<PAGE>
Prospectus supplement to prospectus dated September 4, 1998
- --------------------------------------------------------------------------------
$79,200,000
ABFS Mortgage Loan Trust 1998-4
$64,350,000 6.505%(1) Class A-1 Notes
$14,850,000 Variable Rate Class A-2 Notes
(1)Subject to increase as set forth herein
[GRAPHIC OMITTED]
Prudential Securities Secured Financing Corporation
Depositor
Mortgage Backed Notes, Series 1998-4
- --------------------------------------------------------------------------------
The ABFS Mortgage Loan Trust 1998-4 will issue two classes of notes, each of
which will be backed solely by a pledge of assets of the trust. The assets of
the trust consist primarily of two pools of fixed-rate, closed-end,
monthly-pay, business and consumer purpose home equity loans secured by first-
or second-lien mortgages or deeds of trust on residential real properties. Each
class of notes will be secured primarily by one of these two pools of mortgage
loans.
|------------------------------------------------------------------------------|
| You should read the section entitled "Risk Factors" starting on page S-8 of |
| this prospectus supplement and page 12 of the accompanying prospectus and |
| consider these factors before making a decision to invest in the notes. The |
| notes represent non-recourse obligations of the trust only and are not |
| interests in or obligations of any other person. Neither the notes nor the |
| underlying mortgage loans will be insured or guaranteed by any governmental |
| agency or instrumentality. |
|------------------------------------------------------------------------------|
The notes --
o Interest and principal on the notes is scheduled to be paid monthly, on the
25th day of the month, or the business day immediately following if such
25th day is not a business day. The first scheduled distribution date is
December 28, 1998.
Credit enhancement --
o The notes will be unconditionally and irrevocably guaranteed as to the
payment of scheduled interest and ultimate principal pursuant to the terms
of a financial guaranty insurance policy to be issued by
[GRAPHIC OMITTED]
o On each distribution date, excess interest from one of the pools of
mortgage loans may be utilized to cover credit losses and certain interest
shortfalls on the class of notes relating to the other pool of the mortgage
loans. The availability of such cross-collateralization provides credit
enhancement for each class of notes.
o The trust is also issuing two classes of trust certificates, which are not
offered by this prospectus supplement, each representing the entire
beneficial ownership interest in the portion of the trust consisting of one
of the pools of mortgage loans. Payments on the trust certificates are
subordinated to the payments due on the notes. Subordination of the trust
certificates provides credit enhancement for each class of notes.
<TABLE>
<CAPTION>
Original Note
Class Principal Balance Price to the Public Underwriting Discount Proceeds to the Depositor(2)
- ---------- ------------------- --------------------- ----------------------- -----------------------------
<S> <C> <C> <C> <C>
A-1 $64,350,000 100.00%(1) 0.35% $64,124,775
A-2 $14,850,000 100.00% 0.35% $14,798,025
------- ----------- -------- ---- -----------
Total $79,200,000 $79,200,000 $277,200 $78,922,800
</TABLE>
(1) Plus accrued interest, if any, from November 1, 1998.
(2) Before deducting expenses estimated to be $300,000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus supplement. Any representation to the
contrary is a criminal offense.
Prudential Securities Incorporated
The date of this prospectus supplement is December 4, 1998
<PAGE>
Important notice about the information presented in this
prospectus supplement and the accompanying prospectus
We provide information to you about the notes in two separate documents
that progressively provide more detail: (1) the accompanying prospectus, which
provides general information, some of which may not apply to your series of
notes, and (2) this prospectus supplement, which describes the specific terms
of your series of notes.
This prospectus supplement does not contain complete information about the
offering of the notes. Additional information is contained in the accompanying
prospectus. You are urged to read both this prospectus supplement and the
accompanying prospectus in full. We cannot sell the notes to you unless you
have received both this prospectus supplement and the accompanying prospectus.
If the terms of your series of notes vary between this prospectus
supplement and the accompanying prospectus, you should rely on the information
in this prospectus supplement.
Prudential Securities Secured Financing Corporation has filed with the
Securities and Exchange Commission a registration statement (Registration No.
333-61939) under the Securities Act of 1933, as amended, with respect to the
notes offered pursuant to this prospectus supplement. This prospectus
supplement and the accompanying prospectus, which form a part of the
registration statement, omit certain information contained in such registration
statement pursuant to the rules and regulations of the Securities and Exchange
Commission. You may read and copy the registration statement at the Public
Reference Room at the Securities and Exchange Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. and at the Securities and Exchange
Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York, 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the Public Reference
Rooms. In addition, the Securities and Exchange Commission maintains a site on
the World Wide Web containing reports, proxy materials, information statements
and other items. The address is http://www.sec.gov.
The Securities and Exchange Commission allows us to "incorporate by
reference" certain information already on file with it. This means that we can
disclose important information to you by referring you to those documents. Such
information is considered part of this prospectus supplement, and later
information that is filed will automatically update and supersede this
information. We incorporate by reference all of the documents listed in the
accompanying prospectus under the heading "Incorporation of Certain Information
by Reference" and the financial statements of Financial Security Assurance Inc.
included in, or as exhibits to, the following documents, which have been filed
by Financial Security Assurance Holdings Ltd.:
o the Annual Report on Form 10-K for the year ended December 31, 1997; and
o the Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
You should rely only on the information incorporated by reference or
provided in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone else to provide you with different information. You
should not assume that the information in this prospectus supplement or the
accompanying prospectus is accurate as of any date other than the date on the
cover page of this prospectus supplement or the accompanying prospectus.
S-ii
<PAGE>
You can find a listing of the pages where capitalized terms used in this
prospectus supplement and the accompanying prospectus are defined under the
caption "Index of Principal Defined Terms" beginning on page S-84 in this
prospectus supplement and under the caption "Index of Significant Definitions"
beginning on page 104 in the accompanying prospectus.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following table of contents provides the pages
on which these captions are located.
TABLE OF CONTENTS
SUMMARY...............................................1
The Notes and the Trust Certificates.............1
Description of the Notes.....................1
Description of the Trust Certificates........2
Distributions....................................2
General......................................2
Distributions of Interest....................2
Distributions of Principal...................3
Flow of Funds................................3
Credit Enhancement...............................4
Over-collateralization Provisions............4
Cross-collateralization Provisions...........4
The Note Insurance Policy....................5
The Mortgage Loans...............................5
General......................................5
The Initial Mortgage Loans...................6
The Subsequent Mortgage Loans................6
Servicing of the Mortgage Loans..................6
Servicing Fee................................6
Option of the Servicer to Call the
Class A-2 Notes...........................7
Option of the Servicer to Terminate the
Trust.....................................7
ERISA Considerations.............................7
Federal Income Tax Status........................7
General......................................7
The Class A-1 Notes..........................7
The Class A-2 Notes..........................7
Ratings..........................................7
RISK FACTORS..........................................8
The Subsequent Mortgage Loans and the
Pre-Funding Account.......................9
Underwriting Standards and Potential
Delinquencies............................10
Geographic Concentration........................10
Balloon Payments................................11
Nature of Collateral; Second Lien Mortgage
Loans....................................11
Decline in Real Estate Values...................13
Payments on the Mortgage Loans..................13
Effect of Mortgage Loan Yield on the
Class A-2 Note Rate......................13
Legal Considerations............................14
<PAGE>
TRANSACTION OVERVIEW.................................16
Parties.........................................16
The Transaction.................................17
THE MORTGAGE LOAN POOLS..............................17
General.........................................17
The Pool I Mortgage Loans.......................18
The Pool II Mortgage Loans......................27
Conveyance of Subsequent Mortgage Loans
to Pool I................................34
THE ORIGINATORS, THE SELLER AND THE SERVICER.........34
General.........................................34
The Originators.................................35
Underwriting Guidelines.........................37
The Servicer....................................39
Delinquency and Loan Loss Experience............40
THE OWNER TRUSTEE....................................42
THE INDENTURE TRUSTEE................................42
DESCRIPTION OF THE NOTES AND THE
TRUST CERTIFICATES..............................42
General.........................................42
Book-Entry Registration.........................43
Definitive Notes................................47
Assignment and Pledge of Initial Mortgage Loans.47
Assignment and Pledge of Subsequent Mortgage
Loans....................................47
Delivery of Mortgage Loan Documents.............48
Representations and Warranties of the Seller....50
Payments on the Mortgage Loans..................51
Calculation of LIBOR............................52
Over-collateralization Provisions...............53
Cross-collateralization Provisions..............55
Flow of Funds...................................56
Definitions.....................................57
Events of Default...............................60
Reports to Noteholders..........................61
Amendment.......................................62
S-iii
<PAGE>
SERVICING OF THE MORTGAGE LOANS......................62
The Servicer....................................62
Servicing Fees and Other Compensation and
Payment of Expenses......................62
Periodic Advances and Servicer Advances.........63
Prepayment Interest Shortfalls..................63
Civil Relief Act Interest Shortfalls............64
Optional Purchase of Defaulted Mortgage Loans...64
Servicer Reports................................64
Collection and Other Servicing Procedures.......65
Hazard Insurance................................65
Realization Upon Defaulted Mortgage Loans.......66
Removal and Resignation of the Servicer.........66
Optional Clean-up Call on the Class A-2 Notes...68
Termination; Purchase of Mortgage Loans.........68
THE NOTE INSURANCE POLICY............................69
THE NOTE INSURER.....................................72
The Note Insurer................................72
Reinsurance.....................................72
Ratings.........................................73
Capitalization..................................73
Insurance Regulation............................74
PREPAYMENT AND YIELD CONSIDERATIONS..................74
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............77
Treatment of the Class A-1 Notes................77
Treatment of the Class A-2 Notes................79
ERISA CONSIDERATIONS.................................80
LEGAL INVESTMENT.....................................82
UNDERWRITING.........................................82
EXPERTS..............................................83
RATINGS..............................................83
LEGAL MATTERS........................................84
INDEX OF PRINCIPAL DEFINED TERMS.....................84
S-iv
<PAGE>
SUMMARY
o This summary highlights selected information from this prospectus supplement
and does not contain all of the information that you need to consider in
making your investment decision. To understand all of the terms of the
offering of the notes, read carefully this entire prospectus supplement and
the accompanying prospectus.
o This summary provides an overview of certain calculations, cash flows and
other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in this
prospectus supplement and the accompanying prospectus.
-------------------------------
The Notes and the Trust Certificates
The ABFS Mortgage Loan Trust 1998-4 (the "Trust") will issue two classes of its
Mortgage Backed Notes, Series 1998-4 (the "Notes"), the "Class A-1 Notes" and
the "Class A-2 Notes". The Notes are being offered to you by this prospectus
supplement.
The Trust will also issue two classes of trust certificates (the "Trust
Certificates"), together representing the entire beneficial ownership interest
in the Trust. The Trust Certificates are not offered by this prospectus
supplement.
Description of the Notes
Each class of Notes will be secured by a pledge of a separate portion of the
assets of the Trust. The assets of the Trust (the "Trust Estate") will consist
primarily of two pools of fixed-rate, closed-end, monthly-pay, business and
consumer purpose home equity loans secured by first- or second-lien mortgages or
deeds of trust on residential real properties (the "Mortgage Loans"). The Class
A-1 Notes will be secured by the Mortgage Loans in the first pool ("Pool I") and
the Class A-2 Notes will be secured by the Mortgage Loans in the second pool
("Pool II"). Each pool will constitute a separate sub-trust of the Trust.
Each class of Notes will accrue interest at an interest rate (each, a "Note
Rate"), have an original principal balance and final stated maturity date, as
follows:
<PAGE>
Original Note Final Stated
Class Note Rate Principal Balance Maturity Date(1)
- ------- --------- ----------------- ----------------
A-1 6.505%(2) $64,350,000 January 25, 2030
A-2 Variable(3) $14,850,000 January 25, 2030
(1) It is expected that the actual last Distribution Date for each class of
Notes will occur significantly earlier than such final stated maturity date.
(2) If the Servicer does not exercise its option to terminate the Trust as
described in this Summary under "Servicing of the Mortgage Loans -- Option
of the Servicer to Terminate the Trust," the Note Rate on the Class A-1
Notes will be equal to the rate set forth above plus 0.50% per annum.
(3) The Note Rate on the Class A-2 Notes will equal the lesser of (i) one-month
LIBOR plus a margin of 0.95% per annum (the "Class A-2 Formula Note Rate")
and (ii) the weighted average interest rate on the Mortgage Loans in Pool II
less the sum of (x) the sum of the per annum rates at which the fees and
premium amounts payable to the Servicer, the Indenture Trustee, the
Collateral Agent and the Note Insurer are calculated and (y) 0.75% (the
"Available Funds Note Rate"). If the Servicer does not exercise its option
to either terminate the Trust or call the Class A-2 Notes, as described in
this Summary under "Servicing of the Mortgage Loans -- Option of the
Servicer to Terminate the Trust" or "Servicing of the Mortgage Loans --
Option of the Servicer to Call the Class A-2 Notes," the margin applicable
to the Class A-2 Formula Note Rate will double to 1.90% per annum. For a
description of the calculation of LIBOR, see "Description of the
Notes--Calculation of LIBOR" herein.
The Trust will issue the Notes in book-entry form in minimum denominations of
$1,000 in original principal balance and integral multiples of $1,000 in excess
thereof (except for one Note of each class which may be issued in a different
amount).
S-1
<PAGE>
Description of the Trust Certificates
One class of Trust Certificates will represent the ownership interest in the
sub-trust of the Trust consisting of the Mortgage Loans in Pool I. The other
class of Trust Certificates will represent the ownership interest in the
sub-trust of the Trust consisting of the Mortgage Loans in Pool II. The holders
of the Trust Certificates are entitled to receive certain payments consisting of
Excess Interest from the related pool of Mortgage Loans, but only to the extent
all payments have been made on each Distribution Date in respect of the Notes.
o Excess Interest. Generally, because more interest is anticipated to be paid
by the Mortgage Loan borrowers than is necessary to pay the interest which
accrues on the Notes, there is expected to be Excess Interest each month.
Excess Interest may be used to cover shortfalls of interest, to create
over-collateralization, for cross-collateralization or to pay amounts due
the Note Insurer. After all such distributions are made on each
Distribution Date, any remaining Excess Interest will be distributed to the
holders of the Trust Certificates. For a description of the
over-collateralization provisions and cross-collateralization provisions of
this transaction, see "Credit Enhancement" in this Summary.
Distributions
General
Distributions on the Notes will be made on each Distribution Date to the holders
of record on the related Record Date. Distributions to a holder will be made in
an amount equal to such holder's percentage interest of the total amount
distributed in respect of such holder's class of Notes on such Distribution
Date.
o Distribution Date. Distributions on the Notes will be made on the 25th day
of each month (or, if such 25th day is not a business day, on the next
succeeding business day), beginning on December 28, 1998.
o Record Date. The Record Date for the Class A-1 Notes will be the last
business day of the month preceding the related Distribution Date (or, in
the case of the December 28, 1998 Distribution Date, the closing date). The
Record Date for the Class A-2 Notes will be the business day immediately
preceding each Distribution Date.
<PAGE>
Distributions of Interest
On each Distribution Date, each class of Notes is entitled to receive its
Current Interest.
o Current Interest. The Current Interest for a Distribution Date is the
interest which accrues on a class of Notes at the applicable Note Rate on
the outstanding principal balance of such class during the related Accrual
Period.
o Accrual Period. The Accrual Period for the Class A-1 Notes is the calendar
month preceding the applicable Distribution Date. The Accrual Period for the
Class A-2 Notes is the period from, and including, the prior Distribution
Date (or, in the case of the December 28, 1998 Distribution Date, the
closing date) to, but excluding, the current Distribution Date.
All computations of interest accrued on the Class A-1 Notes shall be made on the
basis of a 360-day year consisting of twelve 30-day months. All computations of
interest accrued on the Class A-2 Notes shall be made on the basis of a 360-day
year and the actual number of days elapsed in the related Accrual Period.
The amount of Current Interest due to the holders of the Class A-2 Notes may be
reduced on each Distribution Date by the amount of any shortfalls in the
collection of interest caused by prepayments or as a result of the imposition of
the Civil Relief Act, to the extent such shortfalls are not advanced by the
Servicer ("Mortgage Loan Interest Shortfalls"). The amount of any such reduction
in the Current Interest is not covered by the Note Insurance Policy.
Conversely, the amount of Current Interest due to the holders of the Class A-1
Notes will not be reduced due to Mortgage Loan Interest Shortfalls. However, in
the event the full amount of Current Interest is not available on any
Distribution Date due to Mortgage Loan Interest Shortfalls in Pool I, the amount
of the shortfall in Current Interest will not be covered by the Note Insurance
Policy. Such shortfall in Current Interest will be paid from the Excess
Interest, if any, before such Excess Interest is used for
over-collateralization, cross-collateralization or paid to the holder of the
Trust Certificate relating to Pool I.
S-2
<PAGE>
For a description of the Civil Relief Act, see "Risk Factors -- Legal
Considerations" herein. For a description of the Servicer's limited obligation
to advance in respect of interest shortfalls, see "Servicing of the Mortgage
Loans -- Advancing" herein.
Class A-2 Note Rate Cap. Because the Class A-2 Notes are variable-rate Notes
which are backed by fixed-rate Mortgage Loans, it is possible that a rise in the
level of LIBOR could result in a situation where the Mortgage Loans in Pool II
would not generate enough interest to pay the scheduled interest on the Class
A-2 Notes at the Class A-2 Formula Note Rate. If such a situation occurs, the
Note Rate on the Class A-2 Notes will be capped at the Available Funds Note
Rate, if any, which results in there being enough interest available for payment
to the holders of the Class A-2 Notes.
Available Funds Carry-Forward Amounts. On each Distribution Date, the amount of
the positive difference, if any, between the interest due at the Class A-2
Formula Note Rate and the interest due at the Available Funds Note Rate will be
paid to the holders of the Class A-2 Notes from the Excess Interest relating to
Pool II. If the full amount of such difference is not paid on such Distribution
Date, then the unpaid amount will be carried forward and be due and payable on
future Distribution Dates and shall accrue interest at the Class A-2 Formula
Note Rate (such amount, together with the accrued interest on such amount, being
the "Available Funds Carry-Forward Amount"). The Note Insurance Policy does not
guarantee the payment of any Available Funds Carry-Forward Amounts.
Distributions of Principal
The holders of each class of Notes are entitled to receive distributions of
principal on each Distribution Date which generally reflect collections of
principal during the preceding calendar month on the Mortgage Loans in the
related pool.
<PAGE>
In addition, in accordance with the over-collateralization features of the
transaction, Excess Interest otherwise distributable to the holders of the Trust
Certificates during the early months of the transaction will be distributed to
the holders of the related class of Notes as an additional distribution of
principal, until the level of over-collateralization for such class has reached
its target level. For a description of the over-collateralization features of
the transaction, see "Credit Enhancement -- Over-collateralization" in this
Summary.
Flow of Funds
On each Distribution Date, the Indenture Trustee will make the following
payments in respect of each pool of Mortgage Loans to the holders of the related
class of Notes, to the extent of the funds available therefor, in the following
order of priority:
first payment of the expenses of the Trust relating to such pool of Mortgage
Loans, including the fees, premiums and amounts owed to the Servicer,
the Indenture Trustee, the Collateral Agent and the Note Insurer;
second to the holders of the related class of Notes, payment of interest on
the related class of Notes;
third to the holders of the related class of Notes, payment of principal of
the related class of Notes, but not including payments of principal
constituting over-collateralization payments;
fourth to the holders of the other class of Notes, cross-collateralization
payments equal to the amount of any credit losses or certain interest
shortfalls;
fifth to the holders of the related class of Notes, payments of principal
constituting over-collateralization payments;
S-3
<PAGE>
sixth to the Cross-collateralization Reserve Account relating to the other
class of Notes, payment of the amount required for the balance of such
account to equal its required level;
seventh with respect to Pool II only, to the holders of the Class A-2 Notes,
payment of any Available Funds Carry-Forward Amount; and
eighth to the holders of the Trust Certificates relating to such pool of
Mortgage Loans, payment of any remaining amount.
In each case, payments to the holders of a class of Notes, other than
cross-collateralization payments, will be made solely from amounts collected in
respect of the related pool of Mortgage Loans.
For a detailed description of the distribution of funds, see "Description of the
Notes -- Flow of Funds" herein.
Credit Enhancement
The credit enhancement provided for the benefit of the holders of the Notes
consists solely of: (a) over-collateralization, (b) cross-collateralization and
(c) the Note Insurance Policy.
Over-collateralization Provisions
On the closing date, each class of Notes will be issued with an aggregate
original principal balance which is approximately 1.0% less than the sum of the
aggregate outstanding principal balance of the Mortgage Loans purchased on the
closing date and the original amount on deposit in the Pre-Funding Account,
resulting in initial over-collateralization.
Over-collateralization is increased in the early months of the transaction,
starting with the second Distribution Date, through a limited acceleration of
the Notes relative to the amortization of the related pool of Mortgage Loans and
other collateral. The accelerated amortization results from the application of
Excess Interest to the payment of principal on the Notes. Starting with the
second Distribution Date until the required level of over-collateralization of
each pool of Mortgage Loans is reached, available Excess Interest from each pool
of Mortgage Loans will be used as a payment of principal to accelerate the
amortization of the related class of Notes. Once the required level of
over-collateralization 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 over-collateralization.
<PAGE>
The over-collateralization provisions of the transaction provide that, subject
to certain trigger tests, the required level of over-collateralization may
increase or decrease over time. An increase would result in a temporary period
of accelerated amortization of the Notes to increase the actual level of
over-collateralization to its required level; a decrease would result in a
temporary period of decelerated amortization to reduce the actual level of
over-collateralization to its required level.
For a detailed description of the over-collateralization provisions of the
transaction, including the required levels of over-collateralization and
relevant triggers, see "Description of the Notes -- Over-collateralization
Provisions" herein.
Cross-collateralization Provisions
In certain circumstances, Excess Interest from one pool of Mortgage Loans may be
used to make payments with respect to the class of Notes relating to the other
pool of Mortgage Loans.
Pursuant to the cross-collateralization provisions of the transaction, Excess
Interest from a pool of Mortgage Loans which would otherwise be payable to the
holder of the Trust Certificate relating to such pool will instead be paid to
the holders of the class of Notes relating to the other pool of Mortgage Loans,
to the extent of any credit losses or certain interest shortfalls on such other
pool.
The cross-collateralization provisions of the transaction are limited to the
payment of credit losses, certain interest shortfalls and amounts owed to the
Note Insurer. Thus, Excess Interest from one pool of Mortgage Loans may not be
used to build over-collateralization with respect to the other pool of Mortgage
Loans.
S-4
<PAGE>
Cross-collateralization Reserve Account. Each class of Notes will have the
benefit of a Cross-collateralization Reserve Account. In the event that the
required level of over-collateralization for a pool of Mortgage Loans has not
been reached, Excess Interest from the other pool of Mortgage Loans may be used
to fund the Cross-collateralization Reserve Account with respect to such pool of
Mortgage Loans, up to an amount equal to the shortfall in the required level of
over-collateralization. Funds on deposit in this account will be used to pay
credit losses, certain interest shortfalls and amounts owed to the Note Insurer
with respect to either pool of Mortgage Loans after the level of
over-collateralization for such pool has been reduced to zero.
For a detailed description of the cross-collateralization provisions of the
transaction, including the Cross-collateralization Reserve Account, see
"Description of the Notes -- Cross-collateralization Provisions" herein.
The Note Insurance Policy
On the closing date, Financial Security Assurance Inc. (the "Note Insurer") will
issue a financial guaranty insurance policy (the "Note Insurance Policy") for
the benefit of the holders of the Notes, pursuant to which it will irrevocably
and unconditionally guaranty payment on each Distribution Date of scheduled
interest on the Notes and payment on the final stated maturity date of the
outstanding principal balance of the related class of Notes.
On any Distribution Date, the Note Insurer will generally be required to make
available the amount, if any, by which the amount required to be distributed on
such Distribution Date, including
o scheduled interest on the Notes,
o the amount, if any, by which the aggregate outstanding principal balance of
the Notes exceeds the sum of the aggregate principal balance of the
Mortgage Loans and amounts on deposit in the Pre-Funding Account and
Cross-collateralization Reserve Accounts, and
o on the final stated maturity date for a class of Notes, the outstanding
principal balance of such class of Notes,
<PAGE>
exceeds the amount available for distribution on such Distribution Date. The
Note Insurer will be entitled to reimbursement from the Trust Estate for all
payments made in respect of the Note Insurance Policy.
The Note Insurance Policy does not guarantee the Notes any specified rate of
principal repayment. In addition, shortfalls in interest due to prepayments, the
imposition of the Civil Relief Act and Available Funds Carry-Forward Amounts
will not be covered under the Note Insurance Policy.
So long as the Note Insurer is not in default of its obligations under the Note
Insurance Policy, the Note Insurer shall have the right to exercise all rights
of the holders of the Notes without any consent of such holders. Such holders
may exercise their rights only with the prior written consent of the Note
Insurer, except as provided in the Indenture.
For a detailed description of the of the Note Insurer and the Note Insurance
Policy, including selected financial information of the Note Insurer, see "The
Note Insurer" and "The Note Insurance Policy" herein.
The Mortgage Loans
General
The Mortgage Loans to be included in the Trust Estate will be primarily
fixed-rate, closed-end, monthly pay, business and consumer purpose home equity
loans secured by first, second or multiple mortgages or deeds of trust on
residential real properties. Each of the Mortgage Loans were underwritten in
accordance with the underwriting standards described herein under "The
Originators, the Seller and the Servicer."
For statistical information regarding the Mortgage Loans, see "The Mortgage Loan
Pools" herein.
The majority of the Mortgage Loans have a prepayment fee clause. Such prepayment
fee clauses generally provide that the mortgagor pay, upon prepayment, one or
more of the following: (i) a fee equal to a percentage (negotiated at
origination) of the outstanding principal balance of the Mortgage Loan, (ii) a
fee which is designed to allow the holder of the mortgage note to earn interest
on the Mortgage Loan as if the Mortgage Loan remained outstanding until a
designated point in time, or (iii) a fee equal to the amount of interest on the
outstanding principal balance of the Mortgage Loan calculated pursuant to a Rule
of 78's calculation, which has the effect of requiring the mortgagor to pay a
greater amount of interest than would be required to be paid if the actuarial
method of calculating interest was utilized.
S-5
<PAGE>
For a discussion of the operation of certain prepayment fees, see "Certain Legal
Aspects of the Mortgage Loans and Contracts -- The Mortgage Loans" in the
accompanying prospectus.
The Initial Mortgage Loans
On the closing date, the Trust will purchase the Mortgage Loans. The aggregate
principal balance of the Pool I Mortgage Loans will be approximately
$51,902,848.57 and the aggregate principal balance of the Pool II Mortgage Loans
will be approximately $15,000,264.20.
The aggregate principal balance of the Pool I Mortgage Loans purchased by the
Trust on the closing date will be less than the amount required to the held by
the Trust. The amount of such difference will be taken from the proceeds of the
sale of the Class A-1 Notes and placed in a Pre-Funding Account and used for the
purchase of Mortgage Loans by the Trust after the closing date.
The Pre-Funding Account. On the closing date, the difference between the amount
of Pool I Mortgage Loans required to be held by the Trust and the amount of Pool
I Mortgage Loans actually purchased by the Trust on such date, will be taken
from the proceeds of the sale of the Class A-1 Notes and deposited in the
Pre-Funding Account. Amounts on deposit in the Pre-Funding Account may be used
to acquire Mortgage Loans after the closing date to be added to Pool I. However,
if any amount remains on deposit in the Pre-Funding Account at the close of
business on January 31, 1998, such amount will be used to prepay the principal
of the Class A-1 Notes on the following Distribution Date.
The Capitalized Interest Account. On the closing date, the Indenture Trustee
will be required to deposit a portion of the proceeds of the sale of the Class
A-1 Notes in the Capitalized Interest Account. The amount deposited therein will
be used, as necessary, to fund the aggregate amount of interest accruing on the
amount on deposit in the Pre-Funding Account during the related Accrual Period,
at the Class A-1 Note Rate plus the rate at which the premium of the Note
Insurer is calculated.
The Subsequent Mortgage Loans
The Mortgage Loans to be purchased by the Trust after the closing date, as well
as all of the Mortgage Loans in Pool I following the purchase of such Mortgage
Loans, must conform to certain specified characteristics, as described herein
under "The Mortgage Pools -- Conveyance of Subsequent Mortgage Loans."
Servicing of the Mortgage Loans
American Business Credit, Inc. (the "Servicer") will be obligated to service and
administer the Mortgage Loans on behalf of the Trust, for the benefit of the
Note Insurer and the holders of the Notes. The Servicer will be required to use
the same care as it customarily employs in servicing and administering mortgage
loans for its own account, in accordance with accepted mortgage servicing
practices of prudent lending institutions, and giving due consideration to the
reliance of the Note Insurer and the holder of the Notes on the Servicer.
Servicing Fee
The Servicer is entitled to a servicing fee of 0.50% per annum of the
outstanding principal balance of each Mortgage Loan, calculated and payable
monthly from the interest portion of scheduled monthly payments, liquidation
proceeds and certain other proceeds.
S-6
<PAGE>
Option of the Servicer to Call the Class A-2 Notes
The Servicer may, at its option, call the Class A-2 Notes on any Distribution
Date on which the aggregate outstanding principal balance of the Class A-2 Notes
is equal to or less than 10% of the aggregate original principal balance of the
Class A-2 Notes. In order to exercise its call, the Servicer must pay off the
aggregate outstanding principal balance of the Class A-2 Notes on such
Distribution Date, plus accrued and unpaid interest thereon, and any unpaid
amounts due the Note Insurer in respect of the Class A-2 Notes.
Option of the Servicer to Terminate the Trust
The Servicer may, at its option, terminate the Trust on the Distribution Date on
which the aggregate outstanding principal balance of all Mortgage Loans is less
than 10% of the sum of the aggregate original principal balance of the Mortgage
Loans purchased on the closing date and the amount on deposit in the Pre-Funding
Account on the closing date. In order to exercise its option, the Servicer must
purchase from the Trust all of the Mortgage Loans at a price equal to the sum of
the principal and interest due on the Mortgage Loans and any unpaid amounts due
the Note Insurer. No such termination is permitted without the prior written
consent of the Note Insurer if it would result in a draw on the Note Insurance
Policy. See "Servicing of the Mortgage Loans -- Termination; Purchase of
Mortgage Loans" herein.
ERISA Considerations
Subject to the conditions described under "ERISA Considerations" herein, the
Notes may be purchased by any employee benefit plan or other retirement
arrangement subject to ERISA or the Internal Revenue Code of 1986, as amended.
See "ERISA Considerations" herein.
Federal Income Tax Status
General
In the opinion of Dewey Ballantine LLP, the Trust will be characterized as
neither an association (or a publicly traded partnership) taxable as a
corporation nor a taxable mortgage pool.
<PAGE>
The Class A-1 Notes
No election will be made to treat the sub-trust of the Trust consisting of the
Pool I Mortgage Loans as a "real estate mortgage investment conduit" (a "REMIC")
for federal income tax purposes. The Class A-1 Notes will evidence debt
obligations under the Internal Revenue Code of 1986, as amended (the "Code") and
interest paid or accrued thereon, including original issue discount, if any,
will be taxable to nonexempt holders.
The Class A-2 Notes
An election will be made to treat the sub-trust of the Trust consisting of the
Pool II Mortgage Loans as a REMIC for federal income tax purposes. The Class A-2
Notes will be designated as the "regular interests" in the REMIC, and the Trust
Certificate relating to the Pool II Mortgage Loans will be designated as the
sole "residual interest" in the REMIC.
The Class A-2 Notes generally will be treated as newly originated debt
instruments for federal income tax purposes. Beneficial owners of the Class A-2
Notes will be required to report income thereon in accordance with the accrual
method of accounting.
See "Certain Federal Income Tax Considerations" herein and "Certain Federal
Income Tax Consequences" in the accompanying prospectus.
Ratings
In order to be issued, the Notes must be rated "AAA" by Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc. and "Aaa" by
Moody's Investors Service, Inc., taking into account the Note Insurance Policy
issued with respect to the Notes.
For a discussion of the ratings, see "Ratings" herein and "Prepayment and Yield
Considerations" in the accompanying prospectus.
S-7
<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors
(as well as the factors set forth under "Risk Factors" in the accompanying
prospectus) before deciding to invest in the Notes.
