<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus dated December 4, 1996)
ABFS Mortgage Loan Trust 1997-1
$32,100,000.00 6.525% Class A-1 Certificates
$20,600,000.00 6.925% Class A-2 Certificates
$20,048,000.00 7.525% Class A-3 Certificates
[ABC Logo] [ABFS Logo] [Upland Logo]
(Originator) (Originator)
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
(Depositor)
Mortgage Pass-Through Certificates, Series 1997-1
The Mortgage Pass-Through Certificates, Series 1997-1 (the
"Certificates") will consist of three classes (each, a "Class") of senior
Certificates, the Class A-1 Certificates (the "Class A-1 Certificates"), the
Class A-2 Certificates (the "Class A-2 Certificates") and the Class A-3
Certificates (the "Class A-3 Certificates," and collectively with the Class A-1
Certificates and the Class A-2 Certificates, the "Class A Certificates") and one
class of residual Certificates, the Class R Certificates (the "Class R
Certificates"). Only the Class A Certificates are being offered hereby. Interest
on each Class of Class A Certificates will be payable monthly at one-twelfth the
annual rate for such Class (each, a "Pass-Through Rate") on the certificate
principal balance of the related Class (each, a "Certificate Principal
Balance"). The Pass-Through Rate on the Class A-1, Class A-2 and Class A-3
Certificates is 6.525%, 6.925% and 7.525%, per annum, respectively. The original
Certificate Principal Balance (each, an "Original Certificate Principal
Balance") of the Class A-1, Class A-2 and Class A-3 Certificates is
$32,100,000.00, $20,600,000.00 and $20,048,000.00, respectively.
The Certificates will evidence in the aggregate all of the beneficial
ownership interests in a trust fund (the "Trust Fund") consisting primarily of a
pool of fixed-rate, closed-end, monthly pay, business and consumer purpose home
equity loans secured by first or second lien mortgages or deeds of trust on
residential real properties (the "Mortgage Loans") held by ABFS Mortgage Loan
Trust 1997-1 (the "Trust"). Approximately 41.19% and 28.91% of the Mortgage
Loans by aggregate principal balance as of the Statistical Calculation Date (as
defined herein) are secured by Mortgaged Properties (as defined herein) located
in Pennsylvania and New Jersey, respectively. See "Risk Factors -- Geographic
Concentration" in this Prospectus Supplement.
The Trust will be created pursuant to a Pooling and Servicing Agreement
(the "Pooling and Servicing Agreement") among American Business Credit, Inc., as
servicer (the "Servicer"), Prudential Securities Secured Financing Corporation,
as depositor (the "Depositor") and The Chase Manhattan Bank, as trustee (the
"Trustee"). On the Closing Date (as defined herein) Mortgage Loans (the "Initial
Mortgage Loans") having an aggregate Principal Balance (as defined herein) of
approximately $47,156,358.69 (determined as of the Cut-Off Date, defined herein)
will be transferred to the Trust Fund. The Pooling and Servicing Agreement
provides that additional mortgage loans (the "Subsequent Mortgage Loans") having
an aggregate Principal Balance of approximately $27,843,641.31 (the "Original
Pre-Funded Amount") may be purchased by the Trust from the Depositor from time
to time on or before June 27, 1997 from funds deposited in the Pre-Funding
Account (as defined herein) on the Closing Date from proceeds of the sale of the
Class A Certificates.
The Seller will cause Financial Security Assurance Inc. (the
"Certificate Insurer") to issue a financial guaranty insurance policy (the
"Certificate Insurance Policy") for the benefit of the holders of the Class A
Certificates (the "Class A Certificateholders") pursuant to which it will
guarantee certain payments to the Class A Certificateholders as described
herein.
<PAGE>
[FSA Logo]
For a discussion of significant matters affecting investment in the
Certificates, see "Risk Factors" beginning on page S-17 herein and beginning on
page 12 in the Prospectus.
(Cover continued on next page)
THESE SECURITIES DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
DEPOSITOR, THE ORIGINATORS, THE SELLER, THE SERVICER, THE
CERTIFICATE INSURER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THESE SECURITIES NOR THE UNDERLYING
MORTGAGE LOANS WILL BE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE 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 to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale.
The Class A Certificates will be sold to the public at a price of
99.971339% plus interest from March 1, 1997. Proceeds to the Depositor from the
sale of the Class A Certificates will be approximately $72,363,000.00, before
deducting expenses payable by the Depositor estimated to be approximately
$230,000.00 in the aggregate, and before adding accrued interest. See "Plan of
Distribution" in this Prospectus Supplement.
The Class A Certificates are offered by the Underwriter when, as and if
issued, subject to delivery by the Depositor and acceptance by the Underwriter,
to prior sale and to withdrawal, cancellation or modification of the offer
without notice. It is expected that the Class A Certificates will be available
for delivery through the facilities of DTC, CEDEL and Euroclear (each, as
defined herein) on or about March 27, 1997.
Prudential Securities Incorporated
March 24, 1997
<PAGE>
(Cover continued from previous page)
The Class A Certificates are entitled to a certain priority, relative
to the Class R Certificates, in right of distributions on the Mortgage Loans.
See "Description of the Certificates -- Flow of Funds."
Distributions in respect of principal and interest will be made on the
15th day of each month or, if the 15th day is not a Business Day (as defined
herein), on the next succeeding Business Day, commencing on April 15, 1997
(each, a "Distribution Date"), to the holders of Certificates (the "Holders" or
the "Certificateholders") to the extent described herein. On each Distribution
Date, the amount of interest distributed in respect of each Class of Class A
Certificates will equal the interest accrued at the applicable Pass-Through Rate
on the related Certificate Principal Balance during the prior calendar month
(each such period, an "Accrual Period"), and will be calculated based on a
360-day year consisting of twelve 30-day months.
The last scheduled Distribution Date for the Class A-1 Certificates is
February 15, 2010, for the Class A-2 Certificates is February 15, 2012, and for
the Class A-3 Certificates is August 15, 2028 (each such date, a "Final
Scheduled Maturity Date"). It is expected that the actual last Distribution Date
for each Class of Class A Certificates will occur significantly earlier than
such Final Scheduled Maturity Date. 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, some 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.
There is currently no secondary market for the Class A Certificates and
there can be no assurance that a secondary market will develop or, if it does
develop, that it will provide Certificateholders with liquidity of investment at
any particular time or for the life of the Certificates.
An election will be made to treat the Trust as a real estate mortgage
investment conduit (a "REMIC") for federal income tax purposes. As described
more fully herein and in the Prospectus, the Class A Certificates will
constitute "regular interests" in the REMIC and the Class R Certificates will
constitute a "residual interest" in the REMIC. See "Summary Terms of the
Certificates -- Federal Income Tax Status" and "Certain Federal Income Tax
Considerations" in this Prospectus Supplement and "Certain Federal Income Tax
Consequences -- REMIC Certificates" in the Prospectus.
The Class A Certificates described herein represent a class of a
separate series of Certificates being offered by the Depositor from time to time
pursuant to the Prospectus dated December 4, 1996 accompanying this Prospectus
Supplement. The Prospectus shall not be considered complete without this
Prospectus Supplement. Any prospective investor should not purchase any Class A
Certificates described herein unless it shall have received the Prospectus and
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.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF
THE CLASS A CERTIFICATES, INCLUDING PURCHASES OF CLASS A CERTIFICATES TO
STABILIZE THE MARKET PRICE AND THE IMPOSITION OF BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES SEE "PLAN OF DISTRIBUTION" IN THIS PROSPECTUS SUPPLEMENT.
--------------------
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Until ninety days from 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 this Prospectus
Supplement and the Prospectus. This is in addition to the obligation of dealers
to deliver a Prospectus Supplement and the Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
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 Annual Report on
Form 10-K for the year ended December 31, 1996 which has been filed with the
Securities and Exchange Commission (the "Commission") by Financial Security
Assurance Holdings Ltd. ("Holdings"), is hereby incorporated by reference in the
Registration Statement (as defined in the accompanying Prospectus) of which this
Prospectus Supplement and the Prospectus form a part.
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. Copies of such financial statements shall be
provided without charge to any person to whom the Prospectus Supplement is
delivered upon written or oral request to the Seller at 111 Presidential
Boulevard, Suite 215, Bala Cynwyd, Pennsylvania 19004, (610) 668-2440.
The Seller on behalf of the Trust hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, as amended (the
"Securities Act"), each filing of the Trust's annual report pursuant to section
13(a) or section 15(d) of the Exchange Act and each filing of the financial
statements of the Certificate Insurer included in or as an exhibit to the annual
report of Holdings filed pursuant to section 13(a) or section 15(d) of the
Exchange Act that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the Certificates
offered hereby, and the offering of such Certificates at that time shall be
deemed to be the initial bona fide offering thereof.
S-2
<PAGE>
SUMMARY TERMS OF THE CERTIFICATES
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus. Capitalized terms used herein and not otherwise defined herein have
the meanings assigned in the Prospectus. See "Index of Significant Prospectus
Supplement Definitions" herein and "Index of Significant Definitions" in the
Prospectus.
Title of Securities...............ABFS Mortgage Loan Trust 1997-1, Mortgage
Pass-Through Certificates, Series 1997-1
(the "Certificates").
Trust.............................ABFS Mortgage Loan Trust 1997-1, a trust to be
formed under the laws of the State of New
York (the "Trust").
Depositor.........................Prudential Securities Secured Financing
Corporation (the "Depositor"). See "The
Depositor" in the Prospectus.
Seller............................ABFS 1997-1, Inc. (the "Seller").
Originators, Servicer
and Subservicer.................American Business Credit, Inc. ("ABC") and
HomeAmerican Credit, Inc., d/b/a Upland
Mortgage ("Upland") originated or purchased
the Mortgage Loans (in such capacity, the
"Originators"). The Originators will sell
and assign the Mortgage Loans to the Seller,
and the Seller will sell and assign the
Mortgage Loans to the Depositor. ABC will
act as servicer of the Mortgage Loans (in
such capacity, the "Servicer") and Upland
will act as subservicer with respect to a
portion of the Mortgage Loans (in such
capacity, the "Subservicer"). The principal
office of ABC is at Balapointe Office
Centre, 111 Presidential Boulevard, Suite
215, Bala Cynwyd, PA 19004. The
obligations of the Servicer with respect to
the Certificates will be limited to its
contractual servicing obligations. See "The
Originators, the Seller and the Servicer"
in this Prospectus Supplement.
Trustee...........................The Chase Manhattan Bank, a New York banking
corporation (the "Trustee").
Certificates Offered..............The Certificates will consist of three classes
of senior Certificates, the Class A-1
Certificates (the "Class A-1 Certificates"),
the Class A-2 Certificates (the "Class A-2
Certificates") and the Class A-3
Certificates (the "Class A-3 Certificates,"
and collectively with the Class A-1
Certificates and the Class A-2 Certificates,
the "Class A Certificates") and one class of
residual Certificates, the Class R
Certificates (the "Class R Certificates").
Only the Class A Certificates are offered
hereby.
Cut-Off Date......................The close of business on February 28, 1997 or,
with respect to Initial Mortgage Loans
originated after February 28, 1997, the date
of origination of such Initial Mortgage
Loans (the "Cut-Off Date").
Statistical
Calculation Date..................March 14, 1997 (the "Statistical Calculation
Date").
Closing Date......................On or about March 27, 1997 (the "Closing
Date").
S-3
<PAGE>
First Distribution Date...........April 15, 1997. Distributions on the
Certificates will be made on the 15th day
of each month (or, if such 15th day is not
a Business Day, on the next succeeding
Business Day) (each, a "Distribution Date").
Record Date.......................All distributions, other than the final
distribution on the Certificates, will be
made by or on behalf of the Trustee to the
persons in whose names the Certificates are
registered at the close of business on the
last business day of the month preceding the
month in which the related Distribution Date
occurs (such date, the "Record Date").
Description of Certificates.......The Certificates will represent the entire
beneficial ownership interest in a trust
fund ("Trust Fund"). The assets of the Trust
Fund will consist primarily of a pool of
Mortgage Loans (the "Mortgage Pool"). The
Mortgage Loans transferred to the Trust on
the Closing Date are referred to as the
"Initial Mortgage Loans" and the Mortgage
Loans transferred on a date subsequent to
the Closing Date but prior to June 27, 1997
are referred to as the "Subsequent Mortgage
Loans." See "The Mortgage Pool" in this
Prospectus Supplement. The Trust will be
formed, the Trust Fund will be transferred
to the Trust, and the Certificates will be
issued pursuant to the Pooling and Servicing
Agreement. In addition, the Seller will
cause Financial Security Assurance Inc. (the
"Certificate Insurer") to issue a financial
guaranty insurance policy (the "Certificate
Insurance Policy") for the benefit of the
Class A Certificateholders, pursuant to
which it will guarantee certain payments to
the Class A Certificateholders as described
herein.
Book-Entry Form. The Class A Certificates are
sometimes referred to in this Prospectus
Supplement as "Book-Entry Certificates." No
person acquiring an interest in the Book-
Entry Certificates (a "Beneficial Owner")
will be entitled to receive a definitive
certificate representing such person's
interest in the Trust Fund, except under the
limited circumstances described herein. The
Book-Entry Certificates initially will be
represented by a single certificate
registered in the name of Cede & Co.
("Cede") as the nominee of The Depository
Trust Company ("DTC"), which will be the
"Holder" or "Certificateholder" of such
Certificates, as such terms are used herein.
The rights of Beneficial Owners may only be
exercised through DTC and its participating
organizations, except as otherwise
specified herein. See "Description of the
Certificates --Book-Entry Registration" and
" -- Definitive Certificates" in this
Prospectus Supplement.
<PAGE>
Denominations.....................The Class A Certificates initially will be
issued in book-entry form, in denominations
of $1,000 original certificate principal
balance and integral multiples of $1,000 in
excess thereof (except for one Certificate
in each Class which may be issued in a
lesser amount).
The Mortgage Pool.................The Mortgage Loans to be included in the Trust
Fund will be primarily fixed-rate, closed-
end, monthly pay, business and consumer
purpose home equity loans secured by first
or second mortgages or deeds of trust (the
"Mortgages") on residential real properties
(the "Mortgaged Properties"). The Mortgage
Loans have original terms to stated maturity
ranging from 36 months to 360 months and
have an aggregate Principal Balance as of
the Statistical Calculation Date of
$42,744,659.51 (the "Statistical Calculation
Date Aggregate Principal Balance"). Unless
otherwise noted, all statistical percentages
in this Prospectus Supplement are
approximate and measured by the aggregate
S-4
<PAGE>
Principal Balances of the applicable
Mortgage Loans in relation to the
Statistical Calculation Date Aggregate
Principal Balance, in each case as of the
Statistical Calculation Date.
The due dates for monthly payments on the
Mortgage Loans occur throughout a month
(each, a "Due Date"). See "The Mortgage
Pool" herein. The majority of the business
purpose loans have a prepayment fee clause.
Such prepayment fee clauses generally
provide that the mortgagor pay one or more
of the following: (i) a fee equal to a
percentage of the outstanding principal
balance of the Mortgage Loan, such
percentage having been negotiated at the
time of origination, (ii) a fee which is
designed to allow the holder of the Mortgage
Note to earn interest on the Mortgage Loan
as if the Mortgage Loan remained outstanding
until a designated point in time, or (iii) a
fee equal to the amount of interest on the
outstanding principal balance of the
Mortgage Loan calculated pursuant to a Rule
of 78's calculation, which has the effect of
requiring the mortgagor to pay a greater
amount of interest than would be required to
be paid if the actuarial method of
calculating interest was utilized. See
"Certain Legal Aspects of the Mortgage Loans
and Contracts-- The Mortgage Loans" in the
Prospectus.
The Mortgage Loans were underwritten in
accordance with the underwriting standards
described in this Prospectus Supplement
under "The Originators, the Seller and the
Servicer." Approximately 41.19% and 28.91%
of the Mortgage Loans by Statistical
Calculation Date Aggregate Principal Balance
are secured by Mortgaged Properties located
in Pennsylvania and New Jersey,
respectively. See "Risk Factors--
Geographic Concentration" in this Prospectus
Supplement.
<PAGE>
The Subsequent Mortgage Loans to be
purchased by the Trust, if available, will
be originated or purchased by the
Originators, sold by the Originators to the
Seller, sold by the Seller to the Depositor
and then sold by the Depositor to the Trust.
The Pooling and Servicing Agreement will
provide that the Subsequent Mortgage Loans,
as well as all of the Mortgage Loans
following the conveyance of such Subsequent
Mortgage Loans to the Trust, must conform to
certain specified characteristics. See "The
Mortgage Pool-- Conveyance of Subsequent
Mortgage Loans" in this Prospectus
Supplement.
The Trust will be obligated to purchase the
Subsequent Mortgage Loans from time to time
on or before June 27, 1996, subject to the
availability thereof. In connection with
each purchase of Subsequent Mortgage Loans,
the Trust will be required to pay to the
Depositor a cash purchase price of no more
than 100% of the aggregate Principal Balance
of such Subsequent Mortgage Loans from the
Pre-Funding Account. Under the Pooling and
Servicing Agreement, the Depositor will be
obligated to sell Subsequent Mortgage Loans
to the Trust and the Trust will be
obligated, subject to the satisfaction of
certain conditions described herein, to
purchase such Subsequent Mortgage Loans. The
Depositor will designate as a cut-off date
(each a "Subsequent Cut-Off Date") the first
day of the month in which such Subsequent
Mortgage Loans will be conveyed by the
Depositor to the Trust (each a "Subsequent
Transfer Date") occurring during the Pre-
Funding Period (as defined herein). The
Trust may purchase the Subsequent Mortgage
Loans only from the Depositor and not from
any other person.
S-5
<PAGE>
See "The Mortgage Pool -- Conveyance of Subsequent Mortgage Loans" in this
Prospectus Supplement.
Class A-1 Original Certificate
Principal Balance...............$32,100,000.00 (the "Class A-1 Original
Certificate Principal Balance").
Class A-2 Original Certificate
Principal Balance...............$20,600,000.00 (the "Class A-2 Original
Certificate Principal Balance").
Class A-3 Original Certificate
Principal Balance...............$20,048,000.00 (the "Class A-3 Original
Certificate Principal Balance").
Class A-1
Pass-Through Rate...............6.525% per annum (the "Class A-1 Pass-
Through Rate").
Class A-2
Pass-Through Rate...............6.925% per annum (the "Class A-2 Pass-
Through Rate").
Class A-3
Pass-Through Rate...............7.525% per annum, plus with respect to any
Distribution Date after the Clean-up Call
Date (as defined herein), 0.75% (the "Class
A-3 Pass-Through Rate").
Distributions, Generally..........Distributions on the Certificates will be made
on each Distribution Date to the related
Holders of record. See "Description of the
Certificates" herein. Distributions to a
Holder will be made in an amount equal to
the product of such Holder's Percentage
Interest (as defined herein) and the amount
distributed in respect of such Holder'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
Original Certificate Principal Balance of
such Certificate less any amounts actually
distributed to the Holder of such
Certificate on account of principal.
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 Holders of each Class of
Class A Certificates, the Class A Interest
Distribution Amount (as defined below under
the heading "Distributions of Interest") on
a pro rata basis without any priority among
the Classes of Class A Certificates.
(ii) Second, to the Holders 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 Holders of the Class
A-1 Certificates, until the Certificate
Principal Balance of the Class A-1
Certificates is reduced to zero; (B) to the
Holders of the Class A-2 Certificates,
until the Certificate Principal Balance of
the Class A-2
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<PAGE>
Certificates is reduced to zero; and (C) to
the Holders of the Class A-3 Certificates,
until the Certificate Principal Balance of
the Class A-3 Certificates is reduced to
zero.
Distributions of Interest.........Interest will accrue on each Class of Class A
Certificates at the applicable Pass-Through
Rate on the related Certificate Principal
Balance during the related Accrual Period
(such interest, the "Current Interest"). The
amount of interest payable will generally be
equal to the sum of the Current Interest for
each Class, reduced by an amount equal to
the aggregate of the Prepayment Interest
Shortfalls (as defined herein) and the Civil
Relief Act Interest Shortfalls (as defined
herein) (together, the "Mortgage Loan
Interest Shortfalls"), if any, for such
Distribution Date, to the extent such
Mortgage Loan Interest Shortfalls are not
paid by the Servicer as Compensating
Interest (as defined herein). Mortgage Loan
Interest Shortfalls will not be covered by
or under the Certificate Insurance Policy.
The amount of interest (as described above)
payable with respect to the Class A
Certificates on any Distribution Date, plus
any related Carry-Forward Amount (as
defined herein) constitutes the "Class A
Interest Distribution Amount" and shall be
distributable, to the extent of the
Available Amount less Trustee's Fees, on the
related Distribution Date. See "Description
of the Certificates" in this Prospectus
Supplement.
Distributions of Principal........The following discussion makes use of a number
of terms which are defined under
"Description of the Certificates --
Overcollateralization Provisions" herein.
The Holders of the Class of Class A
Certificates then entitled to receive
principal, are entitled to receive certain
monthly distributions of principal on each
Distribution Date which generally reflect
collections of principal during the related
Due Period. The Certificate Insurance
Policy only guarantees the amount by which
the sum of the Insured Distribution Amount
exceeds the Available Amount less Trustee's
Fees (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 to be made with respect to
such Distribution Date) as more fully
described herein under "The Certificate
Insurance Policy" and "The Certificate
Insurer" in this Prospectus Supplement.
The subordination provisions of the Trust
result in a limited acceleration of the
principal payments to the Holders of the
Class of Class A Certificates then entitled
to receive principal, as more fully
described under "Description of the
Certificates-- Overcollateralization
Provisions" herein. Such subordination
provisions have the effect of shortening the
weighted average lives of the Class A
Certificates by increasing the rate at which
principal is distributed to the Class A
Certificateholders. See "Prepayment and
Yield Considerations" in this Prospectus
Supplement and in the Prospectus.
The Class A Certificates are divided into
three "sequential pay" classes such that the
Holders of the Class A-3 Certificates wil
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.
