% of the Certificate Principal Balance of the
outstanding Class A Certificates; or
(iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings regarding the
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings regarding the Servicer and certain actions by the
Servicer indicating its insolvency or inability to pay its obligations; or
(iv) the Servicer shall fail to deliver a report expressly required by
the Pooling and Servicing Agreement, and the continuance of such failure
for a period of three Business Days after the date upon which written
notice of such failure shall have been given to the Servicer by the
Certificate Insurer or the Trustee (except that such three Business Day
period shall be deemed not to run as to any portion of such report during
such time as the Servicer's failure to provide such information is for
cause or inability beyond its control and the Servicer provides the Trustee
and the Certificate Insurer with an officer's certificate of the Servicer
to such effect); or
(v) the failure of the pool of Mortgage Loans to meet certain
delinquency and loss requirements; or
(vi) the occurrence of an "event of default" under the Insurance
Agreement.
The Servicer may not assign its obligations under the Pooling and Servicing
Agreement nor resign from the obligations and duties thereby imposed on it
except upon the determination that the Servicer's duties thereunder are no
longer permissible under applicable law and such incapacity cannot be cured by
the Servicer. No such resignation shall become effective until a successor has
assumed the Servicer's responsibilities and obligations in accordance with the
Pooling and Servicing Agreement.
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Upon removal or resignation of the Servicer, the Trustee will be required
to serve as successor servicer. If the Trustee is prevented by law from acting
as successor servicer, the Trustee may solicit bids for a successor servicer,
and pending the appointment of a successor servicer as a result of soliciting
such bids, the Trustee will be required to serve as successor servicer. If the
Trustee is unable to obtain a qualifying bid, the Trustee will be required to
appoint, or petition a court of competent jurisdiction to appoint, an eligible
successor. Any such successor servicer shall assume all of the related
responsibilities, duties or liabilities of the Servicer on the date on which it
becomes the Servicer, but shall not assume any of the liabilities incurred prior
to such date. Each successor servicer must be acceptable to the Certificate
Insurer.
GOVERNING LAW
The Pooling and Servicing Agreement and each Certificate will be construed
in accordance with and governed by the laws of the State of New York applicable
to agreements made and to be performed therein.
TERMINATION OF THE TRUST
The Pooling and Servicing Agreement will provide that the Trust will
terminate upon the earlier of (i) the payment to the Owners of all Certificates
from amounts other than those available under the Certificate Insurance Policy
of all amounts required to be paid such Owners upon the later to occur of (a)
the final payment or other liquidation (or any advance made with respect
thereto) of the last Mortgage Loan or (b) the disposition of all property
acquired in respect of any Mortgage Loan remaining in the Trust Estate or (ii)
any time when a Qualified Liquidation (as defined in the Pooling and Servicing
Agreement) of the Trust Estate is effected.
OPTIONAL TERMINATION
AS PROVIDED IN THE POOLING AND SERVICING AGREEMENT. The Pooling and
Servicing Agreement provides that a party to be named therein, at its option,
acting directly or through one or more permitted designees, may determine to
purchase from the Trust all of the Mortgage Loans and other property then held
by the Trust, and thereby effect early retirement of the Certificates, on any
Remittance Date when the aggregate outstanding principal balances of the
Mortgage Loans has declined to 10% or less of the Original Aggregate Principal
Balance. Under certain circumstances the Certificate Insurer may also exercise
such purchase rights if such party does not do so.
AUCTION SALE. The Pooling and Servicing Agreement requires that, within
ninety days following the Optional Termination Date, if the Servicer has not
exercised its optional termination right by such date, the Trustee solicit bids
for the purchase of all Mortgage Loans remaining in the Trust. In the event
that satisfactory bids are received as described in the Pooling and Servicing
Agreement, the net sale proceeds will be distributed to the Owners of the
Certificates, in the same order of priority as collections received in respect
of the Mortgage Loans. If satisfactory bids are not received, the Trustee shall
decline to sell the Mortgage Loans and shall not be under any obligation to
solicit any further bids or otherwise negotiate any further sale of the Mortgage
Loans. Such sale and consequent termination of the Trust must constitute a
"qualified liquidation" of each REMIC established by the Trust under Section
860F of the Internal Revenue Code of 1986, as amended, including, without
limitation, the requirement that the qualified liquidation takes place over a
period not to exceed 90 days. Under certain circumstances the Certificate
Insurer may also exercise such purchase rights if the Servicer does not do so.
UPON LOSS OF REMIC STATUS. Following a final determination by the Internal
Revenue Service, or by a court of competent jurisdiction, in each case from
which no appeal is taken within the permitted time for such appeal, or if any
appeal is taken, following a final determination of such appeal from which no
further appeal can be taken to the effect that any REMIC held by the Trust does
not and will no longer qualify as a "REMIC" pursuant to Section 860D of the Code
(the "Final Determination"), at any time on or after the date which is 30
calendar days following such Final Determination, (i) the Certificate Insurer or
the Owners of a majority in Percentage Interest represented by the Class of
Class A Certificates then outstanding with the consent of the Certificate
Insurer (which consent may not be unreasonably withheld) may direct the Trustee
on behalf of the Trust to adopt a plan of complete liquidation as contemplated
by Section 860F(a)(4) of the Code and (ii) the Certificate Insurer may notify
the Trustee of the Certificate Insurer's determination to purchase from the
Trust
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all Mortgage Loans and other property acquired by foreclosure, deed in lieu
of foreclosure, or otherwise in respect of any Mortgage Loan then remaining
in the Trust, and thereby effect the early retirement of the Certificates.
The purchase price for any purchase of the property of the Trust Estate shall
be equal to the sum of (x) the greater of (i) 100% of the aggregate principal
balances of the Mortgage Loans as of the Due Date which immediately follows
the last day of the related Remittance Period immediately preceding the day
of purchase minus amounts remitted from the Principal and Interest Account
representing collections of principal on the Mortgage Loans during the
related Remittance Period, and (ii) the fair market value of such Mortgage
Loans (disregarding accrued interest), (y) one month's interest on such
amount computed at the weighted average Pass-Through Rate of the Class A
Certificates and (z) the aggregate amount of any unreimbursed Delinquency
Advances and any Delinquency Advances which the Servicer has theretofore
failed to remit.
Upon receipt of such notice or direction from the Certificate Insurer, the
Trustee will be required to notify the Owners of the Subordinated Certificates
of such election to liquidate or such determination to purchase, as the case may
be (the "Termination Notice"). The Owners of a majority of the Percentage
Interest of the Subordinated Certificates then outstanding may, within sixty
(60) days from the date of receipt of the Termination Notice (the "Purchase
Option Period"), at their option, purchase from the Trust all (but not fewer
than all) Mortgage Loans and all property theretofore acquired by foreclosure,
deed in lieu of foreclosure, or otherwise in respect of any Mortgage Loan then
remaining in the Trust Estate at a purchase price equal to the aggregate
principal balances of all Mortgage Loans as of the last day of the Remittance
Period immediately preceding the date of such purchase, plus one month's
interest on such amount at the weighted average Pass-Through Rate and plus the
aggregate amount of any unreimbursed Delinquency Advances and any Delinquency
Advances which the Servicer has theretofore failed to remit. If, during the
Purchase Option Period, the Owners of the Subordinated Certificates have not
exercised the option described in the immediately preceding sentence, then upon
the expiration of the Purchase Option Period (i) in the event that the
Certificate Insurer or the Owners of the Class A Certificates with the consent
of the Certificate Insurer have given the Trustee the direction described in
clause (a)(i) above, the Trustee will be required to sell the Mortgage Loans and
distribute the proceeds of the liquidation of the Trust Estate, each in
accordance with the plan of complete liquidation, such that, if so directed, the
liquidation of the Trust Estate, the distribution of the proceeds of the
liquidation and the termination of the Pooling and Servicing Agreement occur no
later than the close of the sixtieth (60th) day, or such later day as the
Certificate Insurer or the Owners of the Class A Certificates with the consent
of the Certificate Insurer permit or direct in writing, after the expiration of
the Purchase Option Period and (ii) in the event that the Certificate Insurer
has given the Trustee notice of the Certificate Insurer's determination to
purchase the Trust Fund described in clause (a)(ii) preceding the Certificate
Insurer will be required to, within sixty (60) days, purchase all (but not fewer
than all) Mortgage Loans and all property theretofore acquired by foreclosure,
deed in lieu of foreclosure or otherwise in respect of any Mortgage Loan then
remaining in the Trust Estate. In connection with such purchase, the Servicer
will be required to remit to the Trustee all amounts then on deposit in the
Principal and Interest Account for deposit to the Certificate Account, which
deposit will be deemed to have occurred immediately preceding such purchase.
Following a Final Determination, the Owners of a majority of the Percentage
Interest of the Subordinated Certificates then outstanding may, at their option
and upon delivery to the Certificate Insurer of an opinion of counsel
experienced in federal income tax matters acceptable to the Certificate Insurer
selected by the Owners of the Subordinated Certificates which opinion shall be
reasonably satisfactory in form and substance to the Owners of a majority of the
Percentage Interests represented by the Class A Certificates then outstanding,
to the effect that the effect of the Final Determination is to increase
substantially the probability that the gross income of the Trust will be subject
to federal taxation, purchase from the Trust all (but not fewer than all)
Mortgage Loans and all property theretofore acquired by foreclosure, deed in
lieu of foreclosure, or otherwise in respect of any Mortgage Loan then remaining
in the Trust Fund at a purchase price equal to the aggregate principal balances
of all Mortgage Loans as of the Due Date which immediately follows the last day
of the Remittance Period immediately preceding the date of such purchase, plus
one month's interest on such amount computed at the weighted average
Pass-Through Rate plus the aggregate amount of unreimbursed Delinquency Advances
and any Delinquency Advances which the Servicer has theretofore failed to remit.
In connection with such purchase, the Servicer will be required to remit to the
Trustee all amounts then on deposit in the Principal and Interest Account for
deposit to the Certificate Account, which deposit shall be deemed to
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have occurred immediately preceding such purchase. The foregoing opinion
shall be deemed satisfactory unless the Certificate Insurer gives the Owners
of a majority of the Percentage Interest of the Subordinated Certificates
notice that such opinion is not satisfactory within thirty days after receipt
of such opinion.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain of the material anticipated federal
income tax consequences of the purchase, ownership and disposition of the Class
A Certificates is to be considered only in connection with "Certain Federal
Income Tax Consequences" in the Prospectus. The discussion herein and in the
Prospectus is based upon laws, regulations, rulings and decisions now in effect,
all of which are subject to change. The discussion below and in the Prospectus
does not purport to deal with all federal tax consequences applicable to all
categories of investors, some of which may be subject to special rules.
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 Class A Certificates.
REMIC ELECTIONS
The Trustee will cause an election to be made to treat the Trust as a REMIC
for federal income tax purposes. Dewey Ballantine, special tax counsel, will
advise that, in its opinion, for federal income tax purposes, assuming (i) the
REMIC election is made and (ii) compliance with the Pooling and Servicing
Agreement, the Trust will be treated as a REMIC, each Class of Class A
Certificates and the Subordinate Certificates will be treated as "regular
interests" in the REMIC and the Class R Certificates will be treated as the sole
Class of "residual interests" in the REMIC. For federal income tax purposes,
regular interests in a REMIC are treated as debt instruments issued by the REMIC
on the date on which those interests are created, and not as ownership interests
in the REMIC or its assets. Owners of Class A Certificates that otherwise report
income under a cash method of accounting will be required to report income with
respect to such Class A Certificates under an accrual method. The Class A
Certificates may be issued with "original issue discount" for federal income tax
purposes. The prepayment assumption to be used in determining whether any Class
of Class A Certificates is issued with original issue discount and the rate of
accrual of original issue discount is 16% CPR. No representation is made that
any of the Mortgage Loans will prepay at this rate or any other rate. See
"Certain Federal Income Tax Consequences -- Taxation of Regular Certificates" in
the Prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on those employee benefit plans and individual
retirement arrangements to which it applies (a "Plan") and on those persons who
are fiduciaries with respect to such Plans. Any Plan fiduciary which proposes to
cause assets of a Plan to acquire any of the Class A Certificates should consult
with counsel with respect to the consequences under ERISA and the Code of the
Plan's acquisition and ownership of such Certificates. See "ERISA
Considerations" in the Prospectus.
The Department of Labor has issued to Prudential Securities Incorporated an
individual prohibited transaction exemption, Prohibited Transaction Exemption
90-32 (the "Exemption"), which generally exempts from the application of the
prohibited transaction provision of Section 406(a), Section 406(b)(1) and
Section 406(b)(2) of ERISA and the excise taxes imposed pursuant to Sections
4975(a) and (b) of the Code, with respect to the initial purchase, the holding
and the subsequent resale by Plans of certificates in pass-through trusts that
consist of certain secured receivables, secured loans and other secured
obligations that meet the conditions and requirements of the Exemption. The
loans covered by the Exemption include mortgage loans.
