PROSPECTUS SUPPLEMENT
(To Prospectus Dated June 10, 1997)
================================================================================
$127,505,000
Wilshire Mortgage Loan Trust 1997-2
$36,217,000 Variable Rate Class A-1 Certificates
$10,000,000 6.650% Class A-2 Certificates
$12,000,000 6.720% Class A-3 Certificates
$12,000,000 6.865% Class A-4 Certificates
$10,000,000 7.255% Class A-5 Certificates
$16,302,000 Variable Rate Class A-6 Certificates
$ 8,912,000 6.835% Class A-7 Certificates
$ 8,236,000 7.180% Class M-1 Certificates
$ 7,578,000 7.425% Class M-2 Certificates
$ 6,260,000 7.770% Class M-3 Certificates
Mortgage Pass-Through Certificates, Series 1997-2
WILSHIRE SERVICING CORPORATION
Servicer
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
Depositor
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The Wilshire Mortgage Loan Trust 1997-2, Mortgage Pass-Through
Certificates, Series 1997-2 (the "Certificates") will consist of (i) the Class
A-1 Certificates, the Class A-2 Certificates, the Class A-3 Certificates, the
Class A-4 Certificates the Class A-5 Certificates, the Class A-6 Certificates
and the Class A-7 Certificates (collectively, the "Class A Certificates" or the
"Senior Certificates"), (ii) the Class M-1 Certificates, the Class M-2
Certificates and the Class M-3 Certificates (collectively, the "Mezzanine
Certificates"), (iii) the Class B Certificates (the "Class B Certificates"),
(iv) the Class C Certificates (the "Class C Certificates" and together with the
Mezzanine Certificates and the Class B Certificates, the "Subordinate
Certificates") and (v) the Class R Certificates (the "Class R Certificates").
Only the Class A Certificates and the Mezzanine Certificates (collectively, the
"Offered Certificates") are offered hereby.
For a discussion of significant matters affecting investment in the Offered
Certificates, see "Risk Factors" beginning on page S-20 herein and beginning on
page 12 in the Prospectus.
The Certificates will represent undivided beneficial ownership interests in
a trust fund (the "Trust Fund") consisting of two pools, (each, a "Loan Group")
of fixed- and adjustable-rate, closed-end, monthly pay, generally fully
amortizing mortgage loans (the "Mortgage Loans") secured by first or second lien
mortgages or deeds of trust (the "Mortgages") on one-to-four family residential
properties (the "Mortgaged Properties") held by Wilshire Mortgage Loan Trust
1997-2 (the "Trust"). The Trust will be created pursuant to a Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement") among Wilshire
Servicing Corporation, in its capacity as servicer of the Mortgage Loans (the
"Servicer"), WMFC 1997-2 Inc., in its capacity as unaffiliated seller of the
Mortgage Loans (the "Unaffiliated Seller"), Prudential Securities Secured
Financing Corporation, in its capacity as depositor of the Mortgage Loans (the
"Depositor"), and Bankers Trust Company of California, N.A., in its capacity as
trustee (the "Trustee") and in its capacity as backup servicer (the "Backup
Servicer"). The obligations of the Depositor, the Unaffiliated Seller, the
Trustee, the Backup Servicer and the Servicer with respect to the Certificates
will be limited to their respective contractual obligations under the Pooling
and Servicing Agreement.
(Cover continued on next page)
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THE OFFERED CERTIFICATES WILL REPRESENT BENEFICIAL INTERESTS IN THE TRUST FUND
ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, THE
UNAFFILIATED SELLER, THE SERVICER, THE BACKUP SERVICER, THE TRUSTEE OR ANY OF
THEIR AFFILIATES. NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Offered Certificates will be purchased by Prudential Securities
Incorporated (the "Underwriter") from the Depositor and will be offered by the
Underwriter from time to time in negotiated transactions or otherwise, at
varying prices to be determined at the time of sale. Proceeds to the Depositor,
including accrued interest, are expected to be approximately 100.08% of the
aggregate principal balance of the Offered Certificates before deducting
expenses payable by the Depositor estimated to be $350,000. See "Underwriting"
herein.
The Offered Certificates are offered subject to prior sale, when, as, and
if accepted by the Underwriter and subject to the approval of certain legal
matters. It is expected that delivery of the Offered Certificates in book-entry
form will be made on or about December 11, 1997 only through the facilities of
DTC, CEDEL and Euroclear (each as defined herein).
Prudential Securities Incorporated
The date of this Prospectus Supplement is December 4, 1997
<PAGE>
Distributions on the Mezzanine Certificates, the Class B Certificates and
the Class C Certificates are subordinate to distributions on the Class A
Certificates to the extent described herein. Distributions on the Class B
Certificates, the Class C Certificates and the Class R Certificates are
subordinate to distributions on the Class A Certificates and the Mezzanine
Certificates to the extent described herein. Distributions of principal and
interest payable to each Class of the Offered Certificates will be made on the
25th day of each month or, if the 25th day is not a business day, the first
business day thereafter (each, a "Distribution Date"), beginning December 26,
1997.
One or more elections will be made to treat certain assets of the Trust as
a real estate mortgage investment conduit (each a "REMIC") for federal income
tax purposes. As described more fully herein, each Class of Offered Certificates
will constitute "regular interests" in a REMIC. See "Certain Federal Income Tax
Consequences" herein and "Certain Federal Income Tax Consequences --"REMIC
Certificates" in the Prospectus.
Prior to their issuance there has been no market for the Offered
Certificates nor can there be any assurance that one will develop, or if it does
develop, that it will provide the Owners of the Offered Certificates with
liquidity or will continue. The Underwriter intends, but is not obligated, to
make a market in the Offered Certificates.
The Certificates offered by this Prospectus Supplement will be part of a
separate series of Certificates being offered by the Depositor pursuant to its
Prospectus dated June 10, 1997 of which this Prospectus Supplement is a part and
which accompanies this Prospectus Supplement. The Prospectus contains important
information regarding this offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
----------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE OFFERED
CERTIFICATES, INCLUDING PURCHASES OF OFFERED CERTIFICATES TO STABILIZE THE
MARKET PRICE AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES SEE "UNDERWRITING" IN THIS PROSPECTUS SUPPLEMENT.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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AVAILABLE INFORMATION
The Depositor has filed a Registration Statement (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with the Securities and Exchange Commission (the "Commission") with respect to
the Offered Certificates. This Prospectus Supplement and Prospectus contain a
summary of the material terms of the documents referred to herein and therein,
but neither contains nor will contain all of the information set forth in the
Registration Statement of which this Prospectus is a part. For further
information, reference is made to such Registration Statement and any amendments
thereof and to the exhibits thereto. Copies of the Registration Statement may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 upon payment of the prescribed charges, or may be
examined free of charge at the Commission's offices, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at the regional offices of the Commission located at 7
World Trade Center, Ste. 1300, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 400, Chicago, Illinois 60661-2511 or
electronically through the Commission's Electronic Data Gathering, Analysis and
Retrieval system at the Commission's web site at http://www.sec.gov.
REPORTS TO OWNERS
In connection with each distribution and annually, Certificateholders will
be furnished with statements containing information with respect to principal
and interest payments and the related Trust Fund, as described herein and in the
applicable Prospectus Supplement for such Series. Any financial information
contained in such reports will not have been examined or reported upon by an
independent public accountant. See "Servicing of the Mortgage Loans and
Contracts -- Reports to Certificateholders." The Servicer for each Series
relating to Mortgage Loans will furnish periodic statements setting forth
certain specified information to the related Trustee and, in addition, annually
will furnish such Trustee with a statement from a firm of independent public
accounts with respect to the examination of certain documents and records
relating to the servicing of the Mortgage Loans in the related Trust Fund. See
"Servicing of the Mortgage Loans and Contracts -- Reports to the Trustee" and
"Evidence as to Compliance" in the Prospectus. Copies of the monthly and annual
statements provided by the Servicer to the Trustee will be furnished to
Certificateholders of each Series upon request addressed to Prudential
Securities Secured Financing Corporation, One New York Plaza, New York, New York
10292, Attention: Len Blum (212) 214-1000.
<PAGE>
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SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the "Index of Significant
Prospectus Supplement Definitions" herein and the "Index of Significant
Definitions" in the Prospectus for the definitions of certain capitalized terms.
Trust: Wilshire Mortgage Loan Trust 1997-2 (the
"Trust").
The Certificates: The Mortgage Pass-Through Certificates, Series
1997-2 (the "Certificates") will consist of the
Offered Certificates, the Class B Certificates
(the "Class B Certificates"), the Class C
Certificates (the "Class C Certificates") and the
Class R Certificates (the "Class R
Certificates"), each a "Class". The Certificates
will be issued pursuant to a Pooling and
Servicing Agreement (the "Pooling and Servicing
Agreement") to be dated as of November 1, 1997,
among the Servicer, the Unaffiliated Seller, the
Depositor, the Backup Servicer and the Trustee.
Only the Offered Certificates are offered hereby.
The Certificates will represent beneficial
undivided ownership interests in a trust fund
(the "Trust Fund") consisting of two pools (each
such pool, a "Loan Group") of fixed- and
adjustable-rate, closed-end, monthly pay,
generally fully amortizing mortgage loans (the
"Mortgage Loans") secured by first or second lien
mortgages or deeds of trust (the "Mortgages") on
one-to-four family residential properties (the
"Mortgaged Properties") to be conveyed to the
Trust on the Closing Date.
Certificates Offered: The "Class A Certificates" which consist of the
Class A-1 Certificates, the Class A-2
Certificates, the Class A-3 Certificates, the
Class A-4 Certificates, the Class A-5
Certificates, the Class A-6 Certificates and the
Class A-7 Certificates and the "Mezzanine
Certificates" which consist of the Class M-1
Certificates, the Class M-2 Certificates and the
Class M-3 Certificates are offered hereby.
Certain Designations: The Class A Certificates and the Mezzanine
Certificates are herein referred to as the
"Offered Certificates." The Mezzanine
Certificates, the Class B Certificates and the
Class C Certificates are referred to herein as
the "Subordinate Certificates." The Class A
Certificates (other than the Class A-6
Certificates), the Mezzanine Certificates and the
Class B Certificates are collectively referred to
as the
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S-1
<PAGE>
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"Fixed Rate Loan Group Certificates" and the
Class A-6 Certificates are referred to as the
"Adjustable Rate Loan Group Certificates." The
Class A-1 Certificates and the Class A-6
Certificates are collectively referred to herein
as the "Variable Rate Certificates."
Pass-Through Rates
and Balances: Each Class of Offered Certificates will have an
original Certificate Principal Balance and will
accrue interest at a rate (the "Pass-Through
Rate") as follows:
Pass- Original
Through Certificate
Class Rate Balance
---------------------- --------- -----------
Class A-1 Certificates (1)(2) $36,217,000
Class A-2 Certificates 6.650%(2) $10,000,000
Class A-3 Certificates 6.720%(2) $12,000,000
Class A-4 Certificates 6.865%(2) $12,000,000
Class A-5 Certificates 7.255%(2) $10,000,000
Class A-6 Certificates (3) $16,302,000
Class A-7 Certificates 6.835%(2) $ 8,912,000
Class M-1 Certificates 7.180%(2) $ 8,236,000
Class M-2 Certificates 7.425%(2) $ 7,578,000
Class M-3 Certificates 7.770%(2) $ 6,260,000
(1) On any Distribution Date, the "Class A-1
Pass-Through Rate" will be equal to a rate equal
to the sum of one-month LIBOR plus 0.18% per
annum.
(2) The Pass-Through Rate with respect to all of
the Offered Certificates, other than the Class
A-6 Certificates, will on any Distribution Date
be equal to the lesser of (x) the Pass-Through
Rate for such Class set forth above and (y) the
Fixed Rate Group Available Funds Cap Rate
applicable to such Distribution Date.
(3) On each Distribution Date, the "Class A-6
Pass-Through Rate" will be equal to the least of
(x) one-month LIBOR plus 0.28% per annum (the
"Class A-6 Formula Pass-Through Rate"), (y) the
Adjustable Rate Group Available Funds Cap Rate
applicable to such Distribution Date and (z)
14.59% per annum.
The excess, if any, of (x) the interest due on
the Class A-6 Certificates on any Distribution
Date calculated at the Class A-6 Formula
Pass-Through Rate over (y) the interest due on
the Class A-6 Certificates calculated at the
Adjustable
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S-2
<PAGE>
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Rate Group Available Funds Cap Rate applicable to
such Distribution Date is the "LIBOR Shortfall
Amount" applicable to the Class A-6 Certificates
for such Distribution Date.
If, on any Distribution Date, there is a LIBOR
Shortfall Amount, certain amounts otherwise
distributable with respect to the Class C
Certificates and Class R Certificates will
instead be allocated to payment of the LIBOR
Shortfall Amount. If the full amount of the LIBOR
Shortfall Amount is not paid on a Distribution
Date, then the unpaid amount will be paid out of
the Excess Cashflow Amount (as defined herein).
If the Servicer exercises its right to an
Optional Termination (as defined herein), the
LIBOR Shortfall Amount may not be paid in full.
The ratings of the Class A-6 Certificates do not
address the likelihood of the payment of any
LIBOR Shortfall Amount.
The "Fixed Rate Group Available Funds Cap Rate,"
as of any Distribution Date, is an amount,
expressed as a per annum rate on the principal
amount of the Fixed Rate Group Certificates,
equal to (i) the sum of (x) the aggregate amount
of interest due and collected (or advanced) on
all of the Mortgage Loans in the Fixed Rate Loan
Group for the related Remittance Period and (y)
the excess of (A) the aggregate amount of
interest due and collected (or advanced) on all
of the Mortgage Loans in the Adjustable Rate Loan
Group for the related Remittance Period over (B)
the aggregate of the Servicing Fee and the
Trustee Fee, in each case relating to the
Adjustable Rate Loan Group and such Distribution
Date and the Current Interest with respect to the
Class A-6 Certificates for such Distribution Date
minus (ii) the aggregate of the Servicing Fee and
the Trustee Fee, in each case relating to the
Fixed Rate Loan Group, on such Distribution Date.
The "Adjustable Rate Group Available Funds Cap
Rate," as of any Distribution Date, is an amount,
expressed as a per annum rate, equal to (i) the
sum of (x) the aggregate amount of interest due
and collected (or advanced) on all of the
Mortgage Loans in the Adjustable Rate Loan Group
for the related Remittance Period and (y) the
excess of (A) the aggregate amount of interest
due and collected (or advanced) on all of the
Mortgage Loans in the Fixed Rate Loan Group for
the related Remittance Period over (B) the
aggregate of the Servicing Fee and the Trustee
Fee, in each case relating to the Fixed Rate Loan
Group and such
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S-3
<PAGE>
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Distribution Date and the Current Interest with
respect to the Offered Certificates (other than
the Class A-6 Certificates) for such Distribution
Date minus (ii) the aggregate of the Servicing
Fee and the Trustee Fee, in each case relating to
the Adjustable Rate Loan Group, on such
Distribution Date.
Depositor: Prudential Securities Secured Financing
Corporation (the "Depositor"). See "The
Depositor" in the Prospectus.
Unaffiliated Seller: WMFC 1997-2 Inc., a Delaware corporation (the
"Unaffiliated Seller").
Servicer: Wilshire Servicing Corporation, a Delaware
corporation (the "Servicer"). The Servicer's
principal executive offices are located at 1776
S.W. Madison Street, Portland, Oregon 97205, and
its phone number is (503) 223-5600. The Mortgage
Loans will be serviced by the Sub-Servicer (as
defined herein) pursuant to a Sub-Servicing
Agreement (the "Sub-Servicing Agreement") between
the Servicer and the Sub-Servicer.
Sub-Servicer: Wilshire Credit Corporation, a Nevada corporation
("WCC" or the "Sub-Servicer"). WCC's principal
executive offices are located at 1776 S.W.
Madison Street, Portland, Oregon 97205, and its
phone number is (503) 223-5600.
Trustee and Backup Servicer: Bankers Trust Company of California, N.A., a
national banking association (the "Trustee"). The
Trustee's principal executive offices are located
at 3 Park Plaza, 16th Floor, Irvine, California
92614.
Originators: Any entity from which the Unaffiliated Seller, on
or prior to the Closing Date, acquires Mortgage
Loans (excluding WCC) is an "Originator" of the
related Mortgage Loans for purposes of this
Prospectus Supplement. A substantial portion of
the Mortgage Loans were purchased by the
Unaffiliated Seller as a pool (the "Purchased
Pool") from a well-known mortgage originator (the
"Independent Originator") and the remainder were
originated by, and purchased from, the
Unaffiliated Seller's correspondents under its
80/20 program. On the Closing Date, the
Unaffiliated Seller will sell the Mortgage Loans
to the Depositor and the Depositor will deposit
the Mortgage Loans into the Trust.
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S-4
<PAGE>
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Cut-Off Date: The close of business on October 31, 1997 (the
"Cut-Off Date").
Closing Date: On or about December 11, 1997 (such date, the
"Closing Date").
Final Scheduled Distribution
Dates: The Final Scheduled Distribution Date for the
Offered Certificates is as follows:
Final Scheduled
Class Distribution Date
----------------------- -----------------
Class A-1 Certificates: January 25, 2013
Class A-2 Certificates: May 25, 2015
Class A-3 Certificates: October 25, 2018
Class A-4 Certificates: November 25, 2021
Class A-5 Certificates: May 25, 2028
Class A-6 Certificates: May 25, 2028
Class A-7 Certificates: March 25, 2028
Class M-1 Certificates: May 25, 2028
Class M-2 Certificates: May 25, 2028
Class M-3 Certificates: May 25, 2028
Each such date has been calculated as described
under "Prepayment and Yield Considerations." It
is expected that the actual last Distribution
Date for each Class of Certificates will occur
significantly earlier than such Final Scheduled
Distribution Dates. See "Prepayment and Yield
Considerations" herein.
Denominations: The Offered Certificates are issuable in book
entry form in minimum denominations of original
principal amounts of $1,000 and integral
multiples thereof.
The Mortgage Loans: Unless otherwise noted, all statistical
percentages in this Prospectus Supplement are
approximate and are measured by the aggregate
scheduled unpaid principal balance of the
Mortgage Loans as of the Cut-Off Date (the
"Original Aggregate Principal Balance"). See
"Additional Information" herein.
General. The Original Aggregate Principal Balance
of the Mortgage Loans to be conveyed to the Trust
on the Closing Date is $131,789,104.39. The
Mortgage Loans consist of closed-end, monthly
pay, generally fully amortizing mortgage loans
(the "Mortgage Loans") secured by first or second
lien mortgages or deeds of trust (the
"Mortgages")
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S-5
<PAGE>
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on one-to-four family residential properties (the
"Mortgaged Properties").
The Mortgage Loans will be divided into two pools
(each, a "Loan Group") of loans. One pool will
consist of only fixed-rate Mortgage Loans (the
"Fixed Rate Loan Group") and the other pool will
consist of only adjustable-rate Mortgage Loans
(the "Adjustable Rate Loan Group").
The Mortgage Loans are not insured by either
primary or pool mortgage insurance policies. The
Mortgage Loans are not guaranteed by the
Servicer, the Unaffiliated Seller, the Trustee,
the Depositor, any Originator or any of their
respective affiliates or any other person. The
Mortgage Loans are required to be serviced by the
Servicer in accordance with the terms of the
Pooling and Servicing Agreement and with
reasonable care, using that degree of skill and
attention that the Servicer exercises with
respect to comparable mortgage loans that it
services for itself and others. See "The Pooling
and Servicing Agreement" herein.
Fixed Rate Loan Group. The Mortgage Loans to be
included in the Fixed Rate Loan Group consist of
1,348 fixed-rate Mortgage Loans secured by
Mortgages on single-family homes (which may be
condominiums, manufactured homes or one-to-four
family residences), including investment
properties, 21.87%, 15.43%, 10.32% and 9.14% by
principal balance of Mortgage Loans in the Fixed
Rate Loan Group as of the Cut-Off Date of which
are located in the states of New Jersey, New
York, California and Massachusetts, respectively.
The fixed-rate Mortgage Loans to be included in
the Fixed Rate Loan Group are secured by
Mortgages of which 94.91% by principal balance of
Mortgage Loans in the Fixed Rate Loan Group as of
the Cut-Off Date are first lien mortgages or
deeds of trust and 5.09% by principal balance of
Mortgage Loans in the Fixed Rate Loan Group as of
the Cut-Off Date are secured by second lien
mortgages or deeds of trust. As of the Cut-Off
Date, the Mortgage Loans in the Fixed Rate Loan
Group had an aggregate principal balance of
$115,487,016.17.
71.87% by principal balance of Mortgage Loans in
the Fixed Rate Loan Group as of the Cut-Off Date
were purchased by the Unaffiliated Seller from
the Independent Originator. 28.13% by principal
balance of Mortgage Loans in the Fixed
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S-6
<PAGE>
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Rate Loan Group as of the Cut-Off Date were
mortgage loans newly originated by correspondents
under the Unaffiliated Seller's 80/20 mortgage
loan program (the "80/20 Program") and purchased
by the Unaffiliated Seller through an affiliate.
The Combined Loan-to-Value Ratio ("CLTV") of a
Mortgage Loan is equal to the ratio (expressed as
a percentage) of (x) the sum of the (i) principal
balance of the Mortgage Loan as of the Cut-Off
Date and (ii) the outstanding principal balances
of any senior mortgage loans (computed at the
date of origination of the Mortgage Loan or, if
available, the current principal balance) to (y)
the appraised value of the Mortgaged Property at
the time of origination of the Mortgage Loan or,
with respect to Mortgage Loans in the Purchased
Pool, a more recent broker price opinion, if
available.
The weighted average CLTV of the Mortgage Loans
in the Fixed Rate Loan Group was 85.18%. 99.96%
by principal balance of Mortgage Loans in the
Fixed Rate Loan Group as of the Cut-Off Date
require monthly payments of principal that will
fully amortize the Mortgage Loans by their
respective maturity date, and 0.04% by principal
balance of Mortgage Loans in the Fixed Rate Loan
Group as of the Cut-Off Date are Balloon Loans
(as defined herein). The weighted average
remaining term to stated maturity was 289 months,
with a range from 42 months to 360 months. The
average principal balance of the Mortgage Loans
in the Fixed Rate Loan Group was $85,672.86, with
a range from $2,629.87 to $565,655.52.
All of the Mortgage Loans in the Fixed Rate Loan
Group have interest rates (each a "Mortgage
Rate") that are fixed (the "Fixed Rate Mortgage
Loans"). The Mortgage Rates of the Fixed Rate
Mortgage Loans ranged from 7.25% to 24.00% per
annum, with a weighted average Mortgage Rate of
9.54% per annum. As of the Cut-Off Date, 2.10% by
principal balance of Mortgage Loans in the Fixed
Rate Loan Group as of the Cut-Off Date have
Mortgage Rates which "step up" after an initial
period following origination. These Mortgage
Loans have fixed Mortgage Rates which are
increased by a weighted average margin of 4.33%
(one such Mortgage Loan "steps-up" by 9.00%).
Adjustable Rate Loan Group. The Mortgage Loans to
be included in the Adjustable Rate Loan Group
consist of 145
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S-7
<PAGE>
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adjustable-rate Mortgage Loans, secured by
Mortgages on single-family homes (which may be
condominiums, manufactured homes or one-to-four
family residences), including investment
properties, 18.25%, 16.94%, 7.94% and 6.93% by
principal balance of Mortgage Loans in the
Adjustable Rate Loan Group as of the Cut-Off Date
of which are located in the states of California,
New Jersey, Pennsylvania and Maryland,
respectively. All of the Mortgage Loans to be
included in the Adjustable Rate Loan Group are
secured by Mortgages which are first lien
mortgages or deeds of trust. As of the Cut-Off
Date, the Mortgage Loans in the Adjustable Rate
Loan Group had an aggregate principal balance of
$16,302,088.22.
61.15% by principal balance of Mortgage Loans in
the Adjustable Rate Loan Group as of the Cut-Off
Date were purchased by the Unaffiliated Seller
from the Independent Originator. 38.85% by
principal balance of Mortgage Loans in the
Adjustable Rate Loan Group as of the Cut-Off Date
were mortgage loans newly originated by
correspondents under the Unaffiliated Seller's
80/20 mortgage loan program (the "80/20 Program")
and purchased by the Unaffiliated Seller through
an affiliate.
The weighted average CLTV of the Mortgage Loans
in the Adjustable Rate Loan Group was 83.21%. All
of the Mortgage Loans require monthly payments of
principal that will fully amortize the Mortgage
Loans by their respective maturity date. The
weighted average remaining term to stated
maturity was 305 months, with a range from 193
months to 359 months. The average principal
balance of the Mortgage Loans in the Adjustable
Rate Loan Group was $112,428.19, with a range
from $14,549.05 to $598,426.71.
All of the Mortgage Loans in the Adjustable Rate
Loan Group have Mortgage Rates that are
adjustable (the "Adjustable Rate Mortgage
Loans"). The Mortgage Rates on the Adjustable
Rate Mortgage Loans ranged from 7.00% to 13.50%
per annum, with a weighted average Mortgage Rate
of 8.53% per annum. The Adjustable Rate Mortgage
Loans had gross margins ranging from 2.10% to
7.00%, with a weighted average gross margin of
4.00%; lifetime rate caps, ranging from 8.00% to
20.50%, with a weighted average lifetime rate cap
of 13.94% (for the Adjustable Rate Mortgage Loans
which have caps); and lifetime rate floors
ranging from 2.10% to 13.50%, with a weighted
average lifetime rate floor of 4.56% (where the
gross
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S-8
<PAGE>
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margin was used for Adjustable Rate Mortgage
Loans without floors).
Distributions, Generally: Distributions on the Certificates will be made on
the twenty-fifth day of each calendar month, or
if such day is not a business day, the next
succeeding business day (each, a "Distribution
Date") commencing December 26, 1997, to the
Owners of record. See "Description of the Offered
Certificates -- General" herein. The Owners of
record shall be such Owners as of the last day of
the calendar month immediately preceding the
calendar month in which such Distribution Date
occurs, (except in the case of the December 1997
Distribution Date which shall be such Owners as
of the close of business on the Closing Date)
whether or not such day is a business day (each a
"Record Date"). Distributions to an Owner will be
made in an amount equal to the product of such
Owner's Percentage Interest (as defined herein)
and the amount distributed in respect of such
Owner's Class of Certificates on such
Distribution Date.
The "Percentage Interest" represented by any
Certificate will be equal to the percentage
obtained by dividing the original Certificate
Principal Balance of such Certificate by the
original Certificate Principal Balance of all
Certificates of the same Class. The "Certificate
Principal Balance" of any Certificate is equal to
the principal balance of such Certificate on the
date of issuance less any amounts actually
distributed to the Owner of such Certificate on
account of principal or allocated to such
Certificate on account of Realized Losses (as
defined herein).
Distributions of Interest: For each Distribution Date, the interest due with
respect to the Offered Certificates (other than
the Variable Rate Certificates) will be the
interest which has accrued thereon at the related
Pass-Through Rate during the calendar month
immediately preceding the month in which the
Distribution Date occurs and the interest due
with respect to the Variable Rate Certificates
will be the interest which has accrued thereon at
the related Pass-Through Rate during the period
from the 25th day of the month immediately
preceding the month in which such Distribution
Date occurs (or the Closing Date with respect to
the December 1997 Distribution Date) to the 24th
day of the month in which such Distribution Date
occurs. Each period referred to in the prior
sentence relating to the accrual of interest is
the "Accrual Period" for the Offered
Certificates.
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S-9
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On each Distribution Date, to the extent of funds
available for interest distributions as described
herein under "Description of the Offered
Certificates -- Interest Distributions," interest
will be distributed with respect to each Class of
Offered Certificates in an amount equal to the
interest accrued on the related Class Certificate
Principal Balance for the related Accrual Period
at the related Pass-Through Rate (such amount,
the "Current Interest").
All calculations of interest on the Offered
Certificates (other than the Variable Rate
Certificates) will be made on the basis of a
360-day year assumed to consist of twelve 30-day
months. All calculations of interest on the
Variable Rate Certificates will be made on the
basis of the actual number of days elapsed in the
related Accrual Period and a year of 360 days.
Distributions of Principal: On each Distribution Date, to the extent of funds
available for principal distributions as
described herein under "Description of the
Offered Certificates -- Principal Distributions,"
principal will be distributed with respect to
each Class of Offered Certificates then entitled
to receive distributions of principal in an
aggregate amount for all such Classes equal to
the Principal Distribution Amount for such
Distribution Date.
The "Principal Distribution Amount" for any
Distribution Date will equal the sum of (i) the
Aggregate Collected Principal Amount (and with
respect to any Distribution Date on which a
Trigger Event is not in effect, less the
Overcollateralization Reduction Amount, if any)
and (ii) the Extra Principal Distribution Amount,
if any, for such Distribution Date. As to any
Distribution Date, the "Aggregate Collected
Principal Amount" will equal the aggregate of the
Collected Principal Amounts with respect to each
of the Loan Groups for the related Remittance
Period.