Prepayment and Borrowers may prepay their loans at any time and may
Maturity be required to pay a prepayment fee if permitted by
Considerations applicable law and the applicable mortgage note. The
majority of the Mortgage Loans contain substantial
prepayment fees. The rate of prepayments of the
Mortgage Loans cannot be predicted and may be affected
by a wide variety of economic, social and other
factors, including state and federal income tax
policies, interest rates and the availability of
alternative financing. No assurance can be given as to
the level of prepayments that the Mortgage Loans in
the Trust will experience.
A number of factors, in addition to the prepayment
fees, may impact the prepayment rate of loans such as
the Mortgage Loans. One such factor is whether the
principal balance of the Mortgage Loans is relatively
small. A small principal balance may be easier for a
borrower to prepay than a large balance and therefore
a higher prepayment rate may result for loans such as
the Mortgage Loans. In addition, in order to refinance
a first priority mortgage loan, the borrower must
generally repay any subordinate mortgage loans.
However, a small principal balance may make
refinancing a Mortgage Loan at a lower interest rate
less attractive to the borrower as the perceived
impact to the borrower of lower interest rates on the
size of the monthly payment may not be significant.
Other factors that might affect the prepayment rate
include:
o general economic conditions and the general interest
rate environment,
o possible future changes affecting the deductibility
for federal income tax purposes of interest payments
on home equity loans,
o the amounts of, and interest rates on, any
underlying senior mortgage loans, and
o the tendency of borrowers to use first priority
mortgage loans as long-term financing for home
purchase and junior mortgage loans as shorter-term
financing for a variety of purposes, including home
improvement, education expenses and purchases of
consumer durables such as automobiles.
Accordingly, the Mortgage Loans may experience a
higher rate of prepayment than traditional fixed-rate
mortgage loans.
Prepayments may result from voluntary early payments
by borrowers (including payments in connection with
refinancings of any 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 of Mortgage Loans
from the Trust are required in certain circumstances
and will have the same effect on the holders of the
Notes as a prepayment of the related Mortgage Loans.
Prepayments and such repurchases may also accelerate
the actual final maturity date of the Notes. All of
the Mortgage Loans contain "due-on-sale" provisions,
and the Servicer will enforce such provisions to the
extent permitted by applicable law.
S-8
<PAGE>
The timing of principal distributions to each class of
Notes and the weighted average life of each class of
Notes may be affected by the rates of prepayment on
the Mortgage Loans in the related pool. In addition,
to the extent funds in the Pre-Funding Account are not
used to purchase Mortgage Loans by January 31, 1999,
such funds will be used on the following Distribution
Date to make a mandatory prepayment of principal to
the holders of the Class A-1 Notes.
In general, if prevailing interest rates fall
significantly below the interest rates for similar
loans at the time of origination, fixed-rate Mortgage
Loans may be subject to higher prepayment rates than
if prevailing rates remain at or above those at the
time such Mortgage Loans were originated. Should
prepayments on the Mortgage Loans increase because of
such interest rate reductions, the weighted average
life and final maturity date of the Notes may be
shortened. See "Prepayment and Yield Considerations"
herein.
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. Because it is expected that
there will be prepayments and defaults on the Mortgage
Loans, the actual weighted average life of each class
of Notes is expected to vary substantially from the
weighted average remaining term to stated maturity of
the related pool of Mortgage Loans. Certain
information, based on specified prepayment
assumptions, as to the possible weighted average life
of the Notes is set forth herein under "Prepayment and
Yield Considerations."
The Originators maintain only limited records of the
historical prepayment experience for their portfolio
of loans which they believe do not provide meaningful
information with respect to the Mortgage Loans. The
Originators are not aware of any publicly available
reliable information regarding prepayment experience
of mortgage loans. 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.
Investors in the Notes should consider the associated
risks, including, in the case of Notes purchased at a
discount (or premium), the risk that a slower (or
faster) than anticipated rate of payments in respect
of principal (including prepayments) on the Mortgage
Loans could result in an actual yield that is lower
than anticipated. See "Description of the Notes --
Flow of Funds" herein and "Prepayment and Yield
Considerations" herein and in the accompanying
Prospectus.
The Subsequent If the principal balance of the eligible Mortgage
Mortgage Loans Lonas available for purchase by the Trust on January
and the Pre- 31, 1999 is less than the amount on deposit in the
Funding Pre-Funding Account on such date, such remaining
Account amount will be applied as a prepayment of principal
paid to the holders of the Class A-1 Notes on the
following Distribution Date. Although no assurances
can be given, it is anticipated that the aggregate
principal balance of the Mortgage Loans sold to the
Trust after the closing date will require the
application of substantially all amounts on deposit in
the Pre-Funding Account and that there will be no
material principal prepayment to the holders of the
Class A-1 Notes. In addition, any purchase of Mortgage
Loans by the Trust using funds on deposit in the
Pre-Funding Account is subject to the following
conditions, among others:
o each such Mortgage Loan must satisfy certain
statistical criteria and representations and
warranties specified herein;
S-9
<PAGE>
o such Mortgage Loans will not be selected in a manner
that is believed to be adverse to the interests of
the holders of the Class A-1 Notes and the Note
Insurer;
o certain opinions of counsel will be delivered with
respect to the validity of the conveyance of such
Mortgage Loans.
Each Mortgage Loan purchased after the closing date
must satisfy the eligibility criteria referred to
above at the time of its addition. However, such
Mortgage Loans may have been originated using credit
criteria different from those which were applied to
the Mortgage Loans purchased on the closing date, and
may be of a different credit quality. Therefore,
following the transfer of such Mortgage Loans to the
Trust, the aggregate characteristics of the Mortgage
Loans then held in Pool I may vary from those of the
Mortgage Loans included in Pool I on the closing date.
For a description of the requirements for Mortgage
Loans purchased after the closing date, see "The
Mortgage Pool -- Conveyance of Subsequent Mortgage
Loans" herein.
Underwriting The Mortgage Loans were made, in part, to borrowers
Standards and who, for one reason or another, are not able, or do
Potential not wish, to obtain financing from traditional sources
Delinquencies such as commercial banks. Such loans may be considered
to be of a riskier nature than loans made by
traditional sources of financing, so that the holders
of the Notes may be deemed to be at greater risk than
if the Mortgage Loans were made to other types of
borrowers.
As described herein, the underwriting standards used
in the origination of the Mortgage Loans generally are
less stringent than those of Fannie Mae or Freddie Mac
with respect to a borrower's credit history and in
certain other respects. Borrowers on the loans may
have an impaired or unsubstantiated credit history. As
a result of this less stringent approach to
underwriting, the Mortgage Loans purchased by the
Trust may experience higher rates of delinquencies,
defaults and foreclosures than mortgage loans
underwritten in a manner which is more similar to the
Fannie Mae and Freddie Mac guidelines.
Geographic Certain geographic regions of the United States from
Concentration time to time will experience weaker regional economic
conditions and housing markets, and, consequently,
will experience higher rates of loss and delinquency
on loans generally. Any concentration of the Mortgage
Loans in such a region may present risk considerations
in addition to those generally present for similar
mortgage backed securities without such concentration.
The mortgage properties underlying the Mortgage Loans
are located primarily on the eastern seaboard of the
United States. This may subject a pool of Mortgage
Loans to the risk that a downturn in the economy in
this area of the country would more greatly affect the
pool than if the pool were more diversified.
In particular, the percentages of Mortgage Loans in
Pool I and Pool II (measured by the aggregate
principal balance of the Mortgage Loans in the related
pool that existed on November 22, 1998 (the
"Statistical Calculation Date Aggregate Principal
Balance")) which are secured by mortgaged properties
located in certain states are set forth below:
New Jersey New York Pennsylvania Georgia
---------- -------- ------------ -------
Pool I 29.19% 22.94% 17.06% 8.52%
Pool II 35.48% 15.18% 15.03% 20.90%
S-10
<PAGE>
Because of the relative geographic concentration of
the Mortgage Loans within the States of New Jersey,
New York, Pennsylvania and Georgia losses on the
Mortgage Loans may be higher than would be the case if
the Mortgage Loans were more geographically
diversified. For example, certain of the mortgaged
properties may be more susceptible to certain types of
special hazards, such as earthquakes and other natural
disasters and major civil disturbances, than
residential properties located in other parts of the
country. In addition, the economies of New Jersey, New
York, Pennsylvania and Georgia may be adversely
affected to a greater degree than the economies of
other areas of the country by certain regional
developments. If the New Jersey, New York,
Pennsylvania and Georgia residential real estate
markets experience an overall decline in property
values after the dates of origination of the
respective Mortgage Loans, then the rates of
delinquencies, foreclosures and losses on the Mortgage
Loans may be expected to increase and such increase
may be substantial.
Balloon Approximately 38.19% of the Mortgage Loans in Pool I
Payments (measured by Pool I Statistical Calculation Date
Aggregate Principal Balance) and 42.21% of the
Mortgage Loans in Pool II (measured by Pool II
Statistical Calculation Date Aggregate Principal
Balance) are not fully amortized over their terms and
instead require substantial balloon payments on their
maturity dates (such Mortgage Loans being referred to
herein as the "Balloon Loans"). Because the principal
balances of such Mortgage Loans do not fully amortize
over the term of the Mortgage Loan, such Mortgage
Loans may involve greater risks of default than
Mortgage Loans whose principal balance is fully
amortized over the term of the Mortgage Loan. The
borrower's ability to pay the balloon amount due at
maturity of such a Mortgage Loan will depend on the
borrower's ability to obtain adequate refinancing or
funds from other sources to repay the Mortgage Loan.
The Originators believe that the Mortgage Loans are or
will be adequately collateralized. In light of the
collateralization and the relatively small average
size of the Mortgage Loans, they believe the borrowers
are likely to have the ability to obtain adequate
refinancing or secure funds from other sources.
However, the Originators have only limited historical
default data with respect to their balloon loans and
they do not believe that their data is sufficient to
predict the default experience of such balloon loans.
Even assuming that the mortgaged properties provide
adequate security for the Mortgage Loans, substantial
delays could be encountered in connection with the
liquidation of defaulted Mortgage Loans and
corresponding delays in the receipt of related
proceeds by the holders of the Notes could occur.
Nature of General economic conditions have an impact on the
Collateral; ability of borrowers to repay loans. Loss of earnings,
Second Lien illness and other similar factors may lead to an
Mortgage Loans increase in delinquencies and bankruptcy filings by
borrowers. In the event of a bankruptcy of a
mortgagor, it is possible that the Trust could
experience a loss with respect to such mortgagor's
Mortgage Loan. In conjunction with a mortgagor's
bankruptcy, a bankruptcy court may suspend or reduce
the payments of principal and interest to be paid with
respect to such Mortgage Loan or permanently reduce
the principal balance of such Mortgage Loan, thus
either delaying or permanently limiting the amount
received by the Trust with respect to such Mortgage
Loan. Moreover, in the event a bankruptcy court
rejects the transfer of the related mortgaged property
to the Trust, any remaining balance on such Mortgage
Loan may not be recoverable.
S-11
<PAGE>
Approximately 8.73% of the Mortgage Loans in Pool I
(measured by Pool I Statistical Calculation Date
Aggregate Principal Balance) and 22.69% of the
Mortgage Loans in Pool II (measured by Pool II
Statistical Calculation Date Aggregate Principal
Balance) are secured by subordinate or junior
mortgages which are subordinate to the rights of the
holder of the related senior mortgages. As a result,
the proceeds from any liquidation, insurance or
condemnation proceedings will be available to satisfy
the principal balance of such a Mortgage Loan only to
the extent that the claims, if any, of each related
senior mortgagee are satisfied in full, including any
related foreclosure costs. In addition, a holder of a
junior mortgage may not foreclose on the mortgaged
property securing such mortgage unless it forecloses
subject to the related senior mortgages, in which case
it must either pay the entire amount of the senior
mortgages to the mortgagees at or prior to the
foreclosure sale or undertake the obligation to make
payments on each senior mortgage in the event of
default thereunder. In servicing business and consumer
purpose home equity loans in its portfolio, it is the
Servicer's practice to satisfy or reinstate each such
first mortgage at or prior to the foreclosure sale
only to the extent that it determines any amount so
paid will be recoverable from future payments and
collections on the related loans or otherwise. The
Trust will have no source of funds to satisfy any
senior mortgage or make payments due to any senior
mortgagee.
An overall decline in the residential real estate
market could adversely affect the values of the
mortgaged properties such that the outstanding
principal balances of the Mortgage Loans, together
with the primary senior financing thereon, equals or
exceeds the value of the mortgaged properties. Such a
decline would adversely affect the position of a
second mortgagee before having such an effect on that
of the related first mortgagee. A rise in interest
rates over a period of time and the general condition
of the mortgaged property as well as other factors may
have the effect of reducing the value of the mortgaged
property from the appraised value at the time the
Mortgage Loan was originated. If there is a reduction
in value of the mortgaged property, the ratio of the
amount of the Mortgage Loan to the value of the
mortgaged property may increase over what it was at
the time the Mortgage Loan was originated. Such an
increase may reduce the likelihood of liquidation or
other proceeds being sufficient to satisfy the
Mortgage Loan after satisfaction of any first liens.
Even assuming that the mortgaged properties provide
adequate security for the Mortgage Loans, substantial
delays could be encountered in connection with the
liquidation of defaulted Mortgage Loans and
corresponding delays in the receipt of related
proceeds by holders of the Notes. 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
presented, 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 from a
foreclosure 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 calendar month all expenses reasonably
incurred in attempting to recover amounts due on such
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 holder of the Notes. See "The
Originators, the Seller and the Servicer --
Delinquency and Loan Loss Experience" and "Description
of the Notes" herein.
S-12
<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. Because the average
outstanding principal balance of the Mortgage Loans is
relatively small, proceeds from foreclosure actions on
such Mortgage Loans may be smaller as a percentage of
the outstanding principal balance of a Mortgage Loan
than foreclosure proceeds on loans from a pool of
mortgage loans that have a larger average outstanding
principal balance.
Decline in Real No assurance can be given that the values of the
Estate Values mortgaged properties have remained or will remain at
their levels as of the dates of origination of the
related Mortgage Loans. If the residential real estate
market should experience an overall decline in
property values such that the outstanding balances of
the Mortgage Loans (and, in the case of second
mortgages, the outstanding balance of the related
first mortgage) become equal to or greater than the
value of the mortgaged properties, the actual rates of
delinquencies, foreclosures and losses on these
mortgaged properties could be higher than losses now
generally experienced in the mortgage lending
industry.
Payments on the The scheduled monthly payment dates with respect to
Mortgage Loans the Mortgage Loans occur throughout a month. When a
principal prepayment in full is made on a Mortgage
Loan, the mortgagor is charged interest only up to the
date of such prepayment, instead of for a full month.
However, such principal receipts will only be passed
through to the holders of the Notes 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 Notes that are attributable
to the difference between the interest paid by a
mortgagor in connection with a prepayment in full and
thirty (30) days' interest on such Mortgage Loan, but
only to the extent of the servicing fee for the such
calendar month.
If the Servicer fails to make such payments or the
shortfall exceeds the related servicing fee, there
will be less funds available for the payment of
interest on the related class of Notes. In the case of
the Class A-1 Notes, such shortfall in interest will
not be allocated among the holders of the Class A-1
Notes to reduce the interest due on the Class A-1
Notes. In the case of the Class A-2 Notes, such
shortfall in interest will be allocated among the
holders of the Class A-2 Notes to reduce the interest
due on the Class A-2 Notes. Such shortfalls of
interest are not covered by the Note Insurance Policy.
See "Description of the Notes -- Flow of Funds"
herein.
Effect of The Note Rate for the Class A-2 Notes is based upon
Mortgage Loan the value of an adjustable index (one-month LIBOR),
Yield on the while the interest rates on the Mortgage Loans in Pool
Class A-2 Note II are fixed. Consequently, the interest which becomes
Rate due on such Mortgage Loans (net of the per annum rate
at which the fees or premiums of the Servicer, the
Indenture Trustee, the Collateral Agent and the Note
Insurer are paid and a spread of 0.75%) during any
calendar month may be less than the amount of interest
that would accrue at one-month LIBOR plus the margin
on the Class A-2 Notes during the related Accrual
Period, and will be limited to such lower amount.
While the Class A-2 Notes do have a "carry-forward" or
"catch-up" feature if the amount of interest paid is
so limited, the amount of any shortfall or
carry-forward is not guaranteed by the Note Insurance
Policy.
S-13
<PAGE>
Legal Applicable state laws generally regulate interest
Considerations rates and other charges, require certain disclosures,
and may require licensing of 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
accompanying prospectus.
The Mortgage Loans are also subject to federal laws,
including:
o the Federal Truth in Lending Act and Regulation Z
issued under that Act, as to consumer purpose
Mortgage Loans, which require certain disclosures to
the borrowers regarding the terms of such Mortgage
Loans;
o the Equal Credit Opportunity Act and Regulation B
issued under that Act, as to the business and
consumer purpose Mortgage Loans, which prohibit
discrimination on the basis of age, race, color,
sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any
right under the Consumer Credit Protection Act, in
the extension of credit; and
o the Fair Credit Reporting Act as to the business and
consumer purpose Mortgage Loans, which regulates the
use and reporting of information related to the
borrower's credit experience.
Violations of certain provisions of these federal laws
may limit the ability of the Servicer to collect all
or part of the principal of or interest on the
Mortgage Loans and in addition could subject the Trust
to damages and administrative enforcement.
In addition, under the terms of the Soldiers' and
Sailors' Civil Relief Act of 1940, as amended (the
"Civil Relief Act") or similar state legislation, the
interest charged and the ability of the Servicer to
foreclose on loans to certain mortgagors may be
limited. Generally, under the Civil Relief Act, a
mortgagor who enters military service after the
origination of such mortgagor's mortgage loan
(including a mortgagor who was in reserve status and
is called to active duty after origination of the
mortgage loan), shall not be charged interest
(including fees and charges) above an annual rate of
6% during the period of such mortgagor's active duty
status, unless a court orders otherwise upon
application of the lender. The Civil Relief Act
applies to mortgagors who are members of the Army,
Navy, Air Force, Marines, National Guard, Reserves,
Coast Guard and officers of the U.S. Public Health
Service assigned to duty with the military. Because
the Civil Relief Act applies to mortgagors who enter
military service (including reservists who are called
to active duty) after origination of the related
mortgage loan, no information can be provided as to
the number of loans that may be affected by the Civil
Relief Act. Application of the Civil Relief Act would
adversely affect, for an indeterminate period of time
until cessation of active duty status, the ability of
the Servicer to collect full amounts of interest on
certain of the Mortgage Loans to which it applies, if
any. Any shortfall in interest collections on any
Mortgage Loan resulting from the application of the
Civil Relief Act will result in a reduction of the
<PAGE>
amounts available for distribution in respect of
interest on the related class of Notes. In the case of
the Class A-1 Notes, such shortfall in interest will
not be allocated among the holders of the Class A-1
Notes to reduce the interest due on the Class A-1
Notes. In the case of the Class A-2 Notes, such
shortfall in interest will be allocated among the
holders of the Class A-2 Notes to reduce the interest
due on the Class A-2 Notes. Such shortfalls are not
covered by Servicer advances or the Note Insurance
Policy. The Servicer is not obligated to offset any of
its fees against, or to provide any other funds to
cover, any such shortfalls. In addition, the Civil
Relief Act imposes limitations which would impair the
ability of the Servicer to foreclose on an affected
Mortgage Loan during the mortgagor's period of active
duty status and, under certain circumstances, during
an additional period thereafter. See "Certain Legal
Aspects of the Mortgage Loans and Contracts" in the
accompanying prospectus.
S-14
<PAGE>
It is possible that some of the consumer purpose
Mortgage Loans will be subject to the Riegle Community
Development and Regulatory Improvement Act of 1994
(the "Riegle Act") which incorporates the Home
Ownership and Equity Protection Act of 1994. The
Riegle Act adds certain additional provisions to the
Truth in Lending Act which additions are reflected in
Regulation Z, the implementing regulation of the Truth
in Lending Act. These provisions impose additional
disclosure and other requirements on creditors with
respect to certain non-purchase money mortgage loans
with high interest rates or high upfront fees and
charges. In general, mortgage loans within the purview
of the Riegle Act have annual percentage rates ten
percentage points over the yield on U.S. Treasury
securities of comparable maturity and/or fees and
points which exceed the greater of 8% of the total
loan amount or $400. These provisions of the Riegle
Act apply on a mandatory basis to all mortgage loans
originated on or after October 1, 1995. These
provisions can impose specific statutory liabilities
upon creditors who fail to comply with their
provisions and may affect the enforceability of the
related loans. In addition, any assignee of the
creditor would generally be subject to all claims and
defenses that the consumer could assert against the
creditor, including, without limitation, the right to
rescind the mortgage loan.
Year 2000 Issues There is a significant uncertainty regarding the
effect of the Year 2000 problem because computer
systems that do not properly recognize date sensitive
information when the year changes to 2000 could
generate erroneous data or altogether fail. The
Servicer and its affiliates have assessed their
internal systems, programs and data processing
applications as well as those provided to them by
third-party vendors with respect to Year 2000 data
processing issues. The Servicer and its affiliates
believe that the computer equipment and software used
by them will function properly with respect to dates
in the Year 2000 and thereafter. The Servicer and its
affiliates have not incurred significant expense to
date, and do not anticipate incurring significant
future expense, to address Year 2000 issues although
there can be no assurance that the Servicer and its
affiliates will not incur significant future expenses.
However, third parties that have relationships with
them, including vendors and borrowers, may experience
significant Year 2000 issues. These issues may have a
serious adverse effect on the operations of such third
parties, including a shut-down of operations for a
period of time, which may, in turn, have a material
adverse effect on their business, financial condition
and results of operations.
S-15
<PAGE>
TRANSACTION OVERVIEW
Parties
The Trust. ABFS Mortgage Loan Trust 1998-4, a Delaware business trust.
The principal executive office of the Trust is in Wilmington, Delaware, in care
of the Owner Trustee, at the address of the Owner Trustee specified below.
The Depositor. Prudential Securities Secured Financing Corporation, a
Delaware corporation. The principal executive office of the Depositor is located
at One New York Plaza, 14th Floor, New York, New York 10292, and its telephone
number is (212) 778-1000.
The Seller. ABFS 1998-4, Inc., a Delaware corporation, which is owned
by the Originators. The principal executive office of the Seller is at
Balapointe Centre, 111 Presidential Boulevard, Suite 215, Bala Cynwyd,
Pennsylvania 19004, and its telephone number is (610) 668-2440.
The Originators. American Business Credit, Inc. ("ABC"), a Pennsylvania
corporation, Home American Credit, Inc. d/b/a Upland Mortgage ("Upland"), a
Pennsylvania corporation, and New Jersey Mortgage and Investment Corp.
("NJMIC"), a New Jersey corporation, originated or purchased the Mortgage Loans.
For a description of the business of the Originators, see "The Originators, the
Seller and the Servicer" herein.
The Servicer and the Subservicers. ABC will act as servicer of the
Mortgage Loans, and Upland and NJMIC will act as subservicers with respect to
different portions of the Mortgage Loans. For a description of the business of
the Servicer, see "The Originators, the Seller and the Servicer" herein.
The Indenture Trustee. The Bank of New York, a New York banking
corporation. The corporate trust office of the Indenture Trustee is located at
101 Barclay Street, New York, New York 10286, and its telephone number is (212)
946-3216. For a description of the Indenture Trustee and its responsibilities
with respect to the Notes, see "The Indenture Trustee" herein.
The Owner Trustee. First Union Trust Company, National Association, a
national banking association. The corporate trust office of the Owner Trustee is
located at One Rodney Square, 920 King Street, Suite 102, Wilmington, Delaware
19801, and its telephone number is (302) 888-7539. For a description of the
Owner Trustee and its responsibilities with respect to the Notes and the
Mortgage Loans, see "The Owner Trustee" herein.
The Collateral Agent. Chase Bank of Texas, N.A., a national banking
association. The corporate trust office of the Collateral Agent is located at
801 West Greens Road, Houston, Texas 77067, and its telephone number is (281)
775-5400.
The Note Insurer. Financial Security Assurance Inc., a New York
financial guaranty insurance company. The Note Insurer will issue a financial
guaranty insurance policy (the "Note Insurance Policy") for the benefit of the
holders of the Notes. For a description of the business and selected financial
information of the Note Insurer, see "The Note Insurance Policy" and "The Note
Insurer" herein.
The Rating Agencies. Standard & Poor's Ratings Services, a division of
the McGraw-Hill Companies, Inc. ("S&P") and Moody's Investors Service, Inc.
("Moody's") will issue ratings with respect to each class of Notes.
S-16
<PAGE>
The Transaction
Formation of the Trust and Issuance of the Trust Certificates. The
Trust will be formed pursuant to the terms of a Trust Agreement, dated as of
November 1, 1998 (the "Trust Agreement"), between the Owner Trustee, the
Depositor and the Seller. Pursuant to the terms of the Trust Agreement, the
Trust will also issue the Trust Certificates to the Seller, each evidencing the
entire beneficial ownership interest in the sub-trust of the Trust consisting of
the related pool of Mortgage Loans of the Trust.
Sale and Servicing of the Mortgage Loans. The Mortgage Loans have been
originated or purchased by the Originators pursuant to their respective
underwriting guidelines, as set forth herein under "The Originators, the Seller
and the Servicer." The Originators will sell the Mortgage Loans to the Seller,
and the Seller will sell the Mortgage Loans to the Depositor, pursuant to an
Unaffiliated Seller's Agreement, dated as of November 1, 1998 (the "Unaffiliated
Seller's Agreement"), among the Originators, the Seller and the Depositor. The
Depositor will sell the Mortgage Loans to the Trust pursuant to a Sale and
Servicing Agreement, dated as of November 1, 1998 (the "Sale and Servicing
Agreement"), among the Depositor, the Trust, the Servicer, the Collateral Agent
and the Indenture Trustee. The Servicer will service the Mortgage Loans pursuant
to the terms of the Sale and Servicing Agreement.
Issuance of the Notes. Pursuant to the terms of an Indenture, dated as
of November 1, 1998 (the "Indenture"), between the Trust and the Indenture
Trustee, the Trust will pledge the Trust Estate to the Indenture Trustee, for
the benefit of the holders of the Notes and the Note Insurer, and issue the
Notes. In the Indenture, the Trust will make a REMIC election with respect to
the sub-trust of the Trust consisting of the Pool II Mortgage Loans.
Issuance of the Note Insurance Policy. The Note Insurer will issue the
Note Insurance Policy pursuant to the terms of an Insurance and Indemnity
Agreement, dated as of November 1, 1998 (the "Insurance Agreement") among the
Note Insurer, the Trust, the Depositor, the Seller, the Originators and the
Servicer.
THE MORTGAGE LOAN POOLS
General
Difference between Statistical Calculation Date and Closing Date Pools.
The statistical information presented in this prospectus supplement concerning
the Mortgage Loans is based on the pools of Mortgage Loans that existed on
November 22, 1998 (such date, the "Statistical Calculation Date"). Pool I
aggregated $41,236,547.48 as of the Statistical Calculation Date and Pool II
aggregated $10,158,340.00 as of the Statistical Calculation Date. The Seller
expects that the actual pools as of the closing date will represent
approximately $51,902,848.57 in aggregate principal balance of Mortgage Loans in
Pool I, as of the close of business on October 31, 1998 (the "Cut-Off Date") and
approximately $15,000,264.20 in aggregate principal balance of Mortgage Loans in
Pool II, as of the Cut-Off Date. The additional Mortgage Loans will represent
Mortgage Loans acquired or to be acquired by the Trust on or prior to the
closing date. In addition, with respect to the pools as of the Statistical
Calculation Date as to which statistical information is presented herein, some
amortization will occur prior to the closing date. Moreover, certain Mortgage
Loans included in the pools as of the Statistical Calculation Date may prepay in
full, or may be determined not to meet the eligibility requirements for the
final pools, and may not be included in the final pools. As a result of the
foregoing, the statistical distribution of characteristics as of the closing
date for the final Mortgage Loan pools will vary somewhat from the statistical
distribution of such characteristics as of the Statistical Calculation Date as
presented in this prospectus supplement, although such variance will not be
material. In the event that the Depositor does not, as of the closing date, have
the full amount of Mortgage Loans which the Depositor expects to sell to the
Trust for allocation to Pool I on such date, the Seller will increase the size
of the Pre-Funding Account and the Capitalized Interest Account. Unless
otherwise noted, all statistical percentages in this prospectus supplement are
measured by Statistical Calculation Date Aggregate Principal Balance for each
pool.
S-17
<PAGE>
Additional Mortgage Loans (the "Subsequent Mortgage Loans") are
intended to be purchased by the Trust for inclusion in Pool I from time to time
on or before January 31, 1999 from funds on deposit in the Pre-Funding Account.
The Initial Mortgage Loans and the Subsequent Mortgage Loans are referred to
herein collectively as the "Mortgage Loans." The Subsequent Mortgage Loans to be
purchased by the Trust for inclusion in Pool I, if available, will be originated
or purchased by the Originators, sold by the Originators to the Seller, sold by
the Seller to the Depositor and then sold by the Depositor to the Trust. The
Indenture will provide that the Mortgage Loans, following the conveyance of the
Subsequent Mortgage Loans, must in the aggregate conform to certain specified
characteristics described below under " -- Conveyance of Subsequent Mortgage
Loans."
Unless otherwise noted, all statistical percentages in this prospectus
supplement are approximate and are measured by the aggregate principal balance
of the related Mortgage Loans in relation to the Statistical Calculation Date
Aggregate Principal Balance for each pool, in each case, as of the Statistical
Calculation Date.
The Mortgage Loans will be predominantly business or consumer purpose
residential home equity loans used (x) to refinance an existing mortgage loan,
(y) to consolidate debt, or (z) to obtain cash proceeds by borrowing against the
mortgagor's equity in the related mortgaged property in order to provide funds
for (i) working capital for business, (ii) business expansion, (iii) equipment
acquisition, or (iv) personal acquisitions. The mortgaged properties securing
the Mortgage Loans consist primarily of single-family residences (which may be
detached, part of a multi-family dwelling, a condominium unit, a townhouse, a
mobile home or a unit in a planned unit development) and commercial or mixed use
property. The mortgaged properties may be owner-occupied properties (which
includes second and vacation homes), non-owner occupied investment properties or
business purpose properties.
The Pool I Mortgage Loans
As of the Statistical Calculation Date, each of the Mortgage Loans in
Pool I had a remaining term to maturity of no greater than 360 months and had a
mortgage interest rate of at least 7.75% per annum.
The combined loan-to-value ratios ("CLTV") described herein were
calculated based upon the appraised values of the related mortgaged properties
at the time of origination. No assurance can be given that such appraised values
of the mortgaged properties have remained or will remain at their levels on the
dates of origination of the related Mortgage Loans. If property values decline
such that the outstanding principal balances of the Mortgage Loans, together
with the outstanding principal balances of any first liens, become equal to or
greater than the value of the mortgaged properties, the actual rates of
delinquencies, foreclosures and losses could be higher than those heretofore
experienced by the Servicer, as set forth below under "The Originators, the
Seller and the Servicer -- Delinquency and Loan Loss Experience," and in the
mortgage lending industry generally.
As of the Statistical Calculation Date, the Mortgage Loans in Pool I
consisted of 560 Mortgage Loans under which the related mortgaged properties are
located in 18 states, as set forth herein. As of the Statistical Calculation
Date, the Mortgage Loans in Pool I had an aggregate principal balance, after
application of all payments due on or before November 22, 1998, of
$41,236,547.48, the minimum principal balance of any of the Mortgage Loans was
$10,000.00, the maximum principal balance thereof was $226,800.00, and the
average principal balance of the Mortgage Loans was $73,636.69. As of the
Statistical Calculation Date, mortgage interest rates on the Mortgage Loans in
Pool I ranged from 7.75% to 16.99% per annum, and the weighted average mortgage
interest rate of the Mortgage Loans was approximately 11.26% per annum. As of
the Statistical Calculation Date, the original term to stated maturity of the
Mortgage Loans in Pool I ranged from 24 months to 360 months, the remaining term
to stated maturity ranged from 24 months to 360 months, the weighted average
original term to stated maturity was approximately 260 months and the weighted
average remaining term to stated maturity was approximately 260 months. As of
the Statistical Calculation Date, no Mortgage Loan in Pool I had a maturity
later than December 1, 2028. Approximately 61.81% of the aggregate principal
balance of the Mortgage Loans in Pool I as of the Statistical Calculation Date
require monthly payments of principal that will fully amortize the Mortgage
Loans by their respective maturity dates, and approximately 38.19% of the
aggregate principal balance of the Mortgage Loans are Balloon Loans. The
weighted average CLTV of the Mortgage Loans in Pool I as of the Statistical
Calculation Date was approximately 77.03%. As of the Statistical Calculation
Date, the Mortgage Loans in Pool I consisted of approximately 91.27% of Mortgage
Loans secured by first lien mortgages ("First Liens") on the related Mortgaged
Properties, and approximately 8.73% of Mortgage Loans secured by second lien
mortgages ("Second Liens") on the related mortgaged properties.