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) the acquisition of the 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;
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(2) the rights and interests evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the trust;
(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 either Standard & Poor's, Moody's, Duff & Phelps
Credit Rating Co. ("D&P") or Fitch Investors Service, L.P. ("Fitch");
(4) the Trustee is not 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 the certificates represents not more
than reasonable compensation for underwriting the certificates; the sum of
all payments made to and retained by the Unaffiliated Seller pursuant to
the assignment of the loans to the Trust Fund represents not more than the
fair market value of such loans; the sum of all payments made to and
retained by any 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 Commission under the
Securities Act.
The Trust Fund must also meet the following requirements:
(i) the corpus of the Trust Fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated
in one of the three highest rating categories of Standard & Poor's,
Moody's, Fitch or D&P for at least one year prior to the Plan's acquisition
of certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one
year prior to the Plan's acquisition of certificates.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire certificates in a trust in which the fiduciary (or its
affiliate) is an obligor on the receivables held in the trust; PROVIDED that,
among other requirements, (i) 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; (ii) 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; (iii) 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
acquisition; and (iv) 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 serviced by the same entity. The Exemption
does not apply to Plans sponsored by the Unaffiliated Seller, the Certificate
Insurer, the Underwriter, the Trustee, any obligor with respect to Mortgage
Loans included in the Trust Estate constituting more than five percent of the
aggregate unamortized principal balance of the assets in the Trust Estate, or
any affiliate of such parties (the "Restricted Group").
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the Exemption,
and the potential consequences in their specific circumstances, prior to making
an investment in the Class A Certificates. In addition, prospective investors
that are insurance companies should consult with their counsel with respect to
the United States Supreme Court case interpreting the fiduciary responsibility
rules of ERISA, JOHN HANCOCK MUTUAL LIFE INSURANCE CO. V. HARRIS TRUST AND
SAVING BANK, 114 S. Ct. 517 (1993). In JOHN HANCOCK, the Supreme Court ruled
that assets held in an insurance Company's general account may be deemed to be
"plan assets" for ERISA purposes under certain circumstances.
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Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment procedure and diversification an investment
in the Class A Certificates is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
RATINGS
It is a condition of the original issuance of the Class A Certificates that
they receive ratings of AAA by Standard & Poor's and Aaa by Moody's. The ratings
assigned to the Class A Certificates will be based on the claims-paying ability
of the Certificate Insurer.
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. The security rating assigned to the Class A Certificates
should be evaluated independently of similar security ratings assigned to
other kinds of securities.
Explanations of the significance of such ratings may be obtained from
Moody's Investors Service, Inc., 99 Church Street, New York, New York, 10007 and
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc., 25 Broadway, New York, New York 10004. Such ratings will be the views only
of such rating agencies. There is no assurance that any such ratings will
continue for any period of time or that such ratings will not be revised or
withdrawn. Any such revision or withdrawal of such ratings may have an adverse
effect on the market price of the Class A Certificates.
LEGAL INVESTMENT CONSIDERATIONS
The Class A Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"). Accordingly, many institutions with legal authority to invest
in comparably rated securities may not be legally authorized to invest in the
Class A Certificates.
UNDERWRITING
Under the terms and subject to the conditions set forth in the
Underwriting Agreement for the sale of the Class A Certificates, dated
December 23, 1996, the Depositor has agreed to cause the Trust to sell and
Prudential Securities Incorporated (the "Underwriter") has agreed to purchase
the Class A Certificates.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase the entire principal amount
of Class A Certificates.
The Underwriter has advised the Depositor that it proposes to offer the
Class A Certificates purchased by the Underwriter for sale from time to time in
one or more negotiated transactions or otherwise, at market prices prevailing at
the time of sale, at prices related to such market prices or at negotiated
prices. The Underwriter may effect such transactions by selling such Class A
Certificates to or through dealers, and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriter or purchasers of the Class A Certificates for whom they may act as
agent. Any dealers that participate with the Underwriter in the distribution of
the Class A 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 Class A Certificates by them or the
Underwriter may be deemed to be underwriting discounts or commissions under the
Securities Act.
Proceeds to the Depositor, including accrued interest, are expected to be
approximately 99.94% of the aggregate principal balance of the Class A
Certificates, before deducting expenses payable by the Depositor in connection
with the Class A Certificates, estimated to be $350,000. In connection with the
purchase and sale of the Class A Certificates, the Underwriter may be deemed to
have received compensation from the Depositor in the form of underwriting
discounts.
The Depositor has agreed to indemnify the Underwriter against certain
liabilities including liabilities under the Securities Act.
The Depositor has been advised by the Underwriter that the Underwriter
presently intends to make a market in each Class of Class A Certificates, as
permitted by applicable laws and regulations. The Underwriter
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is not obligated, however, to make a market in any Class of Class A
Certificates and such market-making may be discontinued at any time at the
sole discretion of the Underwriter. Accordingly, no assurance can be given as
to the liquidity of, or trading markets for, the Class A Certificates.
The Underwriter is an affiliate of the Depositor.
For further information regarding any offer or sale of the Class A
Certificates pursuant to this Prospectus Supplement and the Prospectus, see
"Plan of Distribution" in the Prospectus.
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc. and
Subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 1995, incorporated by
reference in this Prospectus Supplement, have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the Class A
Certificates will be passed upon for the Unaffiliated Seller and the Servicer by
Proskauer, Rose, Goetz & Mendelsohn, New York, New York and for the Depositor
and the Underwriter by Dewey Ballantine, New York, New York. Certain legal
matters relating to the Certificate Insurer and the Certificate Insurance Policy
will be passed upon for the Certificate Insurer by Bruce Stern, General Counsel
of the Certificate Insurer.
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INDEX OF SIGNIFICANT PROSPECTUS SUPPLEMENT DEFINITIONS
80/20 Program. . . . . . . . . . . . . . . . . . . . . . . . . . 5, 16
Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Actuarial Loan . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Adjustable Rate Mortgage Loans . . . . . . . . . . . . . . . . . . . 5
Administrative Rate. . . . . . . . . . . . . . . . . . . . . . . . .11
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Aggregate risks. . . . . . . . . . . . . . . . . . . . . . . . . . .50
Appraised Values . . . . . . . . . . . . . . . . . . . . . . . . . .29
Approved Guidelines. . . . . . . . . . . . . . . . . . . . . . . . .33
Auction Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Available Funds. . . . . . . . . . . . . . . . . . . . . . . . . . .41
Backup Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Balloon Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Bank Public Affiliates . . . . . . . . . . . . . . . . . . . . . . .31
Beneficial Owners. . . . . . . . . . . . . . . . . . . . . . . . . .12
Book-Entry Certificates. . . . . . . . . . . . . . . . . . . . . . .42
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
CEDEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
CEDEL Participants . . . . . . . . . . . . . . . . . . . . . . . . .44
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Certificate Account. . . . . . . . . . . . . . . . . . . . . . . . .39
Certificate Insurance Policy . . . . . . . . . . . . . . . . . . . . 1
Certificate Insurer. . . . . . . . . . . . . . . . . . . . . 1, 11, 48
Certificate Insurer Default. . . . . . . . . . . . . . . . . . . . .11
Certificate Principal Balance. . . . . . . . . . . . . . . . . . . . 6
Certificates . . . . . . . . . . . . . . . . . . . . . . . . .1, 3, 38
Chase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Citibank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Civil Relief Act . . . . . . . . . . . . . . . . . . . . . . . . . .19
Civil Relief Act Interest Shortfall. . . . . . . . . . . . . . . . .19
Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Class A Certificates . . . . . . . . . . . . . . . . . . . . . . .1, 3
Class A Current Interest . . . . . . . . . . . . . . . . . . . . . . 7
Class A Distribution Amount. . . . . . . . . . . . . . . . . . . . . 9
Class A Principal Distribution Amount. . . . . . . . . . . . . . . . 8
Class A-1 Certificates . . . . . . . . . . . . . . . . . . . . . .1, 3
Class A-1 Pass-Through Rate. . . . . . . . . . . . . . . . . . . . . 1
Class A-2 Certificates . . . . . . . . . . . . . . . . . . . . . .1, 3
Class A-2 Pass-Through Rate. . . . . . . . . . . . . . . . . . . . . 1
Class A-3 Certificates . . . . . . . . . . . . . . . . . . . . . .1, 3
Class A-3 Pass-Through Rate. . . . . . . . . . . . . . . . . . . . . 1
Class A-4 Certificates . . . . . . . . . . . . . . . . . . . . . .1, 3
Class A-4 Pass-Through Rate. . . . . . . . . . . . . . . . . . . . . 1
Class B Certificates . . . . . . . . . . . . . . . . . . . . . . . . 1
Class C Certificates . . . . . . . . . . . . . . . . . . . . . . .1, 3
Class R Certificates . . . . . . . . . . . . . . . . . . . . . . .1, 4
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CLTV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Compensating Interest. . . . . . . . . . . . . . . . . . . .18, 39, 53
Compensating Interest Shortfalls . . . . . . . . . . . . . . . . . .11
Constant Prepayment Rate . . . . . . . . . . . . . . . . . . . . . .35
Cooperative. . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
CPR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Cut-Off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
D&P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
Defective Loan . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Definitive Certificate . . . . . . . . . . . . . . . . . . . . . . .42
Delinquency Advance. . . . . . . . . . . . . . . . . . . . . . .11, 53
Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 3
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . .39
Distribution Date. . . . . . . . . . . . . . . . . . . . . . . . .2, 6
DTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
DTC Participants . . . . . . . . . . . . . . . . . . . . . . . . . .44
Due Dates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . .39
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13, 58
Euroclear. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . .44
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . .44
European Depositaries. . . . . . . . . . . . . . . . . . . . . .12, 42
Excess Subordinated Amount . . . . . . . . . . . . . . . . . . . . .40
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Exemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
FHLMC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Final Determination. . . . . . . . . . . . . . . . . . . . . . . . .56
Final Scheduled Distribution . . . . . . . . . . . . . . . . . . . . 2
Financial Intermediary . . . . . . . . . . . . . . . . . . . . . . .43
Financial Security . . . . . . . . . . . . . . . . . . . . . . . . .48
Fitch. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
Fixed Rate Mortgage Loans. . . . . . . . . . . . . . . . . . . . . . 5
FNMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 49
Insurance Agreement. . . . . . . . . . . . . . . . . . . . . . . . .48
Insured Distribution Amount. . . . . . . . . . . . . . . . . . . 9, 46
Insured Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Insurer Amount . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Liquidated Mortgage Loan . . . . . . . . . . . . . . . . . . . . 9, 54
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . .18
Loan Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . .51
Lockbox Account. . . . . . . . . . . . . . . . . . . . . . . . . . .52
LTV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Master Loan Transfer Agreements. . . . . . . . . . . . . . . . . . .33
Modeling Assumptions . . . . . . . . . . . . . . . . . . . . . . . .35
Monthly Remittance Amount. . . . . . . . . . . . . . . . . . . . . .39
Moody's. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Mortgage Loan Pool . . . . . . . . . . . . . . . . . . . . . . . . .20
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . .1, 4
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . .1, 4
Mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 4
Net Interest Shortfalls. . . . . . . . . . . . . . . . . . . . . . .18
Net Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . .18
Net Monthly Excess Cashflow. . . . . . . . . . . . . . . . . . . . .40
Net Monthly Excess Spread. . . . . . . . . . . . . . . . . . . . . .40
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Offered Interest Holders . . . . . . . . . . . . . . . . . . . . . .38
Optional Termination Date. . . . . . . . . . . . . . . . . . . . . .13
Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Original Aggregate Principal Balance . . . . . . . . . . . . . . 4, 20
Owner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Participating Originators. . . . . . . . . . . . . . . . . . . . . .33
Pass-Through Rate. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Percentage Interest. . . . . . . . . . . . . . . . . . . . . . . 6, 40
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Pooling and Servicing Agreement. . . . . . . . . . . . . . . . . .1, 4
Potentially Hazardous Property . . . . . . . . . . . . . . . . . . .54
Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Prepayment Assumption. . . . . . . . . . . . . . . . . . . . . . . .35
Prepayment Interest Shortfall. . . . . . . . . . . . . . . .11, 18, 53
Principal and Interest Account . . . . . . . . . . . . . . . . . . .11
Purchase Option Period . . . . . . . . . . . . . . . . . . . . . . .57
Purchased Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Realized Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Receipt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Relevant Depositary. . . . . . . . . . . . . . . . . . . . . . . . .42
REMIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 13
Remittance Date. . . . . . . . . . . . . . . . . . . . . . . . . . .39
Remittance Period. . . . . . . . . . . . . . . . . . . . . . . . . .39
Repurchase Price . . . . . . . . . . . . . . . . . . . . . . . . . .51
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . . . .59
Riegle Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Schedules of Mortgage Loans. . . . . . . . . . . . . . . . . . . . .50
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Senior Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . .32
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 3
Servicer Event of Default. . . . . . . . . . . . . . . . . . . . . .12
Servicer Remittance Date . . . . . . . . . . . . . . . . . . . . . .41
Servicing Advance. . . . . . . . . . . . . . . . . . . . . . . . . .53
Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Servicing Report . . . . . . . . . . . . . . . . . . . . . . . . . .52
Servicing Standards. . . . . . . . . . . . . . . . . . . . . . . . .51
Single risks . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
SMMEA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13, 60
Specified Subordinated Amount. . . . . . . . . . . . . . . . . . . .40
Standard & Poor's. . . . . . . . . . . . . . . . . . . . . . . . . .14
Sub-Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Sub-Servicing Agreement. . . . . . . . . . . . . . . . . . . . . . . 3
Subordinate Certificates . . . . . . . . . . . . . . . . . . . . .1, 3
Subordinated Amount. . . . . . . . . . . . . . . . . . . . . . . . .40
Subordination Deficit. . . . . . . . . . . . . . . . . . . . . . 9, 41
Subordination Increase Amount. . . . . . . . . . . . . . . . . . . .40
Substitution Amounts . . . . . . . . . . . . . . . . . . . . . . . .39
Termination Notice . . . . . . . . . . . . . . . . . . . . . . . . .57
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . .44
Total Available Funds. . . . . . . . . . . . . . . . . . . . . . . .41
Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 3
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . .1, 4, 50
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 3
Trustee's Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Unaffiliated Seller. . . . . . . . . . . . . . . . . . . . . . . .1, 3
Underwriter. . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 60
WCC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
WCC's Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . .32
Weighted average life. . . . . . . . . . . . . . . . . . . . . . . .36
WFSG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Wilshire Private Group . . . . . . . . . . . . . . . . . . . . . . .31
S-62
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Wilshire
Mortgage Loan Trust 1996-4 Mortgage Pass-Through Certificates, Class A (the
"Global Securities") will be available only in book-entry form. Investors in
the Global Securities may hold such Global Securities through any of DTC,
CEDEL or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors through CEDEL and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of CEDEL and Euroclear and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be conducted
according to DTC's rules and procedures applicable to U.S. corporate debt
obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of CEDEL
and Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
Relevant Depositary which in turn will hold such positions in their accounts
as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will
be credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global
security and no "lock-up" or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior
asset-backed certificates issues in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC, SELLER AND CEDEL OR EUROCLEAR PARTICIPANTS. When
Global Securities are to be transferred from the account of a DTC Participant
to the account of a CEDEL Participant or a Euroclear Participant, the
purchaser will send instructions to CEDEL or Euroclear through a CEDEL
Participant or Euroclear Participant at least one business day prior to
settlement. CEDEL or Euroclear will instruct the Relevant Depositary, as the
case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global
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<PAGE>
Securities from and including the last coupon payment date to and excluding
the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to
and excluding the first day of the following month. Payment will then be
made by the Relevant Depositary to the DTC Participant's account against
delivery of the Global Securities. After settlement has been completed, the
Global Securities will be credited to the respective clearing system and by
the clearing system, in accordance with its usual procedures, to the CEDEL
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (I.E., the trade
fails), the CEDEL or Euroclear cash debt will be valued instead as of the
actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day
funds settlement. The most direct means of doing so is to preposition funds
for settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, CEDEL Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for
one day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment income
on the Global Securities earned during that one-day period may substantially
reduce or offset the amount of such overdraft charges, although the result
will depend on each CEDEL Participant's or Euroclear Participant's particular
cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for crediting Global
Securities to the respective European Depositary for the benefit of CEDEL
Participants or Euroclear Participants. The sale proceeds will be available
to the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two
DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR, SELLER AND DTC PURCHASER. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will
send instructions to CEDEL or Euroclear through a CEDEL Participant or a
Euroclear Participant at least one business day prior to settlement. In
these cases CEDEL or Euroclear will instruct the respective Depositary, as
appropriate, to credit the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global
Securities from and including the last coupon payment to and excluding the
settlement date on the basis of the actual number of days in such accrual
period and a year assumed to consist to 360 days. For transactions settling
on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. The payment will then be
reflected in the account of the CEDEL Participant or the Euroclear
Participant the following day, and receipt of the cash proceeds in the CEDEL
Participant's or the Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the CEDEL Participant or the Euroclear Participant have a
line of credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft incurred over that one-day
period. If settlement is not completed on the intended value date (I.E., the
trade fails), receipt of the cash proceeds in the CEDEL Participant's or the
Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action is taken. At least three
techniques should be readily available to eliminate this potential problem:
I-2
<PAGE>
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through CEDEL
or Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business in the chain of intermediaries
between such beneficial owner and the U.S. entity required to withhold tax
complies with applicable certification requirements and (ii) such beneficial
owner takes one of the following steps to obtain an exemption or reduced tax
rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial Owners of Global
Securities that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate
of Foreign Status). If the information shown on Form W-8 changes, a new Form
W-8 must be filed within 30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A Non-U.S. Person (as defined below), including a non-U.S.
corporation or bank with a U.S. branch, for which the interest income is
effectively connected with its conduct of a trade or business in the United
States, can obtain an exemption from the withholding tax by filing Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Certificate Owners or their agents.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
the security (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof or (iii)
an estate or trust that is subject to U.S. federal income tax regardless of
the source of its income. The term "Non-U.S. Person" means any person who is
not a U.S. Person. This summary does not deal with all aspects of U.S.
Federal income tax withholding that may be relevant to foreign holders of the
Global Securities. Investors are advised to consult their own tax advisors
for specific tax advice concerning their holding and disposing of the Global
Securities.
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<PAGE>
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 or Notes (such Pass-Through
Certificates or such Notes, together 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 for the benefit of the
holders of the related Series of Certificates (the "Certificateholders").
Unless otherwise specified in the applicable Prospectus Supplement, the
property of each such trust (for each Series, the "Trust Fund") will consist
of a segregated 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 the Mortgaged Properties (as defined herein),
including installment sale contracts with respect to any such properties, or
participation in any of the foregoing (the "Mortgage Loans") or (ii)
manufactured housing conditional sales contracts and installment agreements
(the "Contracts"). The Mortgage Loans or Contracts 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) or Net Contract Rates (as
defined herein), on the related Mortgage Loans 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).
(COVER CONTINUED ON NEXT PAGE)
___________________________________
THE ASSETS OF THE RELATED TRUST ARE THE SOLE SOURCE OF PAYMENTS ON THE
RELATED SECURITIES. THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR
OBLIGATION OF THE DEPOSITOR, THE SERVICER OR ANY OF THEIR AFFILIATES, EXCEPT
AS SET FORTH HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT. NEITHER THE
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS WILL BE GUARANTEED OR INSURED
BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE SELLER, THE SERVICER
OR ANY OF THEIR AFFILIATES, EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS
SUPPLEMENT. SEE "RISK FACTORS" PAGE 13.
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.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. 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 4, 1996
<PAGE>
(COVER CONTINUED FROM PREVIOUS PAGE)
Each Series of Certificates will include one or more classes. The
Certificates of any particular class may represent beneficial ownership
interests in the related Mortgage Loans held by the related Trust Fund, or
may represent debt secured by such Mortgage Loans, as described herein and in
the related Prospectus Supplement. 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.
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 may be made to treat each Trust Fund (or one or more
segregated pools of assets therein) underlying a Series which includes
MultiClass Certificates as a "real estate mortgage investment conduit" (a
"REMIC") for federal income tax purposes. 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"). Alternatively, a
Trust Fund may be treated as a grantor trust or as a partnership for federal
income tax purposes, or may be treated for federal income tax purposes as a
mere security device which constitutes a collateral arrangement for the
issuance of debt. 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.
2
<PAGE>
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." 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 accounts 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 New York Plaza, 15th Floor, New
York, New York 10292, Attention: Len Blum (212) 778-1000.
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 New York Plaza, 15th Floor, New York, New York 10292,
telephone number (212) 778-1000, Attention: Len Blum.
3
<PAGE>
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. AN INDEX INDICATING WHERE CERTAIN TERMS USED HEREIN ARE DEFINED
APPEAR AT THE END OF 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 New York
Plaza, 15th Floor, New York, New York 10292, and
its telephone number is (212) 778-1000. See "The
Depositor."
Unaffiliated Sellers . . . The Depositor will acquire the Mortgage Loans and
Contracts from one or more institutions
unaffiliated with the Depositor ("Unaffiliated
Sellers").
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."
The Trust Funds. . . . . . The Trust Fund for each Series of Certificates
may consist of any combination of Mortgage Pool
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 Mortgage Loans or
Contracts or participations therein.
Unless otherwise specified in the applicable
Prospectus Supplement, each Contract Pool will
consist of fixed or adjustable rate manufactured
housing installment sale, contracts and
installment loan agreements. Each Contract may
be secured by a new or used Manufactured Home (as
defined herein).
4
<PAGE>
Neither the Certificates, the interest thereon,
nor the underlying Mortgage Loans are guaranteed
by the United States nor do they constitute debts
or obligations of the United States or any agency
or instrumentality of the United States.
The particular characteristics of each Trust Fund
will be set forth in the applicable Prospectus
Supplement.
Description of the
Certificates . . . . . . . The Certificates issued by any Trust Fund may
represent beneficial ownership interests in the
related Mortgage Loans held by the related Trust
Fund, or may represent debt secured by such
Mortgage Loans, as described herein and in the
related Prospectus Supplement. Certificates
which represent beneficial ownership interests in
the related Trust Fund will be referred to as
"Certificates" in the related Prospectus
Supplement; Certificates which represent debt
issued by the related Trust Fund will be referred
to as "Notes" in the related Prospectus
Supplement.
With respect to Notes issued by the related Trust
Fund, the related Trust Fund will enter into an
indenture by and between such Trust Fund and the
trustee named on such indenture, as set forth in
the related Prospectus Supplement.
Each Series of Certificates will be recourse to
the assets of the related Trust Fund only. The
sole source of payment for any Series of
Certificates will be the assets of the related
Trust Fund. The Certificates will not be
obligations, either recourse or non-recourse
(except for certain non-recourse debt described
under "Certain Federal Income Tax Consequences"),
of the Depositor, the Servicer or any Person
other than the related Trust Fund. In the case
of Certificates that represent beneficial
ownership interest in the related Trust Fund,
such Certificates will represent the ownership of
such Trust Fund; with respect to Certificates
which are Notes, such Notes will be secured by
the related Trust Fund. Notwithstanding the
foregoing, and as to be described in the related
Prospectus Supplement, certain types of credit
enhancement, such as a financial guaranty
insurance policy or a letter of credit, may
constitute a full recourse obligation of the
issue of such credit enhancement.
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
5
<PAGE>
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.
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 or Net Contract
Rate) on the related Mortgage Loans 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,
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 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 ownership interest in the
related Trust Fund 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.
6
<PAGE>
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
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 or Net
Contract Rates on the underlying Mortgage Loans
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 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.
7
<PAGE>
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 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
or such other basis as is specified in the
applicable Prospectus Supplement. See
"Description of the Certificates -- Distributions
to Multi-Class Certificateholders."
Forward Commitments;
Pre-Funding. . . . . . . . A Trust Fund may enter into an agreement (each, a
"Forward Purchase Agreement") with the Depositor
whereby the Depositor will agree to transfer
additional Mortgage Loans to such Trust Fund
following the date on which such Trust Fund is
established and the related Certificates are
issued. Any Forward Purchase Agreement will
require that any Mortgage Loans so transferred to
a Trust Fund conform to the requirements
specified in such Forward Purchase Agreement. If
a Forward Purchase Agreement is to be utilized,
and unless otherwise specified in the related
Prospectus Supplement, the related Trustee will
be required to deposit in a segregated account
(each, a "Pre-Funding Account") all or a portion
of the proceeds received by the Trustee in
connection with the sale of one or more classes
of Certificates of the related Series;
subsequently, the additional Mortgage Loans will
be transferred to the related Trust Fund in
exchange for money released to the Depositor from
the related Pre-Funding Account in one or more
transfers. Each Forward Purchase Agreement will
set a specified period during which any such
transfers must occur. The Forward Purchase
Agreement or the related Pooling and Servicing
Agreement will require that, if all moneys
originally deposited to such Pre-Funding Account
are not so used by the end of such specified
period, then any remaining moneys
8
<PAGE>
will be applied as a mandatory prepayment of the
related class or classes of Certificates as
specified in the related Prospectus Supplement.
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 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 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 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
9
<PAGE>
Rate, or at such other rate specified in the
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 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 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 Percentage 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,
reserve fund, spread account, application of
excess interest to principal 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
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<PAGE>
highest rating categories by at least one
"nationally recognized statistical rating
organization. As "mortgage related securities,"
such Certificates offered 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 either represent interests
in, or be secured by, qualifying mortgage loans,
such Certificates will not constitute "mortgage
related securities" under SMMEA. No
representation is made as to the appropriate
characterization of any Certificates 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 pursuant
to the related Prospectus Supplement 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"). Such
ratings will address, in the opinion of such
Rating Agency, the likelihood that the related
Trust Fund will be able to make timely payment of
all amounts due on the related Series of
Certificates in accordance with the terms
thereof. Such ratings will neither address any
prepayment or yield considerations applicable
to any Certificates nor constitute a
recommendation to buy, sell or hold any
Certificates.
