As filed with the Securities and Exchange Commission on June 22, 1999
Registration Statement No. 333-75489
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
(Exact name of registrant as specified in Its Charter)
Delaware One New York Plaza 13-3526694
(Jurisdiction) New York, New York 10292 (I.R.S. Employer
(212) 778-1000 Identification No.)
(Address of registrant's principal executive offices)
-------------------
Joe Donovan
Prudential Securities Secured
Financing Corporation
One New York Plaza
New York, New York 10292
(Name and address of agent for service)
-------------------
Copies to:
Christopher J. DiAngelo, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
426(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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<S> <C> <C> <C> <C>
Title of Securities Being Registered Amount Being Registered Proposed Maximum Proposed Maximum Amount of
Offering Price Per Aggregate Offering Registration
Unit(1) Price(1) Fee
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Mortgage Backed Securities........... $1,500,000,000 100% $1,500,000,000 $417,000(2)
====================================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee.
(2) Previously paid.
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
FORM OF PROSPECTUS
SUPPLEMENT -- NOTES
Prospectus supplement to prospectus dated ____________
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$-----------
----------------------
Mortgage-Backed Notes, Series _______
$______ _____% Class A-1 Notes $________ ______% Class A-2 Notes
_____________ Prudential Securities Secured
Depositor Financing Corporation
Sponsor
- --------------------------------------------------------------------------------
You should read the section entitled "Risk Factors" starting on page S-__ of
this prospectus supplement and page __ of the accompanying prospectus and
consider these factors before making a decision to invest in the
certificates.
The certificates ownership interests in the trust fund only and are not
interests in or obligations of any other person.
Neither the certificates nor the underlying mortgage loans will be insured or
guaranteed by any governmental agency or instrumentality.
The trust fund --
o The trust fund consists primarily of two pools of fixed-rate business and
consumer purpose home equity loans secured by first- or second-lien
mortgages on residential or commercial real properties.
The certificates --
o Each class of offered certificates will represent a beneficial ownership
interest in one pool of mortgage loans.
Credit enhancement --
o The certificates will have the benefit of a financial guaranty insurance
policy to be issued by [certificate insurer]
o The certificates will be cross-collateralized to a limited extent.
o The certificates have the benefit of initial over-collateralization.
o Excess interest will be used in the early years of the transaction to
increase this over-collateralization.
<TABLE>
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<S> <C> <C> <C> <C> <C> <C>
Class Original Note Price to the Underwriting Proceeds to the Ratings Final Stated
Principal Balance Public Discount Depositor [ ] Maturity Date
A-1 $_____________ ____% ____% $_____________
A-2 $_____________ ____% ____% $_____________
Total $_____________ $____________ $______ $____________
</TABLE>
In addition to the price stated above, purchasers of notes will also be
required to pay the interest that has accrued on their note from the
cut-off date to the date of purchase of the note. The proceeds to the
depositor stated above have been calculated without taking into effect the
expenses of this offering, which are expected to be $______________.
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.
---------------------
The date of this prospectus supplement is ________
<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. If the accompanying prospectus contemplates multiple
options, you should rely on the information in this prospectus supplement as to
the applicable option.
We cannot sell the notes to you unless you have received both this
prospectus supplement and 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 information concerning a particular topic. The following table of
contents provides the pages on which these captions are located.
Table of Contents
Summary...............................................1
Risk Factors..........................................3
Transaction Overview..................................7
Parties..........................................7
The Transaction..................................8
The Mortgage Loan Pools...............................8
The Pool I Mortgage Loans........................9
The Pool II Mortgage Loans......................13
Conveyance of subsequent mortgage loans.........16
The Originators, the Depositor and the Servicer......17
Underwriting Guidelines.........................17
The Servicer....................................17
Delinquency and Loan Loss Experience............17
The Owner Trustee....................................19
The Indenture Trustee................................19
The Collateral Agent.................................19
Description of the Notes and the Trust Certificates..19
Book-Entry Registration.........................20
Definitive Notes................................24
Assignment and Pledge of Initial Mortgage
Loans.........................................24
Assignment and Pledge of Subsequent Mortgage
Loans.........................................24
Delivery of Mortgage Loan Documents.............25
Representations and Warranties of the Depositor.26
Payments on the Mortgage Loans..................28
Over-collateralization Provisions...............30
Cross-collateralization Provisions..............31
Flow of Funds...................................32
Events of Default...............................32
Reports to Noteholders..........................33
Amendment.......................................34
Servicing of the Mortgage Loans......................34
The Servicer....................................34
Servicing Fees and Other Compensation and
Payment of Expenses...........................34
Periodic Advances and Servicer Advances.........35
Prepayment Interest Shortfalls..................36
Civil Relief Act Interest Shortfalls............36
Optional Purchase of Defaulted Mortgage Loans...36
Servicer Reports................................36
Collection and Other Servicing Procedures.......37
Hazard Insurance................................37
Realization Upon Defaulted Mortgage Loans.......38
Removal and Resignation of the Servicer.........38
Optional Clean-up Call on the Notes.............40
Termination; Purchase of Mortgage Loans.........40
S-ii
<PAGE>
The Note Insurance Policy............................41
The Note Insurer.....................................44
The Note Insurer................................44
Reinsurance.....................................45
Ratings.........................................45
Capitalization..................................45
Insurance Regulation............................45
Prepayment and Yield Considerations..................46
Material Federal Income Tax Considerations...........49
Treatment of the Notes..........................49
Treatment of the Trust..........................50
ERISA Considerations.................................51
Legal Investment.....................................52
Plan of Distribution.................................52
Incorporation of Information by Reference............52
Additional Information...............................53
Experts..............................................53
Legal Matters........................................53
Ratings..............................................53
Glossary.............................................54
S-iii
<PAGE>
Summary
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, carefully read this
entire prospectus supplement and the accompanying prospectus.
-------------------------------
The Notes and the Trust Certificates
The __________________ will issue the class A-1 notes and the class A-2 notes.
The trust will also issue two classes of trust certificates which are not
offered by this prospectus supplement.
Distribution Dates
Distributions on the notes will be made on the ____ day of each month, or, if
the ____ day is not a business day, on the next business day, beginning on
_________.
Distributions of Interest
On each distribution date, noteholders will receive the interest that has
accrued on the notes.
The accrual period for the notes is the calendar month preceding the
distribution date.
All computations of interest accrued on the notes will be
made on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of Principal
On each distribution date, noteholders will receive principal distributions. The
amount of these distributions will be based on the amount of principal collected
on the underlying mortgage loans during the prior calendar month.
In addition, in accordance with the over-collateralization features of the
transaction, holders may also receive extra distributions of principal from
excess interest on a distribution date.
The Mortgage Loans
The mortgage loans 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 or commercial real
properties.
On the closing date, the aggregate principal balance of the pool I mortgage
loans will be approximately $_____________ and the aggregate principal balance
of the pool II mortgage loans will be approximately $____________.
The aggregate principal balance of the mortgage loans purchased by the trust on
the closing date will be less than the amount required to be held by the trust.
The amount of the difference will be placed in the pre-funding accounts and used
for the purchase of mortgage loans after the closing date.
Servicing of the Mortgage Loans
__________________ will act as servicer.
Option of the Servicer to Call Either Class of Notes
The servicer may, at its option, call the class A-1 notes or the class A-2 notes
on any distribution date after the aggregate outstanding principal balance of
the class is equal to or less than 10% of the aggregate original principal
balance of the class.
Option of the Servicer to Terminate the Trust
The servicer may, at its option, terminate the trust on any distribution date
after 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
S-1
<PAGE>
and the amount on deposit in the pre-funding accounts on the closing date.
ERISA Considerations
Subject to the conditions described under "ERISA Considerations" in this
prospectus supplement, the notes may be purchased by any employee benefit plan
or other retirement arrangement subject to ERISA or the Internal Revenue Code.
Federal Income Tax Status
It is the opinion of ____________, special federal tax counsel to the trust,
that for federal income tax purposes
o the notes will be characterized as indebtedness and
o the trust will not be characterized as an association, or a publicly
traded partnership, taxable as a corporation or as a taxable mortgage
pool.
Each noteholder, by the acceptance of a note, will agree to treat the notes as
indebtedness.
Ratings
In order to be issued, the notes must be rated [ ] by ________________ and [ ]
by ____________, taking into account the note insurance policy issued for the
notes.
S-2
<PAGE>
Risk Factors
Investors should consider, among other things, the following factors --
as well as the factors listed under "Risk Factors" in the accompanying
prospectus -- before deciding to invest in the notes.
If the funds on deposit in the pre-funding accounts are not used to purchase
additional mortgage loans, those funds will be distributed as a prepayment of
principal, which may adversely affect the yield on your note.
If the principal balance of the eligible mortgage loans
available for purchase by the trust on _____________ is less
than the amount on deposit in either pre-funding account on
that date, the remaining amount will be applied as a
prepayment of principal on the following distribution date to
the holders of the class of notes relating to that pre-funding
account. You will bear the risk of reinvesting these
unscheduled distributions and there can be no assurance that
you will be able to reinvest them at a yield equaling or
exceeding the yield or your note.
If the originators do not have sufficient additional mortgage
loans that satisfy the requirements listed on pages S-16 and
S-17 of this prospectus supplement, a prepayment will occur.
Because many of the mortgage loans backing your note were made to borrowers with
impaired or unsubstantiated credit histories, there is a greater risk of
delinquent payments on these mortgage loans, which could lead to greater risk of
losses on your note.
The mortgage loans were made, in part, to borrowers who, for
one reason or another, are not able, or do not wish, to obtain
financing from traditional sources like commercial banks.
These mortgage loans may be considered to be of a riskier
nature than mortgage 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.
The underwriting standards used in the origination of the
mortgage loans held by the trust are generally less stringent
than those of Fannie Mae or Freddie Mac concerning a
borrower's credit history and in other respects. Borrowers on
the mortgage 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 concentration of the mortgage loans in particular jurisdictions may
result in greater losses if those jurisdictions experience economic downturns.
Some geographic regions of the United States from time to time
will experience weaker regional economic conditions and
housing markets, and, consequently, will experience higher
rates of loss and delinquency on mortgage loans generally. Any
concentration of the mortgage loans in any of these regions
may present risk considerations in addition to those generally
present for similar mortgage-backed securities without this
concentration. The mortgaged properties underlying the
mortgage loans are located primarily on the eastern seaboard
of the United States. This may subject the mortgage loans held
by the trust to the risk that a
S-3
<PAGE>
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 states listed below had the following
percentages of mortgage loans in pool I and pool II, measured
as of _______, ______, which are secured by mortgaged
properties located in the their states:
Pool I % % % % %
Pool II % % % % %
Because of the relative geographic concentration of the
mortgage loans within the states of _____________,
_____________, _____________, _____________ and _____________,
losses on the mortgage loans may be higher than would be the
case if the mortgage loans were more geographically
diversified. For example, some of the mortgaged properties may
be more susceptible to particular types of special hazards,
like earthquakes and other natural disasters and major civil
disturbances, than residential or commercial properties
located in other parts of the country. In addition, the
economies of _____________, _____________, _____________,
_____________ and _____________ may be adversely affected to a
greater degree than the economies of other areas of the
country by regional developments. If the _____________,
_____________, _____________, _____________ and _____________
residential or commercial 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 this increase may be
substantial.
A portion of the mortgage loans require large balloon payments at maturity;
these balloon loans may involve a greater risk of default due to these large
payments, which could lead to losses on your securities.
Approximately ____% of the mortgage loans in pool I, measured
as of _____, ____, and ____% of the mortgage loans in pool II,
measured as of ____, ____, are not fully amortized over their
terms and instead require substantial balloon payments on
their maturity dates. Because the principal balances of these
balloon loans do not fully amortize over their term, these
balloon 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 his or her balloon loan
will depend on the borrower's ability to obtain adequate
refinancing or funds from other sources to repay the balloon
loan. The originators have only limited historical default
data concerning their balloon loans and they do not believe
that their data is sufficient to predict the default
experience of the balloon loans.
A portion of the mortgage loans are secured by subordinate mortgages; in the
event of a default, these mortgage loans are more likely to experience losses.
Approximately _____% of the mortgage loans in pool I, measured
as of ____, _____, and ____% of the mortgage loans in pool II,
measured as of ____, ____, are secured by subordinate or
junior mortgages which are subordinate to the rights of the
holder of the senior mortgages. As a result, the proceeds from
any liquidation, insurance or condemnation proceedings will be
available to satisfy the principal balance of the mortgage
loan only to the extent that the claims, if
S-4
<PAGE>
any, of each senior mortgagee are satisfied in full, including
any foreclosure costs. In addition, a holder of a junior
mortgage may not foreclose on the mortgaged property securing
the mortgage unless it either pays the entire amount of each
of the senior mortgages to the mortgagees at or prior to the
foreclosure sale or undertakes the obligation to make payments
on each of the senior mortgages 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 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 mortgage 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 or commercial real
estate markets could adversely affect the values of the
mortgaged properties and cause the outstanding principal
balances of the mortgage loans, together with the primary
senior financing thereon, equals or exceeds the value of the
mortgaged properties. This type of decline would adversely
affect the position of a second mortgagee before having the
same effect on the 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. This type of
increase may reduce the likelihood of liquidation or other
proceeds being sufficient to satisfy the mortgage loan after
satisfaction of any first liens.
A portion of the mortgage loans are high LTV loans which may not have adequate
security in the event of a default, which could lead to losses on your note.
Even though all of the mortgage loans are secured be
residential real estate, approximately _____% of the mortgage
loans in pool I, measured as of ____, _____, and ____% of the
mortgage loans in pool II, measured as of ____, ____, are
secured by real estate which has a value that may be close to,
or even less than, the amount of the loan. As a result, the
mortgaged properties may not provide adequate security for
these high LTV loans. Underwriting analysis of high LTV loans
relies more heavily on the mortgagor's creditworthiness than
on the protection afforded by the security interest in the
underlying mortgaged property.
Additionally, there is also the risk that if the borrower
moves, he or she will be unable to pay the loan in full from
the proceeds of the sale of the property. The costs incurred
by the servicer in the collection and liquidation of high LTV
loans may be higher for high LTV than for other types loans,
because the servicer may be required to pursue collection
solely against the borrower. Consequently, the losses on
defaulted high LTV loans may be more severe as there is no
assurance that any proceeds will be recovered, which could
lead to losses on your note.
Security interests in the manufactured homes may not be perfected and the issuer
may not realize upon the full amount due under the loan.
Approximately _____% of the mortgage loans in pool I, measured
as of ____, _____, and ____% of the mortgage loans in pool II,
measured as of ____, ____,
S-5
<PAGE>
are secured by manufactured homes and, in some cases, the real
estate on which the manufactured home is located. Some federal
and state laws, which do not apply to other types of mortgage
loans, limit the issuer's ability to foreclose on manufactured
homes or may limit the amount realized to less than the amount
due under the loan. These limitations could cause losses on
your note.
Prepayments on the mortgage loans could lead to shortfalls in the payment of
interest on your note.
The scheduled monthly payment dates for 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 the prepayment, instead of for a full
month. However, the 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
the 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 days' interest on the mortgage loan, but only to the
extent of the servicing fee for that calendar month.
If the servicer fails to make these payments or the shortfall
exceeds the servicing fee, there will be less funds available
for the payment of interest on a class of notes. These
shortfalls of interest, if they result in the inability of the
trust to pay the full amount of the current interest on that
class of notes, are not covered by the note insurance policy.
Year 2000 issues could lead to delays in payment or losses on your note.
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 the originators, as well as 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 the originator, the servicer, or these 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.
If DTC experiences year 2000 problems, you could experience delays in payment or
losses on your note.
If problems associated with the year 2000 issue were to affect
DTC, its systems -- as the same relate to the timely payment
of distributions, including principal and interest payments,
to securityholders, book-entry deliveries, and settlement of
trades within DTC -- or third, parties, including, but not
limited to, issuers, their agents and its participating
organizations as well as third party vendors on whom DTC
relies for information or the provision of services, including
telecommunication and electrical utility service providers
among others, distributions to the beneficial owners of notes
could be delayed or otherwise adversely affected.
S-6
<PAGE>
Some of the terms used in this prospectus supplement are capitalized.
These capitalized terms have specified definitions, which are included at the
end of this prospectus supplement under the heading "Glossary."
Transaction Overview
Parties
The Trust. ___________________, 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 Sponsor. Prudential Securities Secured Financing Corporation, a
Delaware corporation. The principal executive office of the sponsor is located
at One New York Plaza, 14th Floor, New York, New York 10292, and its telephone
number is (212) 778-1000.
The Depositor. ________________, a __________ corporation, which is
owned by the originators. The principal executive office of the depositor is at
___________________________, and its telephone number is _____________.
The Originators. _____________, a _____________ corporation, and
_____________, a _____________ corporation, originated or purchased the mortgage
loans. For a description of the business of the originators, see "The
Originators, the Depositor and the Servicer" in this prospectus supplement.
The Servicer and the Subservicers. _____________ will act as servicer
of the mortgage loans, and _____________ and _____________ will act as
subservicers for different portions of the mortgage loans. For a description of
the business of the servicer, see "The Originators, the Depositor and the
Servicer" in this prospectus supplement.
The Indenture Trustee. _____________, a _____________ banking
corporation. The corporate trust office of the indenture trustee is located at
_____________, and its telephone number is _____________. For a description of
the indenture trustee and its responsibilities concerning the notes, see "The
Indenture Trustee" in this prospectus supplement.
The Owner Trustee. ___________________________, a national banking
association. The corporate trust office of the owner trustee is located at
_______________________, and its telephone number is _____________. For a
description of the owner trustee and its responsibilities concerning the notes
and the mortgage loans, see "The Owner Trustee" in this prospectus supplement.
The Collateral Agent. _________________________, a national banking
association. The corporate trust office of the collateral agent is located at
________________________, and its telephone number is
The Note Insurer. ___________________________, a _____________
financial guaranty insurance company. The note insurer will issue a financial
guaranty 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" in this
prospectus supplement.
The Rating Agencies. ________________________________ and
__________________ will issue ratings for each class of notes.
S-7
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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
_____________, between the owner trustee and the depositor. Under the Trust
Agreement, the trust will also issue the trust certificates to the depositor,
each evidencing the entire beneficial ownership interest in the sub-trust of the
trust consisting of a pool of mortgage loans.
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 described under "The Originators, the Depositor and
the Servicer." The originators will sell the mortgage loans to the depositor,
pursuant to Loan Sale Agreement, dated as of _____________, among the
originators and the depositor. The depositor will sell the mortgage loans to the
trust pursuant to a Sale and Servicing Agreement, dated as of _____________,
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 _____________, 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.
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 _____________, among the note insurer, the trust, the
depositor, the originators and the servicer.
The Mortgage Loan Pools
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 a
statistical calculation date, in this case _______, ____. Pool I aggregated
$_____________ as of the statistical calculation date and pool II aggregated
$_____________ as of the statistical calculation date. The depositor expects
that the actual pools on the closing date will represent approximately
$_____________ in aggregate principal balance of mortgage loans in pool I, as of
a cut-off date of ______________, ___________, and approximately $_____________
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, the pools
that existed on the statistical calculation date, for which statistical
information is presented in this prospectus supplement, will amortize in part
prior to the closing date. Moreover, some 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 the
characteristics as of the statistical calculation date as presented in this
prospectus supplement, although this variance should not be material. In the
event that the depositor does not, as of the closing date, have the full amount
of mortgage loans which the depositor expects to sell to the trust on this date,
the depositor will increase the size of the pre-funding accounts and the
capitalized interest accounts, as applicable.
Additional mortgage loans are intended to be purchased by the trust
from time to time on or before _____________ from funds on deposit in the
pre-funding accounts. These subsequent mortgage loans to be purchased by the
trust, if available, will be originated or purchased by the originators, sold by
the originators to the depositor and then sold by the depositor to the trust.
The Indenture will provide that
S-8
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the mortgage loans, following the conveyance of the subsequent mortgage loans,
must in the aggregate conform to 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 applicable mortgage loans in relation to the aggregate principal balance
of the mortgage loans in the applicable 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 to refinance an existing mortgage loan, to
consolidate debt, or to obtain cash proceeds by borrowing against the
mortgagor's equity in the mortgaged property in order to provide funds for,
working capital for business, business expansion, equipment acquisition, or
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 majority of the mortgage loans have a prepayment fee clause. These
prepayment fee clauses generally provide that the mortgagor pay, upon
prepayment, one or more of the following:
o a fee equal to a percentage, negotiated at origination, of the
outstanding principal balance of the mortgage loan,
o 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
o 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.
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 ____% per annum.
The combined loan-to-value ratios or CLTV's described in this
prospectus supplement were calculated based upon the appraised values of the
mortgaged properties at the time of origination. No assurance can be given that
the appraised values of the mortgaged properties have remained or will remain at
the levels that existed on the dates of origination of the mortgage loans. If
property values decline and cause the outstanding principal balances of the
mortgage loans, together with the outstanding principal balances of any first
liens, to 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 historically experienced by the servicer, as described below under "The
Originators, the Depositor 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
had the following characteristics:
S-9
<PAGE>
o there were ___ mortgage loans under which the mortgaged properties
are located in __ states,
o the aggregate principal balance, after application of all payments
due on or before the statistical calculation date, was
$_____________,
o the minimum principal balance was $_____________, the maximum
principal balance was $_____________, and the average principal
balance was $_____________,
o the mortgage interest rates ranged from _____% to ____% per annum,
and the weighted average mortgage interest rate was approximately
____% per annum,
o the original term to stated maturity ranged from ___ months to 360
months,
o the remaining term to stated maturity ranged from __ months to
____ months, the weighted average original term to stated maturity
was approximately ___ months and the weighted average remaining
term to stated maturity was approximately ____ months,
o no mortgage loan had a maturity later than _________,
o approximately _______% of the aggregate principal balance of the
mortgage loans require monthly payments of principal that will
fully amortize these mortgage loans by their respective maturity
dates, and approximately ____% of the aggregate principal balance
of the mortgage loans are balloon loans,
o the weighted average CLTV was approximately _____%,
o approximately _____% of mortgage loans are secured by first liens,
and approximately _____% of mortgage loans are secured by second
liens, and
o approximately _____%, _____%, ____%, _____% and ____% of the
mortgage loans are secured by mortgaged properties located in the
States of _____________, _____________, _____________,
_____________ and _____________, respectively.
On or prior to _____________, 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 $_____________.
S-10
<PAGE>
The following tables present statistical information on the mortgage
loans in pool I. Due to rounding, the percentages shown may not precisely total
100.00%.