S-7
<PAGE>
Class A Principal Distribution Amount
The "Class A Principal Distribution Amount"
for any Distribution Date will be the
lesser of:
(a) the excess of (i) the sum, as of such
Distribution Date, of (A) the Available
Amount and (B) any Insured Payment over
(ii) the sum of the Class A Interest
Distribution Amount, the Trustee's Fees
and the Reimbursement Amount; and
(b) the sum, without duplication, of:
(i) all principal in respect of the
Mortgage Loans actually collected
during the calendar month
preceding the Distribution Date
(the "Due Period"),
(ii) the Principal Balance of each
Mortgage Loan that either was
repurchased by the Seller or by
the Depositor or purchased by the
Servicer on the related
Distribution Date, to the extent
such Principal Balance is actually
received by the Trustee,
(iii) any Substitution Adjustments
delivered by the Depositor on the
related Distribution Date in
connection with a substitution of
a Mortgage Loan, to the extent
such Substitution Adjustments are
actually received by the Trustee,
(iv) the Net Liquidation Proceeds
actually collected by the Servicer
of all Mortgage Loans during the
prior calendar month (to the
extent such Net Liquidation
Proceeds relate to principal),
(v) any moneys released from the Pre-
Funding Account as a prepayment of
the Class A Certificates on the
Distribution Date which
immediately follows the end of the
Pre-Funding Period,
(vi) the amount of any Subordination
Deficit for such Distribution
Date,
(vii) the proceeds received by the
Trustee of any termination of the
Trust (to the extent such proceeds
relate to principal), and
(viii) the amount of any Subordination
Increase Amount for such
Distribution Date, to the extent
of any Net Monthly Excess
Cashflow available for such
purpose;
minus
(ix) the amount of any Subordination
Reduction Amount for such
Distribution Date.
In no event will the Class A Principal
Distribution Amount with respect to any
Distribution Date be (x) less than zero or (y)
greater than the then outstanding Certificate
Principal Balance of the Class A Certificates.
S-8
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Class A Distribution Amount
With respect to any Distribution Date, the
sum of the Class A Interest Distribution
Amount and the Class A Principal
Distribution Amount with respect to such
Distribution Date is the "Class A
Distribution Amount" for such Distribution
Date.
Insured Distribution Amount
With respect to any Distribution Date, the
sum of (i) the Interest Distribution Amount,
(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 a Final
Scheduled Maturity Date, the outstanding
Certificate Principal Balance for the
related 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 Amount for such
Distribution Date.
The "Carry-Forward Amount" as of any
Distribution Date equals the sum of (a) the
amount, if any, by which (i) the Interest
Distribution Amount as of the immediately
preceding Distribution Date exceeded (ii)
the amount actually distributed to the Class
A Certificateholders on such Distribution
Date on account of interest and (b) 30 days'
interest on such amount at the weighted
average Pass-Through Rate (weighted by the
related aggregate Certificate Principal
Balance of each Class) of the Class A
Certificates (the "Weighted Average Class A
Pass-Through Rate"). See "Description of
Certificates-- Distributions" in this
Prospectus Supplement.
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). Any
loss on a Liquidated Mortgage Loan (a
"Liquidated Loan Loss") may or may not be
recovered by the Holders of the Class A
Certificates on the Distribution Date which
immediately follows the event of loss.
However, the Holders of the Class A
Certificates are entitled to receive
ultimate recovery with respect to any
Liquidated Loan Losses which occur, receipt
of which will be no later than the
Distribution Date occurring after such
Liquidated Loan Loss creates a
Subordination Deficit (as described below).
Such payment will be in the form of an
Insured Payment if not covered through Net
Monthly Excess Cashflow.
Insured Payments do not include Liquidated
Loan Losses until such time as such
aggregate, cumulative Liquidated Loan Losses
have created a Subordination Deficit. A
"Subordination Deficit" as of any
Distribution Date, is the amount, if any,
by which (a) the Certificate Principal
Balance of the Class A Certificates, after
taking into account the payment of the
Class A Principal Distribution Amount on
such date (except for any payment to be made
as to principal from the proceeds of the
Certificate Insurance Policy) exceeds (b)
the aggregate Principal Balance of the
Mortgage Loans determined as of the end of
the immediately preceding Due Period.
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The "Principal Balance" of any Mortgage
Loan as of any date of determination is the
outstanding principal balance of such
Mortgage Loan as of such date of
determination after giving effect to
prepayments received prior to the end of the
related Due Period and Deficient Valuations
incurred prior to the related Due Date. The
Principal Balance of a Mortgage Loan
which becomes a Liquidated Mortgage Loan on
or prior to the related Due Date shall be
zero.
Pre-Funding Account...............On the Closing Date the Trustee will deposit
the Original Pre-Funded Amount in an account
held in the name of the Trustee on behalf of
the Trust (the "Pre-Funding Account"). Such
amount will be funded from the sale of the
Class A Certificates, and may be used to
acquire Subsequent Mortgage Loans during the
period (the "Pre-Funding Period") from the
Closing Date until the earliest of (i) the
date on which the amount on deposit in the
Pre-Funding Account is less than $100,000
(ii) the date on which an Event of Default
occurs under the Pooling and Servicing
Agreement, or (iii) June 27, 1997. The
amount on deposit in the Pre-Funding Account
will be reduced during the Pre-Funding
Period by the amount thereof used to
purchase Subsequent Mortgage Loans in
accordance with the Pooling and Servicing
Agreement. The Depositor expects that the
Original Pre-Funded Amount will be reduced
to less than $100,000 by June 27, 1997. Any
amount remaining in the Pre-Funding Account
will be used to prepay the principal of the
Class A Certificates, pro rata, on the June
15, 1997 Distribution Date, to the extent
such funds will not be used to purchase
Subsequent Mortgage Loans by June 27, 1997.
Capitalized Interest
Account.........................On the Closing Date, the Trustee will be
required to deposit a portion of the
proceeds of the sale of the Class A
Certificates in an account (the "Capitalized
Interest Account") held in the name of the
Trustee on behalf of the Trust. The amount
deposited therein will be used, as
necessary, by the Trustee during the
Pre-Funding Period to fund the aggregate
amount of interest accruing during the
related Accrual Period at the Weighted
Average Class A Pass-Through Rate on the
amount by which the Certificate Principal
Balance of the Class A Certificates exceeds
the aggregate Principal Balance of the
Mortgage Loans in the Trust. Any amounts
remaining in the Capitalized Interest
Account on the Distribution Date which
follows the end of the Pre-Funding Period
and not used for such purposes are required
to be paid directly to the Holders of the
Class R Certificates on such Distribution
Date.
Credit Enhancement................The credit enhancement provided for the
benefit of the Class A Certificateholders
consists solely of (a) overcollateralization
and (b) the Certificate Insurance Policy.
Overcollateralization.
On the Closing Date, the Trust will issue
Class A Certificates with an Original
Certificate Principal Balance which is
approximately 3% less than the sum of the
aggregate Principal Balance of the Initial
Mortgage Loans and the Original Pre-Funded
Amount, resulting in initial
overcollateraliza- tion.
Overcollateralization is increased in the
early months of the transaction pursuant to
the subordination provisions of the Trust
which cause a limited
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<PAGE>
acceleration of the Class A Certificates
relative to the amortization of the Mortgage
Loans. The accelerated amortization results
from the application of certain excess
interest to the payment of principal on the
Class of Class A Certificates then entitled
to receive principal. 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 trigger tests, 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
Certificates-- Overcollateralization
Provisions" in this Prospectus Supplement.
The Certificate Insurance Policy.
The Class A Certificateholders will have the
benefit of the Certificate Insurance Policy,
discussed more fully below. The Certificate
Insurance Policy does not insure the payment
of Mortgage Loan Interest Shortfalls. See
"The Certificate Insurance Policy" and "The
Certificate Insurer" herein and "Credit
Support-- Other Credit Enhancement" in the
Prospectus.
The Certificate Insurer...........Financial Security Assurance Inc. (the
"Certificate Insurer") is a New York
monoline insurance company engaged in the
business of writing financial guaranty
insurance, principally in respect of
securities offered in domestic and foreign
markets. The Certificate Insurer's
claims-paying ability is rated "Aaa" by
Moody's Investors Service, Inc. ("Moody's")
and "AAA" by Standard and Poor's Ratings
Services, a division of The McGraw-Hill
Companies, Inc. ("Standard & Poor's"),
Nippon Investors Service, Inc. and Standard
& Poor's (Australia) Pty. Ltd. See "The
Certificate Insurance Policy" and "The
Certificate Insurer" in this Prospectus
Supplement.
Certificate Insurance
Policy..........................The Certificate Insurer will issue the
Certificate Insurance Policy with respect to
the Class A Certificates, pursuant to which
it will irrevocably and unconditionally
guaranty payment on each Distribution Date
of Insured Payments to the Trustee for the
benefit of the Holders of the Class A
Certificates. On any Distribution Date, the
Certificate Insurer will generally be
required to make available to the Trustee
the amount, if any, by which the Insured
Distribution Amount exceeds the Available
Amount (in each case as of the related
Distribution Date). See "Description of the
Certificates -- Overcollateralization
Provisions" in this Prospectus Supplement.
The Certificate Insurance Policy does not
guarantee the Class A Certificates any
specified rate of prepayments. Mortgage Loan
Interest Shortfalls will not be covered
under the Certificate Insurance Policy. A
payment by the Certificate Insurer under the
Certificate Insurance Policy is referred to
herein as an "Insured Payment."
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<PAGE>
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 "Certificate Insurer
Default"), the Certificate Insurer shall
have the right to exercise all rights of the
Holders of the Class A Certificates under
the Pooling and Servicing Agreement without
any consent of such Holders, and such
Holders 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.
Servicing of the Mortgage
Loans...........................The Servicer will be obligated to service and
administer the Mortgage Loans in accordance
with the Pooling and Servicing Agreement and
to cause the Mortgage Loans to be serviced
with the same care as it customarily employs
in servicing and administering mortgage
loans for its own account, in accordance
with accepted mortgage servicing practices
of prudent lending institutions, and giving
due consideration to the Certificate
Insurer's and the Certificateholders'
reliance on the Servicer.
Periodic Advances.................Subject to the Servicer's determination that
such action would not constitute a
Nonrecoverable Advance (as defined herein),
the Servicer is required to make advances
("Periodic Advances") with respect to
delinquent payments of interest (at a rate
equal to the interest rate on the related
Mortgage Note (the "Mortgage Interest
Rate"), less the Servicing Fee (as defined
herein)). Such Periodic Advances by the
Servicer are reimbursable to the Servicer
subject to certain conditions and
restrictions, and are intended to provide
both sufficient funds for the payment of
interest to the Holders of the Class A
Certificates, plus an additional amount
intended to maintain a specified level of
overcollateralization and to pay the premium
due the Certificate Insurer. Notwithstanding
the Servicer's good faith determination that
a Periodic Advance was recoverable when
made, if such Periodic Advance becomes a
Nonrecoverable Advance, the Servicer will be
entitled to reimbursement therefor from the
Trust Fund. See "Description of the
Certificates -- Payments on the Mortgage
Loans" in this Prospectus Supplement.
Prepayment Interest
Shortfalls......................Not later than the close of business on the
10th day of each month (each, a "Servicer
Distribution Date"), the Servicer is
required to remit to the Trustee, an amount
equal to the lesser of (a) the aggregate of
the Prepayment Interest Shortfalls for the
related Distribution Date resulting from
principal prepayments in full during the
related Due Period and (b) its aggregate
Servicing Fees received in the related Due
Period and shall not have the right to
reimbursement therefor (such amount, the
"Compensating Interest"). With respect to
any Distribution Date, the "Prepayment
Interest Shortfall" will be an amount equal
to the excess, if any, of (a) 30 days'
interest on the outstanding principal
balance of such Mortgage Loans at a per
annum rate equal to the related Mortgage
Interest Rate (or at such lower rate as may
be in effect for such Mortgage Loan because
of application of the Soldiers' and Sailors'
Civil Relief Act of 1940, as amended (the
"Civil Relief Act"), any reduction as a
result of a bankruptcy proceeding (a
"Deficient Valuation") and/or any reduction
by a court of the monthly payment due on
such Mortgage Loan (a "Debt Service
Reduction")), minus
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<PAGE>
the rate at which the Servicing Fee is
calculated, over (b) the amount of interest
actually remitted by the Mortgagor (as
defined herein) in connection with such
principal prepayment in full less the
Servicing Fee for such Mortgage Loan in such
month. Insured Payments do not cover
Prepayment Interest Shortfalls.
Civil Relief Act Interest
Shortfalls......................The reduction, if any, in interest payable on
the Mortgage Loans attributable to Civil
Relief Act Interest Shortfalls will be borne
by the Class A Certificateholders and will
not be covered by payments from the
Servicer, the Certificate Insurance Policy
or otherwise. See "Risk Factors --
Limitations on Interest Payments and
Foreclosures."
Servicing Advances................Subject to the Servicer's determination that
such action would not constitute a
Nonrecoverable Advance and that a prudent
mortgage lender would make a like advance if
it or an affiliate owned the related
Mortgage Loan, the Servicer is required to
advance amounts with respect to the Mortgage
Loans ("Servicing Advances") constituting
"out-of-pocket" costs and expenses relating
to (a) the preservation and restoration of
the Mortgaged Property, (b) enforcement
proceedings, including foreclosures, (c)
expenditures relating to the purchase or
maintenance of a first lien not included in
the Trust Fund on the Mortgaged Property,
and (d) certain other customary amounts
described in the Pooling and Servicing
Agreement. Such Servicing Advances by the
Servicer are reimbursable to the Servicer
subject to certain conditions and
restrictions. In the event that,
notwithstanding the Servicer's good faith
determination at the time such Servicing
Advance was made, that it would not be a
Nonrecoverable Advance, in the event such
Servicing Advance becomes a Nonrecoverable
Advance, the Servicer will be entitled to
reimbursement therefor from the Trust Fund.
Servicing Fee.....................The Servicer is entitled to a servicing fee of
0.50% per annum of the Principal Balance of
each Mortgage Loan (the "Servicing Fee"),
calculated and payable monthly from the
interest portion of scheduled monthly
payments, liquidation proceeds and certain
other proceeds.
Optional Termination by the
Servicer........................The Servicer may, at its option, terminate the
Trust on the Distribution Date (the first
date on which such event occurs, the
"Clean-up Call Date") on which the aggregate
Principal Balance of the Mortgage Loans is
less than 10% of the sum of (a) the
aggregate Principal Balance of the Initial
Mortgage Loans as of the Cut-Off Date (the
"Cut-Off Date Aggregate Principal Balance")
and (b) the Original Pre-Funded Amount, by
purchasing from the Trust all of the
Mortgage Loans and REO Properties (as
defined herein) at a price equal to the sum
of (a) 100% of the aggregate Principal
Balance of each outstanding Mortgage Loan
and each REO Property and (b) the greater of
(i) the aggregate amount of accrued and
unpaid interest on the Mortgage Loans
through the related Due Period and (ii) 30
days' accrued interest thereon computed at a
rate equal to the related Mortgage Interest
Rate, in each case net of the Servicing Fee,
and (c) any unreimbursed amounts due to the
Certificate Insurer under the Pooling and
Servicing Agreement or the Insurance
Agreement and any accrued and unpaid Insured
Payments. No such termination is permitted
without the prior written consent of the
Certificate Insurer if it would result in a
draw on the
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<PAGE>
Certificate Insurance Policy. If the
Servicer fails to exercise its option to
terminate the Trust, the Pass-Through Rate
on the Class A-3 Certificates will be
increased by 0.75% per annum for each
Distribution Date after the Cleanup Call
Date. See "Servicing of the Mortgage Loans
-- Termination; Purchase of Mortgage Loans"
in this Prospectus Supplement.
Optional Purchase of Defaulted
Mortgage Loans..................The Seller or any affiliate of the Seller has
the option, but is not obligated, to
purchase from the Trust Fund any Mortgage
Loan 90 days or more delinquent at a
purchase price equal to the outstanding
Principal Balance thereof as of the date of
purchase, plus the greater of (a) all
accrued and unpaid interest on such
Principal Balance and (b) 30 days' interest
on such Principal Balance, computed at the
related Mortgage Interest Rate (net of the
related Servicing Fee if ABC is the
Servicer) plus the amount of any
unreimbursed Servicing Advances made by the
Servicer with respect to such Mortgage Loan.
Notwithstanding the foregoing, unless the
Certificate Insurer consents, the Seller or
any such affiliate of the Seller may only
exercise its option with respect to the
Mortgage Loan or Mortgage Loans that have
been delinquent for the longest period at
the time of such repurchase. If the
Certificate Insurer fails to respond to the
Seller's or such affiliate's request for
consent within 10 Business Days after
receipt thereof, the Seller or such
affiliate may repurchase the Mortgage Loan
or Mortgage Loans proposed to be repurchased
without the consent of, or any further
action by, the Certificate Insurer. See
"Servicing of the Mortgage Loans-- Optional
Purchase of Defaulted Mortgage Loans"
herein.
Book Entry Form of
Certificates...................The Class A Certificates are sometimes
referred to in this Prospectus Supplement as
"Book-Entry Certificates." No person
acquiring an interest in the Book-Entry
Certificates will be entitled to receive a
definitive certificate representing such
person's interest in the Trust Fund, except
under the limited circumstances described
herein. Beneficial Owners may elect to hold
their interests through The Depository Trust
Company ("DTC" or the "Depository"), in the
United States, or Centrale de Livraison de
Valeurs Mobiliers, 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,
such Class A Certificates will be evidenced
by one or more Class A Certificates
registered in the name of Cede & Co.
("Cede"), which will be the "Holder" or
"Certificateholder" of such Certificates, as
the nominee of DTC or one of the relevant
depositaries (the "European Depositaries").
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 The Chase Manhattan Bank
("Chase"), the relevant depositories of
CEDEL or 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
Holders of such Class A Certificates will be
represented by book-entries on the records
of DTC and participating members thereof. No
Beneficial Owner will be entitled to receive
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<PAGE>
a definitive certificate representing such
person's interest, except in the event that
Definitive Certificates (as defined herein)
are issued under the limited circumstances
described herein. All references herein 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 Certificates --
Book-Entry Registration" and " -- Definitive
Certificates" in this Prospectus Supplement.
ERISA Considerations..............A fiduciary of any employee benefit plan or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the Code (as
defined herein) should carefully review with
its legal advisors whether the purchase or
holding of Class A Certificates could give
rise to a transaction prohibited or not
otherwise permissible under ERISA or the
Code. The U.S. Department of Labor has
issued an individual exemption, Prohibited
Transaction Exemption 90-32, to the
Underwriter (the "Exemption"). The Exemption
generally exempts from the application of
certain of the prohibited transaction
provisions of ERISA, and the excise taxes
imposed on such prohibited transactions by
Section 4975(a) and (b) of the Code and
Section 502(i) of ERISA, transactions
relating to the purchase, sale and holding
of pass-through certificates such as the
Class A Certificates and the servicing and
operation of asset pools such as the Trust
Fund, provided that certain conditions are
satisfied. The Class A Certificates may not
be purchased by Plans (as defined herein)
until the earlier of the (i) the end of the
Pre-Funding Period or (ii) the date on which
the U.S. Department of Labor amends the
Exemption to permit the use of pre-funding
accounts thereunder. On or after the earlier
to occur of such dates, a fiduciary of any
Plan should carefully review with its legal
advisors whether the purchase or holding of
Class A Certificates could give rise to a
transaction prohibited or not otherwise
permissible under ERISA or the Code. See
"ERISA Considerations" in this Prospectus
Supplement.
Legal Investment..................The Class A Certificates will not constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement
Act of 1984.
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<PAGE>
Federal Income Tax
Status..........................An election will be made to treat the Trust
Fund as a real estate mortgage investment
conduit (a "REMIC") for federal income tax
purposes. The Class A Certificates will be
designated as the "regular interests" in the
REMIC, and the Class R Certificates will be
designated as the sole "residual interest"
in the REMIC.
The Class A Certificates generally will be
treated as newly originated debt instruments
for federal income tax purposes. Beneficial
Owners of the Class A Certificates will be
required to report income thereon in
accordance with the accrual method of
accounting.
See "Certain Federal Income Tax
Considerations" in this Prospectus
Supplement and "Certain Federal Income Tax
Consequences -- REMIC Certificates" in the
Prospectus.
Certificate Ratings...............It is a condition to the issuance of the Class
A Certificates that the Class A Certificates
shall have been rated not lower than AAA by
Standard & Poor's and Aaa by Moody's (each,
a "Rating Agency," and together, the "Rating
Agencies") taking into account the
Certificate Insurance Policy issued with
respect to such Certificates. 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 ratings
do not address the possibility that Class A
Certificateholders may suffer a lower than
anticipated yield. See "Ratings" in this
Prospectus Supplement and "Prepayment and
Yield Considerations" in the Prospectus.
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<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Class A Certificates.
Prepayment and Maturity Considerations
Borrowers may prepay their loans at any time and may be required to pay
a prepayment fee if permitted by applicable law and if so provided in the
applicable mortgage note. The majority of the business purpose Mortgage Loans
contain substantial prepayment fees. The consumer purpose Mortgage Loans
generally do not contain prepayment fees. 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. The Seller is not aware of any publicly available studies
on the effects of changes in interest rates on prepayment rates for loans such
as the business purpose Mortgage Loans.
A number of factors, in addition to the prepayment fees, may impact on
the prepayment behavior of a pool of loans such as the Mortgage Loans. One such
factor is that the principal balance of the Mortgage Loans is relatively small.
A small principal balance may be easier for a borrower to prepay than a large
balance and therefore a higher prepayment rate may result for a loan pool such
as the Mortgage Pool. 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 home equity 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 junior mortgage loans as shorter-term financing for a variety of
purposes, including home improvement, education expenses and purchases of
consumer durables such as automobiles. Accordingly, the Mortgage Loans may
experience a higher rate of prepayment than traditional fixed rate mortgage
loans.
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 Seller under the Pooling and Servicing Agreement will
have the same effect on the Class A Certificateholders as a prepayment of the
related Mortgage Loans. Prepayments and such repurchases will also accelerate
the actual final maturity 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 Seller is unable
to cure documentation defects or provide Qualified Replacement Mortgages for the
affected Mortgage Loans, affected Mortgage Loans will be repurchased, and the
Class A Certificateholders will experience a principal prepayment. Unused
Pre-Funding Account moneys, to the extent they will not be used to purchase
subsequent Mortgage Loans by June 27, 1997, will be used on the June 15, 1997
Distribution Date to make a mandatory prepayment of principal to the Holders of
the Class A Certificates, pro rata. See "Certain Legal Aspects of the Mortgage
Loans and Contracts -- The Mortgage Loans."