The ratings expected to be received with respect
to any Certificates will be set forth in the
related Prospectus Supplement.
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Certificates.
LIMITED LIQUIDITY. There can be no assurance that a secondary market
for the Certificates of any series or class will develop or, if it does
develop, that it will provide Certificateholders with liquidity of investment
or that it will continue for the life of the Certificates of any series. The
Prospectus Supplement for any series of Certificates may indicate that an
underwriter specified therein intends to establish a secondary market in such
Certificates; however, no underwriter will be obligated to do so. Unless
otherwise specified in the related Prospectus Supplement, the Certificates
will not be listed on any securities exchange.
LIMITED OBLIGATIONS. The Certificates will not represent an interest in
or obligation, either recourse or non-recourse (except for certain
non-recourse debt described under "Certain Federal Income Tax Consequences"),
of the Depositor, the Servicer or any person other than the related Trust.
The only obligations of the foregoing entities with respect to the
Certificates or the Mortgage Loans will be the obligations (if any) of the
Depositor and the Servicer pursuant to certain limited representations and
warranties made with respect to the Mortgage Loans, the Servicer's servicing
obligations under the related Pooling and Servicing Agreement (including its
limited obligation, if any, to make certain advances in the event of
delinquencies on the Mortgage Loans, but only to the extent deemed
recoverable) and, if and to the extent expressly described in the related
Prospectus Supplement, certain limited obligations of the Depositor,
Servicer, applicable Sub-Servicer, or another party in connection with a
purchase obligation ("Purchase Obligation") or an agreement to purchase or
act as remarketing agent with respect to a Convertible Mortgage Loan upon
conversion to a fixed rate. Notwithstanding the foregoing, and as to be
described in the related Prospectus Supplement, certain types of Credit
Enhancement, such as a financial guaranty insurance policy or a letter of
credit, may constitute a full recourse obligation of the issuer of such
Credit Enhancement. Except as described in the related Prospectus
Supplement, neither the Certificates nor the underlying Mortgage Loans will
be guaranteed or insured by any governmental agency or instrumentality, or by
the Depositor, the Servicer, any Sub-Servicer or any of their affiliates.
Proceeds of the assets included in the related Trust Fund for each series of
Certificates (including the Mortgage Loans and any form of Credit
Enhancement) will be the sole source of payments on the Certificates, and
there will be no recourse to the Depositor or any other entity in the event
that such proceeds are insufficient or otherwise unavailable to make all
payments provided for under the Certificates.
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT ENHANCEMENT. With
respect to each series of Certificates, Credit Enhancement will be provided
in limited amounts to cover certain types of losses on the underlying
Mortgage Loans. Credit Enhancement will be provided in one or more of the
forms referred to herein, including, but not limited to: a letter of credit;
a Purchase Obligation; a mortgage pool insurance policy; a special hazard
insurance policy; a bankruptcy bond; a reserve fund; a financial guaranty
insurance policy or other type of Credit Enhancement to provide partial
coverage for certain defaults and losses relating to the Mortgage Loans.
Credit Enhancement also may be provided in the form of the related class of
Certificates, subordination of one or more classes of Certificates in a
series under which losses in excess of those absorbed by any related class of
Certificates are first allocated to any Subordinate Certificates up to a
specified limit, cross-support among Trust Fund Assets and/or
overcollateralization. See "Credit Support -- Subordination" and "Other
Credit Enhancement." Regardless of the form of Credit Enhancement provided,
the coverage will be limited in amount and in most cases will be subject to
periodic reduction in accordance with a schedule or formula. Furthermore,
such Credit Enhancements may provide only very limited coverage as to certain
types of losses, and may provide no coverage as to certain other types of
losses. Generally, Credit Enhancements do not directly or indirectly
guarantee to the investors any specified rate of prepayments. The Servicer
will generally be permitted to reduce, terminate or substitute all or a
portion of the Credit Enhancement for any series of Certificates, if the
applicable Rating Agency indicates that the then-current rating thereof will
not be adversely affected. To the extent not set forth herein, the amount
and types of coverage, the identification of any entity providing the
coverage, the terms of any subordination and related information will be set
forth in the Prospectus Supplement relating to a series of Certificates. See
"Credit Support--Subordination" and "Other Credit Enhancement."
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RISKS OF THE MORTGAGE LOANS
RISK OF THE LOSSES ASSOCIATED WITH JUNIOR LIENS. Certain of the
Mortgage Loans will be secured by junior Liens subordinate to the rights of
the mortgagee or beneficiary under each related senior mortgage or deed of
trust. As a result, the proceeds from any liquidation, insurance or
condemnation proceedings will be available to satisfy the principal balance
of a mortgage loan only to the extent that the claims, if any, of each such
senior mortgagee or beneficiary are satisfied in full, including any related
foreclosure costs. In addition, a mortgagee secured by a junior Lien may not
foreclose on the related mortgaged property unless it forecloses subject to
the related senior mortgage or mortgages, in which case it must either pay
the entire amount of each senior mortgage to the applicable mortgagee at or
prior to the foreclosure sale or undertake the obligation to make payments on
each senior mortgage in the event of default thereunder. In servicing junior
lien loans in its portfolio, it has been the practice of the Servicer to
satisfy each such senior mortgage at or prior to the foreclosure sale only to
the extent that it determines any amounts so paid will be recoverable from
future payments and collections on such junior Lien loans or otherwise. The
Trusts will not have any source of funds to satisfy any such senior mortgage
or make payments due to any senior mortgagee. See "Certain Legal Aspects of
Mortgage Loans and Contracts -- Foreclosure."
RISK OF LOSSES ASSOCIATED WITH DECLINING REAL ESTATE VALUES. An
investment in securities such as the Certificates that generally represent
beneficial ownership interests in the Mortgage Loans or debt secured by such
Mortgage Loans may be affected by, among other things, a decline in real
estate values and changes in the borrowers' financial condition. 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 residential real estate market should experience an
overall decline in property values such that the outstanding balances of any
senior Liens, 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 nonconforming credit mortgage lending industry. Such a decline could
extinguish the interest of the related Trust in the Mortgaged Properties
before having any effect on the interest of the related senior mortgagee. In
addition, in the case of Mortgage Loans that are subject to negative
amortization, due to the addition to principal balance of deferred interest
("Deferred Interest"), the principal balances of such Mortgage Loans could be
increased to an amount equal to or in excess of the value of the underlying
Mortgaged Properties, thereby increasing the likelihood of default. To the
extent that such losses are not covered by the applicable Credit Enhancement,
holders of Certificates of the series evidencing interests in the related
Mortgage Pool will bear all risk of loss resulting from default by Mortgagors
and will have to look primarily to the value of the Mortgaged Properties for
recovery of the outstanding principal and unpaid interest on the defaulted
Mortgage Loans.
RISK OF LOSSES ASSOCIATED WITH CERTAIN NON-CONFORMING AND
NON-TRADITIONAL LOANS. The Depositor's underwriting standards consider,
among other things, a mortgagor's credit history, repayment ability and debt
service-to-income ratio, as well as the value of the property; however, the
Depositor's Mortgage Loan program generally provides for the origination of
Mortgage Loans relating to non-conforming credits. Certain of the types of
loans that may be included in the Pools may involve additional uncertainties
not present in traditional types of loans. For example, certain of the
Mortgage Loans may provide for escalating or variable payments by the
borrower under the Mortgage Loan (the "Mortgagor"), as to which the Mortgagor
is generally qualified on the basis of the initial payment amount. In some
instances the Mortgagors' income may not be sufficient to enable them to
continue to make their loan payments as such payments increase and thus the
likelihood of default will increase. For a more detailed discussion, see
"Underwriting Guidelines."
RISK OF LOSSES ASSOCIATED WITH BALLOON LOANS. Certain of the Mortgage
Loans may constitute "Balloon Loans." Balloon Loans are originated with a
stated maturity of less than the period of time of the corresponding
amortization schedule. Consequently, upon the maturity of a Balloon Loan, the
Mortgagor will be required to make a "balloon" payment that will be
significantly larger than such Mortgagor's previous monthly payments. The
ability of such a Mortgagor to repay a Balloon Loan at maturity frequently will
depend on such borrower's ability to refinance the Mortgage Loan. The ability
of a Mortgagor to refinance such a Mortgage Loan will be affected by a number of
factors, including the level of available mortgage rates at the time, the value
of the related Mortgaged Property, the Mortgagor's equity in the related
Mortgaged Property, the financial condition of the Mortgagor, the tax laws and
general economic conditions at the time.
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Although a low interest rate environment may facilitate the refinancing
of a balloon payment, the receipt and reinvestment by Certificateholders of
the proceeds in such an environment may produce a lower return than that
previously received in respect of the related Mortgage Loan. Conversely, a
high interest rate environment may make it more difficult for the Mortgagor
to accomplish a refinancing and may result in delinquencies or defaults.
None of the Depositor, the Servicer, any Sub-Servicer or the Trustee will be
obligated to provide funds to refinance any Mortgage Loan, including Balloon
Loans.
RISK OF LOSSES ASSOCIATED WITH ARM LOANS. ARM Loans may be underwritten
on the basis of an assessment that Mortgagors will have the ability to make
payments in higher amounts after relatively short periods of time. In some
instances, Mortgagors' income may not be sufficient to enable them to
continue to make their loan payments as such payments increase and thus the
likelihood of default will increase.
RISK OF LOSSES ASSOCIATED WITH BANKRUPTCY OF MORTGAGORS. General
economic conditions have an impact on the ability of borrowers to repay
Mortgage Loans. Loss of earnings, illness and other similar factors also may
lead to an increase in delinquencies and bankruptcy filings by borrowers. In
the event of personal bankruptcy of a Mortgagor, it is possible that a Trust
could experience a loss with respect to such Mortgagor's Mortgage Loan. In
conjunction with a Mortgagor's bankruptcy, a bankruptcy court may suspend or
reduce the payments of principal and interest to be paid with respect to such
Mortgage Loan or permanently reduce the principal balance of such Mortgage
Loan thereby either delaying or permanently limiting the amount received by
the Trust with respect to such Mortgage Loan. Moreover, in the event a
bankruptcy court prevents the transfer of the related Mortgaged Property to a
Trust, any remaining balance on such Mortgage Loan may not be recoverable.
RISK OF LOSSES ASSOCIATED WITH FORECLOSURE OF MORTGAGED PROPERTIES.
Even assuming that the Mortgaged Properties provide adequate security for the
Mortgage Loans, substantial delays could be encountered in connection with
the liquidation of defaulted Mortgage Loans and corresponding delays in the
receipt of related proceeds by the Certificateholders could occur. An action
to foreclose on a Mortgaged Property securing a Mortgage Loan is regulated by
state statutes, rules and judicial decisions and is subject to many of the
delays and expenses of other lawsuits if defenses or counterclaims are
interposed, sometimes requiring several years to complete. Furthermore, in
some states an action to obtain a deficiency judgment is not permitted
following a nonjudicial sale of a Mortgaged Property. In the event of a
default by a Mortgagor, these restrictions, among other things, may impede
the ability of the Servicer to foreclose on or sell the Mortgaged Property or
to obtain liquidation proceeds (net of expenses) ("Liquidation Proceeds")
sufficient to repay all amounts due on the related Mortgage Loan. The
Servicer will be entitled to deduct from Liquidation Proceeds all expenses
reasonably incurred in attempting to recover amounts due on the related
liquidated Mortgage Loan ("Liquidated Mortgage Loan") and not yet repaid,
including payments to prior lienholders, accrued Servicing Fees, legal fees
and costs of legal action, real estate taxes, and maintenance and
preservation expenses. In the event that any Mortgaged Properties fail to
provide adequate security for the related Mortgage Loans and insufficient
funds are available from any applicable Credit Enhancement,
Certificateholders could experience a loss on their investment.
Liquidation expenses with respect to defaulted mortgage loans do not
vary directly with the outstanding principal balance of the loan at the time
of default. Therefore, assuming that a servicer takes the same steps in
realizing upon a defaulted mortgage loan having a small remaining principal
balance as it would in the case of a defaulted mortgage loan having a larger
principal balance, the amount realized after expenses of liquidation would be
less as a percentage of the outstanding principal balance of the smaller
principal balance mortgage loan than would be the case with a larger
principal balance loan.
Under environmental legislation and judicial decisions applicable in
various states, a secured party that takes a deed in lieu of foreclosure, or
acquires at a foreclosure sale a mortgaged property that, prior to
foreclosure, has been involved in decisions or actions which may lead to
contamination of a property, may be liable for the costs of cleaning up the
purportedly contaminated site. Although such costs could be substantial, it
is unclear whether they would be imposed on a holder of a mortgage note (such
as a Trust) which, under the terms of the Pooling and Servicing Agreement, is
not required to take an active role in operating the Mortgaged Properties.
See "Certain Legal Aspects of Mortgage Loans and Contracts -- Environmental
Risks."