Geographical Distribution of Mortgaged Properties
Pool I
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
State Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------ --------------------- --------------------- -------------------------------------
Total
Distribution of CLTV Ratios
Pool I
Original Number of Aggregate Unpaid % of Statistical Calculation Date
CLTV Range Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------ --------------------- --------------------- -------------------------------------
Total
Distribution of Gross Mortgage Interest Rates
Pool I
Gross Mortgage Number of Aggregate Unpaid % of Statistical Calculation Date
Interest Rate Range Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------ --------------------- --------------------- -------------------------------------
Total
Distribution of Original Terms to Maturity
(in months)
Pool I
Range of Original Terms Number of Aggregate Unpaid % of Statistical Calculation Date
(in months) Mortgage Loans Principal Balance Aggregate Principal Balance
- ----------------------- --------------------- --------------------- -------------------------------------
Total
Distribution of Remaining Terms to Maturity
(in months)
Pool I
Range of Remaining Terms Number of Aggregate Unpaid % of Statistical Calculation Date
(in months) Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------ --------------------- --------------------- -------------------------------------
Total
</TABLE>
S-11
<PAGE>
<TABLE>
<CAPTION>
Distribution of Original Principal Balances
Pool I
<S> <C> <C> <C>
Range of Original Mortgage Number of Aggregate Unpaid % of Statistical Calculation Date
Loan Mortgage Loans Principal Balance Aggregate Principal Balance
Principal Balances
- -------------------------- --------------------- --------------------- -------------------------------------
Total
Distribution of Current Principal Balances
Pool I
Range of Current Mortgage Loan Number of Aggregate Unpaid % of Statistical Calculation Date
Principal Balances Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------------- --------------------- --------------------- -------------------------------------
Total
Distribution by Lien Status
Pool I
Lien Status Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- -------------------------- --------------------- --------------------- -------------------------------------
Total
Distribution by Amortization Type
Pool I
Amortization Type Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- -------------------------- --------------------- --------------------- -------------------------------------
Total
Distribution by Occupancy Status
Pool I
Occupancy Status Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- -------------------------- --------------------- --------------------- -------------------------------------
Total
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
Distribution by Property Type
Pool I
<S> <C> <C> <C>
Property Type Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- -------------------------- --------------------- --------------------- -------------------------------------
Total
</TABLE>
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 _____% per annum.
The CLTVs described in this prospectus supplement were calculated based
upon the appraised values of the mortgaged properties at the time of
origination. No assurance can be given that the appraised values of the
mortgaged properties have remained or will remain at the levels that existed on
the dates of origination of the mortgage loans. If property values decline and
cause the outstanding principal balances of the mortgage loans, together with
the outstanding principal balances of any first liens, to 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 historically
experienced by the servicer, as described below under "The Originators, the
Depositor 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
had the following characteristics:
o there were ___ mortgage loans under which the mortgaged properties
are located in ___ states,
o the aggregate principal balance, after application of all payments
due on or before the statistical calculation date, was
$_____________,
o the minimum principal balance was $_____________, the maximum
principal balance was $_____________, and the average principal
balance was $_____________,
o the mortgage interest rates ranged from ____% to ___% per annum,
and the weighted average mortgage interest rate was approximately
___% per annum,
o the original term to stated maturity ranged from __ months to 360
months,
o the remaining term to stated maturity ranged from __ months to ___
months, the weighted average original term to stated maturity was
approximately ___ months and the weighted average remaining term
to stated maturity was approximately ___ months,
o no mortgage loan had a maturity later than _____________,
o approximately ____% of the aggregate principal balance of the
mortgage loans require monthly payments of principal that will
fully amortize these mortgage loans by their respective maturity
dates, and approximately ____% of the aggregate principal balance
of the mortgage loans are balloon loans,
o the weighted average CLTV was approximately ____%,
S-13
<PAGE>
o approximately ____% of mortgage loans are secured by first liens,
and approximately ____% of mortgage loans are secured by second
liens, and
o approximately ___%, ___%, ____%, ____% and ____% of the mortgage
loans are secured by mortgaged properties located in the States of
_____________, _____________, _____________, _____________ and
_____________, respectively.
On or prior to _____________, the trust is expected to purchase,
subject to availability, subsequent mortgage loans to be added to pool II. The
maximum aggregate principal balance of subsequent mortgage loans that may be
purchased is expected to be approximately $_____________.
The following tables present statistical information on the mortgage
loans in pool II. Due to rounding, the percentages shown may not precisely total
100.00%.
<TABLE>
<CAPTION>
Geographical Distribution of Mortgaged Properties
Pool II
<S> <C> <C> <C>
State Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------- ----------------- -------------------- -----------------------------------
Total
Distribution of CLTV Ratios
Pool II
Original CLTV Ratio Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------- ----------------- -------------------- -----------------------------------
Total
Distribution of Gross Mortgage Interest Rates
Pool II
Gross Mortgage Number of Aggregate Unpaid % of Statistical Calculation Date
Interest Rate Range Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------- ----------------- -------------------- -----------------------------------
Total
Distribution of Original Terms to Maturity
(in months)
Pool II
Range of Original Terms Number of Aggregate Unpaid % of Statistical Calculation Date
(in months) Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------- ----------------- -------------------- -----------------------------------
Total
</TABLE>
S-14
<PAGE>
<TABLE>
<CAPTION>
Distribution of Remaining Terms to Maturity
(in months)
Pool II
<S> <C> <C> <C>
Range of Remaining Terms Number of Aggregate Unpaid % of Statistical Calculation Date
(in months) Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------- ----------------- -------------------- -----------------------------------
Total
Distribution of Original Principal Balances
Pool II
Range of Original Mortgage Number of Aggregate Unpaid % of Statistical Calculation Date
Loan Principal Balances Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------- ----------------- -------------------- -----------------------------------
Total
Distribution of Current Principal Balances
Pool II
Range of Current Number of Aggregate Unpaid % of Statistical Calculation
Mortgage Loan Mortgage Loans Principal Balance Date Aggregate Principal Balance
Principal Balances
- ------------------------- ----------------- -------------------- -----------------------------------
Total
Distribution by Lien Status
Pool II
Lien Status Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- --------------------- ----------------- -------------------- ------------------------------------
Total
Distribution by Amortization Type
Pool II
Amortization Type Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------- ----------------- -------------------- -----------------------------------
Total
</TABLE>
S-15
<PAGE>
<TABLE>
<CAPTION>
Distribution by Occupancy Status
Pool II
<S> <C> <C> <C>
Occupancy Status Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- ---------------------- ----------------- -------------------- -------------------------------------
Total
Distribution by Property Type
Pool II
Property Type Number of Aggregate Unpaid % of Statistical Calculation
Mortgage Loans Principal Balance Date Aggregate Principal Balance
- ---------------------- ----------------- -------------------- -----------------------------------
Total
</TABLE>
Conveyance of subsequent mortgage loans
The Indenture permits the trust to acquire subsequent mortgage loans
with the funds on deposit in the pre-funding accounts. It is expected that the
amount on deposit in the pre-funding accounts on the closing date will be
approximately $_____________ for pool I and $_____________ for pool II.
Accordingly, the statistical characteristics of the mortgage loans in pool I and
pool II 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 subsequent transfer date during the Pre-Funding Period is subject to the
following requirements:
o the subsequent mortgage loan may not be 30 or more days
contractually delinquent as of a subsequent cut-off date which
is the close of business on the last day of the calendar month
preceding the month in which the subsequent mortgage loan was
purchased by the trust;
o the original term to maturity of the subsequent mortgage loan
may not exceed 360 months for pool I and 360 months for pool
II;
o the subsequent mortgage loan must have a mortgage interest
rate of at least ____% for pool I and ____% for pool II;
o 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 in this prospectus supplement;
o the principal balance of any subsequent mortgage loan may not
exceed $_____________ for pool I and $_____________ for pool
II;
o no more than _____% for pool I and ____% for pool II of the
aggregate principal balance of the subsequent mortgage loans
may be second liens;
o no subsequent mortgage loan shall have a CLTV of more than (a)
for consumer purpose loans, ___% for pool I and ____% for pool
II, and (b) for business purpose loans, ___% for pool I and
___% for pool II;
S-16
<PAGE>
o no more than ____% for pool I and ___% for pool II of the
subsequent mortgage loans may be balloon loans;
o no more than ____% for pool I and ____% for pool II of the
subsequent mortgage loans may be secured by mixed-use
properties, commercial properties, or five or more unit
multifamily properties; and
o following the purchase of the subsequent mortgage loans by the
trust, the mortgage loans, including the subsequent mortgage
loans, (a) will have a weighted average mortgage interest
rate, (I) for consumer purpose loans, of at least ____% for
pool I and ____% for pool II and (II) for business purpose
loans, of at least ____% for pool I and ____% for pool II; and
(b) will have a weighted average CLTV of not more than (I) for
consumer purpose loans, ____% for pool I and ____% for pool
II, and (II) for business purpose loans, ____% for pool I and
____% for pool II.
The Indenture will provide that any of these requirements may be waived
or modified in any respect upon prior written consent of the note insurer, with
the exception of the requirements concerning maximum principal balance.
The Originators, the Depositor and the Servicer
[Corporate description]
[To be supplied by originators, depositor and servicer]
Underwriting Guidelines
[To be supplied by originators]
The Servicer
[To be supplied by servicer]
Delinquency and Loan Loss Experience
The following tables present information relating to the delinquency
and loan loss experience on the mortgage loans included in originators servicing
portfolio for the periods shown. The delinquency and loan loss experience
represents the historical experience of the originators, and there can be no
assurance that the future experience on the mortgage loans in the trust will be
the same as, or more favorable than, that of the mortgage loans in the
originators' overall servicing portfolio.
S-17
<PAGE>
Delinquency and Foreclosure Experience
(Dollars in Thousands)
At At At
---------------- ---------------- ---------------
% of
% of % of Amount
Amount Amount Amount Amount Amount Service
Serviced Serviced Serviced Serviced Serviced d
-------- -------- -------- -------- -------- -------
Servicing
portfolio..............
Past due loans:
60-89
days.................
90 days
or more .............-------- -------- -------- -------- -------- -------
Total past
due loans..............
REO
Properties.............-------- -------- -------- -------- -------- -------
Total past
due loans,
foreclosures
pending and
REO
Properties(3)..........
The foregoing table was prepared assuming that:
o 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.;
o total past due loans includes pending foreclosures; and
o an "REO property" is a property acquired and held as a result of
foreclosure or deed in lieu of foreclosure.
Loan Charge-Off Experience
(Dollars in Thousands)
At At At
------------ ----------- -----------
Servicing portfolio at period end......
Average outstanding....................
Gross losses.........................
Loan recoveries......................
Net loan charge-offs.................
Net loan charge-offs as a percentage
of servicing portfolio at period end.
Net loan charge-offs as a percentage
of average outstanding...............
The foregoing table was prepared assuming that:
S-18
<PAGE>
o "average outstanding" 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 this
period; and
o "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
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
________________________, a national banking association, has its
corporate trust offices located at ________________________. 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
________________________, a ____________ banking corporation, has an
office at ________________________. The indenture trustee will act as initial
authenticating agent, paying agent and note registrar pursuant to the terms of
the Indenture.
The Collateral Agent
________________________, a national banking association, has its
corporate trust office at ________________________. The collateral agent's
duties are limited solely to its express obligations under the Sale and
Servicing Agreement.
Description of the Notes and the Trust Certificates
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 in this
prospectus supplement, 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 in this prospectus supplement, 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. 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.
The trust estate consists of
S-19
<PAGE>
o the mortgage loans, together with the mortgage files relating
thereto and all collections thereon and proceeds thereof collected
after the cut-off date,
o the assets as from time to time are identified as REO property and
collections thereon and proceeds thereof,
o assets that are deposited in the accounts relating to the trust,
including amounts on deposit in the Accounts and invested in
accordance with the Indenture and the Sale and Servicing
Agreement,
o the indenture trustee's rights under all insurance policies
required to be maintained on the mortgage loans pursuant to the
Sale and Servicing Agreement and any insurance proceeds,
o Liquidation Proceeds and
o released mortgaged property proceeds. In addition, the depositor
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 in this prospectus supplement.
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 in this prospectus
supplement. beneficial owners may elect to hold their interests through DTC, in
the United States, or Cedelbank or the Euroclear System, in Europe. Transfers
within DTC, Cedelbank 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, these notes will be evidenced by one or more
notes registered in the name of Cede & Co., which will be the "holder" of these
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 Cedelbank or
Euroclear, on the other, will be effected in DTC through The Chase Manhattan
Bank, the relevant depositories of Cedelbank or Euroclear, respectively, and
each a participating member of DTC. The notes will initially be registered in
the name of Cede & Co.. The interests of the holders of these notes will be
represented by book-entries on the records of DTC and participating members
thereof. All references in this prospectus supplement to any notes reflect the
rights of beneficial owners only as these rights may be exercised through DTC
and its participating organizations for so long as these notes are held by DTC.
The beneficial owners of notes may elect to hold their notes through
DTC in the United States, or Cedelbank or Euroclear if they are participants in
these systems, or indirectly through organizations which are participants in
these 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 class of notes and will initially be registered in the name of Cede & Co.,
the nominee of DTC. Cedelbank and Euroclear will hold omnibus positions on
behalf of their participants through customers' securities accounts in
Cedelbank's and Euroclear's names on the books of their respective depositaries
which in turn will hold these positions in customers' securities accounts in the
depositaries' names on the books of DTC. Chase will act as depositary for
Cedelbank and Morgan Guaranty Trust Company of New York will act as depositary
for Euroclear. Investors may hold their beneficial interests in the book-entry
notes in minimum denominations representing principal amounts of $1,000. Except
as described below, no
S-20
<PAGE>
beneficial owner will be entitled to receive a physical or definitive note
representing this note. Unless and until definitive notes are issued, it is
anticipated that the only "holder" of these notes will be Cede & Co., 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 that maintains the beneficial owner's account for this
purpose. In turn, the financial intermediary's ownership of the book-entry note
will be recorded on the records of DTC or on the records 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 Cedelbank 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 like banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either directly
or indirectly through "indirect participants".
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers of book-entry
notes, like the notes, among participants on whose behalf it acts for 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
these 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 these
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
Cedelbank 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. These credits or any transactions in the
securities settled during this processing will be reported to the relevant
Euroclear or Cedelbank participants on that business day. Cash received in
Cedelbank or Euroclear as a result of sales of securities by or through a
Cedelbank participant or Euroclear participant to a DTC participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedelbank or Euroclear cash account only as of the business day
following settlement in DTC. For information concerning tax documentation
procedures relating to the notes, see "Material Federal Income Tax Consequences
- -- REMIC Securities" in the accompanying prospectus.
S-21
<PAGE>
Transfers between participants will occur in accordance with DTC rules.
Transfers between Cedelbank 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 Cedelbank
participants or Euroclear participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the relevant depositary; however, these cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in this system in accordance
with its rules and procedures and within its established deadlines. 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. Cedelbank
participants and Euroclear participants may not deliver instructions directly to
the European Depositaries.
Cedelbank is incorporated under the laws of Luxembourg as a
professional depository. Cedelbank holds securities for its participant
organizations and facilitates the clearance and settlement of securities
transactions between Cedelbank participants through electronic book-entry
changes in accounts of Cedelbank participants, thereby eliminating the need for
physical movement of notes. Transactions may be settled in Cedelbank in any of
28 currencies, including United States dollars. Cedelbank provides to its
Cedelbank participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedelbank interfaces with domestic markets
in several countries. As a professional depository, Cedelbank is subject to
regulation by the Luxembourg Monetary Institute. Cedelbank participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and other organizations. Indirect access to Cedelbank is also available to
others, like banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Cedelbank participant, either directly
or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear 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, under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation. 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 Euroclear Clearance. Euroclear
Clearance 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.
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Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the Operating Procedures of the Euroclear System and applicable Belgian law. The
Terms and Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments on
securities in Euroclear. All securities in Euroclear are held on a fungible
basis without attribution of specific notes to specific securities clearance
accounts. The Euroclear operator acts under the Terms and Conditions only on
behalf of Euroclear participants, and has no record of or relationship with
persons holding through Euroclear participants.
Distributions on the book-entry notes will be made on each distribution
date by the indenture trustee to Cede & Co., as nominee of DTC. DTC will be
responsible for crediting the amount of these payments to the accounts of the
applicable DTC participants in accordance with DTC's normal procedures. Each DTC
participant will be responsible for disbursing this 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 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 these payments
will be forwarded by the indenture trustee to Cede & Co., as nominee of DTC.
Distributions on notes held through Cedelbank or Euroclear will be credited to
the cash accounts of Cedelbank participants or Euroclear participants in
accordance with the relevant system's rules and procedures, to the extent
received by the relevant depositary. These 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 DTC system, or otherwise take actions in respect of the
book-entry notes, may be limited due to the lack of physical notes for the
book-entry notes. In addition, issuance of the book-entry notes in book-entry
form may reduce the liquidity of the notes in the secondary market since some
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 & Co., as nominee of DTC, may be made available to beneficial
owners upon request, in accordance with the rules, regulations and procedures
creating and affecting DTC, and to the financial intermediaries to whose DTC
accounts the book-entry notes of the 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 these actions concerning specified percentages of voting rights
only at the direction of and on behalf of participants whose holdings of
book-entry notes evidence the 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 the
percentages of voting rights authorize divergent action.
None of the trust, the owner trustee, 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 & Co., as nominee for
DTC, or for maintaining, supervising or reviewing any records relating to the
beneficial ownership interests.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of notes among participants of DTC,
Cedelbank and Euroclear, they are under no
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obligation to perform or continue to perform these procedures and these
procedures may be discontinued at any time.
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) DTC or the servicer
advises the indenture trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as depository of the book-entry notes
and DTC 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 Loan Sale Agreement, the originators will sell,
transfer, assign, set over and otherwise convey the mortgage loans, 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 due after, the cut-off date. Each 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 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, principal, including
principal prepayments in full and curtailments or partial prepayments, received
on each mortgage loan on or prior to the cut-off date and 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 due 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 either pre-funding account at any time during the period from the
closing date until the earliest of
o the date on which the amount on deposit in pre-funding account is
less than $100,000,
o the date on which an event of default occurs under the terms of
the Indenture, or
o the close of business on ____________.
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The amount on deposit in the pre-funding accounts will be reduced
during the this period by the amount thereof used to purchase subsequent
mortgage loans in accordance with the terms of the Indenture. The depositor
expects that the amount on deposit in each of the pre-funding accounts will be
reduced to less than $100,000 by ____________. To the extent funds in the
pre-funding accounts are not used to purchase subsequent mortgage loans by
____________, these funds will be used to prepay the principal of the notes on
the following distribution date. Subsequent mortgage loans will be transferred
by the originators 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 concerning each mortgage loan which constitute the mortgage
file:
(a) the original mortgage note, endorsed without recourse in blank
by the originator, including all intervening endorsements
showing a complete chain of endorsement;
(b) the original mortgage with evidence of recording indicated
thereon or, in 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
mortgage loan to the originator -- which assignment may, at
the 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
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 the 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 the
binder together with a certificate from the originator that
the original mortgage has been delivered to the title
insurance company that issued the 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, for subsequent mortgage loans, on or prior to the
subsequent transfer date, an acknowledgment of receipt of the original mortgage
note, item (a) above, for 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 mortgage file within thirty days after the closing date or the
subsequent transfer date, as applicable -- or, for any Qualified Substitute
Mortgage Loan, within thirty 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,
o all documents required to be delivered to it pursuant to the
Sale and Servicing Agreement are in its possession,
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o each of these documents has been reviewed by it and has not
been mutilated, damaged, torn or otherwise physically altered,
appears regular on its face and relates to the mortgage loan,
and
o based on its examination and only as to the foregoing
documents, specified information included on the schedule of
mortgage loans accurately reflects the information included in
the mortgage file delivered on that date.
If the collateral agent, during the process of reviewing the mortgage
files, finds any document constituting a part of an 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 included in the schedule of mortgage loans, the
collateral agent shall promptly so notify the indenture trustee, the servicer,
the depositor and the note insurer in writing with details thereof. The
depositor agrees to use reasonable efforts to cause to be remedied a material
defect in a document constituting part of an mortgage file of which it is so
notified by the collateral agent. If, however, within sixty days after the
collateral agent's notice of the defect, the depositor has not caused the defect
to be remedied and the defect materially and adversely affects the interest of
the holders of the notes or the interests of the note insurer in the mortgage
loan, the depositor or the originator will either (a) substitute in lieu of the
mortgage loan a Qualified Substitute Mortgage Loan and, if the then outstanding
principal balance of the Qualified Substitute Mortgage Loan is less than the
principal balance of the mortgage loan as of the date of the substitution plus
accrued and unpaid interest thereon, deliver to the servicer a substitution
adjustment equal to the amount of this shortfall or (b) purchase the mortgage
loan at a price equal to the outstanding principal balance of the mortgage loan
as of the date of purchase, plus the greater of (1) all accrued and unpaid
interest thereon and (2) thirty days' interest thereon, computed at the 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 Distribution Account on
the next succeeding servicer remittance date after deducting therefrom any
amounts received in respect of the repurchased mortgage loan or Loans and being
held in the Distribution Account for future distribution to the extent these
amounts have not yet been applied to principal or interest on the mortgage loan.
In addition, the depositor 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 depositor
or the originators of representations or warranties regarding the mortgage
loans. The obligation of the depositor and the originators to cure a breach or
to substitute or purchase any mortgage loan and to indemnify constitute the sole
remedies respecting a material breach of any representation or warranty to the
holders of the notes, the indenture trustee, the collateral agent and the note
insurer.
Representations and Warranties of the Depositor
The depositor will represent, among other things, for each mortgage
loan, as of the closing date or the subsequent transfer date, as applicable, the
following:
1. the information included in the schedule of mortgage loans for each
mortgage loan is true and correct;
2. all of the original or certified documentation constituting the
mortgage files, including all material documents concerning the mortgage loan,
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
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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. The residence, dwelling or unit is not,
o a unit in a cooperative apartment,
o a property constituting part of a syndication,
o a time share unit,
o a property held in trust,
o a manufactured dwelling,
o a log-constructed home, or
o 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,
o the lien of current real property taxes and
assessments which are not delinquent,
o any first mortgage loan on the property,
o covenants, conditions and restrictions, rights of
way, easements and other matters of public record as
of the date of recording of the mortgage, the
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
mortgage loan obtained by the depositor, and
o other matters to which like properties are commonly
subject which do not materially interfere with the
benefits of the security intended to be provided by
the mortgage;
5. immediately prior to the transfer and assignment by the depositor
to the depositor, the depositor had good title to, and was the sole owner of
each mortgage loan, free of any interest of any other person, and the depositor
has transferred all right, title and interest in each mortgage loan to the
depositor;
6. each mortgage loan conforms, and all the mortgage loans in the
aggregate conform, to the description thereof in this prospectus supplement; and
7. all of the mortgage loans were originated in accordance with the
underwriting criteria described in this prospectus supplement.