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."
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<PAGE>
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 Originators maintain only limited records of the historical
prepayment experience of its portfolio of loans which the Originators believe do
not provide meaningful information with respect to the Mortgage Loans. The
Originators are not aware of any publicly available reliable information
regarding prepayment experience of mortgage loans such as the business purpose
Mortgage 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 Subsequent Mortgage Loans and the Pre-Funding Account
If the principal amount of eligible Mortgage Loans available during the
Pre-Funding Period and sold to the Trust is less than 100% of the Original
Pre-Funded Amount, the Depositor will have insufficient Mortgage Loans to sell
to the Trust, thereby resulting in a prepayment of principal to Holders of the
Class A Certificates as described herein. In addition, any conveyance of
Subsequent Mortgage Loans is subject to the following conditions, among others:
(i) each such Subsequent Mortgage Loan must satisfy the representations and
warranties specified in the Unaffiliated Seller's Agreement (as defined herein)
and the Pooling and Servicing Agreement; (ii) the Seller will not select such
Subsequent Mortgage Loans in a manner that it believes is adverse to the
interests of the Holders of the Class A Certificates and the Certificate
Insurer; (iii) the Depositor will deliver certain opinions of counsel with
respect to the validity of the conveyance of such Subsequent Mortgage Loans; and
(iv) as of the Subsequent Cut-Off Date, the Mortgage Loans at that time,
including the Subsequent Mortgage Loans to be conveyed by the Depositor as of
such Subsequent Cut-Off Date, will satisfy the criteria set forth in the Pooling
and Servicing Agreement, as described herein under "The Mortgage Pool --
Conveyance of Subsequent Mortgage Loans."
To the extent that amounts on deposit in the Pre-Funding Account will
not be fully applied to the purchase of Subsequent Mortgage Loans by the Trust
by the end of the Pre-Funding Period, such remaining amount will be applied as a
prepayment of principal paid to the Holders of the Class A Certificates, pro
rata, on the June 15, 1997 Distribution Date. The amount of any such prepayment
will be applied to the Class A Certificates. Although no assurances can be
given, it is anticipated by the Depositor that the principal amount of
Subsequent Mortgage Loans sold to the Trust will require the application of
substantially all amounts on deposit in the Pre-Funding Account and that there
will be no material principal prepayment to the Holders of the Class A
Certificates.
Each Subsequent Mortgage Loan must satisfy the eligibility criteria
referred to above at the time of its addition. However, Subsequent Mortgage
Loans may have been originated by the Originators, purchased by the Seller, and
purchased by the Depositor using credit criteria different from those which were
applied to the Initial Mortgage Loans and may be of a different credit quality.
Therefore, following the transfer of Subsequent Mortgage Loans to the Trust, the
aggregate characteristics of the Mortgage Loans then held in the Trust may vary
from those of the Initial Mortgage Loans included in Trust Fund. See "The
Mortgage Pool -- Conveyance of Subsequent Mortgage Loans."
S-18
<PAGE>
Underwriting Standards, Limited Operating History and Potential Delinquencies
The Originators market 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 Holders 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, the Originators underwriting standards generally
are less stringent than those of the Federal National Mortgage Association
("FNMA") or the Federal Home Loan 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 the Originators from making a loan.
As a result of this approach to underwriting, the Mortgage Loans in the Mortgage
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. The Originators originate or
purchase their loans primarily on the eastern seaboard of the United States.
This practice may subject the Mortgage Pool to the risk that a downturn in the
economy in this area of the country would more greatly affect the Mortgage Pool
than if the Mortgage Pool were more diversified. In particular, approximately
41.19% and 28.91% of the Mortgage Loans by Statistical Calculation Date
Aggregate Principal Balance are secured by Mortgaged Properties located in
Pennsylvania and New Jersey respectively. Because of the relative geographic
concentration of the Mortgage Loans within Pennsylvania and New Jersey, 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
earthquakes and other natural disasters and major civil disturbances, than
residential properties located in other parts of the country. In addition, the
economies of Pennsylvania and New Jersey may be adversely affected to a greater
degree than the economies of other areas of the country by certain regional
developments. If the Pennsylvania and New Jersey residential real estate markets
experience an overall decline in property values after the dates of origination
of the respective Mortgage Loans, 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
As of the Statistical Calculation Date, the Initial Mortgage Loans have
been originated at fixed interest rates for fixed terms ranging from 36 to 360
months. As of the Statistical Calculation Date, approximately 24.20% of the
Mortgage Loans are not fully amortized over their terms and instead require
substantial balloon payments on their maturity dates (the "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 Originators believe that the Mortgage Loans are or will be
adequately collateralized and that, in light of the collateralization and the
relatively small average size of the Mortgage Loans, the borrowers will have the
ability to obtain adequate refinancing or secure funds from other sources. See
"The Mortgage Pool." However, the Originators have had only a very limited
historical default experience with respect to its portfolio when loans with
balloon payments come due and the Originators do not believe that the experience
provides meaningful information with respect to the Mortgage Loans.
S-19
<PAGE>
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 Class A Certificateholders could occur.
Nature of Collateral; Second Lien Mortgage Loans
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 a 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.
As of the Statistical Calculation Date, approximately 34.47% of the
Mortgage Loans are secured by Second Liens or Multiple Liens (each, as defined
below) which are subordinate to the rights of the mortgagee under related first
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 each such 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 each first 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 business
and consumer purpose home equity loans in its portfolio, it is the Servicer's
practice to satisfy or reinstate each such first 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 first mortgage
or make payments due to any first mortgagee.
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 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 first 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 Class A Certificateholders. 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 Net Liquidation Proceeds 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 Due Period all
expenses reasonably incurred in attempting to recover amounts due on Liquidated
Mortgage Loans and not yet repaid, including payments to first lienholders,
legal fees and costs of legal action, real estate taxes and maintenance and
S-20
<PAGE>
preservation expenses, thereby reducing collections available to Class A
Certificateholders. See "The Originators, the Seller and the Servicer --
Delinquency and Loan Loss Experience" and "Description of the Certificates."
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. Because 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.
Decline in Real Estate Values
No assurance can be given that the values of the Mortgaged Properties
have remained or will remain at their levels as of 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 become equal to or greater than the value of the
Mortgaged Properties, the actual rates of delinquencies, foreclosures and losses
on these Mortgaged Properties could be higher than losses now generally
experienced in the mortgage lending industry.
Payments on the Mortgage Loans
The scheduled monthly payment dates with respect to the Mortgage Loans
occur throughout a month. When a principal 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 Certificateholders 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 (in
such case at the related Mortgage Interest Rate, less the Servicing Fee, such
shortfalls being "Prepayment Interest Shortfalls"), but only to the extent of
the Servicing Fee for the related Due Period (any such payment, "Compensating
Interest"). Prepayment Interest Shortfalls and Civil Relief Act Interest
Shortfalls will not be covered by payments under the Certificate Insurance
Policy.
Prepayment Interest Shortfalls that are not paid by the Servicer as
Compensating Interest, together with Civil Relief Act Interest Shortfalls, will
be allocated among the Holders of Class A Certificates on a pro rata basis to
reduce the interest otherwise payable on the Class A Certificates. See
"Description of the Certificates -- Flow of Funds" in this Prospectus
Supplement.
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
consumer purpose Mortgage Loans, which require certain disclosures to the
borrowers regarding the terms of such Mortgage Loans; (ii) the Equal Credit
Opportunity Act
S-21
<PAGE>
and Regulation B promulgated thereunder as to the business and consumer purpose
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 business
and consumer purpose 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 Class A Certificateholders, and
would not be covered by Periodic 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 and Contracts" in the Prospectus.
It is possible that some of the consumer purpose 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 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.
S-22
<PAGE>
THE MORTGAGE POOL
Difference between Statistical Calculation Date and Closing Date Pools
The statistical information presented in this Prospectus Supplement
concerning the pool of Mortgage Loans is based on the pool as of March 14, 1997
(such date, the "Statistical Calculation Date"). The pool aggregated
$42,744,659.51 as of the Statistical Calculation Date. The Depositor expects
that the actual pool as of the Closing Date will represent approximately
$47,156,358.69 in Mortgage Loans. The additional Mortgage Loans will represent
Mortgage Loans acquired or to be acquired by the Depositor on or prior to the
Closing Date. In addition, with respect to the pool as of the Statistical
Calculation Date as to which statistical information is presented herein, some
amortization of the pool will occur prior to the Closing Date. Moreover, certain
Mortgage Loans included in the pool as of the Statistical Calculation Date may
prepay in full, or may be determined not to meet the eligibility requirements
for the final pool, and may not be included in the final pool. As a result of
the foregoing, the statistical distribution of characteristics as of the Closing
Date for the final Mortgage Loan pool will vary somewhat from the statistical
distribution of such characteristics as of the Statistical Calculation Date as
presented in this Prospectus Supplement, although such variance will not be
material. In the event that the Depositor does not, as of the Closing Date, have
the full amount of Mortgage Loans which the Depositor expects to sell to the
Trust on such date, the Seller will increase the size of the Pre-Funding Account
and the Capitalized Interest Account. Unless otherwise noted, all statistical
percentages in this Prospectus Supplement are measured by Statistical
Calculation Date Aggregate Principal Balance.
General
Additional Mortgage Loans (the "Subsequent Mortgage Loans") are
intended to be purchased by the Trust from the Depositor from time to time on or
before June 27, 1997 from funds on deposit in the Pre-Funding Account. The
Initial Mortgage Loans and the Subsequent Mortgage Loans are referred to herein
collectively as the "Mortgage Loans." The Subsequent Mortgage Loans to be
purchased by the Trust, if available, will be originated or purchased by the
Originators, sold by the Originators to the Seller, sold by the Seller to the
Depositor and then sold by the Depositor to the Trust. The Pooling and Servicing
Agreement will provide that the Mortgage Loans, following the conveyance of the
Subsequent Mortgage Loans, must in the aggregate conform to certain specified
characteristics described below under " -- Conveyance of Subsequent Mortgage
Loans."
Unless otherwise noted, all statistical percentages in this Prospectus
Supplement are approximate and are measured by the aggregate Principal Balance
of the related Mortgage Loans in relation to the Statistical Calculation Date
Aggregate Principal Balance, in each case, as of the Statistical Calculation
Date.
The Mortgage Loans will be predominantly business or consumer purpose
residential home equity loans used (x) to refinance an existing mortgage loan,
(y) to consolidate debt, or (z) to obtain cash proceeds by borrowing against the
Mortgagor's equity in the related Mortgaged Property in order to provide funds
for (i) working capital for business, (ii) business expansion, (iii) equipment
acquisition, or (iv) personal acquisitions. The Mortgaged Properties securing
the Mortgage Loans consist primarily of single-family residences (which may be
detached, part of a two-to four-family dwelling, a condominium unit or a unit in
a planned unit development). The Mortgaged Properties may be owner-occupied
(which includes second and vacation homes) and non-owner occupied investment
properties. As of the Statistical Calculation Date, the pool of Mortgage Loans
consists of approximately 65.53% of Mortgage Loans secured by first lien
mortgages ("First Liens") on the related Mortgaged Properties, approximately
32.54% of Mortgage Loans secured by second lien mortgages ("Second Liens") on
the related Mortgaged Properties and approximately 1.93% of Mortgage Loans
secured by liens on more than one Mortgaged Property, one of which is a second
lien mortgage ("Multiple Liens") (in each case as a percentage of the aggregate
principal balance as of the Statistical Calculation Date).
S-23
<PAGE>
As of the Statistical Calculation Date, the Mortgage Loans had
remaining terms to maturity of no greater than 360 months, were not 30 or more
days delinquent and had a Mortgage Interest Rate of at least 8.99% per annum.
The Combined Loan-to-Value Ratios ("CLTVs") described herein were
calculated based upon the appraised values of the related Mortgaged Properties
at the time of origination (the "Appraised Values"). 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 first liens,
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, as set forth below under "The
Originators, the Seller and the Servicer -- Delinquency and Loan Loss
Experience," and in the mortgage lending industry.
As of the Statistical Calculation Date, the Mortgage Loans consist of
764 Mortgage Loans under which the related Mortgaged Properties are located in
10 states, as set forth herein. As of the Statistical Calculation Date, the
Mortgage Loans had an aggregate Principal Balance of $42,744,659.51, the minimum
Principal Balance of any of the Mortgage Loans was $7,480.35, the maximum
principal balance thereof was $360,000.00, and the average principal balance of
the Mortgage Loans was $55,948.51. As of the Statistical Calculation Date,
Mortgage Interest Rates on the Mortgage Loans ranged from 8.99% to 16.50% per
annum, and the weighted average Mortgage Interest Rate of the Mortgage Loans was
approximately 12.69% per annum. As of the Statistical Calculation Date, the
original term to stated maturity of the Mortgage Loans ranged from 36 months to
360 months, the remaining term to stated maturity ranged from 33 months to 360
months, the weighted average original term to stated maturity was approximately
198 months and the weighted average remaining term to stated maturity was
approximately 197 months. As of the Statistical Calculation Date, no Mortgage
Loan had a stated maturity later than March 14, 2027. Approximately 75.80% of
the aggregate Principal Balance of the Mortgage Loans as of the Statistical
Calculation Date require monthly payments of principal that will fully amortize
the Mortgage Loans by their respective maturity dates, and approximately 24.20%
of the aggregate Principal Balance of the Mortgage Loans are Balloon Loans. The
weighted average CLTV of the Mortgage Loans as of the Statistical Calculation
Date was approximately 70.48%. As of the Statistical Calculation Date, Mortgage
Loans representing, in the aggregate, approximately 65.53% of the aggregate
Principal Balance of the Mortgage Loans were secured by First Lien mortgages and
approximately 34.47% of the aggregate Principal Balance of the Mortgage Loans
were secured by Second Lien and Multiple Lien mortgages.
S-24
<PAGE>
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Balance as of the Principal Balance as of
State Mortgage Loans Statistical Calculation Date the Statistical Calculation Date
----- -------------- ---------------------------- --------------------------------
<S> <C> <C> <C>
Connecticut................. 4 $ 493,000.00 1.15%
Delaware.................... 27 2,046,214.69 4.79
Florida..................... 2 209,750.00 0.49
Georgia..................... 23 1,679,932.21 3.93
Maryland.................... 31 1,567,873.88 3.67
North Carolina.............. 50 2,185,737.04 5.11
New Jersey.................. 215 12,355,835.11 28.91
New York.................... 39 2,712,097.45 6.34
Pennsylvania................ 337 17,608,618.44 41.19
Virginia.................... 36 1,885,600.69 4.41
---- ------------- -----
TOTAL..................... 764 $42,744,659.51 100.00%
==== ============== =======
</TABLE>
DISTRIBUTION OF CLTV RATIOS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Principal Balance as of the Principal Balance as of
CLTV Ratios Mortgage Loans Statistical Calculation Date the Statistical Calculation Date
----------- -------------- ---------------------------- --------------------------------
<S> <C> <C> <C> <C>
5.00% -- CLTV -- = 10.00% 2 $ 69,806.25 0.16%
10.00 -- CLTV -- = 15.00 3 42,135.93 0.10
15.00 -- CLTV -- = 20.00 9 295,919.25 0.69
20.00 -- CLTV -- = 25.00 9 213,838.50 0.50
25.00 -- CLTV -- = 30.00 12 499,948.68 1.17
30.00 -- CLTV -- = 35.00 13 438,247.17 1.03
35.00 -- CLTV -- = 40.00 17 815,737.38 1.91
40.00 -- CLTV -- = 45.00 14 510,756.78 1.19
45.00 -- CLTV -- = 50.00 34 1,718,749.14 4.02
50.00 -- CLTV -- = 55.00 24 1,559,005.99 3.65
55.00 -- CLTV -- = 60.00 38 2,787,408.47 6.52
60.00 -- CLTV -- = 65.00 57 3,767,088.35 8.81
65.00 -- CLTV -- = 70.00 89 4,874,515.51 11.40
70.00 -- CLTV -- = 75.00 93 5,665,350.19 13.25
75.00 -- CLTV -- = 80.00 162 9,517,220.98 22.27
80.00 -- CLTV -- = 85.00 104 4,684,874.34 10.96
85.00 -- CLTV -- = 90.00 82 5,233,356.60 12.24
90.00 -- CLTV -- = 95.00 2 50,700.00 0.12
TOTAL..................... 764 $42,744,659.51 100.00%
==== ============== =======
</TABLE>
S-25
<PAGE>
DISTRIBUTION OF MORTGAGE RATES
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Principal Balance as of Principal Balance as of
Mortgage Rates Mortgage Loans the Statistical Calculation Date the Statistical Calculation Date
---------------- -------------- -------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
8.75% -- Gross Coupon -- = 9.00% 2 $ 188,946.46 0.44%
9.00 -- Gross Coupon -- = 9.25 2 230,960.00 0.54
9.25 -- Gross Coupon -- = 9.50 11 693,330.00 1.62
9.50 -- Gross Coupon -- = 9.75 30 1,571,715.59 3.68
9.75 -- Gross Coupon -- = 10.00 36 2,364,405.18 5.53
10.00 -- Gross Coupon -- = 10.25 47 2,611,092.16 6.11
10.25 -- Gross Coupon -- = 10.50 41 2,543,766.99 5.95
10.50 -- Gross Coupon -- = 10.75 23 833,455.47 1.95
10.75 -- Gross Coupon -- = 11.00 57 3,003,383.26 7.03
11.00 -- Gross Coupon -- = 11.25 34 1,772,485.28 4.15
11.25 -- Gross Coupon -- = 11.50 38 2,227,556.50 5.21
11.50 -- Gross Coupon -- = 11.75 30 1,427,320.56 3.34
11.75 -- Gross Coupon -- = 12.00 39 2,197,807.90 5.14
12.00 -- Gross Coupon -- = 12.25 9 562,899.94 1.32
12.25 -- Gross Coupon -- = 12.50 36 1,882,019.92 4.40
12.50 -- Gross Coupon -- = 12.75 12 792,340.55 1.85
12.75 -- Gross Coupon -- = 13.00 34 1,898,800.17 4.44
13.00 -- Gross Coupon -- = 13.25 24 823,695.68 1.93
13.25 -- Gross Coupon -- = 13.50 24 1,103,721.15 2.58
13.50 -- Gross Coupon -- = 13.75 14 296,538.99 0.69
13.75 -- Gross Coupon -- = 14.00 41 1,243,788.72 2.91
14.00 -- Gross Coupon -- = 14.25 1 55,000.00 0.13
14.25 -- Gross Coupon -- = 14.50 20 845,549.44 1.98
14.50 -- Gross Coupon -- = 14.75 1 23,963.18 0.06
14.75 -- Gross Coupon -- = 15.00 11 397,274.01 0.93
15.00 -- Gross Coupon -- = 15.25 2 73,862.82 0.17
15.25 -- Gross Coupon -- = 15.50 3 119,600.00 0.28
15.50 -- Gross Coupon -- = 15.75 38 2,929,507.83 6.85
15.75 -- Gross Coupon -- = 16.00 100 7,644,860.32 17.88
16.00 -- Gross Coupon -- = 16.25 2 301,589.99 0.71
16.25 -- Gross Coupon -- = 16.50 2 83,421.45 0.20
TOTAL........................... 764 $42,744,659.51 100.00%
==== ============== =======
</TABLE>
S-26
<PAGE>
DISTRIBUTION OF ORIGINAL TERMS TO MATURITY
(in months)
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Original Terms Number of Principal Balance as of Principal Balance as of
(in months) Mortgage Loans the Statistical Calculation Date the Statistical Calculation Date
----------- -------------- -------------------------------- --------------------------------
<C> <C> <C> <C>
36......................... 1 $ 7,480.35 0.02%
60......................... 26 682,542.16 1.60
84......................... 17 482,386.93 1.13
96......................... 1 41,688.10 0.10
120........................ 102 2,793,743.19 6.54
144........................ 4 160,940.91 0.38
180........................ 408 25,783,173.15 60.32
240........................ 177 10,251,282.16 23.98
360........................ 28 2,541,422.56 5.95
---- -------------- ------
TOTAL.................. 764 $42,744,659.51 100.00%
==== ============== =======
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF REMAINING TERMS TO MATURITY
(in months)
Range of Remaining Aggregate % of Aggregate
Terms to Maturity Number of Principal Balance as of Principal Balance as of
(in months) Mortgage Loans the Statistical Calculation Date the Statistical Calculation Date
------------- -------------- -------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
24 -- Rem Term -- = 36 1 $ 7,480.35 0.02%
36 -- Rem Term -- = 60 26 682,542.16 1.60
60 -- Rem Term -- = 84 17 482,386.93 1.13
84 -- Rem Term -- = 96 1 41,688.10 0.10
96 -- Rem Term -- = 120 102 2,793,743.19 6.54
120 -- Rem Term -- = 144 4 160,940.91 0.38
144 -- Rem Term -- = 180 408 25,783,173.15 60.32
180 -- Rem Term -- = 240 177 10,251,282.16 23.98
240 -- Rem Term -- = 360 28 2,541,422.56 5.95
TOTAL...................... 764 $42,744,659.51 100.00%
==== ============== =======
</TABLE>
S-27
<PAGE>
DISTRIBUTION OF ORIGINAL PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Original Number of Principal Balance as of Principal Balance as of
Principal Balances Mortgage Loans the Statistical Calculation Date the Statistical Calculation Date
------------------ -------------- -------------------------------- --------------------------------
<C> <C> <C> <C> <C>
$ 5,000 -- Balance -- =$ 10,000 13 $ 127,090.94 0.30%
10,000 -- Balance -- = 15,000 51 674,576.50 1.58
15,000 -- Balance -- = 20,000 61 1,126,801.94 2.64
20,000 -- Balance -- = 25,000 80 1,869,846.77 4.37
25,000 -- Balance -- = 30,000 66 1,848,324.40 4.32
30,000 -- Balance -- = 35,000 55 1,816,538.00 4.25
35,000 -- Balance -- = 40,000 63 2,421,024.41 5.66
40,000 -- Balance -- = 45,000 44 1,908,923.19 4.47
45,000 -- Balance -- = 50,000 34 1,647,433.56 3.85
50,000 -- Balance -- = 55,000 32 1,698,856.35 3.97
55,000 -- Balance -- = 60,000 31 1,818,208.58 4.25
60,000 -- Balance -- = 65,000 31 1,959,189.02 4.58
65,000 -- Balance -- = 70,000 23 1,584,987.84 3.71
70,000 -- Balance -- = 75,000 16 1,160,539.61 2.72