The "Collected Principal Amount" for any
Distribution Date and Loan Group will equal the
sum of the following amounts (without
duplication):
(a) the principal portion of all scheduled
and unscheduled (other than the principal
portion of any prepaid installments) monthly
payments on the Mortgage Loans in such Loan
Group due during the related Remittance
Period, to the extent actually
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S-10
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received by the Trustee on or prior to the
related Remittance Date or to the extent
actually advanced by the Servicer on or
prior to the related Remittance Date
including the principal portion of all full
and partial principal prepayments made by
the respective Mortgagors during the related
Remittance Period;
(b) the scheduled principal balance of each
Mortgage Loan in such Loan Group that either
was repurchased by the Unaffiliated Seller
or purchased by the Servicer on the related
Remittance Date, to the extent such
scheduled principal balance is actually
received by the Trustee on or prior to the
related Remittance Date;
(c) any Substitution Amounts delivered by
the Unaffiliated Seller on the related
Remittance Date in connection with a
substitution of a Mortgage Loan in such Loan
Group (to the extent such Substitution
Amounts relate to principal), to the extent
such Substitution Amounts are actually
received by the Trustee on or prior to the
related Remittance Date;
(d) Net Liquidation Proceeds (as defined
herein) to the extent received by the
Trustee on or prior to the related
Remittance Date for each Mortgage Loan in
such Loan Group which became a Liquidated
Mortgage Loan during the related Remittance
Period; and
(e) the proceeds received by the Trustee of
any termination of the Trust (to the extent
such proceeds relate to principal).
A "Liquidated Mortgage Loan" is, in general, a
defaulted Mortgage Loan as to which the Servicer
has determined in its reasonable judgment that
all amounts that it expects to recover on such
Mortgage Loan have been recovered (exclusive of
any possibility of a deficiency judgment).
As to any Distribution Date, the
"Overcollateralization Reduction Amount" is an
amount equal to the lesser of (x) the excess, if
any, of (i) the Overcollateralization Amount for
such Distribution Date (assuming that 100% of the
Aggregate Collected Principal
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S-11
<PAGE>
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Amount is distributed as principal on the Offered
Certificates on such Distribution Date) over (ii)
the Required Overcollateralization Amount for
such Distribution Date and (y) the Aggregate
Collected Principal Amount for such Distribution
Date.
The "Extra Principal Distribution Amount" with
respect to any Distribution Date is an amount
equal to the lesser of (i) the
Overcollaterization Deficiency Amount for such
Distribution Date and (ii) the Excess Interest
Amount for such Distribution Date.
Credit Enhancement: The credit enhancement provided for the benefit
of the Owners of the Offered Certificates
consists of (x) subordination of the Subordinate
Certificates, (y) the application of the Excess
Interest Amount to fund Realized Losses and (z)
the overcollateralization mechanics which utilize
the internal cash flows of the Trust.
Subordination of the Subordinate Certificates.
The rights of the Owners of the Subordinate
Certificates and the Class R Certificates to
receive distributions with respect to the
Mortgage Loans will be subordinated, to the
extent described herein, to the rights of the
Owners of the Class A Certificates. This
subordination is intended to enhance the
likelihood of regular receipt by the Owners of
the Class A Certificates of the full amount of
their monthly payments of interest and principal
and to afford such Owners protection against
Realized Losses on Liquidated Mortgage Loans.
In addition, the rights of the Owners of the
Class M-2 Certificates, the Class M-3
Certificates, the Class B Certificates, the Class
C Certificates and the Class R Certificates are
subordinated, to the extent described herein, to
the rights of the Owners of the Class A
Certificates and the Class M-1 Certificates. The
rights of the Owners of the Class M-3
Certificates, the Class B Certificates, the Class
C Certificates and the Class R Certificates are
subordinated, to the extent described herein, to
the rights of the Owners of the Class A
Certificates and the Class M-1 Certificates and
the Class M-2 Certificates. The rights of the
Owners of the Class B Certificates, the Class C
Certificates and the Class R Certificates are
subordinated, to the extent described herein, to
the rights of the Owners of the Class A
Certificates and the Mezzanine Certificates.
Pursuant to the terms of the Pooling and
Servicing Agreement,
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S-12
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distributions to the Owners of the Class C
Certificates will be made only in periods in
which (x) all Realized Losses have been fully
funded and (y) the Overcollateralization Amount
is equal to or greater than the Required
Overcollateralization Amount applicable to such
period.
Application of Realized Losses. To the extent
that the Net Liquidation Proceeds with respect to
any Liquidated Mortgage Loan are less than 100%
of the principal balance thereof, such shortfall
is a "Realized Loss". "Net Liquidation Proceeds"
are any amounts (including the proceeds of any
Insurance Policy) recovered by the Servicer in
connection with a Liquidated Loan, net of
expenses which are incurred by the Servicer in
connection with the liquidation and net of
unreimbursed Servicing Advances, unreimbursed
Delinquency Advances and accrued and unpaid
Servicing Fees. The Collected Principal Amount
includes the Net Liquidation Proceeds in respect
of principal received upon liquidation of a
Liquidated Mortgage Loan. If such Net Liquidation
Proceeds are less than the unpaid principal
balance of such Mortgage Loan, the Pool Balance
will decline more than the aggregate Class
Certificate Principal Balance of the Offered
Certificates. If such difference is not covered
by the application of the Excess Interest Amount
or the Overcollateralization Amount, the Class of
Class M Certificates or Class B Certificates then
outstanding with the lowest priority Class
designation will bear such loss.
If, following the distributions on a Distribution
Date, the aggregate Certificate Principal Balance
of the Offered Certificates exceeds the Pool
Balance, i.e., the Certificates are
undercollateralized, the Class Certificate
Principal Balance of the Class of Subordinate
Certificates then outstanding with the lowest
priority Class designation will be reduced by the
amount of such excess. Any such reduction will
constitute an "Applied Realized Loss" for the
applicable Class. The amount that any Class is
reduced as a result of an Applied Realized Loss
will not accrue interest. Such amount, however,
may be paid on a future Distribution Date to the
extent funds are available therefor as provided
herein under "Description of the Offered
Certificates--Interest Distributions" and
"--Credit Enhancement."
Overcollateralization. In addition to the credit
enhancement provided by the Subordinate
Certificates and
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S-13
<PAGE>
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the Excess Interest Amount, the provisions of the
Pooling and Servicing Agreement afford additional
credit enhancement by accelerating the
amortization of the Offered Certificates relative
to the amortization of the Mortgage Loans until
an overcollateralization target is met. The
accelerated amortization is achieved by the
application of certain excess interest to the
payment of principal on the Offered Certificates
then entitled to receive principal distributions.
This acceleration feature creates
overcollateralization which results from the
excess of the aggregate scheduled principal
balances of the Mortgage Loans over the aggregate
Certificate Principal Balances of the Offered
Certificates, the Class B Certificates and the
Class C Certificates. Once the required level of
overcollateralization is reached, and subject to
the provisions described in the next paragraph,
the acceleration feature will cease, unless
necessary to maintain the required level of
overcollateralization.
The Pooling and Servicing Agreement provides
that, subject to certain floors, caps and
triggers, the required level of
overcollateralization may increase or decrease
over time. An increase would result from a
temporary period of accelerated amortization of
the Offered Certificates to increase the actual
level of overcollateralization to its required
level; a decrease would result from a temporary
period of decelerated amortization to reduce the
actual level of overcollateralization to its
required level.
See "Description of the Offered Certificates --
Overcollateralization Provisions" herein.
Delinquency Advances
and Compensating Interest: The Servicer will be obligated to make advances
(each a "Delinquency Advance") with respect to
delinquent payments of interest (calculated at
the related Mortgage Rate less the sum of the
rate at which the Servicing Fee (as defined
herein) and the Trustee Fee (the sum of such
rates, the "Administrative Rate") on each
Mortgage Loan, but only to the extent (i)
necessary to pay any shortfall in Current
Interest for the Offered Certificates (such
amount, the "Total Current Interest") arising
because of the insufficiency of Available Funds
and (ii) that such Delinquency Advances, in good
faith and in the Servicer's reasonable judgment,
are recoverable from the related Mortgage Loan.
Delinquency Advances are reimbursable from (i)
future collections on the Mortgage Loan which
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S-14
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gave rise to the Delinquency Advance, (ii)
Liquidation Proceeds (as defined herein) for such
Mortgage Loan, (iii) from certain excess moneys
which would otherwise be paid to the Owners of
the Class C Certificates and (iv) from amounts on
deposit in the Principal and Interest Account
once such Delinquency Advance is deemed
"nonrecoverable".
In addition, the Servicer also will be required
to deposit into the account holding collections
on the Mortgage Loans (the "Principal and
Interest Account"), with respect to any full
Prepayment received on a Mortgage Loan during the
related Remittance Period, out of its own funds
without any right of reimbursement therefor,
Compensating Interest. "Compensating Interest" is
equal to the difference between (x) 30 days'
interest at such Mortgage Loan's Mortgage Rate
(less the Administrative Rate) on the principal
balance of such Mortgage Loan as of the first day
of the related Remittance Period and (y) to the
extent not previously advanced, the interest
(less an amount calculated at the Administrative
Rate) paid by the Mortgagor with respect to such
Mortgage Loan during such Remittance Period;
provided, however, that the Servicer: (i) will
only pay Compensating Interest to the extent that
there is a shortfall in the amount of Available
Funds necessary to pay the Total Current
Interest, (ii) will not be required to pay
Compensating Interest with respect to any
Remittance Period in an amount in excess of the
aggregate Servicing Fee received by the Servicer
for such Remittance Period and (iii) will not be
required to cover shortfalls in collections of
interest due to curtailments or partial
prepayments. Any excess of the full amount of the
Compensating Interest due over the related
Servicing Fee may result in a shortfall of
interest payable to the Offered Certificates or
the Subordinate Certificates.
Any failure by the Servicer to remit to the
Trustee a Delinquency Advance or Compensating
Interest to the extent required under the Pooling
and Servicing Agreement will constitute an event
of default under the Pooling and Servicing
Agreement (each, a "Servicer Event of Default"),
in which case, upon the removal of the Servicer,
the Trustee or the successor servicer will be
obligated to make such advances in accordance
with the terms of the Pooling and Servicing
Agreement. See "Servicing of the Mortgage Loans
and Contracts -- Advances and Limitations
Thereon" in the Prospectus.
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S-15
<PAGE>
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Book-Entry Registration of the
Offered Certificates: The Offered Certificates initially will be issued
in book-entry form. Persons acquiring beneficial
ownership interests in such Offered Certificates
("Beneficial Owners") may elect to hold their
interests through The Depository Trust Company
("DTC"), in the United States, or Cedel Bank,
societe anonyme ("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
Offered Certificates are Book-Entry Certificates
(as defined herein), such Certificates will be
evidenced by one or more Certificates registered
in the name of Cede & Co. ("Cede"), as the
nominee of DTC, or one of the European
Depositaries (as defined below). Cross-market
transfers between persons holding directly or
indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly
through CEDEL or Euroclear, on the other, will be
effected in DTC through Citibank N.A.
("Citibank") or The Chase Manhattan Bank
("Chase," and together with Citibank, the
"European Depositaries"), the relevant
depositaries of CEDEL and Euroclear,
respectively, and each a participating member of
DTC. The Offered Certificates initially will be
registered in the name of Cede. The interests of
the Owners of such Certificates will be
represented by book-entries on the records of DTC
and participating members thereof. No Beneficial
Owner will be entitled to receive a Definitive
Certificate (as defined herein) representing such
person's interest, except in the event that
Definitive Certificates are issued under the
limited circumstances described herein. All
references in this Prospectus Supplement to any
Offered 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 Offered
Certificates are held by DTC. See "Description of
the Offered Certificates--Book-Entry Registration
of the Offered Certificates" herein and in Annex
I hereto.
Monthly Servicing Fee
and Trustee's Fee: Wilshire Servicing Corporation, as Servicer, will
retain a fee, payable on each Servicer Remittance
Date (as defined herein), and equal to 0.375% per
annum (the "Servicing Fee"), payable monthly at
one-twelfth the annual rate, of the aggregate
outstanding principal balance of all Mortgage
Loans as of the first day of the related
Remittance Period.
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S-16
<PAGE>
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On each Servicer Remittance Date, the Trustee
will be entitled to receive a "Trustee Fee" equal
to the product of (x) one-twelfth of 0.02% and
(y) the aggregate outstanding principal balance
of all Mortgage Loans as of the first day of the
related Remittance Period.
Optional Termination: The Pooling and Servicing Agreement provides that
a party to be named therein, at its option,
acting directly or through a permitted designee,
will have the right, in certain circumstances, to
purchase from the Trust all the Mortgage Loans
then held by the Trust, at a price at least
sufficient to cause the payment in full of the
amounts then outstanding on the Class A
Certificates, the Mezzanine Certificates, the
Class B Certificates and the Class C
Certificates, on any Remittance Date on or after
the Remittance Date on which the then-outstanding
aggregate principal balance of the Mortgage Loans
in the Trust has declined to 10% or less of the
Original Aggregate Principal Balance (the
"Optional Termination Date").
The Pooling and Servicing Agreement requires
that, within 90 days following the Optional
Termination Date, if the Servicer, or an
affiliate of the Servicer, has not exercised its
optional termination right by such date, the
Trustee shall solicit bids for the purchase (the
"Auction Sale") of all Mortgage Loans remaining
in the Trust. In the event that satisfactory bids
are received as described in the Pooling and
Servicing Agreement, the net sale proceeds will
be distributed to the Owners of the Certificates,
in the same order of priority as collections
received in respect of the Mortgage Loans. If
satisfactory bids are not received, the Trustee
shall decline to sell the Mortgage Loans and
shall not be under any obligation to solicit any
further bids or otherwise negotiate any further
sale of the Mortgage Loans. Such sale and
consequent termination of the Trust must
constitute a "qualified liquidation" of the REMIC
established by the Trust under Section 860F of
the Internal Revenue Code of 1986, as amended,
including, without limitation, the requirement
that the qualified liquidation takes place over a
period not to exceed 90 days. See "The Pooling
and Servicing Agreement -- Optional Termination"
herein.
Optional Repurchase of
Defaulted Mortgage Loans: The Servicer or its designee has the option, but
is not obligated, to purchase from the Trust Fund
any Mortgage Loan which is more than 60 days
delinquent, up to 20% by
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S-17
<PAGE>
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aggregate original Principal Balance of the
Original Aggregate Principal Balance of all
Mortgage Loans, at a purchase price equal to the
outstanding Principal Balance thereof as of the
date of purchase, plus all accrued and unpaid
interest on such Principal Balance, computed at
the related Mortgage Interest Rate (net of the
related Servicing Fee) plus the amount of any
unreimbursed Servicing Advances (without
duplication) made by the Servicer with respect to
such Mortgage Loan in accordance with the
provisions specified in the Pooling and Servicing
Agreement.
Federal Income Tax Aspects: For federal income tax purposes, one or more
elections will be made to treat the Trust as a
"real estate mortgage investment conduit" (the
"REMIC"). Each Class of Offered Certificates, the
Class B Certificates and the Class C Certificates
will be designated as "regular interests" in the
REMIC and will be treated as debt instruments of
the Trust for federal income tax purposes. The
REMIC will issue the Class R Certificates, which
will be designated as the sole class of "residual
interests" in the REMIC. See "Certain Federal
Income Tax Consequences" herein and in the
Prospectus.
ERISA Considerations: As discussed under "ERISA Considerations" herein,
the acquisition by Benefit Plan Investors (as
defined herein) of the Certificates could result
in prohibited transactions under ERISA and
Section 4975 of the Code. Accordingly, the
Certificates may not be purchased by Benefit Plan
Investors.
Legal Investment
Considerations: The Offered Certificates will not constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"). Accordingly, many institutions with
legal authority to invest in comparably rated
securities based on first lien mortgage loans may
not be legally authorized to invest in the
Offered Certificates.
Certain Legal Matters: Certain legal matters relating to the validity of
the issuance of the Certificates will be passed
upon for the Unaffiliated Seller and the Servicer
by Proskauer Rose LLP, New York, New York, and
for the Depositor and the Underwriter by Dewey
Ballantine LLP, New York, New York.
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S-18
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Ratings: It is a condition of the original issuance of the
Offered Certificates that the Class A
Certificates receive ratings of Aaa by Moody's
Investors Service, Inc. ("Moody's") and AAA by
Fitch IBCA, Inc. ("Fitch" and together with
Moody's, the "Rating Agencies") and that the
Class M-1 Certificates receive ratings of Aa2
from Moody's and AA+ from Fitch, the Class M-2
Certificates receive ratings of A2 from Moody's
and A+ from Fitch and the Class M-3 Certificates
receive ratings of Baa3 from Moody's and BBB+
from Fitch. A security rating is not a
recommendation to buy, sell or hold securities,
and may be subject to revision or withdrawal at
any time by the assigning entity. See "Ratings"
herein.
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S-19
<PAGE>
RISK FACTORS
Prospective investors in the Offered Certificates should consider the
following factors (as well as the factors set forth under "Risk Factors" in the
Prospectus) in connection with the purchase of the Offered Certificates.
Prepayment and Maturity Considerations
Borrowers may prepay their loans at any time and generally are not
required to pay a prepayment fee. The rate of prepayments of the Mortgage Loans
cannot be predicted and may be affected by a wide variety of economic, social
and other factors, including state and federal income tax policies, interest
rates and the availability of alternative financing. Therefore, no assurance can
be given as to the level of prepayments that the Trust will experience.
A number of factors, in addition to prepayment fees, may impact on the
prepayment behavior of a pool of loans such as the Mortgage Loans. One such
factor is the principal balance of the Mortgage Loans. A small principal balance
may be easier for a borrower to prepay than a large balance and therefore may
have a higher prepayment rate. In addition, in order to refinance a first
priority mortgage loan, the borrower generally must repay any subordinate
mortgage loans. However, a small principal balance may make refinancing a
Mortgage Loan at a lower interest rate less attractive to the borrower as the
perceived impact to the borrower of lower interest rates on the size of the
monthly payment may not be significant. Other factors that might be expected to
affect the prepayment rate include general economic conditions and the general
interest rate environment, possible future changes affecting the deductibility
for federal income tax purposes of interest payments on mortgage loans, the
amounts of, and interest rates on, the underlying senior mortgage loans, and the
tendency of borrowers to use first priority mortgage loans as long-term
financing for home purchase and second mortgage loans as shorter-term financing
for a variety of purposes, including home improvement, education expenses and
purchases of consumer durables such as automobiles.
Prepayments may result from voluntary early payments by borrowers
(including payments in connection with refinancings of the related senior
mortgage loan or loans), sales of Mortgaged Properties subject to "due-on-sale"
clauses and liquidations due to default, as well as the receipt of proceeds from
physical damage. In addition, repurchases from the Trust of Mortgage Loans
required to be made by the Unaffiliated Seller under the Pooling and Servicing
Agreement will have the same effect on the Owners of the Offered Certificates as
a prepayment of the related Mortgage Loans. Prepayments and such repurchases
also will accelerate the Final Scheduled Distribution Date of the Offered
Certificates. All of the Mortgage Loans contain "due-on-sale" provisions, and
the Servicer generally will enforce such provisions to the extent permitted by
applicable law. In addition, if the Unaffiliated Seller is unable to cure
documentation defects or provide a replacement Mortgage Loan for the affected
Mortgage Loans, affected Mortgage Loans will be repurchased, and the Owners of
the Offered Certificates then entitled to receive principal distributions will
experience a principal prepayment. See "Certain Legal Aspects of the Mortgage
Loans" herein.
In general, if prevailing interest rates fall significantly below the
interest rates for similar loans at the time of origination, fixed rate mortgage
loans may be subject to higher prepayment
S-20
<PAGE>
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 Offered Certificates (other than the Class A-6 Certificates) may
be shortened. See "Prepayment and Yield Considerations."
The weighted average life of a pool of loans is the average amount of time
that will elapse from the date such pool is formed until each dollar of
principal is scheduled to be repaid to the investors in such pool. Because it is
expected that there will be prepayments and defaults on the Mortgage Loans, the
actual weighted average life of the Offered 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 Offered Certificates is set forth herein under
"Prepayment and Yield Considerations."
The Unaffiliated Seller has only limited records of the historical
prepayment experience of its portfolio of loans which the Unaffiliated Seller
believes does not provide meaningful information with respect to the Mortgage
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.
Limited Protection Afforded by Subordination
The rights of the Owners of the Subordinate Certificates to receive
distributions with respect to the Mortgage Loans will be subordinated to such
rights of the Owners of the Class A Certificates, and the rights of the Owners
of each Class of Subordinate Certificates to receive such distributions will be
further subordinated to such rights of the Owners of the Class or Classes of
Subordinate Certificates with higher priority Class designations, in each case,
to the extent described herein. The subordination described above is intended to
increase the likelihood of regular receipt by the Owners of Certificates with a
higher payment priority, of the full amount of monthly distributions allocable
to them and to afford such Owners protection against losses. As a result, the
yield on each Class of Offered Certificates, in order of payment priority, will
be progressively more sensitive to the rate, timing and severity of Realized
Losses on the Mortgage Loans and other shortfalls in Available Funds. Investors
in the Offered Certificates, and particularly the Subordinate Certificates,
should carefully consider the related risks, including the risk that such
investors may suffer a loss on their investments.
The Subordinate Certificates will not be entitled to any principal
distributions until the Stepdown Date, at the earliest. In addition, the
Subordinate Certificates also are subject to limitations on distributions of
principal upon the occurrence of certain delinquency and loss trigger events.
Consequently, the weighted average lives of the Subordinate Certificates will be
longer than would be the case if distributions of principal were to be allocated
on a pro rata basis among the Class A Certificates and the Subordinate
Certificates. As a result of the longer weighted average lives of the
Subordinate Certificates, the Owners of such Certificates have a greater risk of
suffering a loss on their investments.
S-21
<PAGE>
The Purchased Pool, Limited Information
70.54% by current aggregate Principal Balance of the Mortgage Loans were
purchased by the Unaffiliated Seller from the Independent Originator. Only
limited information was available concerning the origination and servicing of
the Mortgage Loans prior to such purchase, and none of the Servicer, the
Unaffiliated Seller or the Depositor were able independently to verify such
information as has been obtained and included herein. The Purchased Pool
consists of mortgage loans originated by the Independent Originator which were
not included in one of the Independent Originator's regular securitizations
because the mortgage loans did not meet the specified criteria for such
securitizations at that time or due to other unrelated factors. A majority of
the Mortgaged Properties securing the Mortgage Loans in the Purchased Pool are
located in the states of New Jersey, New York, California and Massachusetts. As
described below under "Geographic Concentration", the losses on the Purchased
Pool may be higher than if such Mortgage Loans were more geographically
diversified. In addition, a majority of the Mortgage Loans in the Purchased Pool
were originated in 1988 through 1990 and thus are well seasoned. Since the time
of origination of the Purchased Pool, property values in the states of New
Jersey, New York, California and Massachusetts generally have declined. Thus,
the loan-to-value ratios of the Mortgage Loans in the Purchased Pool may have
risen since the time of origination.
None of the Servicer, the Unaffiliated Seller or the Depositor have been
able to obtain historical loss and delinquency statistics with respect to loans
originated and serviced by the Independent Originator which they consider
reliable and, accordingly, no such statistics are included herein. The
Unaffiliated Seller is making certain representations and warranties regarding
the Mortgage Loans and is obligated to repurchase such Mortgage Loans as to
which there is a breach of such representations or warranties which materially
adversely affects the value of, or interest of the Trust in, such Mortgage Loan.
However, there is no assurance that such remedies will cure all problems that
may arise by reason of the limited information or documentation available with
respect to the Mortgage Loans and their origination and prior servicing. Such
problems could include failure of the Mortgage Loans to have been originated in
compliance with applicable law, industry standards, or the Independent
Originator's own underwriting standards, or failure of the Mortgage Loans to
have been serviced by the Independent Originator in accordance with such laws
and standards, as well as problems which, because of the limited information
available, currently cannot be determined.
Underwriting Guidelines, Limited Operating History and Potential Delinquencies
29.46% by current aggregate Principal Balance of the Mortgage Loans were
purchased by the Unaffiliated Seller through an affiliate from third party
correspondents under the Unaffiliated Seller's 80/20 Program. Substantially all
of these Mortgage Loans were purchased by the Unaffiliated Seller pursuant to
the Mortgage Loan underwriting guidelines of its "80/20" origination program
(the "80/20 Program"), which began in December 1995. Due to the limited
operating history of the Unaffiliated Seller as a purchaser of newly originated
Mortgage Loans, no assurance can be given concerning the performance of the
Mortgage Loans purchased by the Unaffiliated Seller under the 80/20 Program. The
Unaffiliated Seller markets loans, in part, to borrowers who, for one reason or
another, are not able, or do not wish, to obtain financing from traditional
sources such as commercial banks. To the extent that such loans may be
considered
S-22
<PAGE>
to be of a riskier nature than loans made by traditional sources of financing,
the Owners of the Certificates may be deemed to be at greater risk than if the
Mortgage Loans were made to other types of borrowers.
As described herein, the Unaffiliated Seller's underwriting standards
generally reflect the guidelines of the Federal Home Loan Mortgage Corporation
("FHLMC") except with regard to certain features, like CLTV's and borrower
down-payments and in certain other respects. As a result of these differences,
the Mortgage Loans in the Mortgage Loan Pool may experience higher rates of
delinquencies, defaults and foreclosures than mortgage loans underwritten in a
manner which is more similar to the FNMA and FHLMC guidelines.
Geographic Concentration
Certain geographic regions of the United States from time to time will
experience weaker regional economic conditions and housing markets, and,
consequently, will experience higher rates of loss and delinquency on loans
generally. Any concentration of the Mortgage Loans in such a region may present
risks in addition to those generally present for similar mortgage backed
securities without such concentration. In particular, approximately 21.26%,
14.13%, 11.30% and 8.14% of the Mortgage Loans by current aggregate Principal
Balance are secured by Mortgaged Properties located in the states of New Jersey,
New York, California and Massachusetts, respectively. Because of the relative
geographic concentration of the Mortgage Loans within New Jersey, New York,
California and Massachusetts, losses on the Mortgage Loans may be higher than
would be the case if the Mortgage Loans were more geographically diversified.
For example, certain of the Mortgaged Properties may be more susceptible to
certain types of special hazards, such as natural disasters and major civil
disturbances, than residential properties located in other parts of the country.
In addition, the economies of New Jersey, New York, California and Massachusetts
may be adversely affected to a greater degree than the economies of other areas
of the country by certain regional developments. Property values of residential
real estate in New Jersey, New York, California and Massachusetts have
experienced declines in the past. If the New Jersey, New York, California and
Massachusetts residential real estate markets experience an overall decline,
then the rates of delinquencies, foreclosures and losses on the Mortgage Loans
may be expected to increase and such increase may be substantial.
Nature of Collateral; Second Lien Mortgage Loans
As of the Cut-Off Date, approximately 4.46% by current aggregate Principal
Balance of the Mortgage Loans are secured by second liens which are subordinate
to the rights of the mortgagee under related senior mortgages. See "The Mortgage
Pool." As a result, the proceeds from any liquidation, insurance or condemnation
proceedings will be available to satisfy the principal balance of such a second
Mortgage Loan only to the extent that the claims, if any, of the first mortgagee
are satisfied in full, including any related foreclosure costs. In addition, a
mortgagee of a second mortgage may not foreclose on the Mortgaged Property
securing such mortgage unless it forecloses subject to the related first
mortgage, in which case it must either pay the entire amount of the first
mortgage to the applicable mortgagee at or prior to the foreclosure sale or
undertake the obligation to make payments on the first mortgage in the event of
default thereunder. In servicing second lien loans in its portfolio, it is the
Servicer's practice to satisfy or reinstate each such senior mortgage at or
prior to the foreclosure sale only to the
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<PAGE>
extent that it determines any amount so paid will be recoverable from future
payments and collections on the related loans or otherwise. The Trust will have
no source of funds to satisfy any senior mortgage or make payments due to any
senior mortgagee.
General economic conditions have an impact on the ability of borrowers to
repay loans. Loss of earnings, illness and other similar factors may lead to an
increase in delinquencies and bankruptcy filings by borrowers. In the event of
bankruptcy of a mortgagor, it is possible that the Trust could experience a loss
with respect to such mortgagor's Mortgage Loan. In conjunction with a
mortgagor's bankruptcy, a bankruptcy court may suspend or reduce the payments of
principal and interest to be paid with respect to such Mortgage Loan or
permanently reduce the principal balance of such Mortgage Loan, thus either
delaying or permanently limiting the amount received by the Trust with respect
to such Mortgage Loan. Moreover, in the event a bankruptcy court prevents the
transfer of the related Mortgaged Property to the Trust, any remaining balance
on such Mortgage Loan may not be recoverable.
An overall decline in the residential real estate market could adversely
affect the values of the Mortgaged Properties such that the outstanding
principal balances, together with the primary senior financing thereon, equals
or exceeds the value of the Mortgaged Properties. Such a decline would adversely
affect the position of a second mortgagee before having such an effect on that
of the related first mortgagee. A rise in interest rates over a period of time
and the general condition of the Mortgaged Property as well as other factors may
have the effect of reducing the value of the Mortgaged Property from the
appraised value at the time the Mortgage Loan was originated. If there is a
reduction in value of the Mortgaged Property, the ratio of the amount of the
Mortgage Loan to the value of the Mortgaged Property may increase over what it
was at the time the Mortgage Loan was originated. Such an increase may reduce
the likelihood of liquidation or other proceeds being sufficient to satisfy the
Mortgage Loan after satisfaction of any senior liens.