Pursuant to the Sale and Servicing Agreement, upon the discovery by any
of the holder of the notes, the depositor, 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 or the
subsequent transfer date, as applicable, with the result that the interests of
the holders of the notes in the mortgage loan or the interests of the note
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insurer were materially and adversely affected, notwithstanding that any
representation and warranty was made to the depositor's or the originator's best
knowledge and the depositor or the originator lacked knowledge of the breach,
the party discovering the breach is required to give prompt written notice to
the other parties. Subject to specified provisions of the Sale and Servicing
Agreement, within sixty days of the earlier to occur of the depositor's or an
originator's discovery or its receipt of notice of any breach, the depositor or
the originators will
o promptly cure the breach in all material respects,
o remove each mortgage loan which has given rise to the
requirement for action by the depositor or the originators,
substitute one or more Qualified Substitute Mortgage Loans
and, if the outstanding principal balance of the Qualified
Substitute Mortgage Loans as of the date of the 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 the distribution date
the amount of the shortfall, or
o purchase the mortgage loan at a price equal to the principal
balance of the mortgage loan as of the date of purchase plus
the greater of
o all accrued and unpaid interest thereon and
o thirty days' interest thereon computed at the
mortgage interest rate, net of the servicing fee if
____________ is the servicer, plus the amount of any
unreimbursed servicing advances made by the servicer,
and deposit the purchase price into the Distribution Account on the next
succeeding servicer remittance date after deducting therefrom any amounts
received in respect of this repurchased mortgage loan or mortgage loans and
being held in the Distribution Account for future distribution to the extent
these amounts have not yet been applied to principal or interest on the mortgage
loan. In addition, the depositor and the originators shall be obligated to
indemnify the trust, the owner trustee, 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 depositor or the originators of representations
or warranties regarding the mortgage loans. The obligation of the depositor and
the originators to cure any breach or to substitute or purchase any mortgage
loan and to indemnify constitute the sole remedies respecting a material breach
of any 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 the Collection
Account, which will generally be (a) 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 (b) trust accounts maintained with a depository
institution acceptable to each rating agency and the note insurer. 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 eligible 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
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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:
o all payments on account of principal, including prepayments of
principal;
o all payments on account of interest on the mortgage loans;
o all Liquidation Proceeds and all Insurance Proceeds to the extent
the proceeds are not to be applied to the restoration of the
mortgaged property or released to the borrower in accordance with
the express requirements of law or in accordance with prudent and
customary servicing practices;
o all Net REO Proceeds;
o all other amounts required to be deposited in the Collection
Account pursuant to the Sale and Servicing Agreement; and
o 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 for each
class of notes a distribution account into which the servicer will deposit or
cause to be deposited the servicer remittance amount on the _____ day of each
month.
The servicer remittance amount for a servicer remittance date is equal
to the sum, without duplication, of
o 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,
o all Periodic Advances made by the servicer which relate to
payments due to be received on the mortgage loans on the due date
and
o 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, for which the
servicer has previously made an unreimbursed Periodic Advance,
as late payments of interest, or as Net Liquidation Proceeds,
to the extent of the unreimbursed Periodic Advance;
(b) amounts received on a particular mortgage loan for which the
servicer has previously made an unreimbursed servicing
advance, to the extent of the unreimbursed servicing advance;
(c) for the servicer remittance date, the aggregate servicing fee;
(d) all net income from eligible investment 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;
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(f) Net Foreclosure Profits; and
(g) 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
remittance date.
Over-collateralization Provisions
Over-collateralization Resulting from Cash Flow Structure. The
Indenture requires that, starting with the second distribution date, the Excess
Interest for 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 class of notes for that pool, 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 pool of mortgage loans for
that class. The Excess Interest from a pool of mortgage loans will be used
o to reimburse the note insurer for any amounts due to it,
o as needed to pay Net Mortgage Loan Interest Shortfalls
relating to that class,
o as needed to make cross-collateralization payments in respect
of the other pool of mortgage loans,
o as a payment of principal to the class of notes for that pool
until the distribution date on which the amount of
over-collateralization has reached the required level, and
o as needed to fund the Cross-collateralization Reserve Account
relating to the other pool of mortgage loans.
Notwithstanding the foregoing, in the event specified tests enumerated in the
Indenture are violated, all available Excess Interest will be used as a payment
of principal to the class of notes for that pool to accelerate the amortization
of the notes.
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 class of notes for that pool until the Over-collateralized
Amount has increased to the level required by the Indenture. After this time, if
it is necessary to re-establish the required level of over-collateralization,
Excess Interest from each 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 class of notes for that pool. Notwithstanding the foregoing,
in the event specified tests enumerated in the Indenture are violated, all
available Excess Interest from each pool of mortgage loans will be used as a
payment of principal to accelerate the amortization of the class of notes for
that pool. Initially, the Over-collateralized Amount of each pool of mortgage
loans will be an amount equal to approximately 0.50% of the sum of (x) the
aggregate principal balance of the mortgage loans in each pool on the closing
date and (y) the original amount on deposit in the pre-funding account for that
pool on the closing date.
In the event that the required level of the Specified
Over-collateralized Amount for 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 class of notes for that pool on the distribution date shall instead be
distributed in the priority described in this prospectus supplement under
"--Flow of Funds." This has the effect of decelerating the amortization of the
class of notes for that pool relative to the amortization of that pool of
mortgage loans, and of reducing
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the Over-collateralized Amount. If, on any distribution date, the Excess
Over-collateralized Amount is, or, after taking into account all other
distributions to be made on the distribution date would be, greater than zero --
i.e., the Over-collateralized Amount is or would be greater than the Specified
Over-collateralized Amount -- then any amounts relating to principal which would
otherwise be distributed to the holders of the class of notes for that pool on
this distribution date shall instead be distributed in the priority described in
this prospectus supplement under "--Flow of Funds", in an amount equal to the
Over-collateralization Reduction Amount.
The Indenture provides that, on any distribution date, all amounts
collected on account of principal -- other than any amount applied to the
payment of an Over-collateralization Reduction Amount -- for each pool of
mortgage loans during the a due period of the prior calendar month will be
distributed to the holders of the class of notes for that pool on the
distribution date. 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 class of notes for that pool 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 for that pool of mortgage loans, which, to the extent
that the reduction causes the Over-collateralized Amount to be less than the
Specified Over-collateralized Amount applicable to that distribution date, will
require the payment of an Over-collateralization Increase Amount on that
distribution date, or, if insufficient funds are available on that distribution
date, on subsequent distribution dates, until the Over-collateralized Amount
equals the Specified Over-collateralized Amount. The effect of the foregoing is
to allocate losses to the holders of the trust certificates for that pool by
reducing, or eliminating entirely, payments of Excess Interest and
Over-collateralization Reduction Amounts which the holders would otherwise
receive.
Over-collateralization and the Note Insurance Policy. 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 the Insured Payment as a payment of principal to the holders of the
class of notes for that pool on that 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 particular 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 the other pool. The
cross-collateralization provisions of the transaction are limited to the payment
of specified credit losses, specified 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 for the other pool of mortgage loans.
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
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pool of mortgage loans, until the amount of funds on deposit therein equals the
Specified Reserve Amount for the other pool. 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 the pool and the
distribution date, the amount of this excess shall be distributed in the
priority described in this prospectus supplement 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, to the extent that there is no Excess Interest available
therefor on that 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 the distribution date, shall make payments in respect of each pool of
mortgage loans to the holders of the class of notes for that pool and
reimbursement to the note insurer under the Insurance Agreement, to the extent
of funds, including any Insured Payments, on deposit in the Distribution Account
for that pool, as follows:
(a) to the indenture trustee, an amount equal to the fees then due
to it for that class of notes;
(b) from amounts then on deposit in the Distribution Account for
that pool, excluding any Insured Payments, to the note insurer
the Reimbursement Amount as of that distribution date;
(c) from amounts then on deposit in the Distribution Account for
that pool, the Interest Distribution Amount for that class of
notes;
(d) from amounts then on deposit in the Distribution Account for
that pool, the Principal Distribution Amount for that class of
notes, until the principal balance of the class of notes is
reduced to zero;
(e) from amounts then on deposit in the Distribution Account for
that pool, the amount of any Net Mortgage Loan Interest
Shortfalls for that class of notes;
(f) from amounts then on deposit in the Distribution Account for
that pool, to the holders of the other class of notes, the
Shortfall Amount for the other class;
(g) from amounts then on deposit in the Distribution Account for
that pool, to the Cross-collateralization Reserve Account for
the other class of notes, the amount necessary for the balance
of the account to equal the Specified Reserve Amount; and
(h) following the making by the indenture trustee of all
allocations, transfers and disbursements described above, to
the holders of the trust certificates for that pool, the
amount remaining on the distribution date in the Distribution
Account for that pool, if any.
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, in the case of an event of default described in clauses (1) through
(7) below, the occurrence shall result in the automatic declaration of, the
aggregate outstanding
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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 in this prospectus supplement, means any one of the
following events:
1. 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 the distribution date and all or a part of any Net Mortgage Loan
Interest Shortfalls due on the notes on the distribution date;
2. 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 the 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 that class of notes.
3. the trust shall breach or default in the due observance of any one
or more of the negative covenants under the Indenture.
4. 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;
5. 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 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;
6. 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 order,
judgment or decree or appointment or sequestration shall remain in force
undismissed, unstayed or unvacated for a period of ninety days after the date of
entry thereof; or
7. 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 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 this jurisdiction, custody or control
shall remain in force unrelinquished, unstayed or unterminated for a period of
ninety 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 remittance
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report containing information including, without limitation, the amount of the
distribution on the distribution date, the amount of the distribution allocable
to principal and allocable to interest, the aggregate outstanding principal
balance of the notes as of the distribution date, the amount of any Insured
Payment included in the distributions on the distribution date and any 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 in this prospectus
supplement, to comply with any changes in the Code, or to make any other
provisions concerning matters or questions arising under the Indenture which
shall not be inconsistent with the provisions of the Indenture; provided, that
this 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 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 the note, or change the rights or
obligations of any other party to the Indenture without the consent of that
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 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 the
note or reduce the percentage for each class whose holders are required to
consent to any amendment without the consent of the holders of 100% of each
class of notes affected thereby.
The Loan Sale Agreement and the Sale and Servicing Agreement contain
substantially similar restrictions regarding amendment.
Servicing of the Mortgage Loans
The Servicer
____________ will act as the servicer of the mortgage loan pools
____________ and ____________ will act as subservicers for a portion of the
mortgage loans. See "The Originators, the Depositor, the Servicer and the
Subservicer" in this prospectus supplement. The servicer and the subservicers
will service the mortgage loans on behalf of the trust, for the benefit of the
note insurer and the holders of the notes and will be required to use the same
care as they customarily employ in servicing and administering mortgage loans
for their 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 holders of the notes on them.
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 to a servicing fee for each
mortgage loan, 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 the mortgage loan on the outstanding
principal balance of the mortgage loan. The servicing fee rate for each mortgage
loan will be 0.50% per annum. In addition, the
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servicer shall be entitled to receive, as additional servicing compensation, to
the extent permitted by applicable law and the mortgage notes, any late payment
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 the
action would not constitute a nonrecoverable advance, the servicer is required
to make Periodic Advances on each servicer remittance date. This Periodic
Advances by the servicer are reimbursable to the servicer subject to a number of
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, and the premium due the note insurer.
Notwithstanding the servicer's good faith determination that a Periodic Advance
was recoverable when made, if the 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" in this
prospectus supplement.
Servicing Advances. Subject to the servicer's determination that the
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 mortgage loan,
the servicer is required to advance amounts on the mortgage loans constituting
"out-of-pocket" costs and expenses relating to
o the preservation and restoration of the mortgaged property,
o enforcement proceedings, including foreclosures,
o expenditures relating to the purchase or maintenance of a first
lien not included in the trust estate on the mortgaged property,
and
o other customary amounts described in the Sale and Servicing
Agreement.
These servicing advances by the servicer are reimbursable to the
servicer subject to a number of conditions and restrictions. In the event that,
notwithstanding the servicer's good faith determination at the time the
servicing advance was made, that it would not be a nonrecoverable advance, the
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 the servicing advance or
Periodic Advance was made, from late collections on the mortgage loan, including
Liquidation Proceeds, Insurance Proceeds and any 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 the 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 Periodic Advance or servicing advance is
"nonrecoverable" if in the good faith judgment of the servicer, the Periodic
Advance or servicing advance would not ultimately be recoverable.
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Prepayment Interest Shortfalls
Not later than the close of business on the _____ day of each month,
the servicer is required to remit to the indenture trustee a payment of
Compensating Interest in respect of Prepayment Interest Shortfalls and shall not
have the right to reimbursement therefor. 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 the
applicable pool attributable to the application of the Civil Relief Act will not
reduce the amount of Current Interest due to the holders of the class A-1 notes
or class A-2 notes, respectively. 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 the applicable pool, the amount of this shortfall
will not be covered by the note insurance policy. These 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 the applicable pool. See "Risk Factors --
Legal Considerations" in this prospectus supplement.
Optional Purchase of Defaulted Mortgage Loans
The depositor, or any affiliate of the depositor, has the option, but
is not obligated, to purchase from the trust any mortgage loan ninety 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 the
principal balance, computed at the mortgage interest rate -- net of the
servicing fee, if ________ is the servicer -- plus the amount of any
unreimbursed Periodic Advances and servicing advances made by the servicer for
the mortgage loan in accordance with the provisions specified in the Sale and
Servicing Agreement.
Servicer Reports
On each servicer remittance date, the servicer is required to deliver
to the note insurer, the indenture trustee, and the collateral agent, a servicer
remittance report setting forth the information necessary for the indenture
trustee to make the distributions described under "--Flow of Funds" in this
prospectus supplement and containing the information to be included in the
indenture trustee's remittance report for that 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, starting in ___________, an officer's certificate stating that
o the servicer has fully complied with the servicing provisions of
the Sale and Servicing Agreement,
o 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 the officer's supervision, and
o to the best of the officer's knowledge, based on that review, the
servicer has fulfilled all its obligations under the Sale and
Servicing Agreement for that year, or, if there has been a default
in the fulfillment of any obligation, specifying each default
known to that officer and the nature and status thereof including
the steps being taken by the servicer to remedy the default.
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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 the firm has examined specified documents and
records relating to the servicing of the mortgage loans during the preceding
calendar year, or any longer period from the closing date to the end of the
following calendar year, and that, on the basis of the 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, the servicing has been
conducted in compliance with the Sale and Servicing Agreement except for any
significant exceptions or errors in records that, in the opinion of the 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 the 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 the collection procedures as it
follows for loans held for its own account which are comparable to the mortgage
loans. Consistent with the above, the servicer may, in its discretion, (a) waive
any late payment charge and (b) 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 any "due-on-sale"
clause, the servicer may enter into an assumption and modification agreement
with the person to whom the property has been or is about to be conveyed,
pursuant to which that 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 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 "Material 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 the mortgaged property or (b) the principal balance of the mortgage
loan plus the outstanding balance of any mortgage loan senior to the mortgage
loan, but in no event may this amount be less than is necessary to prevent the
borrower from becoming a coinsurer thereunder. As stated 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 Distribution Account for that pool. 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 maintained by
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maintaining a blanket policy issued by an insurer acceptable to the rating
agencies insuring against losses on the mortgage loans. If this blanket policy
contains a deductible clause, the servicer is obligated to deposit in the
Distribution Account for that pool the sums which would have been deposited
therein but for that 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 of these 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 some cases, vandalism. The foregoing list is
merely indicative of the types 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, that clause generally provides that the
insurer's liability in the event of partial loss does not exceed the greater of
(a) the replacement cost of the improvements less physical depreciation or (b)
this proportion of the loss as the amount of insurance carried bears to the
specified percentage of the full replacement cost of these improvements.
Since residential and commercial 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 each of the mortgage loans that 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 the
foreclosure or other conversion, the servicer will follow the 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 the foreclosure, correction or restoration is determined to
increase Net Liquidation Proceeds.
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 described in
clause (a), (b), (c), (d), (e) or (f) below. Each of the following constitutes a
servicer event of default:
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(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 business day after the date upon
which written notice of any 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 days after the date on which written notice of any
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 enumerated in the Sale and Servicing Agreement,
which continues unremedied for a period of thirty days after
the date on which written notice of any 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;
(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 this
decree or order shall have remained in force, undischarged or
unstayed for a period of sixty 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 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.
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, _______, if _______ is not the
servicer, the note insurer, the collateral agent and the indenture trustee, or
upon the
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determination that the servicer's duties thereunder are no longer permissible
under applicable law and the incapacity cannot be cured by the servicer without
the incurrence, in the reasonable judgment of the note insurer, of unreasonable
expense. No 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 indenture trustee, as successor servicer, will be
obligated to make Periodic Advances and servicing advances and other advances
unless it determines reasonably and in good faith that the 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 $____________ 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
____________, which term will be extendable by the note insurer by notice to the
indenture trustee for successive terms of three calendar months each, until the
termination of the trust estate. The servicer will, upon its receipt of each
notice of extension, become bound for the duration of the term covered by the
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
day prior to the last day of any term of the servicer the indenture trustee
shall not have received any extension notice from the note insurer, the
indenture trustee will, within five days thereafter, give written notice of
non-receipt to the note insurer and the servicer. The note insurer has agreed to
extend each three month term of the servicer, in the absence of a servicer event
of default under the Sale and Servicing Agreement.
The indenture trustee and any other successor servicer in that
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" in this prospectus supplement.
Optional Clean-up Call on the Notes
The servicer may, at its option, call the class A-1 notes or the class
A-2 notes, separately, on the Note Clean-up Call Date by depositing an amount
equal to the aggregate outstanding principal balance of the class of notes on
that distribution date, plus accrued and unpaid interest thereon, and any unpaid
amounts due the note insurer for a class of notes into the Distribution Account
for that class. The mortgage loans relating to the redeemed class will remain
pledged to the indenture trustee, for the benefit of the holders of the notes,
to secure the cross-collateralization obligations of the trust with regard to
the other class.
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 on the last mortgage loan, or Periodic Advances of same by the
servicer, or the disposition of all funds from the last 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 years after the death of the last surviving lineal descendant of
the person named in the Trust Agreement.
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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 accounts, 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
o 100% of the principal balance of each outstanding mortgage loan
and each REO property,
o the greater of (a) the aggregate amount of accrued and unpaid
interest on the mortgage loans through the due period and (b)
thirty days' accrued interest thereon computed at a rate equal to
the mortgage interest rate, in each case net of the servicing fee,
o 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
o the indenture trustee's fees.
Any purchase shall be accomplished by depositing into each Distribution Account
the portion of the purchase price specified above which relates to the class of
notes. No 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 depositor.
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 for the 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. In addition, for 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
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, New York City time, on the
second business day following receipt of 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
the amount out of the funds of the note insurer on the later of
o the date when due to be paid pursuant to the bankruptcy order
referred to below or
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o the first to occur of
o 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 on a note during the term of
the note insurance policy because these distributions were
avoidable preferences under applicable bankruptcy law, (B) a
certificate of the holder(s) that the bankruptcy order has
been entered and is not subject to any stay, and (C) an
assignment duly executed and delivered by the holder(s), in
the form that 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 the preference payment or otherwise
concerning the preference payment, or
o 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 business days prior to the date of
receipt, the note insurer shall have received written notice
from the indenture trustee that these items were to be
delivered on that date and that date was specified in the
notice.
This payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the bankruptcy order and
not to the indenture trustee or any holder directly -- unless a holder has
previously paid the amount to the receiver, conservator, debtor-in-possession or
trustee in bankruptcy named in the bankruptcy order, in which case the payment
shall be disbursed to the indenture trustee for distribution to the holder upon
proof of the payment reasonably satisfactory to the note insurer.
The terms "receipt" and "received," under the note insurance policy,
mean 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 a Saturday or Sunday or 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 the 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, from 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, to the extent of this 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
particular 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
these 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 for payment on the notes, will be entitled to exercise all
rights of the holders thereunder, without the consent of the holders, and the
holders may exercise these 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 Loan Sale Agreement,
have, among others, the following rights:
o 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;
o the right to consent to or direct any waivers of defaults by the
servicer;
o the right to remove the indenture trustee pursuant to the
Indenture;
o the right to direct the actions of the indenture trustee during
the continuation of a servicer default;
o the right to require the depositor to repurchase mortgage loans
for breach of representation and warranty or defect in
documentation;
o the right to direct foreclosures upon the failure of the servicer
to do so in accordance with the Sale and Servicing Agreement;
o the right to direct all matters relating to a bankruptcy or other
insolvency proceeding involving the depositor; and
o the right to direct the indenture trustee to investigate specified
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 servicer, the originators and the note
insurer will enter into the Insurance Agreement pursuant to which the trust, the
depositor, the servicer and the originators will agree to reimburse, with
interest, the note insurer for amounts paid pursuant to claims under the note
insurance policy; provided, the payment obligations shall be non-recourse
obligations of the depositor, the originators, the trust and the servicer and
shall be payable only from monies available for the payment in accordance with
the provisions of the Indenture. The servicer will further agree to pay the note
insurer all
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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 specified
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:
o the originators', the depositor's or the servicer's failure to pay
when due any amount owed under the Insurance Agreement or other
documents,
o the inaccuracy or incompleteness in any material respect of any
representation or warranty of the originators, the depositor or
the servicer in the Insurance Agreement, the Sale and Servicing
Agreement, the Indenture or other documents,
o the originators', the depositor's or the servicer's failure to
perform or to comply with any covenant or agreement in the
Insurance Agreement, the Sale and Servicing Agreement, the
Indenture and other documents,
o a finding or ruling by a governmental authority or agency that the
Insurance Agreement, the Sale and Servicing Agreement, the
Indenture or other documents are not binding on the originators,
the depositor or the servicer,
o the originators', the depositor's or the servicer's failure to pay
its debts in general or the occurrence of specified events of
insolvency or bankruptcy concerning the depositor or the servicer,
and
o the occurrence of specified "performance test violations" designed
to measure the performance of the mortgage loans.
The Note Insurer
The following information has been obtained from
________________________ and has not been verified by the originators, the
servicer, the depositor or the underwriter. No representation or warranty is
made by the depositor, the originators, the servicer, the depositor or the
underwriter with respect thereto.
The Note Insurer
____________ is a monoline insurance company incorporated in ______
under the laws of the State of ____________. ________________________ is
licensed to engage in the financial guaranty insurance business in all 50
states, the District of Columbia and Puerto Rico.
___________ 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. ____________ and its subsidiaries
principally insure asset-backed, collateralized and municipal securities.
Asset-backed securities are generally supported by residential or commercial
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.
____________
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insures both newly issued securities sold in the primary market and
outstanding securities sold in the secondary market that satisfy ____________
underwriting criteria.
The principal executive offices of ____________ are located at
________________________, and its telephone number at that location is
____________.
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written or reinsured from third parties by ____________ or
any of its domestic operating insurance company subsidiaries are generally
reinsured among these companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, ____________ reinsures a
portion of its liabilities under some of its financial guaranty insurance
policies with other reinsurers under various treaties and on a
transaction-by-transaction basis. This reinsurance is utilized by ____________
as a risk management device and to comply with statutory and rating agency
requirements; it does not alter or limit ____________ obligations under any
financial guaranty insurance policy.
Ratings
____________ insurance financial strength is rated "Aaa" by Moody's
and ____________ insurer financial strength is rated "AAA" by Standard & Poor's
and Standard & Poor's (Australia) Pty. Ltd. ____________ claims-paying ability
is rated "AAA" by Fitch IBCA, Inc. and Japan Rating and Investment Information,
Inc. These 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 the rating agencies.