75,000 -- Balance -- = 80,000 16 1,253,447.93 2.93
80,000 -- Balance -- = 85,000 13 1,084,027.98 2.54
85,000 -- Balance -- = 90,000 19 1,676,339.09 3.92
90,000 -- Balance -- = 95,000 8 744,347.29 1.74
95,000 -- Balance -- = 100,000 15 1,478,735.39 3.46
100,000 -- Balance -- = 105,000 11 1,135,014.50 2.66
105,000 -- Balance -- = 110,000 7 757,550.34 1.77
110,000 -- Balance -- = 115,000 3 337,500.00 0.79
115,000 -- Balance -- = 120,000 4 475,532.25 1.11
120,000 -- Balance -- = 125,000 5 612,150.00 1.43
125,000 -- Balance -- = 130,000 3 384,000.00 0.90
130,000 -- Balance -- = 135,000 6 802,293.36 1.88
135,000 -- Balance -- = 140,000 5 690,805.65 1.62
140,000 -- Balance -- = 145,000 6 860,091.85 2.01
145,000 -- Balance -- = 150,000 5 743,949.47 1.74
150,000 -- Balance -- = 200,000 21 3,726,774.47 8.72
200,000 -- Balance -- = 250,000 13 3,040,612.51 7.11
250,000 -- Balance -- = 300,000 1 285,000.00 0.67
300,000 -- Balance -- = 350,000 2 634,146.32 1.48
350,000 -- Balance -- = 400,000 1 360,000.00 0.84
TOTAL..................... 764 $42,744,659.51 100.00%
==== ============== =======
</TABLE>
S-28
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF CURRENT PRINCIPAL BALANCES
Aggregate % of Aggregate
Range of Current Number of Principal Balance as of Principal Balance as of
Principal Balances Mortgage Loans the Statistical Calculation Date the Statistical Calculation Date
------------------ -------------- -------------------------------- --------------------------------
<C> <C> <C> <C> <C>
$ 5,000 -- Balance -- = $10,000 13 $ 127,090.94 0.30%
10,000 -- Balance -- = 15,000 51 674,576.50 1.58
15,000 -- Balance -- = 20,000 61 1,126,801.94 2.64
20,000 -- Balance -- = 25,000 82 1,919,481.24 4.49
25,000 -- Balance -- = 30,000 64 1,798,689.93 4.21
30,000 -- Balance -- = 35,000 55 1,816,538.00 4.25
35,000 -- Balance -- = 40,000 63 2,421,024.41 5.66
40,000 -- Balance -- = 45,000 44 1,908,923.19 4.47
45,000 -- Balance -- = 50,000 34 1,647,433.56 3.85
50,000 -- Balance -- = 55,000 32 1,698,856.35 3.97
55,000 -- Balance -- = 60,000 31 1,818,208.58 4.25
60,000 -- Balance -- = 65,000 31 1,959,189.02 4.58
65,000 -- Balance -- = 70,000 23 1,584,987.84 3.71
70,000 -- Balance -- = 75,000 16 1,160,539.61 2.72
75,000 -- Balance -- = 80,000 16 1,253,447.93 2.93
80,000 -- Balance -- = 85,000 13 1,084,027.98 2.54
85,000 -- Balance -- = 90,000 19 1,676,339.09 3.92
90,000 -- Balance -- = 95,000 8 744,347.29 1.74
95,000 -- Balance -- = 100,000 16 1,578,417.45 3.69
100,000 -- Balance -- = 105,000 10 1,035,332.44 2.42
105,000 -- Balance -- = 110,000 7 757,550.34 1.77
110,000 -- Balance -- = 115,000 3 337,500.00 0.79
115,000 -- Balance -- = 120,000 4 475,532.25 1.11
120,000 -- Balance -- = 125,000 5 612,150.00 1.43
125,000 -- Balance -- = 130,000 3 384,000.00 0.90
130,000 -- Balance -- = 135,000 6 802,293.36 1.88
135,000 -- Balance -- = 140,000 5 690,805.65 1.62
140,000 -- Balance -- = 145,000 6 860,091.85 2.01
145,000 -- Balance -- = 150,000 5 743,949.47 1.74
150,000 -- Balance -- = 200,000 21 3,726,774.47 8.72
200,000 -- Balance -- = 250,000 13 3,040,612.51 7.11
250,000 -- Balance -- = 300,000 1 285,000.00 0.67
300,000 -- Balance -- = 350,000 2 634,146.32 1.48
350,000 -- Balance -- = 400,000 1 360,000.00 0.84
TOTAL.............. 764 $42,744,659.51 100.00%
</TABLE>
DISTRIBUTION BY LIEN STATUS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Balance as of Principal Balance as of
Lien Status Mortgage Loans the Statistical Calculation Date the Statistical Calculation Date
----------- -------------- -------------------------------- --------------------------------
<S> <C> <C> <C>
First Lien................... 391 $28,011,898.74 65.53%
Second Lien.................. 367 13,908,380.13 32.54
Multiple Lien................ 6 824,380.64 1.93
---- -------------- ------
TOTAL.................... 764 $42,744,659.51 100.00%
==== ============== =======
</TABLE>
S-29
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION BY AMORTIZATION TYPE
Aggregate % of Aggregate
Number of Principal Balance as of Principal Balance as of
Amortization Type Mortgage Loans the Statistical Calculation Date the Statistical Calculation Date
----------------- -------------- -------------------------------- --------------------------------
<S> <C> <C> <C>
Fully Amortizing............. 636 $32,401,076.57 75.80%
Balloon Loans................ 128 10,343,582.94 24.20
--- ------------- -----
TOTAL.................... 764 $42,744,659.51 100.00%
=== ============== =======
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF OCCUPANCY STATUS
Aggregate % of Aggregate
Number of Principal Balance as of Principal Balance as of
Occupancy Status Mortgage Loans the Statistical Calculation Date the Statistical Calculation Date
---------------- -------------- -------------------------------- --------------------------------
<S> <C> <C> <C>
Owner Occupied............... 685 $36,656,538.32 85.76%
Investor..................... 43 1,946,982.66 4.55
Vacation/Second Home......... 2 35,000.00 0.08
Corporate.................... 17 1,589,966.83 3.72
Multiple Prop./Occupancy..... 17 2,516,171.70 5.89
--- -------------- ------
TOTAL.................... 764 $42,744,659.51 100.00%
=== ============== =======
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF PROPERTY TYPES
Aggregate % of Aggregate
Number of Principal Balance as of Principal Balance as of
Property Type Mortgage Loans the Statistical Calculation Date the Statistical Calculation Date
------------- -------------- -------------------------------- --------------------------------
<S> <C> <C> <C>
Single Family Detached......... 547 $29,369,498.26 68.71%
2-4 Family..................... 19 1,384,481.45 3.24
5+ Family...................... 4 330,627.65 0.77
Townhouses..................... 127 5,034,895.27 11.78
Planned Unit Development....... 4 211,200.00 0.49
Condominiums................... 8 256,827.42 0.60
Commercial..................... 8 570,389.88 1.33
Mixed Use Properties........... 30 3,070,567.88 7.18
Multiple Properties............ 17 2,516,171.70 5.89
--- -------------- ------
TOTAL...................... 764 $42,744,659.51 100.00%
=== ============== =======
</TABLE>
Conveyance of Subsequent Mortgage Loans
The Pooling and Servicing Agreement permits the Trust to acquire
approximately $27,843,641.31 aggregate Principal Balance of Subsequent Mortgage
Loans. Accordingly, the statistical characteristics of the Mortgage Pool will
vary as of any Subsequent Cut-Off Date upon the acquisition of Subsequent
Mortgage Loans.
The obligation of the Trust to purchase the Subsequent Mortgage Loans
on a Subsequent Transfer Date is subject to the following requirements: (i) such
Subsequent Mortgage Loan may not be 30 or more days contractually delinquent as
of the related Subsequent Cut-Off Date; (ii) the original term to maturity of
such
S-30
<PAGE>
Subsequent Mortgage Loan may not exceed 360 months; (iii) such Subsequent
Mortgage Loan must have a Mortgage Interest Rate of at least 8.32%; (iv) the
purchase of the Subsequent Mortgage Loans is consented to by the Certificate
Insurer and the Rating Agencies; (v) the Principal Balance of any such
Subsequent Mortgage Loan may not exceed $350,000.00; (vi) no more than 35% of
such Subsequent Mortgage Loans may be second liens; (vii) no such Subsequent
Mortgage Loan shall have a CLTV of more than, (a) for consumer purpose loans,
90%, and (b) for business purpose loans, 75%; (viii) no more than 27% of such
Subsequent Mortgage Loans may be Balloon Loans; (ix) no more than 18% of such
Subsequent Mortgage Loans may be secured by mixed-use properties, commercial
properties, or four or more unit multifamily properties; (x) no more than 5% of
such Subsequent Mortgage Loans can be secured by commercial properties; and (xi)
following the purchase of such Subsequent Mortgage Loans by the Trust, the
Mortgage Loans (including the Subsequent Mortgage Loans) (a) will have a
weighted average Mortgage Interest Rate, (I) for consumer purpose loans, of at
least 11.30% and (II) for business purpose loans, of at least 15.50%; and (b)
will have a weighted average LTV of not more than 74%. The Pooling and Servicing
Agreement will provide that any of such requirements may be waived or modified
in any respect upon prior written consent of the Certificate Insurer.
THE ORIGINATORS, THE SELLER AND THE SERVICER
General
American Business Credit, Inc., a Pennsylvania corporation, the
Servicer and an Originator, is a wholly- owned direct subsidiary of American
Business Financial Services, Inc. ("ABFS"). HomeAmerican Credit, Inc. d/b/a
Upland Mortgage, a Pennsylvania corporation, an Originator and the Subservicer,
is a wholly-owned subsidiary of ABC. The Seller, ABFS 1997-1, Inc., a Delaware
corporation, is owned by ABC and Upland.
ABFS is a financial services company operating primarily in the
mid-Atlantic region of the United States. ABFS, through ABC, originates, sells
and services loans to businesses secured by real estate and other business
assets, and, through Upland, originates, sells and services non-conforming
mortgage loans, typically to credit impaired borrowers, secured by mortgages on
single-family residences. ABFS, through a subsidiary, also originates small
ticket leases (generally $10,000 to $150,000) for the acquisition of business
equipment. In addition, ABFS, acting through Upland, has recently entered into
exclusive business arrangements with several financial institutions pursuant to
which Upland will purchase home equity loans that do not meet the underwriting
guidelines of the selling institution but meet Upland's underwriting criteria
(the "Bank Alliance Program").
ABFS's customers currently consist primarily of two groups. The first
category of customers includes credit impaired borrowers who generally are
unable to obtain financing from banks, savings and loan associations or other
finance companies that have historically provided loans only to individuals with
favorable credit characteristics. These borrowers generally have impaired or
unsubstantiated credit characteristics and/or unverifiable income and respond
favorably to ABFS's marketing efforts. The second category of customers includes
borrowers who would qualify for loans from traditional lending sources but elect
to utilize ABFS's products and services. ABFS's experience has indicated that
these borrowers are attracted to ABFS's loan products as a result of its
marketing efforts, the personalized service provided by ABFS's staff of lending
officers and the timely response to loan requests. Historically, both categories
of customers have been willing to pay ABFS's origination fees and interest rates
which are generally higher than those charged by traditional lending sources.
ABFS was incorporated in Delaware in 1985. ABFS is a publicly traded
company and its common stock is listed on the Nasdaq National Market System
under the symbol "ABFI." The principal executive offices of ABFS and its
operating entities are located at Balapointe Office Centre, 111 Presidential
Boulevard, Suite 215, Bala Cynwyd, PA 19004. Its telephone number at such
address is (610) 668-2440.
S-31
<PAGE>
The Originators
The Mortgage Loans were or will be originated or purchased by the
Originators directly in the ordinary course of their business. The Originators'
primary source of loan product is retail marketing, directly targeting small
businesses and consumers through various advertising mediums.
The business purpose Mortgage Loans were or will be originated or
purchased by ABC (except for Mortgage Loans which are secured by properties
located in states where the originating or purchasing of mortgage loans requires
a mortgage banking license, in which case Upland has or will originate or
purchase such Mortgage Loans). The consumer purpose Mortgage Loans were or will
be originated or purchased by Upland.
Neither ABC nor Upland will insure or guarantee the Class A
Certificates.
American Business Credit, Inc. ABC originates, services and sells
business purpose loans collateralized by real estate. ABC's operating
subsidiaries include: (i) Upland, a consumer purpose mortgage company; (ii)
Process Servicing Center, Inc., a loan processor for home equity loans generated
by the Bank Alliance Program; (iii) HomeAmerican Consumer Discount Company, a
consumer loan company; (iv) American Business Leasing, Inc., a small equipment
leasing company; and (v) ABC Holdings Corporation, a holder of foreclosed real
estate. ABC was incorporated in 1988 pursuant to the laws of the Commonwealth of
Pennsylvania and maintains its corporate headquarters in the metropolitan
Philadelphia area.
ABC currently markets its financial services and originates or
purchases business loans throughout eastern Pennsylvania, Delaware, Maryland,
New Jersey, New York, Virginia and Connecticut. ABC is investigating expanding
its market by offering business loans in the southeastern United States. ABC's
origination program is primarily a retail marketing program utilizing various
forms of advertising and a direct sales force. ABC's marketing effort is
principally undertaken by its commissioned sales staff, which consists of full
time professional sales persons who are responsible for converting advertising
leads into loan applications. ABC advertises through newspapers and radio as
well as by conducting large direct mail campaigns targeted at owners of small
businesses located in ABC's market area.
ABC makes business purpose mortgage loans to corporations,
partnerships, other business entities and sole proprietors. ABC primarily makes
loans to borrowers with non-perfect credit histories. As a result, ABC typically
requires lower loan-to-value ratios than are generally required of borrowers
with unblemished credit histories. All such loans are collateralized by a first
or second mortgage lien on a principal residence or some other parcel of real
property, such as office and apartment buildings and mixed use buildings owned
by the borrower, a principal of the borrower, or a guarantor of the borrower.
ABC, generally, further collateralizes its loans by obtaining a lien on the
borrower's other tangible and intangible assets and by filing appropriate UCC
financing statements.
ABC makes loans for various business purposes including, but not
limited to, working capital, business expansion, equipment acquisition and
debt-consolidation. ABC does not target any particular industries or trade
groups. See "The Mortgage Pool."
Loans made by ABC generally range from $20,000 to $350,000 and average
approximately $60,000. See "The Mortgage Pool."
HomeAmerican Credit, Inc. d/b/a Upland Mortgage. Upland, ABC's home
equity lending subsidiary, is a Pennsylvania corporation and was incorporated in
May 1991. Upland primarily originates residential mortgages and consumer home
equity loans. Upland is licensed to act and currently operates as a first and
second mortgage banker/lender in Pennsylvania, New Jersey, Delaware, Georgia,
Maryland, North Carolina and Virginia. Upland has recently been granted licenses
to act as a mortgage lender and expects to begin originating consumer home
equity loans in Connecticut, Florida and South Carolina during calendar 1997.
S-32
<PAGE>
Upland originates business loans on behalf of ABC in the instances
where state licensing laws require a mortgage license in order to make such
loans. In such circumstances, the credit criteria and collateral requirements
utilized by Upland are identical to those utilized by ABC. As such, ABC's
lending procedures and policies govern Upland when it is originating business
purpose Mortgage Loans.
Upland primarily markets its residential mortgage and consumer home
equity loans through print advertisement in various newspapers, television and
radio advertisements and through direct mail campaigns in the states where it
originates or purchases mortgage loans. Upland takes applications from potential
borrowers over the phone and in person. The loan request is then processed and
closed. Upland attempts to provide its home equity borrowers with a loan
approval within 24 hours and to close its home equity loans within approximately
seven to ten days of obtaining a loan approval.
Upland's growth strategy includes not only geographic expansion into
the markets where it has recently been granted mortgage licenses, but also the
acquisition of other mortgage bankers and brokers which compliment Upland's
market. Toward this goal, HomeAmerican Credit, Inc., in February 1996, acquired
all of the assets of Upland Mortgage Corp., a New Jersey and Pennsylvania
licensed mortgage broker and commenced doing business as "Upland Mortgage" in
August, 1996.
Historically, each of the non-business residential mortgages and home
equity consumer loans originated and funded by Upland was sold to one of several
third party lenders, at a premium. Upland presently accumulates portfolios of
such non-business loans for the purpose of retaining such loans, selling such
loans in bulk or engaging in securitizations. The business loans made by Upland
are either retained in Upland's portfolio, securitized or sold to third parties.
Upland's residential mortgages and home equity loans are currently made in
accordance with loan-to-value standards set forth in the underlying credit
manual. The loan-to-value ratios and terms and conditions utilized for its
business loans are identical to those utilized by ABC.
In fiscal 1996, Upland, in conjunction with the Processing Service
Center, Inc., implemented the Bank Alliance Program, which is designed to
provide an additional source of home equity loans. The Bank Alliance Program
targets traditional financial institutions, such as banks, which because of
their strict underwriting and credit guidelines have generally provided mortgage
financing only to the most credit-worthy borrowers. The Bank Alliance Program
enables such financial institutions to originate loans to credit impaired
borrowers in order to achieve certain community reinvestment objectives and
subsequently sell such loans to Upland.
Under the program, a borrower who fails to meet a financial
institution's underwriting guidelines will be referred to the Processing Service
Center, Inc. which will process the loan application and underwrite the loan
pursuant to Upland's underwriting guidelines. If the borrower qualifies under
Upland's underwriting standards, the loan will be originated by the financial
institution and subsequently sold to Upland.
Since the introduction of this program, agreements have been entered
into with six financial institutions which provide Upland with the opportunity
to underwrite, process and purchase loans generated by the branch networks of
such institutions, which consist of approximately 800 branches located in
Pennsylvania, Delaware, New Jersey and Maryland. During fiscal 1996 and the six
months ended December 31, 1996, $6.2 million and $3.0 million, respectively, of
loans were purchased pursuant to the Bank Alliance Program. Upland continues to
market this program to other regional and national banking institutions. Upland
is also negotiating with other financial institutions regarding their
participation in the program.
Underwriting Guidelines
General. The Originators' loan underwriting standards are applied to
evaluate prospective borrowers' credit standing and repayment ability and the
value and adequacy of the mortgaged property as collateral. Initially, the
borrower is required to fill out a detailed application providing pertinent
credit information. As part of the description of the borrower's financial
condition, the borrower is required to provide information concerning assets,
liabilities, income, credit, employment history and other demographic and
personal information. If the application demonstrates the borrower's ability to
repay the debt as well as sufficient income and equity,
S-33
<PAGE>
loan processing personnel obtain and review an independent credit bureau report
on the credit history of the borrower and verification of the borrower's income
by obtaining and reviewing one or more of the borrower's pay stubs, income tax
returns, checking account statements, W-2 tax forms or verification of business
or employment forms. Once all applicable employment, credit and property
information is obtained, a determination is made as to whether sufficient
unencumbered equity in the property exists and whether the prospective borrower
has sufficient monthly income available to meet the borrower's monthly
obligations.
The Originators endeavor at all times to keep their interest and other
charges competitive with the lending rates of other finance companies for
similar type loans. Generally, loans are made at fixed rates for fixed terms
ranging from 5 to 30 years. Generally, the Originators compute interest due on
their outstanding loans by the simple interest method. The Originators require
that title insurance be obtained in connection with their loans.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraisal is
completed by an independent qualified appraiser and generally includes pictures
of comparable properties and pictures of the subject property's interior. With
respect to business and consumer purpose loans, the appraisal is completed by a
qualified appraiser on a FNMA form.
The due dates for monthly payments on the Mortgage Loans occur
throughout a month, (each, a "Due Date"). See "The Mortgage Pool" herein. The
majority of the business purpose loans have a prepayment fee clause. Such
prepayment fee clauses generally provide that the borrower pay one or more of
the following: (i) a fee equal to a percentage of the outstanding principal
balance of the Mortgage Loan, such percentage having been negotiated at the time
of origination, (ii) a fee which is designed to allow the holder of the Mortgage
Note to earn interest on the Mortgage Loan as if the Mortgage Loan remained
outstanding until a designated point in time, or (iii) a fee equal to the amount
of interest on the outstanding principal balance of the Mortgage Loan calculated
pursuant to a Rule of 78's calculation, which has the effect of requiring the
mortgagor to pay a greater amount of interest than would be required to be paid
if the actuarial method of calculating interest was utilized. See "Certain Legal
Aspects of the Mortgage Loans and Contracts -- The Mortgage Loans" in the
Prospectus.
Lending Policies and Practices for Business Purpose Mortgage Loans.
Summarized below are the current lending policies and practices with respect to
the business purpose loans originated or purchased by ABC. It should be noted
that such policies and practices will be altered, amended and supplemented as
conditions warrant. ABC reserves the right to make changes in its day-to-day
practices and policies in its sole discretion.
Generally, business purpose loans collateralized by residential real
estate must have an overall loan-to-value ratio (based solely on the independent
appraised fair market value of the real estate collateral securing the loan) on
the properties collateralizing the loans of no greater than 75%. Business
purpose loans collateralized by commercial real estate generally must have an
overall loan-to-value ratio (based solely on the independent appraised fair
market value of the real estate collateral securing the loan) of no greater than
60%. In addition, in substantially all instances, ABC receives additional
collateral in the form of, among other things, pledges of securities,
assignments of contract rights, life insurance and lease payments and liens on
business equipment and other business assets, as available.
Lending Policies and Practices for Consumer Purpose Mortgage Loans. The
maximum allowed loan-to-value ratio for consumer purpose loans is 90%. The
consumer purpose loans originated by Upland had an average loan-to-value ratio
of 69.0% and 68.8% for the six months ended December 31, 1996 and the year ended
June 30, 1996, respectively. When the loan-to-value ratio is equal to 75% or
greater, Upland will not make a second mortgage loan when the second mortgage
loan amount is less than 15% of the existing first lien mortgage loan amount.
When the fair market value of a property exceeds $450,000 Upland will only lend
50% of the property's value exceeding $450,000. Occasionally, exceptions to
these maximum levels are made if other collateral is available. Occasionally,
exceptions to these maximum loan-to-value ratios are made if other collateral is
available or if there are compensating factors. Title insurance generally is
obtained in connection with all real estate secured loans.