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Certain of the Mortgaged Properties relating to Mortgage Loans may not
be owner occupied. It is possible that the rate of delinquencies,
foreclosures and losses on Mortgage Loans secured by nonowner occupied
properties could be higher than for loans secured by the primary residence of
the borrower.
LITIGATION. Any material litigation relating to the Depositor or the
Servicer will be specified in the related Prospectus Supplement.
GEOGRAPHIC CONCENTRATION OF MORTGAGED PROPERTIES. Certain geographic
regions from time to time will experience weaker regional economic conditions
and housing markets than will other regions, and, consequently, will
experience higher rates of loss and delinquency on mortgage loans generally.
The Mortgage Loans underlying certain series of Certificates may be
concentrated in such regions, and such concentrations may present risk
considerations in addition to those generally present for similar mortgage
loan asset-backed securities without such concentrations. Information with
respect to geographic concentration of Mortgaged Properties will be specified
in the related Prospectus Supplement or related current report on Form 8-K.
LEGAL CONSIDERATIONS. Applicable state laws generally regulate interest
rates and other charges, require certain disclosures, and require licensing
of the Depositor and the Servicer and Sub-Servicers. In addition, most
states have other laws, public policy and general principles of equity
relating to the protection of consumers, unfair and deceptive practices and
practices that may apply to the origination, servicing and collection of the
Mortgage Loans. Depending on the provisions of the applicable law and the
specific facts and circumstances involved, violations of these laws, policies
and principles may limit the ability of the Servicer to collect all or part
of the principal of or interest on the Mortgage Loans, may entitle the
borrower to a refund of amounts previously paid and, in addition, could
subject the Servicer to damages and administrative sanctions. See "Certain
Legal Aspects of Mortgage Loans and Contracts."
The Mortgage Loans may also be subject to federal laws, including: (i)
the Federal Truth-in-Lending Act and Regulation Z promulgated thereunder and
the Real Estate Settlement Procedures Act and Regulation X promulgated
thereunder, which require certain disclosures to the borrowers regarding the
terms of the Mortgage Loans; (ii) the Equal Credit Opportunity Act and
Regulation B promulgated thereunder, which prohibit discrimination on the
basis of age, race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under the Consumer
Credit Protection Act, in the extension of credit; and (iii) the Fair Credit
Reporting Act, which regulates the use and reporting of information related
to the borrower's credit experience. Depending on the provisions of the
applicable law and the specific facts and circumstances involved, violations
of these laws, policies and general principles of equity may limit the
ability of the Servicer to collect all or part of the principal of or
interest on the Mortgage Loans, may entitle the borrower to rescind the loan
or to a refund of amounts previously paid and, in addition, could subject the
Servicer to damages and administrative sanctions. If the Servicer is unable
to collect all or part of the principal or interest on the Mortgage Loans
because of a violation of the aforementioned laws, public policies or general
principles of equity then the Trust may be delayed or unable to repay all
amounts owed to Investors. Furthermore, depending upon whether damages and
sanctions are assessed against the Servicer or the Depositor, such violations
may materially impact the financial ability of the Depositor to continue to
act as Servicer or the ability of the Depositor to repurchase or replace
Mortgage Loans if such violation breaches a representation or warranty
contained in a Pooling and Servicing Agreement.
Collections on the Mortgage Loans may vary due to the level of incidence
of delinquent payments and of prepayments. Collections on the Mortgage Loans
may also vary due to seasonal purchasing and payment habits of borrowers.
BOOK-ENTRY REGISTRATION. Issuance of the Certificates in book-entry
form may reduce the liquidity of such Certificates in the secondary trading
market since investors may be unwilling to purchase Certificates for which
they cannot obtain definitive physical securities representing such
Certificateholders' interests, except in certain circumstances described in
the related Prospectus Supplement.
Since transactions in Certificates will, in most cases, be able to be
effected only through DTC, direct or indirect participants in DTC's
book-entry system ("Direct or Indirect Participants") and certain banks, the
ability
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of a Certificateholder to pledge a Certificate to persons or entities that do
not participate in the DTC system, or otherwise to take actions in respect of
such Certificates, may be limited due to lack of a physical certificate
representing the Certificates.
Certificateholders may experience some delay in their receipt of
distributions of interest on and principal of the Certificates since
distributions may be required to be forwarded by the Trustee to DTC and, in
such a case, DTC will be required to credit such distributions to the
accounts of its Participants which thereafter will be required to credit them
to the accounts of the applicable class of Certificateholders either directly
or indirectly through Indirect Participants. See "Description of the
Certificates."
THE STATUS OF THE MORTGAGE LOANS IN THE EVENT OF BANKRUPTCY OF THE
DEPOSITOR. In the event of the bankruptcy of the Depositor at a time when it
or any affiliate thereof holds a Certificate, a trustee in bankruptcy of the
Depositor, or its creditors could attempt to recharacterize the sale of the
Mortgage Loans to the related Trust as a borrowing by the Depositor or such
affiliate with the result, if such recharacterization is upheld, that the
Certificateholders would be deemed creditors of the Depositor or such
affiliate, secured by a pledge of the Mortgage Loans. If such an attempt
were successful, it could prevent timely payments of amounts due to the Trust.
LIMITATIONS ON INTEREST PAYMENTS AND FORECLOSURES. Generally, under the
terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act"), or similar state legislation, a Mortgagor who enters military
service after the origination of the related Mortgage Loan (including a
Mortgagor who is a member of the National Guard or is in reserve status at
the time of the origination of the Mortgage Loan and is later called to
active duty) may not be charged interest (including fees and charges) above
an annual rate of 6% during the period of such Mortgagor's active duty
status, unless a court orders otherwise upon application of the lender. 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. In addition, the Relief Act
imposes limitations that would impair the ability of the Servicer to
foreclose on an affected Mortgage Loan during the Mortgagor's period of
active duty status. Thus, in the event that such a Mortgage Loan goes into
default, there may be delays and losses occasioned by the inability to
realize upon the Mortgaged Property in a timely fashion.
CERTIFICATE RATING. The rating of Certificates credit enhanced through
external Credit Enhancement such as a letter of credit, financial guaranty
insurance policy or mortgage pool insurance will depend primarily on the
creditworthiness of the issuer of such external Credit Enhancement device (a
"Credit Enhancer"). Any reduction in the rating assigned to the
claims-paying ability of the related Credit Enhancer below the rating
initially given to the Certificates would likely result in a reduction in the
rating of the Certificates. See "Ratings" in the Prospectus Supplement.
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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") 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 or Contracts which constitutes
the Fixed Retained Yield, if any. See "Fixed Retained Yield" below. If
specified in the related Prospectus Supplement, certain Certificates will
evidence the entire fractional undivided ownership interest in the related
Mortgage Loans held by the related Trust Fund or may represent debt secured
by the related Mortgage Loans.
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 conventional one-to four-family residential
properties (which may include mixed-use or vacation properties), all of which
will be located in any of the fifty states or the District of Columbia. 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 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.
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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.
Unless otherwise specified in the Prospectus Supplement for a
Series, each Mortgage Loan must have an original term of maturity of not less
than 5 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 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. Furthermore, in a
declining real estate market a new appraisal could render the Cut-Off Date
Loan-to-Value Ratios as unreliable measures of leverage.
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 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 a
specified day of each month (each, a "Due Date") and will, with respect to
Mortgage Loans secured by residential properties, require at least monthly
payments of interest on any outstanding balance. 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
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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 dare, a lump sum payment equal
to the remaining unpaid principal balance will be due on such stated maturity
date. See "Prepayment and Yield Considerations."
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. The Mortgaged Properties will consist of residential properties
only, including detached homes, townhouses, units in planned unit
developments, condominium units, mixed-use properties, vacation homes and
small scale multifamily properties, all of which constitute a "dwelling or
mixed residential and commercial structure" within the meaning of Section
3(a)(41)(A)(i) of the Securities Exchange Act of 1934, as amended (the
"Mortgaged Properties"). The Mortgage Loans will be secured by liens on fee
simple or leasehold interests (in those states in which long-term ground
leases are used as an alternative to fee interests) in such Mortgaged
Properties, or liens on shares issued by cooperatives and the related
proprietary leases or occupancy agreements occupy specified units in such
cooperatives' buildings. The geographic distribution of Mortgaged Properties
will be set forth in the Prospectus Supplement. 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 and the types of Mortgaged
Properties.
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.
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."
If specified in the Prospectus Supplement for any Series, the
Mortgage Loans included in the Trust Fund for such Series may be what are
commonly referred to as "home equity revolving lines of credit" ("Home Equity
Lines"). Home Equity Lines are generally evidenced by a loan agreement ("Loan
Agreement") rather than a note. Home Equity Lines generally may be drawn
down from time to time by the borrower writing a check against the account,
or acknowledging the advance in a supplement to the Loan Agreement (the
amount of such drawn down, an "Additional Balance"). A Home Equity Line will
establish a maximum credit limit with respect to the related borrower, and
will permit the borrower to draw down Additional Balances, and repay the
aggregate balance outstanding in each case from time to time in such a manner
so that the aggregate balance outstanding does
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not exceed the maximum credit limit. A Home Equity Line will be secured by
either a senior or a junior lien Mortgage, and will bear interest at either a
fixed or an adjustable rate.
In certain states the borrower must, on the opening of an account,
draw an initial advance of not less than a specified amount. Home Equity
Lines generally amortize according to an amortization basis established at
the time of the initial advance. The "amortization basis" is the length of
time in which the initial advance plus interest will be repaid in full. The
amortization bases of the Home Equity Lines generally range from 60 months (5
years) to 180 months (15 years) depending on the credit limit assigned.
Generally, the amortization basis will be longer the higher the credit limit.
The minimum monthly payment on a Home Equity Line will generally be equal to
the sum of the following: (i) an amount necessary to completely repay the
then-outstanding balance and the applicable finance charge in equal
installments over the assigned amortization basis ("Basic Monthly Amount");
(ii) any monthly escrow charges; (iii) any delinquency or other similar
charges; and (iv) any past due amounts, including past due finance charges.
The Basic Monthly Amount typically is recomputed each time the related
Mortgage Rate adjusts and whenever an Additional Balance is advanced; such
recomputation in the case of an Additional Advance may also reset the
amortization schedule. The effect of each such advance on the related Home
Equity Line is to reset the commencement date of the original maturity term
to the date of the later advance. For example, a Home Equity Line made
originally with a 15-year maturity from date of origination changes at the
time of the next adjustment or advance to a Home Equity Line with a maturity
of 15 years from the date of such advance. For certain Home Equity Lines,
the same type of recomputation exists for adjustments of the related Mortgage
Rate.
Prior to the expiration of a specified period, the reduction of the
account to a zero balance and the closing of a Home Equity Line account may
result in a prepayment penalty. A prepayment penalty also may be assessed
against the borrower if a Home Equity Line account is closed by the Servicer
due to a default by the borrower under the Loan Agreement.
Each Loan Agreement will provide that the Servicer has the right to
require the borrower to pay the entire balance plus all other accrued but
unpaid charges immediately, and to cancel the borrower's credit privileges
under the Loan Agreement if, among other things, the borrower fails to make
any minimum payment when due under the Loan Agreement, if there is a material
change in the borrower's ability to repay the Home Equity Line, or if the
borrower sells any interest in the property securing the Loan Agreement,
thereby causing the "due-on-sale" clause in the trust deed or mortgage to
become effective.
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 mort,age 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.
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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 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 Depositor 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 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."
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
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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.
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 or Contract
is that portion, if any, of interest at the Mortgage 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
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Yield has been retained with respect to the Mortgage Loans 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 will be specified in the schedule of Mortgage Loans or
Contracts attached as an exhibit to the applicable Pooling and Servicing
Agreement. The Servicer, with respect to Mortgage Loans or Contracts, 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 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.
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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.
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
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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 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) 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 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 accent will, concurrently with
such assignment, authenticate and deliver the Certificates evidencing such
Series to the Depositor in exchange for the Mortgage Loans or Contracts.
Each Mortgage Loan 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 or Contract Rate for each Mortgage Loan 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 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."
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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 "Representations and
Warranties" 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.
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 tune 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
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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
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 digs, 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 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
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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 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
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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, One New York Plaza, 15th Floor, New York, New York
10292, Attention: Len Blum.
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 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.
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.
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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 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.
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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.
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 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 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 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.
FORWARD COMMITMENTS; PRE-FUNDING
A Trust Fund may enter into an agreement (each, a "Forward Purchase
Agreement") with the Depositor whereby the Depositor will agree to transfer
additional Mortgage Loans to such Trust Fund following the date on which such
Trust Fund is established and the related Certificates are issued. The Trust
Fund may enter into Forward Purchase Agreements to permit the acquisition of
additional Mortgage Loans that could not be delivered by the Depositor or
have not formally completed the origination process, in each case prior to
the date on which the Certificates are delivered to the Certificateholders
(the "Closing Date"). Any Forward Purchase Agreement will require that any
Mortgage Loans so transferred to the Trust Fund conform to the requirements
specified in such Forward Purchase Agreement.