Capitalization
The following table sets forth the capitalization of ____________ and
its wholly owned subsidiaries on ____________ the basis of generally accepted
accounting principles as of ____________:
[Note insurer to provide]
For further information concerning ____________, see the Consolidated
Financial Statements of ____________, and the notes thereto, incorporated by
reference in this prospectus supplement. ____________ 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 ____________ and may be reviewed at the
EDGAR website maintained by the Commission. Copies of the statutory quarterly
and annual statements filed with the State of ____________ Insurance Department
by ____________ are available upon request to the State of ____________
Insurance Department.
Insurance Regulation
____________ is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of ____________, its
state of domicile. In addition, ____________ 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 ____________, ____________
is subject to Article __ of the ____________ Insurance Law which, among other
things, limits the business of each financial guaranty insurer to financial
guaranty insurance and similar lines, requires that each financial guaranty
insurer maintain a minimum surplus to policyholders, establishes contingency,
loss and unearned premium reserve requirements for each financial guaranty
insurer, and limits the size of individual transactions -- "single
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risks" -- and the volume of transactions -- "aggregate risks" -- that may be
underwritten by each financial guaranty insurer. Other provisions of the
____________ Insurance Law, applicable to non-life insurance companies such as
____________, 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 ____________ or an affiliate of ____________ as required or permitted
under the Indenture, the Sale and Servicing Agreement or the Loan Sale
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 these properties, and changes in the mortgagors'
housing needs, job transfers and unemployment.
The rate of prepayments on conventional mortgage loans has fluctuated
significantly in recent years. In general, if prevailing interest rates fall
significantly below the interest rates of some mortgage loans at the time of
origination, these mortgage loans may be subject to higher prepayment rates than
if prevailing rates remain at or above those at the time these mortgage loans
were originated. Conversely, if prevailing interest rates rise appreciably above
the interest rates of some mortgage loans at the time of origination, these
mortgage loans may experience a lower prepayment rate than if prevailing rates
remain at or below those at the time these 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 mortgage loans. If the actual rate of payments on the mortgage loans is
slower than the rate anticipated by an investor who purchases a note at a
discount, the actual yield to the investor will be lower than the investor's
anticipated yield. If the actual rate of payments on the mortgage loans is
faster than the rate anticipated by an investor who purchases a note at a
premium, the actual yield to the investor will be lower than the investor's
anticipated yield.
The final stated maturity date is expected to be ____________ for the
class A-1 notes and the class A-2 notes. Each final stated maturity date was
calculated using the assumption that the final stated maturity date is thirteen
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 ____________ is purchased by the trust and
included in each pool. The weighted average life of the notes is likely to be
shorter than would be the case if payments actually made on the mortgage loans
conformed to the foregoing assumptions, and the final distribution date for any
class of the notes could occur significantly earlier than the final stated
maturity date because:
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o prepayments, including, for this purpose, prepayments
attributable to foreclosure, liquidation, repurchase and the
like, on mortgage loans are likely to occur,
o thirteen months have been added to obtain the final stated
maturity date above,
o the over-collateralization provisions of the transaction
result in the application of Excess Interest to the payment of
principal;
o 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 accounts; and
o the servicer may, at its option, call the class A-1 notes or
the class A-2 notes, separately, when the aggregate
outstanding principal balance of the class A-1 notes or the
class A-2 notes, respectively, is equal to or less than 10% of
the aggregate original principal balance of the class A-1
notes or the class A-2 notes, respectively.
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
the 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 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 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 the mortgage loans. For example, 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
modeling assumptions:
o The mortgage loans prepay at the indicated percentage of the
prepayment assumption,
o distributions on the notes are received in cash on the ____
day of each month commencing in ____________,
o 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,
o scheduled payments are assumed to be received on the last day
of each month commencing in ____________, or as presented in
the following table, and prepayments represent payments in
full of individual mortgage loans and are assumed to be
received on the last day of each month, commencing in
____________, or as presented in the following table, and
include thirty (30) days' interest thereon,
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o the notes are purchased on ____________,
o the Specified Over-collateralized Amount is as enumerated in
the Indenture,
o 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,
o the mortgage loans in pool I consist of ____________ mortgage
loans having the following characteristics:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Principal Mortgage Net Mortgage Original Amortizing Remaining Remaining Term to
Balance ($) Interest Rate (%) Interest Rate (%) Term (in months) Amortizing Maturity (in
Term (in months) (in months)
o The mortgage loans in pool II consists of ____________
mortgage loans having the following characteristics:
Principal Mortgage Net Mortgage Original Amortizing Remaining Remaining Term to
Balance ($) Interest Rate (%) Interest Rate (%) Term (in months) Amortizing Maturity (in
Term (in months) (in months)
</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 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 Retirement Date
Class A-2 Notes
Prepayment Weighted Average Earliest
Assumption (HEP) Life in Years Retirement Date
The foregoing tables were prepared assuming that:
o the weighted average life of each class of notes is determined
by
o multiplying the amount of each principal payment
used to retire that class of notes by the number
of years from the closing date to the final
distribution date when that class of notes is
fully retired,
o adding the results, and
o dividing the sum by the original principal balance
of that class; and
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o the call of the class A-1 notes or the class A-2 notes,
respectively, occurs as stated in this prospectus supplement.
----------------------
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
owner trustee, the indenture trustee, the depositor, the originators or the
servicer will be liable to any holder for any loss or damage incurred by the
holder as a result of any difference in the rate of return received by the
holder as compared to the applicable note rate, to any holder of notes upon
reinvestment of the funds received in connection with any premature repayment of
principal on the notes, including any repayment resulting from any prepayment by
the mortgagor, any liquidation of the mortgage loan, or any repurchase of or
substitution for any mortgage loan by the depositor or the servicer.
Material Federal Income Tax Considerations
The following discussion of material federal income tax consequences of
the purchase, ownership and disposition of the notes is to be considered only in
connection with "Material Federal Income Tax Consequences" in the accompanying
prospectus. The discussion in this prospectus supplement 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 Notes
The originators, the depositor and the trust agree, and the holders of
the notes will agree by their purchase of the notes, to treat the 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 notes. In general, whether instruments like the
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 and the courts have stated
various factors to be taken into account in determining, for federal income tax
purposes, whether an instrument constitutes indebtedness and whether a transfer
of property is a sale because the transferor has relinquished substantial
incidents of ownership in the property or whether the transfer is a borrowing
secured by the property. On the basis of its analysis of these factors as
applied to the facts and its analysis of the economic substance of the
contemplated transaction, ________________________, special tax counsel to the
depositor, is of the opinion that, for federal income tax purposes, the 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 the pool II mortgage loans, as the case may be,
or in a separate association taxable as a corporation or other taxable entity.
See "Material Federal Income Tax Consequences -- Debt Securities" in the
accompanying prospectus.
If the notes are characterized as indebtedness, interest paid or
accrued on a note will be treated as ordinary income to holders of the notes and
principal payments on a note will be treated as a return of capital to the
extent of the holder's basis in the note allocable thereto. An accrual method
taxpayer will be required to include in income interest on the notes when
earned, even if not paid, unless it is determined
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to be uncollectible. The indenture trustee, on behalf of the trust, will report
to the holders of the notes of record and the IRS the amount of interest paid
and original issue discount, if any, accrued on the notes to the extent required
by law.
Possible Alternative Characterizations of the Notes. Although, as
described above, it is the opinion of tax counsel that for federal income tax
purposes, the notes will be characterized as indebtedness, this opinion is not
binding on the IRS and thus no assurance can be given that this characterization
will prevail. If the IRS successfully asserted that the notes did not represent
debt for federal income tax purposes, holders of the notes would likely be
treated as owning an interest in a partnership and not an interest in an
association, or a publicly traded partnership, taxable as a corporation or a
taxable mortgage pool. If the holders of the 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 note would differ if the notes were held
to constitute partnership interests, rather than indebtedness. Since the parties
will treat the notes as indebtedness for federal income tax purposes, 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 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 notes.
Special Tax Attributes. The notes will not represent "real estate
assets" for purposes of Section 856(c)(4)(A) of the Code or "[l]oans ... 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 notes will be
issued with any original issue discount. See "Material 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 using 25% HEP. See "Prepayment and Yield
Considerations" in this prospectus supplement. In addition, a subsequent
purchaser who buys a note for less than its principal amount may be subject to
the "market discount" rules of the Code. See "Material Federal Income Tax
Consequences -- Discount and Premium -- Market Discount" in the accompanying
prospectus. A subsequent purchaser who buys a note for more than its principal
amount may be subject to the "market premium" rules of the Code. See "Material
Federal Income Tax Consequences -- Discount and Premium -- Securities Purchased
at a Premium" in the accompanying prospectus.
Sale or Redemption of the Notes. If a note is sold or retired, the
seller will recognize gain or loss equal to the difference between the amount
realized on the sale and that holder's adjusted basis in the note. See "Material
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 notes, see "Material Federal Income Tax Consequences --
Backup Withholding" and " --Foreign Investors -- Grantor Trust, REMIC Regular
and Debt Securities" in the accompanying prospectus.
Treatment of the Trust
Tax counsel is of the opinion that neither the sub-trust of the trust
consisting of the pool I mortgage loans nor the sub-trust of the trust
consisting of the pool II mortgage loans will be characterized as an
association, or a publicly traded partnership, taxable as a corporation or a
taxable mortgage pool.
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ERISA Considerations
The Employee Retirement Income Security Act of 1974 and the Code
impose restrictions on
o employee benefit plans -- as defined in Section 3(3) of ERISA,
o plans described in section 4975(e)(1) of the Code, including
individual retirement accounts or Keogh plans,
o any entities whose underlying assets include plan assets by reason
of a plan's investment in those entities and
o persons who have specified relationships to those plans --
"Parties-in-Interest" under ERISA and "Disqualified Persons" under
the Code.
Section 406 of ERISA prohibits plans from engaging in particular
transactions involving the assets of those plans with Parties-in-Interest under
those 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 under these 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 specified duties on persons
who are fiduciaries of Plans subject to ERISA.
Some 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 assets of the
trust would be treated as plan assets of a plan for the purposes of ERISA and
the Code only if the lan acquires an "equity interest" in the trust and none of
the exceptions contained in this 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 depositor believes that the 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 notes, including the reasonable expectation of purchasers of the notes
that the 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
notes could change if the trust incurs losses. However, even if the notes are
treated as debt for those purposes, the acquisition or holding of notes by or on
behalf of a plan could be considered to give rise to a prohibited transaction if
the trust or any of its affiliates is or becomes a Party-in-Interest or a
Disqualified Person under that plan. In this case, particular 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: 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 notes, or to whom the notes are transferred, will be
deemed to have represented that the acquisition and continued holding of the
notes will be covered by one of the exemptions listed above or by another
Department of Labor Class Exemption.
S-51
<PAGE>
Legal Investment
The notes will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984.
Plan of Distribution
Subject to the terms and conditions of the Underwriting Agreement dated
____________ between the depositor and ____________, as 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.
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 these market prices or at negotiated prices. The
underwriter may effect these transactions by selling these notes to or through
dealers, and these 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.
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. These transactions may include
stabilization transactions effected in accordance with Rule 104 of Regulation M,
pursuant to which that 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 specified liabilities,
including liabilities under the Securities Act.
Incorporation of Information by Reference
The Securities and Exchange Commission allows us to "incorporate by
reference" information already on file with it. This means that we can disclose
important information to you by referring you to those documents. This
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 Information by
Reference" and the financial statements of ________________________ included in,
or as exhibits to, the following documents:
o the Annual Report on Form 10-K for the year ended ____________; and
o the Quarterly Report on Form 10-Q for the quarter ended ____________.
S-52
<PAGE>
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.
Additional Information
Prudential Securities Secured Financing Corporation has filed with the
Securities and Exchange Commission a registration statement under the Securities
Act of 1933, for the notes offered pursuant to this prospectus supplement. This
prospectus supplement and the accompanying prospectus, which form a part of the
registration statement, omit specified information contained in the 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.
Experts
The consolidated balance sheets of ____________ and subsidiaries as of
____________ 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 ________________________, incorporated by reference in this prospectus
supplement, have been incorporated in this prospectus supplement in reliance on
the report of ____________, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
Legal Matters
Certain legal matters in connection with the notes will be passed upon
for the originators, the depositor and the servicer by ____________,
____________, for the trust by ____________, ____________, and for the depositor
and the underwriter by ____________, ____________.
Ratings
It is a condition to the original issuance of the notes that they will
receive ratings of "[ ]" by _________ and "[ ]" by ___________. The ratings
assigned to the notes will take into account the claims-paying ability of the
note insurer. Explanations of the significance of these ratings may be obtained
from ______________________________________ and ____________________________.
These ratings will be the views only of the rating agencies. There is no
assurance that any of these ratings will continue for any period of time or that
these ratings will not be revised or withdrawn. Any revision or withdrawal of
these ratings may have an adverse effect on the market price of the notes.
S-53
<PAGE>
Glossary
The following terms have the meanings given below when used in this
prospectus supplement.
Available Amount means, for any pool of mortgage loans and any
distribution date, the amount on deposit in the Distribution Account for that
pool, exclusive of the amount of any Insured Payment and the Servicing Fee, on
that distribution date.
Class A-1 Interest Distribution Amount means, for any distribution
date, an amount equal to the sum of the Current Interest for the class A-1 notes
on that distribution date, less the amount of any Class A-1 Mortgage Loan
Interest Shortfalls relating to that distribution date.
Class A-1 Mortgage Loan Interest Shortfalls means, for any distribution
date, the aggregate of the Mortgage Loan Interest Shortfalls in pool I, if any,
for that distribution date, to the extent any Mortgage Loan Interest Shortfalls
are not paid by the servicer as Compensating Interest.
Class A-1 Note Rate means, for any distribution date, the per annum
rate equal to ____%; provided, that, on any distribution date after the Note
Clean-Up Call Date for the class A-1 notes, the Class A-1 Note Rate will be
_____%.
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
that distribution date, less the amount of any Class A-2 Mortgage Loan Interest
Shortfalls relating to that distribution date.
Class A-2 Mortgage Loan Interest Shortfalls for any distribution date
will be the aggregate of the Mortgage Loan Interest Shortfalls in pool II, if
any, for that distribution date, to the extent any Mortgage Loan Interest
Shortfalls are not paid by the servicer as Compensating Interest.
Class A-2 Note Rate means, for any distribution date, the per annum
rate equal to _____%; provided, that, on any distribution date after the Note
Clean-up Call Date for the class A-2 notes, the Class A-2 Note Rate will be
_____%.
Compensating Interest means an amount equal to the lesser of (a) the
aggregate of the Prepayment Interest Shortfalls for a distribution date
resulting from principal prepayments in full during the due period and (b) its
aggregate servicing fees received in the due period
Current Interest for any pool of mortgage loans and any distribution
date is the interest that will accrue on the class of notes for that pool at the
applicable note rate on the aggregate outstanding principal balance of that
class during the 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 that pool and that
distribution date over (y) the sum of
o the Interest Distribution Amount for that pool and that
distribution date,
o Principal Distribution Amount for that pool and that distribution
date -- calculated for this purpose without regard to any
Over-collateralization Increase Amount or portion thereof included
therein,
o any Reimbursement Amount or other amount owed to the note insurer
relating to that pool and
S-54
<PAGE>
o the indenture trustee's fees for that pool and that distribution
date.
Excess Over-collateralized Amount means, for each pool of mortgage
loans and a distribution date, the difference, if any, between (a) the
Over-collateralized Amount that would apply on that distribution date after
taking into account all distributions to be made on that distribution date,
except for any distributions of Over-collateralization Reduction Amounts, and
(b) the Specified Over-collateralized Amount.
Foreclosure Profits as to any servicer remittance date, are the excess,
if any, of (a) Net Liquidation Proceeds in respect of each mortgage loan that
became a Liquidated Mortgage Loan during the month immediately preceding the
month of that servicer remittance date over (b) the sum of the unpaid principal
balance of each 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 these proceeds are not
applied to the restoration of the mortgaged property or released to the
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:
o the Interest Distribution Amount for that pool and that
distribution date,
o the amount of the Over-collateralization Deficit applicable to
that pool and that distribution date, if any, and
o on the distribution date which is a final stated maturity date,
the aggregate outstanding principal balance for that 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 that
pool and that distribution date exceeds the Available Amount less the indenture
trustee's fees for that pool and that 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 the
mortgage loan, including, without duplication, unreimbursed expenses for real
property taxes and unreimbursed servicing advances. In no event may Liquidation
Expenses on a Liquidated Mortgage Loan exceed the Liquidation Proceeds.
Liquidated Loan Loss as to any Liquidated Mortgage Loan is the excess,
if any, of (a) the unpaid principal balance of that 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 over (b) the sum of the
Net Liquidation Proceeds and the amount of any previously unreimbursed Periodic
Advances in respect of the mortgage loan.
Liquidation Proceeds are amounts, other than Insurance Proceeds,
received by the servicer in connection with (a) the taking of all or a part of a
Mortgaged Property by exercise of the power of eminent domain or condemnation or
(b) 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.
S-55
<PAGE>
Net Foreclosure Profits as to any servicer remittance date, are the
excess, if any, of (a) the aggregate Foreclosure Profits on that servicer
remittance date over (b) Liquidated Loan Losses on that servicer remittance
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 Mortgage Loan Interest Shortfalls means the Class A-1 Mortgage Loan
Interest Shortfalls or the Class A-2 Mortgage Loan Interest Shortfalls, as
applicable.
Net REO Proceeds as to any REO property, are REO Proceeds net of any
expenses of the servicer.
Note Clean-up Call Date means the first distribution date on which the
aggregate outstanding principal balance of that class of notes is equal to or
less than 10% of the aggregate original principal balance of that class of notes
Over-collateralized Amount means, for any distribution date and a pool
of mortgage loans, the excess, if any, of (x) the sum of (a) the aggregate
principal balances of the mortgage loans in that pool as of the close of
business on the last day of the preceding calendar month and (b) the amounts, if
any, on deposit in the pre-funding accounts, over (y) the aggregate principal
balance of the class of notes for that pool as of that distribution date
- --following the making of all distributions on that distribution date, other
than any Over-collateralization Increase Amount for that distribution date.
Over-collateralization Deficit for any distribution date, is the amount
by which the aggregate outstanding principal balance of the notes exceeds the
sum of
o the aggregate principal balance of the mortgage loans,
o any amount on deposit in the pre-funding accounts on that
distribution date, and
o any amounts on deposit in the Cross-collateralization Reserve
Accounts on that distribution date, after application of all
amounts due on that 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 class of notes for that pool until the
over-collateralization for that pool reaches the Specified Over-collateralized
Amount. This payment is limited to the extent of the Available Amount as
described in the definition of "Principal Distribution Amount.
Over-collateralization Reduction Amount for any pool of mortgage loans
and any distribution date, is the difference, if any, between (a) the
Over-collateralized Amount for that pool that would apply on that distribution
date after taking into account all distributions to be made on that distribution
date -- except for any distributions of Over-collateralization Reduction Amounts
- -- and (b) the Specified Over-collateralized Amount for that pool and that
distribution date to the extent of principal available for distribution.
Periodic Advances means advances made by the servicer on each
distribution date for delinquent payments of interest on the mortgage loans, at
a rate equal to the interest rate on the mortgage note, less the servicing fee
rate.
Prepayment Interest Shortfall means, for any distribution date, an
amount equal to the excess, if any, of (a) thirty days' interest on the
outstanding principal balance of these mortgage loans at a per
S-56
<PAGE>
annum rate equal to the mortgage interest rate -- or at any lower rate as may be
in effect for these mortgage loan because of application of the Civil Relief
Act, any reduction as a result of a bankruptcy proceeding and/or any reduction
by a court of the monthly payment due on these mortgage loan -- minus the rate
at which the servicing fee is calculated, over (b) the amount of interest
actually remitted by the mortgagor in connection with the principal prepayment
in full, less the servicing fee for that mortgage loan in that month.
Principal Distribution Amount for any pool of mortgage loans and any
distribution date will be the lesser of:
(a) the excess of (x) the sum, as of that distribution date,
of (A) the Available Amount for that pool and (B) any Insured Payment
on the class of notes for that pool over (y) the sum of Interest
Distribution Amount for that pool, the indenture trustee's fees, and
the Reimbursement Amount allocable to that class of notes; and
(b) the sum, without duplication, of:
(1) all principal in respect of the mortgage loans in
that pool actually collected during the due
period;
(2) the principal balance of each mortgage loan that
either was repurchased by the depositor or
purchased by the servicer on the servicer
remittance date from that pool, to the extent the
principal balance is actually received by the
indenture trustee;
(3) any substitution adjustments delivered by the
depositor on the servicer remittance date in
connection with a substitution of a mortgage loan
in that pool, to the extent the substitution
adjustments are actually received by the indenture
trustee;
(4) the Net Liquidation Proceeds actually collected by
the servicer of all mortgage loans in that pool
during the prior calendar month, to the extent the
Net Liquidation Proceeds relate to principal;
(5) on the ____________ or ____________ distribution
dates, moneys released from the pre-funding
account for that pool, if any;
(6) the proceeds received by the indenture trustee
upon the exercise by the servicer of its option to
call the class of notes for that pool, to the
extent those proceeds relate to principal;
(7) the amount of any Over-collateralization Deficit
for that pool for that distribution date;
(8) the proceeds received by the indenture trustee on
any termination of the trust, to the extent those
proceeds relate to principal, allocable to that
pool;
(9) the amount of any Over-collateralization Increase
Amount for that pool for that distribution date,
to the extent of any Excess Interest for that pool
available for that purpose, exclusive of the
amount of Excess Interest for
S-57
<PAGE>
that pool necessary to make the payment of
(A) any Net Mortgage Loan Interest
Shortfalls for that pool and that
distribution date and (B) the Shortfall
Amount for the other pool and that
distribution date;
(10) if the note insurer shall so elect, an
amount of principal, including Liquidated
Loan Losses, that would have been payable
pursuant to clauses (1) through (9) above if
sufficient funds were available therefor;
minus
(11) the amount of any Over-collateralization
Reduction Amount for that pool for that
distribution date.
In no event will the Principal Distribution Amount for a pool for any
distribution date be (x) less than zero or (y) greater than the then outstanding
aggregate principal balance for the notes.
Qualified Substitute Mortgage Loan means any mortgage loan or mortgage
loans substituted for a deleted mortgage loan and which, among other things,
o relates or relate to a detached one-family residence or to the
same type of residential dwelling or commercial property as the
deleted mortgage loan and, has or have the same or a better lien
priority as the deleted mortgage loan and has or have the same
occupancy status as the deleted mortgage loan or is or are
owner-occupied mortgaged property or properties,
o matures or mature no later than, and not more than one year
earlier than, the deleted mortgage loan,
o has or have a LTV or LTV at the time of the substitution no higher
than the LTV of the deleted mortgage loan,
o has or have a CLTV or CLTVs at the time of the substitution no
higher than the CLTV of the deleted mortgage loan,
o 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 that date,
o has or have a mortgage interest rate of at least the same interest
rate as the deleted mortgage loan and
o complies or comply, as of the date of substitution, with each
representation and warranty enumerated in the Loan Sale Agreement.