S-34
<PAGE>
Upland attempts to maintain its interest and other charges competitive
with the lending rates of other finance companies and banks. Generally, its
consumer purpose loans are made at fixed rates for fixed terms and may extend
for a term of up to 30 years. In all instances, Upland permits borrowers to
prepay such loans. Where permitted by applicable law, Upland may impose a
prepayment fee. Whether a prepayment fee is imposed and the amount of such
penalty, if any, is negotiated between Upland and the individual borrower prior
to closing the loan. In the majority of cases, Upland does not impose a
prepayment fee.
Terms of the Mortgage Loans. The principal amount of the Mortgage Loans
outstanding bears interest at a fixed rate as indicated on the Mortgage Notes.
Interest with respect to a majority of the Mortgage Loans included or to be
included in the Mortgage Pool accrues on a simple interest method. The simple
interest method provides for the amortization of the amount of such Mortgage
Loan over a series of monthly payments. Each monthly interest payment is
calculated by multiplying the outstanding principal balance of such loan by the
stated interest rate. Such product is then multiplied by a fraction, the
numerator of which is the number of days elapsed since the preceding payment of
interest was made and the denominator of which is 360. Payments received on a
Mortgage Loan are applied first to interest accrued to the date of payment, then
to late fees and other charges and then to reduce the unpaid principal balance
of the related loan. The remainder of the Mortgage Loans are not fully amortized
over their terms and instead require substantial balloon payments on their
maturity dates.
The Mortgage Notes provide the holder with the right to require the
borrower to make immediate payment of the entire principal balance plus all
accrued but unpaid interest under the loan agreement if, among other things, the
borrower fails to make any payment under the loan agreement when due (subject to
a grace period or right to cure a default required by state law), or if the
borrower transfers any interest in the property securing the loan agreement.
In the event of default on a mortgage that is senior to a Mortgage
Loan, the second mortgagee has the right in many states to satisfy the defaulted
first mortgage in full, or to cure such default and make the defaulted senior
mortgage current as to payment, in either event adding any amounts expended in
connection with such satisfaction or cure to the then current principal balance
due for such Mortgage Loan. In such an event of default, the Servicer will
either take the actions described above, take other appropriate actions, or
refrain from taking any action based upon the Servicer's practices in connection
with servicing loans for itself and others. See "Certain Legal Aspects of the
Mortgage Loans and Contracts -- The Mortgage Loans" in the Prospectus.
The Servicer
ABC will be responsible for servicing the Mortgage Loans in accordance
with its established servicing procedures and the terms of the Pooling and
Servicing Agreement. ABC will contract with Upland to act as subservicer with
respect to the servicing of the consumer purpose Mortgage Loans. Upland follows
the same servicing procedures described below with respect to ABC.
ABC begins the collection process 20 days prior to the payment date by
sending an invoice to the mortgagor. ABC initiates the telephone collection
process one day after a borrower misses a monthly due date. ABC's daily
automated collection system identifies delinquent mortgage loans and places them
on a collector's delinquency file. A collector then attempts to call the
delinquent borrower. The collector attempts to contact the delinquent borrower
every day until either a promise to pay has been made by such borrower or such
borrower makes all delinquent payments. When a delinquent borrower makes a
promise to pay, the collector attempts to contact the borrower by phone on the
expected payment date. If telephone contact is not made, the collector sends a
computer generated reminder notice to the borrower. During any period of
delinquency, ABC generates a payment reminder letter to the borrower three (3)
days after a missed monthly due date, a late notice is sent to the borrower
seven (7) days after the due date and if no payment or arrangement for payment
has been made fifteen (15) days after the borrower's due date, an attorney
referral letter is sent. When a mortgage loan is 15 days past due and no contact
has been made with the borrower, a supervisor reviews the account of the
borrower to ensure that all procedures and contacts have been made. At this
time, new contact letters are sent to the delinquent borrower. With respect to
second mortgage loans, the servicer of the first mortgage loan is
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<PAGE>
contacted to determine if the borrower is also delinquent on the first mortgage
loan. When a mortgage loan becomes forty-five (45) to sixty (60) days
delinquent, it is transferred to ABC's loan work-out department.
When a mortgage loan is received in the work-out department, telephone
contact continues, a new default notice is sent to the borrower, an updated
property value report is ordered for the collateral, the tax status of the
mortgage loan is determined, and the first lien holder (if applicable) is
contacted to determine the status of its loan. If a first mortgage is in
default, ABC may advance funds to keep the first mortgage current or may choose
to pay off the senior mortgage.
If the borrower has declared bankruptcy or the first mortgagor is
foreclosing, the matter is immediately referred to outside counsel. The work-out
department will attempt to reinstate the loan, seek a payoff, or enter into a
loan modification agreement with the borrower to avoid foreclosure.
Supporting ABC's collection and accounting functions is a network of
computer hardware and software. ABC's current computer system produces mortgage
loan invoices, payment reminders and late notices. In addition to these
collection functions, the computer provides an in-depth customer contact system
which enables ABC's collectors to manage each borrower's loan history by
individually logging all correspondence into the system's data base. The system
also generates numerous management reports detailing collection activity and
accounting information.
Delinquency and Loan Loss Experience
The following tables set forth information relating to the delinquency
and loan loss experience on the mortgage loans included in ABC's and Upland's
servicing portfolio for the periods shown. The delinquency and loan loss
experience represents the historical experience of the Originators, and there
can be no assurance that the future experience on the Mortgage Loans in the
Trust will be the same as, or more favorable than, that of the total mortgage
loans in ABC's and Upland's servicing portfolio.
Delinquency and Foreclosure Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
At December 31, 1996 At June 30, 1996
-------------------- ----------------
Number Number of
of Loans % of Loans Amount % of Amount Loans % of Loans Amount % of Amount
Serviced Serviced Serviced Serviced Serviced Serviced Serviced Serviced
--------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Servicing portfolio...... 1,642 100.00% $96,726 100.00% 887 100.00% $55,174 100.00%
Past due loans (1):
60-89 days.............. 4 0.24% 338 0.35% 4 0.45% 118 0.21%
90 days or more ........ 10 0.61% 404 0.42% 17 1.91% 1,033 1.87%
------ ------ ------- ------ ---- ------ ----- ------
Total past due loans.... 14 0.85% 742 0.77% 21 2.36% 1,151 2.08%
Foreclosures pending (2) 5 0.30% 234 0.24% 7 0.79% 620 1.12%
REO Properties (3)...... 3 0.18% 151 0.16% 7 0.79% 608 1.10%
------ ------ ------- ------ ---- ------ ----- ------
Total past due loans,
foreclosures pending
and REO Properties(3)... 22 1.33% $1,127 1.17% 35 3.95% $2,379 4.31%
</TABLE>
(1) The past due period is based on the actual number of days that a
payment is contractually past due. A loan as to which a monthly payment
was due 60-89 days prior to the reporting period is considered 60-89
days past due, etc.
(2) Includes bankruptcies which preclude foreclosure.
(3) An "REO Property" is a property acquired and held as a result of
foreclosure or deed in lieu of foreclosure.
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<PAGE>
Loan Charge-Off Experience
(Dollars in Thousands)
-----------------------
<TABLE>
<CAPTION>
Quarter Ending
Quarter Ending September 30, Year Ended
December 31, 1996 1996 June 30, 1996
----------------- ---- -------------
<S> <C> <C> <C>
Servicing portfolio at period end..................... $96,726 $70,148 $55,174
Average outstanding(1)................................ $88,841 $65,972 $49,078
Number of loans outstanding.........................
Gross losses(2)..................................... $ 1,642 $ 1,190 $ 887
Loan recoveries..................................... $ 58 $ 50 $ 92
-------- -------- --------
Net loan charge-offs................................ $ 58 $ 50 $ 92
Net loan charge-offs as a percentage
of servicing portfolio at period end................ 0.06% 0.07% 0.17%
Net loan charge-offs as a percentage
of average outstanding.............................. 0.06% 0.08% 0.19%
</TABLE>
(1) "Average outstanding" presented is the arithmetic average of the
principal balances of the loans in the Originator's servicing portfolio
outstanding at the opening and closing of business for such period.
(2) "Gross losses" means the outstanding principal balance plus accrued but
unpaid interest on liquidated mortgage loans.
While the above delinquency and foreclosure and loan charge-off
experiences are typical of the Originators' experiences at the date for the
period indicated, there can be no assurance that the delinquency and foreclosure
and loan charge-off experiences on the Mortgage Loans will be similar.
Accordingly, the information should not be considered to reflect the credit
quality of the Mortgage Loans included in the Trust, or as a basis of assessing
the likelihood, amount or severity of losses on the Mortgage Loans. The
statistical data in the tables is based on all of the loans in the Originators'
servicing portfolio. The Mortgage Loans, in general, are likely to have
characteristics which distinguish them from the majority of the loans in the
Originators' servicing portfolio.
PREPAYMENT AND YIELD CONSIDERATIONS
The weighted average life of, and, if purchased at other than par, the
yield to maturity on, a Class A 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,
liquidations due to defaults, casualties and condemnations, and repurchases of
or substitutions for Mortgage Loans by ABC or an affiliate of ABC as required or
permitted under the Pooling and Servicing Agreement or the Unaffiliated Seller's
Agreement.
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 and the extent of
the mortgagors' equity in such properties, and changes in the mortgagors'
housing needs, job transfers and unemployment.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing interest
rates fall significantly below the interest rates at the time of origination,
mortgage loans may be subject to higher prepayment rates than if prevailing
rates remain at or above
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<PAGE>
those at the time such mortgage loans were originated. Conversely, if prevailing
interest rates rise appreciably above the interest rates at the time of
origination, mortgage loans may experience a lower prepayment rate than if
prevailing rates remain at or below those at the time such mortgage loans were
originated. However, there can be no assurance that the Mortgage Loans will
conform to the prepayment experience of conventional mortgage loans or to any
past prepayment experience or any published prepayment forecast. No assurance
can be given as to the level of prepayments on Mortgage Loans that the Trust
Fund will experience.
As indicated above, if purchased at other than par, the yield to
maturity on a Class A Certificate will be affected by the rate of the payment of
principal on the Mortgage Loans. If the actual rate of payments on the Mortgage
Loans is slower than the rate anticipated by an investor who purchases a Class A
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
a Class A Certificate at a premium, the actual yield to such investor will be
lower than such investor's anticipated yield.
The final distribution date is expected to be February 15, 2010 for the
Class A-1 Certificates, February 15, 2012 for the Class A-2 Certificates, and
August 15, 2028 for the Class A-3 Certificates (each, a "Final Scheduled
Maturity Date"). Each such Final Scheduled Maturity Date was calculated using
the following methodolgy assumptions: (i) with respect to the Class A-1
Certificates and the Class A-2 Certificates, (x) the Modeling Assumptions (as
defined below), (y) 0% of the Prepayment Assumption (as defined below) and (z) a
Specified Subordinated Amount of $0, and (ii) with respect to the Class A-3
Certificates, such Final Scheduled Maturity Date is 13 months after the final
stated maturity date of the Mortgage Loan having the latest maturity date,
assuming a Subsequent Mortgage Loan having a final stated maturity date of July
15, 2027 is purchased by the Trust. The weighted average life of the Class A
Certificates is likely to be shorter than would be the case if payments actually
made on the Mortgage Loans conformed to the foregoing assumption, and the final
Distribution Date with respect to any Class of the Class A Certificates could
occur significantly earlier than the Final Scheduled Maturity Date because (i)
prepayments (including, for this purpose, prepayments attributable to
foreclosure, liquidation, repurchase and the like) on Mortgage Loans are likely
to occur, (ii) with respect to the Class A-3 Certificates, thirteen months have
been added to obtain the Final Scheduled Maturity Date above, (iii) the
application of excess interest to the payment of principal in connection with
overcollateralization, and (iv) the Servicer may cause a liquidation of the
Trust Fund when the aggregate outstanding principal amount of the Mortgage Loans
is less than 10% of the sum of (a) the Cut-Off Date Aggregate Principal Balance
and (b) the Original Pre-Funded Amount.
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security is scheduled to be repaid to an investor. The weighted average
life of the Class A Certificates will be influenced by the rate at which
principal of the Mortgage Loans is paid, which may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
liquidations due to default).
Prepayments on mortgage loans are commonly measured relative to a
prepayment model or standard. The model used in this Prospectus Supplement
("Home Equity Prepayment" or "HEP") is a prepayment assumption (the "Prepayment
Assumption") which represents an assumed rate of prepayment each month relative
to the then outstanding principal balance of a pool mortgage loans for the life
of such mortgage loans. 23% HEP assumes a constant prepayment rate of 2.3% per
annum of the then outstanding principal balance of the Mortgage Loans in the
first month of life of the Mortgage Loans and an additional 2.3% per annum in
each month thereafter up to and including the tenth month. Beginning in the
eleventh month and in each month thereafter during the life of the Mortgage
Loans, 23% HEP assumes a constant prepayment rate of 23% per annum. As used in
the table below, 0% Prepayment Assumption assumes prepayment rates equal to 0%
of the Prepayment Assumption, i.e., no prepayments on the mortgage loans having
the characteristics described below. 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 following table has been prepared on the basis of the following
assumptions (collectively the "Modeling Assumptions"):
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<PAGE>
(i) The Mortgage Loans prepay at the indicated percentage of the
Prepayment Assumption, (ii) distributions on the Certificates are received in
cash on the 15th day of each month commencing in April 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 last day of each month
commencing in March 1997 (or as set forth in the following table) and
prepayments represent payments in full of individual Mortgage Loans and are
assumed to be received on the last day of each month, commencing in March 1997
(or as set forth in the following table) and include 30 days' interest thereon,
(v) the Class A-1 Pass-Through Rate remains constant at 6.525% per annum, the
Class A-2 Pass- Through Rate remains constant at 6.925% per annum, and the Class
A-3 Pass-Through Rate remains constant at 7.525% per annum, (vi) the
Certificates are purchased on March 27, 1997, (vii) all calculations are made on
the basis of a 360 day year consisting of twelve 30 day months, (viii) the
Specified Subordinated Amount is as set forth in the Pooling and Servicing
Agreement and (ix) the Mortgage Pool consists of eight Mortgage Loans having the
following characteristics:
<TABLE>
<CAPTION>
Original
Amortizing Remaining Amortizing Remaining
Principal Mortgage Term Term Term to Maturity
Balance($) Interest Rate(%) (in months) (in months) (in months)
---------- ---------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
4,950,843.01 12.506 107 106 106
17,114,906.11 13.915 180 179 179
12,117,077.04 11.550 240 239 239
2,836,007.57 11.074 360 359 359
167,147.49 15.796 180 180 60
12,814,018.78 12.203 360 359 179
6,490,583.13(1) 12.250(2) 360 360 180
18,509,416.87(1) 12.735(2) 204 204 204
</TABLE>
----------------------
(1) Assumes transfer to the Trust in April 1997 with the characteristics
set forth above. Scheduled payments are assumed to be received on the
last day of each month commencing in April 1997. Prepayments are
assumed to be received on the last day of each month commencing in
April 1997 and include 30 days' interest thereon.
(2) During the first Due Period, interest is assumed to be available for
payment to the Class A Certificates at a rate of 7.715% per annum.
Based upon the foregoing Modeling Assumptions, the tables below
indicate the weighted average life and earliest retirement date of the Class A
Certificates assuming that the Mortgage Loans prepay according to the indicated
percentages of the Prepayment Assumption.
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<PAGE>
<TABLE>
<CAPTION>
Weighted Average Lives
Class A-1 Certificates
Prepayment Weighted Average Earliest Retirement
Assumption (HEP) Life (1)(2) Date (3)
- ----------------------------------- ---------------------------------- ---------------------
<S> <C> <C> <C> <C>
0% 6.06 9/15/08
18% 1.24 10/15/99
20% 1.16 7/15/99
23% 1.05 4/15/99
26% 0.97 2/15/99
30% 0.88 11/15/98
Class A-2 Certificates
Prepayment Weighted Average Earliest Retirement
Assumption (HEP) Life (1)(2) Date (3)
- ----------------------------------- ---------------------------------- ---------------------
0% 13.67 2/15/12
18% 3.79 9/15/02
20% 3.46 3/15/02
23% 3.05 8/15/01
26% 2.73 2/15/01
30% 2.38 8/15/00
Class A-3 Certificates
Prepayment Weighted Average Earliest Retirement
Assumption (HEP) Life (1)(3) Date (3)
- ----------------------------------- ---------------------------------- ---------------------
0% 15.73 12/15/13
18% 8.25 5/15/07
20% 7.52 6/15/06
23% 6.67 6/15/05
26% 5.93 7/15/04
30% 5.17 8/15/03
----------------------
</TABLE>
(1) The weighted average life of each Class of Class A Certificates is
determined by (a) multiplying the amount of each principal payment by
the number of years from the Closing Date to the related Distribution
Date; (b) adding the results; and (c) dividing the sum by the Original
Certificate Principal Balance.
(2) Determined assuming no early termination of the Trust Fund occurs.
(3) Determined assuming early termination of the Trust Fund occurs on the
Clean-up Call Date as described herein.
----------------------
There is no assurance that prepayments will occur or, if they do occur,
that they will occur at any percentage of HEP.
The Pooling and Servicing Agreement provides that none of the
Certificate Insurer, the Trust, the Trustee, the Seller, the Depositor, the
Originators or the Servicer will be liable to any Certificateholder or Holder
for any loss or damage incurred by such Certificateholder or Holder as a result
of any difference in the rate of return received by such Certificateholder or
Holder as compared to the applicable Pass-Through Rate, with respect to any
Holder of Class A Certificates upon reinvestments of the funds received in
connection with any premature
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<PAGE>
repayment of principal on the Certificates, including any such repayment
resulting from any prepayment by the Mortgagor, any liquidation of such Mortgage
Loan, or any repurchase of or substitution for any Mortgage Loan by the Seller
or the Servicer.
DESCRIPTION OF THE CERTIFICATES
General
The Class A-1 Certificates, the Class A-2 Certificates and the Class
A-3 Certificates (collectively, the "Class A Certificates") will be issued by
the Trust. In addition to the Class A Certificates, the Trust will also issue
the Class R Certificates. The Class R Certificates have been designated as the
single "residual interest" for purposes of the Code. The Class R Certificates
are not being offered hereby.
Each Class A Certificate represents a certain fractional undivided
ownership interest in the Trust Fund created and held pursuant to the Pooling
and Servicing Agreement, subject to the limits and the priority of distribution
described therein. The Trust Fund consists of (a) the Mortgage Loans, together
with the mortgage files relating thereto and all collections thereon and
proceeds thereof collected after the Cut-Off Date (other than monthly payments
due on each Mortgage Loan up to and including any Due Date occurring on or prior
to February 28, 1997), (b) such assets as from time to time are identified as
REO Property and collections thereon and proceeds thereof, (c) assets that are
deposited in the Accounts (as defined herein), including amounts on deposit in
the Accounts and invested in accordance with the Pooling and Servicing Agreement
("Permitted Investments"), (d) the Trustee's rights with respect to the Mortgage
Loans under all insurance policies required to be maintained pursuant to the
Pooling and Servicing Agreement and any insurance proceeds, (e) Liquidation
Proceeds and (f) released mortgaged property proceeds. In addition, the Seller
will cause the Certificate Insurer to issue the Certificate Insurance Policy
under which it will guarantee payments to the Class A Certificateholders as
described herein.
Book-Entry Registration
The Class A Certificates will be issued only in book-entry form, in
denominations of $1,000 initial principal balance and integral multiples of
$1,000 in excess thereof, except that one Class A Certificate of each Class may
be issued in a different amount.
The Beneficial Owners may elect to hold their Class A Certificates
through DTC in the United States, or CEDEL or Euroclear (in Europe) if they are
participants in such systems ("Participants"), or indirectly through
organizations which are Participants in such systems. The Book-Entry
Certificates will be issued in one or more certificates per Class of Class A
Certificates which in the aggregate equal the Certificate Principal Balance of
such Class A Certificates and will initially be registered in the name of Cede,
the nominee of DTC. CEDEL and Euroclear will hold omnibus positions on behalf of
their Participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC. Chase will act as depositary for CEDEL and Morgan
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. 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 "Holder" of
such Class A Certificates will be Cede, as nominee of DTC. Beneficial Owners
will not be Holders as that term is used 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
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<PAGE>
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).
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations ("Participants") and to
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entries, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers (including the Underwriter), banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Book-Entry Certificates, such as the Class A Certificates, among Participants
on whose behalf it acts with respect to the Book-Entry Certificates and to
receive and transmit distributions of principal of and interest on the
Book-Entry Certificates. Participants and Indirect Participants with which
Beneficial Owners have accounts with respect to the Book-Entry Certificates
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Beneficial Owners.
Beneficial Owners that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Book-Entry Certificates may do so only through Participants and
Indirect Participants. In addition, Beneficial Owners will receive all
distributions of principal and interest from the Trustee, or a paying agent on
behalf of the Trustee, through DTC Participants. DTC will forward such
distributions to its Participants, which thereafter will forward them to
Indirect Participants or Beneficial Owners. Beneficial Owners will not be
recognized by the Trustee, the Servicer or any paying agent as
Certificateholders, as such term is used in the Pooling and Servicing Agreement,
and Beneficial Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its Participants.
Because 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 -- REMIC Certificates" in the Prospectus.
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
S-42
<PAGE>
or receiving payment in accordance with normal procedures for same day funds
settlement applicable to DTC. CEDEL Participants and Euroclear Participants may
not deliver instructions directly to the European Depositaries.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its 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 31 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear Securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific 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 Cede, as nominee of 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
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.
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<PAGE>
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, as nominee of DTC.
Distributions with respect to Class A 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 Trustee 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 Depositor and the Servicer that it will take any
action permitted to be taken by a Certificateholder under the Pooling and
Servicing Agreement only at the direction of one or more Participants to whose
accounts with DTC the Book-Entry Certificates are credited. Additionally, DTC
has advised the Depositor that it will take such actions with respect to
specified percentages of voting rights only at the direction of and on behalf of
Participants whose holdings of Book-Entry Certificates evidence such specified
percentages of voting rights. DTC may take conflicting actions with respect to
percentages of voting rights to the extent that Participants whose holdings of
Book-Entry Certificates evidence such percentages of voting rights authorize
divergent action.