S-18
<PAGE>
Approximately 29.19%, 22.94%, 17.06% and 8.52%of the Mortgage Loans in
Pool I are secured by mortgaged properties located in the States of New Jersey,
New York, Pennsylvania and Georgia, respectively. See "Risk Factors --
Geographic Concentration" herein.
On or prior to January 31, 1999, the Trust is expected to purchase,
subject to availability, Subsequent Mortgage Loans to be added to Pool I. The
maximum aggregate principal balance of Subsequent Mortgage Loans that may be
purchased is expected to be approximately $13,097,151.43.
The following tables set forth certain statistical information with
respect to the Mortgage Loans in Pool I. Due to rounding, the percentages shown
may not precisely total 100.00%.
S-19
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
Pool I
<TABLE>
<CAPTION>
Number of Aggregate Unpaid % of Statistical Calculation Date
State Mortgage Loans Principal Balance Aggregate Principal Balance
- ---------------------------------- -------------- -------------------- --------------------------------
<S> <C> <C> <C>
California 1 $ 66,300.00 0.16%
Connecticut 10 764,000.00 1.85
Delaware 11 576,525.00 1.40
Florida 47 3,101,959.58 7.52
Georgia 46 3,515,091.00 8.52
Illinois 16 1,122,144.06 2.72
Indiana 2 70,259.54 0.17
Kentucky 1 52,000.00 0.13
Maryland 10 691,565.13 1.68
Mississippi 6 419,389.50 1.02
New Jersey 147 12,037,786.40 29.19
New York 94 9,457,967.50 22.94
North Carolina 4 185,960.00 0.45
Ohio 12 601,400.00 1.46
Pennsylvania 126 7,036,440.30 17.06
South Carolina 3 156,650.00 0.38
Tennessee 2 114,300.00 0.28
Virginia 22 1,266,809.47 3.07
--- ------------------ ------
TOTAL 560 $ 41,236,547.48 100.00%
=== ================== ======
</TABLE>
DISTRIBUTION OF CLTV RATIOS
Pool I
<TABLE>
<CAPTION>
Original Number of Aggregate Unpaid % of Statistical Calculation Date
CLTV Range Mortgage Loans Principal Balance Aggregate Principal Balance
---------------------------------- ---------------- ------------------- ----------------------------------
<S> <C> <C> <C>
10.000% < CLTV < = 15.000% 3 $ 93,500.00 0.23%
15.000 < CLTV < = 20.000 0 0.00 0.00
20.000 < CLTV < = 25.000 11 386,490.78 0.94
25.000 < CLTV < = 30.000 6 238,500.00 0.58
30.000 < CLTV < = 35.000 4 248,000.00 0.60
35.000 < CLTV < = 40.000 5 198,894.45 0.48
40.000 < CLTV < = 45.000 9 387,277.08 0.94
45.000 < CLTV < = 50.000 21 952,365.61 2.31
50.000 < CLTV < = 55.000 12 542,300.27 1.32
55.000 < CLTV < = 60.000 18 1,040,250.00 2.52
60.000 < CLTV < = 65.000 32 1,889,840.65 4.58
65.000 < CLTV < = 70.000 48 3,421,009.39 8.30
70.000 < CLTV < = 75.000 77 5,490,299.31 13.31
75.000 < CLTV < = 80.000 114 8,760,642.96 21.24
80.000 < CLTV < = 85.000 85 7,169,844.01 17.39
85.000 < CLTV < = 90.000 109 9,972,732.97 24.18
90.000 < CLTV < = 95.000 6 444,600.00 1.08
--- ------------------ ------
TOTAL 560 $ 41,236,547.48 100.00%
=== ================== ======
</TABLE>
S-20
<PAGE>
DISTRIBUTION OF GROSS MORTGAGE INTEREST RATES
Pool I
<TABLE>
<CAPTION>
Gross Mortgage Number of Aggregate Unpaid % of Statistical Calculation Date
Interest Rate Range Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------------------ ------------------ ------------------- ----------------------------------
<S> <C> <C> <C>
7.50% < Gross Coupon <= 7.75% 1 $ 100,800.00 0.24%
7.75 < Gross Coupon < = 8.00 2 304,795.85 0.74
8.00 < Gross Coupon < = 8.25 2 299,000.00 0.73
8.25 < Gross Coupon < = 8.50 3 310,735.97 0.75
8.50 < Gross Coupon < = 8.75 7 799,479.05 1.94
8.75 < Gross Coupon < = 9.00 28 2,834,527.73 6.87
9.00 < Gross Coupon < = 9.25 8 662,050.00 1.61
9.25 < Gross Coupon < = 9.50 29 2,406,707.05 5.84
9.50 < Gross Coupon < = 9.75 21 1,507,092.90 3.65
9.75 < Gross Coupon < = 10.00 48 3,946,136.91 9.57
10.00 < Gross Coupon < = 10.25 10 579,750.00 1.41
10.25 < Gross Coupon < = 10.50 44 3,892,339.36 9.44
10.50 < Gross Coupon < = 10.75 11 902,694.98 2.19
10.75 < Gross Coupon < = 11.00 65 5,411,772.75 13.12
11.00 < Gross Coupon < = 11.25 14 1,110,618.00 2.69
11.25 < Gross Coupon < = 11.50 28 2,606,289.00 6.32
11.50 < Gross Coupon < = 11.75 16 1,184,103.30 2.87
11.75 < Gross Coupon < = 12.00 45 2,853,929.47 6.92
12.00 < Gross Coupon < = 12.25 10 378,550.00 0.92
12.25 < Gross Coupon < = 12.50 31 2,097,789.50 5.09
12.50 < Gross Coupon < = 12.75 8 414,200.00 1.00
12.75 < Gross Coupon < = 13.00 28 1,212,093.90 2.94
13.00 < Gross Coupon < = 13.25 5 295,494.45 0.72
13.25 < Gross Coupon < = 13.50 12 393,782.92 0.95
13.50 < Gross Coupon < = 13.75 2 59,000.00 0.14
13.75 < Gross Coupon < = 14.00 12 680,900.00 1.65
14.00 < Gross Coupon < = 14.25 4 102,382.00 0.25
14.25 < Gross Coupon < = 14.50 1 171,700.00 0.42
14.50 < Gross Coupon < = 14.75 1 30,000.00 0.07
14.75 < Gross Coupon < = 15.00 1 70,200.00 0.17
15.00 < Gross Coupon < = 15.25 2 27,000.00 0.07
15.25 < Gross Coupon < = 15.50 0 0.00 0.00
15.50 < Gross Coupon < = 15.75 1 56,000.00 0.14
15.75 < Gross Coupon < = 16.00 56 3,210,132.39 7.78
16.00 < Gross Coupon < = 16.25 1 45,000.00 0.11
16.25 < Gross Coupon < = 16.50 0 0.00 0.00
16.50 < Gross Coupon < = 16.75 0 0.00 0.00
16.75 < Gross Coupon < = 17.00 3 $ 279,500.00 0.68
--- ---------------- ------
TOTAL 560 $ 41,236,547.48 100.00%
=== ================ ======
</TABLE>
S-21
<PAGE>
DISTRIBUTION OF ORIGINAL TERMS TO MATURITY
(in months)
Pool I
<TABLE>
<CAPTION>
Range of Original Terms Number of Aggregate Unpaid % of Statistical Calculation Date
(in months) Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------------------- ------------------ -------------------- ---------------------------------
<S> <C> <C> <C>
12 < Orig. Term < = 24 1 $ 55,000.00 0.13%
24 < Orig. Term < = 36 1 20,000.00 0.05
36 < Orig. Term < = 48 0 0.00 0.00
48 < Orig. Term < = 60 20 580,277.08 1.41
60 < Orig. Term < = 72 0 0.00 0.00
72 < Orig. Term < = 84 6 106,194.45 0.26
84 < Orig. Term < = 96 1 25,000.00 0.06
96 < Orig. Term < = 108 1 25,000.00 0.06
108 < Orig. Term < = 120 27 1,065,291.21 2.58
120 < Orig. Term < = 132 1 144,000.00 0.35
132 < Orig. Term < = 144 0 0.00 0.00
144 < Orig. Term < = 156 0 0.00 0.00
156 < Orig. Term < = 168 0 0.00 0.00
168 < Orig. Term < = 180 235 16,118,180.34 39.09
180 < Orig. Term < = 192 1 87,500.00 0.21
192 < Orig. Term < = 204 0 0.00 0.00
204 < Orig. Term < = 216 5 359,140.65 0.87
216 < Orig. Term < = 228 0 0.00 0.00
228 < Orig. Term < = 240 74 4,312,647.82 10.46
240 < Orig. Term < = 252 1 123,239.87 0.30
252 < Orig. Term < = 288 0 0.00 0.00
288 < Orig. Term < = 300 19 1,462,922.98 3.55
300 < Orig. Term < = 312 0 0.00 0.00
312 < Orig. Term < = 324 0 0.00 0.00
324 < Orig. Term < = 336 0 0.00 0.00
336 < Orig. Term < = 348 17 1,403,911.82 3.40
348 < Orig. Term < = 360 150 15,348,241.26 37.22
--- ---------------- ------
TOTAL 560 $ 41,236,547.48 100.00%
=== ================ ======
</TABLE>
S-22
<PAGE>
DISTRIBUTION OF REMAINING TERMS TO MATURITY
(in months)
Pool I
<TABLE>
<CAPTION>
Range of Remaining Terms Number of Aggregate Unpaid % of Statistical Calculation Date
(in months) Mortgage Loans Principal Balance Aggregate Principal Balance
- -------------------------------------- -------------- ----------------- ----------------------------------
<S> <C> <C> <C> <C>
12 < Rem. Term < = 24 1 $ 55,000.00 0.13%
24 < Rem. Term < = 36 1 20,000.00 0.05
36 < Rem. Term < = 48 0 0.00 0.00
48 < Rem. Term < = 60 20 580,277.08 1.41
60 < Rem. Term < = 72 0 0.00 0.00
72 < Rem. Term < = 84 6 106,194.45 0.26
84 < Rem. Term < = 96 1 25,000.00 0.06
96 < Rem. Term < = 108 1 25,000.00 0.06
108 < Rem. Term < = 120 27 1,065,291.21 2.58
120 < Rem. Term < = 132 1 144,000.00 0.35
132 < Rem. Term < = 144 0 0.00 0.00
144 < Rem. Term < = 156 0 0.00 0.00
156 < Rem. Term < = 168 0 0.00 0.00
168 < Rem. Term < = 180 235 16,118,180.34 39.09
180 < Rem. Term < = 192 1 87,500.00 0.21
192 < Rem. Term < = 204 0 0.00 0.00
204 < Rem. Term < = 216 5 359,140.65 0.87
216 < Rem. Term < = 228 0 0.00 0.00
228 < Rem. Term < = 240 74 4,312,647.82 10.46
240 < Rem. Term < = 252 1 123,239.87 0.30
252 < Rem. Term < = 288 0 0.00 0.00
288 < Rem. Term < = 300 19 1,462,922.98 3.55
300 < Rem. Term < = 312 0 0.00 0.00
312 < Rem. Term < = 324 0 0.00 0.00
324 < Rem. Term < = 336 0 0.00 0.00
336 < Rem. Term < = 348 17 1,403,911.82 3.40
348 < Rem. Term < = 360 150 15,348,241.26 37.22
--- ---------------- ------
TOTAL 560 $ 41,236,547.48 100.00%
=== ================ ======
</TABLE>
S-23
<PAGE>
DISTRIBUTION OF ORIGINAL PRINCIPAL BALANCES
Pool I
<TABLE>
<CAPTION>
Range of Original Mortgage Loan Number of Aggregate Unpaid % of Statistical Calculation Date
Principal Balances Mortgage Loans Principal Balance Aggregate Principal Balance
- --------------------------------------- -------------- ------------------ ----------------------------------
<S> <C> <C> <C> <C>
$ 5,000 < Balance < = $ 10,000 2 $ 20,000.00 0.05%
10,000 < Balance < = 15,000 17 230,533.28 0.56
15,000 < Balance < = 20,000 25 471,695.23 1.14
20,000 < Balance < = 25,000 26 612,680.45 1.49
25,000 < Balance < = 30,000 34 958,233.89 2.32
30,000 < Balance < = 35,000 30 984,712.84 2.39
35,000 < Balance < = 40,000 42 1,587,904.92 3.85
40,000 < Balance < = 45,000 24 1,040,725.00 2.52
45,000 < Balance < = 50,000 35 1,716,250.19 4.16
50,000 < Balance < = 55,000 15 797,739.05 1.93
55,000 < Balance < = 60,000 30 1,747,585.00 4.24
60,000 < Balance < = 65,000 21 1,333,872.19 3.23
65,000 < Balance < = 70,000 21 1,423,916.91 3.45
70,000 < Balance < = 75,000 23 1,676,599.96 4.07
75,000 < Balance < = 80,000 18 1,409,800.00 3.42
80,000 < Balance < = 85,000 15 1,240,650.00 3.01
85,000 < Balance < = 90,000 10 878,708.17 2.13
90,000 < Balance < = 95,000 8 743,500.00 1.80
95,000 < Balance < = 100,000 15 1,474,646.57 3.58
100,000 < Balance < = 105,000 15 1,534,736.45 3.72
105,000 < Balance < = 110,000 17 1,828,096.82 4.43
110,000 < Balance < = 115,000 9 1,018,074.52 2.47
115,000 < Balance < = 120,000 10 1,176,257.05 2.85
120,000 < Balance < = 125,000 15 1,847,489.87 4.48
125,000 < Balance < = 130,000 10 1,267,720.65 3.07
130,000 < Balance < = 135,000 5 667,250.00 1.62
135,000 < Balance < = 140,000 7 965,325.00 2.34
140,000 < Balance < = 145,000 10 1,429,962.10 3.47
145,000 < Balance < = 150,000 5 746,394.98 1.81
150,000 < Balance < = 200,000 32 5,391,825.00 13.08
200,000 < Balance < = 250,000 14 3,013,661.39 7.31
--- --------------- ------
TOTAL 560 $ 41,236,547.48 100.00%
=== =============== ======
</TABLE>
S-24
<PAGE>
DISTRIBUTION OF CURRENT PRINCIPAL BALANCES
Pool I
<TABLE>
<CAPTION>
Range of Current Mortgage Loan Number of Aggregate Unpaid % of Statistical Calculation Date
Principal Balances Mortgage Loans Principal Balance Aggregate Principal Balance
- --------------------------------------- -------------- ----------------- ----------------------------------
<S> <C> <C> <C> <C>
$ 5,000 < Balance < = $ 10,000 2 $ 20,000.00 0.05%
10,000 < Balance < = 15,000 17 230,533.28 0.56
15,000 < Balance < = 20,000 25 471,695.23 1.14
20,000 < Balance < = 25,000 26 612,680.45 1.49
25,000 < Balance < = 30,000 34 958,233.89 2.32
30,000 < Balance < = 35,000 30 984,712.84 2.39
35,000 < Balance < = 40,000 42 1,587,904.92 3.85
40,000 < Balance < = 45,000 24 1,040,725.00 2.52
45,000 < Balance < = 50,000 35 1,716,250.19 4.16
50,000 < Balance < = 55,000 15 797,739.05 1.93
55,000 < Balance < = 60,000 30 1,747,585.00 4.24
60,000 < Balance < = 65,000 21 1,333,872.19 3.23
65,000 < Balance < = 70,000 21 1,423,916.91 3.45
70,000 < Balance < = 75,000 23 1,676,599.96 4.07
75,000 < Balance < = 80,000 18 1,409,800.00 3.42
80,000 < Balance < = 85,000 15 1,240,650.00 3.01
85,000 < Balance < = 90,000 10 878,708.17 2.13
90,000 < Balance < = 95,000 8 743,500.00 1.80
95,000 < Balance < = 100,000 15 1,474,646.57 3.58
100,000 < Balance < = 105,000 15 1,534,736.45 3.72
105,000 < Balance < = 110,000 17 1,828,096.82 4.43
110,000 < Balance < = 115,000 9 1,018,074.52 2.47
115,000 < Balance < = 120,000 10 1,176,257.05 2.85
120,000 < Balance < = 125,000 15 1,847,489.87 4.48
125,000 < Balance < = 130,000 10 1,267,720.65 3.07
130,000 < Balance < = 135,000 5 667,250.00 1.62
135,000 < Balance < = 140,000 7 965,325.00 2.34
140,000 < Balance < = 145,000 10 1,429,962.10 3.47
145,000 < Balance < = 150,000 5 746,394.98 1.81
150,000 < Balance < = 200,000 32 5,391,825.00 13.08
200,000 < Balance < = 250,000 14 3,013,661.39 7.31
--- ---------------- -----
TOTAL 560 $ 41,236,547.48 100.00%
=== ================ ======
</TABLE>
S-25
<PAGE>
DISTRIBUTION BY LIEN STATUS
Pool I
<TABLE>
<CAPTION>
Number of Aggregate Unpaid % of Statistical Calculation Date
Lien Status Mortgage Loans Principal Balance Aggregate Principal Balance
- -------------------------------------- -------------- ----------------- ---------------------------------
<S> <C> <C> <C>
First Lien 457 $ 37,636,017.40 91.27%
Second Lien 103 3,600,530.08 8.73
--- ---------------- ------
TOTAL 560 $ 41,236,547.48 100.00%
=== ================ ======
</TABLE>
DISTRIBUTION BY AMORTIZATION TYPE
Pool I
<TABLE>
<CAPTION>
Number of Aggregate Unpaid % of Statistical Calculation Date
Amortization Type Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------------------- -------------- ------------------ ---------------------------------
<S> <C> <C> <C>
Fully Amortizing 340 $ 25,489,719.83 61.81%
Balloon Loans 220 15,746,827.65 38.19
--- ---------------- ------
TOTAL 560 $ 41,236,547.48 100.00%
=== ================ ======
</TABLE>
DISTRIBUTION BY OCCUPANCY STATUS
Pool I
<TABLE>
<CAPTION>
Number of Aggregate Unpaid % of Statistical Calculation Date
Occupancy Status Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------------------- -------------- ----------------- ---------------------------------
<S> <C> <C> <C>
Owner Occupied 491 $ 36,782,139.53 89.20%
Investor 40 2,462,677.60 5.97
Vacation/Second Home 4 259,000.00 0.63
Business 25 1,732,730.35 4.20
---- ----------------- ------
TOTAL 560 $ 41,236,547.48 100.00%
=== ================= ======
</TABLE>
DISTRIBUTION BY PROPERTY TYPE
Pool I
<TABLE>
<CAPTION>
Number of Aggregate Unpaid % of Statistical Calculation Date
Property Type Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------------------ -------------- ----------------- ---------------------------------
<S> <C> <C> <C>
Mixed Use 18 $ 1,227,730.35 2.98%
PUD 1 32,000.00 0.08
Commercial 7 505,000.00 1.22
Townhouses 35 1,664,970.00 4.04
2-4 Residential 50 4,221,901.06 10.24
Condominiums 13 888,919.00 2.16
Single Family 431 32,459,916.21 78.72
Mobile Homes 5 236,110.86 0.57
---- ----------------- ------
TOTAL 560 $ 41,236,547.48 100.00%
=== ================= ======
</TABLE>
S-26
<PAGE>
The Pool II Mortgage Loans
As of the Statistical Calculation Date, each of the Mortgage Loans in
Pool II had a remaining term to maturity of no greater than 360 months and had a
mortgage interest rate of at least 8.49% per annum.
The CLTVs described herein were calculated based upon the appraised
values of the related mortgaged properties at the time of origination. No
assurance can be given that such appraised values of the mortgaged properties
have remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If property values decline such that the outstanding
principal balances of the Mortgage Loans, together with the outstanding
principal balances of any first liens, become equal to or greater than the value
of the mortgaged properties, the actual rates of delinquencies, foreclosures and
losses could be higher than those heretofore experienced by the Servicer, as set
forth below under "The Originators, the Seller and the Servicer -- Delinquency
and Loan Loss Experience," and in the mortgage lending industry.
As of the Statistical Calculation Date, the Mortgage Loans in Pool II
consisted of 54 Mortgage Loans under which the related mortgaged properties are
located in 11 states, as set forth herein. As of the Statistical Calculation
Date, the Mortgage Loans in Pool II had an aggregate principal balance, after
application of all payments due on or before November 22, 1998, of
$10,158,340.00, the minimum principal balance of any of the Mortgage Loans was
$14,000.00, the maximum principal balance thereof was $420,000.00, and the
average principal balance of the Mortgage Loans was $188,117.41. As of the
Statistical Calculation Date, mortgage interest rates on the Mortgage Loans in
Pool II ranged from 8.49% to 15.99% per annum, and the weighted average mortgage
interest rate of the Mortgage Loans was approximately 11.17% per annum. As of
the Statistical Calculation Date, the original term to stated maturity of the
Mortgage Loans in Pool II ranged from 180 months to 360 months, the remaining
term to stated maturity ranged from 179 months to 360 months, the weighted
average original term to stated maturity was approximately 257 months and the
weighted average remaining term to stated maturity was approximately 256 months.
As of the Statistical Calculation Date, no Mortgage Loan in Pool II had a
maturity later than November 16, 2028. Approximately 57.79% of the aggregate
principal balance of the Mortgage Loans in Pool II as of the Statistical
Calculation Date require monthly payments of principal that will fully amortize
the Mortgage Loans by their respective maturity dates, and approximately 42.21%
of the aggregate principal balance of the Mortgage Loans are Balloon Loans. The
weighted average CLTV of the Mortgage Loans in Pool II as of the Statistical
Calculation Date was approximately 79.40%. As of the Statistical Calculation
Date, the Mortgage Loans in Pool II consisted of approximately 77.31% of
Mortgage Loans secured by First Liens, and approximately 22.69% of Mortgage
Loans secured by Second Liens.
Approximately 35.48%, 20.90%, 15.18% and 15.03% of the Mortgage Loans
in Pool II are secured by mortgaged properties located in the States of New
Jersey, Georgia, New York and Pennsylvania, respectively. See "Risk Factors --
Geographic Concentration" herein.
The following tables set forth certain statistical information with
respect to the Mortgage Loans in Pool II. Due to rounding, the percentages shown
may not precisely total 100.00%.
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
Pool II
<TABLE>
<CAPTION>
Number of Aggregate Unpaid % of Statistical Calculation Date
State Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------------- ---------------- ------------------- -----------------------------------
<S> <C> <C> <C>
Connecticut 4 $ 429,652.34 4.23%
Florida 1 350,246.72 3.45
Georgia 9 2,123,099.25 20.90
Illinois 1 75,000.00 0.74
Maryland 1 97,788.62 0.96
New Jersey 18 3,603,785.17 35.48
New York 9 1,542,368.01 15.18
North Carolina 1 260,000.00 2.56
Ohio 1 55,000.00 0.54
Pennsylvania 8 1,526,399.89 15.03
Virginia 1 95,000.00 0.94
---- -------------- ------
TOTAL 54 $10,158,340.00 100.00%
==== ============== ======
</TABLE>
DISTRIBUTION OF CLTV RATIOS
Pool II
<TABLE>
<CAPTION>
Number of Aggregate Unpaid % of Statistical Calculation Date
Original CLTV Ratio Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------------- ---------------- ------------------- -----------------------------------
<S> <C> <C> <C>
40.000% < CLTV <= 45.000% 1 $ 325,000.00 3.20%
45.000 < CLTV <= 50.000 0 0.00 0.00
50.000 < CLTV <= 55.000 1 37,898.37 0.37
55.000 < CLTV <= 60.000 1 55,000.00 0.54
60.000 < CLTV <= 65.000 1 420,000.00 4.13
65.000 < CLTV <= 70.000 3 505,000.00 4.97
70.000 < CLTV <= 75.000 10 1,526,599.61 15.03
75.000 < CLTV <= 80.000 11 1,898,074.84 18.68
80.000 < CLTV <= 85.000 11 2,969,640.40 29.23
85.000 < CLTV <= 90.000 14 2,407,126.78 23.70
90.000 < CLTV <= 95.000 1 14,000.00 0.14
---- -------------- ------
TOTAL 54 $10,158,340.00 100.00%
==== ============== ======
</TABLE>
S-28
<PAGE>
DISTRIBUTION OF GROSS MORTGAGE INTEREST RATES
Pool II
<TABLE>
<CAPTION>
Gross Mortgage Number of Aggregate Unpaid % of Statistical Calculation Date
Interest Rate Range Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------------------ ---------------- ------------------- ------------------------------------
<S> <C> <C> <C>
8.25% < Gross Coupon <= 8.50% 2 $ 475,313.33 4.68%
8.50 < Gross Coupon <= 8.75 0 0.00 0.00
8.75 < Gross Coupon <= 9.00 2 602,265.35 5.93
9.00 < Gross Coupon <= 9.25 0 0.00 0.00
9.25 < Gross Coupon <= 9.50 3 755,500.00 7.44
9.50 < Gross Coupon <= 9.75 2 568,260.58 5.59
9.75 < Gross Coupon <= 10.00 6 1,350,260.81 13.29
10.00 < Gross Coupon <= 10.25 0 0.00 0.00
10.25 < Gross Coupon <= 10.50 7 1,277,196.00 12.57
10.50 < Gross Coupon <= 10.75 1 220,000.00 2.17
10.75 < Gross Coupon <= 11.00 6 693,706.25 6.83
11.00 < Gross Coupon <= 11.25 2 295,000.00 2.90
11.25 < Gross Coupon <= 11.50 3 952,692.45 9.38
11.50 < Gross Coupon <= 11.75 1 280,000.00 2.76
11.75 < Gross Coupon <= 12.00 6 971,424.96 9.56
12.00 < Gross Coupon <= 12.25 1 70,000.00 0.69
12.25 < Gross Coupon <= 12.50 0 0.00 0.00
12.50 < Gross Coupon <= 12.75 0 0.00 0.00
12.75 < Gross Coupon <= 13.00 3 372,788.62 3.67
13.00 < Gross Coupon <= 13.25 0 0.00 0.00
13.25 < Gross Coupon <= 13.50 2 169,931.65 1.67
13.50 < Gross Coupon <= 13.75 0 0.00 0.00
13.75 < Gross Coupon <= 14.00 0 0.00 0.00
14.00 < Gross Coupon <= 14.25 0 0.00 0.00
14.25 < Gross Coupon <= 14.50 0 0.00 0.00
14.50 < Gross Coupon <= 14.75 0 0.00 0.00
14.75 < Gross Coupon <= 15.00 1 100,000.00 0.98
15.00 < Gross Coupon <= 15.25 0 0.00 0.00
15.25 < Gross Coupon <= 15.50 0 0.00 0.00
15.50 < Gross Coupon <= 15.75 0 0.00 0.00
15.75 < Gross Coupon <= 16.00 6 1,004,000.00 9.88
---- ---------------- ------
TOTAL 54 $ 10,158,340.00 100.00%
==== ================ ======
</TABLE>
S-29
<PAGE>
DISTRIBUTION OF ORIGINAL TERMS TO MATURITY
(in months)
Pool II
<TABLE>
<CAPTION>
Range of Original Terms Number of Aggregate Unpaid % of Statistical Calculation Date
(in months) Mortgage Loans Principal Balance Aggregate Principal Balance
- -------------------------------- ---------------- ------------------- -----------------------------------
<S> <C> <C> <C>
168 < Orig. Term < = 180 29 $ 5,066,456.95 49.87%
180 < Orig. Term < = 228 0 0.00 0.00
228 < Orig. Term < = 240 9 1,010,331.21 9.95
240 < Orig. Term < = 288 0 0.00 0.00
288 < Orig. Term < = 300 1 295,000.00 2.90
300 < Orig. Term < = 348 0 0.00 0.00
348 < Orig. Term < = 360 15 3,786,551.84 37.28
--- -------------- ------
TOTAL 54 $10,158,340.00 100.00%
==== ============== ======
</TABLE>
DISTRIBUTION OF REMAINING TERMS TO MATURITY
(in months)
Pool II
<TABLE>
<CAPTION>
Range of Remaining Terms Number of Aggregate Unpaid % of Statistical Calculation Date
(in months) Mortgage Loans Principal Balance Aggregate Principal Balance
- -------------------------------- ---------------- ------------------- -----------------------------------
<S> <C> <C> <C>
168 < Rem. Term < = 180 29 $ 5,066,456.95 49.87%
180 < Rem. Term < = 228 0 0.00 0.00
228 < Rem. Term < = 240 9 1,010,331.21 9.95
240 < Rem. Term < = 288 0 0.00 0.00
288 < Rem. Term < = 300 1 295,000.00 2.90
300 < Rem. Term < = 348 0 0.00 0.00
348 < Rem. Term < = 360 15 3,786,551.84 37.28
--- -------------- ------
TOTAL 54 $10,158,340.00 100.00%
==== ============== ======
</TABLE>
S-30
<PAGE>
DISTRIBUTION OF ORIGINAL PRINCIPAL BALANCES
Pool II
<TABLE>
<CAPTION>
Range of Remaining Terms Number of Aggregate Unpaid % of Statistical Calculation Date
Loan Principal Balances Mortgage Loans Principal Balance Aggregate Principal Balance
- ---------------------------------- ---------------- ------------------- -----------------------------------
<S> <C> <C> <C>
$10,000 < Balance < = $ 15,000 1 $ 14,000.00 0.14%
15,000 < Balance < = 20,000 0 0.00 0.00
20,000 < Balance < = 25,000 2 49,000.00 0.48
25,000 < Balance < = 30,000 2 59,498.78 0.59
30,000 < Balance < = 35,000 2 69,250.00 0.68
35,000 < Balance < = 40,000 1 37,898.37 0.37
40,000 < Balance < = 45,000 0 0.00 0.00
45,000 < Balance < = 50,000 1 47,652.34 0.47
50,000 < Balance < = 55,000 3 156,841.83 1.54
55,000 < Balance < = 60,000 0 0.00 0.00
60,000 < Balance < = 65,000 1 63,096.00 0.62
65,000 < Balance < = 70,000 1 70,000.00 0.69
70,000 < Balance < = 75,000 1 75,000.00 0.74
75,000 < Balance < = 80,000 1 80,000.00 0.79
80,000 < Balance < = 85,000 1 85,000.00 0.84
85,000 < Balance < = 90,000 0 0.00 0.00
90,000 < Balance < = 95,000 1 95,000.00 0.94
95,000 < Balance < = 100,000 2 197,788.62 1.95
100,000 < Balance < = 105,000 0 0.00 0.00
105,000 < Balance < = 110,000 0 0.00 0.00
110,000 < Balance < = 115,000 1 115,000.00 1.13
115,000 < Balance < = 135,000 0 0.00 0.00
135,000 < Balance < = 140,000 1 139,932.87 1.38
140,000 < Balance < = 145,000 0 0.00 0.00
145,000 < Balance < = 150,000 1 150,000.00 1.48
150,000 < Balance < = 200,000 1 159,715.36 1.57
200,000 < Balance < = 250,000 10 2,373,360.91 23.36
250,000 < Balance < = 300,000 10 2,664,864.47 26.23
300,000 < Balance < = 350,000 6 1,936,967.07 19.07
350,000 < Balance < = 400,000 3 1,098,473.38 10.81
400,000 < Balance < = 450,000 1 420,000.00 4.13
---- -------------- ------
TOTAL 54 $10,158,340.00 100.00%
==== ============== ======
</TABLE>
S-31
<PAGE>
DISTRIBUTION OF CURRENT PRINCIPAL BALANCES
Pool II
<TABLE>
<CAPTION>
Range of Current Mortgage Loan Number of Aggregate Unpaid % of Statistical Calculation
Principal Balances Mortgage Loans Principal Balance Date Aggregate Principal Balance
- ---------------------------------- ---------------- ------------------- ----------------------------------
<S> <C> <C> <C>
$10,000 < Balance < = $ 15,000 1 $ 14,000.00 0.14%
15,000 < Balance < = 20,000 0 0.00 0.00
20,000 < Balance < = 25,000 2 49,000.00 0.48
25,000 < Balance < = 30,000 2 59,498.78 0.59
30,000 < Balance < = 35,000 2 69,250.00 0.68
35,000 < Balance < = 40,000 1 37,898.37 0.37
40,000 < Balance < = 45,000 0 0.00 0.00
45,000 < Balance < = 50,000 1 47,652.34 0.47
50,000 < Balance < = 55,000 3 156,841.83 1.54
55,000 < Balance < = 60,000 0 0.00 0.00
60,000 < Balance < = 65,000 1 63,096.00 0.62
65,000 < Balance < = 70,000 1 70,000.00 0.69
70,000 < Balance < = 75,000 1 75,000.00 0.74
75,000 < Balance < = 80,000 1 80,000.00 0.79
80,000 < Balance < = 85,000 1 85,000.00 0.84
85,000 < Balance < = 90,000 0 0.00 0.00
90,000 < Balance < = 95,000 1 95,000.00 0.94
95,000 < Balance < = 100,000 2 197,788.62 1.95
100,000 < Balance < = 105,000 0 0.00 0.00
105,000 < Balance < = 110,000 0 0.00 0.00
110,000 < Balance < = 115,000 1 115,000.00 1.13
115,000 < Balance < = 135,000 0 0.00 0.00
135,000 < Balance < = 140,000 1 139,932.87 1.38
140,000 < Balance < = 145,000 0 0.00 0.00
145,000 < Balance < = 150,000 1 150,000.00 1.48
150,000 < Balance < = 200,000 1 159,715.36 1.57
200,000 < Balance < = 250,000 10 2,373,360.91 23.36
250,000 < Balance < = 300,000 10 2,664,864.47 26.23
300,000 < Balance < = 350,000 6 1,936,967.07 19.07
350,000 < Balance < = 400,000 3 1,098,473.38 10.81
400,000 < Balance < = 450,000 1 420,000.00 4.13
---- -------------- ------
TOTAL 54 $10,158,340.00 100.00%
==== ============== ======
</TABLE>
S-32
<PAGE>
DISTRIBUTION BY LIEN STATUS
Pool II
<TABLE>
<CAPTION>
Number of Aggregate Unpaid % of Statistical Calculation Date
Lien Status Mortgage Loans Principal Balance Aggregate Principal Balance
- ----------------------------- ---------------- ------------------- -----------------------------------
<S> <C> <C> <C>
First Lien 28 $ 7,853,665.83 77.31%
Second Lien 26 2,304,674.17 22.69
---- -------------- ------
TOTAL 54 $10,158,340.00 100.00%
==== ============== ======
</TABLE>
DISTRIBUTION BY AMORTIZATION TYPE
Pool II
<TABLE>
<CAPTION>
Number of Aggregate Unpaid % of Statistical Calculation Date
Amortization Type Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------------- ---------------- ------------------- -----------------------------------
<S> <C> <C> <C>
Fully Amortizing 36 $ 5,870,982.94 57.79%
Balloon Loans 18 4,287,357.06 42.21
---- -------------- ------
TOTAL 54 $10,158,340.00 100.00%
==== ============== ======
</TABLE>
DISTRIBUTION BY OCCUPANCY STATUS
Pool II
<TABLE>
<CAPTION>
Number of Aggregate Unpaid % of Statistical Calculation Date
Occupancy Status Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------------ ---------------- ------------------- -----------------------------------
<S> <C> <C> <C>
Owner Occupied 50 $ 9,648,340.00 94.98%
Investor 1 35,000.00 0.34
Business 3 475,000.00 4.68
---- -------------- ------
TOTAL 54 $10,158,340.00 100.00%
==== ============== ======
</TABLE>
DISTRIBUTION BY PROPERTY TYPE
Pool II
<TABLE>
<CAPTION>
Number of Aggregate Unpaid % of Statistical Calculation
Property Type Mortgage Loans Principal Balance Date Aggregate Principal Balance
- ----------------------------- ---------------- ------------------- ----------------------------------
<S> <C> <C> <C>
Mixed Use 3 $ 475,000.00 4.68%
2-4 Family 2 499,500.00 4.92
Single Family 49 9,183,840.00 90.41
---- -------------- ------
TOTAL 54 $10,158,340.00 100.00%
==== ============== ======
</TABLE>
S-33
<PAGE>
Conveyance of Subsequent Mortgage Loans to Pool I
The Indenture permits the Trust to acquire Subsequent Mortgage Loans
for inclusion in Pool I with the funds on deposit in the Pre-Funding Account. It
is expected that the amount on deposit in the Pre-Funding Account on the closing
date will be approximately $13,097,151.43. Accordingly, the statistical
characteristics of the Mortgage Loans in Pool I will vary as of any Subsequent
Cut-Off Date upon the acquisition of Subsequent Mortgage Loans.