Reimbursement Amount means, for each pool of mortgage loans and each
distribution date, the lesser of (x) the excess of (a) the amount then on
deposit in the Distribution Account over (b) the Insured Distribution Amounts
for that pool and that distribution date and (y) the amount of all Insured
Payments and other amounts due to the note insurer for that pool pursuant to the
Insurance Agreement, including the premium amount, which have not been
previously paid.
REO Proceeds are monies received from any REO property, including,
without limitation, proceeds from the rental of the mortgaged property.
Shortfall Amount means, for a pool of mortgage loans and any
distribution date, the sum of
S-58
<PAGE>
o any shortfall in the amount of the Interest Distribution Amount
for that pool actually distributed to the holders of the class of
notes for that pool,
o any shortfall in the amount of the Net Mortgage Loan Interest
Shortfalls for that pool actually distributed to the holders of
the class of notes for that pool,
o the amount of any Over-collateralization Deficit for that pool and
that distribution date and
o any shortfall in the payment of any amounts owed the note insurer.
Specified Over-collateralized Amount for a pool of mortgage loans and
any distribution date will be the amount of Over-collateralization which the
note insurer requires for that pool and that distribution date.
Specified Reserve Amount means, for each pool of mortgage loans and any
distribution date, the difference between (x) the Specified Over-collateralized
Amount for that pool and that distribution date and (y) the Over-collateralized
Amount for that pool on that distribution date.
S-59
<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, that 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 an offer or solicitation is not
authorized or in which the person making the offer or
solicitation is not qualified to do so or to anyone to
whom it is unlawful to make any 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
in this prospectus supplement or in the prospectus is
correct as of any time since the date of this prospectus
supplement or the prospectus.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Table of Contents...................................S-__
Summary.............................................S-__
Risk Factors........................................S-__
Transaction Overview................................S-__
The Mortgage Loan Pools.............................S-__
The Originators, the Depositor, the Servicer and the
Subservicer.....................................S-__
The Owner Trustee...................................S-__
The Indenture Trustee...............................S-__
The Collateral Agent................................S-__
Description of the Notes and the Trust Certificates.S-__
Servicing of the Mortgage Loans.....................S-__
The Note Insurance Policy...........................S-__
The Note Insurer....................................S-__
Prepayment and Yield Considerations.................S-__
Material Federal Income Tax Considerations..........S-__
ERISA Considerations................................S-__
Legal Investment....................................S-__
Plan of Distribution................................S-__
Experts.............................................S-__
Ratings.............................................S-__
Legal Matters.......................................S-__
Glossary............................................S-__
PROSPECTUS
Summary of Prospectus.................................__
Risk Factors..........................................__
The Sponsor...........................................__
Use of Proceeds.......................................__
The Trustee...........................................__
The Trust Funds.......................................__
Description of the Securities.........................__
Credit Enhancement....................................__
Prepayment and Yield Considerations...................__
Servicing of the Loans................................__
Material Legal Aspects of the Loans...................__
Material Federal Income Tax Consequences..............__
State Tax Considerations..............................__
ERISA Considerations..................................__
Legal Investment......................................__
Plan of Distribution..................................__
Incorporation of Information by Reference.............__
Additional Information................................__
Legal Matters.........................................__
Rating................................................__
Glossary...............................__
$_______________
______________________
Issuer
_________________________
Servicer
Prudential Securities
Secured Financing Corporation
Sponsor
$__________
Class A-1 Notes
$__________
Class A-2 Notes
Mortgage-Backed Notes,
Series _______
__________________
PROSPECTUS SUPPLEMENT
__________________
___________________
__________
<PAGE>
FORM OF PROSPECTUS
SUPPLEMENT -- CERTIFICATES
Prospectus supplement to prospectus dated ____________
- --------------------------------------------------------------------------------
$-----------
----------------------
Mortgage-Backed Certificates, Series _______
$_____ ___% Class A-1 Certificates $_______ ____% Class A-2 Certificates
_____________ Prudential Securities Secured
Depositor Financing Corporation
Sponsor
- --------------------------------------------------------------------------------
You should read the section entitled "Risk Factors" starting on page S-__ of
this prospectus supplement and page __ of the accompanying prospectus and
consider these factors before making a decision to invest in the
certificates.
The certificates ownership interests in the trust fund only and are not
interests in or obligations of any other person.
Neither the certificates nor the underlying mortgage loans will be insured or
guaranteed by any governmental agency or instrumentality.
The trust fund --
o The trust fund consists primarily of two pools of fixed-rate business and
consumer purpose home equity loans secured by first- or second-lien
mortgages on residential or commercial real properties.
The certificates --
o Each class of offered certificates will represent a beneficial ownership
interest in one pool of mortgage loans.
Credit enhancement --
o The certificates will have the benefit of a financial guaranty insurance
policy to be issued by [certificate insurer]
o The certificates will be cross-collateralized to a limited extent.
o The certificates have the benefit of initial over-collateralization.
o Excess interest will be used in the early years of the transaction to
increase this over-collateralization.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Class Original Certificate Price to the Underwriting Proceeds to the Ratings Final Stated
Principal Balance Public Discount Depositor [ ] Maturity Date
A-1 $_____________ ____% ____% $_____________
A-2 $_____________ ____% ____% $_____________
Total $_____________ $____________ $______ $____________
</TABLE>
In addition to the price stated above, purchasers of notes will also be
required to pay the interest that has accrued on their note from the
cut-off date to the date of purchase of the note. The proceeds to the
depositor stated above have been calculated without taking into effect
the expenses of this offering, which are expected to be $________.
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.
---------------------
The date of this prospectus supplement is ________
<PAGE>
Important notice about the information presented in this
prospectus supplement and the accompanying prospectus
We provide information to you about the certificates 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 certificates, and (2) this prospectus supplement, which describes
the specific terms of your series of certificates. If the accompanying
prospectus contemplates multiple options, you should rely on the information in
this prospectus supplement as to the applicable option.
We cannot sell the notes to you unless you have received both this
prospectus supplement and 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 information concerning a particular topic. The following table of
contents provides the pages on which these captions are located.
Table of Contents
Summary...............................................1
Risk Factors..........................................3
Transaction Overview..................................7
Parties..........................................7
The Transaction..................................7
The Mortgage Loan Pools...............................8
The Pool I Mortgage Loans........................9
The Pool II Mortgage Loans......................13
Conveyance of subsequent mortgage loans.........16
The Originators, the Depositor and the Servicer......17
Underwriting Guidelines.........................17
The Servicer....................................17
Delinquency and Loan Loss Experience............17
The Trustee..........................................19
The Collateral Agent.................................19
Description of the Certificates......................19
Book-Entry Registration.........................20
Definitive Certificates.........................24
Assignment and Pledge of Initial Mortgage
Loans.........................................24
Assignment and Pledge of Subsequent Mortgage
Loans.........................................24
Delivery of Mortgage Loan Documents.............25
Representations and Warranties of the Depositor.26
Payments on the Mortgage Loans..................28
Over-collateralization Provisions...............30
Cross-collateralization Provisions..............31
Flow of Funds...................................32
Reports to Certificateholders...................32
Amendment.......................................33
Servicing of the Mortgage Loans......................33
The Servicer....................................33
Servicing Fees and Other Compensation
and Payment of Expenses.......................33
Periodic Advances and Servicer Advances.........34
Prepayment Interest Shortfalls..................35
Civil Relief Act Interest Shortfalls............35
Optional Purchase of Defaulted Mortgage Loans...35
Servicer Reports................................35
Collection and Other Servicing Procedures.......36
Hazard Insurance................................36
Realization Upon Defaulted Mortgage Loans.......37
Removal and Resignation of the Servicer.........37
Termination; Purchase of Mortgage Loans.........39
The Certificate Insurance Policy.....................40
S-ii
<PAGE>
The Certificate Insurer..............................43
The Certificate Insurer.........................43
Reinsurance.....................................44
Ratings.........................................44
Capitalization..................................44
Insurance Regulation............................44
Prepayment and Yield Considerations..................45
Material Federal Income Tax Considerations...........48
ERISA Considerations.................................49
Legal Investment.....................................51
Plan of Distribution.................................51
Incorporation of Information by Reference............52
Additional Information...............................52
Experts..............................................53
Legal Matters........................................53
Ratings..............................................53
Glossary.............................................54
S-iii
<PAGE>
Summary
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
certificates, carefully read this entire prospectus supplement
and the accompanying prospectus.
-------------------------------
The Certificates
The ___________ will issue the class A-1 certificates and the class A-2
certificates.
The trust will also issue one class of residual certificates, the class R
certificates, for each class of class A certificates. The class R certificates
are not offered by this prospectus supplement.
Distribution Dates
Distributions on the certificates will be made on the ____ day of each month,
or, if the ____ day is not a business day, on the next business day, beginning
on _________.
Distributions of Interest
On each distribution date, certificateholders will receive the interest that has
accrued on the certificates.
The accrual period for the certificates is the calendar month preceding the
distribution date. All computations of interest accrued on the certificates will
be made on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of Principal
On each distribution date, certificateholders will receive principal
distributions. The amount of these distributions will be based on the amount of
principal collected on the underlying mortgage loans during the prior calendar
month.
In addition, in accordance with the over-collateralization features of the
transaction, holders may also receive extra distributions of principal from
excess interest on a distribution date.
The Mortgage Loans
The mortgage loans 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 or commercial real
properties.
On the closing date, the aggregate principal balance of the pool I mortgage
loans will be approximately $_____________ and the aggregate principal balance
of the pool II mortgage loans will be approximately $_____________.
The aggregate principal balance of the mortgage loans purchased by the trust on
the closing date will be less than the amount required to be held by the trust.
The amount of the difference will be placed in the pre-funding accounts and used
for the purchase of mortgage loans after the closing date.
Servicing of the Mortgage Loans
__________________ will act as servicer.
Option of the Servicer to Terminate the Trust
The servicer may, at its option, terminate the trust on any distribution date
after 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
accounts on the closing date.
ERISA Considerations
Subject to the conditions described under "ERISA Considerations" in this
prospectus supplement, the certificates may be purchased by any employee benefit
plan or other retirement
S-1
<PAGE>
arrangement subject to ERISA or the Internal Revenue Code.
Federal Income Tax Status
An election will be made to treat the trust fund as a REMIC. The class A
certificates will be designated as "regular interests" and the class R
certificates will be designated as "residual interests" in the REMIC.
The class A certificates will be treated as newly originated debt instruments
and the beneficial owners will be required to report income thereon in
accordance with the accrual method of accounting.
Ratings
In order to be issued, the certificates must be rated [ ]by ________ and [ ] by
________, taking into account the certificate insurance policy issued for the
certificates.
S-2
<PAGE>
Risk Factors
Investors should consider, among other things, the following factors --
as well as the factors listed under "Risk Factors" in the accompanying
prospectus -- before deciding to invest in the certificates.
If the funds on deposit in the pre-funding accounts are not used to purchase
additional mortgage loans, those funds will be distributed as a prepayment of
principal, which may adversely affect the yield on your certificate.
If the principal balance of the eligible mortgage loans
available for purchase by the trust on _____________ is less
than the amount on deposit in either pre-funding account on
that date, the remaining amount will be applied as a
prepayment of principal on the following distribution date to
the holders of the class of certificates relating to that
pre-funding account. You will bear the risk of reinvesting
these unscheduled distributions and there can be no assurance
that you will be able to reinvest them at a yield equaling or
exceeding the yield on your certificate.
If the originators do not have sufficient additional mortgage
loans that satisfy the requirements listed on pages S-16 and
S-17 of this prospectus supplement, a prepayment will occur.
Because many of the mortgage loans backing your certificate were made to
borrowers with impaired or unsubstantiated credit histories, there is a greater
risk of delinquent payments on these mortgage loans, which could lead to greater
risk of losses on your certificate.
The mortgage loans were made, in part, to borrowers who, for
one reason or another, are not able, or do not wish, to obtain
financing from traditional sources like commercial banks.
These mortgage loans may be considered to be of a riskier
nature than mortgage loans made by traditional sources of
financing, so that the holders of the certificates may be
deemed to be at greater risk than if the mortgage loans were
made to other types of borrowers.
The underwriting standards used in the origination of the
mortgage loans held by the trust are generally less stringent
than those of Fannie Mae or Freddie Mac concerning a
borrower's credit history and in other respects. Borrowers on
the mortgage 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 concentration of the mortgage loans in particular jurisdictions may
result in greater losses if those jurisdictions experience economic downturns.
Some geographic regions of the United States from time to time
will experience weaker regional economic conditions and
housing markets, and, consequently, will experience higher
rates of loss and delinquency on mortgage loans generally. Any
concentration of the mortgage loans in any of these regions
may present risk considerations in addition to those generally
present for similar mortgage-backed securities without this
concentration. The mortgaged properties underlying the
mortgage loans are located primarily on the eastern seaboard
of the United States. This may subject the mortgage loans held
by the trust to the risk that a downturn in
S-3
<PAGE>
the economy in this area of the country would more greatly
affect the pool than if the pool were more diversified.
In particular, the states listed below had the following
percentages of mortgage loans in pool I and pool II, measured
as of _______, ______, which are secured by mortgaged
properties located in the their states:
Pool I % % % % %
Pool II % % % % %
Because of the relative geographic concentration of the
mortgage loans within the states of _____________,
_____________, _____________, _____________ and _____________,
losses on the mortgage loans may be higher than would be the
case if the mortgage loans were more geographically
diversified. For example, some of the mortgaged properties may
be more susceptible to particular types of special hazards,
like earthquakes and other natural disasters and major civil
disturbances, than residential or commercial properties
located in other parts of the country. In addition, the
economies of _____________, _____________, _____________,
_____________ and _____________ may be adversely affected to a
greater degree than the economies of other areas of the
country by regional developments. If the _____________,
_____________, _____________, _____________ and _____________
residential or commercial 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 this increase may be
substantial.
A portion of the mortgage loans require large balloon payments at maturity;
these balloon loans may involve a greater risk of default due to these large
payments, which could lead to losses on your securities.
Approximately ____% of the mortgage loans in pool I, measured
as of _____, ____, and ____% of the mortgage loans in pool II,
measured as of ____, ____, are not fully amortized over their
terms and instead require substantial balloon payments on
their maturity dates. Because the principal balances of these
balloon loans do not fully amortize over their term, these
balloon 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 his or her balloon loan
will depend on the borrower's ability to obtain adequate
refinancing or funds from other sources to repay the balloon
loan. The originators have only limited historical default
data concerning their balloon loans and they do not believe
that their data is sufficient to predict the default
experience of the balloon loans.
A portion of the mortgage loans are secured by subordinate mortgages; in the
event of a default, these mortgage loans are more likely to experience losses.
Approximately _____% of the mortgage loans in pool I, measured
as of ____, _____, and ____% of the mortgage loans in pool II,
measured as of ____, ____, are secured by subordinate or
junior mortgages which are subordinate to the rights of the
holder of the senior mortgages. As a result, the proceeds from
any liquidation, insurance or condemnation proceedings will be
available to satisfy the principal balance of the mortgage
loan only to the extent that the claims, if any, of
S-4
<PAGE>
each senior mortgagee are satisfied in full, including any
foreclosure costs. In addition, a holder of a junior mortgage
may not foreclose on the mortgaged property securing the
mortgage unless it either pays the entire amount of each of
the senior mortgages to the mortgagees at or prior to the
foreclosure sale or undertakes the obligations to make
payments on each of the senior mortgages 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 mortgage 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 or commercial real
estate markets could adversely affect the values of the
mortgaged properties and cause the outstanding principal
balances of the mortgage loans, together with the primary
senior financing thereon, equals or exceeds the value of the
mortgaged properties. This type of decline would adversely
affect the position of a second mortgagee before having the
same effect on the 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. This type of
increase may reduce the likelihood of liquidation or other
proceeds being sufficient to satisfy the mortgage loan after
satisfaction of any first liens.
A portion of the mortgage loans are high LTV loans which may not have adequate
security in the event of a default, which could lead to losses on your note.
Even though all of the mortgage loans are secured be
residential real estate, approximately _____% of the mortgage
loans in pool I, measured as of ____, _____, and ____% of the
mortgage loans in pool II, measured as of ____, ____, are
secured by real estate which has a value that may be close to,
or even less than, the amount of the loan. As a result, the
mortgaged properties may not provide adequate security for
these high LTV loans. Underwriting analysis of high LTV loans
relies more heavily on the mortgagor's creditworthiness than
on the protection afforded by the security interest in the
underlying mortgaged property.
Additionally, there is also the risk that if the borrower
moves, he or she will be unable to pay the loan in full from
the proceeds of the sale of the property. The costs incurred
by the servicer in the collection and liquidation of high LTV
loans may be higher for high LTV loans than for other types of
loans, because the servicer may be required to pursue
collection solely against the borrower. Consequently, the
losses on defaulted high LTV loans may be more severe as there
is no assurance that any proceeds will be recovered, which
could lead to losses on your certificate.
Security interests in the manufactured homes may not be perfected and the issuer
may not realize upon the full amount due under the loan.
Approximately _____% of the mortgage loans in pool I, measured
as of ____, _____, and ____% of the mortgage loans in pool II,
measured as of ____, ____,
S-5
<PAGE>
are secured by manufactured homes and, in some cases, the real
estate on which the manufactured home is located. Some federal
and state laws, which do not apply to other types of mortgage
loans, limit the issuer's ability to foreclose on manufactured
homes or may limit the amount realized to less than the amount
due under the loan. These limitations could cause losses on
your certificate.
Prepayments on the mortgage loans could lead to shortfalls in the payment of
interest on your certificate.
The scheduled monthly payment dates for 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 the prepayment, instead of for a full
month. However, the principal receipts will only be passed
through to the holders of the certificates once a month, on
the distribution date which follows the calendar month in
which the 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 certificates that are attributable to the
difference between the interest paid by a mortgagor in
connection with a prepayment in full and thirty days' interest
on the mortgage loan, but only to the extent of the servicing
fee for that calendar month.
If the servicer fails to make these payments or the shortfall
exceeds the servicing fee, there will be less funds available
for the payment of interest on a class of certificates. These
shortfalls of interest, if they result in the inability of the
trust to pay the full amount of the current interest on that
class of certificates, are not covered by the certificate
insurance policy.
Year 2000 issues could lead to delays in payment or losses on your certificate.
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 the originators, as well as 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 the servicer, the originator or these 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.
If DTC experiences year 2000 problems, you could experience delays in payment or
losses on your certificate.
If problems associated with the year 2000 issue were to affect
DTC, its systems -- as the same relate to the timely payment
of distributions, including principal and interest payments,
to securityholders, book-entry deliveries, and settlement of
trades within DTC -- or third parties, including, but not
limited to, issuers, their agents and its participating
organizations as well as third party vendors on whom DTC
relies for information or the provision of services, including
telecommunication and electrical utility service providers
among others, distributions to the beneficial owners of
certificates could be delayed or otherwise adversely affected.
S-6
<PAGE>
Some of the terms used in this prospectus supplement are capitalized.
These capitalized terms have specified definitions, which are included at the
end of this prospectus supplement under the heading "Glossary."
Transaction Overview
Parties
The Sponsor. Prudential Securities Secured Financing Corporation, a
Delaware corporation. The principal executive office of the sponsor is located
at One New York Plaza, 14th Floor, New York, New York 10292, and its telephone
number is (212) 778-1000.
The Depositor. ________________, a __________ corporation, which is
owned by the originators. The principal executive office of the depositor is at
___________________________, and its telephone number is _____________.
The Originators. _____________, a _____________ corporation, and
_____________, a _____________ corporation, originated or purchased the mortgage
loans. For a description of the business of the originators, see "The
Originators, the Depositor and the Servicer" in this prospectus supplement.
The Servicer and the Subservicers. _____________ will act as servicer
of the mortgage loans, and _____________ and _____________ will act as
subservicers for different portions of the mortgage loans. For a description of
the business of the servicer, see "The Originators, the Depositor and the
Servicer" in this prospectus supplement.
The Trustee. _____________, a _____________ banking corporation. The
corporate trust office of the trustee is located at _____________, and its
telephone number is _____________. For a description of the trustee and its
responsibilities concerning the certificates, see "The Trustee" in this
prospectus supplement.
The Collateral Agent. _________________________, a national banking
association. The corporate trust office of the collateral agent is located at
________________________, and its telephone number is _______________.
The Certificate Insurer. ___________________________, a _____________
financial guaranty insurance company. The certificate insurer will issue a
financial guaranty insurance policy for the benefit of the holders of the
certificates. For a description of the business and selected financial
information of the certificate insurer, see "The Certificate Insurance Policy"
and "The Certificate Insurer" in this prospectus supplement.
The Rating Agencies. ________________ and ________________ will issue
ratings for each class of certificates.
The Transaction
Formation of the Trust and Issuance of the Certificates. The trust will
be formed pursuant to the terms of a Pooling and Servicing Agreement, dated as
of _____________, between the trustee, the collateral agent, the servicer and
the depositor. Under the Pooling and Servicing Agreement, the trust will also
issue the certificates to the depositor, together evidencing the entire
beneficial ownership interest in the sub-trust of the trust consisting of a pool
of mortgage loans.
S-7
<PAGE>
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 described under "The Originators, the Depositor and
the Servicer." The originators will sell the mortgage loans to the depositor,
pursuant to Loan Sale Agreement, dated as of _____________, among the
originators and the depositor. The depositor will deposit the mortgage loans in
the trust pursuant to the Pooling and Servicing Agreement. The servicer will
service the mortgage loans pursuant to the terms of the Pooling and Servicing
Agreement.
Issuance of the Certificate Insurance Policy. The certificate insurer
will issue the certificate insurance policy pursuant to the terms of an
Insurance and Indemnity Agreement, dated as of _____________, among the
certificate insurer, the trust, the depositor, the originators and the servicer.
The Mortgage Loan Pools
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 a
statistical calculation date, in this case _______, ____. Pool I aggregated
$_____________ as of the statistical calculation date and pool II aggregated
$_____________ as of the statistical calculation date. The depositor expects
that the actual pools on the closing date will represent approximately
$_____________ in aggregate principal balance of mortgage loans in pool I, as of
a cut-off date of ________, ____, and approximately $_____________ 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, the pools
that existed on the statistical calculation date for which statistical
information is presented in this prospectus supplement, will amortize in part
prior to the closing date. Moreover, some 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 the
characteristics as of the statistical calculation date as presented in this
prospectus supplement, although this variance should not be material. In the
event that the depositor does not, as of the closing date, have the full amount
of mortgage loans which the depositor expects to sell to the trust on this date,
the depositor will increase the size of the pre-funding accounts and the
capitalized interest accounts, as applicable.
Additional mortgage loans are intended to be purchased by the trust
from time to time on or before _____________ from funds on deposit in the
pre-funding accounts. These subsequent mortgage loans to be purchased by the
trust, if available, will be originated or purchased by the originators, sold by
the originators to the depositor and then sold by the depositor to the trust.