If a Forward Purchase Agreement is to be utilized, and unless
otherwise specified in the related Prospectus Supplement, the related Trustee
will be required to deposit in a segregated account (each, a "Pre-Funding
Account") up to 100% of the net proceeds received by the Trustee in
connection with the sale of one or more
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classes of Certificates of the related Series; the additional Mortgage Loans
will be transferred to the related Trust Fund in exchange for money released
to the Depositor from the related Pre-Funding Account. Each Forward Purchase
Agreement will set a specified period (the "Funding Period") during which any
such transfers must occur; for a Trust Fund which elects federal income
treatment as REMIC or as a grantor trust, the related Funding Period will be
limited to three months from the date such Trust Fund is established; for a
Trust Fund which is treated as a mere security device for federal income tax
purposes, the related Funding Period will be limited to nine months from the
date such Trust Fund is established. The Forward Purchase Agreement or the
related Pooling and Servicing Agreement will require that, if all moneys
originally deposited to such Pre-Funding Account are not so used by the end
of the related Funding Period, then any remaining moneys will be applied as a
mandatory prepayment of the related class or classes of Certificates as
specified in the related Prospectus Supplement.
During the Funding Period the moneys deposited to the Pre-Funding
Account will either (i) be held uninvested or (ii) will be invested in
cash-equivalent investments rated in one of the four highest rating
categories by at least one nationally recognized statistical rating
organization and which will either mature prior to the end of the Funding
Period, or will be drawable on demand and in any event, will not constitute
the type of investment which would require registration of the related Trust
Funds as an "investment company" under the Investment Company Act of 1940, as
amended.
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 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 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 and Contracts --
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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 pertained 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.
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 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;
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(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 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 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
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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 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 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 account 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
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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 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
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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 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
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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.
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:
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.
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
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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.
DISTRIBUTIONS TO MULTI-CLASS CERTIFICATEHOLDERS
VALUATION OF MORTGAGE LOANS 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 or Contracts that will be included in a Trust Fund for such Series,
each Mortgage Loan 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 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, can be
supported by the scheduled payments of principal and interest on such
Mortgage Loans or Contracts (net of the Fixed Retained Yield on such Mortgage
Loans 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 or Contract included in the
Trust Fund, future distributions on such Mortgage Loan or Contract will be
determined based on scheduled payments on such Mortgage Loan or Contract.
Any similar Mortgage Loans 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 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, 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 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 or
Contracts or the Pool Value Groups for such Series.
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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.
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.
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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 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 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 or Contracts
(net of the Fixed Retained Yield, if any, and the applicable Servicing Fee,
if any, with respect to such Mortgage Loans 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 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 required to be deposited 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.
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, the Trustee determines,
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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.
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, 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 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 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 or Contracts. See
"Prepayment and Yield Considerations."
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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, 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 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.
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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 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
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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 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."
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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 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
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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 alterative 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.
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.
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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.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If specified in the related Prospectus Supplement, a Trust Fund may
include in lieu of some or all of the foregoing or in addition thereto third
party guarantees, and other arrangements for maintaining timely payments or
providing additional protection against losses on the assets included in such
Trust Fund, paying administrative expenses, or accomplishing such other
purpose as may be described in the Prospectus Supplement. The Trust Fund may
include a guaranteed investment contract or reinvestment agreement pursuant
to which funds held in one or more accounts will be invested at a specified
rate. If any Class of Certificates has a floating interest rate, or if any
of the Mortgage Loans or Contracts in the related Trust Fund has a floating
interest rate, the Trust Fund may include an interest rate swap contract, an
interest rate cap agreement or similar contract providing limited protection
against interest rate risks.
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 or Contracts (such as, for example, varying on the
basis of changes in the weighted average Net Mortgage Rate or Net Contract
Rate of the underlying Mortgage Loans or Contracts) or may receive interest
payments with respect to the underlying Mortgage Loans 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 or Contract Rates and Net
Mortgage Rates or Net Contract Rates for the Mortgage Loans 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
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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 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
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(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."
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 or Contracts included in the Mortgage Pool or Contract 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 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
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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 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 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 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, the prepayment rates of such Mortgage Loans or
Contracts are likely to be higher than if prevailing rates remain at or above
the rates borne by such Mortgage Loans or Contracts. It should be noted that
Certificates of a Series may evidence an interest in a Trust Fund with
different Mortgage Rates or Contract Rates. Accordingly, the prepayment
experience of such Certificates will to some extent be a function of the mix
of Mortgage Rates or Contract Rates of the Mortgage Loans 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.
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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 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 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 86OF(a)(4)(A). See "The
Pooling and Servicing Agreement -- Termination; Purchase or other Disposition
of Mortgage Loans and Contracts."
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 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 or Contracts until the sale of the
Certificates and other expenses connected with pooling the related Mortgage
Loans 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 One New York Plaza,
15th Floor, New York, New York 10292. Its telephone number is (212) 778-1000.
As described herein under "The Trust Funds -- Assignment of the
Mortgage Loans 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, 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 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,
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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. 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 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, except in the instance of certain small second loan applications,
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 exceeds 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 would 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 taking into consideration,
payments due on any senior liens) 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. 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 foregone 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
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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.
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.
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.
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
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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 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 dally 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;
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(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;
(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:
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(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);
(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.
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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 effect to 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).
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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;
(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
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(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 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.
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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 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.
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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 with 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
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
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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.
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
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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 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.
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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, readjustments of debt, marshalling of assets and liabilities
or similar proceedings and certain actions by the Servicer indicating its
insolvency, reorganization or inability to any 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.
RIGHTS UPON EVENT OF DEFAULT
MORTGAGE LOANS OR CONTRACTS
So long as 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 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, 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 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 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, received 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
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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 Certificateholders 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.
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 over
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 modify 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 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 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
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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 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 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 late 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 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 (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 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. The Servicer
(with respect to a Series of Certificates relating to Mortgage Loans or
Contracts) 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.
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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, 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 grant 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. The trustee's authority under a deed of trust
and the mortgage's authority under a mortgage are governed by the express
provisions of the deed of trust or mortgage, applicable law, and, in some
cases, with respect to the deed of trust, the directions of the beneficiary.
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 be 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.
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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.
In case of foreclosure under either a mortgage or a deed of trust,
the sale by the receiver or other designated officer, or by the trustee, is a
public sale. However, because of the difficulty a potential buyer at the
sale would have in determining the exact status of title and because the
physical condition of the property may have deteriorated during the
foreclosure proceedings, it is uncommon for a third party to purchase the
property at the foreclosure sale. Rather, it is common for the lender to
purchase the property from the trustee or receiver for an amount equal to the
unpaid principal amount of the note, accrued and unpaid interest and the
expenses of foreclosure. Thereafter, subject to the right of the borrower in
some states to remain in possession during the redemption period, the lender
will assume the burdens of ownership, including obtaining hazard insurance
and making such repairs at its own expense as are necessary to render the
property suitable for sale. The lender commonly will obtain the services of
a real estate broker and pay the broker a commission in connection with the
sale of the property. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the lender's investment in
the property. Any loss may be reduced by the receipt of mortgage insurance
proceeds.
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 the proprietary lease of 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 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,
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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.
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.
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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" cause 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 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 mortgage 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.
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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 on real
property, which liability may exceed the value of the property involved.
Numerous federal and some state consumer protection laws impose substantive
requirements upon 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
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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 number 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."
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.
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Courts have Unposed 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 sustained 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.
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 non-title 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
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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 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) which 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
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 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
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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
Manufacturer 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 asset 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.
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.
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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, and 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
preset 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 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.
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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
foreclosure 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 Unposed 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 "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
contained CERCLA's secured-creditor exemption. The court held that
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a lender need not have involved itself in the day-to-day operations of the
facility or participated in decisions relating to hazardous waste to be
liable under CERCLA; rather, liability could attach to a lender if its
involvement with the management of the facility is broad enough to support
the inference that the lender had the capacity to influence the borrower's
treatment of hazardous waste. The court added that a lender's capacity to
influence such decisions could be inferred from the extent of its involvement
in the facility's financial management. A subsequent decision by the United
States Court of Appeals for the Ninth Circuit in IN RE BERGSOE METAL CORP.,
disagreeing with the Fleet Factors court, held that a secured lender had no
liability absent "some actual management of the facility" on the part of the
lender. On April 29, 1992, the United States Environmental Protection Agency
(the "EPA") issued a final rule interpreting and delineating CERCLA's
secured-creditor exemption. The final rule defines a specific the range of
permissible actions that may be undertaken by a holder of a contaminated
facility without exceeding the bounds of the secured-creditor exemption.
Issuance of this rule by the EPA under CERCLA would not necessarily affect
the potential for liability in actions by either a state or a private party
under CERCLA or in actions under other federal or state laws which may impose
liability on "owners or operators" but do not incorporate the second-creditor
exemption.
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 statues 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 by the
lender.
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.
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
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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.
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 for 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 arrearage 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
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
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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
release 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
GENERAL
The following is a general discussion of the anticipated material
federal income consequences of the purchase, ownership, and disposition of
the Certificates. The discussion below does not purport to address all
federal income consequences that may be applicable to particular categories
of investors, some of which may be subject to special rules. The discussion
is based upon laws, regulations, rulings and decisions now in effect all of
which are subject to change. 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. 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.
For purposes of this discussion, where the applicable Prospectus
Supplement provides for a Fixed Retained Yield with respect to the Mortgage
Loans or Contracts of a Series of Certificates, references to the Mortgage
Loans or Contracts will be deemed to refer to that portion of the Mortgage
Loans 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 and Contracts. References to
a "holder" or "Certificateholder" in this discussion generally mean the
beneficial owner of a Certificate.
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The following discussion addresses securities of three general
types: (i) securities ("REMIC Certificates") representing interests in a
Trust Fund, or a portion thereof, which the Depositor will covenant to elect
to have treated as a real estate mortgage investment conduit ("REMIC") under
sections 860A through 860G of the Code and the regulations promulgated
thereunder; (ii) securities ("Non-REMIC Certificates") representing interests
in a Trust Fund (a "Grantor Trust Estate") which the Depositor will covenant
not to elect to have treated as a REMIC; and (iii) securities ("Notes") that
are intended to be treated for federal income tax purposes as indebtedness
secured by the underlying Mortgage Loans. This Prospectus does not address
the tax treatment of partnership interests. Such a discussion will be set
forth in the applicable Prospectus Supplement for any trust issuing
securities characterized as partnership interests. The Prospectus Supplement
for each series of securities will indicate whether a REMIC election (or
elections) will be made for the related Trust Estate and, if a REMIC election
is to be made, will identify all "regular interests" and "residual interests"
in the REMIC.
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,
the Depositor's Counsel has advised the Depositor that in the firm's opinion,
assuming (i) the making of such an 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 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), but only 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 Regular Certificates and income with
respect to Residual 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 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%. In
addition, if the assets of a REMIC include Buy-Down Loans, it is possible
that the percentage of such assets constituting "loans . . . secured by an
interest in real property" for purposes of Code Section 7701(a)(19)(c)(v) may
be required to be reduced by the amount of the
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related Buy-Down Fund. 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 in
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 Transfers 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 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, regular interests in another REMIC, 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 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. Effective September 1, 1997, a qualified mortgage will include
any regular interest in a financial asset securitization investment trust
("FASIT") transferred to the REMIC on the Startup Day or purchased by the
REMIC within a three month period thereafter pursuant to a fixed-price
contract in effect on the Startup Day, but only if 95% or more of the value
of the FASIT's assets is at all times attributable to obligations that are
principally secured by an interest in real property as described above.
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 "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
instrument, 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
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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 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. 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, unanticipated 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,
provides that in certain 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, the
Secretary of the Treasury may determine that the REMIC shall continue to be
treated as a REMIC or that the period of cessation of REMIC status shall be
disregarded. Investors should be aware, however, 1986 Act 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.
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.
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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
purposes as it accrues, in accordance with the constant yield method that
takes into account the compounding of interest. Such accrual may be in
advance of receipt of the cash attributable to such income. The following
discussion is based in part on Treasury regulations issued under Code
Sections 1271 through 1273 and 1275 (the "OID Regulations") and in part on
the provisions of the 1986 Act. Regular Certificateholders should be aware,
however, that the 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 the OID 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. 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
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 original issue
discount with respect to the Regular Certificates.
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 generally is the first price at which a
substantial amount of Regular Certificates of that Class is sold to the
public (excluding bond houses, brokers and underwriters). Although unclear
under the OID Regulations, the Depositor intends to treat the issue price of
a Class as to which there is no substantial sale as of the issue date or that
is retained by the Depositor as the fair market value of that Class as of the
issue date. The issue price of a Regular Certificate also includes any
amount paid by an initial Regular Certificateholder for accrued interest that
relates to a period prior to the issue date of the Regular Certificate,
unless the 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 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 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. Likewise, the Depositor intends to treat an "interest
only" Class, or a Class on which interest is substantially disproportionate
to its principal amount (a so-called "super-premium") Class as having no
qualified stated interest. Where the interval between the issue date and the
first Distribution Date on a Regular Certificate is shorter than the interval
between subsequent Distribution Dates, the interest attributable to the
additional days will be included in the stated redemption price at maturity.