The obligation of the Trust to purchase the Subsequent Mortgage Loans
on any date (each, a "Subsequent Transfer Date") during the Pre-Funding Period
is subject to the following requirements: (i) such Subsequent Mortgage Loan may
not be 30 or more days contractually delinquent as of the close of business on
the last day of the calendar month preceding the month in which such Subsequent
Mortgage Loan was purchased by the Trust (such date, the "Subsequent Cut-Off
Date"); (ii) the original term to maturity of such Subsequent Mortgage Loan may
not exceed 360 months; (iii) such Subsequent Mortgage Loan must have a mortgage
interest rate of at least 7.75%; (iv) the purchase of the Subsequent Mortgage
Loans is consented to by the Note Insurer and the Rating Agencies,
notwithstanding the fact that the Subsequent Mortgage Loans meet the parameters
stated herein; (v) the principal balance of any such Subsequent Mortgage Loan
may not exceed $227,150.00; (vi) no more than 9.50% of the aggregate principal
balance of such Subsequent Mortgage Loans may be Second Liens; (vii) no such
Subsequent Mortgage Loan shall have a CLTV of more than (a) for consumer purpose
loans, 84.99%, and (b) for business purpose loans, 75%; (viii) no more than 45%
of such Subsequent Mortgage Loans may be Balloon Loans; (ix) no more than 5% of
such Subsequent Mortgage Loans may be secured by mixed-use properties,
commercial properties, or five or more unit multifamily properties; and (x)
following the purchase of such Subsequent Mortgage Loans by the Trust, the
Mortgage Loans in Pool I (including the Subsequent Mortgage Loans), (a) will
have a weighted average mortgage interest rate, (I) for consumer purpose loans,
of at least 7.75% and (II) for business purpose loans, of at least 12%; and (b)
will have a weighted average CLTV of not more than (I) for consumer purpose
loans, 80%, and (II) for business purpose loans, 62%. The Indenture will provide
that any of such requirements may be waived or modified in any respect upon
prior written consent of the Note Insurer, with the exception of the
requirements set forth in clause (v) above.
THE ORIGINATORS, THE SELLER AND THE SERVICER
General
ABC, the Servicer and an Originator, is a wholly-owned subsidiary of
American Business Financial Services, Inc., a Delaware corporation ("ABFS").
Upland, an Originator and a Subservicer, is a wholly-owned subsidiary of ABC.
NJMIC, an Originator and a Subservicer, is a wholly-owned subsidiary of ABC. The
Seller is owned by ABC, Upland and NJMIC.
ABFS is a financial services company operating primarily in the eastern
region of the United States. ABFS, through ABC, originates, sells and services
loans to businesses secured by real estate and other business assets, and,
through Upland and NJMIC, originates, sells and services non-conforming mortgage
loans, typically to credit impaired borrowers, secured by mortgages on
single-family residences. ABFS, through a subsidiary, also originates small
ticket leases (generally $5,000 to $250,000) and, to a lesser extent, middle
market leases (generally $250,001 to $1.0 million) for the acquisition of
business equipment. In addition, ABFS, acting through Upland, has business
arrangements with several financial institutions pursuant to which Upland will
purchase home equity loans that do not meet the underwriting guidelines of the
selling institution but meet Upland's underwriting criteria (the "Bank Alliance
Program").
S-34
<PAGE>
ABFS's customers currently consist primarily of two groups. The first
category of customers includes credit impaired borrowers who generally are
unable to obtain financing from banks or savings and loan associations that have
historically provided loans only to individuals with favorable credit
characteristics. These borrowers generally have impaired or unsubstantiated
credit characteristics and/or unverifiable income and respond favorably to
ABFS's marketing efforts. The second category of customers includes borrowers
who would qualify for loans from traditional lending sources but elect to
utilize ABFS's products and services. ABFS's experience has indicated that these
borrowers are attracted to ABFS's loan products as a result of its marketing
efforts, the personalized service provided by ABFS's staff of lending officers
and the timely response to loan requests. Historically, both categories of
customers have been willing to pay ABFS's origination fees and interest rates
which are generally higher than those charged by traditional lending sources.
ABFS also markets mortgage loans to borrowers with favorable credit histories.
ABFS' lease customers are typically small businesses or proprietorships with
less than 100 employees with favorable credit histories.
ABFS was incorporated in Delaware in 1985. ABFS is a publicly traded
company and its common stock is listed on the Nasdaq National Market System
under the symbol "ABFI." The principal executive offices of ABFS and its
operating entities are located at Balapointe Office Centre, 111 Presidential
Boulevard, Suite 215, Bala Cynwyd, Pennsylvania 19004. Its telephone number at
such address is (610) 668-2440.
The Originators
The Mortgage Loans were or will be originated or purchased by the
Originators directly in the ordinary course of their business. The Originators'
primary source of loan product is retail marketing, directly targeting small
businesses and consumers through various advertising media.
The business purpose Mortgage Loans were or will be originated by ABC
(except for Mortgage Loans which are secured by properties located in states
where the originating or purchasing of mortgage loans requires a mortgage
banking license, in which case Upland has or will originate or purchase such
Mortgage Loans). The consumer purpose Mortgage Loans were or will be originated
or purchased by Upland and NJMIC.
None of ABC, Upland or NJMIC will insure or guarantee the Notes.
American Business Credit, Inc. ABC originates, services and sells
business purpose loans collateralized by real estate. ABC's operating
subsidiaries include: (i) Upland, a consumer purpose residential mortgage
company; (ii) Process Servicing Center, Inc., a loan processor for home equity
loans generated by the Bank Alliance Program; (iii) American Business Leasing,
Inc., a small-ticket equipment leasing company; (iv) ABC Holdings Corporation, a
holder of foreclosed real estate; and (v) NJMIC, a residential mortgage company.
ABC was incorporated in 1988 pursuant to the laws of the Commonwealth of
Pennsylvania and maintains its corporate headquarters in the metropolitan
Philadelphia area.
ABC currently markets its financial services and originates business
loans through a retail network of salespeople in Pennsylvania, Delaware,
Maryland, New Jersey, New York, Virginia, Ohio and Connecticut. ABC's
origination program is primarily a retail marketing program utilizing various
forms of advertising and a direct sales force. ABC's marketing effort is
principally undertaken by its commissioned sales staff, which consists of full
time professional sales persons who are responsible for converting advertising
leads into loan applications. ABC advertises through newspapers and radio as
well as by conducting large direct mail campaigns targeted at owners of small
businesses located in ABC's market area.
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ABC makes business purpose mortgage loans to corporations,
partnerships, other business entities and sole proprietors. ABC primarily makes
loans to borrowers with imperfect, impaired and/or unsubstantiated credit
histories. As a result, ABC typically requires lower loan-to-value ratios than
are generally required of borrowers with unblemished credit histories. All such
loans are collateralized by a first or second mortgage lien on a principal
residence or some other parcel of real property, such as office and apartment
buildings and mixed use buildings owned by the borrower, a principal of the
borrower, or a guarantor of the borrower. ABC, generally, further collateralizes
its loans by obtaining a lien on the borrower's other tangible and intangible
assets and by filing appropriate UCC financing statements.
ABC makes loans for various business purposes including, but not
limited to, working capital, business expansion, equipment acquisition and
debt-consolidation. ABC does not target any particular industries or trade
pools.
Loans made by ABC generally range from $15,000 to $350,000 and average
approximately $83,000.
HomeAmerican Credit, Inc. d/b/a Upland Mortgage. Upland, ABC's home
equity lending subsidiary, is a Pennsylvania corporation and was incorporated in
May 1991. Upland primarily originates residential mortgages and consumer home
equity loans. Upland is licensed to act and currently operates as a first and
second mortgage banker/lender in Pennsylvania, New Jersey, Delaware, Georgia,
Maryland, North Carolina, South Carolina, Georgia, Florida, Virginia,
Connecticut, New York and Ohio.
Upland originates business loans on behalf of ABC in instances where
state licensing laws require a mortgage license in order to make such loans. In
such circumstances, the credit criteria and collateral requirements utilized by
Upland are identical to those utilized by ABC. As such, ABC's lending procedures
and policies govern Upland when it is originating business purpose mortgage
loans.
Upland primarily markets its residential mortgage and consumer home
equity loans through print advertisements in various newspapers, television and
radio advertisements and through telemarketing and direct mail campaigns in the
states where it originates or purchases mortgage loans. Upland takes
applications from potential borrowers over the phone and in person. The loan
request is then processed and closed. Upland attempts to provide its home equity
borrowers with a loan approval within 24 hours and to close its home equity
loans within approximately seven to ten days of obtaining a loan approval.
Upland's growth strategy includes geographic expansion into the markets
where it has recently been granted mortgage licenses and may include the
acquisition of other mortgage bankers and brokers which compliment Upland's
market. Toward this goal, HomeAmerican Credit, Inc., in February 1996, acquired
all of the assets of Upland Mortgage Corp., a New Jersey and Pennsylvania
licensed mortgage broker and commenced doing business as "Upland Mortgage" in
August, 1996.
Prior to 1995, each of the non-business residential mortgages and home
equity consumer loans originated and funded by Upland was sold to one of several
third party lenders, at a premium. Upland presently accumulates portfolios of
such non-business loans for the purpose of retaining such loans, selling such
loans in bulk or engaging in securitizations. The business loans made by Upland
are either retained in Upland's portfolio, securitized or sold to third parties.
Upland's residential mortgages and consumer home equity loans are currently made
in accordance with loan-to-value standards set forth in the underlying credit
manual. The loan-to-value ratios and terms and conditions utilized for its
business loans are identical to those utilized by ABC.
In fiscal 1996, Upland, in conjunction with the Processing Service
Center, Inc., implemented the Bank Alliance Program, which is designed to
provide an additional source of home equity loans. The
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Bank Alliance Program targets traditional financial institutions, such as banks,
which because of their strict underwriting and credit guidelines have generally
provided mortgage financing only to the most credit-worthy borrowers. The Bank
Alliance Program enables such financial institutions to originate loans to
credit impaired borrowers in order to achieve certain community reinvestment
objectives and subsequently sell such loans to Upland.
Under the Bank Alliance Program, a borrower who fails to meet a
financial institution's underwriting guidelines will be referred to the
Processing Service Center, Inc. which will process the loan application and
underwrite the loan pursuant to Upland's underwriting guidelines. If the
borrower qualifies under Upland's underwriting standards, the loan will be
originated by the financial institution and subsequently sold to Upland.
Since the introduction of the Bank Alliance Program, agreements have
been entered into with eight financial institutions which provide Upland with
the opportunity to underwrite, process and purchase loans generated by the
branch networks of such institutions, which consist of approximately 1,000
branches located in Pennsylvania, Delaware, New Jersey and Maryland. During the
fiscal year ended June 30, 1998, $22.3 million of loans were purchased pursuant
to the Bank Alliance Program. Upland continues to market this program to other
regional and national banking institutions. Upland is also negotiating with
other financial institutions regarding their participation in the program.
New Jersey Mortgage and Investment Corp. ABFS acquired NJMIC, a
mortgage and leasing company based in Roseland, New Jersey, and its
subsidiaries, in October 1997. NJMIC is a full-service diversified residential
lender, which directly and through its subsidiaries offers a broad range of loan
and lease products, including home equity loans, first mortgage loans, and
equipment leases. Historically, NJMIC originated loans for sale to third parties
with servicing released. ABFS intends that NJMIC will continue to originate
first mortgage loans for sale in the secondary market and the home equity loans
originated by NJMIC will be securitized and sold pursuant to ABFS' current
securitization program. Loans originated by NJMIC are secured by properties
located in 29 states. Such loans are originated through its network of six
branch sales offices and three satellite offices located in eight states.
NJMIC's home equity loan customers primarily include credit-impaired borrowers
while borrowers on its first mortgage loans are generally borrowers with
favorable credit histories.
ABFS' acquisition of NJMIC and its subsidiaries expanded the geographic
scope of ABFS' loan origination activities to include states in the midwestern
part of the United States and leasing activities to include the entire United
States. ABFS believes that certain cross marketing opportunities exist between
the two companies with respect to the products and services offered.
Underwriting Guidelines
General. The Originators' loan underwriting standards are applied to
evaluate prospective borrowers' credit standing and repayment ability and the
value and adequacy of the mortgaged property as collateral. Initially, the
borrower is required to fill out a detailed application providing pertinent
credit information. As part of the description of the borrower's financial
condition, the borrower is required to provide information concerning assets,
liabilities, income, credit, employment history and other demographic and
personal information. If the application demonstrates the borrower's ability to
repay the debt as well as sufficient income and equity, loan processing
personnel obtain and review an independent credit bureau report on the credit
history of the borrower and verification of the borrower's income by obtaining
and reviewing one or more of the borrower's pay stubs, income tax returns,
checking account statements, W-2 tax forms or verification of business or
employment forms. Once all applicable employment, credit and property
information is obtained, a determination is made as to whether sufficient
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unencumbered equity in the property exists and whether the prospective borrower
has sufficient monthly income available to meet the borrower's monthly
obligations.
The Originators endeavor at all times to keep their interest and other
charges competitive with the lending rates of other finance companies for
similar type loans. Generally, loans are made at fixed rates for fixed terms
ranging from 5 to 30 years. Generally, the Originators compute interest due on
their outstanding loans by the simple interest method. The Originators require
that title insurance be obtained in connection with their mortgage loans.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraisal is
completed by an independent qualified appraiser and generally includes pictures
of comparable properties and pictures of the subject property's interior. With
respect to business and consumer purpose loans, the appraisal is completed by a
qualified appraiser on a Fannie Mae form.
The due dates for monthly payments on the Mortgage Loans occur
throughout a month (each, a "Due Date"). The majority of the Mortgage Loans have
a prepayment fee clause. Such prepayment fee clauses generally provide that the
borrower pay one or more of the following: (i) a fee equal to a percentage of
the outstanding principal balance of the Mortgage Loan, such percentage having
been negotiated at the time of origination, (ii) a fee which is designed to
allow the holder of the Mortgage Note to earn interest on the Mortgage Loan as
if the Mortgage Loan remained outstanding until a designated point in time, or
(iii) a fee equal to the amount of interest on the outstanding principal balance
of the Mortgage Loan calculated pursuant to a Rule of 78's calculation, which
has the effect of requiring the mortgagor to pay a greater amount of interest
than would be required to be paid if the actuarial method of calculating
interest was utilized. See "Certain Legal Aspects of the Mortgage Loans and
Contracts -- The Mortgage Loans" in the accompanying prospectus.
Lending Policies and Practices for Business Purpose Mortgage Loans.
Summarized below are the current lending policies and practices with respect to
the business purpose loans originated or purchased by ABC. It should be noted
that such policies and practices will be altered, amended and supplemented as
conditions warrant. ABC reserves the right to make changes in its day-to-day
practices and policies in its sole discretion.
Generally, business purpose loans collateralized by residential real
estate must have an overall loan-to-value ratio (based solely on the independent
appraised fair market value of the real estate collateral securing the loan) on
the properties collateralizing the loans of no greater than 70%. Business
purpose loans collateralized by commercial real estate generally must have an
overall loan-to-value ratio (based solely on the independent appraised fair
market value of the real estate collateral securing the loan) of no greater than
55%. In addition, in substantially all instances, ABC receives additional
collateral in the form of, among other things, pledges of securities,
assignments of contract rights, life insurance and lease payments and liens on
business equipment and other business assets, as available.
Lending Policies and Practices for Consumer Purpose Mortgage Loans. The
maximum allowed loan-to-value ratio for consumer purpose loans held in Upland's
and NJMIC's portfolios is generally 90%. The consumer purpose loans originated
by Upland and NJMIC had an average loan-to-value ratio of 76.6% for the fiscal
year ended June 30, 1998. When the loan-to-value ratio is equal to 70% or
greater, neither Upland nor NJMIC will make a second mortgage loan when the
second mortgage loan amount is less than 15% of the existing first lien mortgage
loan amount. When the fair market value of a property exceeds $450,000, Upland
and NJMIC will only lend 50% of the property's value exceeding $450,000.
Occasionally, exceptions to these maximum loan-to-value ratios are made if other
collateral is available
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or if there are compensating factors. Title insurance generally is obtained in
connection with all real estate secured loans.
Upland and NJMIC attempt to keep their interest rates and other charges
competitive with the lending rates of other finance companies and banks.
Generally, its consumer purpose loans are made at fixed rates for fixed terms
and may extend for a term of up to 30 years. In all instances, Upland and NJMIC
permit borrowers to prepay such loans. Where permitted by applicable law, Upland
and NJMIC may impose a prepayment fee. Whether a prepayment fee is imposed and
the amount of such penalty, if any, is negotiated between Upland or NJMIC and
the individual borrower prior to closing the loan.
Terms of the Mortgage Loans. The principal amount of the Mortgage Loans
outstanding bears interest at a fixed rate as indicated on the mortgage notes.
Interest with respect to a majority of the Mortgage Loans included or to be
included in the Mortgage Loan pools accrue interest on a simple interest method.
The simple interest method provides for the amortization of the amount of such
Mortgage Loan over a series of monthly payments. Each monthly interest payment
is calculated by multiplying the outstanding principal balance of such Mortgage
Loan by the stated interest rate. Such product is then multiplied by a fraction,
the numerator of which is the number of days elapsed since the preceding payment
of interest was made and the denominator of which is 360. Payments received on a
Mortgage Loan are applied first to interest accrued to the date of payment, then
to late fees and other charges and then to reduce the unpaid principal balance
of such Mortgage Loan. The remainder of the Mortgage Loans are not fully
amortized over their terms and instead require substantial balloon payments on
their maturity dates.
The mortgage notes provide the holder with the right to require the
borrower to make immediate payment of the entire principal balance plus all
accrued but unpaid interest under the loan agreement if, among other things, the
borrower fails to make any payment under the loan agreement when due (subject to
a grace period or right to cure a default required by state law), or if the
borrower transfers any interest in the property securing the loan agreement.
In the event of default on a mortgage that is senior to a mortgage
loan, the second mortgagee has the right in many states to satisfy the defaulted
first mortgage in full, or to cure such default and make the defaulted senior
mortgage current as to payment, in either event adding any amounts expended in
connection with such satisfaction or cure to the then current principal balance
due for such Mortgage Loan. In such an event of default, the Servicer will
either take the actions described above, take other appropriate actions, or
refrain from taking any action based upon the Servicer's practices in connection
with servicing loans for itself and others. See "Certain Legal Aspects of the
Mortgage Loans and Contracts -- The Mortgage Loans" in the accompanying
prospectus.
The Servicer
ABC will be responsible for servicing the Mortgage Loans in accordance
with its established servicing procedures and the terms of the Sale and
Servicing Agreement. ABC will contract with Upland and NJMIC to act as
Subservicers with respect to the servicing of the consumer purpose Mortgage
Loans. Upland and NJMIC follow the same servicing procedures described below
with respect to ABC.
ABC begins the collection process twenty (20) days prior to the payment
date by sending an invoice to the mortgagor. ABC generally initiates the
telephone collection process one day after a borrower misses a monthly due date.
ABC's daily automated collection system identifies delinquent mortgage loans and
places them on a collector's delinquency file. A collector then attempts to call
the delinquent borrower. The collector attempts to contact the delinquent
borrower every day until either a promise to pay has been made by such borrower
or such borrower makes all delinquent payments. When a delinquent borrower makes
a promise to pay, the collector attempts to contact the borrower by phone on
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the expected payment date. If telephone contact is not made, the collector sends
a computer generated reminder notice to the borrower. During any period of
delinquency, ABC generates a payment reminder letter to the borrower three (3)
days after a missed monthly due date, a late notice is sent to the borrower
seven (7) days after the due date and if no payment or arrangement for payment
has been made fifteen (15) days after the borrower's due date, an attorney
referral letter is sent. When a mortgage loan is fifteen (15) days past due and
no contact has been made with the borrower, a supervisor reviews the account of
the borrower to ensure that all procedures and contacts have been made. At this
time, new contact letters are sent to the delinquent borrower. With respect to
second mortgage loans, the servicer of the first mortgage loan is contacted to
determine if the borrower is also delinquent on the first mortgage loan. When a
mortgage loan becomes forty-five (45) to sixty (60) days delinquent, it is
transferred to ABC's loan work-out department.
When a mortgage loan is received in the work-out department, telephone
contact continues, a new default notice is sent to the borrower, an updated
property value report is ordered for the collateral, the tax status of the
mortgage loan is determined, and the first lien holder (if applicable) is
contacted to determine the status of its loan. If a first mortgage is in
default, ABC may advance funds to keep the first mortgage current or may choose
to pay off the senior mortgage.
If the borrower has declared bankruptcy or the first mortgagor is
foreclosing, the matter is immediately referred to outside counsel. The work-out
department will attempt to reinstate the loan, seek a payoff, or enter into a
loan modification agreement with the borrower to avoid foreclosure.
Supporting ABC's collection and accounting functions is a network of
computer hardware and software. ABC's current computer system produces mortgage
loan invoices, payment reminders and late notices. In addition to these
collection functions, the computer provides an in-depth customer contact system
which enables ABC's collectors to manage each borrower's loan history by
individually logging all correspondence into the system's data base. The system
also generates numerous management reports detailing collection activity and
accounting information.
ABFS is taking all action reasonably necessary to assess the risk that
the computer applications it uses in its business may be unable to properly
perform date sensitive functions on or after December 31, 1999. Further it is in
the process of taking all remedial action reasonably necessary to avoid such
risk and expects to complete such action in a timely fashion. Finally, ABFS is
in the process of determining with its third party vendors, with which it has a
material contractual relationship, the likelihood that a similar computer
application risk which is not being addressed by the service provider, would
likely have a material adverse effect on its operations.
Delinquency and Loan Loss Experience
The following tables set forth information relating to the delinquency
and loan loss experience on the mortgage loans included in ABC's, Upland's and
NJMIC's servicing portfolio for the periods shown. The delinquency and loan loss
experience represents the historical experience of ABC, Upland and NJMIC, and
there can be no assurance that the future experience on the Mortgage Loans in
the Trust will be the same as, or more favorable than, that of the mortgage
loans in ABC's, Upland's and NJMIC's overall servicing portfolio.
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Delinquency and Foreclosure Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
At June 30, 1996 At June 30, 1997
-------------------------------------- --------------------------------------
Number of % of % of Number % of % of
Loans Loans Amount Amount of Loans Loans Amount Amount
Serviced Serviced Serviced Serviced Serviced Serviced Serviced Serviced
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Servicing portfolio 1,368 100.00% $55,284 100.00% 2,918 100.00% $167,190 100.00%
Past due loans(1):
60-89 days....... 5 0.37% $ 136 0.25% 11 0.38% $ 803 0.48%
90 days or more.. 15 1.10% $ 1,083 1.96% 14 0.48% $ 833 0.50%
----- ------ ------- ------ ----- ------ -------- ------
Total past due
loans(2)........... 20 1.46% $ 1,219 2.20% 25 0.86% $ 1,636 0.98%
REO Properties(3).. 6 0.44% $ 444 0.80% 7 0.24% $ 443 0.26%
----- ------ ------- ------ ----- ------ -------- ------
Total past due
loans,
foreclosures
pending and REO
Properties(3)...... 26 1.90% $ 1,663 3.01% 32 1.10% $ 2,079 1.25%
===== ===== ======= ====== ===== ===== ======== =======
[TABLE RESTUBBED]
At June 30, 1998
--------------------------------------
Number of % of % of
Loans Loans Amount Amount
Serviced Serviced Serviced Serviced
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Servicing portfolio 6,861 100.00% $450,935 100.00%
Past due loans(1):
60-89 days....... 29 0.42% $ 1,950 0.43%
90 days or more.. 98 1.43% $ 7,103 1.58%
----- ------ -------- ------
Total past due
loans(2)........... 127 1.85% $ 9,053 2.01%
REO Properties(3).. 19 0.28% $ 1,840 0.41%
----- ------ -------- ------
Total past due
loans,
foreclosures
pending and REO
Properties(3)...... 146 2.13% $10,893 2.42%
===== ======= ======= =====
</TABLE>
(1) The past due period is based on the actual number of days that a
payment is contractually past due. A loan as to which a monthly payment was
due 60-89 days prior to the reporting period is considered 60-89 days past
due, etc.
(2) Includes pending foreclosures.
(3) An "REO Property" is a property acquired and held as a result of
foreclosure or deed in lieu of foreclosure.
<PAGE>
Loan Charge-Off Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
At June 30, At June 30, At June 30,
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Servicing portfolio at period end......... $ 55,284 $ 167,190 $ 450,935
Average outstanding(1).................... $ 35,514 $ 111,237 $ 309,063
Number of loans outstanding............. 1,368 2,918 6,861
Gross losses(2)......................... $ 129 $ 81 $ 203
Loan recoveries......................... $ 0 $ 47 $ 65
---------- --------- ----------
Net loan charge-offs.................... $ 129 $ 34 $ 138
Net loan charge-offs as a percentage
of servicing portfolio at period end.. 0.23% 0.02% 0.03%
Net loan charge-offs as a percentage
of average outstanding................ 0.36% 0.03% 0.04%
</TABLE>
(1) "Average outstanding" presented is the arithmetic average of the principal
balances of the loans in the Originators' servicing portfolio outstanding at
the opening and closing of business for such period.
(2) "Gross losses" means the outstanding principal balance plus accrued but
unpaid interest on liquidated mortgage loans.
While the above delinquency and foreclosure and loan charge-off
experiences are typical of the Originators' experiences at the dates for the
periods indicated, there can be no assurance that the delinquency and
foreclosure and loan charge-off experiences on the Mortgage Loans will be
similar. Accordingly, the information should not be considered to reflect the
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credit quality of the Mortgage Loans included in the Trust, or as a basis of
assessing the likelihood, amount or severity of losses on the Mortgage Loans.
The statistical data in the tables is based on all of the mortgage loans in the
Originators' servicing portfolio. The Mortgage Loans, in general, may have
characteristics which distinguish them from the majority of the loans in the
Originators' servicing portfolio.
THE OWNER TRUSTEE
First Union Trust Company, National Association (the "Owner Trustee"),
a national banking association, has its corporate trust offices located at One
Rodney Square, 920 King Street, Suite 102, Wilmington, Delaware 19801 (the
"Owner Trust Office"). The Owner Trustee will perform limited administrative
functions on behalf of the Trust pursuant to the Trust Agreement. The Owner
Trustee's duties in connection with the issuance and sale of the Notes are
limited solely to its express obligations under the Trust Agreement.
THE INDENTURE TRUSTEE
The Bank of New York (the "Indenture Trustee"), a New York banking
corporation, has an office at 101 Barclay Street, New York, New York 10286 (the
"Indenture Trust Office"). The Indenture Trustee will act as initial
authenticating agent, paying agent and note registrar pursuant to the terms of
the Indenture.
DESCRIPTION OF THE NOTES AND THE TRUST CERTIFICATES
General
Certain capitalized terms used in this section are defined herein under
"Description of the Notes -- Definitions."
On the closing date, the Trust will issue the Class A-1 Notes and the
Class A-2 Notes pursuant to the Indenture. Each Class A-1 Note represents a debt
obligation of the Trust secured by a pledge of the portion of the Trust Estate
consisting of the Pool I Mortgage Loans and, to the extent provided herein, the
Pool II Mortgage Loans. Each Class A-2 Note represents a debt obligation of the
Trust secured by a pledge of the portion of the Trust Estate consisting of the
Pool II Mortgage Loans and, to the extent provided herein, the Pool I Mortgage
Loans. Pursuant to the Trust Agreement, the Trust will also issue two classes of
Trust Certificates, together representing the entire beneficial ownership
interest in the Trust. Each class of Trust Certificate will represent the entire
beneficial ownership interest in one pool of Mortgage Loans. There will be two
Trust Certificates relating to Pool I, which will be held by the Unaffiliated
Seller and ABFS. There will be one Trust Certificate relating to Pool II, which
will be held by the Unaffiliated Seller. None of the Trust Certificates may be
transferred without the consent of the Note Insurer and compliance with the
transfer provisions of the Trust Agreement. An election will be made to treat
the sub-trust of the Trust consisting of the Pool II Mortgage Loans as a REMIC
for federal income tax purposes. For purposes of the Code, the Class A-2 Notes
will be designated as the "regular interests" in the REMIC, and the Trust
Certificate relating to the Pool II Mortgage Loans will be designated as the
sole "residual interest" in the REMIC. None of the Trust Certificates are being
offered hereby.