None of the Depositor, the Servicer, the Certificate Insurer 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.
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.
Definitive Certificates
The Class A Certificates, which will be issued initially as Book-Entry
Certificates, will be converted to Definitive Certificates and reissued to
Beneficial Owners or their nominees, rather than to DTC or its nominee, only if
(a) the Depository or the Servicer advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to the Book-Entry Certificates and the Depository or the Servicer
is unable to locate a qualified successor or (b) the Trustee, at its option,
elects to terminate the book-entry system through DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC will be required to notify all Participants of the availability
through DTC of Definitive Certificates. Upon delivery of Definitive
Certificates, the Trustee will reissue the Book-Entry Certificates as Definitive
Certificates to Beneficial Owners. Distributions of principal of, and interest
on, the Book-Entry Certificates will thereafter be made by the Trustee, or a
paying agent on behalf of the Trustee, directly to holders of Definitive
Certificates in accordance with the procedures set forth in the Pooling and
Servicing Agreement.
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee or the certificate registrar. No service charge will be
imposed for any registration of transfer or exchange, but the Trustee may
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require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
Assignment of Mortgage Loans
Pursuant to an Unaffiliated Seller's Agreement among the Originators,
the Depositor and the Seller (the "Unaffiliated Seller's Agreement"), the
Originators will sell, transfer, assign, set over and otherwise convey the
Mortgage Loans without recourse to the Seller and the Seller will sell,
transfer, assign, set over and otherwise convey the Mortgage Loans, including
all principal outstanding as of, and interest due after, the Cut-Off Date
without recourse to the Depositor on the Closing Date. Pursuant to the Pooling
and Servicing Agreement, the Depositor will sell, transfer, assign, set over and
otherwise convey without recourse to the Trustee in trust for the benefit of the
Certificateholders and the Certificate Insurer all right, title and interest in
and to each Mortgage Loan, including all principal outstanding as of, and
interest accrued after, the Cut-Off Date. Each such transfer will convey all
right, title and interest in and to (a) principal outstanding as of the Cut-Off
Date, and (b) interest due on each such Mortgage Loan after the Cut-Off Date;
provided, however, that the Seller will not convey, and the Seller reserves and
retains all its right, title and interest in and to, (i) principal (including
principal prepayments in full and curtailments (i.e., partial prepayments))
received on each such Mortgage Loan on or prior to the Cut-Off Date and (ii)
interest due on each Mortgage Loan on or prior to the Cut-Off Date.
In connection with such transfer and assignment, the Depositor will
cause to be delivered to the Trustee on the Closing Date the following documents
(collectively, with respect to each Mortgage Loan, the "Trustee's Mortgage
File") with respect to each Mortgage Loan:
(a) The original Mortgage Note, endorsed without recourse in
blank by the related Originator, including all intervening endorsements
showing a complete chain of endorsement;
(b) The related original Mortgage with evidence of
recording indicated thereon or a copy thereof certified by the
applicable recording office;
(c) The recorded mortgage assignment(s), or copies thereof
certified by the applicable recording office, if any, showing a
complete chain of assignment from the originator of the related
Mortgage Loan to the related Originator (which assignment may, at such
Originator's option, be combined with the assignment referred to in
clause (d) below);
(d) A mortgage assignment in recordable form (which, if
acceptable for recording in the relevant jurisdiction, may be included
in a blanket assignment or assignments) of each Mortgage from the
related Originator to the Trustee;
(e) Originals of all assumption, modification and substitution
agreements in those instances where the terms or provisions of a
Mortgage or Mortgage Note have been modified or such Mortgage or
Mortgage Note has been assumed; and
(f) An original title insurance policy (or (A) a copy of the
title insurance policy, or (B) a binder thereof or copy of such binder
together with a certificate from the Originator that the original
Mortgage has been delivered to the title insurance company that issued
such binder for recordation).
Pursuant to the Pooling and Servicing Agreement, the Trustee agrees to
execute and deliver on or prior to the Closing Date an acknowledgment of receipt
of the Certificate Insurance Policy and, for each Mortgage Loan, the original
Mortgage Note, item (a) above, with respect to the Mortgage Loans (with any
exceptions noted). The Trustee agrees, for the benefit of the Certificateholders
and the Certificate Insurer, to review (or cause to be reviewed) each Trustee's
Mortgage File within 30 days after the Closing Date (or, with respect to any
Qualified Substitute Mortgage Loan, within 30 days after the receipt by the
Trustee thereof) and to deliver a certification generally to the effect that, as
to each Mortgage Loan listed in the Mortgage Loan Schedule, (a) all documents
required to be delivered to it pursuant to the Pooling and Servicing Agreement
are in its
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possession, (b) each such document has been reviewed by it and has not been
mutilated, damaged, torn or otherwise physically altered, appears regular on its
face and relates to such Mortgage Loan, and (c) based on its examination and
only as to the foregoing documents, certain information set forth on the
Mortgage Loan Schedule accurately reflects the information set forth in the
Trustee's Mortgage File delivered on such date.
If the Trustee, during the process of reviewing the Trustee's Mortgage
Files, finds any document constituting a part of a Trustee's Mortgage File which
is not executed, has not been received or is unrelated to the Mortgage Loans, or
that any Mortgage Loan does not conform to the requirements above or to the
description thereof as set forth in the Mortgage Loan Schedule, the Trustee
shall promptly so notify the Servicer, the Seller and the Certificate Insurer in
writing with details thereof. The Seller agrees to use reasonable efforts to
cause to be remedied a material defect in a document constituting part of a
Trustee's Mortgage File of which it is so notified by the Trustee. If, however,
within 60 days after the Trustee's notice to it respecting such defect the
Seller has not caused to be remedied the defect and the defect materially and
adversely affects the interest of the Holders in the Mortgage Loan or the
interests of the Certificate Insurer, the Seller or the related Originator will
either (a) substitute in lieu of such Mortgage Loan a Qualified Substitute
Mortgage Loan and, if the then outstanding principal balance of such Qualified
Substitute Mortgage Loan is less than the principal balance of such Mortgage
Loan as of the date of such substitution plus accrued and unpaid interest
thereon, deliver to the Servicer as part of the related monthly remittance
remitted by the Servicer the amount of any such shortfall (the "Substitution
Adjustment") or (b) purchase such Mortgage Loan at a price equal to the
outstanding principal balance of such Mortgage Loan as of the date of purchase,
plus the greater of (i) all accrued and unpaid interest thereon and (ii) 30
days' interest thereon, computed at the related Mortgage Interest Rate, net of
the Servicing Fee if the Servicer is effecting the repurchase, plus the amount
of any unreimbursed Servicing Advances made by the Servicer, which purchase
price shall be deposited in the Certificate Account on the next succeeding
Servicer Distribution Date after deducting therefrom any amounts received in
respect of such repurchased Mortgage Loan or Loans and being held in the
Certificate Account for future distribution to the extent such amounts have not
yet been applied to principal or interest on such Mortgage Loan (see " -- Flow
of Funds" below); provided, however, that the Seller may not purchase any
Mortgage Loan that is not in default or as to which no default is imminent
pursuant to clause (b) preceding unless the Seller has theretofore caused to be
delivered to the Trustee an opinion of counsel knowledgeable in federal income
tax matters which states that such a purchase would not constitute a prohibited
transaction under the Code.
A "Qualified Substitute Mortgage Loan" is defined in the Pooling and
Servicing Agreement as any mortgage loan or mortgage loans substituted for a
deleted Mortgage Loan and which, among other things, (i) relates or relate to a
detached one-family residence or to the same type of residential dwelling as the
deleted Mortgage Loan and in each case has or have the same or a better lien
priority as the deleted Mortgage Loan and has the same occupancy status or is an
owner-occupied Mortgaged Property, (ii) matures or mature no later than (and not
more than one year earlier than) the deleted Mortgage Loan, (iii) has or have a
Loan-to-Value Ratio ("LTV") or LTVs at the time of such substitution no higher
than the LTV of the deleted Mortgage Loan, (iv) has or have a CLTV or CLTVs at
the time of such substitution no higher than the CLTV of the deleted Mortgage
Loan, (v) has or have a principal balance or principal balances (after
application of all payments received on or prior to the date of substitution)
not substantially less and not more than the principal balance of the deleted
Mortgage Loan as of such date, (vi) satisfies or satisfy the criteria set forth
from time to time in the definition of "qualified replacement mortgage" at
Section 860G(a)(4) of the Code (or any successor statute thereto), (vii) has a
mortgage interest rate of at least the same interest rate as the deleted
Mortgage Loan and (viii) complies or comply as of the date of substitution with
each representation and warranty set forth in the Pooling and Servicing
Agreement.
Representations and Warranties of the Seller
The Seller will represent, among other things, with respect to each
Mortgage Loan, as of the Closing Date, the following:
1. The information set forth in the Mortgage Loan Schedule
with respect to each Mortgage Loan is true and correct;
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2. All of the original or certified documentation constituting
the Trustee's Mortgage Files (including all material documents related
thereto) has been or will be delivered to the Trustee on the Closing
Date or as otherwise provided in the Unaffiliated Seller's Agreement;
3. The Mortgaged Property consists of a single parcel of real
property separately assessed for tax purposes, upon which is erected a
detached or an attached one-family residence or a detached two-to- six
family dwelling, or an individual condominium unit in a low-rise
condominium, or an individual unit in a planned unit development, or a
commercial property, or a mixed use or multiple purpose property. Such
residence, dwelling or unit is not (i) a unit in a cooperative
apartment, (ii) a property constituting part of a syndication, (iii) a
time share unit, (iv) a property held in trust, (v) a mobile home, (vi)
a manufactured dwelling, (vii) a log-constructed home, or (viii) a
recreational vehicle;
4. Each Mortgage is a valid first or second lien on a fee
simple (or its equivalent under applicable state law) estate in the
real property securing the amount owed by the Mortgagor under the
Mortgage Note subject only to (i) the lien of current real property
taxes and assessments which are not delinquent, (ii) any related first
mortgage loan, (iii) covenants, conditions and restrictions, rights of
way, easements and other matters of public record as of the date of
recording of such Mortgage, such exceptions appearing of record being
acceptable to mortgage lending institutions generally in the area
wherein the property subject to the Mortgage is located or specifically
reflected in the appraisal obtained in connection with the origination
of the related Mortgage Loan obtained by the Seller and (iv) 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 such Mortgage;
5. Immediately prior to the transfer and assignment by the
Seller to the Depositor, the Seller had good title to, and was the sole
owner of each Mortgage Loan, free of any interest of any other person,
and the Seller has transferred all right, title and interest in each
Mortgage Loan to the Depositor;
6. Each Mortgage Loan conforms, and all such Mortgage Loans
in the aggregate conform, to the description thereof set forth in this
Prospectus Supplement; and
7. All of the Mortgage Loans were originated in accordance
with the underwriting criteria set forth in this Prospectus Supplement.
Pursuant to the Pooling and Servicing Agreement, upon the discovery by
any of the Certificateholders, the Seller, the Servicer, any Subservicer, the
Certificate Insurer, or the Trustee that any of the representations and
warranties contained in the Pooling and Servicing Agreement have been breached
in any material respect as of the Closing Date, with the result that the
interests of the Certificateholders in the related Mortgage Loan or the
interests of the Certificate Insurer were materially and adversely affected
(notwithstanding that such representation and warranty was made to the Seller's
best knowledge and the Seller lacked knowledge of such breach), the party
discovering such breach is required to give prompt written notice to the other
parties. Subject to certain provisions of the Pooling and Servicing Agreement,
within 60 days of the earlier to occur of the Seller's or the applicable
Originator's discovery or its receipt of notice of any such breach, the Seller
or the related Originator will (a) promptly cure such breach in all material
respects, (b) remove each Mortgage Loan which has given rise to the requirement
for action by the Seller or the related Originator, substitute one or more
Qualified Substitute Mortgage Loans and, if the outstanding principal balance of
such Qualified Substitute Mortgage Loans as of the date of such substitution is
less than the outstanding principal balance, plus accrued and unpaid interest
thereon, of the replaced Mortgage Loans as of the date of substitution, deliver
to the Trust Fund as part of the amounts remitted by the Servicer on such
Distribution Date the amount of such shortfall, or (c) purchase such Mortgage
Loan at a price equal to the principal balance of such Mortgage Loan as of the
date of purchase plus the greater of (i) all accrued and unpaid interest thereon
and (ii) 30 days' interest thereon computed at the Mortgage Interest Rate, net
of the Servicing Fee if ABC is the Servicer, plus the amount of any unreimbursed
Servicing Advances made by the Servicer, and deposit such purchase price into
the Certificate Account on the next succeeding Servicer Distribution Date after
deducting therefrom any amounts received in respect of such repurchased Mortgage
Loan or Mortgage Loans and being held in the Certificate Account for future
distribution to the extent
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such amounts have not yet been applied to principal or interest on such Mortgage
Loan; provided, however, that any substitution of one or more Qualified
Substitute Mortgage Loans pursuant to clause (b) preceding must be effected not
later than two years after the Closing Date unless the Trustee and the
Certificate Insurer receive an opinion of counsel that such substitution would
not constitute a prohibited transaction for purposes of the REMIC provisions of
the Code; and, provided, further, that the Seller or the related Originator may
not purchase such Mortgage Loan that is not in default or as to which no default
is imminent pursuant to clause (c) preceding unless the Seller or the related
Originator has theretofore caused to be delivered to the Trustee and the
Certificate Insurer an opinion of counsel knowledgeable in federal income tax
matters in form and substance satisfactory to the Trustee and the Certificate
Insurer to the effect that such a purchase would not constitute a prohibited
transaction for purposes of the REMIC provisions of the Code or cause the Trust
Fund to fail to qualify as a REMIC at any time any Certificates are outstanding.
In addition, the Seller and the related Originator shall be obligated to
indemnify the Trustee, the Certificateholders and the Certificate Insurer for
any third-party claims arising out of a breach by the Seller of representations
or warranties regarding the Mortgage Loans. The obligation of the Seller and the
related Originator to cure such breach or to substitute or purchase any Mortgage
Loan and to indemnify constitute the sole remedies respecting a material breach
of any such representation or warranty to the Certificateholders, the Trustee
and the Certificate Insurer.
Payments on the Mortgage Loans
The Pooling and Servicing Agreement provides that the Servicer for the
benefit of the Certificateholders shall establish and maintain a Collection
Account (the "Collection Account"), which will generally be (i) an account
maintained with a depository institution or trust company whose long term
unsecured debt obligations are rated by each Rating Agency in one of its two
highest rating categories at the time of any deposit therein or (ii) trust
accounts maintained with a depository institution acceptable to each Rating
Agency (any such account, an "Eligible Account"). The Pooling and Servicing
Agreement permits the Servicer to direct any depository institution maintaining
the Collection Account to invest the funds in the Collection Account in one or
more Permitted Investments, as defined below, that mature, unless payable on
demand, no later than the Business Day preceding the date on which the Servicer
is required to transfer the Servicer Remittance Amount from the Collection
Account to the Certificate Account, as described below.
The Servicer is obligated to deposit or cause to be deposited in the
Collection Account on a daily basis, amounts representing the following payments
received and collections made by it after the Cut-Off Date (other than in
respect of Monthly Payments on the Mortgage Loans due on each Mortgage Loan up
to and including any Due Date occurring on or prior to February 28, 1997): (i)
all payments on account of principal, including prepayments of principal
("Principal Prepayments"); (ii) all payments on account of interest on the
Mortgage Loans, (iii) all Liquidation Proceeds and all Insurance Proceeds to the
extent such proceeds are not to be applied to the restoration of the related
Mortgaged Property or released to the related borrower in accordance with the
express requirements of law or in accordance with prudent and customary
servicing practices; (iv) all Net REO Proceeds; (v) all other amounts required
to be deposited in the Collection Account pursuant to the Pooling and Servicing
Agreement including prepayment fees; and (vi) any amounts required to be
deposited in connection with net losses realized on investments of funds in the
Collection Account.
The Trustee will be obligated to set up an account (the "Certificate
Account", and together with the Collection Account, the "Accounts"), which is
required to be an Eligible Account, into which the Servicer will deposit or
cause to be deposited the Servicer Remittance Amount on the 10th day of each
month (the "Servicer Distribution Date").
The "Servicer Remittance Amount" for a Servicer Distribution Date is
equal to the sum, without duplication, of (i) all collections of principal and
interest on the Mortgage Loans (including Principal Prepayments, Net REO
Proceeds and Liquidation Proceeds, if any) collected by the Servicer during the
prior calendar month, (ii) all Periodic Advances made by the Servicer with
respect to payments due to be received on the Mortgage Loans on the related Due
Date and (iii) any other amounts required to be placed in the Collection Account
by the Servicer pursuant to the Pooling and Servicing Agreement but excluding
the following:
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(a) amounts received on particular Mortgage Loans, with
respect to which the Servicer has previously made an unreimbursed
Periodic Advances, as late payments of interest, or as Net Liquidation
Proceeds, to the extent of such unreimbursed Periodic Advance;
(b) amounts received on a particular Mortgage Loan with
respect to which the Servicer has previously made an unreimbursed
Servicing Advance, to the extent of such unreimbursed Servicing
Advance;
(c) for such Servicer Distribution Date, the aggregate
Servicing Fee;
(d) all net income from Permitted Investments that is held in
the Collection Account for the account of the Servicer;
(e) all amounts in respect of late fees, assumption fees,
prepayment fees and similar fees;
(f) Net Foreclosure Profits; and
(g) certain other amounts which are reimbursable to the
Servicer, as provided in the Pooling and Servicing Agreement.
The amounts described in clauses (a) through (g) above may be withdrawn
by the Servicer from the Collection Account on or prior to each Servicer
Distribution Date.
"Foreclosure Profits" as to any Servicer Distribution Date, are the
excess, if any, of (i) Net Liquidation Proceeds in respect of each Mortgage Loan
that became a Liquidated Mortgage Loan during the month immediately preceding
the month of such Servicer Distribution Date over (ii) the sum of such unpaid
Principal Balance of each such Liquidated Mortgage Loan plus accrued and unpaid
interest on the unpaid Principal Balance from the Due Date to which interest was
last paid by the Mortgagor.
"Insurance Proceeds" are proceeds paid by any insurer pursuant to any
insurance policy covering a Mortgage Loan to the extent such proceeds are not
applied to the restoration of the related Mortgaged Property or released to the
related Mortgagor. "Insurance Proceeds" do not include "Insured Payments."
"Liquidation Expenses" as to any Liquidated Mortgage Loan are all
expenses incurred by the Servicer in connection with the liquidation of such
Mortgage Loan, including, without duplication, unreimbursed expenses for real
property taxes and unreimbursed Servicing Advances. In no event may Liquidation
Expenses with respect to a Liquidated Mortgage Loan exceed the related
Liquidation Proceeds.
"Liquidated Loan Loss" as to any Liquidated Mortgage Loan is the
excess, if any, of (i) the unpaid Principal Balance of such Liquidated Mortgage
Loan plus accrued and unpaid interest on such unpaid Principal Balance from the
Due Date to which interest was last paid by the Mortgagor over (ii) the sum of
the Net Liquidation Proceeds and the amount of any previously unreimbursed
Periodic Advances in respect of such Mortgage Loan.
"Liquidation Proceeds" are amounts (other than Insurance Proceeds)
received by the Servicer in connection with (i) the taking of all or a part of a
Mortgaged Property by exercise of the power of eminent domain or condemnation or
(ii) the liquidation of a defaulted Mortgage Loan through a trustee's sale,
foreclosure sale, REO Disposition or otherwise.
"Net Foreclosure Profits" as to any Servicer Distribution Date, are the
excess, if any, of (i) the aggregate Foreclosure Profits with respect to such
Servicer Distribution Date over (ii) Liquidated Loan Losses with respect to such
Servicer Distribution Date.
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"Net Liquidation Proceeds" as to any Liquidated Mortgage Loan, are
Liquidation Proceeds net of Liquidation Expenses and net of any unreimbursed
Periodic Advances made by the Servicer.
"Net REO Proceeds" as to any REO Property, are REO Proceeds net of any
related expenses of the Servicer.
"REO Proceeds" are monies received in respect of any REO Property
(including, without limitation, proceeds from the rental of the related
Mortgaged Property).
Servicing Fees and Other Compensation and Payment of Expenses
As compensation for its activities as Servicer under the Pooling and
Servicing Agreement, the Servicer shall be entitled with respect to each
Mortgage Loan to the Servicing Fee, which shall be payable monthly from amounts
on deposit in the Collection Account. The "Servicing Fee" shall be an amount
equal to interest at 1/12th of the Servicing Fee Rate for such Mortgage Loan on
the outstanding Principal Balance of such Mortgage Loan. The "Servicing Fee
Rate" with respect to each Mortgage Loan will be 0.50% per annum. In addition,
the Servicer shall be entitled to receive, as additional servicing compensation,
to the extent permitted by applicable law and the related Mortgage Notes, any
late payment charges, assumption fees or similar items. The Servicer shall also
be entitled to withdraw from the Collection Account any net interest or other
income earned on deposits therein. The Servicer shall pay all expenses incurred
by it in connection with its servicing activities under the Pooling and
Servicing Agreement and shall not be entitled to reimbursement therefor except
as specifically provided in the Pooling and Servicing Agreement.
The Servicer may recover Periodic Advances and Servicing Advances to
the extent permitted by the Mortgage Loans or, if not recovered from the
Mortgagor on whose behalf such Servicing Advance or Periodic Advance was made,
from late collections on the related Mortgage Loan, including Liquidation
Proceeds, Insurance Proceeds and such other amounts as may be collected by the
Servicer from the Mortgagor or otherwise relating to the Mortgage Loan. In the
event a Periodic Advance or a Servicing Advance becomes a Nonrecoverable
Advance, the Servicer may be reimbursed for such advance from the Certificate
Account.
The Servicer shall not be required to make any Periodic Advance or
Servicing Advance which it determines would be a nonrecoverable Periodic Advance
or nonrecoverable Servicing Advance (a "Nonrecoverable Advance"). A Periodic
Advance or Servicing Advance is "nonrecoverable" if in the good faith judgment
of the Servicer, such Periodic Advance or Servicing Advance is not ultimately
recoverable.