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
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of the Regular Certificate and the denominator of which is the stated
redemption price at maturity of the Regular Certificate. The Conference
Committee Report to the 1986 Act provides that the schedule of such
distributions should be determined in accordance with the assumed rate of
prepayment of the Mortgage Loans (the "Prepayment Assumption") and the
anticipated reinvestment rate, if any, relating to the Regular Certificates.
The Prepayment Assumption with respect of a Series of Regular Certificates
will be set forth in the related Prospectus Supplement. Holders generally
must report DE MINIMIS original issue discount 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 OID Regulations, Regular
Certificateholders may elect to accrue all DE MINIMIS original issue discount
(other than DE MINIMIS issue discount attributable to a "teaser" interest
rate or an initial interest holiday) as well as market discount and market
premium, under the constant yield method. See "Election to Treat All
Interest Under the Constant Yield Method."
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 the day before 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 day before 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 accruing 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.
In the case of a Retail Class Certificate, the Depositor intends to
determine the yield to maturity of such Certificate 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. The Depositor believes that the foregoing
treatment is consistent with the "pro-rata prepayment" rules of the OID
Regulations, but with the rate of accrual of original issue discount
determined based
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on the Prepayment Assumption for a Class as a whole. Investors are advised
to consult their tax advisors as to this treatment.
A purchaser of a Regular Certificate at a price greater than its
adjusted issue price but less than its stated redemption price at maturity
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.
Alternatively, such a subsequent 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."
VARIABLE RATE REGULAR CERTIFICATES
Regular Certificates may provide for interest based on a variable
rate. Under the OID Regulations, interest is treated as payable at a
variable rate if, generally, (i) the issue price does not exceed the total
contingent principal payments by more than a specified amount, (ii) the
interest compounds or is payable at least annually at current values of (a)
one or more "qualified floating rates," (b) a single fixed rate followed by
one or more qualified floating rates, (c) a single "objective rate" or (d) a
single fixed rate and a single objective rate that is a "qualified inverse
floating rate," and (iii) the instrument does not provide for any principal
payments that are contingent, as defined in the OID Regulations, except as
provided in (i) above. Because the OID Regulations relating to contingent
payment debt instruments do not apply to REMIC regular interests, principal
payments on the Regular Certificates should not be considered contingent for
this purpose. A floating rate is a qualified floating rate if variations in
the rate can reasonably be expected to measure contemporaneous variations in
the cost of newly borrowed funds, and such rate is subject to a multiple of
not less than zero that is greater than 0.65, but not more than 1.35. Such
rate may also be increased or decreased by a fixed spread or subject to a
fixed cap or floor, or a cap or floor that is not reasonably expected as of
the issue date to affect the yield of the instrument significantly. An
objective rate includes a rate determined using a single fixed formula and
that is based on objective financial or economic information. However, a rate
will not constitute an objective rate if it is reasonably expected that the
average value of the rate during the first half of the instrument's term will
be significantly less than or greater than the average value of the rate
during the final half of the instrument's term. Further, an objective rate
does not include a rate that is based on information within the control of or
unique to the circumstances of the issuer or a related party. A qualified
inverse floating rate is a rate equal to a fixed rate minus a qualified
floating rate that inversely reflects the contemporaneous variations in the
cost of newly borrowed funds; an inverse floating rate that is not a
qualified inverse floating rate may nevertheless be an objective rate. Under
REMIC Regulations, a Regular Certificate (i) bearing a rate that qualifies as
a variable rate under the OID Regulations that is tied to current values of a
variable rate (or the highest, lowest or average of two or more variable
rates) including a rate based on the average cost of funds of one or more
financial institutions, or a positive or negative multiple of such a rate
(plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the qualified mortgages that bear
either a fixed rate or a variable 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, and a different variable or fixed rate for other periods, qualifies
as a regular interest in a REMIC. Accordingly, unless otherwise indicated in
the applicable Prospectus Supplement, the Depositor intends to treat Regular
Certificates that qualify as regular interests under this rule in the same
manner as obligations bearing a variable rate for original issue discount
reporting purposes, with regular interests that do not meet the definition of
a variable rate in the OID Regulations being treated as having all
non-qualified stated interest.
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 generally to be determined by
assuming that interest will be payable for the life of the Regular
Certificate based on a rate determined by substituting a fixed rate for each
qualified floating rate, objective rate, or initial fixed interest rate, in a
manner determined under Treasury regulations. Unless otherwise specified in
the applicable Prospectus Supplement, the Depositor intends to treat such
variable interest as qualified stated interest, other than variable interest
on an interest-only Class, which will be treated as non-qualified stated
interest includible in the stated redemption price at maturity. Ordinary
income reportable for any period will be adjusted based on subsequent changes
in the applicable interest rate index.
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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. The Depositor will 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.
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
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 allocable to 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 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 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.
By analogy to the 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 (determined as described above in the fourth paragraph
under "Original Issue Discount") remaining after the date of purchase. 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 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.
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. 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 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
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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
the Regular Certificates, rather than 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.
TREATMENT OF LOSSES
Regular Certificateholders will be required to report income with
respect to Regular Certificates 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. Accordingly, the holder
of a Regular Certificate, particularly a Subordinate Certificate, may have
income, or may incur a diminution in cash flow as a result of a default or
delinquency, but may not be able to take a deduction (subject to the
discussion below) for the corresponding loss until a subsequent taxable year.
Although not entirely clear, it appears that Regular Certificateholders that
are corporations should in general be allowed to deduct as an ordinary loss
such loss with respect to principal sustained during the taxable year on
account of any Regular Certificates becoming wholly or partially worthless,
and that, in general, Regular Certificateholders that are not corporations
will be allowed to deduct as a short-term capital loss any loss sustained
during the taxable year on account of a portion of any such Regular
Certificates becoming wholly worthless. Although the matter is not free from
doubt, non-corporate Regular Certificateholders should be allowed a bad debt
deduction at such time as the principal balance of such Regular Certificates
is reduced to reflect losses resulting from any liquidated Mortgage Loans.
The Internal Revenue Service, however, could take the position that
non-corporate holders will be allowed a bad debt deduction to reflect such
losses only after all the Mortgage Loans remaining in the Trust Fund have
been liquidated or the applicable Class of Regular Certificates has been
otherwise retired. The Internal Revenue Service could also assert that
losses on the Regular Certificates are deductible on some other method that
may defer such deductions for all holders, such as reducing future cash flow
for purposes of computing original issue discount. This may have the effect
of creating "negative" original issue discount which would be deductible only
against future positive original issue discount or otherwise upon termination
of the Class. Regular Certificateholders are urged to consult their own tax
advisors regarding the appropriate timing, amount and character of any loss
sustained with respect to such Regular Certificates. Losses attributable to
interest previously reported as income should be deductible as ordinary
losses by both corporate and non-corporate holders. Special loss rules are
applicable to banks and thrift institutions, including rules regarding
reserves for bad debts. Such taxpayers are advised to consult their tax
advisors regarding the treatment of losses on Regular Certificates.
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, original issue discount, DE MINIMIS original issue discount, 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. 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.
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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 state 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 (i) if a 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
Regular 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 a 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 percent 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). Pursuant to the Revenue Reconciliation Act
of 1993, 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 is the same with respect to both ordinary income
and capital gains.
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 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. The REMIC
Pool's gross income includes interest, original issue discount income, and
market discount income, if any, on the Mortgage Loans, reduced by
amortization of any premium on the Mortgage Loans, plus income on
reinvestment of cash flows and reserve assets plus any cancellation of
indebtedness income upon allocation of realized losses to the Regular
Certificates. The REMIC Pool's deductions include interest and original
issue discount expense on the Regular Certificates, servicing fees on the
Mortgage Loans, other administrative expenses of the REMIC Pool and realized
losses on 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
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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 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 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 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
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.
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Further, to the extent the initial adjusted basis of the Residual
Holder (other than the 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 future Treasury regulations
provide for periodic adjustments to the REMIC income otherwise reportable by
such holder. 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
Although the Depositor intends to compute REMIC income and expense
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 it will use for reporting
income with respect to the Mortgage Loans and expenses with respect to the
Regular Certificates and different methods could result in different timing
of reporting of taxable income or net loss to Residual Holders or differences
in capital gain versus ordinary income.
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
allocable to such Mortgage Loans (presumably, allocated based on the relative
fair market values of the Mortgage Loans) is exceeded by their unpaid
principal balances. The REMIC Pool's basis in such Mortgage Loans is
generally their fair market value 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 (or the fair market value thereof at the Closing Date in the
case of a retained Class). The accrued portion of such market discount would
be recognized currently as an item of ordinary income in a manner similar to
original issue discount. Market discount income generally should accrue in
the manner described above under "Taxation of Regular Certificates--Market
Discount."
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
(or the fair market value of retained Classes) 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 REMIC Pool that holds
a Mortgage Loan as a capital asset under Code Section 1221 may elect under
Code Section 171 to amortize premium on the Mortgage Loans originated after
September 27, 1985 under the constant yield 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.
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LIMITATIONS ON OFFSET OR EXEMPTION OF REMIC INCOME
A portion (or 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 described
in this paragraph for all prior quarters, decreased by any distributions made
with respect to such Residual Certificate prior to the beginning of such
quarterly period. Accordingly, the portion of the REMIC's taxable income that
will be treated as excess inclusions will be a larger portion of such income
as the adjusted issue price 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 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.
Provisions governing the relationship between excess inclusions and
the alternative minimum tax provide that (i) the alternative minimum taxable
income of a taxpayer is based on the taxpayer's regular taxable income
computed without regard to the rule that taxable income cannot be less than
the amount of excess inclusions, (ii) the alternative minimum taxable income
of a taxpayer for a taxable year cannot be less than the amount of excess
inclusions for that year, and (iii) the amount of any alternative minimum tax
net operating loss is computed without regard to any excess inclusions.
While these provisions are generally effective for tax years beginning after
December 31, 1986, a taxpayer may elect to have provisions apply only with
respect to tax years beginning after August 20, 1996.
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 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
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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 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 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 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 transferor,
the Depositor and the Trustee an affidavit providing its taxpayer
identification number and stating such transferee is the beneficial owner of
the Residual Certificate, 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 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. 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 of
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a transfer will be deemed to impede the assessment or collection of tax 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 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." The transferor must have no
actual knowledge or reason to know that such statements 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" (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 the 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.
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 or any trust that is not a "foreign trust" as defined in
Section 7701(a)(31) of the Code.
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 such Residual Holder's Residual
Certificate remaining when its interest in the REMIC Pool terminates, and if
such Residual Holder holds such Residual Certificate as a capital asset under
Code Section 1221, then such Residual Holder will 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 the ordinary income
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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 Code 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 entered into 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, (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 or due-on-encumbrance clause
or the conversion of an interest rate by a mortgagor pursuant to the terms of
a convertible adjustable rate Mortgage Loan.
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
The REMIC Pool 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 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.
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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 not be subject to the prohibited
transaction rules 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 the amounts retained to meet claims) to holders of Regular
Certificates and Residual Holders within the 90-day period.
ADMINISTRATIVE MATTERS
The REMIC Pool will be required to maintain its books on a calendar
year basis and to file tax returns for federal income tax purposes in a
manner similar to a partnership. The form for such income tax return is Form
1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return.
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. The Residual
Holder owning the largest percentage interest in the Residual Certificates
may be obligated to act as the REMIC Pool's "tax matters person," as defined
in applicable Treasury regulations, with respect to the REMIC Pool, and will
be required to irrevocably designate the Trustee as its agent to perform all
of the functions of the tax matters person.
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSE
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) (in each case,
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. Unless indicated
otherwise in the applicable Prospectus Supplement, all such expenses will be
allocable to the Residual Certificates. 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), may have taxable
income in excess of the interest income at the pass-through rate on Regular
Certificates that are issued in a single Class or otherwise consistently with
fixed investment trust status or in excess of distributions of cash for the
related period on Residual Certificates.
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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 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 Depositor, 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. Proposed
Treasury regulations, which would be effective for payments made after December
31, 1997 if adopted in their current form, would provide alternative
certification requirements and means for claiming the exemption from federal
income and withholding tax. 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 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 Fund 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 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
Investor 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.
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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 records 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 year 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 in which the REMIC Pool is
in existence.
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."
NON-REMIC CERTIFICATES
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 the 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 limitations 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
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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) (in each case, subject to adjustment for inflation), or (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
The Depositor's Counsel 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 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 of such assets
will be considered "interest on obligations secured by mortgages on real
property" to such extent within the meaning of Code Section 856(c)(3)(B).
3. 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 clauses 1 and 2 of the
immediately preceding paragraph. 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," as if the purchaser has purchased the
Mortgage Loans directly.
ORIGINAL ISSUE DISCOUNT. 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. Unless indicated otherwise
in the applicable Prospectus Supplement, no prepayment assumption will be
assumed for purposes of such accrual. However, Code Section 1272 provides
for a reduction in the amount of original issue discount includible
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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 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. 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 Regular Certificates--Market Discount." Unless
indicated otherwise in the applicable Prospectus Supplement, no prepayment
assumption will be assumed for purposes of such accrual.