The Trust Estate consists of (a) the Mortgage Loans, together with the
mortgage files relating thereto and all collections thereon and proceeds thereof
collected after the Cut-Off Date, (b) such assets as from time to time are
identified as REO Property and collections thereon and proceeds thereof, (c)
assets that are deposited in the Accounts, including amounts on deposit in the
Accounts and invested in accordance with the Indenture and the Sale and
Servicing Agreement ("Permitted Investments"), (d) the Indenture Trustee's
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rights with respect to the Mortgage Loans under all insurance policies required
to be maintained pursuant to the Sale and Servicing Agreement and any insurance
proceeds, (e) Liquidation Proceeds and (f) released mortgaged property proceeds.
In addition, the Seller will cause the Note Insurer to issue the Note Insurance
Policy under which it will guarantee payments to the holders of the Notes as
described herein.
The Notes will be issued only in book-entry form, in denominations of
$1,000 initial principal balance and integral multiples of $1,000 in excess
thereof, except that one Note of each class may be issued in a different amount.
Book-Entry Registration
The Notes are sometimes referred to in this prospectus supplement as
"Book-Entry Notes." No person acquiring an interest in the Book-Entry Notes will
be entitled to receive a definitive note representing an obligation of the
Trust, except under the limited circumstances described herein. Beneficial
Owners may elect to hold their interests through The Depository Trust Company
("DTC" or the "Depository"), in the United States, or Centrale de Livraison de
Valeurs Mobiliers, S.A. ("CEDEL") or the Euroclear System ("Euroclear"), in
Europe. Transfers within DTC, CEDEL or Euroclear, as the case may be, will be in
accordance with the usual rules and operating procedures of the relevant system.
So long as the Notes are Book-Entry Notes, such Notes will be evidenced by one
or more Notes registered in the name of Cede & Co. ("Cede"), which will be the
"holder" of such Notes, as the nominee of DTC or one of the relevant
depositaries. Cross-market transfers between persons holding directly or
indirectly through DTC, on the one hand, and counterparties holding directly or
indirectly through CEDEL or Euroclear, on the other, will be effected in DTC
through The Chase Manhattan Bank ("Chase"), the relevant depositories of CEDEL
or Euroclear, respectively, and each a participating member of DTC. The Notes
will initially be registered in the name of Cede. The interests of the holders
of such Notes will be represented by book-entries on the records of DTC and
participating members thereof. All references herein to any Notes reflect the
rights of Beneficial Owners only as such rights may be exercised through DTC and
its participating organizations for so long as such Notes are held by DTC.
The Beneficial Owners may elect to hold their Notes through DTC in the
United States, or CEDEL or Euroclear if they are participants in such systems
("Participants"), or indirectly through organizations which are Participants in
such systems. The Book-Entry Notes will be issued in one or more notes per class
of Notes which in the aggregate equal the outstanding principal balance of the
related class of Notes and will initially be registered in the name of Cede, the
nominee of DTC. CEDEL and Euroclear will hold omnibus positions on behalf of
their Participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC. Chase will act as depositary for CEDEL and Morgan
Guaranty Trust Company of New York 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 Notes in minimum denominations representing principal amounts of
$1,000. Except as described below, no Beneficial Owner will be entitled to
receive a physical note representing such Note (a "Definitive Note"). Unless and
until Definitive Notes are issued, it is anticipated that the only "holder" of
such Notes will be Cede, as nominee of DTC. Beneficial Owners will not be
"holders" or "noteholders" as those terms are used in the Indenture and the Sale
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 Note will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
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Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Note will be recorded on the records
of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Beneficial Owner's Financial Intermediary is not a DTC Participant and on
the records of CEDEL or Euroclear, as appropriate).
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of notes. Participants
include securities brokers and dealers (including the Underwriter), banks, trust
companies and clearing corporations. Indirect access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants").
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Book-Entry Notes, such as the Notes, among Participants on whose behalf it
acts with respect to the Book-Entry Notes and to receive and transmit
distributions of principal of and interest on the Book-Entry Notes. Participants
and Indirect Participants with which Beneficial Owners have accounts with
respect to the Book-Entry Notes similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Beneficial Owners.
Beneficial Owners that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Book-Entry Notes may do so only through Participants and Indirect
Participants. In addition, Beneficial Owners will receive all distributions of
principal and interest from the Indenture Trustee, or a paying agent on behalf
of the Indenture Trustee, through DTC Participants. DTC will forward such
distributions to its Participants, which thereafter will forward them to
Indirect Participants or Beneficial Owners. Beneficial Owners will not be
recognized by the Indenture Trustee, the Servicer or any paying agent as holders
of the Notes, and Beneficial Owners will be permitted to exercise the rights of
the holders of the Notes only indirectly through DTC and its Participants.
Because of time zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant CEDEL or Euroclear cash account only as of the
business day following settlement in DTC. For information with respect to tax
documentation procedures relating to the Notes, see "Certain Federal Income Tax
Consequences -- REMIC Securities" in the accompanying prospectus.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
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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.
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 notes. 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
notes and any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 31 currencies, including United States
dollars. Euroclear includes various other services, including securities lending
and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear Securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific notes to specific securities clearance accounts. The
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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 Notes will be made on each Distribution
Date by the Indenture Trustee to Cede, as nominee of DTC. DTC will be
responsible for crediting the amount of such payments to the accounts of the
applicable DTC Participants in accordance with DTC's normal procedures. Each DTC
Participant will be responsible for disbursing such payment to the Beneficial
Owners of the Book-Entry Notes 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
Notes that it represents.
Under a book-entry format, Beneficial Owners of the Book-Entry Notes
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Indenture Trustee to Cede, as nominee of DTC. Distributions
with respect to Notes 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 Notes to persons or entities that do not participate
in the Depository system, or otherwise take actions in respect of such
Book-Entry Notes, may be limited due to the lack of physical notes for such
Book-Entry Notes. In addition, issuance of the Book-Entry Notes in book-entry
form may reduce the liquidity of such Notes in the secondary market since
certain potential investors may be unwilling to purchase Notes for which they
cannot obtain physical notes.
Monthly and annual reports on the Trust provided by the Indenture
Trustee to Cede, as nominee of DTC, may be made available to Beneficial Owners
upon request, in accordance with the rules, regulations and procedures creating
and affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Notes of such Beneficial Owners are credited.
DTC has advised the Depositor and the Servicer that it will take any
action permitted to be taken by a holder of the Notes under the Indenture only
at the direction of one or more Participants to whose accounts with DTC the
Book-Entry Notes are credited. Additionally, DTC has advised the Depositor that
it will take such actions with respect to specified percentages of voting rights
only at the direction of and on behalf of Participants whose holdings of
Book-Entry Notes evidence such specified percentages of voting rights. DTC may
take conflicting actions with respect to percentages of voting rights to the
extent that Participants whose holdings of Book-Entry Notes evidence such
percentages of voting rights authorize divergent action.
None of the Trust, the Depositor, the Servicer, the Note Insurer or the
Indenture 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 Notes held by Cede, as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among Participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
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Definitive Notes
The Notes, which will be issued initially as Book-Entry Notes, will be
converted to Definitive Notes and reissued to Beneficial Owners or their
nominees, rather than to DTC or its nominee, only if (a) the Depository or the
Servicer advises the Indenture Trustee in writing that DTC is no longer willing
or able to discharge properly its responsibilities as depository with respect to
the Book-Entry Notes and the Depository or the Servicer is unable to locate a
qualified successor or (b) the Indenture Trustee, at its option, elects to
terminate the book-entry system through DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC will be required to notify all Participants of the availability
through DTC of Definitive Notes. Upon delivery of Definitive Notes, the
Indenture Trustee will reissue the Book-Entry Notes as Definitive Notes to
Beneficial Owners. Distributions of principal of, and interest on, the
Book-Entry Notes will thereafter be made by the Indenture Trustee, or a paying
agent on behalf of the Indenture Trustee, directly to holders of Definitive
Notes in accordance with the procedures set forth in the Indenture.
Definitive Notes will be transferable and exchangeable at the offices
of the Indenture Trustee or the note registrar. No service charge will be
imposed for any registration of transfer or exchange, but the Indenture Trustee
may require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
Assignment and Pledge of Initial Mortgage Loans
Pursuant to the Unaffiliated Seller's Agreement, the Originators will
sell, transfer, assign, set over and otherwise convey the Mortgage Loans,
without recourse, to the Seller and the Seller will sell, transfer, assign, set
over and otherwise convey the Mortgage Loans, including all principal
outstanding as of, and interest due after, the Cut-Off Date, without recourse,
to the Depositor on the closing date. Pursuant to the Sale and Servicing
Agreement, the Depositor will sell, transfer, assign, set over and otherwise
convey without recourse to the Trust, all right, title and interest in and to
each Mortgage Loan, including all principal outstanding as of, and interest
accrued after, the Cut-Off Date. Each such transfer will convey all right, title
and interest in and to (a) principal outstanding as of the Cut-Off Date, and (b)
interest due on each such Mortgage Loan after the Cut-Off Date; provided,
however, that the Originators will not convey, and the Originators reserve and
retain all their respective right, title and interest in and to, (i) principal
(including principal prepayments in full and curtailments (i.e., partial
prepayments)) received on each such Mortgage Loan on or prior to the Cut-Off
Date and (ii) interest due on each Mortgage Loan on or prior to the Cut-Off
Date.
Pursuant to the Indenture, the Trust will pledge to the Indenture
Trustee in trust for the benefit of the holders of the Notes and the Note
Insurer, all right, title and interest in and to each Mortgage Loan, including
all principal outstanding as of, and interest accrued after, the Cut-Off Date,
as collateral security for the Notes.
Assignment and Pledge of Subsequent Mortgage Loans
The Trust may acquire Subsequent Mortgage Loans with the funds on
deposit in the Pre-Funding Account at any time during the period (the
"Pre-Funding Period") from the closing date until the earliest of (i) the date
on which the amount on deposit in the Pre-Funding Account is less than $100,000,
(ii) the date on which an Event of Default occurs under the terms of the
Indenture, or (iii) the close of business on January 31, 1999. The amount on
deposit in the Pre-Funding Account will be reduced during the Pre-Funding Period
by the amount thereof used to purchase Subsequent Mortgage Loans in accordance
with the terms of the Indenture. The Seller expects that the amount on deposit
in the Pre-Funding Account will be reduced to less than $100,000 by January 31,
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1999. To the extent funds in the Pre-Funding Account are not used to purchase
Subsequent Mortgage Loans by January 31, 1999, such funds will be used to prepay
the principal of the Class A-1 Notes on the following Distribution Date.
Subsequent Mortgage Loans will be transferred by the Originators to the Seller,
transferred by the Seller to the Depositor and transferred by the Depositor to
the Trust. The Trust will then pledge the Subsequent Mortgage Loans to the
Indenture Trustee, on behalf of the holders of the Notes and the Note Insurer.
Delivery of Mortgage Loan Documents
In connection with the sale, transfer, assignment or pledge of the
Mortgage Loans to the Trust, the Trust will cause to be delivered to the
Collateral Agent, on behalf of the Indenture Trustee, on the closing date the
following documents (collectively, with respect to each Mortgage Loan, the
"Indenture Trustee's Mortgage File") with respect to each Mortgage Loan:
(a) the original mortgage note, endorsed without recourse in blank
by the related Originator, including all intervening
endorsements showing a complete chain of endorsement;
(b) the related original mortgage with evidence of recording
indicated thereon or, in certain limited circumstances, a copy
thereof certified by the applicable recording office;
(c) the recorded mortgage assignment(s), or copies thereof
certified by the applicable recording office, if any, showing
a complete chain of assignment from the originator of the
related Mortgage Loan to the related Originator (which
assignment may, at such Originator's option, be combined with
the assignment referred to in clause (d) below);
(d) a mortgage assignment in recordable form (which, if acceptable
for recording in the relevant jurisdiction, may be included in
a blanket assignment or assignments) of each mortgage from the
related Originator to the Indenture Trustee;
(e) originals of all assumption, modification and substitution
agreements in those instances where the terms or provisions of
a mortgage or mortgage note have been modified or such
mortgage or mortgage note has been assumed; and
(f) an original title insurance policy (or (A) a copy of the title
insurance policy, or (B) a binder thereof or copy of such
binder together with a certificate from the Originator that
the original mortgage has been delivered to the title
insurance company that issued such binder for recordation).
Pursuant to the Sale and Servicing Agreement, the Collateral Agent, on
behalf of the Indenture Trustee, agrees to execute and deliver on or prior to
the closing date, or, with respect to Subsequent Mortgage Loans, on or prior to
the related Subsequent Transfer Date, an acknowledgment of receipt of the
original mortgage note, item (a) above, with respect to each of the Mortgage
Loans (with any exceptions noted). The Collateral Agent, on behalf of the
Indenture Trustee, agrees, for the benefit of the holders of the Notes and the
Note Insurer, to review (or cause to be reviewed) each Indenture Trustee's
Mortgage File within thirty (30) days after the closing date or the Subsequent
Transfer Date, as applicable (or, with respect to any Qualified Substitute
Mortgage Loan, within thirty (30) days after the receipt by the Collateral Agent
thereof), and to deliver a certification generally to the effect that, as to
each Mortgage Loan listed in the schedule of Mortgage Loans, (a) all documents
required to be delivered to it pursuant to the Sale and Servicing Agreement are
in its possession, (b) each such document has been reviewed by it and has not
been mutilated, damaged, torn or otherwise physically altered, appears regular
on its face and relates to such Mortgage Loan, and (c) based on its examination
and only as to the foregoing documents, certain information set forth on the
schedule of Mortgage Loans accurately reflects the information set forth in the
Indenture Trustee's Mortgage File delivered on such date.
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If the Collateral Agent, during the process of reviewing the Indenture
Trustee's Mortgage Files, finds any document constituting a part of an Indenture
Trustee's Mortgage File which is not executed, has not been received or is
unrelated to the Mortgage Loans, or that any Mortgage Loan does not conform to
the requirements above or to the description thereof as set forth in the
schedule of Mortgage Loans, the Collateral Agent shall promptly so notify the
Indenture Trustee, the Servicer, the Seller and the Note Insurer in writing with
details thereof. The Seller agrees to use reasonable efforts to cause to be
remedied a material defect in a document constituting part of an Indenture
Trustee's Mortgage File of which it is so notified by the Collateral Agent. If,
however, within sixty (60) days after the Collateral Agent's notice to it
respecting such defect the Seller has not caused to be remedied the defect and
the defect materially and adversely affects the interest of the holders of the
Notes in the Mortgage Loan or the interests of the Note Insurer, the Seller or
the related Originator will either (a) substitute in lieu of such Mortgage Loan
a Qualified Substitute Mortgage Loan and, if the then outstanding principal
balance of such Qualified Substitute Mortgage Loan is less than the principal
balance of such Mortgage Loan as of the date of such substitution plus accrued
and unpaid interest thereon, deliver to the Servicer as part of the related
monthly remittance remitted by the Servicer the amount of any such shortfall
(the "Substitution Adjustment") or (b) purchase such Mortgage Loan at a price
equal to the outstanding principal balance of such Mortgage Loan as of the date
of purchase, plus the greater of (i) all accrued and unpaid interest thereon and
(ii) thirty (30) days' interest thereon, computed at the related mortgage
interest rate, net of the Servicing Fee if the Servicer is effecting the
repurchase, plus the amount of any unreimbursed Servicing Advances made by the
Servicer, which purchase price shall be deposited in the related Distribution
Account on the next succeeding Servicer Distribution Date after deducting
therefrom any amounts received in respect of such repurchased Mortgage Loan or
Loans and being held in the Distribution Account for future distribution to the
extent such amounts have not yet been applied to principal or interest on such
Mortgage Loan; provided, however, that the Seller may not purchase any Mortgage
Loan in Pool II that is not in default or as to which no default is reasonably
foreseeable pursuant to clause (b) preceding unless the Seller has theretofore
caused to be delivered to the Indenture Trustee an opinion of counsel
knowledgeable in federal income tax matters which states that such a purchase
would not constitute a prohibited transaction under the Code. In addition, the
Seller and the Originators shall be obligated to indemnify the Indenture
Trustee, the Collateral Agent, the holders of the Notes and the Note Insurer for
any third-party claims arising out of a breach by the Seller or the Originators
of representations or warranties regarding the Mortgage Loans. The obligation of
the Seller and the Originators to cure such breach or to substitute or purchase
any Mortgage Loan and to indemnify constitute the sole remedies respecting a
material breach of any such representation or warranty to the holders of the
Notes, the Indenture Trustee, the Collateral Agent and the Note Insurer.
A "Qualified Substitute Mortgage Loan" is defined in the Indenture as
any mortgage loan or mortgage loans substituted for a deleted Mortgage Loan and
which, among other things, (i) relates or relate to a detached one-family
residence or to the same type of residential dwelling as the deleted Mortgage
Loan and in each case has or have the same or a better lien priority as the
deleted Mortgage Loan and has the same occupancy status or is an owner-occupied
mortgaged property, (ii) matures or mature no later than (and not more than one
year earlier than) the deleted Mortgage Loan, (iii) has or have a Loan-to-Value
Ratio ("LTV") or LTVs at the time of such substitution no higher than the LTV of
the deleted Mortgage Loan, (iv) has or have a CLTV or CLTVs at the time of such
substitution no higher than the CLTV of the deleted Mortgage Loan, (v) has or
have a principal balance or principal balances (after application of all
payments received on or prior to the date of substitution) not substantially
less and not more than the principal balance of the deleted Mortgage Loan as of
such date, (vi) with respect to the Mortgage Loans in Pool II, satisfies or
satisfy the criteria set forth from time to time in the definition of "qualified
replacement mortgage" at Section 860G(a)(4) of the Code (or any successor
statute thereto), (vii) has or have a mortgage interest rate of at least the
same interest rate as the deleted Mortgage Loan and (viii) complies or comply as
of the date of substitution with each representation and warranty set forth in
the Indenture.
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Representations and Warranties of the Seller
The Seller will represent, among other things, with respect to each
Mortgage Loan, as of the closing date or the Subsequent Transfer Date, as
applicable, the following:
1. the information set forth in the schedule of Mortgage Loans with respect
to each Mortgage Loan is true and correct;
2. all of the original or certified documentation constituting the
Indenture Trustee's Mortgage Files (including all material documents related
thereto) has been or will be delivered to the Collateral Agent, on behalf of the
Indenture Trustee, on the closing date or the Subsequent Transfer Date, as
applicable;
3. the mortgaged property consists of a single parcel of real property
separately assessed for tax purposes, upon which is erected a detached or an
attached one-family residence or a detached two- to six-family dwelling, or an
individual condominium unit in a low-rise condominium, or a mobile home unit, or
an individual unit in a planned unit development, or a commercial property, or a
mixed use or multiple purpose property. Such residence, dwelling or unit is not
(i) a unit in a cooperative apartment, (ii) a property constituting part of a
syndication, (iii) a time share unit, (iv) a property held in trust, (v) a
manufactured dwelling, (vi) a log-constructed home, or (vii) a recreational
vehicle;
4. each mortgage is a valid first or second lien on a fee simple (or its
equivalent under applicable state law) estate in the real property securing the
amount owed by the mortgagor under the mortgage note subject only to (i) the
lien of current real property taxes and assessments which are not delinquent,
(ii) any related first mortgage loan, (iii) covenants, conditions and
restrictions, rights of way, easements and other matters of public record as of
the date of recording of such mortgage, such exceptions appearing of record
being acceptable to mortgage lending institutions generally in the area wherein
the property subject to the mortgage is located or specifically reflected in the
appraisal obtained in connection with the origination of the related Mortgage
Loan obtained by the Seller and (iv) other matters to which like properties are
commonly subject which do not materially interfere with the benefits of the
security intended to be provided by such mortgage;
5. immediately prior to the transfer and assignment by the Seller to the
Depositor, the Seller had good title to, and was the sole owner of each Mortgage
Loan, free of any interest of any other person, and the Seller has transferred
all right, title and interest in each Mortgage Loan to the Depositor;
6. each Mortgage Loan conforms, and all such Mortgage Loans in the
aggregate conform, to the description thereof set forth in this prospectus
supplement; and
7. all of the Mortgage Loans were originated in accordance with the
underwriting criteria set forth in this prospectus supplement.
Pursuant to the Sale and Servicing Agreement, upon the discovery by any of
the holder of the Notes, the Seller, the Servicer, any Subservicer, the Note
Insurer, the Collateral Agent or the Indenture Trustee that any of the
representations and warranties contained in the Sale and Servicing Agreement
have been breached in any material respect as of the closing date, with the
result that the interests of the holders of the Notes in the related Mortgage
Loan or the interests of the Note Insurer were materially and adversely affected
(notwithstanding that such representation and warranty was made to the Seller's
or the Originator's best knowledge and the Seller or the Originator lacked
knowledge of such breach), the party
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discovering such breach is required to give prompt written notice to the other
parties. Subject to certain provisions of the Sale and Servicing Agreement,
within sixty (60) days of the earlier to occur of the Seller's or an
Originator's discovery or its receipt of notice of any such breach, the Seller
or the Originators will (a) promptly cure such breach in all material respects,
(b) remove each Mortgage Loan which has given rise to the requirement for action
by the Seller or the Originators, substitute one or more Qualified Substitute
Mortgage Loans and, if the outstanding principal balance of such Qualified
Substitute Mortgage Loans as of the date of such substitution is less than the
outstanding principal balance, plus accrued and unpaid interest thereon, of the
replaced Mortgage Loans as of the date of substitution, deliver to the Trust as
part of the amounts remitted by the Servicer on such Distribution Date the
amount of such shortfall, or (c) purchase such Mortgage Loan at a price equal to
the principal balance of such Mortgage Loan as of the date of purchase plus the
greater of (i) all accrued and unpaid interest thereon and (ii) thirty (30)
days' interest thereon computed at the mortgage interest rate, net of the
Servicing Fee if ABC is the Servicer, plus the amount of any unreimbursed
Servicing Advances made by the Servicer, and deposit such purchase price into
the Distribution Account on the next succeeding Servicer Distribution Date after
deducting therefrom any amounts received in respect of such repurchased Mortgage
Loan or Mortgage Loans and being held in the Distribution Account for future
distribution to the extent such amounts have not yet been applied to principal
or interest on such Mortgage Loan; provided, however, that any substitution of
one or more Qualified Substitute Mortgage Loans for a deleted Mortgage Loan in
Pool II pursuant to clause (b) preceding must be effected not later than two (2)
years after the closing date unless the Indenture Trustee and the Note Insurer
receive an opinion of counsel that such substitution would not constitute a
prohibited transaction for purposes of the REMIC provisions of the Code. In
addition, the Seller and the Originators shall be obligated to indemnify the
Indenture Trustee, the Collateral Agent, the holders of the Notes and the Note
Insurer for any third-party claims arising out of a breach by the Seller or the
Originators of representations or warranties regarding the Mortgage Loans. The
obligation of the Seller and the Originators to cure such breach or to
substitute or purchase any Mortgage Loan and to indemnify constitute the sole
remedies respecting a material breach of any such representation or warranty to
the holders of the Notes, the Indenture Trustee, the Collateral Agent and the
Note Insurer.
Payments on the Mortgage Loans
The Sale and Servicing Agreement provides that the Servicer, for the
benefit of the holders of the Notes, shall establish and maintain a Collection
Account (the "Collection Account"), which will generally be (i) an account
maintained with a depository institution or trust company whose long term
unsecured debt obligations are rated by each Rating Agency in one of its two
highest rating categories at the time of any deposit therein or (ii) trust
accounts maintained with a depository institution acceptable to each Rating
Agency and the Note Insurer (any such account, an "Eligible Account"). The Sale
and Servicing Agreement permits the Servicer to direct any depository
institution maintaining the Collection Account to invest the funds in the
Collection Account in one or more Permitted Investments that mature, unless
payable on demand, no later than the business day preceding the date on which
the Servicer is required to transfer the Servicer Remittance Amount from the
Collection Account to the Distribution Account, as described below.
The Servicer is obligated to deposit or cause to be deposited in the
Collection Account on a daily basis, amounts representing the following payments
received and collections made by it after the Cut-Off Date (other than in
respect of Monthly Payments on the Mortgage Loans due on each Mortgage Loan up
to and including any Due Date occurring on or prior to the Cut-Off Date): (i)
all payments on account of principal, including prepayments of principal
("Principal Prepayments"); (ii) all payments on account of interest on the
Mortgage Loans; (iii) all Liquidation Proceeds and all Insurance Proceeds to the
extent such proceeds are not to be applied to the restoration of the related
mortgaged property or released to the related borrower in accordance with the
express requirements of law or in accordance with prudent and
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customary servicing practices; (iv) all Net REO Proceeds; (v) all other amounts
required to be deposited in the Collection Account pursuant to the Sale and
Servicing Agreement; and (vi) any amounts required to be deposited in connection
with net losses realized on investments of funds in the Collection Account.
The Indenture Trustee will be obligated to set up an account with respect
to each class of Notes (each, a "Distribution Account", and collectively with
the Collection Account, the Pre-Funding Account and the Capitalized Interest
Account, the "Accounts"), which is required to be an Eligible Account, into
which the Servicer will deposit or cause to be deposited the Servicer Remittance
Amount on the 20th day of each month (the "Servicer Distribution Date").
The "Servicer Remittance Amount" for a Servicer Distribution Date is equal
to the sum, without duplication, of (i) all collections of principal and
interest on the Mortgage Loans (including Principal Prepayments, Net REO
Proceeds and Liquidation Proceeds, if any) collected by the Servicer during the
prior calendar month, (ii) all Periodic Advances made by the Servicer with
respect to payments due to be received on the Mortgage Loans on the related Due
Date and (iii) any other amounts required to be placed in the Collection Account
by the Servicer pursuant to the Sale and Servicing Agreement, but excluding the
following:
(a) amounts received on particular Mortgage Loans, with respect to which
the Servicer has previously made an unreimbursed Periodic Advance, as
late payments of interest, or as Net Liquidation Proceeds, to the
extent of such unreimbursed Periodic Advance;
(b) amounts received on a particular Mortgage Loan with respect to which
the Servicer has previously made an unreimbursed Servicing Advance, to
the extent of such unreimbursed Servicing Advance;
(c) for such Servicer Distribution Date, the aggregate Servicing Fee;
(d) all net income from Permitted Investments that is held in the
Collection Account for the account of the Servicer;
(e) all amounts actually recovered from the Servicer in respect of late
fees, assumption fees, prepayment fees and similar fees;
(f) Net Foreclosure Profits; and
(g) certain other amounts which are reimbursable to the Servicer, as
provided in the Sale and Servicing Agreement.
The amounts described in clauses (a) through (g) above may be withdrawn by
the Servicer from the Collection Account on or prior to each Servicer
Distribution Date.
Calculation of LIBOR
On the second business day preceding each Distribution Date or, in the case
of the December 28, 1998 Distribution Date, on the second business day preceding
the closing date (each such date, an "Interest Determination Date"), the
Indenture Trustee will determine the London interbank offered rate ("LIBOR") for
one-month U.S. dollar deposits for the next Accrual Period for the Class A-2
Notes on the basis of the offered rates of the Reference Banks for one-month
U.S. dollar deposits, as such rates appear on Telerate Page 3750, as of 11:00
a.m. (London time) on such Interest Determination Date. As used in this section,
"business day" means a day on which banks are open for dealing in foreign
currency and exchange in London and New York City; "Telerate Page 3750" means
the display designated as page
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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); and "Reference Banks" means leading banks selected by the
Indenture Trustee and engaged in transactions in Eurodollar deposits in the
international Eurocurrency market (i) with an established place of business in
London, (ii) whose quotations appear on the Telerate Page 3750 on the Interest
Determination Date in question, (iii) which have been designated as such by the
Indenture Trustee and (iv) not controlling, controlled by, or under common
control with, the Servicer or the Indenture Trustee.
On each Interest Determination Date, LIBOR for the related Accrual Period
for the Class A-2 Notes will be established by the Indenture Trustee as follows:
(a) If on such Interest Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the related Accrual Period
for the Class A-2 Notes shall be the arithmetic mean of such offered
quotations (rounded upwards if necessary to the nearest whole multiple
of 1/16%).
(b) If on such Interest Determination Date fewer than two Reference Banks
provide such offered quotations, LIBOR for the related Accrual Period
for the Class A-2 Notes shall be the higher of (x) LIBOR as determined
on the previous Interest Determination Date and (y) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate per annum
that the Indenture Trustee determines to be either (i) the arithmetic
mean (rounded upwards if necessary to the nearest whole multiple of
1/16%) of the one-month U.S. dollar lending rates which New York City
banks selected by the Indenture Trustee are quoting on the relevant
Interest Determination Date to the principal London offices of leading
banks in the London interbank market or, in the event that the
Indenture Trustee can determine no such arithmetic mean, (ii) the
lowest one-month U.S. dollar lending rate which New York City banks
selected by the Indenture Trustee are quoting on such Interest
Determination Date to leading European banks.
The establishment of LIBOR on each Interest Determination Date by the
Indenture Trustee and the Indenture Trustee's calculation of the rate of
interest applicable to the Class A-2 Notes for the related Accrual Period shall
(in the absence of manifest error) be final and binding.
Over-collateralization Provisions
Over-collateralization Resulting from Cash Flow Structure. The Indenture
requires that, starting with the second Distribution Date, the Excess Interest
with respect to a pool of Mortgage Loans, if any, that is not used to make
cross-collateralization payments will be applied on each Distribution Date as an
accelerated payment of principal on the related class of Notes, but only to the
limited extent hereafter described. The application of Excess Interest as a
payment of principal has the effect of accelerating the amortization of a class
of Notes relative to the amortization of the related pool of Mortgage Loans. The
"Excess Interest" for a Distribution Date and a pool of Mortgage Loans is equal
to the excess of (x) the amount on deposit in the related Distribution Account
(exclusive of the amount of any Insured Payment and the Servicing Fee) on such
Distribution Date (such amount being the "Available Amount" for such
Distribution Date and such pool of Mortgage Loans) over (y) the sum of (i) the
related Distribution Amount (calculated for this purpose without regard to any
Over-collateralization Increase Amount or portion thereof included therein),
(ii) any Reimbursement Amount or other amounts owed to the Note Insurer and
(iii) the Indenture Trustee's Fees and the Collateral Agent's Fees. The Excess
Interest from a pool of Mortgage Loans will be used (w) to reimburse the Note
Insurer for any amounts due to it, (x) as needed to make cross-collateralization
payments in respect of the other pool of Mortgage Loans, (y) as a payment of
principal to the related class of Notes until the Distribution Date on which the
amount of
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over-collateralization has reached the required level, and (z) as needed to fund
the Cross-collateralization Reserve Account relating to the other pool of
Mortgage Loans. Notwithstanding the foregoing, in the event certain tests set
forth in the Indenture are violated, all available Excess Interest will be used
as a payment of principal to the related class of Notes to accelerate the
amortization of such Notes.
With respect to any Distribution Date and a pool of Mortgage Loans, the
excess, if any, of (x) the sum of the aggregate principal balances of the
Mortgage Loans in such pool as of the close of business on the last day of the
preceding calendar month over (y) the aggregate principal balance of the related
class of Notes as of such Distribution Date (and following the making of all
distributions on such Distribution Date (other than with respect to any
Over-collateralization Increase Amount for such Distribution Date)) is the
"Over-collateralized Amount" for such pool as of such Distribution Date. The
Indenture requires that, starting with the second Distribution Date, Excess
Interest from a pool of Mortgage Loans that is not used to make
cross-collateralization payments will be applied as an accelerated payment of
principal on the related class of Notes until the Over-collateralized Amount has
increased to the level required by the Indenture. After such time, if it is
necessary to re-establish the required level of over-collateralization, Excess
Interest of a pool of Mortgage Loans that is not used to make
cross-collateralization payments will again be applied as an accelerated payment
of principal on the related class of Notes. Notwithstanding the foregoing, in
the event certain tests set forth in the Indenture are violated, all available
Excess Interest from a pool of Mortgage Loans will be used as a payment of
principal to accelerate the amortization of the related class of Notes. Any
amount of Excess Interest actually applied as an accelerated payment of
principal is an "Over-collateralization Increase Amount." The required level of
the Over-collateralized Amount with respect to a Distribution Date is the
"Specified Over-collateralized Amount" with respect to such Distribution Date.
Initially, the Over-collateralized Amount of each pool of Mortgage Loans will be
an amount equal to approximately 1.0% of the sum of (x) the aggregate principal
balance of the Mortgage Loans in each pool on the closing date and (y) with
respect to Pool I, the original amount on deposit in the Pre-Funding Account on
the closing date.