Overcollateralization Provisions
Overcollateralization Resulting from Cash Flow Structure. The Pooling
and Servicing Agreement requires that, on each Distribution Date, the Net
Monthly Excess Cashflow, if any, be applied on such Distribution Date as an
accelerated payment of principal on the Class of Class A Certificates then
entitled to distributions of principal, but only to the limited extent hereafter
described. The "Net Monthly Excess Cashflow" for a Distribution Date is equal to
the excess of (x) the amount on deposit in the Certificate Account (exclusive of
the amount of any Insured Payment) on such Distribution Date (such amount being
the "Available Amount" for such Distribution Date) over (y) the sum of (i) the
Class A Distribution Amount (calculated for this purpose without regard to any
Subordination Increase Amount or portion thereof included therein), (ii) any
Reimbursement Amount (as defined herein) or other amount owed to the Certificate
Insurer and (iii) the Trustee's Fees.
This application 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 Cashflow is not so used, the Pooling and
Servicing Agreement provides that it will be paid to the Holders of the Class R
Certificates.
With respect to any Distribution Date, the excess, if any, of (x) the
sum of the aggregate Principal Balances of the Mortgage Loans as of the close of
business on the last day of the preceding calendar month over
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(y) the Certificate Principal Balance of the Class A Certificates as of such
Distribution Date (and following the making of all distributions on such
Distribution Date (other than with respect to any Subordination Increase Amount
for such Distribution Date)) is the "Subordinated Amount" as of such
Distribution Date. The Pooling and Servicing Agreement requires that the Net
Monthly Excess Cashflow will be applied as an accelerated payment of principal
on the Class A Certificates until the Subordinated Amount has increased to the
level required by the Pooling and Servicing Agreement. Any amount of Net Monthly
Excess Cashflow actually applied as an accelerated 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. Initially, the Subordinated Amount will be an
amount equal to approximately 3% of the sum of the Cut-Off Date Aggregate
Principal Balance and the Original Pre-Funded Amount.
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 Holders of the Class A
Certificates on such Distribution Date shall be distributed to the Holders of
the Class R 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 Subordinated Amount.
With respect to any Distribution Date, the difference, if any, between (a) 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 related Subordination Reduction Amounts as described in this
sentence) and (b) the Specified Subordinated Amount is the "Excess Subordinated
Amount" with respect to 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 related Specified
Subordinated Amount), then any amounts relating to principal which would
otherwise be distributed to the Holders of the Class A Certificates on such
Distribution Date shall instead be distributed to the Holders of the Class R
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. As a
technical matter regarding the cash flow structure of the Trust, Subordination
Reduction Amounts may result even prior to the occurrence of any decrease or
"step down" in the related Specified Subordinated Amount because the Holders of
the Class A Certificates will generally be entitled to receive 100% of collected
principal, even though the Certificate Principal Balance of the Class A
Certificates will, following the accelerated amortization resulting from the
application of the Net Monthly Excess Cashflow, represent less than 100% of the
related Mortgage Loan's aggregate Principal Balance. In the absence of the
provisions relating to Subordination Reduction Amounts, the foregoing may
otherwise increase the Subordinated Amounts above their Specified Subordinated
Amount requirements even without the further application of any Net Monthly
Excess Cashflow.
The Pooling and Servicing Agreement provides that, on any Distribution
Date, all amounts collected on account of principal (other than any such amount
applied to the payment of a Subordination Reduction Amount) during the prior Due
Period will be distributed to the Holders of the Class A Certificates on such
Distribution Date. If any Mortgage Loan became a Liquidated Mortgage Loan during
such prior Due Period, the Net Liquidation Proceeds related thereto and
allocated to principal may be less than the Principal Balance of the related
Mortgage Loan; the amount of any such insufficiency is a "Liquidated Loan Loss."
In addition, the Pooling and Servicing Agreement provides that the principal
balance of any Mortgage Loan which becomes a Liquidated Mortgage Loan shall
thenceforth equal zero. The Pooling and Servicing Agreement does not contain any
rule which requires that the amount of any Liquidated Loan Loss be distributed
to the Holders of the Class A Certificates on the Distribution Date which
immediately follows the event of loss; i.e., the Pooling and Servicing Agreement
does not require the current recovery of losses. However, the occurrence of a
Liquidated Loan Loss will reduce the Subordinated Amount, which, to the extent
that such reduction causes the Subordinated Amount to be less than the Specified
Subordinated Amount applicable to the related Distribution Date, will require
the payment of a Subordination Increase Amount on such Distribution Date (or, if
insufficient funds are available on such Distribution Date, on subsequent
Distribution Dates, until the Subordinated Amount equals the related Specified
Subordinated Amount). The effect of the foregoing is to allocate losses to the
Holders of the
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Class R Certificates by reducing, or eliminating entirely, payments of Monthly
Excess Cashflow and of Subordination Reduction Amounts which such Holders 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 aggregate
Certificate Principal Balance of the Class A Certificates as of such
Distribution Date, and following the making of all distributions to be made on
such Distribution Date (except for any payment to be made as to principal from
proceeds of the Certificate Insurance Policy), exceeds (y) the aggregate
Principal Balances of the Mortgage Loans as of the close of business on the last
day of the related Due 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 Holders of the Class A Certificates on such Distribution Date.
Additionally, under the terms of the Pooling and Servicing Agreement, the
Certificate Insurer will have the option to cause Net Monthly Excess Cashflow to
be applied without regard to any limitation upon the occurrence of certain
trigger events, or in the event of an event of default under the Insurance
Agreement (as defined herein). However, 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 each Distribution Date, the Trustee shall distribute, to the extent
of funds, including any Insured Payments, on deposit in the Certificate Account,
as follows:
(a) to the Trustee, an amount equal to the fees then due
to it (the "Trustee's Fees");
(b) from amounts then on deposit in the Certificate
Account (excluding any Insured Payments) to the
Certificate Insurer the lesser of (x) the excess of
(i) the amount then on deposit in the Certificate
Account over (ii) the Insured Distribution Amount for
such Distribution Date and (y) the amount of all
Insured Payments and other amounts due to the
Certificate Insurer pursuant to the Insurance
Agreement (including the premium amount) which have
not been previously paid (the "Reimbursement Amount")
as of such Distribution Date;
(c) from amounts then on deposit in the Certificate
Account, to the Class A Certificateholders an amount
equal to the Class A Interest Distribution Amount;
(d) from amounts then on deposit in the Certificate
Account, to the Class A Certificateholders an amount
equal to the Class A Principal Distribution Amount;
and
(e) following the making by the Trustee of all
allocations, transfers and disbursements described
above, from amounts then on deposit in the
Certificate Account, the Trustee shall distribute to
the Holders of the Class R Certificates, the amount
remaining on such Distribution Date, if any.
Report to Certificateholders
Pursuant to the Pooling and Servicing Agreement, on each Distribution
Date the Trustee will deliver to the Servicer, the Certificate Insurer, each
Certificateholder 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 outstanding principal balance of the Class
A Certificates as of such Distribution Date, the amount of any Insured Payment
included in such distributions on such Distribution Date and such other
information as required by the Pooling and Servicing Agreement.
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Amendment
The Pooling and Servicing Agreement may be amended from time to time by
the Depositor, the Servicer and the Trustee by written agreement, upon the prior
written consent of the Certificate Insurer, without notice to, or consent of,
the Certificateholders, to cure any ambiguity, to correct or supplement any
provisions herein, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under the Pooling and
Servicing Agreement which shall not be inconsistent with the provisions of the
Pooling and Servicing Agreement; provided, that such action shall not, as
evidenced by an opinion of counsel delivered to, but not obtained at the expense
of, the Trustee, adversely affect in any material respect the interests of any
Certificateholder; and provided, further, that no such amendment shall reduce in
any manner the amount of, or delay the timing of, payments received on Mortgage
Loans which are required to be distributed on any Certificate without the
consent of the Holder of such Certificate, or change the rights or obligations
of any other party to the Pooling and Servicing Agreement without the consent of
such party.
The Pooling and Servicing Agreement may be amended from time to time by
the Depositor, the Servicer and the Trustee with the consent of the Certificate
Insurer, and the Holders of the majority of the Percentage Interest in the Class
A Certificates and Class R Certificates for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of the Pooling
and Servicing Agreement or of modifying in any manner the rights of the Holders;
provided, however, that no such amendment shall be made unless the Trustee
receives an opinion of counsel, at the expense of the party requesting the
change, that such change will not adversely affect the status of the Trust as a
REMIC or cause a tax to be imposed on the REMIC; and provided further, that no
such amendment shall reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be distributed on any
Certificate without the consent of the Holder of such Certificate or reduce the
percentage for each Class whose Holders are required to consent to any such
amendment without the consent of the Holders of 100% of each Class of
Certificates affected thereby.
The Unaffiliated Seller's Agreement contains substantially similar
restrictions regarding amendment.
SERVICING OF THE MORTGAGE LOANS
The Servicer
American Business Credit, Inc. will act as the Servicer of the Mortgage
Pool. HomeAmerican Credit Inc., d/b/a Upland Mortgage will act as subservicer
with respect to a portion of the Mortgage Loans. See "The Originators, the
Seller, the Servicer and the Subservicer."
Servicer Reports
The Servicer is required to deliver to the Certificate Insurer, the
Trustee, Standard & Poor's and Moody's, not later than April 30th of each year
an officer's certificate stating that (i) the Servicer has fully complied with
the servicing provisions of the Pooling and Servicing Agreement, (ii) a review
of the activities of the Servicer during the preceding calendar year and of
performance under the Pooling and Servicing Agreement has been made under such
officer's supervision, and (iii) to the best of such officer's knowledge, based
on such review, the Servicer has fulfilled all its obligations under the Pooling
and Servicing Agreement for such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof including the steps being taken by the
Servicer to remedy such default. The first such officer's certificate shall be
delivered by the Servicer in 1998.
Not later than April 30th of each year, the Servicer, at its expense,
is required to cause to be delivered to the Certificate Insurer, the Trustee,
Standard & Poor's and Moody's from a firm of independent certified public
accountants (who may also render other services to the Servicer) a statement to
the effect that such firm has examined certain documents and records relating to
the servicing of the Mortgage Loans during the preceding calendar year (or such
longer period from the Closing Date to the end of the following calendar year)
and that,
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on the basis of such examination conducted substantially in compliance with
generally accepted auditing standards and the requirements of the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for Mortgages
serviced for FHLMC, such servicing has been conducted in compliance with the
Pooling and Servicing Agreement except for such significant exceptions or errors
in records that, in the opinion of such firm, generally accepted auditing
standards and the Uniform Single Attestation Program for Mortgage Bankers or the
Audit Program for Mortgages serviced for FHLMC require it to report, in which
case such exceptions and errors shall be so reported.
Collection and Other Servicing Procedures
The Servicer will be responsible for making reasonable efforts to
collect all payments called for under the Mortgage Loans and will, consistent
with the Pooling and Servicing Agreement, follow such collection procedures as
it follows with respect to loans which are comparable to the Mortgage Loans.
Consistent with the above, the Servicer may, in its discretion, (i) waive any
late payment charge and (ii) arrange with a mortgagor a schedule for the
liquidation of delinquencies, subject to the provisions of the Pooling and
Servicing Agreement.
If a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Servicer will be obligated to accelerate the maturity of the
Mortgage Loan, unless it reasonably believes it is unable to enforce that
Mortgage Loan's "due-on-sale" clause under applicable law. If it reasonably
believes it may be restricted for any reason from enforcing such a "due-on-sale"
clause, the Servicer may enter into an assumption and modification agreement
with the person to whom such property has been or is about to be conveyed,
pursuant to which such person becomes liable under the Mortgage Note.
Any fee collected by the Servicer for entering into an assumption
agreement will be retained by the Servicer as additional servicing compensation.
For a description of circumstances in which the Servicer may be unable to
enforce "due-on-sale" clauses, see "Certain Legal Aspects of the Mortgage Loans
and Contracts -- The Mortgage Loans -- 'Due-on-Sale' Clauses" in the Prospectus.
In connection with any such assumption, the Mortgage Interest Rate borne by the
mortgage note relating to each Mortgage Loan ("Mortgage Note") may not be
decreased.
Hazard Insurance
The Servicer is required to cause to be maintained for each Mortgaged
Property a hazard insurance policy with coverage which contains a standard
mortgagee's clause in an amount equal to the lesser of (a) the maximum insurable
value of such Mortgaged Property or (b) the principal balance of such Mortgage
Loan plus the outstanding balance of any mortgage loan senior to such Mortgage
Loan, but in no event may such amount be less than is necessary to prevent the
borrower from becoming a coinsurer thereunder. As set forth above, all amounts
collected by the Servicer under any hazard policy (except for amounts to be
applied to the restoration or repair of the Mortgaged Property or released to
the borrower in accordance with the Servicer's normal servicing procedures), to
the extent they constitute Net Liquidation Proceeds or Insurance Proceeds, will
ultimately be deposited in the Certificate Account. The ability of the Servicer
to assure that hazard insurance proceeds are appropriately applied may be
dependent on its being named as an additional insured under any hazard insurance
policy, or upon the extent to which information in this regard is furnished to
the Servicer by a borrower. The Pooling and Servicing Agreement provides that
the Servicer may satisfy its obligation to cause hazard policies to be
maintained by maintaining a blanket policy issued by an insurer acceptable to
the Rating Agencies insuring against losses on the Mortgage Loans. If such
blanket policy contains a deductible clause, the Servicer is obligated to
deposit in the Certificate Account the sums which would have been deposited
therein but for such clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers under different state laws in accordance with
different applicable state forms and therefore will not contain identical terms
and conditions, the
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terms thereof are dictated by respective state laws, and most such policies
typically do not cover any physical damage resulting from the following: war,
revolution, governmental actions, floods and other weather-related causes, earth
movement (including earthquakes, landslides and mudflows), nuclear reactions,
wet or dry rot, vermin, rodents, insects or domestic animals, theft and, in
certain cases, vandalism. The foregoing list is merely indicative of certain
kinds of uninsured risks and is not intended to be all-inclusive.
The hazard insurance policies covering the Mortgaged Properties
typically contain a co-insurance clause which in effect requires the insured at
all times to carry insurance of a specified percentage (generally 80% to 90%) of
the full replacement value of the improvements on the property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause generally provides that the
insurer's liability in the event of partial loss does not exceed the greater of
(i) the replacement cost of the improvements less physical depreciation or (ii)
such proportion of the loss as the amount of insurance carried bears to the
specified percentage of the full replacement cost of such improvements.
Since residential properties, generally, have historically appreciated
in value over time, if the amount of hazard insurance maintained on the
improvements securing the Mortgage Loans were to decline as the principal
balances owing thereon decreased, hazard insurance proceeds could be
insufficient to restore fully the damaged property in the event of a partial
loss.
Realization Upon Defaulted Mortgage Loans
The Servicer will foreclose upon or otherwise comparably convert to
ownership Mortgaged Properties securing such of the Mortgage Loans as come into
default when, in the opinion of the Servicer, no satisfactory arrangements can
be made for the collection of delinquent payments. In connection with such
foreclosure or other conversion, the Servicer will follow such practices as it
deems necessary or advisable and as are in keeping with the Servicer's general
loan servicing activities and the Pooling and Servicing Agreement, provided the
Servicer will not expend its own funds in connection with foreclosure or other
conversion, correction of a default on a senior mortgage or restoration of any
property unless such foreclosure, correction or restoration is determined to
increase Net Liquidation Proceeds. Any Mortgaged Property so acquired by the
Trust is required to be disposed of in accordance with applicable federal income
tax regulations and consistent with the status of the Trust as a REMIC.
The Seller at its option, and without any obligation to do so, may
elect by written notice to the Servicer and the Trustee to replace any Mortgage
Loan that is 90 or more days delinquent as of the end of the related Due Period.
Removal and Resignation of the 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 an event described in clause (g) or (h) below and the
Trustee, only at the direction of the Certificate Insurer or the majority
certificateholders, with the consent of the Certificate Insurer (in the case of
any direction of the majority Certificateholders), may remove the Servicer upon
the occurrence and continuation beyond the applicable cure period of an event
described in clause (a), (b), (c), (d), (e) or (f) below:
(a) any failure by the Servicer to remit to the Trustee any
payment required to be made by the Servicer under the terms of the
Pooling and Servicing Agreement which continues unremedied for one (1)
Business Day after the date upon which written notice of such failure,
requiring the same to be remedied, shall have been given to the
Servicer and the Certificate Insurer by the Trustee or to the Servicer
and the Trustee by the Certificate Insurer or the Class A
Certificateholders evidencing Percentage Interests of at least 25%;
(b) the failure by the Servicer to make any required Servicing
Advance which failure continues unremedied for a period of one (1)
Business Day after the date on which written notice of such failure,
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requiring the same to be remedied, shall have been given to the
Servicer by the Trustee or to the Servicer and the Trustee by any
Certificateholder or the Certificate Insurer;
(c) any failure on the part of the Servicer duly to observe or
perform in any material respect any other of the covenants or
agreements on the part of the Servicer contained in this Agreement, or
the failure of any representation and warranty set forth in the Pooling
and Servicing Agreement, which continues unremedied for a period of 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
Depositor or the Trustee, or to the Servicer and the Trustee by any
Certificateholder or the Certificate Insurer;
(d) a decree or order of a court or agency or supervisory
authority having jurisdiction in an involuntary case under any present
or future federal or state bankruptcy, insolvency or similar law or for
the appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against the Servicer and such decree
or order shall have remained in force, undischarged or unstayed for a
period of 60 days;
(e) the Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings
of or relating to the Servicer or of or relating to all or
substantially all of the Servicer's property;
(f) the Servicer shall admit in writing its inability to pay
its debts as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for
the benefit of its creditors, or voluntarily suspend payment of its
obligations;
(g) the delinquency or loss experience of the Mortgage Loan
pool exceeds certain levels specified in the Pooling and Servicing
Agreement; or
(h) The Certificate Insurer shall notify the Trustee of any
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 by mutual consent of the Servicer, ABC (if ABC is not the
Servicer), the Certificate Insurer and the Trustee, or 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 without the incurrence,
in the reasonable judgment of the Certificate Insurer, of unreasonable expense.
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.
Upon removal or resignation of the Servicer, the Trustee will be the
successor servicer (the "Successor Servicer"). The Trustee, as Successor
Servicer, will be obligated to make Periodic Advances and Servicing Advances and
certain other advances unless it determines reasonably and in good faith that
such advances would not be recoverable. If, however, the Trustee is unwilling or
unable to act as Successor Servicer, or if the majority Certificateholders (with
the consent of the Certificate Insurer) or the Certificate Insurer so requests,
the Trustee shall appoint, or petition a court of competent jurisdiction to
appoint, in accordance with the provisions of the Pooling and Servicing
Agreement and subject to the approval of the Certificate Insurer, any
established mortgage loan servicing institution acceptable to the Certificate
Insurer having a net worth of not less than $15,000,000 as the Successor
Servicer in the assumption of all or any part of the responsibilities, duties or
liabilities of the Servicer.
Pursuant to the Pooling and Servicing Agreement, the Servicer covenants
and agrees to act as the Servicer for an initial term from the Closing Date to
June 30, 1997, which term will be extendable by the Certificate Insurer by
notice to the Trustee for successive terms of three (3) calendar months each,
until the termination of the Trust Fund. The Servicer will, upon its receipt of
each such notice of extension (a "Servicer
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Extension Notice") become bound for the duration of the term covered by such
Servicer Extension Notice to continue as the Servicer subject to and in
accordance with the other provisions of the Pooling and Servicing Agreement. If
as of the fifteenth (15th) day prior to the last day of any term of the Servicer
the Trustee shall not have received any Servicer Extension Notice from the
Certificate Insurer, the Trustee will, within five (5) days thereafter, give
written notice of such non-receipt to the Certificate Insurer and the Servicer.
The Certificate Insurer has agreed to extend each three month term of the
Servicer, in the absence of an Event of Default under the Pooling and Servicing
Agreement.
The Trustee and any other Successor Servicer in such capacity is
entitled to the same reimbursement for advances and no more than the same
servicing compensation as the Servicer. See " -- Servicing and Other
Compensation and Payment of Expenses" above.
Termination; Purchase of Mortgage Loans
The Pooling and Servicing Agreement will terminate upon notice to the
Trustee of either: (a) the later of the distribution to Certificateholders of
the final payment or collection with respect to the last Mortgage Loan (or
Periodic Advances of same by the Servicer), or the disposition of all funds with
respect to the last Mortgage Loan and the remittance of all funds due under the
Pooling and Servicing Agreement and the payment of all amounts due and payable
to the Certificate Insurer and the Trustee or (b) mutual consent of the
Servicer, the Certificate Insurer and all Certificateholders in writing;
provided, however, that in no event will the Trust established by the Pooling
and Servicing Agreement terminate later than twenty-one years after the death of
the last surviving lineal descendant of the person named in the Pooling and
Servicing Agreement.
Subject to provisions in the Pooling and Servicing Agreement concerning
adopting a plan of complete liquidation, the Servicer may, at its option and at
its sole cost and expense, terminate the Pooling and Servicing Agreement on any
date on which the aggregate Principal Balance of the Mortgage Loans is less than
10% of the sum of (a) the Cut-Off Date Aggregate Principal Balance and (b) the
Original Pre-Funded Amount, by purchasing, on the next succeeding Distribution
Date, all of the outstanding Mortgage Loans and REO Properties at a price equal
to the sum of (a) 100% of the Principal Balance of each outstanding Mortgage
Loan and each REO Property, (b) the greater of (i) the aggregate amount of
accrued and unpaid interest on the Mortgage Loans through the related Due Period
and (ii) 30 days' accrued interest thereon computed at a rate equal to the
Mortgage Interest Rate, in each case net of the Servicing Fee, and (c) any
unreimbursed amounts due to the Certificate Insurer under the Pooling and
Servicing Agreement, the Insurance Agreement and, without duplication, accrued
and unpaid Insured Payments. Any such purchase shall be accomplished by deposit
into the Certificate Account of the purchase price specified above. No such
termination is permitted without the prior written consent of the Certificate
Insurer if it would result in a draw on the Certificate Insurance Policy.
Optional Purchase of Defaulted Mortgage Loans
ABC or any affiliate of ABC has the option to purchase from the Trust
Fund any Mortgage Loan which is 90 days or more delinquent at a purchase price
equal to the outstanding principal balance of such Mortgage Loan as of the date
of purchase, plus the greater of (a) all accrued and unpaid interest on such
principal balance and (b) 30 days' interest on such principal balance, computed
at the Mortgage Interest Rate, plus the amount of any unreimbursed Servicing
Advances made by the Servicer with respect to such Mortgage Loan.