Even assuming that the Mortgaged Properties provide adequate security for
the Mortgage Loans, substantial delays could be encountered in connection with
the liquidation of defaulted Mortgage Loans and corresponding delays in the
receipt of related proceeds by the Owners of the Offered Certificates. An action
to foreclose on the Mortgaged Property securing a Mortgage Loan is regulated by
state statutes and rules and is subject to many of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes requiring
several years to complete. Furthermore, in some states an action to obtain a
deficiency judgment is not permitted following a nonjudicial sale of a Mortgaged
Property. In the event of a default by a Mortgagor, these restrictions, among
other things, may impede the ability of the Servicer to foreclose on or sell the
Mortgaged Property or to obtain proceeds on such a sale ("Liquidation Proceeds")
sufficient to repay all amounts due on the related Mortgage Loan. In addition,
the Servicer will be entitled to deduct from collections received during the
preceding Remittance Period all expenses reasonably incurred in attempting to
recover amounts due on Liquidated Mortgage Loans and not yet repaid, including
payments to senior lienholders, legal fees and costs of legal action, real
estate taxes and maintenance and preservation expenses, thereby reducing
collections available to the Owners of the Offered Certificates. See
"Description of the Offered Certificates" herein.
S-24
<PAGE>
Liquidation expenses with respect to defaulted loans do not vary directly
with the outstanding principal balance of the loan at the time of default.
Therefore, assuming that a servicer took the same steps in realizing upon a
defaulted loan having a small remaining principal balance as it would in the
case of a defaulted loan having a large remaining principal balance, the amount
realized after expenses of liquidation would be smaller as a percentage of the
outstanding principal balance of the small loan than would be the case with the
defaulted loan having a large remaining principal balance. If the average
outstanding principal balance of the Mortgage Loans is relatively small, Net
Liquidation Proceeds (as defined herein) on Liquidated Mortgage Loans may be
small as a percentage of the principal balance of a Mortgage Loan.
Payments on the Mortgage Loans
The scheduled monthly payment dates with respect to the Mortgage Loans
occur throughout a month. When a Prepayment in full is made on a Mortgage Loan,
the Mortgagor is charged interest only up to the date of such Prepayment,
instead of for a full month. However, such principal receipts will only be
passed through to the Owners of the Offered Certificates once a month, on the
Distribution Date which follows the calendar month in which such Prepayment was
received by the Servicer. The Servicer is obligated to pay, without any right of
reimbursement, those shortfalls in interest collections payable on the Offered
Certificates that are attributable to the difference between the interest paid
by a Mortgagor in connection with a prepayment in full and 30 days' interest
(such payment being "Compensating Interest"); provided, however, that the
Servicer will only pay Compensating Interest to the extent that there is a
shortfall in the amount of Available Funds necessary to pay the Total Current
Interest and will not be required to pay Compensating Interest with respect to
any Remittance Period in an amount in excess of the aggregate Servicing Fee
received by the Servicer for such Remittance Period or to cover shortfalls in
collections of interest due to curtailments or partial prepayments. Any excess
of the full amount of the Compensating Interest due over the related Servicing
Fee may result in a reduction of the amount of interest payable to the
Subordinate Certificates and to the extent of any excess remaining to the Class
A Certificates.
Legal Considerations
Applicable state laws generally regulate interest rates and other charges,
require certain disclosures, and may require licensing of the Originators. In
addition, many states have other laws, such as consumer protection laws, unfair
and deceptive practices acts and debt collection practices acts which may apply
to the origination or collection of the Mortgage Loans. Depending on the
provisions of the applicable law, violations of these laws may limit the ability
of the Servicer to collect all or part of the principal of or interest on the
Mortgage Loans, may entitle the borrower to a refund of amounts previously paid
and, in addition, could subject the Trust to damages and administrative
enforcement. See "Certain Legal Aspects of the Mortgage Loans and Contracts" in
the Prospectus.
The Mortgage Loans are also subject to federal laws, including: (i) the
Federal Truth in Lending Act and Regulation Z promulgated thereunder as to the
Mortgage Loans, which require certain disclosures to the borrowers regarding the
terms of such Mortgage Loans; (ii) the Equal Credit Opportunity Act and
Regulation B promulgated thereunder as to the Mortgage Loans, which prohibit
discrimination on the basis of age, race, color, sex, religion, marital status,
S-25
<PAGE>
national origin, receipt of public assistance or the exercise of any right under
the Consumer Credit Protection Act, in the extension of credit; and (iii) the
Fair Credit Reporting Act as to the Mortgage Loans, which regulates the use and
reporting of information related to the borrower's credit experience.
Violations of certain provisions of these federal laws may limit the
ability of the Servicer to collect all or part of the principal of or interest
on the Mortgage Loans and in addition could subject the Trust to damages and
administrative enforcement. In addition, under the terms of the Soldiers' and
Sailors' Civil Relief Act of 1940, as amended (the "Civil Relief Act"), or
similar state legislation, the interest charged and the ability of the Servicer
to foreclose on loans to certain Mortgagors may be limited. Generally, under the
Civil Relief Act, a mortgagor who enters military service after the origination
of such mortgagor's mortgage loan (including a mortgagor who was in reserve
status and is called to active duty after origination of the mortgage loan),
shall not be charged interest (including fees and charges) above an annual rate
of 6% during the period of such mortgagor's active duty status, unless a court
orders otherwise upon application of the lender. The Civil Relief Act applies to
mortgagors who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Civil Relief Act applies to
mortgagors who enter military service (including reservists who are called to
active duty) after origination of the related mortgage loan, no information can
be provided as to the number of loans that may be affected by the Civil Relief
Act. Application of the Civil Relief Act would adversely affect, for an
indeterminate period of time until cessation of active duty status, the ability
of the Servicer to collect full amounts of interest on certain of the Mortgage
Loans to which it applies, if any. Any shortfall (such shortfall, a "Civil
Relief Act Interest Shortfall") in interest collections on any Mortgage Loan
resulting from the application of the Civil Relief Act will result in a
reduction of the amounts distributable to the Owners of the Subordinate
Certificates and potentially to the Owners of the Mezzanine Certificates and the
Class A Certificates. The Servicer is not obligated to offset any of the
Servicing Fee against, or to provide any other funds to cover, any Civil Relief
Act Interest Shortfall. In addition, the Civil Relief Act imposes limitations
which would impair the ability of the Servicer to foreclose on an affected
Mortgage Loan during the Mortgagor's period of active duty status and, under
certain circumstances, during an additional period thereafter. See "Certain
Legal Aspects of the Mortgage Loans" herein.
It is possible that some of the Mortgage Loans will be subject to the
Riegle Community Development and Regulatory Improvement Act of 1994 (the "Riegle
Act") which incorporates the Home Ownership and Equity Protection Act of 1994.
The Riegle Act adds certain additional provisions to the Truth in Lending Act
which additions are reflected in Regulation Z, the implementing regulation of
the Truth in Lending Act. These provisions impose additional disclosure and
other requirements on creditors with respect to certain non-purchase money
mortgage loans with high interest rates or high upfront fees and charges. In
general, mortgage loans within the purview of the Riegle Act have annual
percentage rates 10 percentage points over the yield on Treasury Securities of
comparable maturity and/or fees and points which exceed the greater of 8% of the
total loan amount or $400. These provisions of the Riegle Act apply on a
mandatory basis to all mortgage loans originated on or after October 1, 1995.
These provisions can impose specific statutory liabilities upon creditors who
fail to comply with their provisions and may affect the enforceability of the
related loans. In addition, any assignee of the
S-26
<PAGE>
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.
Risk of Unaffiliated Seller or Depositor Insolvency
The Unaffiliated Seller believes that the transfer of the Mortgage Loans
by the Unaffiliated Seller to the Depositor and by the Depositor to the Trust
constitutes a sale by the Unaffiliated Seller to the Depositor and by the
Depositor to the Trust and, accordingly, that such Mortgage Loans will not be
part of the assets of the Unaffiliated Seller or the Depositor in the event of
the insolvency of the Unaffiliated Seller or the Depositor, as the case may be,
and will not be available to the creditors of the Unaffiliated Seller or the
Depositor, as the case may be. However, in the event of an insolvency of the
Unaffiliated Seller or the Depositor, it is possible that a bankruptcy trustee
or a creditor of the Unaffiliated Seller or the Depositor may argue that the
transaction between the Unaffiliated Seller and the Depositor or between the
Depositor and the Trust was a pledge of such Mortgage Loans in connection with a
borrowing by the Depositor or the Trust, as the case may be, rather than a true
sale. Such an attempt, even if unsuccessful, could result in delays in
distributions on the Certificates.
On the Closing Date, the Trustee, the Unaffiliated Seller, the Depositor
and the Rating Agencies will have received an opinion of Dewey Ballantine LLP,
special counsel to the Depositor, with respect to the true sale of the Mortgage
Loans by the Unaffiliated Seller to the Depositor and by the Depositor to the
Trust, in form and substance satisfactory to the Rating Agencies.
Purchased Mortgage Loans
Most of the Mortgage Loans were purchased by the Unaffiliated Seller from
a single third-party originator. As described herein, the Unaffiliated Seller
will make certain representations and warranties regarding all of the Mortgage
Loans and, in the event of a breach of any such representation or warranty that
materially and adversely affects the value of such Mortgage Loans, the
Unaffiliated Seller will be required either to cure such breach or substitute or
repurchase the related Mortgage Loan or Mortgage Loans. Upon the purchase of
mortgage loans from third-party originators, the servicing must be transferred
from the third-party originator or current servicer to the Servicer. During the
time of such transfer, it is possible that delays in the receipt of collections
on such mortgage loans could occur resulting in a higher level of delinquencies
during such period.
THE MORTGAGE LOAN POOL
General
Unless otherwise noted, all references to statistical percentages in this
Prospectus Supplement appearing "as of the Cut-Off Date," together with all
dollar amount references herein to aggregate unpaid principal balances appearing
"as of the Cut-Off Date" have been calculated using the aggregate scheduled
unpaid principal balances of the Mortgage Loans as of the close of business on
the Cut-Off Date (the "Original Aggregate Principal Balance").
S-27
<PAGE>
Fixed Rate Loan Group
This subsection describes generally certain characteristics of the pool of
Mortgage Loans in the Fixed Rate Loan Group. The Fixed Rate Loan Group consists
of 1,348 of fixed-rate Mortgage Loans evidenced by promissory notes (the
"Notes") secured by deeds of trust, security deeds or mortgages on the Mortgaged
Properties, 21.87%, 15.43%, 10.32% and 9.14% by current principal balance of
Mortgage Loans in the Fixed Rate Loan Group of which are located in the states
of New Jersey, New York, California and Massachusetts, respectively. The
Mortgaged Properties securing the Mortgage Loans in the Fixed Rate Loan Group
consist of single-family residences (which may be condominiums, manufactured
homes or one-to-four family residences) and multifamily properties, including
investment properties. The Mortgaged Properties may be owner-occupied (which
includes vacation homes), second homes or non-owner occupied investment
properties. The Fixed Rate Loan Group consists of 94.91% by principal balance of
Mortgage Loans in the Fixed Rate Loan Group as of the Cut-Off Date are secured
by first lien mortgages on the related Mortgaged Properties and 5.09% by
principal balance of Mortgage Loans in the Fixed Rate Loan Group as of the
Cut-Off Date are secured by second liens on the related Mortgaged Properties.
None of the Mortgage Loans in the Fixed Rate Loan Group were more than 60
days delinquent as of the Cut-Off Date.
99.96% by principal balance of Mortgage Loans in the Fixed Rate Loan Group
as of the Cut-Off Date require monthly payments of principal that will fully
amortize the Mortgage Loans by their respective stated maturity dates, and 0.04%
by principal balance of Mortgage Loans in the Fixed Rate Loan Group as of the
Cut-Off Date are Balloon Loans. As of the Cut-Off Date, 2.10% by principal
balance of Mortgage Loans in the Fixed Rate Loan Group as of the Cut-Off Date
have "step-up" Mortgage Rates. These Mortgage Loans have fixed Mortgage Rates
which are increased by a weighted average margin of 4.33% (one such Mortgage
Loan "steps-up" by 9.00%).
As of the Cut-Off Date, the Fixed Rate Mortgage Loans had Mortgage Rates
ranging from 7.25% to 24.00% per annum, with a weighted average Mortgage Rate of
9.54% per annum.
As of the Cut-Off Date, the Mortgage Loans in the Fixed Rate Loan Group
had original terms to stated maturity ranging from 36 months to 360 months; had
remaining terms to stated maturity of 42 months to 360 months; had a weighted
average original term to stated maturity of 344 months; and had a weighted
average remaining term to stated maturity of 289 months.
The Mortgage Loans in the Fixed Rate Loan Group had CLTV's ranging from
9.92% to 527.28%; the weighted average CLTV of the Mortgage Loans was 85.18%.
The following tables describe the Mortgage Loans in the Fixed Rate Loan
Group and the related Mortgaged Properties as of the Cut-Off Date. Some of the
aggregate percentages in the following tables may not total 100% due to
rounding.
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<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
Fixed Rate Loan Group
Aggregate % of Aggregate
Number of Unpaid Unpaid
State Mortgage Loans Principal Balance Principal Balance
- ----- -------------- ----------------- -----------------
Alabama.................. 3 $ 125,330.75 0.11%
Arizona.................. 25 1,335,096.05 1.16
Arkansas................. 2 49,946.14 0.04
California............... 105 11,921,625.56 10.32
Colorado................. 39 1,603,234.16 1.39
Connecticut.............. 28 3,457,694.79 2.99
Delaware................. 9 346,572.68 0.30
District of Columbia..... 4 492,133.08 0.43
Florida.................. 60 3,050,497.04 2.64
Georgia.................. 19 1,569,106.06 1.36
Idaho.................... 4 147,737.34 0.13
Illinois................. 16 1,175,074.00 1.02
Indiana.................. 4 147,862.66 0.13
Kansas................... 6 286,365.84 0.25
Kentucky................. 2 26,454.75 0.02
Louisiana................ 7 227,694.67 0.20
Maine.................... 5 341,814.51 0.30
Maryland................. 36 4,317,508.13 3.74
Massachusetts............ 115 10,561,206.35 9.14
Michigan................. 5 486,752.93 0.42
Minnesota................ 19 1,159,668.84 1.00
Mississippi.............. 2 50,338.10 0.04
Missouri................. 16 761,747.42 0.66
Montana.................. 1 47,601.05 0.04
Nevada................... 26 1,598,257.21 1.38
New Hampshire............ 25 1,814,861.47 1.57
New Jersey............... 240 25,261,046.47 21.87
New Mexico............... 6 296,932.77 0.26
New York................. 149 17,813,938.77 15.43
North Carolina........... 27 1,588,416.51 1.38
Ohio..................... 8 269,524.69 0.23
Oklahoma................. 12 335,924.19 0.29
Oregon................... 79 5,359,465.30 4.64
Pennsylvania............. 97 7,103,087.12 6.15
Rhode Island............. 10 624,415.71 0.54
South Carolina........... 23 951,437.19 0.82
Tennessee................ 15 852,908.62 0.74
Texas.................... 50 2,867,339.00 2.48
Utah..................... 7 411,174.26 0.36
Virginia................. 28 3,348,818.49 2.90
Washington............... 14 1,300,405.50 1.13
-- ------------ ----
Total................ 1,348 $115,487,016.17 100.00%
===== =============== =======
S-29
<PAGE>
DISTRIBUTION OF ORIGINAL TERMS
Fixed Rate Loan Group
<TABLE>
<CAPTION>
Range of Months Aggregate % of Aggregate
From Origination Number of Unpaid Unpaid
to Stated Maturity Mortgage Loans Principal Balance Principal Balance
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
24 < Orig. Term <= 36........ 1 $ 17,538.08 0.02%
48 < Orig. Term <= 60........ 3 273,129.04 0.24
168 < Orig. Term <= 180........ 326 9,548,922.50 8.27
228 < Orig. Term <= 240........ 9 637,111.75 0.55
288 < Orig. Term <= 300........ 1 48,675.96 0.04
348 < Orig. Term <= 360........ 1,008 104,961,638.84 90.89
----- -------------- -----
Total.......................... 1,348 $115,487,016.17 100.00%
===== =============== =======
</TABLE>
DISTRIBUTION OF REMAINING TERMS TO STATED MATURITY
Fixed Rate Loan Group
<TABLE>
<CAPTION>
Range of Months Aggregate % of Aggregate
Remaining to Number of Unpaid Unpaid
Stated Maturity Mortgage Loans Principal Balance Principal Balance
--------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
36 < Rem. Term <= 48 .......... 3 $ 101,138.20 0.09%
48 < Rem. Term <= 60 .......... 3 90,303.79 0.08
60 < Rem. Term <= 72 .......... 6 250,078.08 0.22
72 < Rem. Term <= 84 .......... 4 290,139.07 0.25
84 < Rem. Term <= 96 .......... 2 343,678.25 0.30
96 < Rem. Term <=108 .......... 3 154,,471.10 0.13
108 < Rem. Term <=120 .......... 2 195,529.23 0.17
120 < Rem. Term <=132 .......... 7 694,000.35 0.60
132 < Rem. Term <=144 .......... 3 63,820.51 0.06
144 < Rem. Term <=156 .......... 12 674,829.35 0.58
156 < Rem. Term <=168 .......... 8 238,835.63 0.21
168 < Rem. Term <=180 .......... 269 5,934,906.82 5.14
180 < Rem. Term <=192 .......... 1 134,699.37 0.12
192 < Rem. Term <=204 .......... 5 171,625.81 0.15
204 < Rem. Term <=216 .......... 22 1,164,498.28 1.01
216 < Rem. Term <=228 .......... 17 1,648,543.62 1.43
228 < Rem. Term <=240 .......... 29 2,816,562.20 2.44
240 < Rem. Term <=252 .......... 40 4,083,131.76 3.54
252 < Rem. Term <=264 .......... 175 21,105,331.02 18.28
264 < Rem. Term <=276 .......... 159 19,378,953.87 16.78
276 < Rem. Term <=288 .......... 27 4,127,965.82 3.57
288 < Rem. Term <=300 .......... 7 1,275,311.09 1.10
300 < Rem. Term <=312 .......... 53 4,045,622.55 3.50
312 < Rem. Term <=324 .......... 34 3,747,891.88 3.25
324 < Rem. Term <=336 .......... 84 7,674,522.63 6.65
336 < Rem. Term <=348 .......... 70 7,587,969.66 6.57
348 < Rem. Term <=360 .......... 303 27,492,656.23 23.81
--- ------------- -----
Total........................ 1,348 $115,487,016.17 100.00%
===== =============== =======
</TABLE>
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<PAGE>
SEASONING
Fixed Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Months Number of Unpaid Unpaid
Elapsed Since Origination Mortgage Loans Principal Balance Principal Balance
------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Age = 0................. 18 $ 1,396,070.00 1.21%
0 < Age <= 12................. 563 32,558,310.00 28.19
12 < Age <= 24................. 70 7,392,174.63 6.40
24 < Age <= 36................. 97 8,367,488.59 7.25
36 < Age <= 48................. 26 2,472,377.71 2.14
48 < Age <= 60................. 57 4,126,002.90 3.57
60 < Age <= 72................. 2 348,353.68 0.30
72 < Age <= 84................. 37 5,137,927.12 4.45
84 < Age <= 96................. 190 24,155,036.31 20.92
96 < Age <= 108................. 164 19,512,326.32 16.90
108 < Age <= 120................. 51 4,488,123.48 3.89
120 < Age <= 132................. 28 2,695,916.89 2.33
132 < Age <= 144................. 24 1,909,558.55 1.65
144 < Age <= 156................. 16 752,591.44 0.65
156 < Age <= 168................. 4 138,443.99 0.12
180 < Age <= 192................. 1 36,314.56 0.03
- --------- ----
Total........................... 1,348 $ 115,487,016.17 100.00%
===== ============== =======
</TABLE>
S-31
<PAGE>
DISTRIBUTION OF ORIGINAL PRINCIPAL BALANCES
Fixed Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Unpaid Unpaid
Original Principal Balances ($) Mortgage Loans Principal Balance Principal Balance
------------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
5,000 < Balance <= 10,000......... 36 $ 295,017.14 0.26%
10,000 < Balance <= 15,000......... 70 849,594.23 0.74
15,000 < Balance <= 20,000......... 53 891,977.99 0.77
20,000 < Balance <= 25,000......... 44 971,214.40 0.84
25,000 < Balance <= 30,000......... 45 1,171,532.61 1.01
30,000 < Balance <= 35,000......... 36 1,134,876.67 0.98
35,000 < Balance <= 40,000......... 50 1,844,542.08 1.60
40,000 < Balance <= 45,000......... 56 2,310,709.50 2.00
45,000 < Balance <= 50,000......... 46 2,092,366.37 1.81
50,000 < Balance <= 55,000......... 43 2,110,562.52 1.83
55,000 < Balance <= 60,000......... 53 2,975,857.99 2.58
60,000 < Balance <= 65,000......... 48 2,925,925.78 2.53
65,000 < Balance <= 70,000......... 41 2,652,415.38 2.30
70,000 < Balance <= 75,000......... 34 2,331,778.04 2.02
75,000 < Balance <= 80,000......... 41 3,044,284.51 2.64
80,000 < Balance <= 85,000......... 39 3,064,131.23 2.65
85,000 < Balance <= 90,000......... 27 2,244,774.50 1.94
90,000 < Balance <= 95,000......... 41 3,549,359.91 3.07
95,000 < Balance <= 100,000......... 58 5,289,335.35 4.58
100,000 < Balance <= 105,000......... 50 4,904,624.38 4.25
105,000 < Balance <= 110,000......... 32 3,269,054.79 2.83
110,000 < Balance <= 115,000......... 39 4,179,293.19 3.62
115,000 < Balance <= 120,000......... 43 4,819,132.76 4.17
120,000 < Balance <= 125,000......... 24 2,797,984.91 2.42
125,000 < Balance <= 130,000......... 27 3,308,786.86 2.87
130,000 < Balance <= 135,000......... 24 3,023,190.00 2.62
135,000 < Balance <= 140,000......... 28 3,715,625.33 3.22
140,000 < Balance <= 145,000......... 12 1,657,813.58 1.44
145,000 < Balance <= 150,000......... 25 3,561,429.24 3.08
150,000 < Balance <= 200,000......... 102 16,427,105.83 14.22
200,000 < Balance <= 250,000......... 37 8,079,561.65 7.00
250,000 < Balance <= 300,000......... 18 4,717,023.63 4.08
300,000 < Balance <= 350,000......... 12 3,605,323.03 3.12
350,000 < Balance <= 400,000......... 6 2,156,187.01 1.87
400,000 < Balance <= 450,000......... 4 1,370,027.94 1.19
500,000 < Balance <= 550,000......... 1 530,205.04 0.46
550,000 < Balance <= 600,000......... 2 1,124,062.41 0.97
650,000 < Balance <= 700,000......... 1 490,328.39 0.42
- ---------- ----
Total............................. 1,348 $115,487,016.17 100.00%
===== ============== =======
</TABLE>
S-32
<PAGE>
DISTRIBUTION OF CURRENT PRINCIPAL BALANCES
Fixed Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Unpaid Unpaid
Current Principal Balances ($) Mortgage Loans Principal Balance Principal Balance
------------------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
0 < Balance <= 5,000......... 1 $ 2,629.87 0.00%
5,000 < Balance <= 10,000......... 37 304,115.63 0.26
10,000 < Balance <= 15,000......... 74 918,063.01 0.79
15,000 < Balance <= 20,000......... 53 914,571.84 0.79
20,000 < Balance <= 25,000......... 50 1,113,186.25 0.96
25,000 < Balance <= 30,000......... 43 1,165,864.55 1.01
30,000 < Balance <= 35,000......... 42 1,367,132.32 1.18
35,000 < Balance <= 40,000......... 54 2,019,270.84 1.75
40,000 < Balance <= 45,000......... 59 2,522,542.78 2.18
45,000 < Balance <= 50,000......... 48 2,287,226.01 1.98
50,000 < Balance <= 55,000......... 43 2,243,762.91 1.94
55,000 < Balance <= 60,000......... 55 3,149,361.14 2.73
60,000 < Balance <= 65,000......... 51 3,188,938.98 2.76
65,000 < Balance <= 70,000......... 34 2,301,601.31 1.99
70,000 < Balance <= 75,000......... 45 3,277,563.09 2.84
75,000 < Balance <= 80,000......... 44 3,411,420.33 2.95
80,000 < Balance <= 85,000......... 29 2,391,877.97 2.07
85,000 < Balance <= 90,000......... 49 4,289,678.82 3.71
90,000 < Balance <= 95,000......... 39 3,590,574.48 3.11
95,000 < Balance <= 100,000......... 53 5,157,332.05 4.47
100,000 < Balance <= 105,000......... 43 4,410,115.73 3.82
105,000 < Balance <= 110,000......... 37 3,976,554.97 3.44
110,000 < Balance <= 115,000......... 36 4,046,136.96 3.50
115,000 < Balance <= 120,000......... 32 3,770,674.37 3.27
120,000 < Balance <= 125,000......... 25 3,064,853.05 2.65
125,000 < Balance <= 130,000......... 27 3,446,872.92 2.98
130,000 < Balance <= 135,000......... 20 2,652,932.71 2.30
135,000 < Balance <= 140,000......... 23 3,165,718.46 2.74
140,000 < Balance <= 145,000......... 19 2,711,765.67 2.35
145,000 < Balance <= 150,000......... 25 3,692,718.42 3.20
150,000 < Balance <= 200,000......... 86 14,509,272.90 12.56
200,000 < Balance <= 250,000......... 34 7,751,904.45 6.71
250,000 < Balance <= 300,000......... 19 5,264,943.05 4.56
300,000 < Balance <= 350,000......... 9 2,947,507.30 2.55
350,000 < Balance <= 400,000......... 4 1,485,479.57 1.29
400,000 < Balance <= 450,000......... 2 828,255.62 0.72
450,000 < Balance <= 500,000......... 1 490,328.39 0.42
500,000 < Balance <= 550,000......... 1 530,205.04 0.46
550,000 < Balance <= 600,000......... 2 1,124,062.41 0.97
- ------------ ----
Total............................. 1,348 $ 115,487,016.17 100.00%
===== ================ =======
</TABLE>
S-33
<PAGE>
DISTRIBUTION OF GROSS MORTGAGE RATES
Fixed Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Unpaid Unpaid
Gross Mortgage Rates (%) Mortgage Loans Principal Balance Principal Balance
------------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
7.00 < Rate <= 7.50 .............. 93 $ 11,210,079.38 9.71%
7.50 < Rate <= 7.75 .............. 44 3,964,441.46 3.43
7.75 < Rate <= 8.00 .............. 175 20,389,488.89 17.66
8.00 < Rate <= 8.25 .............. 30 2,534,088.22 2.19
8.25 < Rate <= 8.50 .............. 66 8,201,200.75 7.10
8.50 < Rate <= 8.75 .............. 48 5,257,925.40 4.55
8.75 < Rate <= 9.00 .............. 71 7,278,819.68 6.30
9.00 < Rate <= 9.25 .............. 23 2,073,373.08 1.80
9.25 < Rate <= 9.50 .............. 49 4,555,196.22 3.94
9.50 < Rate <= 9.75 .............. 52 5,060,383.48 4.38
9.75 < Rate <= 10.00 .............. 70 6,788,793.79 5.88
10.00 < Rate <= 10.25 .............. 47 4,526,598.66 3.92
10.25 < Rate <= 10.50 .............. 62 6,123,334.10 5.30
10.50 < Rate <= 10.75 .............. 61 5,221,776.05 4.52
10.75 < Rate <= 11.00 .............. 40 4,494,315.96 3.89
11.00 < Rate <= 11.25 .............. 23 2,016,157.23 1.75
11.25 < Rate <= 11.50 .............. 17 1,621,500.67 1.40
11.50 < Rate <= 11.75 .............. 32 2,573,807.13 2.23
11.75 < Rate <= 12.00 .............. 47 2,116,023.36 1.83
12.00 < Rate <= 12.25 .............. 10 981,955.30 0.85
12.25 < Rate <= 12.50 .............. 21 1,503,812.67 1.30
12.50 < Rate <= 12.75 .............. 21 1,263,998.68 1.09
12.75 < Rate <= 13.00 .............. 6 252,936.40 0.22
13.00 < Rate <= 13.25 .............. 4 316,546.16 0.27
13.25 < Rate <= 13.50 .............. 11 482,719.10 0.42
13.50 < Rate <= 13.75 .............. 99 2,321,627.21 2.01
14.00 < Rate <= 14.25 .............. 1 10,832.79 0.01
14.25 < Rate <= 14.50 .............. 6 86,453.51 0.07
14.75 < Rate <= 15.00 .............. 45 975,127.91 0.84
15.50 < Rate <= 15.75 .............. 2 13,751.09 0.01
15.75 < Rate <= 16.00 .............. 1 22,810.50 0.02
16.75 < Rate <= 17.00 .............. 2 24,637.94 0.02
17.50 < Rate <= 18.00 .............. 57 1,006,528.92 0.87
19.00 < Rate <= 19.50 .............. 1 24,673.98 0.02
19.50 < Rate <= 20.00 .............. 2 12,746.38 0.01
20.50 < Rate <= 21.00 .............. 6 141,857.15 0.12
21.50 < Rate <= 22.00 .............. 1 9,992.75 0.01
23.50 < Rate <= 24.00 .............. 2 26,704.22 0.02
- --------- ----
Total............................ 1,348 $115,487,016.17 100.00%
===== =============== =======
</TABLE>
S-34
<PAGE>
DISTRIBUTION OF CLTV'S
Fixed Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Unpaid Unpaid
Range of CLTV's (%) Mortgage Loans Principal Balance Principal Balance
------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
5.00 < CLTV <= 10.00............ 1 $ 2,629.87 0.00%
10.00 < CLTV <= 15.00............ 3 59,036.73 0.05
15.00 < CLTV <= 20.00............ 2 82,038.45 0.07
20.00 < CLTV <= 25.00............ 3 76,671.22 0.07
25.00 < CLTV <= 30.00............ 11 477,771.84 0.41
30.00 < CLTV <= 35.00............ 7 290,193.16 0.25
35.00 < CLTV <= 40.00............ 14 1,143,477.21 0.99
40.00 < CLTV <= 45.00............ 16 947,578.06 0.82
45.00 < CLTV <= 50.00............ 25 1,473,944.35 1.28
50.00 < CLTV <= 55.00............ 25 1,643,872.77 1.42
55.00 < CLTV <= 60.00............ 37 3,281,656.36 2.84
60.00 < CLTV <= 65.00............ 47 4,892,587.20 4.24
65.00 < CLTV <= 70.00............ 64 6,337,670.55 5.49
70.00 < CLTV <= 75.00............ 101 10,754,567.59 9.31
75.00 < CLTV <= 80.00............ 324 30,799,081.72 26.67
80.00 < CLTV <= 85.00............ 87 8,564,487.92 7.42
85.00 < CLTV <= 90.00............ 100 10,193,649.74 8.83
90.00 < CLTV <= 95.00............ 115 8,647,744.31 7.49
95.00 < CLTV <= 100.00............ 218 9,184,788.41 7.95
100.00 < CLTV <= 105.00............ 25 2,836,740.07 2.46
105.00 < CLTV <= 110.00............ 27 2,987,006.90 2.59
110.00 < CLTV <= 115.00............ 19 2,500,968.16 2.17
115.00 < CLTV <= 120.00............ 14 1,430,977.80 1.24
120.00 < CLTV <= 125.00............ 11 995,236.10 0.86
125.00 < CLTV <= 130.00............ 11 1,532,211.22 1.33
130.00 < CLTV <= 135.00............ 4 325,412.47 0.28
135.00 < CLTV <= 140.00............ 7 1,257,580.45 1.09
140.00 < CLTV <= 145.00............ 5 438,830.32 0.38
145.00 < CLTV <= 150.00............ 1 88,300.96 0.08
150.00 < CLTV <= 160.00............ 4 374,906.98 0.32
160.00 < CLTV <= 170.00............ 4 415,161.83 0.36
170.00 < CLTV <= 180.00............ 4 368,011.92 0.32
180.00 < CLTV <= 190.00............ 2 174,720,65 0.15
200.00 < CLTV <= 225.00............ 3 357,793.95 0.31
250.00 < CLTV <= 275.00............ 1 105,155.74 0.09
275.00 < CLTV <= 300.00............ 2 135,062.12 0.12
300.00 < CLTV <= 325.00............ 2 155,044.43 0.13
350.00 < CLTV <= 375.00............ 1 62,173.13 0.05
525.00 < CLTV <= 550.00............ 1 92,273.51 0.08
= ========= ====
Total............................ 1,348 $115,487,016.17 100.00%
===== =============== =======
</TABLE>
The CLTV's shown above were calculated based upon the appraised values of
the Mortgaged Properties at the time of origination or, with respect to Mortgage
Loans in the Purchased Pool, a more recent broker price opinion, if available
(the "Appraised Values"), the principal balance of the Mortgage Loan as of the
Cut-Off Date and the senior liens, if any, at the time of origination or, if
available, the current senior lien. No assurance can be given that such
Appraised Values of the Mortgaged Properties have remained or will remain at
their levels on
S-35
<PAGE>
the dates of origination of the related Mortgage Loans. If property values
decline such that the outstanding balances of the Mortgage Loans, together with
the outstanding balances of any senior Mortgage Loans, become equal to or
greater than the value of the Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be higher than those heretofore
experienced by the Servicer and by the mortgage lending industry in general.