In the event that the required level of the Specified Over-collateralized
Amount with respect to a pool of Mortgage Loans is permitted to decrease or
"step down" on a Distribution Date in the future, the Indenture provides that a
portion of the principal which would otherwise be distributed to the holders of
the related class of Notes on such Distribution Date shall instead be
distributed in the priority set forth herein under "--Flow of Funds." This has
the effect of decelerating the amortization of such class of Notes relative to
the amortization of such pool of Mortgage Loans, and of reducing the
Over-collateralized Amount. With respect to any pool of Mortgage Loans and
Distribution Date, the difference, if any, between (a) the Over-collateralized
Amount that would apply on such Distribution Date after taking into account all
distributions to be made on such Distribution Date (except for any distributions
of related Over-collateralization Reduction Amounts as described in this
sentence) and (b) the Specified Over-collateralized Amount is the "Excess
Over-collateralized Amount" with respect to such pool of Mortgage Loans and such
Distribution Date. If, on any Distribution Date, the Excess Over-collateralized
Amount is, or, after taking into account all other distributions to be made on
such Distribution Date would be, greater than zero (i.e., the
Over-collateralized Amount is or would be greater than the related Specified
Over-collateralized Amount), then any amounts relating to principal which would
otherwise be distributed to the holders of the related class of Notes on such
Distribution Date shall instead be distributed in the priority set forth herein
under "--Flow of Funds", in an amount equal to the lesser of (x) the Excess
Over-collateralized Amount and (y) the amount available for distribution on
account of principal with respect to the related class of Notes on such
Distribution Date; such amount being the "Over-collateralization Reduction
Amount" with respect to such pool of Mortgage Loans for such Distribution Date.
The Indenture provides that, on any Distribution Date, all amounts
collected on account of principal (other than any such amount applied to the
payment of an Over-collateralization Reduction
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Amount) with respect to a pool of Mortgage Loans during the prior calendar month
(the related "Due Period") will be distributed to the holders of the related
class of Notes on such Distribution Date. If any Mortgage Loan became a
Liquidated Mortgage Loan during such prior Due Period, the Net Liquidation
Proceeds related thereto and allocated to principal may be less than the
principal balance of the related Mortgage Loan; the amount of any such
insufficiency is a "Liquidated Loan Loss." In addition, the Sale and Servicing
Agreement provides that the principal balance of any Mortgage Loan which becomes
a Liquidated Mortgage Loan shall then equal zero. The Sale and Servicing
Agreement does not contain any rule which requires that the amount of any
Liquidated Loan Loss be distributed to the holders of the related class of Notes
on the Distribution Date which immediately follows the event of loss; i.e., the
Sale and Servicing Agreement does not require the current recovery of losses.
However, the occurrence of a Liquidated Loan Loss will reduce the
Over-collateralized Amount with respect to such pool of Mortgage Loans, which,
to the extent that such reduction causes the Over-collateralized Amount to be
less than the Specified Over-collateralized Amount applicable to the related
Distribution Date, will require the payment of an Over-collateralization
Increase Amount on such Distribution Date (or, if insufficient funds are
available on such Distribution Date, on subsequent Distribution Dates, until the
Over-collateralized Amount equals the related Specified Over-collateralized
Amount). The effect of the foregoing is to allocate losses to the holders of the
related Trust Certificates by reducing, or eliminating entirely, payments of
Excess Interest and of Over-collateralization Reduction Amounts which such
holders would otherwise receive.
Over-collateralization and the Note Insurance Policy. The Indenture defines
an "Over-collateralization Deficit" with respect to a Distribution Date to be
the amount, if any, by which (x) the aggregate principal balance of the Notes as
of such Distribution Date, and following the making of all distributions to be
made on such Distribution Date (except for any payment to be made as to
principal from proceeds of the Note Insurance Policy), exceeds (y) the sum of
(i) aggregate principal balance of the Mortgage Loans, as of the close of
business on the last day of the related Due Period, (ii) the amount on deposit
in the Pre-Funding Account, and (iii) and funds on deposit in the
Cross-collateralization Reserve Accounts, after application of all amounts due
on such Distribution Date. The Indenture requires the Indenture Trustee to make
a claim for an Insured Payment under the Note Insurance Policy not later than
the third business day prior to any Distribution Date as to which the Indenture
Trustee has determined that an Over-collateralization Deficit will occur for the
purpose of applying the proceeds of such Insured Payment as a payment of
principal to the holders of the related class of Notes on such Distribution
Date. The Note Insurer has the option on any Distribution Date to make a payment
of principal, including in respect of Liquidated Loan Losses, up to the amount
that would have been payable to the holders of the Notes if sufficient funds
were available thereof. Additionally, under the terms of the Indenture, the Note
Insurer will have the option to cause Excess Interest to be applied without
regard to any limitation upon the occurrence of certain trigger events, or in
the event of an "event of default" under the Insurance Agreement. However,
investors in the Notes should realize that, under extreme loss or delinquency
scenarios, they may temporarily receive no distributions of principal.
Cross-collateralization Provisions
Cross Collateralization Payments. On each Distribution Date, available
Excess Interest from a pool of Mortgage Loans, if any, will be paid to the
holders of the class of Notes relating to the other pool of Mortgage Loans to
the extent of the Shortfall Amount for such other pool. The "Shortfall Amount"
for a pool of Mortgage Loans and any Distribution Date equals the sum of (x) any
shortfall in the amount of the Interest Distribution Amount for such pool
actually distributed to the holders of the related class of Notes, (y) the
aggregate amount of Liquidated Loan Losses incurred in respect of such pool
during the immediately preceding Due Period and (z) any shortfall in the payment
of any amounts owed the Note Insurer.
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The cross-collateralization provisions of the transaction are limited to
the payment of credit losses, certain interest shortfalls and any amounts due
the Note Insurer. Excess Interest from one pool of Mortgage Loans will not be
used to build over-collateralization with respect to the other pool of Mortgage
Loans or be used to pay Available Funds Carry-Forward Amounts.
Cross-collateralization Reserve Account. Each class of Notes will have the
benefit of a Cross-collateralization Reserve Account. On each Distribution Date,
available Excess Interest from a pool of Mortgage Loans, if any, will be paid
into the Cross-collateralization Reserve Account relating to the other pool of
Mortgage Loans, until the amount of funds on deposit therein equals the
Specified Reserve Amount for such other pool. The "Specified Reserve Amount" for
a pool of Mortgage Loans and any Distribution Date equals the difference between
(x) the Specified Over-collateralized Amount for such pool and such Distribution
Date and (y) the Over-collateralized Amount for such pool on such Distribution
Date. If the amount on deposit in the Cross-collateralization Reserve Account
for a pool of Mortgage Loans on any Distribution Date exceeds the Specified
Reserve Amount for such pool and such Distribution Date, the amount of such
excess shall be distributed in the priority set forth herein under "--Flow of
Funds."
Funds on deposit in a Cross-collateralization Reserve Account will be used
on any Distribution Date to make payments in respect of the Shortfall Amount for
either pool after the Over-collateralized Amount for such pool of Mortgage Loans
has been reduced to zero, to the extent that there is no Excess Interest
available therefor on such Distribution Date.
Flow of Funds
On each Distribution Date, the Indenture Trustee (based solely on the
information received from the Servicer in the Servicer Remittance Report prior
to such Distribution Date) shall make payments in respect of each pool of
Mortgage Loans to the holders of the related class of Notes and reimbursement to
the Note Insurer under the Insurance Agreement, to the extent of funds,
including any Insured Payments, on deposit in the related Distribution Account,
as follows:
(a) (i) to the Indenture Trustee, an amount equal to the fees then due to
it with respect to the related class of Notes (the "Indenture
Trustee's Fees"); and
(ii) to the Collateral Agent, an amount equal to the fees then due to
it with respect to the related class of Notes (the "Collateral Agent's
Fees");
(b) from amounts then on deposit in the related Distribution Account
(excluding any Insured Payments) to the Note Insurer the lesser of (x)
the excess of (i) the amount then on deposit in the Distribution
Account over (ii) the Insured Distribution Amounts for such pool and
such Distribution Date and (y) the amount of all Insured Payments and
other amounts due to the Note Insurer for such pool pursuant to the
Insurance Agreement (including the premium amount) which have not been
previously paid (the "Reimbursement Amount") as of such Distribution
Date;
(c) from amounts then on deposit in the related Distribution Account, the
Interest Distribution Amount for the related class of Notes;
(d) from amounts then on deposit in the related Distribution Account, the
Principal Distribution Amount for the related class of Notes, until
the principal balance of such class of Notes is reduced to zero;
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(e) with respect to the Class A-1 Notes only, from amounts then on deposit
in the Distribution Account relating to such class, to the holder of
the Class A-1 Notes, the amount of any Class A-1 Mortgage Loan
Interest Shortfalls;
(f) from amounts then on deposit in the related Distribution Account, to
the holders of the other class of Notes, the Shortfall Amount for such
other class;
(g) from amounts then on deposit in the related Distribution Account, to
the Cross-collateralization Reserve Account relating to the other
class of Notes, the amount necessary for the balance of such account
to equal the Specified Reserve Amount;
(h) with respect to the Class A-2 Notes only, from amounts then on deposit
in the Distribution Account relating to such class, to the holders of
the Class A-2 Notes, the Available Funds Carry-Forward Amount; and
(i) following the making by the Indenture Trustee of all allocations,
transfers and disbursements described above, from amounts then on
deposit in the related Distribution Account, to the holders of the
related Trust Certificates, the amount remaining on such Distribution
Date, if any.
Definitions
"Available Amount" for any pool of Mortgage Loans and any Distribution Date
is the amount on deposit in the related Distribution Account (exclusive of the
amount of any Insured Payment and the Servicing Fee) on such Distribution Date.
"Carry-Forward Amount" for the Pool II Mortgage Loans and any Distribution
Date equals the sum of (a) the amount, if any, by which (i) the Class A-2
Interest Distribution Amount as of the immediately preceding Distribution Date
exceeded (ii) the amount actually distributed to the holders of the Class A-2
Notes on such Distribution Date on account of interest and (b) thirty (30) days'
interest on such amount at the Class A-2 Formula Note Rate.
"Class A-1 Interest Distribution Amount" for any Distribution Date will be
an amount equal to the sum of the Current Interest for the Class A-1 Notes on
such Distribution Date, less the amount of any Class A-1 Mortgage Loan Interest
Shortalls relating to such Distribution Date.
"Class A-1 Mortgage Loan Interest Shortfalls" for any Distribution Date
will be the aggregate of the Mortgage Loan Interest Shortfalls in Pool I, if
any, for such Distribution Date, to the extent such Mortgage Loan Interest
Shortfalls are not paid by the Servicer as Compensating Interest
"Class A-2 Interest Distribution Amount" for any Distribution Date will be
an amount equal to the sum of the Current Interest for the Class A-2 Notes on
such Distribution Date, reduced by an amount equal to the aggregate of the
Mortgage Loan Interest Shortfalls, if any, for such Distribution Date, to the
extent such Mortgage Loan Interest Shortfalls are not paid by the Servicer as
Compensating Interest, plus any related Carry-Forward Amount.
"Current Interest" for any pool of Mortgage Loans and any Distribution Date
is the interest that will accrue on the related class of Notes at the applicable
Note Rate on the aggregate outstanding principal balance of such class during
the related Accrual Period.
"Excess Interest" for any pool of Mortgage Loans and any Distribution Date
is equal to the excess of (x) the Available Amount for such pool and such
Distribution Date over (y) the sum of (i) the Interest
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Distribution Amount for such pool and such Distribution Date and Principal
Distribution Amount for such pool and such Distribution Date (calculated for
this purpose without regard to any Over-collateralization Increase Amount or
portion thereof included therein), (ii) any Reimbursement Amount or other amount
owed to the Note Insurer relating to such pool and (iii) the Indenture Trustee's
Fees and Collateral Agent's Fees for such pool and such Distribution Date .
"Foreclosure Profits" as to any Servicer Distribution Date, are the excess,
if any, of (i) Net Liquidation Proceeds in respect of each Mortgage Loan that
became a Liquidated Mortgage Loan during the month immediately preceding the
month of such Servicer Distribution Date over (ii) the sum of such unpaid
principal balance of each such Liquidated Mortgage Loan plus accrued and unpaid
interest on the unpaid principal balance from the Due Date to which interest was
last paid by the mortgagor.
"Insurance Proceeds" are proceeds paid by any insurer pursuant to any
insurance policy covering a Mortgage Loan to the extent such proceeds are not
applied to the restoration of the related mortgaged property or released to the
related mortgagor. "Insurance Proceeds" do not include "Insured Payments."
"Insured Distribution Amount" for any pool of Mortgage Loans and any
Distribution Date, is the sum of (i) the Interest Distribution Amount for such
pool and such Distribution Date, (ii) the amount of the Over-collateralization
Deficit applicable to such pool and such Distribution Date, if any, and (iii)
with respect to the Distribution Date which is a final stated maturity date, the
aggregate outstanding principal balance for the related class of Notes.
"Insured Payment" for any pool of Mortgage Loans and any Distribution Date
will equal the amount by which the Insured Distribution Amount for such pool and
such Distribution Date exceeds the Available Amount for such pool and such
Distribution Date, less the Indenture Trustee's Fees and Collateral Agent's Fees
for such pool and such Distribution Date.
"Interest Distribution Amount" means the Class A-1 Interest Distribution
Amount or the Class A-2 Interest Distribution Amount, as applicable.
"Liquidation Expenses" as to any Liquidated Mortgage Loan are all expenses
incurred by the Servicer in connection with the liquidation of such Mortgage
Loan, including, without duplication, unreimbursed expenses for real property
taxes and unreimbursed Servicing Advances. In no event may Liquidation Expenses
with respect to a Liquidated Mortgage Loan exceed the related Liquidation
Proceeds.
"Liquidated Loan Loss" as to any Liquidated Mortgage Loan is the excess, if
any, of (i) the unpaid principal balance of such Liquidated Mortgage Loan plus
accrued and unpaid interest on such unpaid principal balance from the Due Date
to which interest was last paid by the Mortgagor over (ii) the sum of the Net
Liquidation Proceeds and the amount of any previously unreimbursed Periodic
Advances in respect of such Mortgage Loan.
"Liquidation Proceeds" are amounts (other than Insurance Proceeds) received
by the Servicer in connection with (i) the taking of all or a part of a
Mortgaged Property by exercise of the power of eminent domain or condemnation or
(ii) the liquidation of a defaulted Mortgage Loan through a sale, foreclosure
sale, REO Disposition or otherwise.
"Mortgage Loan Interest Shortfalls" means Civil Relief Act Interest
Shortfalls and Prepayment Interest Shortfalls.
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"Net Foreclosure Profits" as to any Servicer Distribution Date, are the
excess, if any, of (i) the aggregate Foreclosure Profits with respect to such
Servicer Distribution Date over (ii) Liquidated Loan Losses with respect to such
Servicer Distribution Date.
"Net Liquidation Proceeds" as to any Liquidated Mortgage Loan, are
Liquidation Proceeds net of Liquidation Expenses and net of any unreimbursed
Periodic Advances made by the Servicer.
"Net REO Proceeds" as to any REO Property, are REO Proceeds net of any
related expenses of the Servicer.
"Over-collateralization Deficit" for any Distribution Date, is the amount
by which the aggregate outstanding principal balance of the Notes exceeds the
sum of (i) the aggregate principal balance of the Mortgage Loans, (ii) any
amount on deposit in the Pre-Funding Account on such Distribution Date, and
(iii) any amounts on deposit in the Cross-collateralization Reserve Accounts on
such Distribution Date, after application of all amounts due on such
Distribution Date.
"Over-collateralization Increase Amount" for any pool of Mortgage Loans and
any Distribution Date is the amount of Excess Interest to be applied as an
accelerated payment of principal on the related class of Notes until the
over-collateralization for such pool reaches the Specified Over-collateralized
Amount. Such payment is limited to the extent of the Available Amount as
described in the definition of "Principal Distribution Amount."
"Over-collateralization Reduction Amount" with respect to any pool of
Mortgage Loans and any Distribution Date, is the difference, if any, between (a)
the Over-collateralized Amount for such pool that would apply on such
Distribution Date after taking into account all distributions to be made on such
Distribution Date (except for any distributions of related
Over-collateralization Reduction Amounts as described in this sentence) and (b)
the Specified Over-collateralized Amount for such pool and such Distribution
Date to the extent of principal available for distribution.
"Principal Distribution Amount" for any pool of Mortgage Loans and any
Distribution Date will be the lesser of:
(a) the excess of (i) the sum, as of such Distribution Date, of (A) the
Available Amount for such pool and (B) any Insured Payment with
respect to the related class of Notes over (ii) the sum of Interest
Distribution Amount for such pool, the Indenture Trustee's Fees, the
Collateral Agent's Fees and the Reimbursement Amount allocable to the
related class of Notes; and
(b) the sum, without duplication, of:
(i) all principal in respect of the Mortgage Loans in such pool
actually collected during the related Due Period;
(ii) the principal balance of each Mortgage Loan that either was
repurchased by the Seller or purchased by the Servicer on
the related Servicer Distribution Date from such pool, to
the extent such principal balance is actually received by
the Indenture Trustee;
(iii) any Substitution Adjustments delivered by the Seller on the
related Servicer Distribution Date in connection with a
substitution of a Mortgage Loan in such
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pool, to the extent such Substitution Adjustments are
actually received by the Indenture Trustee;
(iv) the Net Liquidation Proceeds actually collected by the
Servicer of all Mortgage Loans in such pool during the prior
calendar month (to the extent such Net Liquidation Proceeds
relate to principal);
(v) with respect to Pool I and the December 1998, January 1999
or February 1999 Distribution Dates, moneys released from
the Pre-Funding Account, if any;
(vi) with respect to Pool II, the proceeds received by the
Indenture Trustee upon the exercise by the Servicer of its
option to call the Class A-2 Notes (to the extent such
proceeds relate to principal);
(vii) the amount of any Over-collateralization Deficit with
respect to such pool for such Distribution Date;
(viii) the proceeds received by the Indenture Trustee on any
termination of the Trust (to the extent such proceeds relate
to principal) allocable to such pool;
(ix) the amount of any Over-collateralization Increase Amount
with respect to such pool for such Distribution Date, to the
extent of any Excess Interest for such pool available for
such purpose, exclusive of the amount of Excess Interest for
such pool necessary to make the payment of (A) with respect
to Pool I only, any Class A-1 Mortgage Loan Interest
Shortfalls and (B) the Shortfall Amount for such pool and
such Distribution Date;
(x) if the Note Insurer shall so elect, an amount of principal
(including Liquidated Loan Losses) that would have been
payable pursuant to clauses (i) through (ix) above if
sufficient funds were available therefor;
minus
(xi) the amount of any Over-collateralization Reduction Amount
for such pool for such Distribution Date.
In no event will the Principal Distribution Amount for a pool with respect
to any Distribution Date be (x) less than zero or (y) greater than the then
outstanding aggregate principal balance for the Notes.
"REO Proceeds" are monies received in respect of any REO Property
(including, without limitation, proceeds from the rental of the related
mortgaged property).
"Specified Over-collateralized Amount" with respect to a pool of Mortgage
Loans and any Distribution Date will be the amount of Over-collateralization
which the Note Insurer requires with respect to such pool and such Distribution
Date.
Events of Default
Upon the occurrence of an Event of Default, the Indenture Trustee, upon the
direction of the majority holders (which shall be the Note Insurer in the
absence of a default by the Note Insurer under the Insurance Agreement), shall
declare (or, with respect to an Event of Default described in clauses
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(iii) through (vi), the occurrence shall result in the automatic declaration of)
the aggregate outstanding principal balance of all the Notes to be due and
payable together with all accrued and unpaid interest thereon without
presentment, demand, protest or other notice of any kind, all of which are
waived by the Trust. An "Event of Default", wherever used herein, means any one
of the following events:
(i) the Trust shall fail to distribute or cause to be distributed to
the Indenture Trustee, for the benefit of the holders of the
Notes, on any Distribution Date, all or part of any Interest
Distribution Amount due on the Notes on such Distribution Date
and, with respect to Pool I, all or a part of any Class A-1
Mortgage Loan Interest Shortfalls due on the Class A-1 Notes on
such Distribution Date;
(ii) the Trust shall fail to distribute or cause to be distributed to
the Indenture Trustee, for the benefit of the holders of the
Notes, (x) on any Distribution Date an amount equal to the
principal due on the outstanding Notes on such Distribution Date,
to the extent that sufficient funds are on deposit in the
Collection Account or (y) on the final stated maturity date for
any class of Notes, the aggregate outstanding principal balance of
the related class of Notes.
(iii) the Trust shall consent to the appointment of a custodian,
receiver, trustee or liquidator (or other similar official) of
itself, or of a substantial part of its property, or shall admit
in writing its inability to pay its debts generally as they come
due, or a court of competent jurisdiction shall determine that the
Trust is generally not paying its debts as they come due, or the
Trust shall make a general assignment for the benefit of
creditors;
(iv) the Trust shall file a voluntary petition in bankruptcy or a
voluntary petition or an answer seeking reorganization in a
proceeding under any bankruptcy laws (as now or hereafter in
effect) or an answer admitting the material allegation of a
petition filed against the Trust in any such proceeding, or the
Trust shall, by voluntary petition, answer or consent, seek relief
under the provisions of any now existing or future bankruptcy or
other similar law providing for the reorganization or winding-up
of debtors, or providing for an agreement, composition, extension
or adjustment with its creditors;
(v) an order, judgment or decree shall be entered in any proceeding by
any court of competent jurisdiction appointing, without the
consent (express or legally implied) of the Trust, a custodian,
receiver, trustee or liquidator (or other similar official) of the
Trust or any substantial part of its property, or sequestering any
substantial part of its respective property, and any such order,
judgment or decree or appointment or sequestration shall remain in
force undismissed, unstayed or unvacated for a period of ninety
(90) days after the date of entry thereof; or
(vi) a petition against the Trust in a proceeding under applicable
bankruptcy laws or other insolvency laws, as now or hereafter in
effect, shall be filed and shall not be stayed, withdrawn or
dismissed within ninety (90) days thereafter, or if, under the
provisions of any law providing for reorganization or winding-up
of debtors which may apply to the Trust, any court of competent
jurisdiction shall assume jurisdiction, custody or control of the
Trust or any substantial part of its property, and such
jurisdiction, custody or control shall remain in force
unrelinquished, unstayed or unterminated for a period of ninety
(90) days.
Reports to Noteholders
Pursuant to the Indenture, on each Distribution Date the Indenture Trustee
will deliver to the Servicer, the Note Insurer, the Depositor and each holder of
a Note or a Trust Certificate a written report (the "Indenture Trustee's
Remittance Report") containing information including, without limitation, the
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amount of the distribution on such Distribution Date, the amount of such
distribution allocable to principal and allocable to interest, the aggregate
outstanding principal balance of the Notes as of such Distribution Date, the
amount of any Insured Payment included in such distributions on such
Distribution Date and such other information as required by the Indenture.
Amendment
The Indenture may be amended from time to time by the Trust and the
Indenture Trustee by written agreement, upon the prior written consent of the
Note Insurer, without notice to, or consent of, the holder of the Notes, to cure
any ambiguity, to correct or supplement any provisions herein, to comply with
any changes in the Code, or to make any other provisions with respect to matters
or questions arising under the Indenture which shall not be inconsistent with
the provisions of the Indenture; provided, that such action shall not, as
evidenced by an opinion of counsel delivered to, but not obtained at the expense
of, the Indenture Trustee, adversely affect in any material respect the
interests of any holder of the Notes; provided, further, that no such amendment
shall reduce in any manner the amount of, or delay the timing of, payments
received on Mortgage Loans which are required to be distributed on any Note
without the consent of the holder of such Note, or change the rights or
obligations of any other party to the Indenture without the consent of such
party.
The Indenture may be amended from time to time by the Trust and the
Indenture Trustee with the consent of the Note Insurer, and the holders of the
majority of the percentage interest of the Notes and Trust Certificates for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Indenture or of modifying in any manner the rights of
the holders; provided, however, that no such amendment shall be made unless the
Indenture Trustee receives an opinion of counsel, at the expense of the party
requesting the change, that such change will not adversely affect the status of
the sub-trust of the Trust consisting of the Pool II Mortgage Loans as a REMIC
or cause a tax to be imposed on the REMIC; provided, further, that no such
amendment shall reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be distributed on any
Note without the consent of the holder of such Note or reduce the percentage for
each class whose holders are required to consent to any such amendment without
the consent of the holders of 100% of each class of Notes affected thereby.
The Unaffiliated Seller's Agreement and the Sale and Servicing Agreement
contain substantially similar restrictions regarding amendment.
SERVICING OF THE MORTGAGE LOANS
The Servicer
ABC will act as the Servicer of the Mortgage Loan pools. Upland and NJMIC
will act as Subservicers with respect to a portion of the Mortgage Loans. See
"The Originators, the Seller, the Servicer and the Subservicer" herein.
Servicing Fees and Other Compensation and Payment of Expenses
As compensation for its activities as Servicer under the Sale and Servicing
Agreement, the Servicer shall be entitled with respect to each Mortgage Loan to
the Servicing Fee, which shall be payable monthly from amounts on deposit in the
Collection Account. The "Servicing Fee" shall be an amount equal to interest at
one-twelfth of the Servicing Fee Rate for such Mortgage Loan on the outstanding
principal balance of such Mortgage Loan. The "Servicing Fee Rate" with respect
to each Mortgage Loan will be 0.50% per annum. In addition, the Servicer shall
be entitled to receive, as additional servicing compensation, to the extent
permitted by applicable law and the related mortgage notes, any late payment
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charges, assumption fees, prepayment fees or similar items. The Servicer shall
also be entitled to withdraw from the Collection Account any net interest or
other income earned on deposits therein. The Servicer shall pay all expenses
incurred by it in connection with its servicing activities under the Sale and
Servicing Agreement and shall not be entitled to reimbursement therefor except
as specifically provided in the Sale and Servicing Agreement.
Periodic Advances and Servicer Advances
Periodic Advances. Subject to the Servicer's determination that such action
would not constitute a Nonrecoverable Advance, the Servicer is required to make
advances ("Periodic Advances") with respect to delinquent payments of interest
(at a rate equal to the interest rate on the related mortgage note, less the
Servicing Fee). Such Periodic Advances by the Servicer are reimbursable to the
Servicer subject to certain conditions and restrictions, and are intended to
provide both sufficient funds for the payment of interest to the holders of the
Notes, plus an additional amount intended to maintain a specified level of
over-collateralization and to pay the Indenture Trustee's Fees, the Collateral
Agent's Fees and the premium due the Note Insurer. Notwithstanding the
Servicer's good faith determination that a Periodic Advance was recoverable when
made, if such Periodic Advance becomes a Nonrecoverable Advance, the Servicer
will be entitled to reimbursement therefor from the Trust Estate. See
"Description of the Notes -- Payments on the Mortgage Loans" herein.
Servicing Advances. Subject to the Servicer's determination that such
action would not constitute a Nonrecoverable Advance and that a prudent mortgage
lender would make a like advance if it or an affiliate owned the related
Mortgage Loan, the Servicer is required to advance amounts with respect to the
Mortgage Loans ("Servicing Advances") constituting "out-of-pocket" costs and
expenses relating to (a) the preservation and restoration of the mortgaged
property, (b) enforcement proceedings, including foreclosures, (c) expenditures
relating to the purchase or maintenance of a first lien not included in the
Trust Estate on the mortgaged property, and (d) certain other customary amounts
described in the Sale and Servicing Agreement. Such Servicing Advances by the
Servicer are reimbursable to the Servicer subject to certain conditions and
restrictions. In the event that, notwithstanding the Servicer's good faith
determination at the time such Servicing Advance was made, that it would not be
a Nonrecoverable Advance, such Servicing Advance becomes a Nonrecoverable
Advance, the Servicer will be entitled to reimbursement therefor from the Trust
Estate.
Recovery of Advances. The Servicer may recover Periodic Advances and
Servicing Advances to the extent permitted by the Sale and Servicing Agreement
or, if not recovered from the mortgagor on whose behalf such Servicing Advance
or Periodic Advance was made, from late collections on the related Mortgage
Loan, including Liquidation Proceeds, Insurance Proceeds and such other amounts
as may be collected by the Servicer from the mortgagor or otherwise relating to
the Mortgage Loan. In the event a Periodic Advance or a Servicing Advance
becomes a Nonrecoverable Advance, the Servicer may be reimbursed for such
advance from the Distribution Account.
The Servicer shall not be required to make any Periodic Advance or
Servicing Advance which it determines would be a nonrecoverable Periodic Advance
or nonrecoverable Servicing Advance (a "Nonrecoverable Advance"). A Periodic
Advance or Servicing Advance is "nonrecoverable" if in the good faith judgment
of the Servicer, such Periodic Advance or Servicing Advance would not ultimately
be recoverable.
Prepayment Interest Shortfalls
Not later than the close of business on the 20th day of each month (each, a
"Servicer Distribution Date"), the Servicer is required to remit to the
Indenture Trustee an amount equal to the lesser of (a) the aggregate of the
Prepayment Interest Shortfalls for the related Distribution Date resulting from
principal
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prepayments in full during the related Due Period and (b) its aggregate
Servicing Fees received in the related Due Period (such lesser amount, the
"Compensating Interest"), and shall not have the right to reimbursement
therefor. With respect to any Distribution Date, the "Prepayment Interest
Shortfall" will be an amount equal to the excess, if any, of (a) thirty (30)
days' interest on the outstanding principal balance of such Mortgage Loans at a
per annum rate equal to the related mortgage interest rate (or at such lower
rate as may be in effect for such Mortgage Loan because of application of the
Civil Relief Act, any reduction as a result of a bankruptcy proceeding (a
"Deficient Valuation") and/or any reduction by a court of the monthly payment
due on such Mortgage Loan (a "Debt Service Reduction")), minus the rate at which
the Servicing Fee is calculated, over (b) the amount of interest actually
remitted by the related mortgagor in connection with such principal prepayment
in full, less the Servicing Fee for such Mortgage Loan in such month. Insured
Payments do not cover Prepayment Interest Shortfalls.
Civil Relief Act Interest Shortfalls
The reduction, if any, in interest payable on the Mortgage Loans in Pool II
attributable to the application of the Civil Relief Act ("Civil Relief Act
Interest Shortfalls") will reduce the amount of Current Interest due to the
holders of the Class A-2 Notes and will not be covered by payments from the
Servicer, the Note Insurance Policy or otherwise. Conversely, Civil Relief Act
Interest Shortfalls relating to Pool I will not reduce the amount of Current
Interest due to the holders of the Class A-1 Notes. However, in the event the
full amount of Current Interest is not available on any Distribution Date due to
Civil Relief Act Interest Shortfalls in Pool I, the amount of such shortfall
will not be covered by the Note Insurance Policy. Such shortfalls in Current
Interest will be paid from the Excess Interest, if any, otherwise payable in
respect of over-collateralization, cross-collateralization or to the holder of
the Trust Certificate relating to Pool I. See "Risk Factors -- Legal
Considerations" herein.
Optional Purchase of Defaulted Mortgage Loans
The Seller, or any affiliate of the Seller, has the option, but is not
obligated, to purchase from the Trust any Mortgage Loan ninety (90) days or more
delinquent 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, if ABC is the Servicer) plus the amount of any
unreimbursed Servicing Advances made by the Servicer with respect to such
Mortgage Loan in accordance with the provisions specified in the Sale and
Servicing Agreement.
Servicer Reports
On each Servicer Distribution Date, the Servicer is required to deliver to
the Note Insurer, the Indenture Trustee, and the Collateral Agent, a report (the
"Servicer Remittance Report") setting forth the information necessary for the
Indenture Trustee to make the distributions set forth under "--Flow of Funds"
herein and containing the information to be included in the Indenture Trustee's
Remittance Report for such Distribution Date.
The Servicer is required to deliver to the Note Insurer, the Indenture
Trustee, the Collateral Agent, S&P and Moody's, not later than April 30th of
each year an officer's certificate stating that (i) the Servicer has fully
complied with the servicing provisions of the Sale and Servicing Agreement, (ii)
a review of the activities of the Servicer during the preceding calendar year
and of performance under the Sale and Servicing Agreement has been made under
such officer's supervision, and (iii) to the best of such officer's knowledge,
based on such review, the Servicer has fulfilled all its obligations under the
Sale and Servicing Agreement for such year, or, if there has been a default in
the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof including the steps being taken
by the Servicer to remedy such default. The first such officer's certificate
shall be delivered by the Servicer in 1999.