Notwithstanding the foregoing, unless the Certificate Insurer consents,
any such affiliate of ABC may only exercise its option with respect to the
Mortgage Loan or Mortgage Loans that have been delinquent for the longest period
at the time of such repurchase. If the Certificate Insurer fails to respond to
such affiliate's request for consent within ten (10) Business Days after receipt
thereof, such affiliate may repurchase the Mortgage Loan or Mortgage Loans
proposed to be repurchased without the consent of, or any further action by, the
Certificate Insurer.
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THE CERTIFICATE INSURANCE POLICY
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.
Simultaneously with the issuance of the Certificates, the Certificate
Insurer will deliver the Certificate Insurance Policy to the Trustee for the
benefit of the Class A Certificateholders. 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 Holders
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 Amounts
for each Distribution Date will be the sum of (i) the Class A Interest
Distribution Amount 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 a Final Scheduled Maturity Date, the
outstanding Certificate Principal Balance of the related Class A Certificates
(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 (described below) 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 Certificate Principal Balance of the Class A
Certificates. Mortgage Loan 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 a Class A Certificateholder 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 Class A Certificateholder(s) that the Order has been entered
and is not subject to any stay, and (C) an assignment duly executed and
delivered by the Class A Certificateholder(s), in such form as is reasonably
required by the Certificate Insurer and provided to the Class A
Certificateholder(s) by the Certificate Insurer, irrevocably assigning to the
Certificate Insurer all rights and claims of the Class A Certificateholder(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 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 Class A
Certificateholder directly (unless a Class A Certificateholder 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 such Class A Certificateholder 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,
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prior to 12:00 p.m., New York City time, on a Business Day; delivery either on a
day that is not a Business Day or after 12:00 p.m., 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 Class
A Certificateholder 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 Class A
Certificateholders, the Certificate Insurer will be subrogated to the rights of
the Class A Certificateholders, as applicable, with respect to such Insured
Payment and shall be deemed to the extent of the payments so made to be a
registered Class A Certificateholder 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 Class A Certificateholder, all its rights (whether by
counterclaim, setoff or otherwise) and defense (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 Certificateholders for all purposes (other than with respect to payment
on the Certificates), will be entitled to exercise all rights of the Class A
Certificateholders thereunder, without the consent of such Certificateholders,
and the Class A Certificateholders 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 and
the Unaffiliated Seller's 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 an Event of Default by the Servicer and to institute proceedings
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 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 Seller; and (viii) the
right to direct the Trustee to investigate certain matters. The Certificate
Insurer's consent
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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 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. See "Servicing of the Mortgage Loans -- Removal and Resignation of the
Servicer" herein. An "event of default" under the Insurance Agreement includes
(i) the Originators', the Seller's, the Depositor's or the Servicer's failure to
pay when due any amount owed under the Insurance Agreement or certain other
documents, (ii) the inaccuracy or incompleteness in any material respect of any
representation or warranty of the Originators, the Seller, the Depositor or the
Servicer in the Insurance Agreement, the Pooling and Servicing Agreement or
certain other documents, (iii) the Originators', the Seller's, the Depositor's
or the Servicer's failure to perform or to comply 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 Originators, the Seller, the Depositor or
the Servicer, (v) the Originators', the 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 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 Seller, ABC, Upland, the
Depositor or the Underwriter. No representation or warranty is made by the
Seller, ABC, Upland 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 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
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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
and "AAA" by Standard & Poor's, 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 December 31, 1996 (in thousands):
December 31,
1996
(audited)
-------------
Deferred Premium Revenue (net of
prepaid reinsurance premiums)................. $359,972
--------
Shareholder's Equity:
Common Stock................................ 15,000
Additional Paid-In Capital.................. 654,470
Unrealized Loss on Investments (net of
deferred income taxes).................... 9,099
Accumulated Earnings........................ 136,763
--------
Total Shareholder's Equity.................... $815,332
--------
Total Deferred Premium Revenue and
Shareholder's Equity........................ $1,175,304
==========
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.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
An election will be made to treat the Trust as a REMIC for federal
income tax purposes. Dewey Ballantine, special tax counsel to the Depositor,
will deliver its opinion that, assuming compliance with the Pooling and
Servicing Agreement, the Trust will be treated as a REMIC for federal income tax
purposes. The Class A Certificates will be designated as "regular interests" in
the REMIC, and the Class R Certificates will be designated as the sole "residual
interest" in the REMIC. The Class R Certificates are "Residual Certificates" for
purposes of the Prospectus.
The Certificates possess certain special tax attributes by virtue of
the REMIC provisions of the Code. See "Certain Federal Income Tax Consequences
- -- REMIC Certificates" in the Prospectus. The Small Business Job Protection Act
of 1996 repeals the bad debt reserve method of accounting for mutual savings
banks and domestic building and loan associations for tax years beginning after
December 31, 1995. As a result, section 593(d) of the Code is no longer
applicable to treat REMIC regular interests, including the Certificates, as
"qualifying real property loans."
The Class A Certificates generally will be treated as debt instruments
for federal income tax purposes. Beneficial owners (or registered holders, in
the case of Definitive Certificates) of the Class A Certificates will be
required to report income on such Certificates in accordance with the accrual
method of accounting.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain restrictions on (a) employee benefit
plans (as defined in Section 3(3) of ERISA), (b) plans described in section
4975(e)(1) of the Code, including individual retirement accounts or Keogh plans,
(c) any entities whose underlying assets include plan assets by reason of a
plan's investment in such entities (each a "Plan") and (d) persons who have
certain specified relationships to such Plans ("Parties-in-Interest" under ERISA
and "Disqualified Persons" under the Code). Section 406 of ERISA prohibits Plans
from engaging in certain transactions involving the assets of such Plans with
Parties in Interest with respect to such Plans, unless a statutory or
administrative exemption is applicable to the transaction. Excise taxes under
Section 4975 of the Code, penalties under Section 502 of ERISA and other
penalties may be imposed on Plan fiduciaries and Parties- in-Interest (or
Disqualified Persons) that engage in "prohibited transactions" involving assets
of a Plan. Individual retirement arrangements and other plans that are not
subject to ERISA, but are subject to Section 4975 of the
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Code, and Disqualified Persons with respect to such arrangements and plans, also
may be subject to excise taxes and other penalties if they engage in prohibited
transactions. Moreover, based on the reasoning of the United States Supreme
Court in John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct.
517 (1993), an insurance company's general account may be deemed to include
assets of the Plans investing in the general account (e.g., through the purchase
of an annuity contract). ERISA also imposes certain duties on persons who are
fiduciaries of Plans subject to ERISA.
The Department of Labor (the "DOL") has issued a regulation (the "Plan
Asset Regulation") describing what constitutes the assets of a Plan when the
Plan acquires an equity interest in another entity. The Plan Asset Regulation
states that, unless an exemption described in the regulation is applicable, the
underlying assets of an entity in which a Plan makes an equity investment will
be considered, for purposes of ERISA, to be the assets of the investing Plan.
Pursuant to the Plan Asset Regulation, if the assets of the Trust were deemed to
be plan assets by reason of a Plan's investment in any Class A Certificates,
such plan assets would include an undivided interest in any assets held in such
Trust. Therefore, in the absence of an exemption, the purchase, sale or holding
of any Class A Certificate by a Plan subject to Section 406 of ERISA or Section
4975 of the Code might result in prohibited transactions and the imposition of
excise taxes and civil penalties.
On June 6, 1990, the DOL issued to Prudential Securities Incorporated
an individual administrative exemption, Prohibited Transaction Exemption 90-32
(the "Exemption"), from certain of the prohibited transaction rules of ERISA
with respect to the initial purchase, the holding and the subsequent resale by a
Plan of certificates in pass-through trusts that meet the conditions and
requirements of the Exemption. Among the conditions that must be satisfied for
the Exemption to apply are the following:
1. The Acquisition of the Class A Certificates by a Plan is on
terms (including the price for the Class A Certificates) that are at
least as favorable to the Plan as they would be in an arm's length
transaction with an unrelated party;
2. The rights and interests evidenced by the Class A
Certificates acquired by the Plan are not subordinated to the rights
and interests evidenced by other certificates of the Trust Fund;
3. The Class A Certificates acquired by the Plan have
received a rating at the time of such acquisition that is in 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 sum of all payments made to the Underwriter in
connection with the distribution of the Class A Certificates represents
not more than reasonable compensation for underwriting the Class A
Certificates. The sum of all payments made to and retained by the
Servicer represents not more than reasonable compensation for the
Servicer's services under the Pooling and Servicing Agreement and
reimbursement of the Servicer's reasonable expenses in connection
therewith;
5. The Trustee is not an affiliate of any other member of the
Restricted Group (as defined below); and
6. The Plan investing in the Class A 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.
The Trust Fund also must meet the following requirements:
a. The corpus of the Trust Fund must consist solely of assets
of the type which have been included in other investment pools;
b. certificates in such other investment pools must have been
rated in one of the three highest rating categories of Standard &
Poor's, Moody's, D&P or Fitch for at least one year prior to the Plan's
acquisition of certificates; and
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c. certificates evidencing interests in such other investment
pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of Class A Certificates.
In order for the Exemption to apply to certain self-dealing/conflict of
interest prohibited transactions that may occur when a Plan fiduciary causes the
Plan to acquire Class A Certificates, the Exemption requires, among other
matters, that: (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 Fund is acquired by persons independent of the Restricted Group (as
defined below); (ii) such fiduciary (or its affiliate) is an obligor with
respect to 5 percent or less of the fair market value of the obligations
contained in the Trust Fund; (iii) the Plan's investment in Class A Certificates
does not exceed twenty-five percent (25%) of all of the certificates outstanding
at the time of the acquisition and (iv) immediately after the acquisition, no
more than twenty-five percent (25%) of the assets of the Plan 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 certain prohibited transactions in the
case of Plans sponsored by the Underwriter, the Trustee, the Servicer, any
obligor with respect to more than 5% of the fair market value of the Mortgage
Loans included in the Trust Fund, any entity deemed to be a "sponsor" of the
Trust Fund as such term is defined in the Exemption, or any affiliate of any
such party (the "Restricted Group").
Prior to the earlier of (i) the date on which the Pre-Funding Period
expires and (ii) the date on which the DOL amends the Exemption to permit the
use of pre-funding accounts thereunder, Plans will not be permitted to purchase
the Class A Certificates. On or after the earlier to occur of such dates, the
Exemption may be available for the purchase of Class A Certificates by Plans.
Before purchasing a Class A Certificate, a fiduciary of an ERISA Plan should
make its own determination as to the availability of the exemptive relief
provided in the Exemption and whether the conditions of any such exemption will
be applicable to the Class A Certificates. Any fiduciary of an ERISA Plan
considering whether to purchase a Class A Certificate should also carefully
review with its own legal advisors the applicability of the fiduciary duty and
prohibited transaction provisions of ERISA and the Code to such investment.
A governmental plan as defined in Section 3(32) of ERISA is not subject
to ERISA, or Code Section 4975. However, such a governmental plan may be subject
to a federal, state, or local law, which is, to a material extent, similar to
the provisions of ERISA or Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the need for and the
availability of any exemptive relief under Similar Law.
The sale of Certificates to a Plan is in no respect a representation by
the Depositor or the Underwriter that this investment meets all relevant legal
requirements with respect to investments by Plans generally or any particular
Plan, or that this investment is appropriate for Plans generally or any
particular ERISA Plan.
LEGAL INVESTMENT
The Class A Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA").
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the Underwriting Agreement dated
as of March 14, 1997 (the "Underwriting Agreement") between the Depositor and
Prudential Securities Incorporated (the "Underwriter"), the Depositor has agreed
to sell to the Underwriter and the Underwriter has agreed to purchase from the
Depositor the Class A Certificates.
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The Depositor is obligated to sell, and the Underwriter is obligated to
purchase, all of the Class A Certificates offered hereby if any are purchased.
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
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.
In connection with the offering of the Class A Certificates, the
Underwriter and its affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Class A Certificates. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such person may bid for or purchase
the Class A Certificates for the purpose of stabilizing its market price. Any of
the transactions described in this paragraph may result in the maintenance of
the price of the Class A Certificates at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are taken, may be discontinued at any time
without notice.
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.
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriter or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.
Prudential Securities Incorporated is an affiliate of the Depositor.
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc.
and subsidiaries as of December 31, 1995, 1994 and 1993 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.
RATINGS
It is a condition to the original issuance of the Class A Certificates
that they will receive ratings of "AAA" by Standard & Poor's and "Aaa" by
Moody's. The ratings assigned to the Class A Certificates will take into account
the claims-paying ability of the Certificate Insurer. 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 Rating
Services, 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.
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LEGAL MATTERS
Certain legal matters in connection with the Class A Certificates will
be passed upon for the Originators, the Seller and the Servicer by Blank Rome
Comisky & McCauley, Philadelphia, Pennsylvania, and for the Depositor and the
Underwriter by Dewey Ballantine, New York, New York.
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INDEX OF SIGNIFICANT PROSPECTUS
SUPPLEMENT DEFINITIONS
Term Page
ABC .......................................................................3
ABFS .....................................................................31
Accounts..................................................................48
Accredited investor.......................................................63
Accrual Period ............................................................2
Aggregate risks ..........................................................62
Appraised Values..........................................................24
Available Amount..........................................................50
Average outstanding.......................................................37
Balloon Loans.............................................................19
Bank Alliance Program.....................................................31
Beneficial Owner ..........................................................4
Book-Entry Certificates................................................4, 14
Business Day..............................................................59
Capitalized Interest Account..............................................10
Carry-Forward Amount.......................................................9
Cede...................................................................4, 14
CEDEL ....................................................................14
CEDEL Participants........................................................43
Certificate Account.......................................................48
Certificate Insurance Policy............................................1, 4
Certificate Insurer.............................................1, 4, 11, 60
Certificate Insurer Default...............................................12
Certificate Principal Balance...........................................1, 6
Certificateholder .....................................................4, 14
Certificateholders.........................................................2
Certificates ...........................................................1, 3
Chase.....................................................................14
Civil Relief Act ....................................................12, 22
Civil Relief Act Interest Shortfall.......................................22
Class......................................................................1
Class A Certificateholders.................................................1
Class A Certificates................................................1, 3, 41
Class A Distribution Amount................................................9
Class A Interest Distribution Amount.......................................7
Class A Principal Distribution Amount......................................8
Class A-1 Certificates..................................................1, 3
Class A-1 Original Certificate Principal Balance...........................6
Class A-1 Pass-Through Rate................................................6
Class A-2 Certificates..................................................1, 3
Class A-2 Original Certificate Principal Balance...........................6
Class A-2 Pass-Through Rate................................................6
Class A-3 Certificates..................................................1, 3
Class A-3 Original Certificate Principal Balance...........................6
Class A-3 Pass-Through Rate................................................6
Class R Certificates....................................................1, 3
Clean-up Call Date........................................................13
Closing Date ..............................................................3
CLTV's ...................................................................24
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Collection Account........................................................48
Commission ................................................................2
Compensating Interest.................................................12, 21
Cooperative...............................................................43
Current Interest .........................................................7
Cut-Off Date ..............................................................3
Cut-Off Date Aggregate Principal Balance..................................13
D&P ......................................................................63
Debt Service Reduction....................................................12
Deficient Valuation.......................................................12
Definitive Certificate....................................................41
Depositor...............................................................1, 3
Depository................................................................14
Disqualified Persons......................................................62
Distribution Date ...................................................2, 4, 7
DOL.......................................................................63
DTC ..................................................................4, 14
Due Date .............................................................5, 34
Due Period ..............................................................8
Eligible Account ........................................................48
ERISA ...............................................................15, 62
Euroclear ...............................................................14
Euroclear Operator........................................................43
Euroclear Participants....................................................43
European Depositaries.................................................14, 41
Excess Subordinated Amount................................................51
Exchange Act .............................................................2
Exemption ...........................................................15, 63
FHLMC ...................................................................19
Final Scheduled Maturity Date.............................................38
Financial Intermediary....................................................41
Financial Security........................................................60
First Liens ..............................................................23
Fitch ...................................................................63
FNMA .....................................................................19
Foreclosure Profits.......................................................49
Gross losses .............................................................37
HEP .....................................................................38
Holder ...............................................................4, 14
Holders ...................................................................2
Holdings .............................................................2, 60
Home Equity Prepayment....................................................38
Indirect Participants.....................................................42
Initial Mortgage Loans..................................................1, 4
Insurance Agreement.......................................................60
Insurance Proceeds........................................................49
Insured Distribution Amount................................................9
Insured Payment .......................................................9, 11
Liquidated Loan Loss...............................................9, 49, 51
Liquidated Mortgage Loan...................................................9
Liquidation Expenses......................................................49
Liquidation Proceeds......................................................49
Loan Rate ................................................................54
LTV .....................................................................46
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Modeling Assumptions......................................................38
Moody's .................................................................11
Mortgage Interest Rate....................................................12
Mortgage Loan Interest Shortfalls..........................................7
Mortgage Loans ........................................................1, 23
Mortgage Note ............................................................54
Mortgage Pool..............................................................4
Mortgaged Properties.......................................................4
Mortgages .................................................................4
Multiple Liens............................................................23
Net Foreclosure Profits...................................................49
Net Liquidation Proceeds..................................................50
Net Monthly Excess Cashflow...............................................50
Net REO Proceeds..........................................................50
Nonrecoverable Advance....................................................50
Order ....................................................................58
Original Certificate Principal Balance.....................................1
Original Pre-Funded Amount.................................................1
Originators ...............................................................3
Participants .........................................................41, 42
Parties-in-Interest.......................................................62
Pass-Through Rate .........................................................1
Percentage Interest........................................................6
Periodic Advances ........................................................12
Permitted Investments.....................................................41
Plan .....................................................................62
Plan Asset Regulation.....................................................63
Pooling and Servicing Agreement............................................1
Pre-Funding Account.......................................................10
Pre-Funding Period........................................................10
Prepayment Assumption.....................................................38
Prepayment Interest Shortfall.........................................12, 21
Principal Balance ........................................................10
Principal Prepayments.....................................................48
Qualified Substitute Mortgage Loan........................................46
Rating Agency.............................................................16
Receipt .................................................................58
Received ................................................................58
Record Date ...............................................................4
Regular interests .........................................................2
Reimbursement Amount......................................................52
Relevant Depositary.......................................................41
REMIC ................................................................2, 15
REO Proceeds .............................................................50
REO Property .............................................................36
Residual Certificates.....................................................62
Restricted Group ........................................................64
Riegle Act................................................................22
Rules ....................................................................42
Scheduled Principal Balance...............................................50
Second Liens..............................................................23
Securities Act ............................................................2
Seller ....................................................................3
Servicer ...............................................................1, 3
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Servicer Distribution Date........................................... 12, 48
Servicer Extension Notice.................................................56
Servicer Remittance Amount................................................48
Servicing Advances........................................................13
Servicing Fee ........................................................13, 50
Servicing Fee Rate........................................................50
Similar Law...............................................................64
Single risks .............................................................62
SMMEA ...................................................................64
Specified Subordinated Amount.............................................51
Standard & Poor's ........................................................11
Statistic Calculation Date................................................23
Statistical Calculation Date...............................................3
Statistical Calculation Date Aggregate Principal Balance...................4
Subordinated Amount.......................................................51
Subordination Deficit..................................................9, 52
Subordination Increase Amount.............................................51
Subordination Reduction Amount............................................51
Subsequent Cut-Off Date....................................................5
Subsequent Mortgage Loans...........................................1, 4, 23
Subsequent Transfer Date...................................................5
Subservicer ...............................................................3
Substitution Adjustment...................................................46
Successor Servicer........................................................56
Terms and Conditions......................................................43
The Mortgage Pool ..................................................4, 5, 34
Title of Securities........................................................3
Trust ..................................................................1, 3
Trust Fund .............................................................1, 4
Trustee ................................................................1, 3
Trustee's Fees ...........................................................52
Trustee's Mortgage File...................................................45
Unaffiliated Seller's Agreement...........................................45
Underwriter............................................................1, 64
Underwriting Agreement....................................................64
Upland.....................................................................3
Weighted Average Class A Pass-Through Rate.................................9
Weighted average life.....................................................38
S-70
<PAGE>
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No dealer, salesman or other person has been authorized to give
any information or to make any representations not contained in
this Prospectus and, if given or made, such information or
representations must not be relied upon as having been
authorized by the Depositor or by the Underwriter. This
Prospectus Supplement and the Prospectus do not constitute an
offer to sell, or a solicitation of an offer to buy, the
securities offered hereby by anyone in any jurisdiction in
which such an offer or solicitation is not authorized or
in which the person making such offer or solicitation is
not qualified to do so or to anyone to whom it is
unlawful to make any such offer or solicitation. Neither
the delivery of this Prospectus Supplement and the
Prospectus nor any sale made hereunder shall, under
any circumstances, create an implication that information
herein or therein is correct as of any time since the date
of this Prospectus Supplement or the Prospectus.
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT
Incorporation of Certain Information by Reference........S-2
Summary Terms of the Certificates........................S-3
Risk Factors............................................S-17
The Mortgage Pool.......................................S-23
The Originators, the Seller and the Servicer ...........S-31
Prepayment and Yield Considerations.....................S-37
Description of the Certificates.........................S-41
Servicing of the Mortgage Loans.........................S-53
The Certificate Insurance Policy........................S-58
The Certificate Insurer.................................S-60
Certain Federal Income Tax Considerations...............S-62
ERISA Considerations....................................S-62
Legal Investment........................................S-64
Plan of Distribution....................................S-64
Experts.................................................S-65
Ratings.................................................S-65
Legal Matters...........................................S-66
Index of Significant Prospectus Supplement Definitions..S-67
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 Legal Aspects of the Mortgage Loans and
Contracts.............................................. 68
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
===============================================================
<PAGE>
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ABFS Mortgage Loan Trust 1997-1
American Business Credit, Inc.
(Servicer)
&
Prudential Securities
Secured Financing Corporation
(Depositor)
$32,100,000.00
6.525% Class A-1 Certificates
$20,600,000.00
6.925% Class A-2 Certificates
$20,048,000.00
7.525% Class A-3 Certificates
Mortgage Pass-Through Certificates,
Series 1997-1
------------------
PROSPECTUS SUPPLEMENT
------------------
Prudential Securities
Incorporated
March 24, 1997
================================================================