DISTRIBUTION OF PROPERTY TYPES
Fixed Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Unpaid Unpaid
Property Type Mortgage Loans Principal Balance Principal Balance
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
1st Lien Loans:
Residential Condo.................... 180 $ 13,657,299.23 11.83%
1-4 Family........................... 687 77,847,251.16 67.41
PUD.................................. 91 10,954,302.51 9.49
Townhouse............................ 22 1,766,634.14 1.53
Mobile Home Single Wide.............. 24 1,053,743.41 0.91
Mobile Home Double Wide.............. 73 4,330,130.86 3.75
2nd Lien Loans:
Residential Condo.................... 12 237,760.44 0.21
1-4 Family........................... 138 3,151,779.04 2.73
PUD.................................. 55 1,622,851.63 1.41
Townhouse............................ 5 116,552.61 0.10
Mobile Home Single Wide.............. 11 109,503.68 0.09
Mobile Home Double Wide.............. 50 639,207.46 0.55
-- ---------- ----
Total........................... 1,348 $115,487,016.17 100.00%
===== =============== =======
</TABLE>
DISTRIBUTION OF OCCUPANCY STATUS
Fixed Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Unpaid Unpaid
Property Type Mortgage Loans Principal Balance Principal Balance
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Owner Occupied/Prim. Resid........... 1312 $113,581,287.76 98.35%
Vacation/Second Home................. 9 521,608.22 0.45
Non-Owner Occupied/Investor.......... 27 1,384,120.19 1.20
-- ------------ ----
Total............................ 1,348 $115,487,016.17 100.00%
===== =============== =======
</TABLE>
S-36
<PAGE>
Adjustable Rate Loan Group
This subsection describes generally certain characteristics of the pool of
Mortgage Loans in the Adjustable Rate Loan Group. The Adjustable Rate Loan Group
consists of 145 of adjustable-rate loans evidenced by Notes secured by Mortgages
on the Mortgaged Properties, 18.25%, 16.94%, 7.94% and 6.93% by principal
balance of Mortgage Loans in the Adjustable Rate Loan Group as of the Cut-Off
Date of which are located in the states of California, New Jersey, Pennsylvania
and Maryland, respectively. The Mortgaged Properties securing the Mortgage Loans
in the Adjustable Rate Loan Group consist of single-family residences (which may
be condominiums, manufactured homes or one-to-four family residences) and
multifamily properties, including investment properties. The Mortgaged
Properties may be owner-occupied (which includes vacation homes), second homes
or non-owner occupied investment properties. All of the Mortgage Loans in the
Adjustable Rate Loan Group are secured by first lien mortgages on the related
Mortgaged Properties.
None of the Mortgage Loans in the Adjustable Rate Loan Group were more
than 60 days delinquent as of the Cut-Off Date.
As of the Cut-Off Date, the Adjustable Rate Mortgage Loans had Mortgage
Rates ranging from 7.00% to 13.50% per annum, with a weighted average Mortgage
Rate of 8.53% per annum. The Adjustable Rate Mortgage Loans had gross margins
ranging from 2.10% to 7.00%, with a weighted average gross margin of 4.00%;
lifetime rate caps, ranging from 8.00% to 20.50%, with a weighted average
lifetime rate cap of 13.94% (for the Adjustable Rate Mortgage Loans which have
caps); and lifetime rate floors ranging from 2.10% to 13.50%, with a weighted
average lifetime rate floor of 4.56% (where the gross margin was used for
Adjustable Rate Mortgage Loans without floors).
As of the Cut-Off Date, the Mortgage Loans in the Adjustable Rate Loan
Group had original terms to stated maturity of 360 months; had remaining terms
to stated maturity ranging from 193 months to 359 months; had a weighted average
original term to stated maturity of 360 months; and had a weighted average
remaining term to stated maturity of 305 months.
The Mortgage Loans in the Adjustable Rate Loan Group had CLTV's ranging
from 5.41% to 144.25% and the weighted average CLTV of the Mortgage Loans was
83.21%.
The following tables describe the Mortgage Loans in the Adjustable Rate
Loan Group and the related Mortgaged Properties as of the Cut-Off Date. Some of
the aggregate percentages in the following tables may not total 100% due to
rounding.
S-37
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
Adjustable Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Unpaid Unpaid
State Mortgage Loans Principal Balance Principal Balance
- ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Arizona................. 4 $ 315,655.34 1.94%
California.............. 11 2,975,045.19 18.25
Colorado................ 8 943,446.15 5.79
Connecticut............. 5 851,772.68 5.22
Delaware................ 5 376,984.28 2.31
Florida................. 2 104,771.70 0.64
Idaho................... 2 70,442.82 0.43
Illinois................ 5 442,013.34 2.71
Indiana................. 1 86,236.78 0.53
Kentucky................ 2 106,161.89 0.65
Louisiana............... 6 374,878.74 2.30
Maryland................ 8 1,130,477.52 6.93
Massachusetts........... 2 163,838.93 1.01
Minnesota............... 2 275,486.84 1.69
Missouri................ 1 112,376.19 0.69
New Jersey.............. 28 2,762,311.88 16.94
New York................ 7 803,528.71 4.93
North Carolina.......... 2 190,454.76 1.17
Ohio.................... 2 204,176.83 1.25
Oklahoma................ 3 276,791.00 1.70
Oregon.................. 3 227,305.69 1.39
Pennsylvania............ 17 1,294,838.07 7.94
Rhode Island............ 2 89,805.85 0.55
South Carolina.......... 3 223,195.86 1.37
Texas................... 8 808,828.54 4.96
Utah.................... 2 357,423.20 2.19
Virginia................ 4 733,839.44 4.50
- ---------- ----
Total................ 145 $ 16,302,088.22 100.00%
=== =============== =======
</TABLE>
DISTRIBUTION OF ORIGINAL TERMS
Adjustable Rate Loan Group
<TABLE>
<CAPTION>
Range of Months Aggregate % of Aggregate
From Origination Number of Unpaid Unpaid
To Stated Maturity Mortgage Loans Principal Balance Principal Balance
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
348 < Orig. Term <= 360........... 145 $16,302,088.22 100.00%
--- -------------- -------
Total.......................... 145 $16,302,088.22 100.00%
=== ============== =======
</TABLE>
S-38
<PAGE>
DISTRIBUTION OF REMAINING TERMS TO STATED MATURITY
Adjustable Rate Loan Group
<TABLE>
<CAPTION>
Range of Months Aggregate % of Aggregate
Remaining To Number of Unpaid Unpaid
Stated Maturity Mortgage Loans Principal Balance Principal Balance
--------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
192 < Rem. Term <= 204........ 3 $ 124,207.01 0.76%
216 < Rem. Term <= 228........ 2 180,822.87 1.11
228 < Rem. Term <= 240........ 3 463,894.08 2.85
240 < Rem. Term <= 252........ 45 3,943,804.46 24.19
252 < Rem. Term <= 264........ 8 1,046,359.50 6.42
264 < Rem. Term <= 276........ 3 695,688.99 4.27
276 < Rem. Term <= 288........ 1 223,396.50 1.37
288 < Rem. Term <= 300........ 1 231,243.53 1.42
324 < Rem. Term <= 336........ 16 3,058,540.15 18.76
336 < Rem. Term <= 348........ 2 93,131.08 0.57
348 < Rem. Term <= 360........ 61 6,241,000.05 38.28
-- ------------ -----
Total...................... 145 $ 16,302,088.22 100.00%
=== =============== =======
</TABLE>
S-39
<PAGE>
SEASONING
Adjustable Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Months Number of Unpaid Unpaid
Elapsed Since Origination Mortgage Loans Principal Balance Principal Balance
------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
0 < Age <= 12............. 61 $ 6,241,000.05 38.28%
12 < Age <= 24............. 2 93,131.08 0.57
24 < Age <= 36............. 16 3,058,540.15 18.76
60 < Age <= 72............. 1 231,243.53 1.42
72 < Age <= 84............. 1 223,396.50 1.37
84 < Age <= 96............. 3 695,688.99 4.27
96 < Age <= 108............. 8 1,046,359.50 6.42
108 < Age <= 120............. 47 4,306,993.50 26.42
120 < Age <= 132............. 1 100,705.04 0.62
132 < Age <= 144............. 2 180,822.87 1.11
156 < Age <= 168............. 3 124,207.01 0.76
- ---------- ----
Total..................... 145 $ 16,302,088.22 100.00%
=== ================ =======
</TABLE>
S-40
<PAGE>
DISTRIBUTION OF ORIGINAL PRINCIPAL BALANCES
Adjustable Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Unpaid Unpaid
Original Principal Balances ($) Mortgage Loans Principal Balance Principal Balance
------------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
20,000 < Balance <= 25,000........ 1 $ 23,871.72 0.15%
25,000 < Balance <= 30,000........ 1 29,508.31 0.18
35,000 < Balance <= 40,000........ 2 75,376.54 0.46
40,000 < Balance <= 45,000........ 6 241,539.31 1.48
45,000 < Balance <= 50,000........ 4 180,422.38 1.11
50,000 < Balance <= 55,000........ 5 244,607.11 1.50
55,000 < Balance <= 60,000........ 7 381,755.22 2.34
60,000 < Balance <= 65,000........ 8 485,954.45 2.98
65,000 < Balance <= 70,000........ 5 331,265.41 2.03
70,000 < Balance <= 75,000........ 7 503,255.91 3.09
75,000 < Balance <= 80,000........ 14 1,014,675.89 6.22
80,000 < Balance <= 85,000........ 2 166,094.71 1.02
85,000 < Balance <= 90,000........ 6 483,260.77 2.96
90,000 < Balance <= 95,000........ 1 82,885.95 0.51
95,000 < Balance <= 100,000........ 4 342,138.11 2.10
100,000 < Balance <= 105,000........ 7 660,733.01 4.05
105,000 < Balance <= 110,000........ 4 403,660.61 2.48
110,000 < Balance <= 115,000........ 4 420,730.59 2.58
115,000 < Balance <= 120,000........ 7 705,557.01 4.33
120,000 < Balance <= 125,000........ 4 428,819.61 2.63
125,000 < Balance <= 130,000........ 4 496,352.34 3.04
130,000 < Balance <= 135,000........ 3 372,021.78 2.28
135,000 < Balance <= 140,000........ 1 135,787.18 0.83
140,000 < Balance <= 145,000........ 2 271,039.46 1.66
145,000 < Balance <= 150,000........ 6 827,555.76 5.08
150,000 < Balance <= 200,000........ 15 2,429,649.32 14.90
200,000 < Balance <= 250,000........ 5 1,107,093.82 6.79
250,000 < Balance <= 300,000........ 4 997,039.72 6.12
300,000 < Balance <= 350,000........ 3 912,701.32 5.60
350,000 < Balance <= 400,000........ 1 375,308.59 2.30
550,000 < Balance <= 600,000........ 1 572,999.60 3.51
600,000 < Balance <= 650,000........ 1 598,426.71 3.67
- ---------- ----
Total............................. 145 $ 16,302,088.22 100.00%
=== ============= =======
</TABLE>
S-41
<PAGE>
DISTRIBUTION OF CURRENT PRINCIPAL BALANCES
Adjustable Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Unpaid Unpaid
Current Principal Balances ($) Mortgage Loans Principal Balance Principal Balance
------------------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
10,000 < Balance <= 15,000........ 1 $ 14,549.05 0.09%
20,000 < Balance <= 25,000........ 1 23,871.72 0.15
25,000 < Balance <= 30,000........ 1 29,508.31 0.18
35,000 < Balance <= 40,000........ 5 189,116.48 1.16
40,000 < Balance <= 45,000........ 6 260,550.68 1.60
45,000 < Balance <= 50,000........ 5 235,287.56 1.44
50,000 < Balance <= 55,000........ 4 209,223.21 1.28
55,000 < Balance <= 60,000........ 6 340,326.89 2.09
60,000 < Balance <= 65,000........ 8 495,803.98 3.04
65,000 < Balance <= 70,000........ 7 475,033.43 2.91
70,000 < Balance <= 75,000........ 12 862,914.54 5.29
75,000 < Balance <= 80,000........ 9 702,446.62 4.31
80,000 < Balance <= 85,000........ 6 494,801.12 3.04
85,000 < Balance <= 90,000........ 7 614,208.40 3.77
90,000 < Balance <= 95,000........ 3 281,251.39 1.73
95,000 < Balance <= 100,000........ 3 293,257.73 1.80
100,000 < Balance <= 105,000........ 3 306,239.70 1.88
105,000 < Balance <= 110,000........ 4 427,269.93 2.62
110,000 < Balance <= 115,000........ 2 222,545.03 1.37
115,000 < Balance <= 120,000........ 7 828,859.12 5.08
120,000 < Balance <= 125,000........ 1 120,648.76 0.74
125,000 < Balance <= 130,000........ 4 509,445.19 3.13
130,000 < Balance <= 135,000........ 5 662,692.99 4.07
135,000 < Balance <= 140,000........ 3 406,480.08 2.49
140,000 < Balance <= 145,000........ 1 141,416.81 0.87
145,000 < Balance <= 150,000........ 4 593,570.68 3.64
150,000 < Balance <= 200,000........ 12 1,997,199.06 12.25
200,000 < Balance <= 250,000........ 7 1,591,390.12 9.76
250,000 < Balance <= 300,000........ 3 804,858.45 4.94
300,000 < Balance <= 350,000........ 2 620,586.29 3.81
350,000 < Balance <= 400,000........ 1 375,308.59 2.30
550,000 < Balance <= 600,000........ 2 1,171,426.31 7.19
- ------------ ----
Total............................ 145 $ 16,302,088.22 100.00%
=== ============= =======
</TABLE>
S-42
<PAGE>
DISTRIBUTION OF GROSS MORTGAGE RATES
Adjustable Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Unpaid Unpaid
Gross Mortgage Rates (%) Mortgage Loans Principal Balance Principal Balance
------------------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
6.50 < Rate <= 7.00............... 8 $ 904,292.53 5.55%
7.00 < Rate <= 7.50............... 10 1,121,299.93 6.88
7.50 < Rate <= 7.75............... 6 440,838.54 2.70
7.75 < Rate <= 8.00............... 7 950,899.77 5.83
8.00 < Rate <= 8.25............... 31 4,123,782.31 25.30
8.25 < Rate <= 8.50............... 32 3,733,840.49 22.90
8.50 < Rate <= 8.75............... 24 2,489,667.40 15.27
8.75 < Rate <= 9.00............... 3 249,919.10 1.53
9.00 < Rate <= 9.25............... 2 228,643.80 1.40
9.25 < Rate <= 9.50............... 4 354,950.85 2.18
9.50 < Rate <= 9.75............... 2 115,745.09 0.71
9.75 < Rate <= 10.00............... 3 212,229.49 1.30
10.00 < Rate <= 10.25............... 1 118,662.93 0.73
10.25 < Rate <= 10.50............... 1 300,847.35 1.85
10.50 < Rate <= 10.75............... 3 377,789.14 2.32
11.00 < Rate <= 11.25............... 3 318,034.04 1.95
11.25 < Rate <= 11.50............... 1 55,126.12 0.34
11.50 < Rate <= 11.75............... 1 39,372.36 0.24
11.75 < Rate <= 12.00............... 1 40,934.51 0.25
12.25 < Rate <= 12.50............... 1 52,196.57 0.32
13.25 < Rate <= 13.50............... 1 73,015.90 0.45
- --------- ----
Total............................. 145 $ 16,302,088.22 100.00%
=== ============= =======
</TABLE>
DISTRIBUTION OF GROSS MARGINS
Adjustable Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Unpaid Unpaid
Range of Gross Margins (%) Mortgage Loans Principal Balance Principal Balance
------------------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
2.00 < Margin <= 2.50................ 2 $ 76,333.86 0.47%
2.50 < Margin <= 3.00................ 80 9,891,623.23 60.68
4.50 < Margin <= 5.00................ 11 1,243,220.34 7.63
5.00 < Margin <= 5.50................ 17 1,603,906.39 9.84
5.50 < Margin <= 6.00................ 10 1,165,018.43 7.15
6.00 < Margin <= 6.50................ 5 694,330.17 4.26
6.50 < Margin <= 7.00................ 20 1,627,655.80 9.98
-- ------------ ----
Total............................. 145 $ 16,302,088.22 100.00%
=== ============= =======
</TABLE>
S-43
<PAGE>
DISTRIBUTION OF LIFETIME RATE CAPS
Adjustable Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Unpaid Unpaid
Lifetime Rate Caps (%) Mortgage Loans Principal Balance Principal Balance
---------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
7.50 < Cap <= 8.00................. 2 $ 643,710.61 3.95%
11.50 < Cap <= 12.00................. 1 237,866.71 1.46
12.50 < Cap <= 13.00................. 23 2,763,864.50 16.95
13.00 < Cap <= 13.50................. 36 3,248,176.49 19.92
13.50 < Cap <= 14.00................. 22 2,295,694.65 14.08
14.00 < Cap <= 14.50................. 17 2,243,608.22 13.76
14.50 < Cap <= 15.00................. 9 1,001,760.85 6.14
15.00 < Cap <= 15.50................. 12 1,500,064.34 9.20
15.50 < Cap <= 16.00................. 15 1,420,611.72 8.71
16.00 < Cap <= 16.50................. 3 663,270.44 4.07
16.50 < Cap <= 17.00................. 1 86,236.78 0.53
20.00 < Cap <= 20.50................. 1 73,015.90 0.45
Uncapped 3 124,207.01 0.76
- ---------- ----
Total............................ 145 $ 16,302,088.22 100.00%
=== ============= =======
</TABLE>
DISTRIBUTION OF LIFETIME RATE FLOORS*
Adjustable Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Unpaid Unpaid
Lifetime Rate Floor (%) Mortgage Loans Principal Balance Principal Balance
----------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
2.00 < Floor <= 2.50.............. 2 $ 76,333.86 0.47%
2.50 < Floor <= 3.00.............. 80 9,891,623.23 60.68
4.50 < Floor <= 5.00.............. 4 497,222.10 3.05
5.00 < Floor <= 5.50.............. 6 510,918.45 3.13
5.50 < Floor <= 6.00.............. 3 329,642.57 2.02
6.00 < Floor <= 6.50.............. 1 62,985.12 0.39
6.50 < Floor <= 7.00.............. 19 2,269,157.95 13.92
7.00 < Floor <= 7.50.............. 7 597,517.86 3.67
7.50 < Floor <= 8.00.............. 4 310,089.98 1.90
8.00 < Floor <= 8.50.............. 5 602,742.09 3.70
8.50 < Floor <= 9.00.............. 3 252,286.19 1.55
9.00 < Floor <= 9.50.............. 2 234,605.87 1.44
9.50 < Floor <= 10.00.............. 8 593,947.05 3.64
13.00 < Floor <= 13.50.............. 1 73,015.90 0.45
- --------- ----
Total............................ 145 $16,302,088.22 100.00%
=== ============== =======
</TABLE>
*Mortgage Loans without floors were assumed to have floors equal to the related
gross margin.
S-44
<PAGE>
DISTRIBUTION OF CLTV'S
Adjustable Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Unpaid Unpaid
Range of CLTV's (%) Mortgage Loans Principal Balance Principal Balance
------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
5.00 < CLTV <= 10.00............. 1 $ 14,549.05 0.09%
20.00 < CLTV <= 25.00............. 1 70,583.42 0.43
25.00 < CLTV <= 30.00............. 1 23,871.72 0.15
35.00 < CLTV <= 40.00............. 3 256,611.48 1.57
40.00 < CLTV <= 45.00............. 3 194,146.61 1.19
45.00 < CLTV <= 50.00............. 5 528,798.30 3.24
50.00 < CLTV <= 55.00............. 4 259,733.79 1.59
55.00 < CLTV <= 60.00............. 7 580,090.12 3.56
60.00 < CLTV <= 65.00............. 8 804,672.90 4.94
65.00 < CLTV <= 70.00............. 10 1,074,359.30 6.59
70.00 < CLTV <= 75.00............. 12 981,066.61 6.02
75.00 < CLTV <= 80.00............. 56 6,065,926.78 37.21
80.00 < CLTV <= 85.00............. 7 985,869.51 6.05
85.00 < CLTV <= 90.00............. 6 731,390.88 4.49
90.00 < CLTV <= 95.00............. 5 675,061.33 4.14
95.00 < CLTV <= 100.00............. 2 215,588.50 1.32
100.00 < CLTV <= 105.00............. 2 126,898.56 0.78
105.00 < CLTV <= 110.00............. 2 185,436.58 1.14
110.00 < CLTV <= 115.00............. 1 154,868.16 0.95
115.00 < CLTV <= 120.00............. 1 89,559.43 0.55
125.00 < CLTV <= 130.00............. 3 913,145.06 5.60
130.00 < CLTV <= 135.00............. 3 900,787.83 5.53
140.00 < CLTV <= 145.00............. 2 469,072.30 2.88
- ---------- ----
Total............................ 145 $16,302,088.22 100.00%
=== ============== =======
</TABLE>
The CLTV's shown above were calculated based upon the appraised values
of the Mortgaged Properties at the time of origination or, with respect to
Mortgage Loans in the Purchased Pool, a more recent broker price opinion, if
available (the "Appraised Values"), the principal balance of the Mortgage Loan
as of the Cut-Off Date and the senior liens, if any, at the time of origination
or, if available, the current senior lien. No assurance can be given that such
Appraised Values of the Mortgaged Properties have remained or will remain at
their levels on the dates of origination of the related Mortgage Loans. If
property values decline such that the outstanding balances of the Mortgage
Loans, together with the outstanding balances of any senior Mortgage Loans,
become equal to or greater than the value of the Mortgaged Properties, the
actual rates of delinquencies, foreclosures and losses could be higher than
those heretofore experienced by the Servicer and by the mortgage lending
industry in general.
S-45
<PAGE>
DISTRIBUTION OF PROPERTY TYPES
Adjustable Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Unpaid Unpaid
Property Type Mortgage Loans Principal Balance Principal Balance
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
1st Lien Loans:
Residential Condo.................... 13 $ 1,232,194.55 7.56%
1-4 Family........................... 101 11,720,700.12 71.90
PUD.................................. 21 2,637,902.23 16.18
Townhouse............................ 3 326,503.45 2.00
Mobile Home Double Wide.............. 7 384,787.87 2.36
- ---------- ----
Total............................. 145 $16,302,088.22 100.00%
=== ============== =======
</TABLE>
DISTRIBUTION OF OCCUPANCY STATUS
Adjustable Rate Loan Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Unpaid Unpaid
Property Type Mortgage Loans Principal Balance Principal Balance
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Owner Occupied....................... 145 $16,302,088.22 100.00%
--- -------------- -------
Total............................ 145 $16,302,088.22 100.00%
=== ============== =======
</TABLE>
Interest Payments on the Mortgage Loans
The Mortgage Loans in the Trust are Actuarial Loans. An "Actuarial
Loan" provides for amortization of the loan over a series of fixed level payment
monthly installments. Each monthly installment consists of an amount of interest
equal to 1/12 of the coupon of the loan multiplied by the unpaid principal
balance of the loan, and an amount of principal equal to the remainder of the
monthly payment. Scheduled monthly payments made by obligors on Actuarial Loans
either earlier or later than the scheduled due dates thereof will not affect the
amortization schedule or the relative application of such payments to principal
and interest.
THE UNAFFILIATED SELLER
The Unaffiliated Seller, a Delaware corporation, is an indirect wholly
owned subsidiary of Wilshire Financial Services Group Inc. Wilshire Financial
Services Group Inc., a Delaware corporation ("WFSG"), is a publicly traded
company primarily engaged in the acquisition of pools of performing,
sub-performing and non-performing residential and commercial loans, as well as
foreclosed real estate. WFSG also acquires mortgage-backed securities, purchases
newly originated loans conforming to its guidelines and services loans for third
parties. At September 30, 1997, WFSG and its subsidiaries had total assets of
approximately $1.4 billion.
S-46
<PAGE>
The Unaffiliated Seller was organized as a limited purpose company to
acquire residential mortgage loans and manufactured housing loans under
guidelines established by it, to acquire other mortgage loans from time to time
as opportunities arise, to finance such acquisitions under a loan warehousing
agreement with Prudential Securities Credit Corporation, an affiliate of the
Underwriter, and to hold such loans as investments or transfer or sell such
loans through securitizations or otherwise. See "Underwriting." The Unaffiliated
Seller's principal executive offices are located at 1776 S.W. Madison Street,
Portland, Oregon 97205. Its telephone number is (503) 223-5600.