The Pooling and Servicing Agreement will provide that the mortgage loans,
following the conveyance of the subsequent mortgage loans, must in the aggregate
conform to 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 applicable mortgage loans in relation to the aggregate principal balance
of the mortgage loans in the applicable 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 to refinance an existing mortgage loan, to
consolidate debt, or to obtain cash proceeds by borrowing against the
mortgagor's equity in the mortgaged property in order to provide funds for,
S-8
<PAGE>
working capital for business, business expansion, equipment acquisition, or
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 majority of the mortgage loans have a prepayment fee clause. These
prepayment fee clauses generally provide that the mortgagor pay, upon
prepayment, one or more of the following:
o a fee equal to a percentage, negotiated at origination, of the
outstanding principal balance of the mortgage loan,
o 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
o 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.
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 ____% per annum.
The combined loan-to-value ratios or CLTV's described in this
prospectus supplement were calculated based upon the appraised values of the
mortgaged properties at the time of origination. No assurance can be given that
the appraised values of the mortgaged properties have remained or will remain at
the levels that existed on the dates of origination of the mortgage loans. If
property values decline and cause the outstanding principal balances of the
mortgage loans, together with the outstanding principal balances of any first
liens, to 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 historically experienced by the servicer, as described below under "The
Originators, the Depositor 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
had the following characteristics:
o there were ___ mortgage loans under which the mortgaged properties
are located in __ states,
o the aggregate principal balance, after application of all payments
due on or before the statistical calculation date, was
$_____________,
o the minimum principal balance was $_____________, the maximum
principal balance was $_____________, and the average principal
balance was $_____________,
o the mortgage interest rates ranged from _____% to ____% per annum,
and the weighted average mortgage interest rate was approximately
____% per annum,
o the original term to stated maturity ranged from ___ months to 360
months,
S-9
<PAGE>
o the remaining term to stated maturity ranged from __ months to
____ months, the weighted average original term to stated maturity
was approximately ___ months and the weighted average remaining
term to stated maturity was approximately ____ months,
o no mortgage loan had a maturity later than _________,
o approximately _______% of the aggregate principal balance of the
mortgage loans require monthly payments of principal that will
fully amortize these mortgage loans by their respective maturity
dates, and approximately ____% of the aggregate principal balance
of the mortgage loans are balloon loans,
o the weighted average CLTV was approximately _____%,
o approximately _____% of mortgage loans are secured by first liens,
and approximately _____% of mortgage loans are secured by second
liens, and
o approximately _____%, _____%, ____%, _____% and ____% of the
mortgage loans are secured by mortgaged properties located in the
States of _____________, _____________, _____________,
_____________ and _____________, respectively.
On or prior to _____________, 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 $_____________.
S-10
<PAGE>
The following tables present statistical information on the mortgage
loans in pool I. Due to rounding, the percentages shown may not precisely total
100.00%.
Geographical Distribution of Mortgaged Properties
<TABLE>
<CAPTION>
Pool I
<S> <C> <C> <C> <C>
State Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- --------------------------- --------------- ------------------- ------------------------------------
Total
Distribution of CLTV Ratios
Pool I
Original Number of Aggregate Unpaid % of Statistical Calculation Date
CLTV Range Mortgage Loans Principal Balance Aggregate Principal Balance
- --------------------------- --------------- ------------------- ------------------------------------
Total
Distribution of Gross Mortgage Interest Rates
Pool I
Gross Mortgage Number of Aggregate Unpaid % of Statistical Calculation Date
Interest Rate Range Mortgage Loans Principal Balance Aggregate Principal Balance
- --------------------------- --------------- ------------------- ------------------------------------
Total
Distribution of Original Terms to Maturity
(in months)
Pool I
Range of Original Terms Number of Aggregate Unpaid % of Statistical Calculation Date
(in months) Mortgage Loans Principal Balance Aggregate Principal Balance
- ---------------------------- --------------- ------------------- ------------------------------------
Total
Distribution of Remaining Terms to Maturity
(in months)
Pool I
Range of Remaining Terms Number of Aggregate Unpaid % of Statistical Calculation Date
(in months) Mortgage Loans Principal Balance Aggregate Principal Balance
- ---------------------------- --------------- ------------------- ------------------------------------
Total
</TABLE>
S-11
<PAGE>
Distribution of Original Principal Balances
<TABLE>
<CAPTION>
Pool I
<S> <C> <C> <C>
Range of Original Mortgage Number of Aggregate Unpaid % of Statistical Calculation Date
Loan Mortgage Loans Principal Balance Aggregate Principal Balance
Principal Balances
- ---------------------------- --------------- ------------------- ------------------------------------
Total
Distribution of Current Principal Balances
Pool I
Range of Current Mortgage Loan Number of Aggregate Unpaid % of Statistical Calculation Date
Principal Balances Mortgage Loans Principal Balance Aggregate Principal Balance
- ---------------------------------- --------------- ------------------- ------------------------------------
Total
Distribution by Lien Status
Pool I
Lien Status Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- ---------------------------- --------------- ------------------- ------------------------------------
Total
Distribution by Amortization Type
Pool I
Amortization Type Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- ---------------------------- --------------- ------------------- ------------------------------------
Total
Distribution by Occupancy Status
Pool I
Occupancy Status Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------ --------------- ------------------- ------------------------------------
Total
</TABLE>
S-12
<PAGE>
Distribution by Property Type
Pool I
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Property Type Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------- --------------- ------------------- ------------------------------------
Total
</TABLE>
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 _____% per annum.
The CLTVs described in this prospectus supplement were calculated based
upon the appraised values of the mortgaged properties at the time of
origination. No assurance can be given that the appraised values of the
mortgaged properties have remained or will remain at the levels that existed on
the dates of origination of the mortgage loans. If property values decline and
cause the outstanding principal balances of the mortgage loans, together with
the outstanding principal balances of any first liens, to 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 historically
experienced by the servicer, as described below under "The Originators, the
Depositor 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
had the following characteristics:
o there were ___ mortgage loans under which the mortgaged properties
are located in ___ states,
o the aggregate principal balance, after application of all payments
due on or before the statistical calculation date, was
$_____________,
o the minimum principal balance was $_____________, the maximum
principal balance was $_____________, and the average principal
balance was $_____________,
o the mortgage interest rates ranged from ____% to ___% per annum,
and the weighted average mortgage interest rate was approximately
___% per annum,
o the original term to stated maturity ranged from __ months to 360
months,
o the remaining term to stated maturity ranged from __ months to ___
months, the weighted average original term to stated maturity was
approximately ___ months and the weighted average remaining term
to stated maturity was approximately ___ months,
o no mortgage loan had a maturity later than _____________,
o approximately ____% of the aggregate principal balance of the
mortgage loans require monthly payments of principal that will
fully amortize these mortgage loans by their respective maturity
dates, and approximately ____% of the aggregate principal balance
of the mortgage loans are balloon loans,
o the weighted average CLTV was approximately ____%,
S-13
<PAGE>
o approximately ____% of mortgage loans are secured by first liens,
and approximately ____% of mortgage loans are secured by second
liens, and
o approximately ___%, ___%, ____%, ____% and ____% of the mortgage
loans are secured by mortgaged properties located in the States of
_____________, _____________, _____________, _____________ and
_____________, respectively.
On or prior to _____________, the trust is expected to purchase,
subject to availability, subsequent mortgage loans to be added to pool II. The
maximum aggregate principal balance of subsequent mortgage loans that may be
purchased is expected to be approximately $_____________.
The following tables present statistical information on the mortgage
loans in pool II. Due to rounding, the percentages shown may not precisely total
100.00%.
Geographical Distribution of Mortgaged Properties
<TABLE>
<CAPTION>
Pool II
<S> <C> <C> <C> <C>
State Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- ---------------------------- --------------- ------------------- ------------------------------------
Total
Distribution of CLTV Ratios
Pool II
Original CLTV Ratio Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- ---------------------------- --------------- ------------------- ------------------------------------
Total
Distribution of Gross Mortgage Interest Rates
Pool II
Gross Mortgage Number of Aggregate Unpaid % of Statistical Calculation Date
Interest Rate Range Mortgage Loans Principal Balance Aggregate Principal Balance
- ---------------------------- --------------- ------------------- ------------------------------------
Total
Distribution of Original Terms to Maturity
(in months)
Pool II
Range of Original Terms Number of Aggregate Unpaid % of Statistical Calculation Date
(in months) Mortgage Loans Principal Balance Aggregate Principal Balance
- ---------------------------- --------------- ------------------- ------------------------------------
Total
</TABLE>
S-14
<PAGE>
Distribution of Remaining Terms to Maturity
(in months)
Pool II
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Range of Remaining Terms Number of Aggregate Unpaid % of Statistical Calculation Date
(in months) Mortgage Loans Principal Balance Aggregate Principal Balance
- ---------------------------- --------------- ------------------- ------------------------------------
Total
Distribution of Original Principal Balances
Pool II
Range of Original Mortgage Number of Aggregate Unpaid % of Statistical Calculation Date
Loan Principal Balances Mortgage Loans Principal Balance Aggregate Principal Balance
- ---------------------------- --------------- ------------------- ---------------------------------
Total
Distribution of Current Principal Balances
Pool II
Range of Current Number of Aggregate Unpaid % of Statistical Calculation
Mortgage Loan Mortgage Loans Principal Balance Date Aggregate Principal Balance
Principal Balances
- ----------------------- --------------- ------------------- ---------------------------------
Total
Distribution by Lien Status
Pool II
Lien Status Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------- --------------- ------------------- ----------------------------------
Total
Distribution by Amortization Type
Pool II
Amortization Type Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------- --------------- ------------------- ------------------------------------
Total
</TABLE>
S-15
<PAGE>
Distribution by Occupancy Status
Pool II
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Occupancy Status Number of Aggregate Unpaid % of Statistical Calculation Date
Mortgage Loans Principal Balance Aggregate Principal Balance
- ------------------------- --------------- ------------------ ---------------------------------
Total
Distribution By Property Type
Pool II
Property Type Number of Aggregate Unpaid % of Statistical Calculation
Mortgage Loans Principal Balance Date Aggregate Principal Balance
- ------------------------- --------------- ------------------ --------------------------------
Total
</TABLE>
Conveyance of subsequent mortgage loans
The Pooling and Servicing Agreement permits the trust to acquire
subsequent mortgage loans with the funds on deposit in the pre-funding accounts.
It is expected that the amount on deposit in the pre-funding accounts on the
closing date will be approximately $_____________ for pool I and $_____________
for pool II. Accordingly, the statistical characteristics of the mortgage loans
in pool I and pool II 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 subsequent transfer date during the Pre-Funding Period is subject to the
following requirements:
o the subsequent mortgage loan may not be 30 or more days
contractually delinquent as of a subsequent cut-off date which is
the close of business on the last day of the calendar month
preceding the month in which the subsequent mortgage loan was
purchased by the trust;
o the original term to maturity of the subsequent mortgage loan may
not exceed 360 months for pool I and 360 months for pool II;
o the subsequent mortgage loan must have a mortgage interest rate of
at least ____% for pool I and ____% for pool II;
o the purchase of the subsequent mortgage loans is consented to by
the certificate insurer and the rating agencies, notwithstanding
the fact that the subsequent mortgage loans meet the parameters
stated in this prospectus supplement;
o the principal balance of any subsequent mortgage loan may not
exceed $_____________ for pool I and $_____________ for pool II;
o no more than _____% for pool I and ____% for pool II of the
aggregate principal balance of the subsequent mortgage loans may
be second liens;
S-16
<PAGE>
o no such subsequent mortgage loan shall have a CLTV of more
than (a) for consumer purpose loans, ___% for pool I and ____%
for pool II, and (b) for business purpose loans, ___% for pool
I and ___% for pool II;
o no more than ____% for pool I and ___% for pool II of the
subsequent mortgage loans may be balloon loans;
o no more than ____% for pool I and ____% for pool II of the
subsequent mortgage loans may be secured by mixed-use
properties, commercial properties, or five or more unit
multifamily properties; and
o following the purchase of the subsequent mortgage loans by the
trust, the mortgage loans, including the subsequent mortgage
loans, (a) will have a weighted average mortgage interest
rate, (I) for consumer purpose loans, of at least ____% for
pool I and ____% for pool II and (II) for business purpose
loans, of at least ____% for pool I and ____% for pool II; and
(b) will have a weighted average CLTV of not more than (I) for
consumer purpose loans, ____% for pool I and ____% for pool
II, and (II) for business purpose loans, ____% for pool I and
____% for pool II.
The Pooling and Servicing Agreement will provide that any of these
requirements may be waived or modified in any respect upon prior written consent
of the certificate insurer, with the exception of the requirements concerning
maximum principal balance.
The Originators, the Depositor and the Servicer
[Corporate description]
[To be supplied by originators, depositor and servicer]
Underwriting Guidelines
[To be supplied by originators]
The Servicer
[To be supplied by servicer]
Delinquency and Loan Loss Experience
The following tables present information relating to the delinquency
and loan loss experience on the mortgage loans included in originators servicing
portfolio for the periods shown. The delinquency and loan loss experience
represents the historical experience of the originators, and there can be no
assurance that the future experience on the mortgage loans in the trust will be
the same as, or more favorable than, that of the mortgage loans in the
originators' overall servicing portfolio.
S-17
<PAGE>
Delinquency and Foreclosure Experience
(Dollars in Thousands)
At At At
---------------- ---------------- ---------------
% of
% of % of Amount
Amount Amount Amount Amount Amount Service
Serviced Serviced Serviced Serviced Serviced d
-------- -------- -------- -------- -------- -------
Servicing
portfolio............
Past due loans:
60-89
days...............
90 days
or more ...........
-------- -------- -------- -------- -------- -------
Total past
due loans............
REO
Properties...........
-------- -------- -------- -------- -------- -------
Total past
due loans,
foreclosures
pending and
REO
Properties(3)........
The foregoing table was prepared assuming that:
o 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.;
o total past due loans includes pending foreclosures; and
o an "REO property" is a property acquired and held as a result of
foreclosure or deed in lieu of foreclosure.
Loan Charge-Off Experience
(Dollars in Thousands)
At At At
----------- ----------- ----------
Servicing portfolio at period end......
Average outstanding....................
Gross losses.........................
Loan recoveries......................
Net loan charge-offs.................
Net loan charge-offs as a percentage
of servicing portfolio at period end.
Net loan charge-offs as a percentage
of average outstanding...............
The foregoing table was prepared assuming that:
o "average outstanding" 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 this
period; and
S-18
<PAGE>
o "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
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 Trustee
________________________, a ____________ banking corporation, has an
office at ________________________. The trustee will act as initial
authenticating agent, paying agent and certificate registrar pursuant to the
terms of the Pooling and Servicing Agreement.
The Collateral Agent
________________________, a national banking association, has its
corporate trust office at ________________________. The collateral agent's
duties are limited solely to its express obligations under the Pooling and
Servicing Agreement.
Description of the Certificates
On the closing date, the trust will issue the class A-1 certificates,
the class A-2 certificates and both classes of class R certificates pursuant to
the Pooling and Servicing Agreement. Each class A-1 certificate represents a
beneficial ownership interest in the portion of the trust estate consisting of
the pool I mortgage loans and, to the extent provided in this prospectus
supplement, the pool II mortgage loans. Each class A-2 certificate represents a
beneficial ownership interest in the portion of the trust estate consisting of
the pool II mortgage loans and, to the extent provided in this prospectus
supplement, the pool I mortgage loans. Pursuant to the Pooling and Servicing
Agreement, the trust will also issue two class R certificates, one relating to
the class A-1 certificates and the other relating to the class A-2 certificates.
Together the class A certificate and the related class R certificate represent
the entire beneficial ownership interest in the portion of the trust consisting
of the related pool of mortgage loans. None of the class R certificates may be
transferred without the consent of the certificate insurer and compliance with
the transfer provisions of the Pooling and Servicing Agreement.
The trust estate consists of
o the mortgage loans, together with the mortgage files relating
thereto and all collections thereon and proceeds thereof collected
after the cut-off date,
o the assets as from time to time are identified as REO property and
collections thereon and proceeds thereof,
o assets that are deposited in the accounts relating to the trust,
including amounts on deposit in the Accounts and invested in
accordance with the Pooling and Servicing Agreement,
S-19
<PAGE>
o the trustee's rights under all insurance policies required to be
maintained on the mortgage loans pursuant to the Pooling and
Servicing Agreement and any insurance proceeds,
o Liquidation Proceeds and
o released mortgaged property proceeds. In addition, the depositor
will cause the certificate insurer to issue the certificate
insurance policy under which it will guarantee payments to the
holders of the certificates as described in this prospectus
supplement.
The class A certificates will be issued only in book-entry form, in
denominations of $1,000 initial principal balance and integral multiples of
$1,000 in excess thereof, except that one certificate of each class may be
issued in a different amount.
Book-Entry Registration
The certificates are sometimes referred to in this prospectus
supplement as "book-entry certificates." No person acquiring an interest in the
book-entry certificates will be entitled to receive a definitive certificate
representing an obligation of the trust, except under the limited circumstances
described in this prospectus supplement. Beneficial owners may elect to hold
their interests through DTC, in the United States, or Cedelbank or the Euroclear
System, in Europe. Transfers within DTC, Cedelbank 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 certificates are book-entry certificates, these
certificates will be evidenced by one or more certificates registered in the
name of Cede & Co., which will be the "holder" of these certificates, 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 Cedelbank or Euroclear, on
the other, will be effected in DTC through The Chase Manhattan Bank, the
relevant depositories of Cedelbank or Euroclear, respectively, and each a
participating member of DTC. The certificates will initially be registered in
the name of Cede & Co.. The interests of the holders of these certificates will
be represented by book-entries on the records of DTC and participating members
thereof. All references in this prospectus supplement to any certificates
reflect the rights of beneficial owners only as these rights may be exercised
through DTC and its participating organizations for so long as these
certificates are held by DTC.
The beneficial owners of certificates may elect to hold their
certificates through DTC in the United States, or Cedelbank or Euroclear if they
are participants in these systems, or indirectly through organizations which are
participants in these systems. The book-entry certificates will be issued in one
or more certificates per class of certificates which in the aggregate equal the
outstanding principal balance of the class of certificates and will initially be
registered in the name of Cede & Co., the nominee of DTC. Cedelbank and
Euroclear will hold omnibus positions on behalf of their participants through
customers' securities accounts in Cedelbank's and Euroclear's names on the books
of their respective depositaries which in turn will hold these positions in
customers' securities accounts in the depositaries' names on the books of DTC.
Chase will act as depositary for Cedelbank and Morgan Guaranty Trust Company of
New York will act as depositary for Euroclear. Investors may hold their
beneficial interests in the book-entry certificates in minimum denominations
representing principal amounts of $1,000. Except as described below, no
beneficial owner will be entitled to receive a physical or definitive
certificate representing this certificate. Unless and until definitive
certificates are issued, it is anticipated that the only "holder" of these
certificates will be Cede & Co., as nominee of DTC. beneficial owners will not
be "holders" or "certificateholders" as those terms are used in the Pooling and
Servicing Agreement. Beneficial owners are only permitted to exercise their
rights indirectly through participants and DTC.
S-20
<PAGE>
The beneficial owner's ownership of a book-entry certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary that maintains the beneficial owner's account for this
purpose. In turn, the financial intermediary's ownership of the book-entry
certificate will be recorded on the records of DTC or on the records 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
Cedelbank 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 certificates. participants
include securities brokers and dealers, including the underwriter, banks, trust
companies and clearing corporations. Indirect access to the DTC system also is
available to others like banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either directly
or indirectly through "indirect participants".
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers of book-entry
certificates, like the certificates, among participants on whose behalf it acts
for the book-entry certificates and to receive and transmit distributions of
principal of and interest on the book-entry certificates. Participants and
indirect participants with which beneficial owners have accounts with respect to
the book-entry certificates similarly are required to make book-entry transfers
and receive and transmit these payments on behalf of their respective beneficial
owners.
Beneficial owners that are not participants or indirect participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, book-entry certificates may do so only through participants and
indirect participants. In addition, beneficial owners will receive all
distributions of principal and interest from the trustee, or a paying agent on
behalf of the trustee, through DTC participants. DTC will forward these
distributions to its participants, which thereafter will forward them to
indirect participants or beneficial owners. beneficial owners will not be
recognized by the trustee, the servicer or any paying agent as holders of the
certificates, and beneficial owners will be permitted to exercise the rights of
the holders of the certificates only indirectly through DTC and its
participants.
Because of time zone differences, credits of securities received in
Cedelbank 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. These credits or any transactions in the
securities settled during this processing will be reported to the relevant
Euroclear or Cedelbank participants on that business day. Cash received in
Cedelbank or Euroclear as a result of sales of securities by or through a
Cedelbank participant or Euroclear participant to a DTC participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedelbank or Euroclear cash account only as of the business day
following settlement in DTC. For information concerning tax documentation
procedures relating to the certificates, see "Material Federal Income Tax
Consequences -- REMIC Securities" in the accompanying prospectus.
Transfers between participants will occur in accordance with DTC rules.
Transfers between Cedelbank participants and Euroclear participants will occur
in accordance with their respective rules and operating procedures.
S-21
<PAGE>
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedelbank
participants or Euroclear participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the relevant depositary; however, these cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in this system in accordance
with its rules and procedures and within its established deadlines. 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. Cedelbank
participants and Euroclear participants may not deliver instructions directly to
the European Depositaries.
Cedelbank is incorporated under the laws of Luxembourg as a
professional depository. Cedelbank holds securities for its participant
organizations and facilitates the clearance and settlement of securities
transactions between Cedelbank participants through electronic book-entry
changes in accounts of Cedelbank participants, thereby eliminating the need for
physical movement of certificates. Transactions may be settled in Cedelbank in
any of 28 currencies, including United States dollars. Cedelbank provides to its
Cedelbank participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedelbank interfaces with domestic markets
in several countries. As a professional depository, Cedelbank is subject to
regulation by the Luxembourg Monetary Institute. Cedelbank participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and other organizations. Indirect access to Cedelbank is also available to
others, like banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Cedelbank participant, either directly
or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. Transactions may now be
settled in any of 31 currencies, including United States dollars. Euroclear
includes various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. Euroclear is
operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of New
York, under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation. 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 Euroclear Clearance. Euroclear
Clearance 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 Operating Procedures of the Euroclear System and applicable Belgian law. The
Terms and Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments on
securities in
S-22
<PAGE>
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear operator acts under the Terms and Conditions only on behalf of
Euroclear participants, and has no record of or relationship with persons
holding through Euroclear participants.
Distributions on the book-entry certificates will be made on each
distribution date by the trustee to Cede & Co., as nominee of DTC. DTC will be
responsible for crediting the amount of these payments to the accounts of the
applicable DTC participants in accordance with DTC's normal procedures. Each DTC
participant will be responsible for disbursing this payment to the beneficial
owners of the book-entry certificates that it represents and to each financial
intermediary for which it acts as agent. Each financial intermediary will be
responsible for disbursing funds to the beneficial owners of the book-entry
certificates that it represents.
Under a book-entry format, beneficial owners of the book-entry
certificates may experience some delay in their receipt of payments, since these
payments will be forwarded by the trustee to Cede & Co., as nominee of DTC.