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Not later than April 30th of each year, the Servicer, at its expense, is
required to cause to be delivered to the Note Insurer, the Indenture Trustee,
the Collateral Agent, S&P and Moody's from a firm of independent certified
public accountants (who may also render other services to the Servicer) a
statement to the effect that such firm has examined certain documents and
records relating to the servicing of the Mortgage Loans during the preceding
calendar year (or such longer period from the closing date to the end of the
following calendar year) and that, on the basis of such examination conducted
substantially in compliance with generally accepted auditing standards and the
requirements of the Uniform Single Attestation Program for Mortgage Bankers or
the Audit Program for Mortgages serviced for Freddie Mac, such servicing has
been conducted in compliance with the Sale and Servicing Agreement except for
such significant exceptions or errors in records that, in the opinion of such
firm, generally accepted auditing standards and the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
Freddie Mac require it to report, in which case such exceptions and errors shall
be so reported.
Collection and Other Servicing Procedures
The Servicer will be responsible for making reasonable efforts to collect
all payments called for under the Mortgage Loans and will, consistent with the
Sale and Servicing Agreement, follow such collection procedures as it follows
with respect to loans which are comparable to the Mortgage Loans. Consistent
with the above, the Servicer may, in its discretion, (i) waive any late payment
charge and (ii) arrange with a mortgagor a schedule for the liquidation of
delinquencies, subject to the provisions of the Sale and Servicing Agreement.
If a mortgaged property has been or is about to be conveyed by the
mortgagor, the Servicer will be obligated to accelerate the maturity of the
Mortgage Loan, unless it reasonably believes it is unable to enforce that
Mortgage Loan's "due-on-sale" clause under applicable law. If it reasonably
believes it may be restricted for any reason from enforcing such a "due-on-sale"
clause, the Servicer may enter into an assumption and modification agreement
with the person to whom such property has been or is about to be conveyed,
pursuant to which such person becomes liable under the mortgage note.
Any fee collected by the Servicer for entering into an assumption agreement
will be retained by the Servicer as additional servicing compensation. In
connection with any such assumption, the mortgage interest rate borne by the
mortgage note relating to each Mortgage Loan may not be decreased. For a
description of circumstances in which the Servicer may be unable to enforce
"due-on-sale" clauses, see "Certain Legal Aspects of the Mortgage Loans and
Contracts -- The Mortgage Loans -- 'Due-on-Sale' Clauses" in the accompanying
prospectus.
Hazard Insurance
The Servicer is required to cause to be maintained for each mortgaged
property a hazard insurance policy with coverage which contains a standard
mortgagee's clause in an amount equal to the lesser of (a) the maximum insurable
value of such mortgaged property or (b) the principal balance of such Mortgage
Loan plus the outstanding balance of any mortgage loan senior to such Mortgage
Loan, but in no event may such amount be less than is necessary to prevent the
borrower from becoming a coinsurer thereunder. As set forth above, all amounts
collected by the Servicer under any hazard policy (except for amounts to be
applied to the restoration or repair of the mortgaged property or released to
the borrower in accordance with the Servicer's normal servicing procedures), to
the extent they constitute Net Liquidation Proceeds or Insurance Proceeds, will
ultimately be deposited in the related Distribution Account. The ability of the
Servicer to assure that hazard insurance proceeds are appropriately applied may
be dependent on its being named as an additional insured under any hazard
insurance policy, or upon the extent to which information in this regard is
furnished to the Servicer by a borrower. The Sale and Servicing Agreement
provides that the Servicer may satisfy its obligation to cause hazard policies
to be
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maintained by maintaining a blanket policy issued by an insurer acceptable to
the Rating Agencies insuring against losses on the Mortgage Loans. If such
blanket policy contains a deductible clause, the Servicer is obligated to
deposit in the related Distribution Account the sums which would have been
deposited therein but for such clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Mortgage Loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms and therefore will not contain identical terms and
conditions, the terms thereof are dictated by respective state laws, and most
such policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other
weather-related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reactions, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all-inclusive.
The hazard insurance policies covering the mortgaged properties typically
contain a co-insurance clause which in effect requires the insured at all times
to carry insurance of a specified percentage (generally 80% to 90%) of the full
replacement value of the improvements on the property in order to recover the
full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clause generally provides that the insurer's
liability in the event of partial loss does not exceed the greater of (i) the
replacement cost of the improvements less physical depreciation or (ii) such
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
Since residential properties, generally, have historically appreciated in
value over time, if the amount of hazard insurance maintained on the
improvements securing the Mortgage Loans were to decline as the principal
balances owing thereon decreased, hazard insurance proceeds could be
insufficient to restore fully the damaged property in the event of a partial
loss.
Realization Upon Defaulted Mortgage Loans
The Servicer will foreclose upon or otherwise comparably convert to
ownership mortgaged properties securing such of the Mortgage Loans as come into
default when, in the opinion of the Servicer, no satisfactory arrangements can
be made for the collection of delinquent payments. In connection with such
foreclosure or other conversion, the Servicer will follow such practices as it
deems necessary or advisable and as are in keeping with the Servicer's general
loan servicing activities and the Sale and Servicing Agreement; provided, that
the Servicer will not expend its own funds in connection with foreclosure or
other conversion, correction of a default on a senior mortgage or restoration of
any property unless such foreclosure, correction or restoration is determined to
increase Net Liquidation Proceeds. Any mortgaged property so acquired by the
Trust and relating to Pool II is required to be disposed of in accordance with
applicable federal income tax regulations and consistent with the status of the
sub-trust of the Trust consisting of the Pool II Mortgage Loans as a REMIC.
Removal and Resignation of the Servicer
The Note Insurer may, pursuant to the Sale and Servicing Agreement, remove
the Servicer upon the occurrence and continuation beyond the applicable cure
period of an event described in clauses (g), (h) or (i) below and the Indenture
Trustee, only at the direction of the Note Insurer or the majority holders of
Notes, with the consent of the Note Insurer (in the case of any direction of the
majority holders), may remove the Servicer upon the occurrence and continuation
beyond the applicable cure period of an event
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described in clause (a), (b), (c), (d), (e) or (f) below. Each of the following
constitutes a "Servicer Event of Default":
(a) any failure by the Servicer to remit to the Indenture Trustee any
payment required to be made by the Servicer under the terms of the
Sale and Servicing Agreement (other than Servicing Advances covered by
clause (b) below) which continues unremedied for one (1) business day
after the date upon which written notice of such failure, requiring
the same to be remedied, shall have been given to the Servicer and the
Note Insurer by the Indenture Trustee or to the Servicer and the
Indenture Trustee by the Note Insurer or the holders of Notes
evidencing percentage interests of at least 25%;
(b) the failure by the Servicer to make any required Servicing Advance
which failure continues unremedied for a period of thirty (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
Indenture Trustee or to the Servicer and the Indenture Trustee by any
holder of a Note or the Note Insurer;
(c) any failure on the part of the Servicer duly to observe or perform in
any material respect any other of the covenants or agreements on the
part of the Servicer contained in the Sale and Servicing Agreement, or
the failure of any representation and warranty set forth in the Sale
and Servicing Agreement, which continues unremedied for a period of
thirty (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 Trust or the Indenture Trustee, or to the Servicer
and the Indenture Trustee by any holder of a Note or the Note Insurer;
(d) a decree or order of a court or agency or supervisory authority having
jurisdiction in an involuntary case under any present or future
federal or state bankruptcy, insolvency or similar law or for the
appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the
Servicer and such decree or order shall have remained in force,
undischarged or unstayed for a period of sixty (60) days;
(e) the Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or
relating to the Servicer or of or relating to all or substantially all
of the Servicer's property;
(f) the Servicer shall admit in writing its inability generally to pay its
debts as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment
for the benefit of its creditors, or voluntarily suspend payment of
its obligations;
(g) the delinquency or loss experience of the Mortgage Loans exceeds
certain levels specified in the Sale and Servicing Agreement;
(h) the Note Insurer shall notify the Indenture Trustee of any "event of
default" under the Insurance Agreement; or
(i) the occurrence of an Event of Default under the Indenture.
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The Servicer may not assign its obligations under the Sale and Servicing
Agreement nor resign from the obligations and duties thereby imposed on it
except by mutual consent of the Servicer, ABC (if ABC is not the Servicer), the
Note Insurer, the Collateral Agent and the Indenture Trustee, or upon the
determination that the Servicer's duties thereunder are no longer permissible
under applicable law and such incapacity cannot be cured by the Servicer without
the incurrence, in the reasonable judgment of the Note Insurer, of unreasonable
expense. No such resignation shall become effective until a successor has
assumed the Servicer's responsibilities and obligations in accordance with the
Sale and Servicing Agreement.
Upon removal or resignation of the Servicer, the Indenture Trustee will be
the successor servicer (the "Successor Servicer"). The Indenture Trustee, as
Successor Servicer, will be obligated to make Periodic Advances and Servicing
Advances and certain other advances unless it determines reasonably and in good
faith that such advances would not be recoverable. If, however, the Indenture
Trustee is unwilling or unable to act as Successor Servicer, or if the majority
holders (with the consent of the Note Insurer) or the Note Insurer so requests,
the Indenture Trustee shall appoint, or petition a court of competent
jurisdiction to appoint, in accordance with the provisions of the Sale and
Servicing Agreement and subject to the approval of the Note Insurer, any
established mortgage loan servicing institution acceptable to the Note Insurer
having a net worth of not less than $15,000,000 as the Successor Servicer in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Servicer.
Pursuant to the Sale and Servicing Agreement, the Servicer covenants and
agrees to act as the Servicer for an initial term from the closing date to March
31, 1999, which term will be extendable by the Note Insurer by notice to the
Indenture Trustee for successive terms of three (3) calendar months each, until
the termination of the Trust Estate. The Servicer will, upon its receipt of each
such notice of extension (a "Servicer Extension Notice"), become bound for the
duration of the term covered by such Servicer Extension Notice to continue as
the Servicer subject to and in accordance with the other provisions of the Sale
and Servicing Agreement. If as of the fifteenth (15th) day prior to the last day
of any term of the Servicer the Indenture Trustee shall not have received any
Servicer Extension Notice from the Note Insurer, the Indenture Trustee will,
within five (5) days thereafter, give written notice of such non-receipt to the
Note Insurer and the Servicer. The Note Insurer has agreed to extend each three
(3) month term of the Servicer, in the absence of an Event of Default under the
Sale and Servicing Agreement.
The Indenture Trustee and any other Successor Servicer in such capacity is
entitled to the same reimbursement for advances and no more than the same
servicing compensation as the Servicer. See "--Servicing and Other Compensation
and Payment of Expenses" herein.
Optional Clean-up Call on the Class A-2 Notes
The Servicer may, at its option, call the Class A-2 Notes on any
Distribution Date (the first date on which such event occurs, the "Class A-2
Clean-up Call Date") on which the aggregate outstanding principal balance of the
Class A-2 Notes is equal to or less than 10% of the aggregate original principal
balance of the Class A-2 Notes by depositing an amount equal to the aggregate
outstanding principal balance of the Class A-2 Notes on such Distribution Date,
plus accrued and unpaid interest thereon, and any unpaid amounts due the Note
Insurer in respect of the Class A-2 Notes into the related Distribution Account
(such call, the "Class A-2 Clean-up Call").
Termination; Purchase of Mortgage Loans
The Indenture will terminate upon notice to the Indenture Trustee of
either: (a) the later of the distribution to Noteholders of the final payment or
collection with respect to the last Mortgage Loan (or Periodic Advances of same
by the Servicer), or the disposition of all funds with respect to the last
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Mortgage Loan and the remittance of all funds due under the Indenture and the
payment of all amounts due and payable to the Note Insurer, the Collateral Agent
and the Indenture Trustee or (b) mutual consent of the Servicer, the Note
Insurer and all holders in writing; provided, however, that in no event will the
Trust terminate later than twenty-one (21) years after the death of the last
surviving lineal descendant of the person named in the Trust Agreement.
Subject to provisions in the Indenture concerning adopting a plan of
complete liquidation, the Servicer may, at its option and at its sole cost and
expense, terminate the Indenture on any date on which the aggregate principal
balance of the Mortgage Loans is less than 10% of the sum of (x) the aggregate
original principal balance of the Mortgage Loans purchased on the closing date
and (y) the original amount on deposit in the Pre-Funding Account, by
purchasing, on the next succeeding Distribution Date, all of the outstanding
Mortgage Loans and REO Properties at a price equal to the sum of (a) 100% of the
principal balance of each outstanding Mortgage Loan and each REO Property, (b)
the greater of (i) the aggregate amount of accrued and unpaid interest on the
Mortgage Loans through the related Due Period and (ii) thirty (30) days' accrued
interest thereon computed at a rate equal to the mortgage interest rate, in each
case net of the Servicing Fee, (c) any unreimbursed amounts due to the Note
Insurer under the Indenture, the Sale and Servicing Agreement, the Insurance
Agreement and, without duplication, accrued and unpaid Insured Payments, and (d)
the Indenture Trustee's Fees and the Collateral Agent's Fees. Any such purchase
shall be accomplished by depositing into each Distribution Account the portion
of the purchase price specified above which relates to such class of Notes. No
such termination is permitted without the prior written consent of the Note
Insurer if it would result in a draw on the Note Insurance Policy.
THE NOTE INSURANCE POLICY
The following summary of the terms of the Note Insurance Policy does not
purport to be complete and is qualified in its entirety by reference to the Note
Insurance Policy. A form of the Note Insurance Policy may be obtained, upon
request, from the Seller.
Simultaneously with the issuance of the Notes, the Note Insurer will
deliver the Note Insurance Policy to the Indenture Trustee, for the benefit of
the holders of the Notes. Under the Note Insurance Policy, the Note Insurer will
irrevocably and unconditionally guarantee payment on each Distribution Date to
the Indenture Trustee, for the benefit of the holders of the Notes, of the
Insured Distribution Amounts with respect to the related class of Notes
calculated in accordance with the original terms of the Notes when issued and
without regard to any amendment or modification of the Notes or the Indenture
except amendments or modifications to which the Note Insurer has given its prior
written consent. The Insured Distribution Amounts for each Distribution Date and
each class of Notes will be the sum of (i) the Interest Distribution Amount with
respect to such Distribution Date and such class, (ii) the
Over-collateralization Deficit, if any, for such Distribution Date and such
class, and (iii) with respect to the Distribution Date which is a final stated
maturity date for a class of Notes, the aggregate outstanding principal balance
of such class of Notes (without duplication to the amount specified in clause
(ii)). In addition, with respect to any Distribution Date occurring on a date
when an event of default under the Insurance Agreement (as described below) has
occurred and is continuing or a date on or after the first date on which a claim
is made under the Note Insurance Policy, the Note Insurer at its sole option,
may pay any or all of the outstanding principal balance of the Notes. Mortgage
Loan Interest Shortfalls and Available Funds Carry-Forward Amounts will not be
covered by payments under the Note Insurance Policy.
Payment of claims under the Note Insurance Policy will be made by the Note
Insurer following Receipt by the Note Insurer of the appropriate notice for
payment on the later to occur of (a) 12:00 noon,
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New York City time, on the second business day following Receipt of such notice
for payment, and (b) 12:00 noon, New York City time, on the relevant
Distribution Date.
If any payment of an amount guaranteed by the Note Insurer pursuant to the
Note Insurance Policy is avoided as a preference payment under applicable
bankruptcy, insolvency, receivership or similar law the Note Insurer will pay
such amount out of the funds of the Note Insurer on the later of (a) the date
when due to be paid pursuant to the Order referred to below or (b) the first to
occur of (i) the fourth business day following Receipt by the Note Insurer from
the Indenture Trustee of (A) a certified copy of the order of the court or other
governmental body which exercised jurisdiction to the effect that a holder is
required to return principal or interest distributed with respect to a Note
during the term of the Note Insurance Policy because such distributions were
avoidable preferences under applicable bankruptcy law (the "Order"), (B) a
certificate of the holder(s) that the Order has been entered and is not subject
to any stay, and (C) an assignment duly executed and delivered by the holder(s),
in such form as is reasonably required by the Note Insurer and provided to the
holder(s) by the Note Insurer, irrevocably assigning to the Note Insurer all
rights and claims of the holder(s) relating to or arising under the Notes
against the debtor which made such preference payment or otherwise with respect
to such preference payment, or (ii) the date of Receipt by the Note Insurer from
the Indenture Trustee of the items referred to in clauses (A), (B) and (C) above
if, at least four (4) business days prior to such date of Receipt, the Note
Insurer shall have Received written notice from the Indenture Trustee that such
items were to be delivered on such date and such date was specified in such
notice. Such payment shall be disbursed to the receiver, conservator,
debtor-in-possession or Indenture Trustee in bankruptcy named in the Order and
not to the Indenture Trustee or any holder directly (unless a holder has
previously paid such amount to the receiver, conservator, debtor-in-possession
or Indenture Trustee in bankruptcy named in the Order, in which case such
payment shall be disbursed to the Indenture Trustee for distribution to such
holder upon proof of such payment reasonably satisfactory to the Note Insurer).
The terms "Receipt" and "Received," with respect to the Note Insurance
Policy, means actual delivery to the Note Insurer and to its fiscal agent
appointed by the Note Insurer at its option, if any, prior to 12:00 p.m., New
York City time, on a business day; delivery either on a day that is not a
business day or after 12:00 p.m., New York City time, shall be deemed to be
Receipt on the next succeeding business day. If any notice or certificate given
under the Note Insurance Policy by the Indenture Trustee is not in proper form
or is not properly completed, executed or delivered, it shall be deemed not to
have been Received, and the Note Insurer or the fiscal agent shall promptly so
advise the Indenture Trustee and the Indenture Trustee may submit an amended
notice.
Under the Note Insurance Policy, "Business Day" means any day other than
(i) a Saturday or Sunday or (ii) a day on which banking institutions in the City
of New York, New York or the State of New York, are authorized or obligated by
law or executive order to be closed. The Note Insurer's obligations under the
Note Insurance Policy to make Insured Payments shall be discharged to the extent
funds are transferred to the Indenture Trustee as provided in the Note Insurance
Policy, whether or not such funds are properly applied by the Indenture Trustee.
The Note Insurer shall be subrogated to the rights of each holder to
receive payments of principal and interest, as applicable, with respect to
distributions on the Notes to the extent of any payment by the Note Insurer
under the Note Insurance Policy. To the extent the Note Insurer makes Insured
Payments, either directly or indirectly (as by paying through the Indenture
Trustee), to the holders of Notes, the Note Insurer will be subrogated to the
rights of the holders, as applicable, with respect to such Insured Payment and
shall be deemed to the extent of the payments so made to be a registered holder
for purposes of payment.
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Claims under the Note Insurance Policy will rank equally with any other
unsecured debt and unsubordinated obligations of the Note Insurer except for
certain obligations in respect of tax and other payments to which preference is
or may become afforded by statute. Claims against the Note Insurer under the
Note Insurance Policy constitute pari passu claims against the general assets of
the Note Insurer. The terms of the Note Insurance Policy cannot be modified or
altered by any other agreement or instrument, or by the merger, consolidation or
dissolution of the Trust. The Note Insurance Policy is governed by the laws of
the State of New York. The Note Insurance Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
To the fullest extent permitted by applicable law, the Note Insurer agrees
under the Note Insurance Policy not to assert, and waives, for the benefit of
each holder, all its rights (whether by counterclaim, setoff or otherwise) and
defenses (including, without limitation, the defense of fraud), whether acquired
by subrogation, assignment or otherwise, to the extent that such rights and
defenses may be available to the Note Insurer to avoid payment of its
obligations under the Note Insurance Policy in accordance with the express
provisions of the Note Insurance Policy.
Pursuant to the terms of the Indenture, unless a Note Insurer Default
exists, the Note Insurer shall be deemed to be the holder of the Notes for all
purposes (other than with respect to payment on the Notes), will be entitled to
exercise all rights of the holders thereunder, without the consent of such
holders, and the holders may exercise such rights only with the prior written
consent of the Note Insurer. In addition, the Note Insurer will, as a
third-party beneficiary to the Indenture, the Sale and Servicing Agreement and
the Unaffiliated Seller's Agreement, have, among others, the following rights:
(i) the right to give notices of breach or to terminate the rights and
obligations of the Servicer under the Sale and Servicing Agreement in the event
of a Servicer Event of Default and to institute proceedings against the
Servicer; (ii) the right to consent to or direct any waivers of defaults by the
Servicer; (iii) the right to remove the Indenture Trustee pursuant to the
Indenture; (iv) the right to direct the actions of the Indenture Trustee during
the continuation of a Servicer default; (v) the right to require the Seller to
repurchase Mortgage Loans for breach of representation and warranty or defect in
documentation; (vi) the right to direct foreclosures upon the failure of the
Servicer to do so in accordance with the Sale and Servicing Agreement; (vii) the
right to direct all matters relating to a bankruptcy or other insolvency
proceeding involving the Seller; and (viii) the right to direct the Indenture
Trustee to investigate certain matters. The Note Insurer's consent will be
required prior to, among other things, (x) the removal of the Indenture Trustee,
(y) the appointment of any successor Indenture Trustee or Servicer or (z) any
amendment to the Indenture or the Sale and Servicing Agreement.
The Trust, the Depositor, the Seller, the Servicer, the Originators and the
Note Insurer will enter into the Insurance Agreement pursuant to which the
Servicer will agree to reimburse, with interest, the Note Insurer for amounts
paid pursuant to claims under the Note Insurance Policy. The Servicer will
further agree to pay the Note Insurer all reasonable charges and expenses which
the Note Insurer may pay or incur relative to any amounts paid under the Note
Insurance Policy or otherwise in connection with the transaction and to
indemnify the Note Insurer against certain liabilities. Except to the extent
provided therein, amounts owing under the Insurance Agreement will be payable
solely from the Trust Estate. An "event of default" under the Insurance
Agreement will constitute an Event of Default under the Indenture and a Servicer
Event of Default under the Sale and Servicing Agreement and allow the Note
Insurer, among other things, to direct the Indenture Trustee to terminate the
Servicer. An "event of default" under the Insurance Agreement includes (i) the
Originators', the Seller's, the Depositor's or the Servicer's failure to pay
when due any amount owed under the Insurance Agreement or certain other
documents, (ii) the inaccuracy or incompleteness in any material respect of any
representation or warranty of the Originators, the Seller, the Depositor or the
Servicer in the Insurance Agreement, the Sale and Servicing Agreement, the
Indenture or certain other documents, (iii) the Originators', the Seller's, the
Depositor's or the Servicer's failure to perform or to comply with any covenant
or agreement in the Insurance Agreement,
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the Sale and Servicing Agreement, the Indenture and certain other documents,
(iv) a finding or ruling by a governmental authority or agency that the
Insurance Agreement, the Sale and Servicing Agreement, the Indenture or certain
other documents are not binding on the Originators, the Seller, the Depositor or
the Servicer, (v) the Originators', the Seller's, the Depositor's or the
Servicer's failure to pay its debts in general or the occurrence of certain
events of insolvency or bankruptcy with respect to the Seller or the Servicer,
and (vi) the occurrence of certain "performance test violations" designed to
measure the performance of the Mortgage Loans.
THE NOTE INSURER
The following information has been obtained from Financial Security
Assurance Inc. (hereinafter in this section, the "Note Insurer" or "Financial
Security") and has not been verified by the Seller, the Originators, the
Servicer, the Depositor or the Underwriter. No representation or warranty is
made by the Seller, the Originators, the Servicer, the Depositor or the
Underwriter with respect thereto.
The Note Insurer
Financial Security is a monoline insurance company incorporated in 1984
under the laws of the State of New York. Financial Security is licensed to
engage in the financial guaranty insurance business in all 50 states, the
District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of an
issuer's securities -- thereby enhancing the credit rating of those
securities -- in consideration for the payment of a premium to the insurer.
Financial Security and its subsidiaries principally insure asset-backed,
collateralized and municipal securities. Asset-backed securities are generally
supported by residential mortgage loans, consumer or trade receivables,
securities or other assets having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds and
sale/leaseback obligation bonds. Municipal securities consist largely of general
obligation bonds, special revenue bonds and other special obligations of state
and local governments. Financial Security insures both newly issued securities
sold in the primary market and outstanding securities sold in the secondary
market that satisfy Financial Security's underwriting criteria.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprises Holdings, Inc.,
MediaOne Capital Corporation, The Tokio Marine and Fire Insurance Co., Ltd. and
EXEL Limited. No shareholder of Holdings is obligated to pay any debt of
Financial Security or any claim under any insurance policy issued by Financial
Security or to make any additional contribution to the capital of Financial
Security.
The principal executive offices of Financial Security are located at 350
Park Avenue, New York, New York 10022, and its telephone number at that location
is (212) 826-0100.
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security or any
of its domestic or Bermuda operating insurance company subsidiaries are
generally reinsured among such companies on an agreed-upon percentage
substantially proportional to their respective capital, surplus and reserves,
subject to applicable statutory risk limitations. In addition, Financial
Security reinsures a portion of its liabilities under certain of its
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financial guaranty insurance policies with other reinsurers under various
treaties and on a transaction-by-transaction basis. Such reinsurance is utilized
by Financial Security as a risk management device and to comply with statutory
and rating agency requirements; it does not alter or limit Financial Security's
obligations under any financial guaranty insurance policy.
Ratings
Financial Security's insurance financial strength is rated "Aaa" by Moody's
and Financial Security's insurer financial strength is rated "AAA" by S&P and
Standard & Poor's (Australia) Pty. Ltd. Financial Security's claims-paying
ability is rated "AAA" by Fitch IBCA, Inc. and Japan Rating and Investment
Information, Inc. Such ratings reflect only the views of the respective rating
agencies, are not recommendations to buy, sell or hold securities and are
subject to revision or withdrawal at any time by such rating agencies.
Capitalization
The following table sets forth the capitalization of Financial Security and
its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of September 30, 1998, as well as such capitalization as adjusted
to give effect to certain transactions entered into during November 1998:
<TABLE>
<CAPTION>
September 30, 1998
-------------------------------------
Actual As Adjusted (1)
--------------- ---------------
(Unaudited)
(In thousands)
<S> <C> <C>
Deferred Premium Revenue (net of prepaid reinsurance premiums)........... $ 480,089 $ 480,089
--------------- ---------------
Surplus Notes............................................................ 50,000 130,000
--------------- ---------------
Minority Interest........................................................ -- 20,000
--------------- ---------------
Shareholder's Equity:
Common Stock........................................................ 15,000 15,000
--------------- ---------------
Additional Paid-In Capital.......................................... 614,787 684,787
--------------- ---------------
Accumulated other Comprehensive Income (net of deferred
income taxes)................................................... 41,923 41,923
--------------- ---------------
Accumulated Earnings................................................ 326,145 326,145
--------------- ---------------
Total Shareholder's Equity............................................... $ 997,855 $ 1,067,855
--------------- ---------------
Total Deferred Premium Revenue, Surplus Notes, Minority Interest and
Shareholder's Equity..................................................... $ 1,527,944 $ 1,697,944
--------------- ---------------
</TABLE>
- -------------------
(1) Adjusted to give effect to the November 1998 (a) purchase by Holdings of
$80 million of surplus notes from Financial Security in connection with the
formation of a new indirect Bermuda subsidiary of Financial Security,
initially capitalized with $100 million, including a $20 million minority
interest owned by EXEL Limited, and (b) contribution by Holdings to the
capital of Financial Security of approximately $70 million, representing a
portion of the proceeds from the sale by Holdings of $100 million of 6.950%
Senior Quarterly Income Debt Securities due 2098.
For further information concerning Financial Security, see the Consolidated
Financial Statements of Financial Security and Subsidiaries, and the notes
thereto, incorporated by reference herein. Financial Security financial
statements are included as exhibits to the annual report on Form 10-K and
Quarterly Reports on Form 10-Q filed with the Commission by Holdings and may be
reviewed at the EDGAR
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website maintained by the Commission and at Holdings's website,
http://www.FSA.com. Copies of the statutory quarterly and annual statements
filed with the State of New York Insurance Department by Financial Security are
available upon request to the State of New York Insurance Department.
Insurance Regulation
Financial Security is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, Financial Security and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial guaranty
insurance corporation licensed to do business in the State of New York,
Financial Security is subject to Article 69 of the New York Insurance Law which,
among other things, limits the business of each such insurer to financial
guaranty insurance and related lines, requires that each such insurer maintain a
minimum surplus to policyholders, establishes contingency, loss and unearned
premium reserve requirements for each such insurer, and limits the size of
individual transactions ("single risks") and the volume of transactions
("aggregate risks") that may be underwritten by each such insurer. Other
provisions of the New York Insurance Law, applicable to non-life insurance
companies such as Financial Security, regulate, among other things, permitted
investments, payment of dividends, transactions with affiliates, mergers,
consolidations, acquisitions or sales of assets and incurrence of liability for
borrowings.
PREPAYMENT AND YIELD CONSIDERATIONS
The weighted average life of, and, if purchased at other than par, the
yield to maturity on, a Note will be directly related to the rate of payment of
principal of the Mortgage Loans, including for this purpose voluntary payment in
full of Mortgage Loans prior to stated maturity, liquidations due to defaults,
casualties and condemnations, and repurchases of or substitutions for Mortgage
Loans by ABC or an affiliate of ABC as required or permitted under the
Indenture, the Sale and Servicing Agreement or the Unaffiliated Seller's
Agreement.
The actual rate of principal prepayments on pools of mortgage loans is
influenced by a variety of economic, tax, geographic, demographic, social, legal
and other factors and has fluctuated considerably in recent years. In addition,
the rate of principal prepayments may differ among pools of mortgage loans at
any time because of specific factors relating to the mortgage loans in the
particular pool, including, among other things, the age of the mortgage loans,
the geographic locations of the properties securing the loans and the extent of
the mortgagors' equity in such properties, and changes in the mortgagors'
housing needs, job transfers and unemployment.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing interest
rates fall significantly below the interest rates of certain mortgage loans at
the time of origination, such mortgage loans may be subject to higher prepayment
rates than if prevailing rates remain at or above those at the time such
mortgage loans were originated. Conversely, if prevailing interest rates rise
appreciably above the interest rates of certain mortgage loans at the time of
origination, such mortgage loans may experience a lower prepayment rate than if
prevailing rates remain at or below those at the time such mortgage loans were
originated. However, there can be no assurance that the Mortgage Loans will
conform to the prepayment experience of conventional mortgage loans or to any
past prepayment experience or any published prepayment forecast. No assurance
can be given as to the level of prepayments on Mortgage Loans that the Trust
Estate will experience.
As indicated above, if purchased at other than par, the yield to maturity
on a Note will be affected by the rate of the payment of principal on the
related Mortgage Loans. If the actual rate of payments on the related Mortgage
Loans is slower than the rate anticipated by an investor who purchases a Note at
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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 related Mortgage Loans
is faster than the rate anticipated by an investor who purchases a Note at a
premium, the actual yield to such investor will be lower than such investor's
anticipated yield.
The final stated maturity date is expected to be January 25, 2030 for the
Class A-1 Notes and January 25, 2030 for the Class A-2 Notes (each, a "Final
Stated Maturity Date"). Each such Final Stated Maturity Date was calculated
using the assumption that such Final Stated Maturity Date is thirteen (13)
months after the final stated maturity date of the Mortgage Loan having the
latest maturity date in each pool and assuming a Subsequent Mortgage Loan having
a final stated maturity date of December 31, 2028 is purchased by the Trust and
included in Pool I. The weighted average life of the Notes is likely to be
shorter than would be the case if payments actually made on the related Mortgage
Loans conformed to the foregoing assumptions, and the final Distribution Date
with respect to any class of the Notes could occur significantly earlier than
the Final Stated Maturity Date because (i) prepayments (including, for this
purpose, prepayments attributable to foreclosure, liquidation, repurchase and
the like) on Mortgage Loans are likely to occur, (ii) thirteen (13) months have
been added to obtain the Final Stated Maturity Date above, (iii) the
over-collateralization provisions of the transaction result in the application
of Excess Interest to the payment of principal; (iv) the Servicer may cause a
liquidation of the Trust Estate when the aggregate outstanding principal amount
of the Mortgage Loans is less than 10% of the sum of (a) the aggregate principal
balance of the Mortgage Loans purchased on the closing date and (b) the original
amount on deposit in the Pre-Funding Account; and (v) the Servicer may, at its
option, call the Class A-2 Notes when the aggregate outstanding principal
balance of the Class A-2 Notes is equal to or less than 10% of the aggregate
original principal balance of the Class A-2 Notes.
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security is scheduled to be repaid to an investor. The weighted average
life of the Notes will be influenced by the rate at which principal of the
related Mortgage Loans is paid, which may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
liquidations due to default).
Prepayments on mortgage loans are commonly measured relative to a
prepayment model or standard. The model used in this prospectus supplement
("Home Equity Prepayment" or "HEP") is a prepayment assumption (the "Prepayment
Assumption") which represents an assumed rate of prepayment each month relative
to the then outstanding principal balance of a pool of mortgage loans for the
life of such mortgage loans. 25% HEP assumes a constant prepayment rate of 2.5%
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 2.5% 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, 25% HEP assumes a constant prepayment rate of 25% per annum. As used in
the table below, 0% Prepayment Assumption assumes prepayment rates equal to 0%
of the Prepayment Assumption, i.e., no prepayments on the mortgage loans having
the characteristics described below. The Prepayment Assumption does not purport
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans.