The only obligations, if any, of the Unaffiliated Seller with respect
to the Certificates will be pursuant to certain representations and warranties
with respect to the Mortgage Loans.
THE SERVICER
Wilshire Servicing Corporation, a Delaware corporation (the
"Servicer"), is a wholly owned subsidiary of WFSG and is principally engaged in
the loan servicing business. Currently, the Servicer retains Wilshire Credit
Corporation, an affiliate through common ownership ("WCC"), to sub-service
portfolios of loans and other assets as to which it has the servicing rights.
The Servicer will retain WCC to act as its sub-servicer with respect to the
mortgage loans underlying the Certificates.
THE SUB-SERVICER
The information set forth in this section has been provided by Wilshire
Credit Corporation, and neither the Unaffiliated Seller, the Depositor nor the
Underwriter makes any representations or warranties as to the accuracy or
completeness of such information.
General
The Sub-Servicer, Wilshire Credit Corporation, a Nevada corporation, is
a privately held corporation based in Portland, Oregon. Wilshire Credit
Corporation's principal executive offices are located at 1776 S.W. Madison
Street, Portland, Oregon 97205. The telephone number of such offices is (503)
223-5600.
WCC is primarily engaged in the specialty loan servicing and resolution
business. In December 1996, WFSG entered into a loan servicing agreement with
WCC pursuant to which WCC acts as sub-servicer for WFSG and the Servicer and
provides loan portfolio management services, including billing, portfolio
administration and collection services for WFSG's pools of loans. At September
30, 1997, WCC was servicing approximately $2.5 billion of assets, including (i)
approximately $1.2 billion aggregate principal amount of loans for WFSG; (ii)
approximately $1.3 billion aggregate principal amount of loans for third parties
(including approximately $645.2 million of loans previously securitized by WFSG
and its affiliates); and (iii) approximately $92.4 million aggregate principal
amount of loans owned by it and certain affiliates. WCC has developed
specialized procedures and proprietary software designed to effectively service
performing, non-performing and sub-performing loans. WCC designs a servicing
plan for each underlying loan and property in a pool of loans that it has been
requested to service that is intended to maximize the cash flow from that loan
or property. WCC then actively services each loan and property to maximize cash
flow. Non-performing loans are
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<PAGE>
resolved as quickly as possible (generally within one to two years) through
foreclosure, compromise, a discounted payoff or reinstatement. Performing loans
are actively serviced to ensure timely and accurate payments over their
remaining lives.
At September 30, 1997, WCC and its non-public affiliates had total
assets of approximately $149.3 million. Substantially all of WCC's servicing
rights have not been capitalized and therefore are not reflected on their
combined balance sheet. For the nine months ended September 30, 1997, WCC and
its non-public affiliates had a net loss of approximately $4.0 million. At
September 30, 1997, WCC and its non-public affiliates had approximately 235
employees, principally engaged in servicing operations.
80/20 Program Underwriting Guidelines
As more fully described below under "Qualifications of Originators,"
there are various types of Originators that may participate in the Unaffiliated
Seller's 80/20 Program. Under the Unaffiliated Seller's 80/20 Program, the
Unaffiliated Seller purchased the Mortgage Loans pursuant to standard
underwriting guidelines contained in the Unaffiliated Seller's originator guide,
as modified from time to time, used by the Unaffiliated Seller and unaffiliated
third party correspondents (the "the Unaffiliated Seller's Guidelines"). The
underwriting guidelines are described below.
The Unaffiliated Seller's Guidelines. The Unaffiliated Seller's
Guidelines are revised continuously based on opportunities and prevailing
conditions in the nonconforming credit residential mortgage market, as well as
the expected market for any Certificates backed by such loans.
Substantially all loans originated or purchased by the Unaffiliated
Seller are subjected to such Guidelines. The underwriting process is intended to
assess both the prospective borrower's creditworthiness, capacity to repay and
collateral. The fixed-rate and adjustable-rate loans are generally fully
amortized over a fifteen or thirty year schedule. The properties securing the
loans are primarily single family, owner occupied residences. Occasionally,
loans are originated or acquired on condominiums, townhouses or a pre-fabricated
manufactured unit affixed to a permanent foundation. No land loans are acquired.
Under the Guidelines, the weighted average CLTV of the Unaffiliated
Seller's loans will not exceed 100% at the time of origination. The CLTV is
defined as the ratio, expressed as a percentage, of the sum of the principal
balance of a Mortgage Loan as of the Cut-Off Date and the principal balance at
the time of origination or, if available, the current principal balance, of such
Mortgage Loan of any mortgage loan which has a prior lien against the Mortgaged
Property (a "Senior Mortgage Loan"), regardless of any lesser amount actually
outstanding (computed at the time of the origination of the Mortgage Loan or, if
available, the current principal balance) to the appraised value of the related
Mortgaged Property at the time of origination of the Mortgage Loan or, with
respect the Purchased Loans, a more recent broker price opinion, if available.
Complete documentation for any senior deeds of trust are reviewed and approved
by the Unaffiliated Seller's underwriting staff. Negative amortization on
underlying loans will disqualify a borrower's loan application.
S-48
<PAGE>
Generally, the borrower is required to have an acceptable credit
history given the amount of equity available, the strength of the employment
history and income stability. Income, employment, and deed of trust status is
verified for each applicant by telephone and/or written inquiry, examination of
tax returns, pay check stubs, court supported documents or bank statements.
Self-employed applicants provide tax returns for two years on their businesses
and personal and business financial statements.
The value of each property proposed as security for a mortgage loan is
determined by a full appraisal. Such appraisals are completed by an appraiser
licensed or certified by the state where the property is located. The results of
an appraisal are documented on FNMA-approved forms and include a diagram of the
dwelling, the calculation of square footage, a location map, and photos of the
front and rear of the property as well as a street view of the property. The
appraisal documentation is supplemented with appropriate clarifying comments
regarding such matters as market influences and property condition. Review
appraisals are frequently requested on all properties by the Unaffiliated Seller
approved review appraisers.
Certain laws protect loan applicants by offering them a timeframe after
loan documents are signed, termed the rescission period, during which the
applicant has the right to cancel the loan. The rescission period must have
expired prior to funding a loan and may not be waived by the applicant except as
permitted by law.
The Unaffiliated Seller's Guidelines require title insurance coverage
issued by an approved American Land Title Association or California Land Title
Association title insurance company on each loan the Unaffiliated Seller
purchases. The Unaffiliated Seller, the related Originator and their assignees
are generally named as the insureds. Title insurance policies indicate the lien
position of the mortgage loan and protect the insured against loss if the title
or lien position is not as indicated.
The applicant is required to secure hazard insurance in an amount
sufficient to cover the new loan and any prior mortgage. The Unaffiliated Seller
or its designee is required to ensure that its name and address is properly
added to the "Mortgagee Clause" of the insurance policy. In the event the
Unaffiliated Seller or the related Originator's name is added to a "Loss Payee
Clause" and the policy does not provide for written notice of policy changes of
cancellation, an endorsement adding such provision is required.
Approved Guidelines. The Unaffiliated Seller may acquire Mortgage Loans
underwritten pursuant to underwriting guidelines that may differ from the
Unaffiliated Seller's Guidelines (such guidelines, the "Approved Guidelines").
Certain of the Mortgage Loans have been acquired in negotiated transactions, and
such negotiated transactions are governed by agreements ("Master Loan Transfer
Agreements") relating to ongoing acquisitions of Mortgage Loans by the
Unaffiliated Seller from Originators who will represent that the Mortgage Loans
have been originated in accordance with underwriting guidelines agreed to by the
Unaffiliated Seller; the Unaffiliated Seller will review or cause to be reviewed
all of the Mortgage Loans in any delivery of Mortgage Loans from the related
Originator for conformity with the Approved Guidelines.
The underwriting standards utilized in negotiated transactions and
Master Loan Transfer Agreements may vary from the Unaffiliated Seller's
Guidelines. The Approved Guidelines are
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<PAGE>
designed to provide an underwriter with information to evaluate either the
security for the related Mortgage Loan, which security consists primarily of the
borrower's repayment ability, or the adequacy of the Mortgaged Property as
collateral, or a combination of both. Moreover, there can be no assurance that
every Mortgage Loan was originated in conformity with the applicable Approved
Guidelines in all material respects, or that the quality or performance of
Mortgage Loans underwritten pursuant to varying guidelines as described above
will be equivalent under all circumstances.
Quality Control. The Unaffiliated Seller's quality control department
generally reviews loan files originated or purchased. Loan files are reviewed
prior to approval for completeness, accuracy, and compliance with the
Unaffiliated Seller's underwriting criteria and applicable regulations.
Qualifications of Originators. Each Originator from which a Mortgage
Loan is acquired has been accepted by the Unaffiliated Seller for participation
in the Unaffiliated Seller's 80/20 Program. Originators that enter into Master
Loan Transfer Agreements and which meet the following qualifications are
hereinafter referred to as "Participating Originators." As of the date of
approval, each Participating Originator is generally required to have a
specified minimum level of experience in originating mortgage loans.
The Unaffiliated Seller may waive or modify any of the foregoing
requirements for Participating Originators. Among unaffiliated Originators, only
Participating Originators may enter into Master Loan Transfer Agreements with
the Unaffiliated Seller. The Unaffiliated Seller will assign any representations
and warranties made by any unaffiliated Originator with respect to the Mortgage
Loans originated by it and acquired by the Trust.
All affiliated and unaffiliated Originators are required to originate
mortgage loans in accordance with the applicable underwriting standards.
However, with respect to any Originator, some of the generally applicable
underwriting standards described herein and in the Unaffiliated Seller's
Guidelines may be modified or waived with respect to certain Mortgage Loans
originated by such Originators.
Representations by Originators. Each Originator has made
representations and warranties in respect of the Mortgage Loans sold by such
Originator. Such representations and warranties include, among other things,
that at the time of the sale by the Originator of each Mortgage Loan to the
Unaffiliated Seller: (i) the information with respect to each Mortgage Loan is
true and correct as of the related date of sale; (ii) each Mortgage Loan was
underwritten in accordance with the Unaffiliated Seller's Guide; (iii) each
Mortgage Loan has, at the date of sale, either a title insurance policy or a
title insurance binder or certificate and, if necessary, an applicable
assignment endorsement; (iv) each Mortgage Loan is secured by a valid and
subsisting lien of record on the Mortgaged Property having the priority agreed
upon; (v) each Originator held good and indefeasible title to, and was the sole
owner of, each Mortgage Loan conveyed by such Originator; and (vi) each Mortgage
Loan was originated in accordance with law and is the valid, legal and binding
obligation of the related Mortgagor.
The Unaffiliated Seller will assign to the Trustee for the benefit of
the Owners of the Certificates all of its right, title and interest in the Loan
Purchase Agreement insofar as any such
S-50
<PAGE>
agreement relates to the representations and warranties made by an Originator in
respect of such Mortgage Loan and any remedies provided for breach of such
representations and warranties. If the Unaffiliated Seller cannot cure a breach
of any representation or warranty made by it in respect of a Mortgage Loan that
materially and adversely affects the interests of the Owners of the Certificates
in such Mortgage Loan within a time period specified in the Pooling and
Servicing Agreement, the Unaffiliated Seller will be obligated to purchase from
the Trust such Mortgage Loan at the Repurchase Price.
Servicing
Delinquency and Foreclosure Statistics. No information is provided
herein with respect to the Sub-Servicer's mortgage loan servicing portfolio. The
Sub-Servicer's servicing portfolio was acquired from, and originated by, a
variety of institutions. The Sub-Servicer does not believe that the information
regarding the delinquency, loss and foreclosure experience of its servicing
portfolio is likely to be a meaningful indicator of the delinquency, loss and
foreclosure experience of the Mortgage Loans. For example, the delinquency and
loss experience of the Sub-Servicer's servicing portfolio may include (i) loans
and financial assets acquired from entities other than those by which the
Mortgage Loans were originated, (ii) loans and financial assets from the same or
different entities originated pursuant to different underwriting standards and
(iii) loans and financial assets having a geographic distribution that varies
from the geographic distribution of the Mortgage Loans. In addition, the
Sub-Servicer's consolidated servicing portfolio includes loans with a variety of
payment and other characteristics that may not correspond to those of the
Mortgage Loans.
USE OF PROCEEDS
The Unaffiliated Seller will sell the Mortgage Loans to the Depositor
and the Depositor will sell the Mortgage Loans to the Trust concurrently with
the delivery of the Certificates. Net proceeds from the sale of the Offered
Certificates will be applied by the Trust to the purchase of the Mortgage Loans
from the Depositor. Such net proceeds will represent the purchase price to be
paid by the Depositor to the Unaffiliated Seller for the Mortgage Loans.
PREPAYMENT AND YIELD CONSIDERATIONS
The weighted average life of, and, if purchased at other than par
(disregarding, for purposes of this discussion, the effects on a Certificate
Owner's yield resulting from the timing of the settlement date and those
considerations discussed below under "Payment Delay Feature of the
Certificates"), the yield to maturity on an Offered Certificate will be directly
related to the rate of payment of principal of the Mortgage Loans, including for
this purpose voluntary payment in full of Mortgage Loans prior to stated
maturity (a "Prepayment"), liquidations due to defaults, casualties and
condemnations, and repurchases of Mortgage Loans by the Unaffiliated Seller. 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
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<PAGE>
geographic locations of the properties securing the loans, the extent of the
mortgagors' equity in such properties, and changes in the mortgagors' housing
needs, job transfers and unemployment.
The timing of changes in the rate of prepayments may significantly
affect the actual yield to investors, even if the average rate of principal
prepayments is consistent with the expectations of investors. In general, the
earlier the payment of principal of the Mortgage Loans, the greater the effect
on an investor's yield to maturity. As a result, the effect on an investor's
yield of principal prepayments occurring at a rate higher (or lower) than the
rate anticipated by the investor during the period immediately following the
issuance of the Offered Certificates will not be offset by a subsequent like
reduction (or increase) in the rate of principal prepayments. Investors must
make their own decisions as to the appropriate prepayment assumptions to be used
in deciding whether to purchase any of the Offered Certificates. Neither the
Unaffiliated Seller nor the Depositor makes any representations or warranties as
to the rate of prepayment or the factors to be considered in connection with
such determination.
Projected Prepayments and Yields for Offered Certificates
If purchased at other than par, the yield to maturity on an Offered
Certificate will be affected by the rate of payment of principal of the Mortgage
Loans. If the actual rate of payments on the Mortgage Loans is slower than the
rate anticipated by an investor who purchases an Offered Certificate at a
discount, the actual yield to such investor will be lower than such investor's
anticipated yield. If the actual rate of payments on the Mortgage Loans is
faster than the rate anticipated by an investor who purchases an Offered
Certificate at a premium, the actual yield to such investor will be lower than
such investor's anticipated yield.
87.63% by current aggregate principal balance of the Mortgage Loans are
Fixed Rate Mortgage Loans. The rate of prepayments with respect to fixed rate
mortgage loans has fluctuated significantly in recent years. In general, if
prevailing interest rates fall significantly below the interest rates on fixed
rate mortgage loans, such mortgage loans are likely to be subject to higher
prepayment rates than if prevailing rates remain at or above the interest rates
on such mortgage loans. Conversely, if prevailing interest rates rise
appreciably above the interest rates on fixed rate mortgage loans, such mortgage
loans are likely to experience a lower prepayment rate than if prevailing rates
remain at or below the interest rates on such mortgage loans.
S-52
<PAGE>
The Final Scheduled Distribution Date for each Class of the Offered
Certificates is as follows:
Final Scheduled
Class Distribution Date
----- -----------------
Class A-1 Certificates: January 25, 2013
Class A-2 Certificates: May 25, 2015
Class A-3 Certificates: October 25, 2018
Class A-4 Certificates: November 25, 2021
Class A-5 Certificates: May 25, 2028
Class A-6 Certificates: May 25, 2028
Class A-7 Certificates: March 25, 2028
Class M-1 Certificates: May 25, 2028
Class M-2 Certificates: May 25, 2028
Class M-3 Certificates: May 25, 2028
The Final Scheduled Distribution Date for each Class of Offered
Certificates is calculated as of the date on which the related original
Certificate Principal Balance, as set forth under the Modeling Assumptions
described below, less all amounts previously distributed as principal, would be
reduced to zero, plus 13 months, assuming that no Prepayments are received on
the Mortgage Loans, that scheduled payments of principal and interest on each
Mortgage Loan are timely received, that no Realized Losses occur on the Mortgage
Loans, that the Pass-Through Rate for each Certificate is as listed under the
Modeling Assumptions, and that there is no optional termination by the party
named in the Pooling and Servicing Agreement of the Trust. The weighted average
life of each Class of Offered Certificates is likely to be shorter, and the
actual final Distribution Date with respect to each Class of Offered
Certificates could occur significantly earlier than the Final Scheduled
Distribution Date because (i) Prepayments are likely to occur which shall be
applied to the payment of the Certificate Principal Balance of the Offered
Certificates and (ii) the Servicer may cause a termination of the Trust when the
aggregate outstanding principal balance of the Mortgage Loans in the Trust has
declined to 10% or less of the Original Aggregate Principal Balance and if the
Servicer does not exercise such right, the Trustee shall offer the Mortgage
Loans in an auction sale.
Prepayments on mortgage loans are commonly measured relative to a
prepayment model or standard. This Prospectus Supplement uses two models for
prepayment assumptions (the "Prepayment Assumption"). The model for the Offered
Certificates (other than the Variable Rate Certificates) is the "Home Equity
Prepayment" or "HEP" model which represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of mortgage
loans for the life of such mortgage loans. 16% HEP assumes a constant prepayment
rate of 1.6% per annum of the then outstanding principal balance of the Mortgage
Loans in the first month of the life of the Mortgage Loans and an additional
1.6% 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, 16% HEP assumes a constant prepayment rate of 16% 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.
S-53
<PAGE>
The model for the Variable Rate Certificates is the "Constant
Prepayment Rate" or "CPR" which represents an assumed annualized rate of
prepayment relative to the then-outstanding principal balance on a pool of new
mortgage loans. As used in the table below, 0% 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 Assumptions do not purport to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the related Mortgage Loans.
The tables entitled "Weighted Average Lives" have been prepared on the
basis of the following assumptions (collectively, the "Modeling Assumptions"):
(i) the Mortgage Loans prepay at the indicated percentage of the related
Prepayment Assumption; (ii) distributions on the Offered Certificates are
received, in cash, on the 25th day of each month; (iii) no defaults or
delinquencies in, or modifications, waivers or amendments respecting, the
payment by the Mortgagors of principal and interest on the Mortgage Loans occur;
(iv) scheduled payments are assumed to be received on the first day of each
month commencing in December 1997 (or as set forth in the following table) and
prepayments represent payment in full of individual Mortgage Loans and are
assumed to be received on the last day of each month, commencing in November
1997 (or as set forth in the following table) and include 30 days' interest
thereon; (v) the Offered Certificates are purchased on December 12, 1997; (vi)
the original Certificate Principal Balance and Pass-Through Rate of the Class
A-1 Certificates are equal to $36,217,000 and 6.180%, respectively, the original
Certificate Principal Balance and Pass-Through Rate of the Class A-2
Certificates are equal to $10,000,000 and 6.650%, respectively, the original
Certificate Principal Balance and Pass-Through Rate of the Class A-3
Certificates are equal to $12,000,000 and 6.720%, respectively, the original
Certificate Principal Balance and Pass-Through Rate of the Class A-4
Certificates are equal to $12,000,000 and 6.865%, respectively, the original
Certificate Principal Balance and Pass-Through Rate of the Class A-5
Certificates are equal to $10,000,000 and 7.255%, respectively, the original
Certificate Principal Balance and Pass-Through Rate of the Class A-6
Certificates are equal to $16,302,000 and 6.280%, respectively, the original
Certificate Principal Balance and Pass-Through Rate of the Class A-7
Certificates are equal to $8,912,000 and 6.835%, respectively, the original
Certificate Principal Balance and Pass-Through Rate of the Class M-1
Certificates are equal to $8,236,000 and 7.180%, respectively, the original
Certificate Principal Balance and Pass-Through Rate of the Class M-2
Certificates are equal to $7,578,000 and 7.425%, respectively, the original
Certificate Principal Balance and Pass-Through Rate of the Class M-3
Certificates are equal to $6,260,000 and 7.770%, respectively, and the original
Certificate Principal Balance and Pass-Through Rate of the Class B Certificates
are equal to $4,284,104.39 and 8.990%, respectively; (vii) one-month LIBOR is
equal to 6.000%; (viii) the indices for the Adjustable Rate Mortgage Loans are,
for six-month LIBOR, 5.906%, for one year CMT, 5.470%, for three year CMT,
5.720%, for five year CMT, 5.770% and for the six-month Treasury bill, 5.350%,
(ix) the Trustee's Fee is equal to 0.05% per annum and (x) the Trust Fund
consists of Mortgage Loans having the following characteristics:
S-54
<PAGE>
<TABLE>
<CAPTION>
Weighted Weighted
Weighted Average Average
Average Remaining Remaining Weighted
Weighted Mortgage Term to Term to Average
Pool Principal Average Rate Net of Amortization Balloon Seasoning
Type Number Balance Mortgage Rate Servicing Fee (months) (months) (months)
---- ------ ------- ------------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ARM 1 6,260,620.62 8.831 8.456 355 N/A 5
ARM 2 1,711,585.10 8.312 7.937 252 N/A 108
ARM 3 4,999,987.64 8.395 8.020 257 N/A 103
ARM 4 2,972,559.55 8.244 7.869 323 N/A 37
ARM 5 285,590.44 8.625 8.250 244 N/A 116
ARM 6 71,744.87 7.628 7.253 195 N/A 165
FIXED 7 4,637,611.69 8.924 8.549 190 N/A 82
FIXED 8 78,361,479.04 8.773 8.398 280 N/A 80
FIXED 9 5,989,500.90 14.553 14.178 175 N/A 6
FIXED 10 26,498,424.54 10.787 10.412 354 N/A 6
</TABLE>
<TABLE>
<CAPTION>
Weighted
Weighted Average Weighted
Average Net Weighted Average First Reset
Pool Gross Lifetime Average Net Interest Reset Frequency
Type Number Margin Cap Lifetime Floor Adjustment Cap (months) (months) Index Code
---- ------ ------ --- -------------- -------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ARM 1 5.902 13.667 6.958 1.402 3 6 6-Mo LIBOR
ARM 2 2.963 14.455 2.588 1.000 3 6 6-Mo T-Bill
ARM 3 2.806 14.543 2.453 2.973 6 12 1-Year CMT
ARM 4 2.750 12.557 2.375 2.000 25 12 1-Year CMT
ARM 5 2.750 15.125 2.375 2.000 26 36 3-Year CMT
ARM 6 2.473 99.000 2.098 99.000 13 60 5-Year CMT
</TABLE>
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a Certificate until each dollar of principal
of such Certificate will be repaid to the investor. The weighted average life of
the Offered Certificates will be influenced by the rate at which principal
payments on the Mortgage Loans are paid, which may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
prepayments, liquidations due to default or early termination of the Trust). The
weighted average lives of the Offered Certificates also will be influenced by
the overcollateralization of the Offered Certificates because collections
payable to the Class B Certificates as principal are limited by the Pooling and
Servicing Agreement and are applied as principal prepayments to the Offered
Certificates then entitled to receive principal distributions until the
outstanding aggregate principal balance of the Offered Certificates is less than
the aggregate outstanding principal balance of the Mortgage Loans by the
Required Overcollateralization Amount. These prepayments have the effect of
accelerating the amortization of the Offered Certificates, thereby shortening
their respective weighted average lives.
Based on the foregoing Modeling Assumptions, the tables below indicate
the weighted average life of each Class of the Offered Certificates, assuming
that the Mortgage Loans prepay according to the indicated percentages of the
related Prepayment Assumption:
S-55
<PAGE>
Prepayment Assumptions*
<TABLE>
<CAPTION>
Base Case Assumption I Assumption II Assumption III Assumption IV Assumption V
- --------- ------------ ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
HEP: 16% 100% 70% 80% 120% 150%
CPR: 25% 100% 70% 80% 120% 150%
</TABLE>
*As a percentage of the specified base case.
Weighted Average Lives
Class A-1
Prepayment Weighted Average Earliest Retirement
Assumption (CPR) Life (Years)(1) Date(2)
---------------- --------------- -------
I.............................. 0.82 09/25/1999
II............................. 1.14 06/25/2000
III............................ 1.01 02/25/2000
IV............................. 0.69 05/25/1999
V.............................. 0.56 02/25/1999
(1) Assuming no early termination of the Trust.
(2) Assuming early termination of the Trust at the date when the aggregate
principal balance of the Mortgage Loans declines to a level equal to or
less than 10% of the Original Aggregate Principal Balance.
Class A-2
Weighted
Prepayment Average Life Earliest
Assumption (HEP) (Years)(1) Retirement Date(2)
---------------- ---------- ------------------
I.............................. 2.11 05/25/2000
II............................. 2.99 06/25/2001
III............................ 2.62 12/25/2000
IV............................. 1.75 12/25/1999
V.............................. 1.39 07/25/1999
(1) Assuming no early termination of the Trust.
(2) Assuming early termination of the Trust at the date when the aggregate
principal balance of the Mortgage Loans declines to a level equal to or
less than 10% of the Original Aggregate Principal Balance.
S-56
<PAGE>
Class A-3
Weighted
Prepayment Average Life Earliest
Assumption (HEP) (Years)(1) Retirement Date(2)
---------------- ---------- ------------------
I.............................. 2.93 05/25/2001
II............................. 4.22 12/25/2002
III............................ 3.69 05/25/2002
IV............................. 2.43 10/25/2000
V.............................. 1.91 02/25/2000
(1) Assuming no early termination of the Trust.
(2) Assuming early termination of the Trust at the date when the aggregate
principal balance of the Mortgage Loans declines to a level equal to or
less than 10% of the Original Aggregate Principal Balance.
Class A-4
Weighted
Prepayment Average Life Earliest
Assumption (HEP) (Years)(1) Retirement Date(2)
---------------- ---------- ------------------
I.............................. 4.89 11/25/2004
II............................. 7.81 08/25/2009
III............................ 6.63 04/25/2008
IV............................. 3.82 03/25/2003
V.............................. 2.62 01/25/2001
(1) Assuming no early termination of the Trust.
(2) Assuming early termination of the Trust at the date when the aggregate
principal balance of the Mortgage Loans declines to a level equal to or
less than 10% of the Original Aggregate Principal Balance.
Class A-5
Weighted
Prepayment Average Life Earliest
Assumption (HEP) (Years)(1) Retirement Date(2)
---------------- ---------- ------------------
I.............................. 12.62 01/25/2009
II............................. 16.37 07/25/2012
III............................ 15.08 03/25/2011
IV............................. 10.09 04/25/2007
V.............................. 5.84 06/25/2005
(1) Assuming no early termination of the Trust.
(2) Assuming early termination of the Trust at the date when the aggregate
principal balance of the Mortgage Loans declines to a level equal to or
less than 10% of the Original Aggregate Principal Balance.
S-57
<PAGE>
Class A-6
Weighted
Prepayment Average Life Earliest
Assumption (HEP) (Years)(1) Retirement Date(2)
---------------- ---------- ------------------
I.............................. 3.27 01/25/2009
II............................. 4.64 07/25/2012
III............................ 4.09 03/25/2011
IV............................. 2.67 04/25/2007
V.............................. 2.04 06/25/2005
(1) Assuming no early termination of the Trust.
(2) Assuming early termination of the Trust at the date when the aggregate
principal balance of the Mortgage Loans declines to a level equal to or
less than 10% of the Original Aggregate Principal Balance.
Class A-7
Weighted
Prepayment Average Life Earliest
Assumption (HEP) (Years)(1) Retirement Date(2)
---------------- ---------- ------------------
I.............................. 7.37 01/25/2009
II............................. 8.01 07/25/2012
III............................ 7.75 03/25/2011
IV............................. 7.14 04/25/2007
V.............................. 6.97 06/25/2005
(1) Assuming no early termination of the Trust.
(2) Assuming early termination of the Trust at the date when the aggregate
principal balance of the Mortgage Loans declines to a level equal to or
less than 10% of the Original Aggregate Principal Balance.
Class M-1
Weighted
Prepayment Average Life Earliest
Assumption (HEP) (Years)(1) Retirement Date(2)
---------------- ---------- ------------------
I.............................. 8.03 01/25/2009
II............................. 10.65 07/25/2012
III............................ 9.64 03/25/2011
IV............................. 6.89 04/25/2007
V.............................. 6.16 06/25/2005
(1) Assuming no early termination of the Trust.
(2) Assuming early termination of the Trust at the date when the aggregate
principal balance of the Mortgage Loans declines to a level equal to or
less than 10% of the Original Aggregate Principal Balance.
S-58
<PAGE>
Class M-2
Weighted
Prepayment Average Life Earliest
Assumption (HEP) (Years)(1) Retirement Date(2)
---------------- ---------- ------------------
I.............................. 8.03 01/25/2009
II............................. 10.65 07/25/2012
III............................ 9.64 03/25/2011
IV............................. 6.89 04/25/2007
V.............................. 6.16 06/25/2005
(1) Assuming no early termination of the Trust.