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 under the OID Regulations. The Depositor
will treat all interest on a Standard Certificate as to which there may be
Deferred Interest as includible in the stated redemption price at maturity of
the Mortgage Loans.
RECHARACTERIZATION OF SERVICING FEES
If the Servicing Fee paid to the Servicer were deemed to exceed
reasonable servicing compensation, the amount of such excess would represent
neither income nor a deduction to Certificateholders. 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.
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 interests 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. See "Stripped Certificates" below for a further description of
the federal income tax treatment of stripped bonds and stripped coupons.
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SALE OR EXCHANGE OF STANDARD 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 on 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.
However, gain on the sale of a Standard Certificate will be treated as
ordinary income (i) if a Standard 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 Standard 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) is 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 tax as investment income at ordinary income rates. Pursuant to
the Revenue Reconciliation Act of 1993, 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 is the same
with respect to both ordinary income and capital gains.
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) Certificates are issued in two or more Classes or 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 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 the discussion above
under "Standard Certificates--Recharacterization of Servicing Fees." Although
not free from doubt, for purposes of reporting to Stripped
Certificateholders, the servicing fees will be allocated to the Stripped
Certificates in proportion to the respective entitlements to distributions of
each Class (or Subclass) of Stripped Certificates for the related period or
periods. The holder of a Stripped Certificate generally will be entitled to
a 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 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"
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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 OID Regulations. Although it is possible
that computations with respect to Stripped Certificates could be made in one
of the ways described below under "Taxation of Stripped Certificates --
Possible Alternative Characterizations," the 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 for original issue discount purposes. Accordingly, 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 purchased 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 would be treated as qualified stated interest under the
OID Regulations. Further, these final regulations provide that the purchaser
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 Certificates was treated as
zero under the DE MINIMIS rule, or (ii) no more than 100 basis points is
stripped off the related Mortgage Loans. Any such market discount generally
would be reportable as described above under "Federal Income Tax Consequences
for REMIC Certificates--Taxation of Regular Certificates -- Market." It is
unclear whether discount attributable to a stripped Mortgage Loan the
principal amount of which exceeds the value of real property securing the
Mortgage Loan will be eligible for treatment as market discount.
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
OID Regulations and the amendments to the original issue discount sections of
the Code made by the 1986 Act, 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--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 a loss (which may be a capital loss) equal to such portion of
unrecovered basis.
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 "Non-REMIC Certificates Standard Certificates--Sale or Exchange
of Standard Certificates." To the extent that a subsequent purchaser's
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purchase price is exceeded by the 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. 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 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.
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 that purchased at the issue price.
In particular, in the case of Stripped Certificates, unless provided
otherwise in the applicable Prospectus Supplement, such reporting will be
based upon a representative initial offering price of each Class of Stripped
Certificates. 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. 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
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certification requirements, described above under "Federal Income Tax
Consequences for REMIC Certificates--Taxation of Certain Foreign
Investors--Regular Certificates."
NOTES
GENERAL
With respect to each Series of Notes, the Depositor's Counsel will
deliver its opinion to the Depositor that (unless otherwise limited in the
applicable Prospectus Supplement) such securities will be classified as debt
secured by the related Mortgage Loans. Consequently, Notes will not be
treated as ownership interests in the Mortgage Loans or the Trust Fund.
Holders will be required to report income received with respect to Notes in
accordance with their normal method of accounting. For additional tax
consequences relating to Notes purchased at a discount or with premium, see
"Non-REMIC Certificates -- Premium and Discount."
SPECIAL TAX ATTRIBUTES
As described above, Non-REMIC Certificates will possess certain
special tax attributes by virtue of their being ownership interests in the
underlying Mortgage Loans. Similarly, REMIC Certificates will possess
similar attributes by virtue of the REMIC provisions of the Code. In
general, Notes will not possess such special tax attributes. Investors to
whom such attributes are important should consult their own tax advisors
regarding investment in Notes.
SALE OR EXCHANGE
If a holder of a Note sells or exchanges such security, the holder
will recognize gain or loss equal to the difference, in any, between the
amount received and the holder's adjusted basis in the security. The
adjusted basis in the security generally will equal its initial cost,
increased by any original issue discount or market discount previously
included in the seller's gross income with respect to the security and
reduced by the payments previously received on the security, other than
payments of qualified stated interest, and by any amortized premium.
In general (except as described in "Non-REMIC Certificates --
Premium and Discount -- Market Discount") except for certain financial
institutions subject to section 582(c) of the Code, any gain or loss on the
sale or exchange of a Note recognized by an investor who holds the security
as a capital asset (within the meaning of section 1221 of the Code), will be
capital gain or loss and will be long-term or short-term depending on whether
the security has been held for more than one year.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Code impose certain requirements on those
employee benefit plans to which they apply ("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.
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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.
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.
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. However, it cannot be predicted in advance nor can there be
any continuing assurance whether such exceptions may be met. 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.
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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 any of Standard & Poor's Structural Ratings Group,
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co., or Fitch
Investors Service, L.P. ("National Credit Rating Agencies");
(3) The Trustee is not 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.
(5) The sum of all payments made to and retained by such underwriters
must represent not more than reasonable compensation for underwriting the
Certificates; the sum of all payments made to and retained by the Seller
pursuant to the assignment of the obligations or receivables to the related
Trust Fund must represent not more than the fair market value of such
obligations; and the sum of all payments made to and retained by the
Servicer and any Sub-servicer must represent 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 there with;
(6) (i) the investment pool consists only of assets of the type
enumerated in the exemption and which have bene included in other
investment pools; (ii) certificates evidencing interests in such other
investment pools have been rated in one of the three highest generic rating
categories by one of the National Credit Rating agencies for at least one
year prior to a Plan's acquisition of certificates; and (iii) certificates
evidencing interests in such other investment pools have been purchased by
investors other than Plans for at least one year prior to a Plan's
acquisition of certificates; and
(7) The acquisition of Certificates by certain Plans must be on terms
that are at least as favorable to the Plan as they would be in any arm's
length transaction with an unrelated party.
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.
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
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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.
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.
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.
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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 PLAN 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 extends 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. Section 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, 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
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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 investment 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 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
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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 indemnity the related underwriters
against certain civil liabilities, including liabilities under the Securities
Act.
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 and certain tax matters will be passed upon
for the Depositor by Dewey Ballantine, New York, New York and/or such other
counsel as will be named on the related Prospectus Supplement.
RATING
At the date of issuance of each Series of Certificates, the
Certificates offered hereby will be rated in one of the four 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.
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."
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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 as 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
Term Page
- ---- ----
Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Advance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Advance Reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
APR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
ARM Buy-Outs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Balloon Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Balloon Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Balloon Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Basic Senior Class Distribution. . . . . . . . . . . . . . . . . . . . . . . .35
Buy-Down Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Buy-Down Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Call protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
Certificate Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Certificate Account Depository . . . . . . . . . . . . . . . . . . . . . . . .55
Certificateholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11, 81
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Compound Interest Certificates . . . . . . . . . . . . . . . . . . . . . . . .31
Contract Pool. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Contract Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 21
Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 21
Convertible Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . .17
Cooperative Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Cooperative Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Credit Enhancer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Cut-Off Date Aggregate Principal Balance . . . . . . . . . . . . . . . . .18, 22
D&P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Debt Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Deferred Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13, 19
Definitive Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Deleted Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 4, 52
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Direct or Indirect Participants. . . . . . . . . . . . . . . . . . . . . . . .15
Disqualified Organization. . . . . . . . . . . . . . . . . . . . . . . . . . .94
Distribution Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
DTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18, 22
Due Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Environmental Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . .78
EPA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 105
Excess servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Extension protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
113
<PAGE>
FASIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
FHLBB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
FIRREA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
Fitch. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Foreign persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Funding Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Gain From Acquired Property. . . . . . . . . . . . . . . . . . . . . . . . . .34
GEM Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
GPM Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
GPM Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Grantor Trust Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Indemnification Payments . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Initial Deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Interest Accrual Period. . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Liquidated Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Liquidated Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . .14, 34
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . .14, 56
Loan Sale Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Loan-to-Value Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . .18, 21
Moody's. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Mortgage Certificate Pool. . . . . . . . . . . . . . . . . . . . . . . . . . .17
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Mortgage Pool. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Mortgage Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Mortgagor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Multi-Class Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Net Contract Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Net Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Net Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Net Mortgage Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Non-REMIC Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Notional Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
OTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Pass-Through Entity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94
Pass-Through Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Payment Deficiencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Percentage Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Pool Distribution Amount . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Pool Value Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Pooling and Servicing Agreement. . . . . . . . . . . . . . . . . . . . . . . . 4
Prepayment Interest Shortfall. . . . . . . . . . . . . . . . . . . . . . . . .58
PTE 83-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Purchase Obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Rating Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
114
<PAGE>
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Regular Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Relief Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16, 79
REMIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
REMIC Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
REMIC Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
Repurchase Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Residual Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Residual Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
Scheduled Principal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Secured-creditor exemption . . . . . . . . . . . . . . . . . . . . . . . . . .78
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Senior Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 29
Senior Class Credit Enhancement. . . . . . . . . . . . . . . . . . . . . . . .35
Senior Class Distributable Amount. . . . . . . . . . . . . . . . . . . . . . .33
Senior Class Principal Portion . . . . . . . . . . . . . . . . . . . . . . . .33
Senior Class Shortfall . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Senior Class Shortfall Accruals. . . . . . . . . . . . . . . . . . . . . . . .35
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Servicing Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Shifting Interest Certificates . . . . . . . . . . . . . . . . . . . . . . . . 2
SMMEA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 109
Special Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Special Hazard Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Special Hazard Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . .46
Standard Certificateholder . . . . . . . . . . . . . . . . . . . . . . . . . .99
Standard Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Standard Hazard Insurance Policy . . . . . . . . . . . . . . . . . . . . . . .23
Stated Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Stripped Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Sub-Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 54
Sub-Servicing Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Subclass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Subordinated Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Subordinated Certificates. . . . . . . . . . . . . . . . . . . . . . . . . 2, 29
Subordinated Class Distributable Amount. . . . . . . . . . . . . . . . . . . .33
Subordinated Class Principal Portion . . . . . . . . . . . . . . . . . . . . .34
Subordination Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Substitute Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Title V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73, 77
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
U.S. Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95
UCC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69, 74
Unaffiliated Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Unpaid Interest Shortfall. . . . . . . . . . . . . . . . . . . . . . . . . . .36
Voting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Window Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Window Period Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Window Period States . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
115
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
UNAFFILIATED SELLER OR BY THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, THE SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO
OR TO ANYONE TO WHOM IT ITS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS.
_________________
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
The Mortgage Loan Pool . . . . . . . . . . . . . . . . . . . . . . . . . S-20
The Unaffiliated Seller. . . . . . . . . . . . . . . . . . . . . . . . . S-30
The Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
The Sub-Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
Prepayment and Yield Considerations. . . . . . . . . . . . . . . . . . . S-34
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Description of the Class A Certificates. . . . . . . . . . . . . . . . . S-38
The Certificate Insurance Policy and the Certificate Insurer . . . . . . S-46
The Pooling and Servicing Agreement. . . . . . . . . . . . . . . . . . . S-50
Certain Federal Income Tax Consequences. . . . . . . . . . . . . . . . . S-58
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . S-58
Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
Legal Investment Considerations. . . . . . . . . . . . . . . . . . . . . S-60
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
Certain Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . S-61
Index of Significant Prospectus Supplement Definitions . . . . . . . . . S-62
Global Clearance, Settlement and
Tax Documentation Procedures. . . . . . . . . . . . . . . . . . . .Annex I
PROSPECTUS
Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Incorporation of Certain Information by Reference. . . . . . . . . . . . . 3
Summary of Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Trust Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Description of the Certificates. . . . . . . . . . . . . . . . . . . . . . 28
Credit Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Prepayment and Yield Considerations. . . . . . . . . . . . . . . . . . . . 48
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
The Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Underwriting Guidelines. . . . . . . . . . . . . . . . . . . . . . . . . . 52
Servicing of the Mortgage Loans and Contracts. . . . . . . . . . . . . . . 54
The Pooling and Servicing Agreement. . . . . . . . . . . . . . . . . . . . 65
Certain Federal Income Tax Consequences. . . . . . . . . . . . . . . . . . 81
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Legal Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Index of Significant Definitions . . . . . . . . . . . . . . . . . . . . . 113
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE RELATED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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$65,044,000.00
WILSHIRE SERVICING CORPORATION
SERVICER
PRUDENTIAL SECURITIES
SECURED FINANCING CORPORATION
DEPOSITOR
$24,200,000.00 6.40 %
Class A-1 Certificates
$13,000,000.00 6.75%
Class A-2 Certificates
$11,000,000.00 7.03%
Class A-3 Certificates
$16,844,000.00 7.51%
Class A-4 Certificates
Mortgage Loan
Pass-Through Certificates
Series 1996-4
-----------------------
PROSPECTUS SUPPLEMENT
-----------------------
PRUDENTIAL SECURITIES INCORPORATED
December 23, 1996
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