The following table has been prepared on the basis of the following
assumptions (collectively, the "Modeling Assumptions"): (i) The Mortgage Loans
prepay at the indicated percentage of the Prepayment Assumption, (ii)
distributions on the Notes are received in cash on the 25th day of each month
commencing in December 1998, (iii) no defaults or delinquencies in, or
modifications, waivers or amendments respecting the payment by the mortgagors of
principal and interest on the Mortgage Loans occur, (iv) scheduled payments are
assumed to be received on the last day of each month commencing in November 1998
(or as set forth in the following table) and prepayments represent payments in
full of
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individual Mortgage Loans and are assumed to be received on the last day of each
month, commencing in November 1998 (or as set forth in the following table) and
include thirty (30) days' interest thereon, (v) the Class A-2 Note Rate remains
constant at 6.177% per annum, (vi) the Notes are purchased on December 7, 1998,
(vii) the Specified Over-collateralized Amount is as set forth in the Indenture,
(viii) on each Distribution Date, all Excess Interest for each pool is applied
to build up over-collateralization necessary to satisfy the Specified
Over-Collateralized Amount for each pool (except for the first Distribution
Date, on which the amount of Excess Interest applied to build up
over-collateralization is zero), (ix) the Mortgage Loans in Pool I consist of
eight (8) Mortgage Loans having the following characteristics:
<TABLE>
<CAPTION>
Principal Mortgage Net Mortgage Original Amortizing Remaining Amortizing Remaining Term to
Balance ($) Interest Rate (%) Interest Rate (%) Term (in months) Term (in months) Maturity (in months)
- ----------------- ----------------- ----------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
$ 6,826,127.18 11.833 11.333 167 167 167
4,350,270.89 10.740 10.240 240 239 239
19,343,557.21 10.751 10.251 359 359 359
14,480,044.72 11.161 10.661 340 340 215
3,033,834.30(1) 11.833 11.333(2) 167 167 167
1,933,453.73(1) 10.740 10.240(2) 240 240 240
8,597,136.54(1) 10.751 10.251(2) 359 359 359
6,435,575.43(1) 11.161 10.661(2) 340 340 215
</TABLE>
- --------------
(1) Assumes transfer to the Trust in January 1999 of Mortgage Loans with the
characteristics set forth above. The actual characteristics of such
Mortgage Loans may vary from such assumptions. Scheduled payments are
assumed to be received on the last day of each month commencing in January
1999. Prepayments are assumed to be received on the last day of each month
commencing in January 1999 and include 30 days' interest thereon.
(2) During the first Due Period, interest is assumed to be available for
payment to the Notes at the assumed Note Rate (6.60%).
(x) The Mortgage Loans in Pool II consists of three (3) Mortgage Loans
having the following characteristics:
<TABLE>
<CAPTION>
Principal Mortgage Net Mortgage Original Amortizing Remaining Amortizing Remaining Term to
Balance ($) Interest Rate (%) Interest Rate (%) Term (in months) Term (in months) Maturity (in months)
- ----------------- ----------------- ----------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
$1,203,932.96 10.684 10.184 180 180 180
7,723,230.61 10.705 10.205 346 346 346
6,072,836.43 11.673 11.173 336 336 203
</TABLE>
The foregoing Modeling Assumptions are assumptions and are not necessarily
indicative of actual performance.
Based upon the foregoing Modeling Assumptions, the tables below indicate
the weighted average life and earliest retirement date of the Notes assuming
that the related Mortgage Loans prepay according to the indicated percentages of
the Prepayment Assumption.
Weighted Average Lives
Class A-1 Notes
Prepayment Weighted Average Earliest
Assumption (HEP) Life in Years(1)(2) Retirement Date(2)
---------------- ------------------- ------------------
0% 16.2 5/25/26
15% 5.0 9/25/11
20% 3.9 11/25/08
25% 3.2 11/25/06
30% 2.7 7/25/05
35% 2.3 7/25/04
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Class A-2 Notes
Prepayment Weighted Average Earliest
Assumption (HEP) Life in Years(1)(2)(3) Retirement Date(2)(3)
---------------- ---------------------- ---------------------
0% 16.7 8/25/25
15% 5.1 8/25/11
20% 3.9 8/25/08
25% 3.2 9/25/06
30% 2.6 4/25/05
35% 2.3 4/25/04
- ------------------
(1) The weighted average life of each class of Notes is determined by (a)
multiplying the amount of each principal payment used to retire the related
class of Notes by the number of years from the closing date to the final
Distribution Date when the related class of Notes is fully retired; (b)
adding the results; and (c) dividing the sum by the original principal
balance of such class.
(2) Determined assuming early termination of the Trust Estate occurs as stated
herein.
(3) Determined assuming the call of the Class A-2 Notes occurs as stated
herein.
----------------------
There is no assurance that prepayments will occur or, if they do occur,
that they will occur at any percentage of HEP.
The Indenture provides that none of the Note Insurer, the Trust, the
Indenture Trustee, the Seller, the Depositor, the Originators or the Servicer
will be liable to any holder for any loss or damage incurred by such holder as a
result of any difference in the rate of return received by such holder as
compared to the applicable Note Rate, with respect to any holder of Notes upon
reinvestment of the funds received in connection with any premature repayment of
principal on the Notes, including any such repayment resulting from any
prepayment by the mortgagor, any liquidation of such Mortgage Loan, or any
repurchase of or substitution for any Mortgage Loan by the Seller or the
Servicer.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of certain of the material federal income tax
consequences of the purchase, ownership and disposition of the Notes is to be
considered only in connection with "Certain Federal Income Tax Consequences" in
the accompanying prospectus. The discussion herein and in the accompanying
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 accompanying
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 Notes.
Treatment of the Class A-1 Notes
The Originators, the Seller, the Depositor and the Trust agree, and the
holders of the Class A-1 Notes will agree by their purchase of the Notes, to
treat the Class A-1 Notes as indebtedness for all federal, state and local
income tax purposes. There are no regulations, published rulings or judicial
decisions involving the characterization for federal income tax purpose of
securities with terms substantially the same as the Class A-1 Notes. In general,
whether instruments such as the Class A-1 Notes constitute indebtedness for
federal income tax purposes is a question of fact, the resolution of which is
based primarily upon the economic substance of the instruments and the
transaction pursuant to which they are issued rather than merely upon the form
of the transaction or the manner in which the instruments are labeled. The
Internal Revenue Service (the "IRS") and the courts have set forth various
factors to be taken into account in determining if for federal income tax
purposes, whether or not an instrument constitutes indebtedness and whether a
transfer of property is a sale because the transferor has
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relinquished substantial incidents of ownership in the property or whether such
transfer is a borrowing secured by the propriety. On the basis of its analysis
of such factors as applied to the facts and its analysis of the economic
substance of the contemplated transaction, Dewy Ballantine LLP, tax counsel to
the Depositor ("Tax Counsel"), is of the opinion that, for federal income tax
purposes, the Class A-1 Notes will be treated as indebtedness, and not as an
ownership interest in the Mortgage Loans, or an equity interest in the sub-trust
of the Trust consisting of the Pool I Mortgage Loans or in a separate
association taxable as a corporation or other taxable entity. Further, Tax
Counsel is of the opinion that sub-trust of the Trust consisting of the Pool I
Mortgage Loans will not be characterized as an association (or a publicly traded
partnership) taxable as a corporation or as a taxable mortgage pool. See
"Certain Federal Income Tax Consequences -- Debt Securities" in the accompanying
prospectus.
If the Class A-1 Notes are characterized as indebtedness, interest paid or
accrued on a Class A-1 Note will be treated as ordinary income to holders of the
Class A-1 Notes and principal payments on a Class A-1 Note will be treated as a
return of capital to the extent of the holder's basis in the Class A-1 Note
allocable thereto. An accrual method taxpayer will be required to include in
income interest on the Class A-1 Notes when earned, even if not paid, unless it
is determined to be uncollectible. The Trust will report to the holders of the
Class A-1 Notes of record and the IRS with respect to the interest paid and
original issue discount, if any, accrued on the Class A-1 Notes to the extent
required by law.
Possible Alternative Characterizations of the Class A-1 Notes. Although, as
described above, it is the opinion of Tax Counsel that for federal income tax
purposes, the Class A-1 Notes will be characterized as indebtedness, such
opinion is not binding on the IRS and thus no assurance can be given that such a
characterization will prevail. If the IRS successfully asserted that the Class
A-1 Notes did not represent debt for federal income tax purposes, holders of the
Class A-1 Notes would likely be treated as owning an interest in a partnership
and not an interest in an association (or publicly traded partnership) taxable
as a corporation. If the holders of the Class A-1 Notes were treated as owing an
equitable interest in a partnership, the partnership itself would not be subject
to federal income tax; rather each partner would be taxed individually on their
respective distributive share of the partnership's income, gain, loss,
deductions and credits. The amount, timing and characterization of items of
income and deduction for a holder of a Class A-1 Note would differ if the Class
A-1 Notes were held to constitute partnership interests, rather than
indebtedness. Since the parties will treat the Class A-1 Notes as indebtedness
for federal income tax purpose, none of the Servicer, the Indenture Trustee or
the Owner Trustee will attempt to satisfy the tax reporting requirements that
would apply under this alternative characterization of the Class A-1 Notes.
Investors that are foreign persons are strongly advised to consult their own tax
advisors in determining the federal, state, local and other tax consequences to
them of the purchase, ownership and disposition of the Class A-1 Notes.
Special Tax Attributes. The Class A-1 Notes will not represent "real estate
assets" for purposes of Section 865(c)(4)(A) of the Code or "[l]oans ...
primarily secured by an interest in real property" within the meaning of Section
7701(a)(19)(C) of the Code.
Discount and Premium. It is not anticipated that the Class A-1 Notes will
be issued with any original issue discount. See "Certain Federal Income Tax
Consequences -- Discount and Premium -- Original Issue Discount" in the
accompanying prospectus. The prepayment assumption that will be used for
purposes of computing original issue discount, if any, for federal income tax
purposes is the Prepayment Assumption. See "Prepayment and Yield Considerations"
herein. In addition, a subsequent purchaser who buys a Class A-1 Note for less
than its principal amount may be subject to the "market discount" rules of the
Code. See "Certain Federal Income Tax Consequences -- Discount and Premium --
Market Discount" in the accompanying prospectus. A subsequent purchaser who buys
a Class A-1 Note for more than its principal amount may be subject to the
"market premium" rules of the
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<PAGE>
Code. See "Certain Federal Income Tax Consequences -- Discount and Premium --
Securities Purchased at a Premium" in the accompanying prospectus.
Sale or Redemption of the Class A-1 Notes. If a Class A-1 Note is sold or
retired, the seller will recognize gain or loss equal to the difference between
the amount realized on the sale and such holder's adjusted basis in the Class
A-1 Note. See "Certain Federal Income Tax Consequences -- Debt Securities --
Sale or Exchange" in the accompanying prospectus.
Other Matters. For a discussion of backup withholding and taxation of
foreign investors in the Class A-1 Notes, see "Certain Federal Income Tax
Consequences -- Backup Withholding" and " --Foreign Investors -- Grantor Trust,
REMIC Regular and Debt Securities" in the accompanying prospectus.
Treatment of the Class A-2 Notes
An election will be made to treat the sub-trust of the Trust consisting of
the Pool II Mortgage Loans as a real estate mortgage investment conduit (a
"REMIC") for federal income tax purposes. Qualification as a REMIC requires
ongoing compliance with certain conditions. Tax Counsel will deliver its opinion
that, assuming the REMIC election is made and compliance with the Trust
Agreement and the Indenture, the sub-trust of the Trust consisting of the Pool
II Mortgage Loans will be treated as a REMIC for federal income tax purposes.
The Class A-2 Notes will be designated as "regular interests" in the REMIC
constituted by the sub-trust of the Trust consisting of the Pool II Mortgage
Loans and the Trust Certificate relating to Pool II will be designated as the
sole "residual interest" in such 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. Holders of
Class A-2 Notes that otherwise report income under a cash method of accounting
will be required to report income with respect to such Class A-2 Note under the
accrual method. See "Certain Federal Income Tax Consequences -- REMIC
Securities" in the accompanying prospectus.
Discount and Premium. It is not anticipated that the Class A-2 Notes will
be issued with any original issue discount. See "Certain Federal Income Tax
Consequences -- Discount and Premium -- Original Issue Discount" in the
accompanying prospectus. The prepayment assumption that will be used for
purposes of computing original issue discount, if any, for federal income tax
purposes is the Prepayment Assumption. See "Prepayment and Yield Considerations"
herein. No representation is made that any of the Mortgage Loans will prepay at
such rates or any other rate. In addition, a subsequent purchaser who buys a
Class A-2 Note for less than its principal amount may be subject to the "market
discount" rules of the Code. See "Certain Federal Income Tax Consequences --
Discount and Premium -- Market Discount" in the accompanying prospectus. A
subsequent purchaser who buys a Class A-2 Note for more than its principal
amount may be subject to the "market premium" rules of the Code. See "Certain
Federal Income Tax Consequences -- Discount and Premium -- Securities Purchased
at a Premium" in the accompanying prospectus.
Special Tax Attributes. The Class A-2 Notes possess certain special tax
attributes by virtue of the REMIC provisions of the Code. See "Certain Federal
Income Tax Consequences -- REMIC Securities -- Special Tax Attributes" in the
accompanying prospectus.
Sale or Redemption of the Class A-2 Notes. If a Class A-2 Note is sold, the
seller will recognize gain or loss equal to the difference between the amount
realized on the sale and such holder's adjusted basis in the Class A-2 Note. See
"Certain Federal Income Tax Consequences -- REMIC Securities -- Sales of REMIC
Securities" in the accompanying prospectus.
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<PAGE>
Other Matters. For a discussion of backup withholding and taxation of
foreign investors in the Class A-2 Notes, see "Certain Federal Income Tax
Consequences -- Backup Withholding" and " --Foreign Investors -- Grantor Trust,
REMIC Regular and Debt Securities" in the accompanying prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain restrictions on (a) employee benefit plans (as
defined in Section 3(3) of ERISA), (b) plans described in section 4975(e)(1) of
the Code, including individual retirement accounts or Keogh plans, (c) any
entities whose underlying assets include plan assets by reason of a plan's
investment in such entities (each a "Plan") and (d) persons who have certain
specified relationships to such Plans ("Parties-in-Interest" under ERISA and
"Disqualified Persons" under the Code). Section 406 of ERISA prohibits Plans
from engaging in certain transactions involving the assets of such Plans with
Parties in Interest with respect to such Plans, unless a statutory or
administrative exemption is applicable to the transaction. Excise taxes under
Section 4975 of the Code, penalties under Section 502 of ERISA and other
penalties may be imposed on Plan fiduciaries and Parties-in-Interest (or
Disqualified Persons) that engage in "prohibited transactions" involving assets
of a Plan. Individual retirement arrangements and other plans that are not
subject to ERISA, but are subject to Section 4975 of the Code, and Disqualified
Persons with respect to such arrangements and plans, also may be subject to
excise taxes and other penalties if they engage in prohibited transactions.
Moreover, based on the reasoning of the United States Supreme Court in John
Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993), an
insurance company's general account may be deemed to include assets of the Plans
investing in the general account (e.g., through the purchase of an annuity
contract). ERISA also imposes certain duties on persons who are fiduciaries of
Plans subject to ERISA.
Certain transactions involving the purchase, holding or transfer of the
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code if assets of the Trust were deemed to be assets of a Plan. Under a
regulation issued by the United States Department of Labor (the "Plan Assets
Regulation"), the assets of the Trust would be treated as plan assets of a Plan
for the purposes of ERISA and the Code only if the Plan acquires an "equity
interest" in the Trust and none of the exceptions contained in the Plan Assets
Regulation is applicable. An equity interest is defined under the Plan Assets
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. Although there is little guidance on the subject, the Seller believes
that the Class A-1 Notes should be treated as indebtedness without substantial
equity features for purposes of the Plan Assets Regulation. This determination
is based in part on the traditional debt features of the Class A-1 Notes,
including the reasonable expectation of purchasers of the Class A-1 Notes that
the Class A-1 Notes will be repaid when due, as well as the absence of
conversion rights, warrants and other typical equity features. The debt
treatment of the Class A-1 Notes could change if the Trust incurs losses.
However, even if the Class A-1 Notes are treated as debt for such purposes, the
acquisition or holding of Class A-1 Notes by or on behalf of a Plan could be
considered to give rise to a prohibited transaction if the Issuer or any of its
affiliates is or becomes a Party in Interest or a Disqualified Person with
respect to such Plan. In such case, certain exemptions from the prohibited
transaction rules could be applicable depending on the type and circumstances of
the plan fiduciary making the decision to acquire a note. Included among these
exemptions are: Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding
investments by insurance company pooled separate accounts; PTCE 95-60, regarding
investments by insurance company general accounts; PTCE 91-38, regarding
investments by bank collective investment funds; PTCE 96-23, regarding
transactions affected by in-house asset managers; and PTCE 84-14, regarding
transactions effected by "qualified professional asset managers." Each investor
using the assets of a Plan which acquires the Class A-1 Notes, or to
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<PAGE>
whom the Class A-1 Notes are transferred, will be deemed to have represented
that the acquisition and continued holding of the Class A-1 Notes will be
covered by one of the exemptions listed above or by another Department of Labor
Class Exemption.
Because the Class A-2 Notes may be treated as an "equity interest" under
the Plan Asset Regulations, in the absence of an exemption, the purchase, sale
or holding of any Class A-2 Note by a Plan subject to Section 406 of ERISA or
Section 4975 of the Code might result in prohibited transactions and the
imposition of excise taxes and civil penalties.
On June 6, 1990, the DOL issued to Prudential Securities Incorporated an
individual administrative exemption, Prohibited Transaction Exemption 90-32 (the
"Exemption"), from certain of the prohibited transaction rules of ERISA with
respect to the initial purchase, the holding and the subsequent resale by a Plan
of REMIC notes issued by pass-through trusts that meet the conditions and
requirements of the Exemption. Among the conditions that must be satisfied for
the Exemption to apply are the following:
(a) The Acquisition of the Class A-2 Notes by a Plan is on terms
(including the price for the Class A-2 Notes) that are at least as
favorable to the Plan as they would be in an arm's length transaction
with an unrelated party;
(b) The rights and interests evidenced by the Class A-2 Notes acquired by
the Plan are not subordinated to the rights and interests evidenced by
other notes of the Trust Estate;
(c) The Class A-2 Notes acquired by the Plan have received a rating at the
time of such acquisition that is in one of the three highest generic
rating categories from any of S&P, Moody's, Fitch IBCA, Inc. ("Fitch
IBCA"), or Duff & Phelps Credit Rating Co. ("DCR");
(d) The sum of all payments made to the Underwriter in connection with the
distribution of the Class A-2 Notes represents not more than
reasonable compensation for underwriting the Class A-2 Notes. The sum
of all payments made to and retained by the Servicer represents not
more than reasonable compensation for the Servicer's services under
the Sale and Servicing Agreement and reimbursement of the Servicer's
reasonable expenses in connection therewith;
(e) The Indenture Trustee is not an affiliate of any other member of the
Restricted Pool (as defined below); and
(f) The Plan investing in the Class A-2 Notes is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933.
The Trust Estate also must meet the following requirements:
(i) the corpus of the Trust Estate must consist solely of assets of the
type which have been included in other investment pools;
(ii) notes in such other investment pools must have been rated in one of
the three highest rating categories of S&P, Moody's, DCR or Fitch
IBCA for at least one year prior to the Plan's acquisition of
notes; and
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<PAGE>
(iii) notes evidencing interests in such other investment pools must have
been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of Class A-2 Notes.
In order for the Exemption to apply to certain self-dealing/conflict of
interest prohibited transactions that may occur when a Plan fiduciary causes the
Plan to acquire Class A-2 Notes, the Exemption requires, among other matters,
that: (i) in the case of an acquisition in connection with the initial issuance
of Notes, at least fifty percent (50%) of each class of notes in which Plans
have invested is acquired by persons independent of the Restricted Pool and at
least fifty percent (50%) of the aggregate interest in the Trust Estate is
acquired by persons independent of the Restricted Pool (as defined below); (ii)
such fiduciary (or its affiliate) is an obligor with respect to five percent
(5%) or less of the fair market value of the obligations contained in the Trust
Estate; (iii) the Plan's investment in Class A-2 Notes does not exceed
twenty-five percent (25%) of all of the notes outstanding at the time of the
acquisition and (iv) immediately after the acquisition, no more than twenty-five
percent (25%) of the assets of the Plan are invested in notes representing an
interest in one or more trusts containing assets sold or serviced by the same
entity.
The Exemption does not apply to certain prohibited transactions in the case
of Plans sponsored by the Underwriter, the Indenture Trustee, the Servicer, any
obligor with respect to more than five percent (5%) of the fair market value of
the Mortgage Loans included in the Trust Estate, any entity deemed to be a
"sponsor" of the Trust Estate as such term is defined in the Exemption, or any
affiliate of any such party (the "Restricted Pool").
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA, or Code Section 4975. However, such a governmental plan may be subject to
a federal, state, or local law, which is, to a material extent, similar to the
provisions of ERISA or Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the need for and the
availability of any exemptive relief under Similar Law.
The sale of Notes to a Plan is in no respect a representation by the
Depositor or the Underwriter that this investment meets all relevant legal
requirements with respect to investments by Plans generally or any particular
Plan, or that this investment is appropriate for Plans generally or any
particular ERISA Plan. Any fiduciary of an ERISA Plan considering whether to
purchase a Note should carefully review with its own legal advisors the
applicability of the fiduciary duty and prohibited transaction provisions of
ERISA and the Code to such investment. Before purchasing a Class A-2 Note, a
fiduciary of an ERISA Plan should make its own determination as to the
availability of the exemptive relief provided in the Exemption and whether the
conditions of such Exemption will be applicable to the Class A-2 Notes.
LEGAL INVESTMENT
The Notes will not constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement dated
October 16, 1998 (the "Underwriting Agreement") between the Depositor and
Prudential Securities Incorporated (the "Underwriter"), the Depositor has agreed
to sell to the Underwriter and the Underwriter has agreed to purchase from the
Depositor the Notes. The Depositor is obligated to sell, and the Underwriter is
obligated to purchase, all of the Notes offered hereby if any are purchased.
S-82
<PAGE>
The Underwriter has advised the Depositor that it proposes to offer the
Notes 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 Notes 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
Notes for whom they may act as agent. Any dealers that participate with the
Underwriter in the distribution of the Notes 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 Notes by them or the Underwriter
may be deemed to be underwriting discounts or commissions under the Securities
Act of 1933, as amended (the "Securities Act").
In connection with the offering of the Notes, the Underwriter and its
affiliates may engage in transactions that stabilize, maintain or otherwise
affect the market price of the Notes. 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 Notes for the purpose
of stabilizing its market price. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Notes at a level
above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are taken,
may be discontinued at any time without notice.
For further information regarding any offer or sale of the Notes pursuant
to this prospectus supplement and the accompanying prospectus, see "Plan of
Distribution" in the accompanying prospectus.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.
Prudential Securities Incorporated is an affiliate of the Depositor.
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc. and
subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 1997, incorporated by
reference in this prospectus supplement, have been incorporated herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
RATINGS
It is a condition to the original issuance of the Notes that they will
receive ratings of "AAA" by S&P and "Aaa" by Moody's. The ratings assigned to
the Notes will take into account the claims-paying ability of the Note Insurer.
Explanations of the significance of such ratings may be obtained from Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007 and Standard
& Poor's Rating Services, 25 Broadway, New York, New York 10004. Such ratings
will be the views only of such rating agencies. There is no assurance that any
such ratings will continue for any period of time or that such ratings will not
be revised or withdrawn. Any such revision or withdrawal of such ratings may
have an adverse effect on the market price of the Notes.
S-83
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Notes will be passed upon for
the Originators, the Seller and the Servicer by Blank Rome Comisky & McCauley
LLP, Philadelphia, Pennsylvania, for the Trust by Prickett, Jones, Elliot,
Kristol & Schnee, Wilmington, Delaware, and for the Depositor and the
Underwriter by Dewey Ballantine LLP, New York, New York.
INDEX OF PRINCIPAL DEFINED TERMS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ABC................................................16 Due Period.........................................55
ABFS...............................................34 Eligible Account...................................51
Accounts...........................................52 ERISA..............................................80
Accrual Period......................................2 Euroclear..........................................43
Available Amount...............................53, 57 Euroclear Operator.................................45
Available Funds Carry-Forward Amount................3 Euroclear Participants.............................45
Available Funds Note Rate...........................1 European Depositaries..............................43
Balloon Loans......................................11 Event of Default...................................61
Bank Alliance Program..............................34 Excess Interest.............................2, 53, 57
Business Day.......................................70 Excess Over-collateralized Amount..................54
Capitalized Interest Account........................6 Exemption..........................................81
Carry-Forward Amount...............................57 Final Stated Maturity Date.........................75
Cede...............................................43 Financial Intermediary.............................43
CEDEL..............................................43 Financial Security.................................72
CEDEL Participants.................................45 First Liens........................................19
Chase..............................................43 Fitch IBCA.........................................81
Civil Relief Act...................................14 Foreclosure Profits................................58
Civil Relief Act Interest Shortfalls...............64 HEP................................................75
Class A-1 Interest Distribution Amount.............57 Holdings...........................................72
Class A-1 Mortgage Loan Interest Shortfalls........57 Home Equity Prepayment.............................75
Class A-1 Notes.....................................1 Indenture..........................................17
Class A-2 Clean-up Call............................68 Indenture Trust Office.............................42
Class A-2 Clean-up Call Date.......................68 Indenture Trustee..............................16, 42
Class A-2 Formula Note Rate.........................1 Indenture Trustee's Fees...........................56
Class A-2 Interest Distribution Amount.............57 Indenture Trustee's Mortgage File..................48
Class A-2 Notes.....................................1 Indenture Trustee's Remittance Report..............61
CLTV...............................................18 Indirect Participants..............................44
Code................................................7 Insurance Agreement................................17
Collateral Agent...................................16 Insurance Proceeds.................................58
Collateral Agent's Fees............................56 Insured Distribution Amount........................58
Collection Account.................................51 Insured Payment....................................58
Cooperative........................................45 Interest Determination Date........................52
Cross-collateralization Reserve Account.............5 Interest Distribution Amount.......................58
Current Interest...................................57 IRS................................................77
Current Interests...................................2 LIBOR..............................................52
Cut-Off Date.......................................17 Liquidated Loan Loss...........................55, 58
DCR................................................81 Liquidation Expenses...............................58
Debt Service Reduction.............................64 Liquidation Proceeds...............................58
Deficient Valuation................................64 LTV................................................49
Definitive Note....................................43 Modeling Assumptions...............................75
Depositor..........................................16 Moody's............................................16
Depository.........................................43 Mortgage Loan Interest Shortfalls...............2, 58
Distribution Account...............................52 Mortgage Loans......................................1
Distribution Date...................................2 Net Foreclosure Profits............................59
DTC................................................43 Net Liquidation Proceeds...........................59
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net REO Proceeds...................................59 Restricted Pool....................................82
NJMIC..............................................16 Rules..............................................44
Nonrecoverable Advance.............................63 S&P................................................16
Note Insurance Policy...........................5, 16 Sale and Servicing Agreement.......................17
Note Insurer................................5, 16, 72 Second Liens.......................................19
Note Rate...........................................1 Securities Act.....................................83
Notes...............................................1 Seller.............................................16
Order..............................................70 Servicer........................................6, 16
Originators........................................16 Servicer Distribution Date.....................52, 63
Over-collateralization Deficit.................55, 59 Servicer Event of Default..........................67
Over-collateralization Increase Amount.........54, 59 Servicer Extension Notice..........................68
Over-collateralization Reduction Amount........54, 59 Servicer Remittance Amount.........................52
Over-collateralized Amount.........................54 Servicer Remittance Report.........................64
Owner Trust Office.................................42 Servicing Advances.................................63
Owner Trustee..................................16, 42 Servicing Fee......................................62
Participants.......................................43 Servicing Fee Rate.................................62
Periodic Advances..................................63 Shortfall Amount...................................55
Permitted Investments..............................42 Similar Law........................................82
Plan...............................................80 SMMEA..............................................82
Plan Assets Regulation.............................80 Specified Over-collateralized Amount...........54, 60
Pool I..............................................1 Specified Reserve Amount...........................56
Pool II.............................................1 Statistical Calculation Date.......................17
Pre-Funding Account.................................6 Statistical Calculation Date Aggregate
Pre-Funding Period.................................47 Principal Balance................................10
Prepayment Assumption..............................75 Subsequent Mortgage Loans..........................18
Prepayment Interest Shortfall......................64 Subsequent Transfer Date...........................34
Principal Distribution Amount......................59 Subservicer........................................16
Principal Prepayments..............................51 Substitution Adjustment............................49
PTCE...............................................80 Successor Servicer.................................68
Qualified Substitute Mortgage Loan.................49 Tax Counsel........................................78
Rating Agencies....................................16 Telerate Page 3750.................................52
Receipt............................................70 Terms and Conditions...............................45
Received...........................................70 Trust...........................................1, 16
Record Date.........................................2 Trust Agreement....................................17
Reference Banks....................................53 Trust Certificates..................................1
Reimbursement Amount...............................56 Trust Estate........................................1
REMIC...........................................7, 79 Unaffiliated Seller's Agreement....................17
REO Proceeds.......................................60 Underwriter........................................82
REO Property.......................................41 Underwriting Agreement.............................82
Reserve Interest Rate..............................53 Upland.............................................16
</TABLE>
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<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this prospectus
supplement and the prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
depositor or by the underwriter. This prospectus supplement and the prospectus
do not constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby by anyone in any jurisdiction in which such an offer
or solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make any such offer or solicitation. Neither the delivery of this prospectus
supplement and the prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that information herein or therein is
correct as of any time since the date of this prospectus supplement or the
prospectus.
------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
------
Table of Contents ............................................ S-iii
Summary ...................................................... S-1
Risk Factors ................................................. S-8
Transaction Overview ......................................... S-16
The Mortgage Loan Pools ...................................... S-17
The Originators, the Seller and the Servicer ................. S-34
The Owner Trustee ............................................ S-42
The Indenture Trustee ........................................ S-42
Description of the Notes and the Trust Certificates .......... S-42
Servicing of the Mortgage Loans .............................. S-62
The Note Insurance Policy .................................... S-69
The Note Insurer ............................................. S-72
Prepayment and Yield Considerations .......................... S-74
Certain Federal Income Tax Considerations .................... S-77
ERISA Considerations ......................................... S-80
Legal Investment ............................................. S-82
Underwriting ................................................. S-82
Experts ...................................................... S-83
Ratings ...................................................... S-83
Legal Matters ................................................ S-84
Index of Principal Defined Terms ............................. S-84
PROSPECTUS
Reports ...................................................... 3
Available Information ........................................ 3
Incorporation of Certain Information By Reference ............ 3
Summary of Prospectus ........................................ 4
Risk Factors ................................................. 12
The Trust Funds .............................................. 17
Description of the Notes ..................................... 29
Credit Support ............................................... 43
Prepayment and Yield Considerations .......................... 49
Use of Proceeds .............................................. 53
The Depositor ................................................ 53
Underwriting Guidelines ...................................... 54
Servicing of the Mortgage Loans and Contracts ................ 55
The Pooling and Servicing Agreement .......................... 66
Certain Legal Aspects of the Mortgage Loans
and Contracts .............................................. 69
Certain Federal Income Tax Consequenses ...................... 84
ERISA Considerations ......................................... 97
Legal Investment ............................................. 101
Plan of Distribution ......................................... 102
Legal Matters ................................................ 103
Rating ....................................................... 103
Additional Information ....................................... 103
Index of Significant Definitions ............................. 104
================================================================================
<PAGE>
================================================================================
$79,200,000
ABFS Mortgage Loan Trust 1998-4
Issuer
American Business Financial
Services, Inc.
Sponsor
American Business Credit, Inc.
Servicer
Prudential Securities
Secured Financing Corporation
Depositor
$64,350,000
Class A-1 Notes
$14,850,000
Class A-2 Notes
Mortgage Backed-Notes,
Series 1998-4
-----------------------------
PROSPECTUS SUPPLEMENT
-----------------------------
Prudential Securities
Incorporated
December 4, 1998
================================================================================