(2) Assuming early termination of the Trust at the date when the aggregate
principal balance of the Mortgage Loans declines to a level equal to or
less than 10% of the Original Aggregate Principal Balance.
Class M-3
Weighted
Prepayment Average Life Earliest
Assumption (HEP) (Years)(1) Retirement Date(2)
---------------- ---------- ------------------
I.............................. 8.03 01/25/2009
II............................. 10.65 07/25/2012
III............................ 9.64 03/25/2011
IV............................. 6.89 04/25/2007
V.............................. 6.16 06/25/2005
(1) Assuming no early termination of the Trust.
(2) Assuming early termination of the Trust at the date when the aggregate
principal balance of the Mortgage Loans declines to a level equal to or
less than 10% of the Original Aggregate Principal Balance.
There is no assurance that prepayments will occur, or, if they do
occur, that they will occur at any constant percentage or in accordance with any
of the aforementioned Prepayment Assumptions.
Payment Delay Feature of Offered Certificates
The effective yield to the Owners of the Offered Certificates (other
than the Variable Rate Certificates) will be lower than the yield otherwise
produced by the related Pass-Through Rate and the purchase price of such
Certificates because principal and interest distributions will not be payable to
such holders until at least the 25th day of the month following the month of
accrual (without any additional distributions of interest or earnings thereon in
respect of such delay).
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<PAGE>
ADDITIONAL INFORMATION
A current report on Form 8-K will be available to purchasers of the
Offered Certificates and will be filed and incorporated by reference to the
Registration Statement, together with the Pooling and Servicing Agreement with
the Commission within fifteen days after the initial issuance of the Offered
Certificates. In the event Mortgage Loans are removed from or added to the
mortgage pool, such removal or addition will be noted in the current report on
Form 8-K. Also, the Depositor intends to file certain additional yield tables
and other computational materials with respect to the Certificates with the
Commission in a report on Form 8-K. Such tables and materials were prepared at
the request of certain prospective investors, based on assumptions provided by,
and satisfying the special requirements of, such prospective investors. Such
tables and assumptions may be based on assumptions that differ from the Modeling
Assumptions. Accordingly, such tables and other materials may not be relevant to
or appropriate for investors other than those specifically requesting them.
DESCRIPTION OF THE OFFERED CERTIFICATES
General
The Certificates will consist of the Class A-1 Certificates, the Class
A-2 Certificates, the Class A-3 Certificates, the Class A-4 Certificates, the
Class A-5 Certificates, the Class A-6 Certificates, the Class A-7 Certificates,
the Class M-1 Certificates, the Class M-2 Certificates, the Class M-3
Certificates, the Class B Certificates, the Class C Certificates and the Class R
Certificates. The Certificates will be issued by Wilshire Mortgage Loan Trust
1997-2, a trust to be organized under the laws of the State of New York. Only
the Offered Certificates are offered hereby. The Class B Certificates, the Class
C Certificates and the Class R Certificates are not being offered hereby. The
Offered Certificates together with the Class B Certificates, the Class C
Certificates and the Class R Certificates are herein referred to as the
"Certificates."
Persons in whose name a Certificate is registered in the register
maintained by the Trustee are the "Owners" of the Certificates. For so long as
the Offered Certificates are in book-entry form with DTC, the only "Owner" of
the Offered Certificates as the term "Owner" is used in the Pooling and
Servicing Agreement will be Cede. No Beneficial Owner will be entitled to
receive a definitive certificate representing such person's interest in the
Trust, except in the event that physical Certificates are issued under limited
circumstances set forth in the Pooling and Servicing Agreement. All references
herein to the Owners of Offered Certificates shall mean and include the rights
of beneficial owners of Offered Certificates held through DTC, as such rights
may be exercised through DTC and its participating organizations, except as
otherwise specified in the Pooling and Servicing Agreement.
Distribution Dates
The Pooling and Servicing Agreement will require that the Trustee
create and maintain a Certificate Account (the "Certificate Account"). All funds
in the Certificate Account shall be invested and reinvested by the Trustee for
the benefit of the Servicer, in investments permitted under the Pooling and
Servicing Agreement ("Eligible Investments").
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<PAGE>
Three Business Days prior to the related Distribution Date (the
"Remittance Date") the Servicer is required to withdraw from the Principal and
Interest Account and remit to the Trustee, for deposit in the Certificate
Account, the Monthly Remittance Amount. The "Monthly Remittance Amount" is equal
to (a) the sum of (i) the balance on deposit in the Principal and Interest
Account as of the close of business on the related Determination Date, (ii) all
Delinquency Advances and Compensating Interest (collectively, the "Advances")
and (iii) certain amounts required to be deposited by the Servicer in the
Certificate Account, including Loan Purchase Prices and amounts necessary to
remedy the shortfall in principal balance of any replacement Mortgage Loan
("Substitution Amounts"), reduced by (b) the sum of (i) scheduled payments on
the Mortgage Loans collected but due after the related Due Date, (ii)
reinvestment income on amounts in the Principal and Interest Account, (iii) all
amounts reimbursable to the Servicer, and (iv) the Servicing Fee. The "Due
Dates" occur throughout the month with respect to any Distribution Date. The
"Determination Date" is the 15th day of the month in which such Distribution
Date occurs or, if such day is not a business day, the immediately succeeding
business day. "Remittance Period" means the calendar month immediately preceding
the month in which the related Remittance Date occurs. See "The Pooling and
Servicing Agreement -- Payments on Mortgage Loans and Contracts" in the
Prospectus.
The Servicer will be obligated to apply amounts otherwise payable to
it as servicing compensation in any month to cover any shortfalls in collections
(such payment, "Compensating Interest") of one full month's interest at the
applicable net Mortgage Rate resulting from principal prepayments in full;
provided, however, that the Servicer will only pay Compensating Interest to the
extent that there is a shortfall in the amount of Available Funds necessary to
pay the Total Current Interest and will not be required to pay Compensating
Interest with respect to any Remittance Period in an amount in excess of the
aggregate Servicing Fee received by the Servicer for such Remittance Period. The
Servicer is not obligated to cover any shortfalls in collections of interest for
prepayments in part. Such prepayments in part are applied to reduce the
outstanding principal balance of the related Mortgage Loan as of the Due Date in
the month of prepayment.
Distributions
Distributions on the Certificates will be made on each Distribution
Date to Owners of record of the Certificates as of the immediately preceding
Record Date in an amount equal to the product of such Owner's Percentage
Interest and the amount distributed in respect of such Owner's Class of such
Certificates on such Distribution Date. The "Percentage Interest" represented by
any Offered Certificate will be equal to the percentage obtained by dividing the
Original Certificate Principal Balance of such Offered Certificate by the
Original Certificate Principal Balance of all Certificates of the same Class.
Interest Distributions
On each Distribution Date, the Trustee will withdraw the Interest
Remittance Amount for each Loan Group from amounts on deposit in the Certificate
Account and apply such amounts in the following order of priority, in each case,
to the extent of the funds remaining therefor:
(a) The Interest Remittance Amount shall be applied as follows:
S-61
<PAGE>
(i) to the Trustee, the Trustee Fee for each Loan Group and
Distribution Date;
(ii) to the Class A Certificates, the related Class Current
Interest for such Distribution Date on a pro rata basis among such
Classes;
(iii) any remaining amounts shall be applied in the following
order of priority:
(A) to the Class M-1 Certificates the related Current
Interest;
(B) to the Class M-2 Certificates the related Current
Interest;
(C) to the Class M-3 Certificates the related Current
Interest;
(D) to the Class B Certificates the related Current
Interest;
(b) any remaining interest amounts shall constitute the
"Excess Interest Amount" for such Distribution Date and shall be
allocated as described herein under "--Credit Enhancement."
The foregoing discussion contained defined terms which are described
herein under "--Definitions."
Principal Distributions
On each Distribution Date, the Trustee will withdraw the Aggregate
Collected Principal Amount from amounts on deposit in the Certificate Account
and apply such amount together with any Extra Principal Distribution Amount in
the following order of priority, in each case, to the extent of the funds
remaining therefor:
(a) Amounts up to the Principal Distribution Amount as follows:
(i) from the Class A Principal Distribution Amount,
concurrently, (x) to the Class A-6 Certificates, the Class A-6
Principal Distribution Amount, until the Class Certificate Principal
Balance thereof has been reduced to zero, and (y) to the Class A
Certificates (other than the Class A-6 Certificates), the Fixed Rate
Loan Group Principal Allocation, allocated in the following order of
priority:
(1) to the Class A-7 Certificates, the Class A-7
Principal Distribution Amount, until the Class Certificate
Principal Balance thereof has been reduced to zero; and
(2) sequentially, to the Class A-1, Class A-2, Class
A-3, Class A-4, Class A-5 and Class A-7 Certificates, in that
order, until the respective Class Certificate Principal
Balances thereof have been reduced to zero;
(ii) from any amount remaining, to the Class M-1, Class M-2,
Class M-3 and Class B Certificates on a pro rata basis; and
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<PAGE>
(b) Any remaining principal amounts shall be included in the Excess
Interest Amount and shall be allocated as described herein under "--Credit
Enhancement"; provided, however, that if a Cumulative Loss Trigger Event is in
effect, such amount shall be distributed sequentially, to the Class B, Class
M-3, Class M-2 and Class M-1 Certificates, in that order, until the respective
Class Certificate Principal Balances thereof have been reduced to zero.
Notwithstanding the priority set forth in clause (i) above, if the
aggregate Class Certificate Principal Balance of the Class M Certificates and
the Class B Certificates is reduced to zero, the Class A Principal Distribution
Amount will be distributed concurrently to each Class of Senior Certificates on
a pro rata basis in accordance with their respective Class Certificate Principal
Balances.
The foregoing discussion contained defined terms which are described
herein under "--Definitions."
Credit Enhancement
General. The credit enhancement provided for the benefit of the Owners
of the Offered Certificates consists of (x) subordination of the Subordinate
Certificates, (y) the application of the Excess Interest Amount to fund Realized
Losses and (z) the overcollateralization mechanics which utilize the internal
cash flows of the Trust as described below.
Subordination of the Subordinate Certificates. The rights of the Owners
of the Mezzanine Certificates, the Class B Certificates, the Class C
Certificates and the Class R Certificates to receive distributions with respect
to the Mortgage Loans will be subordinated, to the extent described herein, to
the rights of the Owners of the Class A Certificates. This subordination is
intended to enhance the likelihood of regular receipt by the Owners of the Class
A Certificates of the full amount of their monthly payments of interest and
principal and to afford such Owners protection against Realized Losses on
Liquidated Mortgage Loans.
In addition, the rights of the Owners of the Class M-2 Certificates,
the Class M-3 Certificates, the Class B Certificates, the Class C Certificates
and the Class R Certificates are subordinated, to the extent described herein,
to the rights of the Owners of the Class A Certificates and the Class M-1
Certificates. The rights of the Owners of the Class M-3 Certificates, the Class
B Certificates, the Class C Certificates and the Class R Certificates are
subordinated, to the extent described herein, to the rights of the Owners of the
Class A Certificates and the Class M-1 Certificates and the Class M-2
Certificates.
The rights of the Owners of the Class B Certificates, the Class C
Certificates and the Class R Certificates are subordinated, to the extent
described herein, to the rights of the Owners of the Class A Certificates and
the Mezzanine Certificates.
Allocation of Realized Losses. To the extent that the Net Liquidation
Proceeds with respect to any Liquidated Mortgage Loan are less than 100% of the
outstanding principal balance thereof, such shortfall is a "Realized Loss". "Net
Liquidation Proceeds" are any amounts (including the proceeds of any Insurance
Policy) recovered by the Servicer in connection with a Liquidated Loan, net of
expenses which are incurred by the Servicer in connection with the liquidation
and net of unreimbursed Servicing Advances, unreimbursed Delinquency Advances
S-63
<PAGE>
and accrued and unpaid Servicing Fees. The Collected Principal Amount includes
the Net Liquidation Proceeds in respect of principal received upon liquidation
of a Liquidated Mortgage Loan. If such Net Liquidation Proceeds are less than
the unpaid principal balance of such Mortgage Loan, the Pool Balance will
decline more than the aggregate Class Certificate Principal Balance of the
Offered Certificates. If such difference is not covered by the
Overcollateralization Amount or the application of the Excess Interest Amount,
the Class of Subordinate Certificates then outstanding with the lowest priority
Class designation will bear such loss.
If, following the distributions on a Distribution Date, the aggregate
Certificate Principal Balance of the Offered Certificates exceeds the Pool
Balance, i.e., the Certificates are undercollateralized, the Class Certificate
Principal Balance of the Class of Mezzanine Certificates or the Class B
Certificates then outstanding with the lowest priority Class designation will be
reduced by the amount of such excess. Any such reduction will constitute an
Applied Realized Loss Amount for the applicable Class and interest will not
accrue on such amount. Such amount, however, may be paid on a future
Distribution Date to the extent funds are available therefor as provided herein
under "Description of the Offered Certificates--Interest Distributions and
- --Credit Enhancement."
Overcollateralization Provisions. The weighted average Mortgage Rate,
net of the Servicing Fee and Trustee Fee, for the Mortgage Loans generally is
expected to be higher than the weighted average of the Pass-Through Rates on the
Offered Certificates, thus generating certain excess interest collections which,
in the absence of losses, will not be necessary to fund interest distributions
on the Offered Certificates. The Pooling and Servicing Agreement provides that
this excess interest be applied, to the extent available, to make accelerated
payments of principal (i.e. the Extra Principal Distribution Amount) to the
Class or Classes then entitled to receive distributions of principal. Such
application will cause the aggregate Class Certificate Balance to amortize more
rapidly than the Mortgage Loans, resulting in overcollateralization. This excess
interest for a Remittance Period, together with interest on the
Overcollateralization Amount itself, is the "Excess Interest Amount."
The target level of overcollateralization for any Distribution Date is
the Required Overcollateralization Amount. The Required Overcollateralization
Amount is initially (i.e., prior to the Stepdown Date) $3,624,200.37. Since the
actual level of the Overcollateralization Amount is essentially zero as of the
Closing Date, in the early months of the transaction, subject to the
availability of the Excess Interest Amounts, Extra Principal Distribution
Amounts will be paid, with the result that the Overcollateralization Amount is
expected to increase to the level of the Required Overcollateralization Amount.
If, once the Required Overcollateralization Amount has been reached,
Realized Losses not accounted for by an application of the Excess Interest
Amount occur, such Realized Losses will result in an Overcollateralization
Deficiency (since it will reduce the Pool Balance without giving rise to a
corresponding reduction of the aggregate Class Certificate Balance). The
cashflow priorities of the Trust Fund require that, in this situation, an Extra
Principal Distribution Amount be paid (subject to the availability of any Excess
Cashflow Amount in subsequent months) for the purpose of re-establishing the
Overcollateralization Amount at the then-required Required Overcollateralization
Amount.
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On and after the Stepdown Date and assuming that a Trigger Event is not
in effect, the Required Overcollateralization Amount may be permitted to
decrease or "step-down." If the Required Overcollateralization Amount is
permitted to "step-down" on a Distribution Date, the Pooling and Servicing
Agreement permits a portion of the Aggregate Collected Principal Amount for such
Distribution Date not to be passed through as a distribution of principal on
such Distribution Date. This has the effect of decelerating the amortization of
the Offered Certificates relative to the Pool Balance, thereby reducing the
actual level of the Overcollateralization Amount to the new, lower Required
Overcollateralization Amount. This portion of the Aggregate Collected Principal
Amount not distributed as principal on the Offered Certificates therefore
releases overcollateralization from the Trust Fund. The amounts of such releases
are the "Overcollateralization Reduction Amounts."
On any Distribution Date, the sum on the Excess Interest Amount and the
Overcollateralization Reduction Amount is the "Excess Cashflow Amount," which is
required to be applied in the following order of priority on such Distribution
Date:
(a) to the Owners of the Class A-6 Certificates, to fund any LIBOR
Shortfall Amount;
(b) to fund the Extra Principal Distribution Amount of such
Distribution Date;
(c) to fund the Class M-1 Realized Loss Amortization Amount for such
Distribution Date;
(d) to fund the Class M-2 Realized Loss Amortization Amount for such
Distribution Date;
(e) to fund the Class M-3 Realized Loss Amortization Amount for such
Distribution Date;
(f) to fund the Class B Realized Loss Amortization Amount for such
Distribution Date; and
(g) any amounts remaining shall be distributed to the Owners of the
Class C Certificates; and
(h) any amounts remaining thereafter shall be distributed to the
Owners of the Class R Certificates.
Definitions
For purposes of the foregoing, the following terms have the respective
meanings set forth below:
Accrual Period: For each Distribution Date with respect to the Offered
Certificates (other than the Variable Rate Certificates), the calendar month
immediately preceding the month in which the Distribution Date occurs. For each
Distribution Date with respect to the Variable Rate Certificates, the period
from the 25th day of the month immediately preceding the month in
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which such Distribution Date occurs (or the Closing Date with respect to the
December 1997 Distribution Date) to the 24th day of the month in which such
Distribution Date occurs.
Adjustable Rate Group Available Funds Cap Rate: As to any Distribution
Date, is an amount, expressed as a per annum rate, equal to (i) the sum of (x)
the aggregate amount of interest due and collected (or advanced) on all of the
Mortgage Loans in the Adjustable Rate Loan Group for the related Remittance
Period and (y) the excess of (A) the aggregate amount of interest due and
collected (or advanced) on all of the Mortgage Loans in the Fixed Rate Loan
Group for the related Remittance Period over (B) the aggregate of the Servicing
Fee and the Trustee Fee, in each case relating to the Fixed Rate Loan Group and
such Distribution Date and the Current Interest with respect to the Class A
Certificates (other than the Class A-6 Certificates), the Class M Certificates
and the Class B Certificates minus (ii) the aggregate of the Servicing Fee and
the Trustee Fee, in each case relating to the Adjustable Rate Loan Group, on
such Distribution Date.
Aggregate Collected Principal Amount: As to any Distribution Date, the
sum of the respective Collected Principal Amounts for each Loan Group.
Applied Realized Loss Amount: As to any Distribution Date, the excess,
if any, of the aggregate Certificate Principal Balance of each Class of
Certificates then outstanding (after application of all distributions for such
Distribution Date) over the Pool Balance for both Loan Groups.
Available Funds: As to any Distribution Date, the sum, without
duplication, of the following amounts with respect to the Mortgage Loans: (i)
the Aggregate Collected Principal Amount for the related Remittance Period, (ii)
scheduled payments of interest on the Mortgage Loans received by the Servicer
prior to the Determination Date (net of amounts representing the Servicing Fee
with respect to each Mortgage Loan and reimbursement for Delinquency Advances
and Servicing Advances); (iii) payments from the Servicer in connection with (a)
Delinquency Advances and (b) Compensating Interest and (iv) amounts received by
the Trustee in respect of interest in connection with the termination of the
Trust with respect to the Mortgage Loans as provided in the Agreement
Class A Principal Distribution Amount: As to any Distribution Date, (A)
for each Distribution Date before the Stepdown Date or after the Stepdown Date
with respect to which Distribution Date a Trigger Event has occurred and is
continuing, 100% of the Principal Distribution Amount or (ii) for each
Distribution Date after the Stepdown Date with respect to which no Trigger Event
has occurred and is continuing, the product of (x) the Principal Distribution
Amount for such Distribution Date and (y) a fraction, the numerator of which is
the Class A Certificate Principal Balance immediately prior to such Distribution
Date and the denominator of which is the aggregate Certificate Principal Balance
of all Certificates.
Class A-6 Principal Distribution Amount: As to any Distribution Date,
the lesser of: (A) the greater of (i) the product of (x) the Class A Principal
Distribution Amount for such Distribution Date and (y) a fraction, the numerator
of which is the Class Certificate Principal Balance of the Class A-6
Certificates immediately prior to such Distribution Date, and the denominator of
which is the aggregate Class Certificate Principal Balance of all of the Class A
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Certificates immediately prior to such Distribution Date, and (ii) the excess,
if any, of (x) the Class Certificate Principal Balance of the Class A-6
Certificates immediately prior to such Distribution Date over (y) the Principal
Balance of the Adjustable Rate Loan Group as of the last day of the related Due
Period; or (B) the Class A Principal Distribution Amount.
Class A-7 Percentage: As to any Distribution Date, the applicable
percentage set forth below:
Distribution Dates Percentages
------------------ -----------
December 1997-November 2000.......................... 0%
December 2000-November 2002.......................... 45%
December 2002-November 2003.......................... 80%
December 2003-November 2004.......................... 100%
December 2004 and thereafter......................... 300%
Class A-7 Principal Distribution: As to any Distribution Date, the
lesser of (A) the product of (i) the applicable Class A-7 Percentage and (ii)
the product of (x) the Fixed Rate Loan Group Principal Allocation and (y) a
fraction, the numerator of which is the Class Certificate Principal Balance of
the Class A-7 Certificates immediately prior to such Distribution Date, and the
denominator of which is the aggregate Class Certificate Principal Balance of the
Senior Certificates immediately prior to such Distribution Date, and (B) the
Fixed Rate Loan Group Principal Allocation.
Class B Applied Realized Loss Amount: As to the Class B Certificates
and as of any Distribution Date, the lesser of (x) the Class Certificate Balance
thereof (after taking into account the distribution of the Principal
Distribution Amount on such Distribution Date, but prior to the application of
the Class B Applied Realized Loss Amount, if any, on such Distribution Date) and
(y) the Applied Realized Loss Amount as of such Distribution Date.
Class B Realized Loss Amortization Amount: As to the Class B
Certificates and as of any Distribution Date, the lesser of (x) the Unpaid
Realized Loss Amount with respect to the Class B Certificates as of such
Distribution Date and (y) the excess of (i) the Excess Cashflow Amount over (ii)
the sum of the Extra Principal Distribution Amount, the Class M-1 Realized Loss
Amortization Amount, the Class M-2 Realized Loss Amortization Amount, the Class
M-3 Realized Loss Amortization Amount, in each case for such Distribution Date.
Class M-1 Applied Realized Loss Amount: As to the Class M-1
Certificates and as of any Distribution Date, the lesser of (x) the Class
Certificate Balance thereof (after taking into account the distribution of the
Principal Distribution Amount on such Distribution Date, but prior to the
application of the Class M-1 Applied Realized Loss Amount, if any on such
Distribution Date) and (y) the excess of (i) the Applied Realized Loss Amount as
of such Distribution date over (ii) the sum of the Class M-2 Applied Realized
Loss Amount, the Class M-3 Applied Realized Loss Amount and the Class B Applied
Realized Loss Amount, in each case as of such Distribution Date.
Class M-1 Realized Loss Amortization Amount: As to the Class M-1
Certificates and as of any Distribution Date, the lesser of (x) the Unpaid
Realized Loss Amount with respect to the
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Class M-1 Certificates as of such Distribution Date and (y) the excess of (i)
the Excess Cashflow Amount over (ii) the Extra Principal Distribution Amount, in
each case for such Distribution Date.
Class M-2 Applied Realized Loss Amount: As to the Class M-2
Certificates and as of any Distribution Date, the lesser of (x) the Class
Certificate Balance thereof (after taking into account the distribution of the
Principal Distribution Amount on such Distribution Date, but prior to the
application of the Class M-2 Applied Realized Loss Amount, if any on such
Distribution Date) and (y) the excess of (i) the related Applied Realized Loss
Amount as of such Distribution Date over (ii) the Class M-3 Applied Realized
Loss Amount and the Class B Applied Realized Loss Amount, in each case as of
such Distribution Date.
Class M-2 Realized Loss Amortization Amount: As to the Class M-2
Certificates and as of any Distribution Date, the lesser of (x) the Unpaid
Realized Loss Amount with respect to the Class M-2 Certificates as of such
Distribution Date and (y) the excess of (i) the Excess Cashflow Amount over (ii)
the sum of the Extra Principal Distribution Amount and the Class M-1 Realized
Loss Amortization Amount, in each case for such Distribution Date.
Class M-3 Applied Realized Loss Amount: As to the Class M-3
Certificates and as of any Distribution Date, the lesser of (x) the Class
Certificate Balance thereof (after taking into account the distribution of the
Principal Distribution Amount on such Distribution Date, but prior to the
application of the Class M-3 Applied Realized Loss Amount, if any on such
Distribution Date) and (y) the excess of (i) the related Applied Realized Loss
Amount as of such Distribution Date over (ii) the Class B Applied Realized Loss
Amount, in each case as of such Distribution Date.
Class M-3 Realized Loss Amortization Amount: As to the Class M-3
Certificates and as of any Distribution Date, the lesser of (x) the Unpaid
Realized Loss Amount with respect to the Class M-3 Certificates as of such
Distribution Date and (y) the excess of (i) the Excess Cashflow Amount over (ii)
the sum of the Extra Principal Distribution Amount, the Class M-1 Realized Loss
Amortization Amount and the Class M-2 Realized Loss Amortization, in each case
for such Distribution Date.
Collected Principal Amount: For any Distribution Date and Loan Group,
the sum of the following amounts (without duplication):
(a) the principal portion of all scheduled and unscheduled
monthly payments on the Mortgage Loans due during the related
Remittance Period, to the extent actually received by the Trustee on or
prior to the related Remittance Date or to the extent actually advanced
by the Servicer on or prior to the related Remittance Date including
the principal portion of all full and partial principal prepayments
made by the respective Mortgagors during the related Remittance Period;
(b) the scheduled principal balance of each Mortgage Loan that
either was repurchased by the Unaffiliated Seller or purchased by the
Servicer on the related Remittance Date, to the extent such scheduled
principal balance is actually received by the Trustee on or prior to
the related Remittance Date;
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(c) any Substitution Amounts delivered by the Unaffiliated
Seller on the related Remittance Date in connection with a substitution
of a Mortgage Loan (to the extent such Substitution Amounts relate to
principal), to the extent such Substitution Amounts are actually
received by the Trustee on or prior to the related Remittance Date;
(d) Net Liquidation Proceeds to the extent received by the
Trustee on or prior to the related Remittance Date for each Mortgage
Loan which became a Liquidated Mortgage Loan during the related
Remittance Period; and
(e) the proceeds received by the Trustee of any termination of
the Trust (to the extent such proceeds relate to principal).
Cumulative Loss Percentage: The percentage of all Realized Losses as a
percentage of the Original Aggregate Principal Balance of the Mortgage Loans.
Cumulative Loss Trigger Event: A Cumulative Loss Trigger Event has
occurred if (i) the Cumulative Loss Percentage for a specified period exceeds
the applicable percentage set forth below and (ii) the 60+ Delinquency
Percentage exceeds two times the original (prior to the Stepdown Date)
percentage used to determine the Required Overcollateralization Amount:
Distribution Dates Loss Percentages
------------------ ----------------
December 1997-November 2000.................. 2.30%
December 2000-November 2001.................. 3.80%
December 2001-November 2002.................. 4.80%
December 2002-November 2003.................. 5.40%
December 2003-November 2004.................. 5.90%
December 2004 and thereafter................. 6.20%
Current Interest: As to any Distribution Date and Class of
Certificates, interest for the related Accrual Period at the related Certificate
Rate on the related Class Certificate Principal Balance.
Excess Interest Amount: As to any Distribution Date, the excess of
(x) the Interest Remittance Amount for both Loan Groups over (y) the sum of (i)
the aggregate of the Class Current Interest for the Class A Certificates, (ii)
the Current Interest for the Mezzanine Certificates and Class B Certificates and
(ii) the Trustee Fee for both Loan Groups.
Extra Principal Distribution Amount: As to any Distribution Date, the
lesser of (x) the Excess Interest Amount for such Distribution Date and (y) the
Overcollateralization Deficiency Amount for such Distribution Date.
Fixed Rate Loan Group Principal Allocation: As to any Distribution
Date, the excess of (i) the Class A Principal Distribution Amount for such
Distribution Date over (ii) the Class A-6 Principal Distribution Amount for such
Distribution Date.
Interest Remittance Amount: As to either Loan Group and any
Distribution Date, the portion of the Available Funds for such Loan Group that
constitutes amounts in respect of interest.
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Liquidated Mortgage Loan: As to any Distribution Date, a Mortgage Loan
with respect to which the Servicer has determined, in accordance with the
servicing procedures specified in the Agreement, as of the end of the preceding
Due Period, that all Liquidation Proceeds which it expects to recover with
respect to such Mortgage Loan (including the disposition of the related REO)
have been received (other than amounts recoverable through deficiency
judgments).
Original Credit Support Percentage: As to any Class of Senior
Certificates or Subordinate Certificates, the applicable percentage set forth
below:
Senior 20%
Class M-1 13.75%
Class M-2 8%
Class M-3 3.25%
Class B 0%
Overcollateralization Amount: As to any Distribution Date, the excess,
if any, of (i) the Pool Balance as of the end of the related Remittance Period
over (ii) the aggregate Class Certificate Principal Balance of the Certificates
after giving effect to the distribution of the Aggregate Collected Principal
Amount on such Distribution Date.