Distributions on certificates held through Cedelbank or Euroclear will be
credited to the cash accounts of Cedelbank participants or Euroclear
participants in accordance with the relevant system's rules and procedures, to
the extent received by the relevant depositary. These distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. Because DTC can only act on behalf of financial intermediaries, the
ability of a beneficial owner to pledge book-entry certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of the book-entry certificates, may be limited due to the lack of
physical certificates for the book-entry certificates. In addition, issuance of
the book-entry certificates in book-entry form may reduce the liquidity of the
certificates in the secondary market since some potential investors may be
unwilling to purchase certificates for which they cannot obtain physical
certificates.
Monthly and annual reports on the trust provided by the trustee to Cede
& Co., as nominee of DTC, may be made available to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting DTC, and to the financial intermediaries to whose DTC accounts the
book-entry certificates of the 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 certificates under the Pooling
and Servicing Agreement only at the direction of one or more participants to
whose accounts with DTC the book-entry certificates are credited. Additionally,
DTC has advised the depositor that it will take these actions concerning
specified percentages of voting rights only at the direction of and on behalf of
participants whose holdings of book-entry certificates evidence the specified
percentages of voting rights. DTC may take conflicting actions with respect to
percentages of voting rights to the extent that participants whose holdings of
book-entry certificates evidence the percentages of voting rights authorize
divergent action.
None of the trust, the depositor, the servicer, the certificate insurer
or the trustee will have any responsibility for any aspect of the records
relating to or payments made on account of beneficial ownership interests of the
book-entry certificates held by Cede & Co., as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to the beneficial
ownership interests.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of certificates among participants
of DTC, Cedelbank and Euroclear, they are under no obligation to perform or
continue to perform these procedures and these procedures may be discontinued at
any time.
S-23
<PAGE>
Definitive Certificates
The certificates, which will be issued initially as book-entry
certificates, will be converted to definitive certificates and reissued to
beneficial owners or their nominees, rather than to DTC or its nominee, only if
(a) DTC or the servicer advises the trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository of the
book-entry certificates and DTC or the servicer is unable to locate a qualified
successor or (b) the trustee, at its option, elects to terminate the book-entry
system through DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC will be required to notify all participants of the availability
through DTC of definitive certificates. Upon delivery of definitive
certificates, the trustee will reissue the book-entry certificates as definitive
certificates to beneficial owners. Distributions of principal of, and interest
on, the book-entry certificates will thereafter be made by the trustee, or a
paying agent on behalf of the trustee, directly to holders of definitive
certificates in accordance with the procedures set forth in the Pooling and
Servicing Agreement.
Definitive certificates will be transferable and exchangeable at the
offices of the trustee or the certificate registrar. No service charge will be
imposed for any registration of transfer or exchange, but the trustee may
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 Loan Sale Agreement, the originators will sell,
transfer, assign, set over and otherwise convey the mortgage loans, without
recourse, to the depositor on the closing date. Pursuant to the Pooling and
Servicing Agreement, the depositor will sell, transfer, assign, set over and
otherwise convey without recourse to the trustee, on behalf of the trust, all
right, title and interest in and to each mortgage loan, including all principal
outstanding as of, and interest due after, the cut-off date. Each 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 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, principal, including principal prepayments in full and curtailments or
partial prepayments, received on each 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.
Assignment and Pledge of Subsequent Mortgage Loans
The trust may acquire subsequent mortgage loans with the funds on
deposit in either pre-funding account at any time during the period from the
closing date until the earliest of
o the date on which the amount on deposit in pre-funding account is
less than $100,000,
o the date on which an event of default occurs under the terms of
the Pooling and Servicing Agreement, or
o the close of business on ____________.
The amount on deposit in the pre-funding accounts will be reduced
during the this period by the amount thereof used to purchase subsequent
mortgage loans in accordance with the terms of the Pooling and Servicing
Agreement. The depositor expects that the amount on deposit in each of the
pre-funding accounts will be reduced to less than $100,000 by ____________. To
the extent funds in the pre-funding accounts are not used to purchase subsequent
mortgage loans by ____________, these funds will be used
S-24
<PAGE>
to prepay the principal of the certificates on the following distribution date.
Subsequent mortgage loans will be transferred by the originators to the
depositor and transferred by the depositor to the trust. The trust will then
pledge the subsequent mortgage loans to the trustee, on behalf of the holders of
the certificates and the certificate 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 trustee, on the closing date, the following
documents concerning each mortgage loan which constitute the mortgage file:
(a) the original mortgage note, endorsed without recourse in blank by
the originator, including all intervening endorsements showing a
complete chain of endorsement;
(b) the original mortgage with evidence of recording indicated thereon
or, in 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 mortgage loan to the
originator -- which assignment may, at the 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 originator to
the trustee;
(e) originals of all assumption, modification and substitution
agreements in those instances where the terms or provisions of a
mortgage or mortgage note have been modified or the 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 the binder
together with a certificate from the originator that the original
mortgage has been delivered to the title insurance company that
issued the binder for recordation.
Pursuant to the Pooling and Servicing Agreement, the collateral agent,
on behalf of the trustee, agrees to execute and deliver on or prior to the
closing date, or, for subsequent mortgage loans, on or prior to the subsequent
transfer date, an acknowledgment of receipt of the original mortgage note, item
(a) above, for each of the mortgage loans, with any exceptions noted. The
collateral agent, on behalf of the trustee, agrees, for the benefit of the
holders of the certificates and the certificate insurer, to review, or cause to
be reviewed, each mortgage file within thirty days after the closing date or the
subsequent transfer date, as applicable -- or, for any Qualified Substitute
Mortgage Loan, within thirty 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,
o all documents required to be delivered to it pursuant to the Pooling
and Servicing
Agreement are in its possession,
o each of these documents has been reviewed by it and has not been
mutilated, damaged, torn or otherwise physically altered, appears
regular on its face and relates to the mortgage loan, and
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o based on its examination and only as to the foregoing documents,
specified information included on the schedule of mortgage loans
accurately reflects the information included in the mortgage file
delivered on that date.
If the collateral agent, during the process of reviewing the mortgage
files, finds any document constituting a part of an 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 included in the schedule of mortgage loans, the
collateral agent shall promptly so notify the trustee, the servicer, the
depositor and the certificate insurer in writing with details thereof. The
depositor agrees to use reasonable efforts to cause to be remedied a material
defect in a document constituting part of an mortgage file of which it is so
notified by the collateral agent. If, however, within sixty days after the
collateral agent's notice of the defect, the depositor has not caused the defect
to be remedied and the defect materially and adversely affects the interest of
the holders of the certificates or the interests of the certificate insurer in
the mortgage loan, the depositor or the originator will either (a) substitute in
lieu of the mortgage loan a Qualified Substitute Mortgage Loan and, if the then
outstanding principal balance of the Qualified Substitute Mortgage Loan is less
than the principal balance of the mortgage loan as of the date of the
substitution plus accrued and unpaid interest thereon, deliver to the servicer a
substitution adjustment equal to the amount of this shortfall or (b) purchase
the mortgage loan at a price equal to the outstanding principal balance of the
mortgage loan as of the date of purchase, plus the greater of (1) all accrued
and unpaid interest thereon and (2) thirty days' interest thereon, computed at
the 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
Distribution Account on the next succeeding servicer remittance date after
deducting therefrom any amounts received in respect of the repurchased mortgage
loan or Loans and being held in the Distribution Account for future distribution
to the extent these amounts have not yet been applied to principal or interest
on the mortgage loan. In addition, the depositor and the originators shall be
obligated to indemnify the trustee, the collateral agent, the holders of the
certificates and the certificate insurer for any third-party claims arising out
of a breach by the depositor or the originators of representations or warranties
regarding the mortgage loans. The obligation of the depositor and the
originators to cure a breach or to substitute or purchase any mortgage loan and
to indemnify constitute the sole remedies respecting a material breach of any
representation or warranty to the holders of the certificates, the trustee, the
collateral agent and the certificate insurer.
Representations and Warranties of the Depositor
The depositor will represent, among other things, for each mortgage
loan, as of the closing date or the subsequent transfer date, as applicable, the
following:
1. the information included in the schedule of mortgage loans for each
mortgage loan is true and correct;
2. all of the original or certified documentation constituting the
mortgage files, including all material documents concerning the mortgage loans,
has been or will be delivered to the collateral agent, on behalf of the 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
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commercial property, or a mixed use or multiple purpose property. The residence,
dwelling or unit is not,
o a unit in a cooperative apartment,
o a property constituting part of a syndication,
o a time share unit,
o a property held in trust,
o a manufactured dwelling,
o a log-constructed home, or
o 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,
o the lien of current real property taxes and
assessments which are not delinquent,
o any first mortgage loan on the property,
o covenants, conditions and restrictions, rights of
way, easements and other matters of public record as
of the date of recording of the mortgage, the
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
mortgage loan obtained by the depositor, and
o other matters to which like properties are commonly
subject which do not materially interfere with the
benefits of the security intended to be provided by
the mortgage;
5. immediately prior to the transfer and assignment by the depositor
to the depositor, the depositor had good title to, and was the sole owner of
each mortgage loan, free of any interest of any other person, and the depositor
has transferred all right, title and interest in each mortgage loan to the
depositor;
6. each mortgage loan conforms, and all the mortgage loans in the
aggregate conform, to the description thereof in this prospectus supplement; and
7. all of the mortgage loans were originated in accordance with the
underwriting criteria described in this prospectus supplement.
Pursuant to the Pooling and Servicing Agreement, upon the discovery by
any of the holder of the certificates, the depositor, the servicer, any
subservicer, the certificate insurer, the collateral agent or the trustee that
any of the representations and warranties contained in the Pooling and Servicing
Agreement have been breached in any material respect as of the closing date or
the subsequent transfer date, as applicable, with the result that the interests
of the holders of the certificates in the mortgage loan or the interests of the
certificate insurer were materially and adversely affected, notwithstanding that
any
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representation and warranty was made to the depositor's or the originator's
best knowledge and the depositor or the originator lacked knowledge of the
breach, the party discovering the breach is required to give prompt written
notice to the other parties. Subject to specified provisions of the Pooling and
Servicing Agreement, within sixty days of the earlier to occur of the
depositor's or an originator's discovery or its receipt of notice of any breach,
the depositor or the originators will
o promptly cure the breach in all material respects,
o remove each mortgage loan which has given rise to the
requirement for action by the depositor or the originators,
substitute one or more Qualified Substitute Mortgage Loans
and, if the outstanding principal balance of the Qualified
Substitute Mortgage Loans as of the date of the 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 the distribution date
the amount of the shortfall, or
o purchase the mortgage loan at a price equal to the principal
balance of the mortgage loan as of the date of purchase plus
the greater of
o all accrued and unpaid interest thereon and
o thirty days' interest thereon computed at the mortgage
interest rate, net of the servicing fee if ____________
is the servicer, plus the amount of any unreimbursed
servicing advances made by the servicer,
and deposit the purchase price into the Distribution Account on the next
succeeding servicer remittance date after deducting therefrom any amounts
received in respect of this repurchased mortgage loan or mortgage loans and
being held in the Distribution Account for future distribution to the extent
these amounts have not yet been applied to principal or interest on the mortgage
loan. In addition, the depositor and the originators shall be obligated to
indemnify the trust, the trustee, the collateral agent, the holders of the
certificates and the certificate insurer for any third-party claims arising out
of a breach by the depositor or the originators of representations or warranties
regarding the mortgage loans. The obligation of the depositor and the
originators to cure any breach or to substitute or purchase any mortgage loan
and to indemnify constitute the sole remedies respecting a material breach of
any representation or warranty to the holders of the certificates, the trustee,
the collateral agent and the certificate insurer.
Payments on the Mortgage Loans
The Pooling and Servicing Agreement provides that the servicer, for the
benefit of the holders of the certificates, shall establish and maintain the
Collection Account, which will generally be (a) 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 (b) trust accounts maintained
with a depository institution acceptable to each rating agency and the
certificate insurer. The Pooling and Servicing Agreement permits the servicer to
direct any depository institution maintaining the Collection Account to invest
the funds in the Collection Account in one or more eligible 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:
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o all payments on account of principal, including
prepayments of principal;
o all payments on account of interest on the mortgage
loans;
o all Liquidation Proceeds and all Insurance Proceeds to
the extent the proceeds are not to be applied to the
restoration of the mortgaged property or released to the
borrower in accordance with the express requirements of
law or in accordance with prudent and customary
servicing practices;
o all Net REO Proceeds;
o all other amounts required to be deposited in the
Collection Account pursuant to the Pooling and Servicing
Agreement; and
o any amounts required to be deposited in connection with
net losses realized on investments of funds in the
Collection Account.
The trustee will be obligated to set up an account for each class of
certificates a distribution account into which the servicer will deposit or
cause to be deposited the servicer remittance amount on the _____ day of each
month.
The servicer remittance amount" for a servicer remittance date is
equal to the sum, without duplication, of
o 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,
o all Periodic Advances made by the servicer which relate to
payments due to be received on the mortgage loans on the due date
and
o any other amounts required to be placed in the Collection Account
by the servicer pursuant to the Pooling and Servicing Agreement,
but excluding the following:
(a) amounts received on particular mortgage loans, for which the
servicer has previously made an unreimbursed Periodic Advance,
as late payments of interest, or as Net Liquidation Proceeds,
to the extent of the unreimbursed Periodic Advance;
(b) amounts received on a particular mortgage loan for which the
servicer has previously made an unreimbursed servicing
advance, to the extent of the unreimbursed servicing advance;
(c) for the servicer remittance date, the aggregate servicing fee;
(d) all net income from eligible investment 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
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(g) other amounts which are reimbursable to the servicer, as
provided in the Pooling and Servicing Agreement.
The amounts described in clauses (a) through (g) above may be withdrawn
by the servicer from the Collection Account on or prior to each servicer
remittance date.
Over-collateralization Provisions
Over-collateralization Resulting from Cash Flow Structure. The Pooling
and Servicing Agreement requires that, starting with the second distribution
date, the Excess Interest for 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 class of certificates for
that pool, 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 certificates relative to the amortization of the pool
of mortgage loans for that class. The Excess Interest from a pool of mortgage
loans will be used
o to reimburse the certificate insurer for any amounts due to it,
o as needed to pay Net Mortgage Loan Interest Shortfalls relating to that
class,
o as needed to make cross-collateralization payments in respect of the other
pool of mortgage loans,
o as a payment of principal to the class of certificates for that
pool until the distribution date on which the amount of
over-collateralization has reached the required level, and
o as needed to fund the Cross-collateralization Reserve Account
relating to the other pool of mortgage loans.
Notwithstanding the foregoing, in the event specified tests enumerated in the
Pooling and Servicing Agreement are violated, all available Excess Interest will
be used as a payment of principal to the class of certificates for that pool to
accelerate the amortization of the certificates.
The Pooling and Servicing Agreement 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 class of certificates for that pool
until the Over-collateralized Amount has increased to the level required by the
Pooling and Servicing Agreement. After this time, if it is necessary to
re-establish the required level of over-collateralization, Excess Interest from
each 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
class of certificates for that pool. Notwithstanding the foregoing, in the event
specified tests enumerated in the Pooling and Servicing Agreement are violated,
all available Excess Interest from each pool of mortgage loans will be used as a
payment of principal to accelerate the amortization of the class of certificates
for that pool. Initially, the Over-collateralized Amount of each pool of
mortgage loans will be an amount equal to approximately 0.50% of the sum of (x)
the aggregate principal balance of the mortgage loans in each pool on the
closing date and (y) the original amount on deposit in the related pre-funding
account for that pool on the closing date.
In the event that the required level of the Specified
Over-collateralized Amount for a pool of mortgage loans is permitted to decrease
or "step down" on a distribution date in the future, the Pooling and Servicing
Agreement provides that a portion of the principal which would otherwise be
distributed to the holders of the class of certificates for that pool on the
distribution date shall instead be distributed in the priority described in this
prospectus supplement under "--Flow of Funds." This has the effect of
decelerating the amortization of the class of certificates for that pool
relative to the amortization of that
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pool of mortgage loans, and of reducing the Over-collateralized Amount. If, on
any distribution date, the Excess Over-collateralized Amount is, or, after
taking into account all other distributions to be made on the distribution date
would be, greater than zero -- i.e., the Over-collateralized Amount is or would
be greater than the Specified Over-collateralized Amount -- then any amounts
relating to principal which would otherwise be distributed to the holders of the
class of certificates for that pool on this distribution date shall instead be
distributed in the priority described in this prospectus supplement under
"--Flow of Funds", in an amount equal to the Over-collateralization Reduction
Amount.
The Pooling and Servicing Agreement provides that, on any distribution
date, all amounts collected on account of principal -- other than any amount
applied to the payment of an Over-collateralization Reduction Amount -- for each
pool of mortgage loans during the a due period of the prior calendar month will
be distributed to the holders of the class of certificates for that pool on the
distribution date. In addition, the Pooling and Servicing Agreement provides
that the principal balance of any mortgage loan which becomes a Liquidated
Mortgage Loan shall then equal zero. The Pooling and Servicing Agreement does
not contain any rule which requires that the amount of any Liquidated Loan Loss
be distributed to the holders of the class of certificates for that pool on the
distribution date which immediately follows the event of loss; i.e., the Pooling
and Servicing Agreement does not require the current recovery of losses.
However, the occurrence of a Liquidated Loan Loss will reduce the
Over-collateralized Amount for that pool of mortgage loans, which, to the extent
that the reduction causes the Over-collateralized Amount to be less than the
Specified Over-collateralized Amount applicable to that distribution date, will
require the payment of an Over-collateralization Increase Amount on that
distribution date, or, if insufficient funds are available on that distribution
date, on subsequent distribution dates, until the Over-collateralized Amount
equals the Specified Over-collateralized Amount. The effect of the foregoing is
to allocate losses to the holders of the class R certificates for that pool by
reducing, or eliminating entirely, payments of Excess Interest and
Over-collateralization Reduction Amounts which the holders would otherwise
receive.
Over-collateralization and the Certificate Insurance Policy. The
Pooling and Servicing Agreement requires the trustee to make a claim for an
Insured Payment under the certificate insurance policy not later than the third
business day prior to any distribution date as to which the trustee has
determined that an Over-collateralization Deficit will occur for the purpose of
applying the proceeds of the Insured Payment as a payment of principal to the
holders of the class of certificates for that pool on that distribution date.
The certificate 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 certificates if
sufficient funds were available thereof. Additionally, under the terms of the
Pooling and Servicing Agreement, the certificate insurer will have the option to
cause Excess Interest to be applied without regard to any limitation upon the
occurrence of particular trigger events, or in the event of an "event of
default" under the Insurance Agreement. However, investors in the certificates
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 certificates relating to the other pool of mortgage
loans to the extent of the Shortfall Amount for the other pool. The
cross-collateralization provisions of the transaction are limited to the payment
of specified credit losses, some interest shortfalls and any amounts due the
certificate insurer. Excess Interest from one pool of mortgage loans will not be
used to build over-collateralization for the other pool of mortgage loans.
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Cross-collateralization Reserve Account. Each class of certificates
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 the other pool. 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 the pool and the
distribution date, the amount of this excess shall be distributed in the
priority described in this prospectus supplement 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, to the extent that there is no Excess Interest available
therefor on that distribution date.
Flow of Funds
On each distribution date, the trustee, based solely on the information
received from the servicer in the servicer remittance report prior to the
distribution date, shall make payments in respect of each pool of mortgage loans
to the holders of the class of certificates for that pool and reimbursement to
the certificate insurer under the Insurance Agreement, to the extent of funds,
including any Insured Payments, on deposit in the Distribution Account for that
pool, as follows:
(a) to the trustee, an amount equal to the fees then due to
it for that class of certificates;
(b) from amounts then on deposit in the related Distribution
Account, excluding any Insured Payments, to the
certificate insurer the Reimbursement Amount as of that
distribution date;
(c) from amounts then on deposit in the Distribution Account
for that pool, the Interest Distribution Amount for that
class of certificates;
(d) from amounts then on deposit in the Distribution Account
for that pool, the Principal Distribution Amount for
that class of certificates, until the principal balance
of the class of certificates is reduced to zero;
(e) from amounts then on deposit in the Distribution Account
for that pool, the amount of any Net Mortgage Loan
Interest Shortfalls for that class of certificates;
(f) from amounts then on deposit in the Distribution Account
for that pool, to the holders of the other class of
certificates, the Shortfall Amount for the other class;
(g) from amounts then on deposit in the Distribution Account
for that pool, to the Cross-collateralization Reserve
Account for the other class of certificates, the amount
necessary for the balance of the account to equal the
Specified Reserve Amount; and
(h) following the making by the trustee of all allocations,
transfers and disbursements described above, to the
holders of the class R certificates for that pool, the
amount remaining on the distribution date in the
Distribution Account for that pool, if any.
Reports to Certificateholders
Pursuant to the Pooling and Servicing Agreement, on each distribution
date the trustee will deliver to the servicer, the certificate insurer, the
depositor and each holder of a certificate or a class R
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certificate a written remittance report containing information including,
without limitation, the amount of the distribution on the distribution date, the
amount of the distribution allocable to principal and allocable to interest, the
aggregate outstanding principal balance of the certificates as of the
distribution date, the amount of any Insured Payment included in the
distributions on the distribution date and any other information as required by
the Pooling and Servicing Agreement.
Amendment
The Pooling and Servicing Agreement may be amended from time to time by
the trust and the trustee by written agreement, upon the prior written consent
of the certificate insurer, without notice to, or consent of, the holder of the
certificates, to cure any ambiguity, to correct or supplement any provisions in
this prospectus supplement, to comply with any changes in the Code, or to make
any other provisions concerning matters or questions arising under the Pooling
and Servicing Agreement which shall not be inconsistent with the provisions of
the Pooling and Servicing Agreement; provided, that this action shall not, as
evidenced by an opinion of counsel delivered to, but not obtained at the expense
of, the trustee, adversely affect in any material respect the interests of any
holder of the certificates; provided, further, that no amendment shall reduce in
any manner the amount of, or delay the timing of, payments received on mortgage
loans which are required to be distributed on any certificate without the
consent of the holder of the certificate, or change the rights or obligations of
any other party to the Pooling and Servicing Agreement without the consent of
that party.
The Pooling and Servicing Agreement may be amended from time to time by
the trust and the trustee with the consent of the certificate insurer, and the
holders of the majority of the percentage interest of the certificates and class
R certificates for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Pooling and Servicing
Agreement or of modifying in any manner the rights of the holders; provided,
however, that no amendment shall reduce in any manner the amount of, or delay
the timing of, payments received on mortgage loans which are required to be
distributed on any certificate without the consent of the holder of the
certificate or reduce the percentage for each class whose holders are required
to consent to any amendment without the consent of the holders of 100% of each
class of certificates affected thereby.
The Loan Sale Agreement contains substantially similar restrictions
regarding amendment.