Overcollateralization Deficiency Amount: As to any Distribution Date,
the excess, if any, of (x) the Required Overcollateralization Amount for such
Distribution Date over (y) the Overcollateralization Amount for such
Distribution Date, calculated for this purpose after taking into account the
reduction on such Distribution Date of the Class Certificate Balances of all
Classes of Offered Certificates resulting from the distribution of the Aggregate
Collected Principal Amount (but not the Extra Principal Distribution Amount) on
such Distribution Date, but prior to taking in to account any Applied Realized
Loss Amounts on such Distribution Date.
Overcollateralization Reduction Amount: As to any Distribution Date,
the lesser of (i) the Aggregate Collected Principal Amount for such Distribution
Date and (ii) the excess, if any, of (x) the Overcollateralization Amount
(assuming 100% of the Aggregate Collected Principal Amount is distributed on the
Offered Certificates) over (y) the Required Overcollateralization Amount.
Pool Balance: With respect to any date, the aggregate of the Principal
Balances of all Mortgage Loans in both Loan Groups as of such date.
Principal Balance: As to any Mortgage Loan and any day, other than a
Liquidated Mortgage Loan, the Principal Balance as of the Cut-Off Date, minus
all collections credited against the Principal Balance of any such Mortgage
Loan. For purposes of this definition, a Liquidated Mortgage Loan shall be
deemed to have a Principal Balance equal to the Principal Balance of the related
Mortgage Loan immediately prior to the final recovery of related Liquidation
Proceeds and a Principal Balance of zero thereafter.
Principal Distribution Amount: As to any Distribution Date, the sum of
(i) the Aggregate Collected Principal Amount (and with respect to any
Distribution Date on which a Trigger Event is not in effect, less the
Overcollateralization Reduction Amount, if any) and (ii) the Extra Principal
Distribution Amount.
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Remittance Period: As to any Distribution Date, the calendar month
preceding such Distribution Date.
Required OC Percentage: As of any date of determination, the percentage
then applicable in clause (b)(i) of the calculation of the Required
Overcollateralization Amount.
Required Overcollateralization Amount: As to any Distribution Date (a)
prior to the Stepdown Date, the product of 2.75% and the Original Aggregate
Principal Balance of the Mortgage Loans; (b) on and after the Stepdown Date, (i)
if no Trigger Event is in effect, the lesser of (A) 5.50% of the Pool Balance as
of the end of the related Remittance Period and (B) 2.75% of the Original
Aggregate Principal Balance of the Mortgage Loans or (ii) if a Trigger Event or
a Cumulative Loss Trigger Event is in effect, the Required Overcollateralization
Amount will equal the Required Overcollateralization Amount in effect as of the
Distribution Date immediately preceding the date on which the Trigger Event
first occurred.
Senior Enhancement Percentage: As to any Distribution Date, the
percentage equivalent of a fraction, the numerator of which is the sum of (i)
the aggregate Class Certificate Principal Balance of the Class A, Class M and
Class B Certificates minus the Certificate Principal Balance of the Class with
the highest priority and (ii) the Overcollateralization Amount, in each case
after giving effect to the distribution of the Principal Distribution Amount on
such Distribution Date, and the denominator of which is the Pool Balance as of
the last day of the related Due Period.
60+ Delinquency Percentage: A fraction expressed as a percentage, the
numerator of which is (i) with respect to any Distribution Date prior to the
December 2001 Distribution Date, 100% of the aggregate Principal Balance of the
Mortgage Loans that are more than 60 days delinquent; (ii) with respect to the
December 2001 Distribution Date and the Distribution Dates prior to the December
2003 Distribution Date, 75% of the aggregate Principal Balance of the Mortgage
Loans that are more than 60 days delinquent; and (iii) with respect to the
December 2003 Distribution Date and all the Distribution Dates thereafter, 50%
of the aggregate Principal Balance of the Mortgage Loans that are more than 60
days delinquent and the denominator of which is the Pool Balance, in each case
as determined as of the last day of the related Remittance Period.
Stepdown Date: The later to occur of (x) the Distribution Date in
December 2000, and (y) the first Distribution Date on which the Senior
Enhancement Percentage (assuming 100% of the Aggregate Collected Principal
Amount is distributed on the Offered Certificates) is at least equal to the sum
of (i) two times the Original Credit Support Percentage for the Senior
Certificates and (ii) the Required OC Percentage.
Stepped Up Percentage: 100% minus the percentage equivalent of a
fraction, the numerator of which is two times the Delinquency Amount and the
denominator of which is the Pool Balance as of the last day of the related Due
Period; provided that the Stepped Up Percentage will not be less than 0.
Trigger Event: A Trigger Event shall have occurred and be continuing,
if at any time, (x) the percentage equivalent of a fraction, the numerator of
which is the aggregate Principal Balance of all Mortgage Loans that are more
than 60 days delinquent, including REO properties
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and Mortgage Loans in foreclosure and the denominator of which is the Pool
Balance as of the last day of the related Due Period exceeds (y) 40% of the
Senior Enhancement Percentage.
Unpaid Realized Loss Amount: For any Class of Mezzanine Certificates
or the Class B Certificates and as to any Distribution Date, the excess of (x)
the aggregate cumulative amount of related Applied Realized Loss Amounts with
respect to such Class for all prior Distribution Dates over (y) the aggregate,
cumulative amount of related Realized Loss Amortization Amounts with respect to
such Class for all prior Distribution Dates.
Calculation of LIBOR
With respect to each Distribution Date, 1-Month LIBOR will equal the
interbank offered rate for one-month United States dollar deposits in the London
market as quoted on Telerate Page 3750 as of 11:00 A.M., London time, on the
second LIBOR Business Day prior to (i) the Closing Date with respect to the
December 1997 Distribution Date or (ii) the first day of the related Accrual
Period with respect to all other Distribution Dates. "Telerate Page 3750" means
the display designated as page 3750 on the Telerate Service (or such other page
as may replace page 3750 on that service for the purpose of displaying London
interbank offered rates of major banks). If such rate does not appear on such
page (or such other page as may replace that page on that service, or if such
service is no longer offered, such other service for displaying LIBOR or
comparable rates as may be selected by the Trustee after consultation with the
Servicer), the rate will be the Reference Bank Rate. The "Reference Bank Rate"
will be determined on the basis of the rates at which deposits in U.S. Dollars
are offered by the reference banks (which shall be three major banks that are
engaged in transactions in the London interbank market, selected by the Trustee
after consultation with the Servicer) as of 11:00 A.M., London time, on the day
that is two LIBOR Business Days prior to the immediately preceding Distribution
Date to prime banks in the London interbank market for a period of one month in
amounts approximately equal to the Class Certificate Principal Balance of the
Variable Rate Certificates. The Trustee will request the principal London office
of each of the reference banks to provide a quotation of its rate. If at least
two such quotations are provided, the rate will be the arithmetic mean of the
quotations. If on such date fewer than two quotations are provided as requested,
the rate will be the arithmetic mean of the rates quoted by one or more major
banks in New York City, selected by the Trustee after consultation with the
Servicer, as of 11:00 A.M., New York City time, on such date for loans in U.S.
Dollars to leading European banks for a period of one month in amounts
approximately equal to the Class Certificate Principal Balance of the Variable
Rate Certificates. If no such quotations can be obtained, the rate will be LIBOR
for the prior Distribution Date. "LIBOR Business Day" means any day other than
(i) a Saturday or a Sunday or (ii) a day on which banking institutions in the
State of New York or in the city of London, England are required or authorized
by law to be closed.
Report to Owners of Certificates
Pursuant to the Pooling and Servicing Agreement, on each Distribution
Date the Trustee will deliver to the Servicer, each Owner of a Certificate and
the Depositor a written report containing information, including, without
limitation, the amount of the distribution on such Distribution Date, the amount
of such distribution allocable to principal and allocable to interest,
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the aggregate Certificate Principal Balance of the Offered Certificates as of
such Distribution Date and such other information as required by the Pooling and
Servicing Agreement.
Book Entry Registration of the Offered Certificates
The Offered Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Beneficial Owners may elect to hold their Book-Entry
Certificates directly through DTC in the United States, or CEDEL or Euroclear
(in Europe) if they are participants of such systems ("Participants"), or
indirectly through organizations which are Participants. The Book-Entry
Certificates will be issued in one or more certificates per class of Offered
Certificates which in the aggregate equal the principal balance of such Offered
Certificates and will initially be registered in the name of Cede & Co., the
nominee of DTC. CEDEL and Euroclear will hold omnibus positions on behalf of
their Participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank will act as depositary for CEDEL and Chase
will act as depositary for Euroclear (in such capacities, individually the
"Relevant Depositary" and collectively the "European Depositaries"). Investors
may hold such beneficial interests in the Book-Entry Certificates in minimum
denominations representing principal amounts of $1,000 and in integral multiples
in excess thereof. Except as described below, no Beneficial Owner will be
entitled to receive a physical certificate representing such Certificate (a
"Definitive Certificate"). Unless and until Definitive Certificates are issued,
it is anticipated that the only "Owner" of such Book-Entry Certificates will be
Cede & Co., as nominee of DTC. Beneficial Owners will not be Owners as that term
is used in the Pooling and Servicing Agreement. Beneficial Owners are only
permitted to exercise their rights indirectly through Participants and DTC.
The Beneficial Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Beneficial Owner's Financial Intermediary is not a DTC Participant and on
the records of CEDEL or Euroclear, as appropriate).
Beneficial Owners will receive all distributions of principal of, and
interest on, the Book-Entry Certificates from the Trustee through DTC and DTC
Participants. While such Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to such Certificates and is required to receive and transmit
distributions of principal of, and interest on, such Certificates. Participants
and indirect participants with whom Beneficial Owners have accounts with respect
to Book-Entry Certificates are similarly required to make book-entry transfers
and receive and transmit such distributions on behalf of their respective
Beneficial Owners. Accordingly, although Beneficial Owners will not possess
certificates, the Rules provide a mechanism by which Beneficial Owners will
receive distributions and will be able to transfer their interests.
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Beneficial Owners will not receive or be entitled to receive
certificates representing their respective interests in the Offered
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Beneficial Owners who are not
Participants may transfer ownership of Offered Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer such Offered Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Offered
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of such Offered Certificates will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the Participants and indirect participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Beneficial Owners.
Because of time zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant CEDEL or Euroclear cash account only as of the
business day following settlements in DTC. For information with respect to tax
documentation procedures relating to the Certificates, see "Certain Federal
Income Tax Consequences -- Taxation of Certain Foreign Investors" and "-- Backup
Withholding" in the Prospectus and "Global Clearance, Settlement and Tax
Documentation Procedures--Certain U.S. Federal Income Tax Documentation
Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each
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DTC Participant in the Book-Entry Certificates, whether held for its own account
or as a nominee for another person. In general, beneficial ownership of
Book-Entry Certificates will be subject to the rules, regulations and procedures
governing DTC and DTC Participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participant organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium, office of
Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under
contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear Securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is a branch of a New York banking corporation
which is a member bank of the Federal Reserve System. As such, it is regulated
and examined by the Board of Governors of the Federal Reserve System and the New
York State Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within
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Euroclear, withdrawals of securities and cash from Euroclear, and receipts of
payments with respect to securities in Euroclear. All securities in Euroclear
are held on a fungible basis without attribution of specific certificates to
specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants, and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC Participants
in accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payment to the Beneficial Owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be responsible
for disbursing funds to the Beneficial Owners of the Book-Entry Certificates
that it represents.
Under a book-entry format, Beneficial Owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede. Distributions with respect to
Certificates held through CEDEL or Euroclear will be credited to the cash
accounts of CEDEL Participants or Euroclear Participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depositary. Such distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations. Because DTC can only act
on behalf of Financial Intermediaries, the ability of a Beneficial Owner to
pledge Book-Entry Certificates to persons or entities that do not participate in
the Depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such Certificates in the secondary
market since certain potential investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust provided by the Servicer to
Cede, as nominee of DTC, may be made available to Beneficial Owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such Beneficial Owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the Pooling and Servicing Agreement
only at the direction of one or more Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates are credited, to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings include
such Book-Entry Certificates. CEDEL or the Euroclear Operator, as the case may
be, will take any action permitted to be taken by an Owner under the Pooling and
Servicing Agreement on behalf of a CEDEL Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to the
ability of the Relevant Depositary to effect such actions on its behalf through
DTC. DTC may take actions, at the direction of the related Participants, with
respect to some Offered Certificates which conflict with actions taken with
respect to other Offered Certificates.
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None of the Depositor, the Unaffiliated Seller, the Servicer or the
Trustee will have any responsibility for any aspect of the records relating to
or payments made on account of beneficial ownership interests of the Book-Entry
Certificates held by Cede, as nominee for DTC, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
Definitive Certificates will be issued to Beneficial Owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Unaffiliated Seller advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as a
nominee and depository with respect to the Book-Entry Certificates and the
Unaffiliated Seller or the Trustee is unable to locate a qualified successor,
(b) the Unaffiliated Seller, at its sole option, elects to terminate a
book-entry system through DTC or (c) DTC, at the direction of the Beneficial
Owners representing a majority of the outstanding Percentage Interests of the
Offered Certificates, advises the Trustee in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of the Beneficial Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Beneficial
Owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as Owners
under the Pooling and Servicing Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among Participants
of DTC, CEDEL and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
Certain Activities
The Trust has not and will not: (i) issue securities (except for the
Certificates); (ii) borrow money; (iii) make loans; (iv) invest in securities
for the purpose of exercising control; (v) underwrite securities; (vi) except as
provided in the Pooling and Servicing Agreement, engage in the purchase and sale
(or turnover) of investments; (vii) offer securities in exchange for property
(except Certificates for the Mortgage Loans); or (viii) repurchase or otherwise
reacquire its securities. See "Servicing of the Mortgage Loans and Contracts --
Reports To Certificateholders" in the Prospectus for information regarding
reports to the Owners.
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THE POOLING AND SERVICING AGREEMENT
In addition to the provisions of the Pooling and Servicing Agreement
summarized elsewhere in this Prospectus Supplement, there is set forth below a
summary of certain other provisions of the Pooling and Servicing Agreement.
Formation of the Trust
On the Closing Date, the Trust will be created and established pursuant
to the Pooling and Servicing Agreement. On such date, the Unaffiliated Seller
will sell without recourse the Mortgage Loans to the Depositor, the Depositor
will sell without recourse the Mortgage Loans to the Trust and the Trust will
issue the Certificates to the Owners thereof pursuant to the Pooling and
Servicing Agreement.
The property of the Trust shall include all money, instruments and
other property to the extent such money, instruments and other property are
subject or intended to be held in trust for the benefit of the Owners, and all
proceeds thereof, including, without limitation, (i) the Mortgage Loans, (ii)
such amounts, including Eligible Investments, as from time to time may be held
by the Trustee in the Certificate Account and by the Servicer in the Principal
and Interest Account (except as otherwise provided in the Pooling and Servicing
Agreement), to be created pursuant to the Pooling and Servicing Agreement, (iii)
any property, the ownership of which has been effected on behalf of the Trust as
a result of foreclosure or acceptance by the Servicer of a deed in lieu of
foreclosure and that has not been withdrawn from the Trust, (iv) any insurance
policies relating to the Mortgage Loans and any rights of the Unaffiliated
Seller under any insurance policies, (v) Net Liquidation Proceeds with respect
to any Liquidated Mortgage Loan, and (vi) the rights of the Unaffiliated Seller
against any Originator pursuant to the related Master Loan Transfer Agreement
(collectively, the "Trust Fund").
The Offered Certificates will not represent an interest in, or an
obligation of, nor will the Mortgage Loans be guaranteed by, any Originator, the
Unaffiliated Seller, the Depositor, the Servicer or the Trustee.
Assignment of the Loans; Representations and Warranties
On the Closing Date, the Depositor will sell, transfer, convey and
assign the Loans to the Trustee, without recourse, together with (i) all rights
to any payments received in respect of any of the Mortgage Loans after the
Cut-Off Date other than late receipts of scheduled monthly payments on the
Actuarial Loans that were due prior to the Cut-Off Date and (ii) all scheduled
monthly payments in respect of the Actuarial Loans that were due on or after the
Cut-Off Date but received prior to the Cut-Off Date. The Mortgage Loans will be
described on a schedule attached to the Pooling and Servicing Agreement (the
"Schedule of Mortgage Loans").
In connection with the sale of the Mortgage Loans on the Closing Date,
the Unaffiliated Seller will be required to deliver to the Trustee the
promissory notes evidencing the Loans, the related mortgages or deeds of trust
or other documents evidencing a lien on the Mortgaged
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Property and certain other documents relating to the Loans. The Trustee will
agree, for the benefit of the Owners of the related Offered Certificates, to
review each such file within 60 days after the Closing Date to ascertain whether
all required documents (or certified copies of documents) have been executed and
received.
In addition to the foregoing, the Servicer, is required to submit for
recording, within 180 days of the Closing Date (or, if original recording
information is unavailable, within such later period as is permitted by the
Pooling and Servicing Agreement) assignments of the Mortgages to the Trustee in
the appropriate jurisdictions.
Under an agreement (the "Loan Purchase Agreement") between the
Unaffiliated Seller and the Depositor for the sale of the Loans from the
Unaffiliated Seller to the Depositor, the Unaffiliated Seller will agree that in
the event of a breach of any representation or warranty made by it which
materially and adversely affects the value of, or the interests of the Owners of
the Offered Certificates in, any Mortgage Loan transferred by the Unaffiliated
Seller (any such Loan being a "Defective Loan"), the Unaffiliated Seller will
repurchase the Defective Loan at a price equal to the then outstanding principal
balance of such Loan and accrued and unpaid interest thereon, together with any
outstanding Advances (without duplication) (the "Repurchase Price").
Under the Pooling and Servicing Agreement, the Depositor will assign
all of its right, title and interest in such representations and warranties
(including the Unaffiliated Seller's repurchase obligations) to the Trustee.
None of the Depositor or the Trustee will make any representations or warranties
with respect to the Mortgage Loans and neither will have any obligations to
repurchase, or make substitutions for Defective Loans.
Servicing of the Mortgage Loans
Pursuant to the Pooling and Servicing Agreement, the Servicer will be
required to service and administer the Mortgage Loans assigned to the Trust as
more fully set forth below.
Unless otherwise specified herein or in the Pooling and Servicing
Agreement with respect to specific obligations of the Servicer, the Servicer
shall service and administer the Mortgage Loans in accordance with the
servicing, collection and investor reporting systems and procedures set forth in
the Servicer's current servicing guide (the "Servicing Standards").
The duties of the Servicer include, without limitation, collecting and
posting of all payments, responding to inquiries by obligors or by federal,
state or local government authorities with respect to the Mortgage Loans,
investigating delinquencies, reporting tax information to obligors in accordance
with its customary practices and all applicable law, accounting for collections
and furnishing monthly and annual statements to the Trustee with respect to
distributions and making Delinquency Advances, Servicing Advances and
Compensating Interest to the extent described herein.
The Servicer (i) may execute and deliver any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge and all
other comparable instruments, with respect to the Mortgage Loans and with
respect to the related Mortgaged Property, (ii) may consent to any modification
of the terms of any Note not expressly prohibited hereby if the effect of any
such modification will not materially and adversely affect the security afforded
by the
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related Mortgaged Property or reduce the amount of, or slow (other than as
permitted by the Pooling and Servicing Agreement) the timing of receipt of, any
payments required thereunder and (iii) may institute foreclosure proceedings or
obtain a deed-in-lieu of foreclosure so as to convert the ownership of such
Mortgaged Property, and to hold or cause to be held title to such Mortgaged
Property, in the name of the Servicer on behalf of the Trust.
The Pooling and Servicing Agreement permits the Servicer to modify and
extend the maturity of a Balloon Loan which matures and which is not otherwise
paid in full at such maturity date by the related Obligor; provided, that the
rescheduled final maturity date of such Mortgage Loan is not one year beyond the
original maturity date, the related Mortgage Rate is not decreased and the
obligor does not receive any additional proceeds. Such modified and extended
Balloon Loans will be permitted to remain in the Trust.
The Servicer may perform any of its servicing responsibilities with
respect to all or certain of the Mortgage Loans through a sub-servicer as it may
from time to time designate, but no such designation of a sub-servicer shall
serve to release the Servicer from any of its obligations under the Pooling and
Servicing Agreement. The Mortgage Loans will initially be serviced by the
Sub-Servicer pursuant to a sub-servicing agreement with the Servicer.
Upon removal or resignation of the Servicer, the Backup Servicer will
be required to serve as successor servicer. If the Backup Servicer is prevented
by law from acting as successor servicer, the Trustee may solicit bids for a
successor servicer, and pending the appointment of a successor servicer as a
result of soliciting such bids, the Trustee will be required to serve as
successor servicer. If the Trustee is unable to obtain a qualifying bid, the
Trustee will be required to appoint, or petition a court of competent
jurisdiction to appoint, an eligible successor. Any such successor servicer
shall assume all of the related responsibilities, duties or liabilities of the
Servicer on the date on which it becomes the Servicer, but shall not assume any
of the liabilities incurred prior to such date.
Collection of Certain Loan Payments. The Servicer shall, as required by
the Servicing Standards, make all reasonable efforts to collect payments called
for under the terms and provisions of the Mortgage Loans, and shall, to the
extent such procedures shall be consistent with the Pooling and Servicing
Agreement, follow such collection procedures with respect to the Mortgage Loans
as it follows with respect to comparable mortgage loans in its own servicing
portfolio; provided, that the Servicer shall always at least follow collection
procedures that are consistent with or better than the Servicing Standards.
Consistent with the foregoing, the Servicer may in its discretion, generally (i)
waive any assumption fees, late payment charges, charges for checks returned for
insufficient funds, prepayment fees, if any, or other fees which may be
collected in the ordinary course of servicing the Mortgage Loans, (ii) if an
obligor is in default or if default is reasonably foreseeable because of an
obligor's financial condition, arrange with the obligor a schedule for the
payment of delinquent payments due on the Mortgage Loan; provided, however, the
Servicer may not reschedule the payment of delinquent payments more than three
times in any twelve consecutive months with respect to any obligor or (iii)
modify payments of monthly principal and interest on any Mortgage Loan becoming
subject to the terms of the Civil Relief Act, in accordance with the Servicer's
general policies relating to comparable loans subject to the Civil Relief Act.
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The Servicer is required to establish and maintain an account in its
name for the benefit of the Trust (such account, the "Lockbox Account") into
which all collections (other than Delinquency Advances and amounts relating to
Compensating Interest) are to be deposited by the close of business on the next
business day following the business day on which such collections are received.
The Servicer shall instruct, or cause any sub-servicer to instruct, all
obligors to make payments only to the Lockbox Account, unless, due to special
collection circumstances such payment must be made to the Servicer, in which
event such amounts shall be deposited by the Servicer in the Lockbox Account.
The Servicer shall instruct the Lockbox Bank to remit all amounts received for
deposit in the Lockbox Account to the Principal and Interest Account on the next
business day following receipt of such amounts.
Not later than 12:00 noon Pacific time on the fifteenth calendar day of
each month (or the immediately succeeding business day if such calendar day
falls on a Saturday or a Sunday or a holiday), the Servicer shall deliver or
cause to be delivered to the Trustee a monthly servicing report (the "Servicing
Report") on computer readable magnetic tape or diskette. This report shall also
contain (i) a summary report of Mortgage Loan payment activity for such month,
(ii) exception payment reports for Mortgage Loans with respect to which
scheduled payments due in such month were not made and (iii) a trial balance in
the form of a computer tape.
Delinquency Advances and Servicing Advances. If, at or prior to the end
of each Remittance Period, the interest portion of any monthly payment due on
any Mortgage Loan during such Remittance Period has not been received and
transferred to the Principal and Interest Account, the Servicer shall, to the
extent that such Delinquency Advance is necessary to pay any shortfall in Total
Current Interest arising because of the insufficiency of Available Funds, make
an advance to the Principal and Interest Account (a "Delinquency Advance") by
the related Servicer Remittance Date in an amount equal to the amount of the
interest portion of such delinquent monthly payment not later than the related
Servicer Remittance Date; provided, however, that the Servicer will not be
required to make any such Delinquency Advance if it determines in reasonable
good faith that such Delinquency Advance would not be recoverable from
collections with respect to such Mortgage Loan. For purposes of the Pooling and
Servicing Agreement, the delinquent interest portion of such monthly payment
shall be deemed to include an amount equal to the interest portion of such
monthly payment that would have been due on a Mortgage Loan in respect of which
the related Mortgage Property has been repossessed or foreclosed upon and which
has not yet become a Liquidated Mortgage Loan.
The Servicer will advance all "out-of-pocket" costs and expenses
incurred in the performance of its servicing obligations with respect to the
Mortgage Loans, including, but not limited to, the cost of (i) preservation
expenses on the Mortgaged Property Loan Collateral, (ii) any enforcement or
judicial proceedings, including foreclosures, and any reasonable legal expenses
in connection with the assertion by an obligor of any claim or defense that the
obligor may have had against the originator in connection with the sale,
financing or construction of such obligor's home and which the obligor asserts
against the Servicer and (iii) the management and liquidation of "REO" property,
but in each case shall only pay such costs and expenses to the extent the
Servicer reasonably believes such costs and expenses will be recovered from the
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related Mortgage Loan and will increase Net Liquidation Proceeds on the related
Mortgage Loan. Each such expenditure, exclusive of overhead, will constitute a
"Servicing Advance."
If, with respect to any Distribution Date and as a result of
Prepayments in full received with respect to the Mortgage Loans held in the
Trust during the related Remittance Period, the amount of interest due on such
Mortgage Loans is decreased such that the Available Funds are insufficient to
fund the full amount of the Total Current Interest due on such Distribution
Date, the Servicer will be required to remit to the Principal and Interest
Account the lesser of (x) the amount of such insufficiency due to such
Prepayments and (y) the aggregate Servicing Fee due to the Servicer on such
Distribution Date with respect to such Trust. The Servicer will be required to
remit such amount (each such amount, "Compensating Interest") not later than the
related Servicer Remittance Date.
Maintenance of Insurance. The Servicer shall cause to be maintained
with respect to each Mortgage a hazard insurance policy with a generally
acceptable carrier that provides for fire and extended coverage, and which
provides for a recovery by the Servicer on behalf of the Trustee and its
assignees of insurance proceeds relating to such Mortgage Loan, in an amount not
less than the least of (i) the outstanding principal balance of the Mortgage
Loan, (ii) the minimum amount required to compensate for damage or loss on a
replacement cost basis and (iii) the full insurable value of the improvements
which are a part of the related Mortgage Property, but in any case not less than
the amount necessary to avoid the application of any co-insurance clause.
If the Mortgage Loan relates to Mortgaged Property located in an area
identified in the Federal Register by the Federal Emergency Management Agency as
having special flood hazards and if such loan has been specifically identified
as being in such an area in the Schedule of Mortgage Loans or other writing
delivered to the Servicer by the Originator, the Servicer shall cause to be
maintained with respect thereto a flood insurance policy in a form meeting the
requirements of the current guidelines of the Federal Insurance Administration
with a generally acceptable carrier in an amount that provides for coverage, and
which provides for a recovery by the Servicer on behalf of the related Trust of
insurance proceeds relating to such Mortgage Loan, in an amount not less than
the least of (i) the outstanding principal balance of the Mortgage Loan, (ii)
the minimum amount required to fully compensate for damage or loss to the
improvements which are a part of the related Mortgaged Property on a replacement
cost basis and (iii) the maximum amount of insurance that is available under the
Flood Disaster Protection Act of 1973, but in each case in an amount not less
than such amount as is necessary to avoid the application of any co-insurance
clause contained in the related hazard insurance policy.
In the event that the Servicer shall obtain and maintain a blanket
policy insuring against fire, flood and hazards of extended coverage on all of
the Mortgage Loans, then, to the extent such policy names the Servicer as loss
payee and provides coverage in an amount equal to the aggregate principal
balance of the Mortgage Loans without co-insurance, the Servicer shall be deemed
conclusively to have satisfied its obligations with respect to fire, flood and
hazard insurance coverage. Such blanket policy may contain a deductible clause,
in which case the Servicer shall, in the event that there shall have been a loss
which would have been covered by such policy, deposit in the Principal and
Interest Account from the Servicer's own funds the
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difference, if any, between the amount that would have been payable under a
policy described in the preceding paragraph and the amount paid under such
blanket policy.
Due-on-Sale Clauses; Assumption and Substitution Agreements. When any
Mortgaged Property has been or is about to be conveyed by the obligor (whether
by absolute conveyance or by contract of sale, and whether or not the obligor
remains liable), the Servicer shall, to the extent it has knowledge of such
conveyance or prospective conveyance, exercise the related Trust's rights to
accelerate the maturity of the related Loan under any "due-on-sale" clause
contained in the related Mortgage Loan or Note; provided, that the Servicer
shall not exercise any such right if the "due-on-sale" clause, in the reasonable
belief of the Servicer, is not enforceable under applicable law or if the
Servicer is prohibited by law from doing so.
The Servicer may also allow for an assumption agreement in the case of
a defaulted Mortgage Loan, or a Mortgage Loan as to which a default is imminent,
under the same standards as set forth above in the first paragraph under
"Collection of Certain Mortgage Payments", and subject to certain limitations on
the aggregate amount of Mortgage Loans subject to such assumptions, as set forth
in the Agreement.
Realization Upon Defaulted Loans. The Servicer shall, consistent with
the Servicing Standards, foreclose upon or otherwise comparably effect the
ownership in the name of the Servicer on behalf of the Trust of the Mortgaged
Property relating to defaulted a Mortgage Loan as to which no satisfactory
arrangements can be made for collection of delinquent payments. In connection
with such foreclosure or other conversion, the Servicer shall exercise such
rights and powers vested in it hereunder, and use the same degree of care and
skill in their exercise or use, as prudent mortgage lenders would exercise or
use under the circumstances in the conduct of their own affairs, including, but
not limited to, advancing funds for the payment of taxes and insurance premiums.
The foregoing is subject to the proviso that the Servicer shall not advance its
own funds unless it shall reasonably believe in good faith that it is
recoverable and doing so will increase Net Liquidation Proceeds on the Mortgage
Loans. Notwithstanding the foregoing, with respect to any Mortgage Loan as to
which the Servicer has received notice of, or has actual knowledge of, the
presence of any toxic or hazardous substance on the related Mortgaged Property
(a "Potentially Hazardous Property"), the Servicer shall not, on behalf of the
Trust, either (i) obtain title to such Mortgaged Property as a result of or in
lieu of foreclosure or otherwise, or (ii) otherwise acquire possession of, or
take any other action with respect to, such Mortgaged Property, if, as a result
of any such action, the Trust would be considered to hold title to, be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of, such
Mortgaged Property within the meaning of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA") from
time to time, or any comparable law. The Servicer shall not be required to make
Advances with respect to a Mortgage Loan relating to a Potentially Hazardous
Property. In the event the Servicer requires any professional guidance with
respect to CERCLA, the Servicer may, at its own expense, obtain an opinion of
counsel experienced in CERCLA matters, and shall be fully protected in relying
on any such opinion of counsel.
The Servicer shall determine with respect to each defaulted Mortgage
Loan when it has recovered, whether through trustee's sale, foreclosure sale or
otherwise, all amounts (other than
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from deficiency judgments) it expects to recover from or on account of such
defaulted Mortgage Loan, whereupon such Mortgage Loan shall become a "Liquidated
Mortgage Loan".
Optional Purchase of Defaulted Mortgage Loans. The Servicer or its
designee has the option to purchase from the Trust Fund any Mortgage Loan which
is more than 60 days delinquent, up to 20% by aggregate Principal Balance of the
Original Aggregate Principal Balance of all Mortgage Loans, at a purchase price
equal to the outstanding principal balance of such Mortgage Loan as of the date
of purchase, plus all accrued and unpaid interest on such principal balance,
computed at the Mortgage Interest Rate, plus the amount of any unreimbursed
Servicing Advances (without duplication) made by the Servicer with respect to
such Mortgage Loan, in accordance with the provisions specified in the Pooling
and Servicing Agreement.
Servicing Compensation. As compensation for its activities the Servicer
shall be entitled to the Servicing Fee and certain ancillary servicing income
such as late charges, insufficient funds charges, modification and assumption
fees, penalties, etc., from amounts available therefor in the Principal and
Interest Account. The Servicer is also entitled to receive, monthly, the net
investment earnings on amounts on deposit in the Principal and Interest Account,
and is responsible for any losses on such investments without any right of
reimbursement with respect to such losses.
The right to receive the Servicing Fee may not be transferred (except
to the Sub-Servicer) in whole or in part except in connection with the transfer
of all of the Servicer's responsibilities and obligations under the Pooling and
Servicing Agreement.
Removal and Resignation of Servicer
The Trustee, at the direction of the majority of the Owners of the
Offered Certificates may, pursuant to the Pooling and Servicing Agreement,
remove the Servicer upon the occurrence and continuation beyond the applicable
cure period of any of the following events:
(i) any failure by the Servicer (a) to deposit to the
Principal and Interest Account all collections received by the Servicer
directly within two Business Days following the Business Day on which
such amounts are received and are determined by the Servicer to relate
to the Mortgage Loans (unless not required by the terms of the Pooling
and Servicing Agreement) or (b) to deposit to the Principal and
Interest Account Delinquency Advances and Compensating Interest as
required by the Pooling and Servicing Agreement by the related Servicer
Remittance Date; or
(ii) failure on the part of the Servicer to observe or perform
any term, covenant or agreement in the Pooling and Servicing Agreement
(other than those covered by clause (a) above), which materially
adversely affects the rights of the Owners of the Certificates and
which continues unremedied for 30 days after the date on which written
notice of such failure, requiring the same to be remedied, shall have
been given to the Servicer by the Trustee, or the Owners of the Offered
Certificates who hold Certificates evidencing in aggregate greater than
25% of the Certificate Principal Balance of the outstanding Offered
Certificates; or
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(iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings regarding
the insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Servicer and certain
actions by the Servicer indicating its insolvency or inability to pay
its obligations; or
(iv) the Servicer shall fail to deliver a report expressly
required by the Pooling and Servicing Agreement, and the continuance of
such failure for a period of three Business Days after the date upon
which written notice of such failure shall have been given to the
Servicer by the Trustee (except that such three Business Day period
shall be deemed not to run as to any portion of such report during such
time as the Servicer's failure to provide such information is for cause
or inability beyond its control and the Servicer provides the Trustee
with an officer's certificate of the Servicer to such effect).
The Servicer may not assign its obligations under the Pooling and
Servicing Agreement nor resign from the obligations and duties thereby imposed
on it except upon the determination that the Servicer's duties thereunder are no
longer permissible under applicable law and such incapacity cannot be cured by
the Servicer. No such resignation shall become effective until a successor has
assumed the Servicer's responsibilities and obligations in accordance with the
Pooling and Servicing Agreement.
Upon removal or resignation of the Servicer, the Trustee will be
required to serve as successor servicer. If the Trustee is prevented by law from
acting as successor servicer, the Trustee may solicit bids for a successor
servicer, and pending the appointment of a successor servicer as a result of
soliciting such bids, the Trustee will be required to serve as successor
servicer. If the Trustee is unable to obtain a qualifying bid, the Trustee will
be required to appoint, or petition a court of competent jurisdiction to
appoint, an eligible successor. Any such successor servicer shall assume all of
the related responsibilities, duties or liabilities of the Servicer on the date
on which it becomes the Servicer, but shall not assume any of the liabilities
incurred prior to such date.
Governing Law
The Pooling and Servicing Agreement and each Certificate will be
construed in accordance with and governed by the laws of the State of New York
applicable to agreements made and to be performed therein.
Termination of the Trust
The Pooling and Servicing Agreement will provide that the Trust will
terminate upon the earlier of (i) the payment to the Owners of all Certificates
of all amounts required to be paid such Owners upon the later to occur of (a)
the final payment or other liquidation (or any advance made with respect
thereto) of the last Mortgage Loan or (b) the disposition of all property
acquired in respect of any Mortgage Loan remaining in the Trust Estate or (ii)
any time when a Qualified Liquidation (as defined in the Pooling and Servicing
Agreement) of the Trust Estate is effected.
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Optional Termination
As Provided in the Pooling and Servicing Agreement. The Pooling and
Servicing Agreement provides that a party to be named therein, at its option,
acting directly or through one or more permitted designees, may determine to
purchase from the Trust all of the Mortgage Loans and other property then held
by the Trust, and thereby effect early retirement of the Certificates, on any
Remittance Date when the aggregate outstanding principal balances of the
Mortgage Loans has declined to 10% or less of the Original Aggregate Principal
Balance.
Auction Sale. The Pooling and Servicing Agreement requires that, within
ninety days following the Optional Termination Date, if the Servicer, or an
affiliate of the Servicer, has not exercised its optional termination right by
such date, the Trustee solicit bids for the purchase of all Mortgage Loans
remaining in the Trust. In the event that satisfactory bids are received as
described in the Pooling and Servicing Agreement, the net sale proceeds will be
distributed to the Owners of the Certificates, in the same order of priority as
collections received in respect of the Mortgage Loans. If satisfactory bids are
not received, the Trustee shall decline to sell the Mortgage Loans and shall not
be under any obligation to solicit any further bids or otherwise negotiate any
further sale of the Mortgage Loans. Such sale and consequent termination of the
Trust must constitute a "qualified liquidation" of each REMIC established by the
Trust under Section 860F of the Internal Revenue Code of 1986, as amended,
including, without limitation, the requirement that the qualified liquidation
takes place over a period not to exceed 90 days.
Upon Loss of REMIC Status. Following a final determination by the
Internal Revenue Service, or by a court of competent jurisdiction, in each case
from which no appeal is taken within the permitted time for such appeal, or if
any appeal is taken, following a final determination of such appeal from which
no further appeal can be taken to the effect that any REMIC held by the Trust
does not and will no longer qualify as a "REMIC" pursuant to Section 860D of the
Code (the "Final Determination"), at any time on or after the date which is 30
calendar days following such Final Determination, the Owners of a majority in
Percentage Interest represented by the Class of Offered Certificates then
outstanding may direct the Trustee on behalf of the Trust to adopt a plan of
complete liquidation as contemplated by Section 860F(a)(4) of the Code, and
thereby effect the early retirement of the Certificates. The purchase price for
any purchase of the property of the Trust Estate shall be equal to the sum of
(x) the greater of (i) 100% of the aggregate principal balances of the Mortgage
Loans as of the Due Date which immediately follows the last day of the related
Remittance Period immediately preceding the day of purchase minus amounts
remitted from the Principal and Interest Account representing collections of
principal on the Mortgage Loans during the related Remittance Period, and (ii)
the fair market value of such Mortgage Loans (disregarding accrued interest),
(y) one month's interest on such amount computed at the weighted average
Pass-Through Rate of the Offered Certificates and (z) the aggregate amount of
any unreimbursed Delinquency Advances and any Delinquency Advances which the
Servicer has theretofore failed to remit.
Upon receipt of such notice or direction from the majority of the
Owners of the Offered Certificates, the Trustee will be required to notify the
Owners of the Class B Certificates of such election to liquidate or such
determination to purchase, as the case may be (the "Termination
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Notice"). The Owners of a majority of the Percentage Interest of the Class B
Certificates then outstanding may, within sixty (60) days from the date of
receipt of the Termination Notice (the "Purchase Option Period"), at their
option, purchase from the Trust all (but not fewer than all) Mortgage Loans and
all property theretofore acquired by foreclosure, deed in lieu of foreclosure,
or otherwise in respect of any Mortgage Loan then remaining in the Trust Estate
at a purchase price equal to the aggregate principal balances of all Mortgage
Loans as of the last day of the Remittance Period immediately preceding the date
of such purchase, plus one month's interest on such amount at the weighted
average Pass-Through Rate and plus the aggregate amount of any unreimbursed
Delinquency Advances and any Delinquency Advances which the Servicer has
theretofore failed to remit. If, during the Purchase Option Period, the Owners
of the Class B Certificates have not exercised the option described in the
immediately preceding sentence, then upon the expiration of the Purchase Option
Period in the event that the Owners of the Offered Certificates have given the
Trustee the direction described above, the Trustee will be required to sell the
Mortgage Loans and distribute the proceeds of the liquidation of the Trust
Estate, each in accordance with the plan of complete liquidation, such that, if
so directed, the liquidation of the Trust Estate, the distribution of the
proceeds of the liquidation and the termination of the Pooling and Servicing
Agreement occur no later than the close of the sixtieth (60th) day, or such
later day as the Owners of the Offered Certificates permit or direct in writing,
after the expiration of the Purchase Option Period. In connection with such
purchase, the Servicer will be required to remit to the Trustee all amounts then
on deposit in the Principal and Interest Account for deposit to the Certificate
Account, which deposit will be deemed to have occurred immediately preceding
such purchase.
Following a Final Determination, the Owners of a majority of the
Percentage Interest of the Class B Certificates then outstanding may, at their
option and upon delivery to the Trustee of an opinion of counsel experienced in
federal income tax matters which opinion shall be reasonably satisfactory in
form and substance to the Owners of a majority of the Percentage Interests
represented by the Offered Certificates then outstanding, to the effect that the
effect of the Final Determination is to increase substantially the probability
that the gross income of the Trust will be subject to federal taxation, purchase
from the Trust all (but not fewer than all) Mortgage Loans and all property
theretofore acquired by foreclosure, deed in lieu of foreclosure, or otherwise
in respect of any Mortgage Loan then remaining in the Trust Fund at a purchase
price equal to the aggregate principal balances of all Mortgage Loans as of the
Due Date which immediately follows the last day of the Remittance Period
immediately preceding the date of such purchase, plus one month's interest on
such amount computed at the weighted average Pass-Through Rate plus the
aggregate amount of unreimbursed Delinquency Advances and any Delinquency
Advances which the Servicer has theretofore failed to remit. In connection with
such purchase, the Servicer will be required to remit to the Trustee all amounts
then on deposit in the Principal and Interest Account for deposit to the
Certificate Account, which deposit shall be deemed to have occurred immediately
preceding such purchase. The foregoing opinion shall be deemed satisfactory
unless the Trustee, at the direction of the Owners of a majority of the
Percentage Interest of the Offered Certificates, gives the Owners of a majority
of the Percentage Interest of the Class B Certificates notice that such opinion
is not satisfactory within thirty days after receipt of such opinion.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain of the material anticipated federal
income tax consequences of the purchase, ownership and disposition of the
Offered Certificates is to be considered only in connection with "Certain
Federal Income Tax Consequences" in the Prospectus. The discussion herein and in
the Prospectus is based upon laws, regulations, rulings and decisions now in
effect, all of which are subject to change. The discussion below and in the
Prospectus does not purport to deal with all federal tax consequences applicable
to all categories of investors, some of which may be subject to special rules.
Investors should consult their own tax advisors in determining the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of the Offered Certificates.
REMIC Elections
The Trustee will cause an election to be made to treat the Trust as a
REMIC for federal income tax purposes. Dewey Ballantine, special tax counsel,
will advise that, in its opinion, for federal income tax purposes, assuming (i)
the REMIC election is made and (ii) compliance with the Pooling and Servicing
Agreement, the Trust will be treated as a REMIC, each Class of Offered
Certificates and the Class B Certificates will be treated as "regular interests"
in the REMIC and the Class R Certificates will be treated as the sole Class of
"residual interests" in the REMIC. For federal income tax purposes, regular
interests in a REMIC are treated as debt instruments issued by the REMIC on the
date on which those interests are created, and not as ownership interests in the
REMIC or its assets. Owners of Offered Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to such Offered Certificates under an accrual method. The Offered Certificates
may be issued with "original issue discount" for federal income tax purposes.
The prepayment assumption to be used in determining whether any Class of Offered
Certificates is issued with original issue discount and the rate of accrual of
original issue discount is 16% HEP for the Offered Certificates (other than the
Variable Rate Certificates) and 25% CPR for the Variable Rate Certificates. No
representation is made that any of the Mortgage Loans will prepay at this rate
or any other rate. See "Certain Federal Income Tax Consequences -- Taxation of
Regular Certificates" in the Prospectus.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit "plan assets" of a
pension, profit-sharing or other employee benefit plan, as well as individual
retirement accounts and Keogh Plans (each, a "Benefit Plan"), from being
involved in certain transactions with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to such
Benefit Plan. A violation of these "prohibited transaction" rules may result in
an excise tax or other penalties and liabilities under ERISA and Section 4975 of
the Code for such persons, unless a statutory or administrative exemption is
available.
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Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and Section 4975 of the Code with respect to
a Benefit Plan if Certificates were acquired with "plan assets" of such Benefit
Plan and assets of the Trust were deemed to be "plan assets" of such Benefit
Plan. Purchasers of Certificates that are insurance companies should consult
with their counsel with respect to the United States Supreme Court case
interpreting the fiduciary responsibility rules of ERISA, John Hancock Mutual
Life Insurance Co. v. Harris Trust and Saving Bank, 114 S. Ct. 517 (1993). In
John Hancock, the Supreme Court ruled that assets held in an insurance Company's
general account may be deemed to be "plan assets" for ERISA purposes under
certain circumstances. Accordingly, Certificates may not be acquired by a
Benefit Plan or an investor using assets of a Benefit Plan, including, without
limitation, insurance company general accounts (collectively referred to as
"Benefit Plan Investors"). Each purchaser and each transferee of a Certificate
will be deemed to have represented and warranted that it is not a Benefit Plan
Investor.
Certain employee benefit plans, such as governmental plans and church
plans (if no election has been made under Section 410(d) of the Code), are not
subject to the restrictions of ERISA, and assets of such plans may be invested
in the Certificates without regard to the ERISA considerations described above,
subject to other applicable federal, state or local law. However, any such
governmental or church plan which is qualified under Section 401(a) of the Code
and exempt from taxation under Section 501(a) of the Code is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
RATINGS
It is a condition of the original issuance of the Offered Certificates
that the Class A Certificates that they receive ratings of Aaa by Moody's and
AAA by Fitch and that the Class M-1 Certificates receive ratings of Aa2 from
Moody's and AA+ from Fitch, the Class M-2 Certificates receive ratings of A2
from Moody's and A+ from Fitch and the Class M-3 Certificates receive ratings of
Baa3 from Moody's and BBB+ from Fitch.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. The security rating assigned to the Offered
Certificates should be evaluated independently of similar security ratings
assigned to other kinds of securities.
Explanations of the significance of such ratings may be obtained from
Moody's Investors Service, Inc. at 99 Church Street, New York, New York, 10007
and Fitch IBCA, Inc. at One State Street Plaza, 31st Floor, 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 Offered
Certificates.
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LEGAL INVESTMENT CONSIDERATIONS
The Offered Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"). Accordingly, many institutions with legal authority to invest in
comparably rated securities may not be legally authorized to invest in the
Offered Certificates.
UNDERWRITING
Under the terms and subject to the conditions set forth in the
Underwriting Agreement for the sale of the Offered Certificates, dated December
4, 1997, the Depositor has agreed to cause the Trust to sell and Prudential
Securities Incorporated (the "Underwriter") has agreed to purchase the Offered
Certificates.
In the Underwriting Agreement, the Underwriter has agreed, subject to
the terms and conditions set forth therein, to purchase the entire principal
amount of Offered Certificates.
The Underwriter has advised the Depositor that it proposes to offer the
Offered 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 Offered
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 Offered Certificates for whom they may act as
agent. Any dealers that participate with the Underwriter in the distribution of
the Offered 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 Offered Certificates by them or the
Underwriter may be deemed to be underwriting discounts or commissions under the
Securities Act.
Proceeds to the Depositor, including accrued interest, are expected to
be approximately 100.08% of the aggregate principal balance of the Offered
Certificates, before deducting expenses payable by the Depositor in connection
with the Offered Certificates, estimated to be $350,000. In connection with the
purchase and sale of the Offered Certificates, the Underwriter may be deemed to
have received compensation from the Depositor in the form of underwriting
discounts.
The Depositor has agreed to indemnify the Underwriter against certain
liabilities including liabilities under the Securities Act.
In connection with the offering of the Offered Certificates, the
Underwriter and its affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Offered 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 Offered Certificates for the purpose of stabilizing its market price. Any of
the transactions
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described in this paragraph may result in the maintenance of the price of the
Offered 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.
The Underwriter is an affiliate of the Depositor.
The Underwriter (i) has in the past and may in the future provide
underwriting, financial advisory or other services to Wilshire Financial
Services Group Inc., an affiliate of the Unaffiliated Seller, the Servicer and
the Sub-Servicer and (ii) does provide warehouse financing to the Unaffiliated
Seller.
For further information regarding any offer or sale of the Offered
Certificates pursuant to this Prospectus Supplement and the Prospectus, see
"Plan of Distribution" in the Prospectus.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Offered Certificates will be passed upon for the Unaffiliated Seller and the
Servicer by Proskauer Rose LLP, New York, New York and for the Depositor and the
Underwriter by Dewey Ballantine LLP, New York, New York.
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INDEX OF SIGNIFICANT PROSPECTUS SUPPLEMENT DEFINITIONS
80/20 Program ......................................................... 7, 8, 22
Adjustable Rate Group Available Funds Cap Rate .............................. 3
Adjustable Rate Group Certificates .......................................... 2
Adjustable Rate Mortgage Loans .............................................. 8
Administrative Rate ......................................................... 14
Advances .................................................................... 61
Appraised Values ........................................................ 35, 45
Approved Guidelines ......................................................... 49
Auction Sale ................................................................ 17
Beneficial Owners ........................................................... 16
Benefit Plan ................................................................ 88
Book-Entry Certificates ..................................................... 73
Cede ........................................................................ 16
CEDEL ....................................................................... 16
CEDEL Participants .......................................................... 75
CERCLA ...................................................................... 83
Certificate Account ......................................................... 60
Certificates ................................................................ 1
Citibank .................................................................... 16
Civil Relief Act ............................................................ 26
Civil Relief Act Interest Shortfall ......................................... 26
Class A-1 Available Funds Pass-Through Rate ................................. 3
Class A-1 Certificates ...................................................... 1
Class A-2 Certificates ...................................................... 1
Class A-2 Supplemental Interest Amount ...................................... 3
Class A-3 Certificates ...................................................... 1
Class A-4 Certificates ...................................................... 1
Class A-6 Formula Pass-Through Rate ......................................... 2
Class A-6 Pass-Through Rate ................................................. 2
Class B Certificates ........................................................ 1
Class C Certificates ........................................................ 1
Class R Certificates ........................................................ 1
Closing Date ................................................................ 5
CLTV ........................................................................ 7
Compensating Interest ............................................... 25, 61, 82
Constant Prepayment Rate .................................................... 54
Cooperative ................................................................. 75
CPR ......................................................................... 54
Cut-Off Date ................................................................ 5
Defective Loan .............................................................. 79
Definitive Certificate ...................................................... 73
Delinquency Advance ..................................................... 14, 81
Depositor ................................................................... 4
Distribution Date ........................................................... 9
DTC ......................................................................... 16
Due Dates ................................................................... 61
Eligible Investments ........................................................ 60
ERISA ....................................................................... 88
ERISA Considerations ........................................................ 18
Euroclear ................................................................... 16
Euroclear Operator .......................................................... 75
Euroclear Participants ...................................................... 75
European Depositaries ................................................... 16, 73
FHLMC ....................................................................... 23
Final Determination ......................................................... 86
Financial Intermediary ...................................................... 73
Fixed Rate Group Certificates ............................................... 2
Fixed Rate Mortgage Loans ................................................. 7, 8
HEP ......................................................................... 53
Home Equity Prepayment ...................................................... 53
Independent Originator ...................................................... 4
Liquidation Proceeds ........................................................ 24
Loan Purchase Agreement ..................................................... 79
Lockbox Account ............................................................. 81
Master Loan Transfer Agreements ............................................. 49
Modeling Assumptions ........................................................ 54
Monthly Remittance Amount ................................................... 61
Moody's ..................................................................... 19
Mortgage Loans ............................................................ 1, 5
Mortgage Rate ............................................................. 7, 8
Mortgaged Properties ...................................................... 1, 6
Mortgages ................................................................. 1, 5
Notes ................................................................... 28, 37
Optional Termination ........................................................ 3
Optional Termination Date.................................................... 17
Original Aggregate Principal Balance ..................................... 5, 27
Overcollateralization Reduction Amount ...................................... 11
Overcollateralization Reduction Amounts ..................................... 65
Participants ................................................................ 73
Payment Delay Feature of the Certificates ................................... 51
Plan assets ................................................................. 89
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Pooling and Servicing Agreement ............................................. 1
Potentially Hazardous Property .............................................. 83
Prepayment Assumption ....................................................... 53
Principal and Interest Account .............................................. 15
Purchase Option Period ...................................................... 87
Purchased Pool .............................................................. 4
Record Date ................................................................. 9
REMIC ....................................................................... 18
Remittance Date ............................................................. 61
Repurchase Price ............................................................ 79
Riegle Act .................................................................. 26
Schedule of Mortgage Loans .................................................. 78
Securities Act .............................................................. i
Senior Mortgage Loan ........................................................ 48
Servicer ................................................................. 4, 47
Servicer Event of Default ................................................... 15
Servicing Fee ............................................................... 16
Servicing Report ............................................................ 81
Servicing Standards ......................................................... 79
SMMEA ................................................................... 18, 90
Subordinate Certificates .................................................... 1
Sub-Servicer ................................................................ 4
Sub-Servicing Agreement ..................................................... 4
Substitution Amounts ........................................................ 61
Termination Notice .......................................................... 87
Terms and Conditions ........................................................ 75
Trust ....................................................................... 1
Trust Fund ............................................................... 1, 78
Trustee ..................................................................... 4
Unaffiliated Seller ......................................................... 4
Underwriter ................................................................. 90
WCC ......................................................................... 4
WCC's Guidelines ............................................................ 48
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Wilshire
Mortgage Loan Trust 1997-2 Mortgage Pass-Through Certificates, Class A (the
"Global Securities") will be available only in book-entry form. Investors in the
Global Securities may hold such Global Securities through any of DTC, CEDEL or
Euroclear. The Global Securities will be tradable as home market instruments in
both the European and U.S. domestic markets.
Initial settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors through CEDEL and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of CEDEL and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
Relevant Depositary which in turn will hold such positions in their accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
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Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior
asset-backed certificates issued in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Seller and CEDEL or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a CEDEL Participant or a Euroclear Participant, the purchaser
will send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the Relevant Depositary, as the case may be, to receive
the Global Securities against payment. Payment will include interest accrued on
the Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
Relevant Depositary to the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, CEDEL Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the
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investment income on the Global Securities earned during that one-day period may
substantially reduce or offset the amount of such overdraft charges, although
the result will depend on each CEDEL Participant's or Euroclear Participant's
particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for crediting Global
Securities to the respective European Depositary for the benefit of CEDEL
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear, Seller and DTC Purchaser. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or a Euroclear
Participant at least one business day prior to settlement. In these cases CEDEL
or Euroclear will instruct the respective Depositary, as appropriate, to credit
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment to and excluding the settlement date on the basis of the
actual number of days in such accrual period and a year assumed to consist to
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the account of the CEDEL Participant or
the Euroclear Participant the following day, and receipt of the cash proceeds in
the CEDEL Participant's or the Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the CEDEL Participant or the Euroclear Participant
have a line of credit with its respective clearing system and elect to be in
debt in anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft incurred over that one-day period.
If settlement is not completed on the intended value date (i.e., the trade
fails), receipt of the cash proceeds in the CEDEL Participant's or the Euroclear
Participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear account
in order to settle the sale side of the trade; or
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(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the CEDEL Participant or Euroclear
Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of Global
Securities that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Exemption or reduced rate for Non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Certificate Owners or their agents.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds the
security (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof or (iii) an
estate or trust that is subject to U.S. federal income tax regardless of the
source of its income. The term "Non-U.S. Person" means any person who is
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not a
U.S. Person. This summary does not deal with all aspects of U.S. Federal income
tax withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for specific
tax advice concerning their holding and disposing of the Global Securities.
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No dealer, salesman or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Unaffiliated Seller or by the Underwriter. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell, or a solicitation of an offer to
buy, the securities offered hereby to anyone in any jurisdiction in which the
person making such offer or solicitation is not qualified to do so or to anyone
to whom it its unlawful to make any such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that information herein or therein is
correct as of any time since the date of this Prospectus Supplement or the
Prospectus.
-----------------
TABLE OF CONTENTS
Prospectus Supplement
Summary......................................................................S-1
Risk Factors................................................................S-20
The Mortgage Loan Pool......................................................S-27
The Unaffiliated Seller.....................................................S-46
The Servicer ...............................................................S-47
The Sub-Servicer ...........................................................S-47
Use of Proceeds ............................................................S-51
Prepayment and Yield Considerations ........................................S-51
Additional Information .....................................................S-60
Description of the Offered Certificates ....................................S-60
The Pooling and Servicing Agreement.........................................S-78
Certain Federal Income Tax Consequences.....................................S-88
ERISA Considerations........................................................S-88
Ratings.....................................................................S-89
Legal Investment Considerations.............................................S-90
Underwriting................................................................S-90
Certain Legal Matters.......................................................S-91
Index of Significant Prospectus
Supplement Definitions....................................................S-92
Global Clearance, Settlement and
Tax Documentation Procedures...............................................A-1
Prospectus
Reports........................................................................3
Available Information..........................................................3
Incorporation of Certain Information by Reference..............................3
Summary of Prospectus..........................................................4
Risk Factors..................................................................13
The Trust Funds...............................................................18
Description of the Certificates...............................................29
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...........................................64
Certain Legal Aspects of the Mortgage Loans
and Contracts...............................................................67
Certain Federal Income Tax Consequences.......................................81
ERISA Considerations..........................................................93
Legal Investment..............................................................96
Plan of Distribution..........................................................98
Legal Matters.................................................................99
Rating........................................................................99
Additional Information........................................................99
Index of Significant Definitions.............................................100
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$127,505,000
Wilshire Servicing Corporation
Servicer
Prudential Securities
Secured Financing Corporation
Depositor
Mortgage Loan
Pass-Through Certificates
Series 1997-2
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PROSPECTUS SUPPLEMENT
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Prudential Securities Incorporated
December 4, 1997
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