Servicing of the Mortgage Loans
The Servicer
____________ will act as the servicer of the mortgage loan pools
____________ and ____________ will act as subservicers for a portion of the
mortgage loans. See "The Originators, the Depositor, the Servicer and the
Subservicer" in this prospectus supplement. The servicer and the subservicers
will service the mortgage loans on behalf of the trust, for the benefit of the
certificateholders and the certificate insurer and will be required to use the
same care as they customarily employ in servicing and administering mortgage
loans for their own account, in accordance with accepted mortgage servicing
practices of prudent lending institutions, and giving due consideration to the
reliance of the certificate insurer and the holders of the certificates on them.
Servicing Fees and Other Compensation and Payment of Expenses
As compensation for its activities as servicer under the Pooling and
Servicing Agreement, the servicer shall be entitled to a servicing fee for each
mortgage loan, 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 the mortgage loan on the outstanding
principal balance of the
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mortgage loan. The servicing fee rate for 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
mortgage notes, any late payment 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 Pooling and Servicing Agreement and shall not be
entitled to reimbursement therefor except as specifically provided in the
Pooling and Servicing Agreement.
Periodic Advances and Servicer Advances
Periodic Advances. Subject to the servicer's determination that the
action would not constitute a nonrecoverable advance, the servicer is required
to make Periodic Advances on each servicer remittance date. This Periodic
Advances by the servicer are reimbursable to the servicer subject to a number of
conditions and restrictions, and are intended to provide both sufficient funds
for the payment of interest to the holders of the certificates, plus an
additional amount intended to maintain a specified level of
over-collateralization and to pay the trustee's fees, and the premium due the
certificate insurer. Notwithstanding the servicer's good faith determination
that a Periodic Advance was recoverable when made, if the Periodic Advance
becomes a nonrecoverable advance, the servicer will be entitled to reimbursement
therefor from the trust estate. See "Description of the Certificates -- Payments
on the Mortgage Loans" in this prospectus supplement.
Servicing Advances. Subject to the servicer's determination that the
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 mortgage loan,
the servicer is required to advance amounts on the mortgage loans constituting
"out-of-pocket" costs and expenses relating to
o the preservation and restoration of the mortgaged property,
o enforcement proceedings, including foreclosures,
o expenditures relating to the purchase or maintenance of a first
lien not included in the trust estate on the mortgaged property,
and
o other customary amounts described in the Pooling and Servicing
Agreement.
These servicing advances by the servicer are reimbursable to the
servicer subject to a number of conditions and restrictions. In the event that,
notwithstanding the servicer's good faith determination at the time the
servicing advance was made, that it would not be a nonrecoverable advance, the
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 Pooling and Servicing
Agreement or, if not recovered from the mortgagor on whose behalf the servicing
advance or Periodic Advance was made, from late collections on the mortgage
loan, including Liquidation Proceeds, Insurance Proceeds and any 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 the 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
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Periodic Advance or servicing advance is "nonrecoverable" if in the good faith
judgment of the servicer, the Periodic Advance or servicing advance would not
ultimately be recoverable.
Prepayment Interest Shortfalls
Not later than the close of business on the _____ day of each month,
the servicer is required to remit to the trustee a payment of Compensating
Interest in respect of Prepayment Interest Shortfalls and shall not have the
right to reimbursement therefor. 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 the
applicable pool attributable to the application of the Civil Relief Act will not
reduce the amount of Current Interest due to the holders of the class A-1
certificates or class A-2 certificates, respectively. 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 the applicable pool, the amount of this
shortfall will not be covered by the certificate insurance policy. These
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 class R certificate relating to the applicable pool. See
"Risk Factors -- Legal Considerations" in this prospectus supplement.
Optional Purchase of Defaulted Mortgage Loans
The depositor, or any affiliate of the depositor, has the option, but
is not obligated, to purchase from the trust any mortgage loan ninety 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 the
principal balance, computed at the mortgage interest rate -- net of the
servicing fee, if ________ is the servicer -- plus the amount of any
unreimbursed Periodic Advances and servicing advances made by the servicer for
the mortgage loan in accordance with the provisions specified in the Pooling and
Servicing Agreement.
Servicer Reports
On each servicer remittance date, the servicer is required to deliver
to the certificate insurer, the trustee, and the collateral agent, a servicer
remittance report setting forth the information necessary for the trustee to
make the distributions described under "--Flow of Funds" in this prospectus
supplement and containing the information to be included in the trustee's
remittance report for that distribution date.
The servicer is required to deliver to the certificate insurer, the
trustee, the collateral agent, S&P and Moody's, not later than April 30th of
each year, starting in ________, an officer's certificate stating that
o the servicer has fully complied with the servicing provisions of
the Pooling and Servicing Agreement,
o a review of the activities of the servicer during the preceding
calendar year and of performance under the Pooling and Servicing
Agreement has been made under the officer's supervision, and
o to the best of the officer's knowledge, based on that review, the
servicer has fulfilled all its obligations under the Pooling and
Servicing Agreement for that year, or, if there has been a default
in the fulfillment of any obligation, specifying each default
known to that officer and the nature and status thereof including
the steps being taken by the servicer to remedy the default.
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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 certificate insurer, the 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 the firm has examined specified documents and
records relating to the servicing of the mortgage loans during the preceding
calendar year, or any longer period from the closing date to the end of the
following calendar year, and that, on the basis of the 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, the servicing has been
conducted in compliance with the Pooling and Servicing Agreement except for any
significant exceptions or errors in records that, in the opinion of the 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 the exceptions and errors shall be so
reported.
Collection and Other Servicing Procedures
The servicer will be responsible for making reasonable efforts to
collect all payments called for under the mortgage loans and will, consistent
with the Pooling and Servicing Agreement, follow the collection procedures as it
follows for loans held for its own account which are comparable to the mortgage
loans. Consistent with the above, the servicer may, in its discretion, (a) waive
any late payment charge and (b) arrange with a mortgagor a schedule for the
liquidation of delinquencies, subject to the provisions of the Pooling and
Servicing Agreement.
If a mortgaged property has been or is about to be conveyed by the
mortgagor, the servicer will be obligated to accelerate the maturity of the
mortgage loan, unless it reasonably believes it is unable to enforce that
mortgage loan's "due-on-sale" clause under applicable law. If it reasonably
believes it may be restricted for any reason from enforcing any "due-on-sale"
clause, the servicer may enter into an assumption and modification agreement
with the person to whom the property has been or is about to be conveyed,
pursuant to which that 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 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 "Material 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 the mortgaged property or (b) the principal balance of the mortgage
loan plus the outstanding balance of any mortgage loan senior to the mortgage
loan, but in no event may this amount be less than is necessary to prevent the
borrower from becoming a coinsurer thereunder. As stated 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 Distribution Account for that pool. The ability
of the servicer to assure that hazard insurance proceeds are appropriately
applied may be dependent on its being named as an additional insured under any
hazard insurance policy, or upon the extent to which information in this regard
is furnished to the servicer by a borrower. The Pooling and Servicing Agreement
provides that the servicer may satisfy its obligation to cause hazard policies
to be maintained
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by maintaining a blanket policy issued by an insurer acceptable
to the rating agencies insuring against losses on the mortgage loans. If this
blanket policy contains a deductible clause, the servicer is obligated to
deposit in the Distribution Account for that pool the sums which would have been
deposited therein but for that 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 of these 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 some cases, vandalism. The foregoing list is
merely indicative of the types 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, that clause generally provides that the
insurer's liability in the event of partial loss does not exceed the greater of
(a) the replacement cost of the improvements less physical depreciation or (b)
this proportion of the loss as the amount of insurance carried bears to the
specified percentage of the full replacement cost of these improvements.
Since residential and commercial 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 each of the mortgage loans that 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 the
foreclosure or other conversion, the servicer will follow the practices as it
deems necessary or advisable and as are in keeping with the servicer's general
loan servicing activities and the Pooling and Servicing Agreement; provided,
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 the foreclosure, correction or restoration is determined
to increase Net Liquidation Proceeds.
Removal and Resignation of the Servicer
The certificate insurer may, pursuant to the Pooling and Servicing
Agreement, remove the servicer upon the occurrence and continuation beyond the
applicable cure period of an event described in clauses (g), (h) or (i) below
and the trustee, only at the direction of the certificate insurer or the
majority holders of certificates, with the consent of the certificate 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 described in clause (a), (b), (c), (d), (e) or (f) below. Each of the
following constitutes a servicer event of default:
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(a) any failure by the servicer to remit to the trustee any
payment required to be made by the servicer under the
terms of the Pooling and Servicing Agreement, other than
servicing advances covered by clause (b) below, which
continues unremedied for one business day after the date
upon which written notice of any failure, requiring the
same to be remedied, shall have been given to the
servicer and the certificate insurer by the trustee or
to the servicer and the trustee by the certificate
insurer or the holders of certificates 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 days after the date on which written
notice of any failure, requiring the same to be
remedied, shall have been given to the servicer by the
trustee or to the servicer and the trustee by any holder
of a certificate or the certificate insurer;
(c) any failure on the part of the servicer duly to observe
or perform in any material respect any other of the
covenants or agreements on the part of the servicer
contained in the Pooling and Servicing Agreement, or the
failure of any representation and warranty enumerated in
the Pooling and Servicing Agreement, which continues
unremedied for a period of thirty days after the date on
which written notice of any failure, requiring the same
to be remedied, shall have been given to the servicer by
the trustee, or to the servicer and the trustee by any
holder of a certificate or the certificate insurer;
(d) a decree or order of a court or agency or supervisory
authority having jurisdiction in an involuntary case
under any present or future federal or state bankruptcy,
insolvency or similar law or for the appointment of a
conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, shall have
been entered against the servicer and this decree or
order shall have remained in force, undischarged or
unstayed for a period of sixty 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 levels specified in the Pooling and Servicing
Agreement; or
(h) the certificate insurer shall notify the trustee of any
"event of default" under the Insurance Agreement.
The servicer may not assign its obligations under the Pooling and
Servicing Agreement nor resign from the obligations and duties thereby imposed
on it except by mutual consent of the servicer, ________, if ________ is not the
servicer, the certificate insurer, the collateral agent and the trustee, or upon
the determination that the servicer's duties thereunder are no longer
permissible under applicable law and the incapacity cannot be cured by the
servicer without the incurrence, in the reasonable judgment
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of the certificate insurer, of unreasonable expense. No resignation shall become
effective until a successor has assumed the servicer's responsibilities and
obligations in accordance with the Pooling and Servicing Agreement.
Upon removal or resignation of the servicer, the trustee will be the
successor servicer. The trustee, as successor servicer, will be obligated to
make Periodic Advances and servicing advances and other advances unless it
determines reasonably and in good faith that the advances would not be
recoverable. If, however, the trustee is unwilling or unable to act as successor
servicer, or if the majority holders, with the consent of the certificate
insurer, or the certificate insurer so requests, the trustee shall appoint, or
petition a court of competent jurisdiction to appoint, in accordance with the
provisions of the Pooling and Servicing Agreement and subject to the approval of
the certificate insurer, any established mortgage loan servicing institution
acceptable to the certificate insurer having a net worth of not less than
$____________ as the successor servicer in the assumption of all or any part of
the responsibilities, duties or liabilities of the servicer.
Pursuant to the Pooling and Servicing Agreement, the servicer covenants
and agrees to act as the servicer for an initial term from the closing date to
____________, which term will be extendable by the certificate insurer by notice
to the trustee for successive terms of three calendar months each, until the
termination of the trust estate. The servicer will, upon its receipt of each
notice of extension, become bound for the duration of the term covered by the
extension notice to continue as the servicer subject to and in accordance with
the other provisions of the Pooling and Servicing Agreement. If as of the
fifteenth day prior to the last day of any term of the servicer the trustee
shall not have received any extension notice from the certificate insurer, the
trustee will, within five days thereafter, give written notice of non-receipt to
the certificate insurer and the servicer. The certificate insurer has agreed to
extend each three month term of the servicer, in the absence of a servicer event
of default under the Pooling and Servicing Agreement.
The trustee and any other successor servicer in that 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" in this prospectus
supplement.
Termination; Purchase of Mortgage Loans
The Pooling and Servicing Agreement will terminate upon notice to the
trustee of either: (a) the later of the distribution to certificateholders of
the final payment or collection on the last mortgage loan, or Periodic Advances
of same by the servicer, or the disposition of all funds from the last mortgage
loan and the remittance of all funds due under the Pooling and Servicing
Agreement and the payment of all amounts due and payable to the certificate
insurer, the collateral agent and the trustee or (b) mutual consent of the
servicer, the certificate insurer and all holders in writing; provided, however,
that in no event will the trust terminate later than twenty-one years after the
death of the last surviving lineal descendant of the person named in the Trust
Agreement.
Subject to provisions in the Pooling and Servicing Agreement concerning
adopting a plan of complete liquidation, the servicer may, at its option and at
its sole cost and expense, terminate the Pooling and Servicing Agreement on any
date on which the aggregate principal balance of the mortgage loans is less than
10% of the sum of (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 accounts, 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
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o 100% of the principal balance of each outstanding mortgage loan
and each REO property,
o the greater of (a) the aggregate amount of accrued and unpaid
interest on the mortgage loans through the due period and (b)
thirty days' accrued interest thereon computed at a rate equal to
the mortgage interest rate, in each case net of the servicing fee,
o any unreimbursed amounts due to the certificate insurer under the
Pooling and Servicing Agreement, the Insurance Agreement and,
without duplication, accrued and unpaid Insured Payments, and
o the trustee'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 the
class of certificates. No termination is permitted without the prior written
consent of the certificate insurer if it would result in a draw on the
certificate insurance policy.
The Certificate Insurance Policy
The following summary of the terms of the certificate insurance policy
does not purport to be complete and is qualified in its entirety by reference to
the certificate insurance policy. A form of the certificate insurance policy may
be obtained, upon request, from the depositor.
Simultaneously with the issuance of the certificates, the certificate
insurer will deliver the certificate insurance policy to the trustee, for the
benefit of the holders of the certificates. Under the certificate insurance
policy, the certificate insurer will irrevocably and unconditionally guarantee
payment on each distribution date to the trustee, for the benefit of the holders
of the certificates, of the Insured Distribution Amounts for the certificates
calculated in accordance with the original terms of the certificates when issued
and without regard to any amendment or modification of the certificates or the
Pooling and Servicing Agreement except amendments or modifications to which the
certificate insurer has given its prior written consent. In addition, for 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 certificate
insurance policy, the certificate insurer at its sole option, may pay any or all
of the outstanding principal balance of the certificates. Mortgage Loan Interest
Shortfalls will not be covered by payments under the certificate insurance
policy.
Payment of claims under the certificate insurance policy will be made
by the certificate insurer following receipt by the certificate insurer of the
appropriate notice for payment on the later to occur of (a) 12:00 noon, New York
City time, on the second business day following receipt of notice for payment,
and (b) 12:00 noon, New York City time, on the relevant distribution date.
If any payment of an amount guaranteed by the certificate insurer
pursuant to the certificate insurance policy is avoided as a preference payment
under applicable bankruptcy, insolvency, receivership or similar law the
certificate insurer will pay the amount out of the funds of the certificate
insurer on the later of
o the date when due to be paid pursuant to the bankruptcy order
referred to below or
o the first to occur of
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o the fourth business day following receipt by the certificate insurer
from the trustee of (A) a certified copy of the order of the court
or other governmental body which exercised jurisdiction to the
effect that a holder is required to return principal or interest
distributed on a certificate during the term of the certificate
insurance policy because these distributions were avoidable
preferences under applicable bankruptcy law, (B) a certificate of
the holder(s) that the bankruptcy order has been entered and is not
subject to any stay, and (C) an assignment duly executed and
delivered by the holder(s), in the form that is reasonably required
by the certificate insurer and provided to the holder(s) by the
certificate insurer, irrevocably assigning to the certificate
insurer all rights and claims of the holder(s) relating to or
arising under the certificates against the debtor which made the
preference payment or otherwise concerning the preference payment,
or
o the date of receipt by the certificate insurer from the trustee of
the items referred to in clauses (A), (B) and (C) above if, at least
four business days prior to the date of receipt, the certificate
insurer shall have received written notice from the trustee that
these items were to be delivered on that date and that date was
specified in the notice.
This payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the bankruptcy order and
not to the trustee or any holder directly -- unless a holder has previously paid
the amount to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the bankruptcy order, in which case the payment shall be
disbursed to the trustee for distribution to the holder upon proof of the
payment reasonably satisfactory to the certificate insurer.
The terms "receipt" and "received," under the certificate insurance
policy, mean actual delivery to the certificate insurer and to its fiscal agent
appointed by the certificate insurer at its option, if any, prior to 12:00 p.m.,
New York City time, on a business day; delivery either on a day that is not a
business day or after 12:00 p.m., New York City time, shall be deemed to be
receipt on the next succeeding business day. If any notice or certificate given
under the certificate insurance policy by the trustee is not in proper form or
is not properly completed, executed or delivered, it shall be deemed not to have
been received, and the certificate insurer or the fiscal agent shall promptly so
advise the trustee and the trustee may submit an amended notice.
Under the certificate insurance policy, "business day" means any day
other than a Saturday or Sunday or a day on which banking institutions in the
City of New York, New York or the State of New York, are authorized or obligated
by law or executive order to be closed. The certificate insurer's obligations
under the certificate insurance policy to make Insured Payments shall be
discharged to the extent funds are transferred to the trustee as provided in the
certificate insurance policy, whether or not the funds are properly applied by
the trustee.
The certificate insurer shall be subrogated to the rights of each
holder to receive payments of principal and interest, as applicable, from
distributions on the certificates to the extent of any payment by the
certificate insurer under the certificate insurance policy. To the extent the
certificate insurer makes Insured Payments, either directly or indirectly, as by
paying through the trustee, to the holders of certificates, the certificate
insurer will be subrogated to the rights of the holders, as applicable, to the
extent this 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 certificate insurance policy will rank equally with
any other unsecured debt and unsubordinated obligations of the certificate
insurer except for particular obligations in respect of tax and other payments
to which preference is or may become afforded by statute. Claims against the
certificate insurer under the certificate insurance policy constitute pari passu
claims against the general assets of the certificate insurer. The terms of the
certificate insurance policy cannot be modified or altered by any other
agreement or instrument, or by the merger, consolidation or dissolution of the
trust. The certificate insurance policy is governed by the laws of the State of
New York. The certificate insurance policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
To the fullest extent permitted by applicable law, the certificate
insurer agrees under the certificate insurance policy not to assert, and waives,
for the benefit of each 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
these rights and defenses may be available to the certificate insurer to avoid
payment of its obligations under the certificate insurance policy in accordance
with the express provisions of the certificate insurance policy.
Pursuant to the terms of the Pooling and Servicing Agreement, unless a
certificate insurer default exists, the certificate insurer shall be deemed to
be the holder of the certificates for all purposes, other than for payment on
the certificates, will be entitled to exercise all rights of the holders
thereunder, without the consent of the holders, and the holders may exercise
these rights only with the prior written consent of the certificate insurer. In
addition, the certificate insurer will, as a third-party beneficiary to the
Pooling and Servicing Agreement and the Loan Sale Agreement, have, among others,
the following rights:
o the right to give notices of breach or to terminate the rights and
obligations of the servicer under the Pooling and Servicing
Agreement in the event of a servicer event of default and to
institute proceedings against the servicer;
o the right to consent to or direct any waivers of defaults by the
servicer;
o the right to remove the trustee pursuant to the Pooling and
Servicing Agreement;
o the right to direct the actions of the trustee during the
continuation of a servicer default;
o the right to require the depositor to repurchase mortgage loans
for breach of representation and warranty or defect in
documentation;
o the right to direct foreclosures upon the failure of the servicer
to do so in accordance with the Pooling and Servicing Agreement;
o the right to direct all matters relating to a bankruptcy or other
insolvency proceeding involving the depositor; and
o the right to direct the trustee to investigate specified matters.
The certificate insurer's consent will be required prior to, among
other things, (x) the removal of the trustee, (y) the appointment of any
successor trustee or servicer or (z) any amendment to the Pooling and Servicing
Agreement.
The trust, the depositor, the servicer, the originators and the
certificate insurer will enter into the Insurance Agreement pursuant to which
the trust, the depositor, the servicer and the originators will agree to
reimburse, with interest, the certificate insurer for amounts paid pursuant to
claims under the certificate
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insurance policy; provided, the payment obligations shall be non-recourse
obligations of the depositor, the originators, the trust and the servicer and
shall be payable only from monies available for the payment in accordance with
the provisions of the Pooling and Servicing Agreement. The servicer will further
agree to pay the certificate insurer all reasonable charges and expenses which
the certificate insurer may pay or incur relative to any amounts paid under the
certificate insurance policy or otherwise in connection with the transaction and
to indemnify the certificate insurer against specified 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 Pooling and Servicing
Agreement and a servicer event of default under the Pooling and Servicing
Agreement and allow the certificate insurer, among other things, to direct the
trustee to terminate the servicer. An "event of default" under the Insurance
Agreement includes:
o the originators', the depositor's or the servicer's failure to pay
when due any amount owed under the Insurance Agreement or other
documents,
o the inaccuracy or incompleteness in any material respect of any
representation or warranty of the originators, the depositor or
the servicer in the Insurance Agreement, the Pooling and Servicing
Agreement or other documents,
o the originators', the depositor's or the servicer's failure to
perform or to comply with any covenant or agreement in the
Insurance Agreement, the Pooling and Servicing Agreement and other
documents,
o a finding or ruling by a governmental authority or agency that the
Insurance Agreement, the Pooling and Servicing Agreement or other
documents are not binding on the originators, the depositor or the
servicer,
o the originators', the depositor's or the servicer's failure to pay
its debts in general or the occurrence of specified events of
insolvency or bankruptcy concerning the depositor or the servicer,
and
o the occurrence of specified "performance test violations" designed
to measure the performance of the mortgage loans.
The Certificate Insurer
The following information has been obtained from
________________________ and has not been verified by the originators, the
servicer, the depositor or the underwriter. No representation or warranty is
made by the depositor, the originators, the servicer, the depositor or the
underwriter with respect thereto.
The Certificate Insurer
____________ is a monoline insurance company incorporated in ______
under the laws of the State of ____________. ________________________ is
licensed to engage in the financial guaranty insurance business in all 50
states, the District of Columbia and Puerto Rico.
___________ 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. ____________ and its subsidiaries
principally insure asset-backed, collateralized and municipal securities.
Asset-backed securities are generally supported by residential or
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commercial 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. ____________ insures both newly issued securities sold in the
primary market and outstanding securities sold in the secondary market that
satisfy ____________ underwriting criteria.
The principal executive offices of ____________ are located at
________________________, and its telephone number at that location is
____________.
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written or reinsured from third parties by ____________ or
any of its domestic operating insurance company subsidiaries are generally
reinsured among these companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, ____________ reinsures a
portion of its liabilities under some of its financial guaranty insurance
policies with other reinsurers under various treaties and on a
transaction-by-transaction basis. This reinsurance is utilized by ____________
as a risk management device and to comply with statutory and rating agency
requirements; it does not alter or limit ____________ obligations under any
financial guaranty insurance policy.
Ratings
____________ insurance financial strength is rated "Aaa" by Moody's
and ____________ insurer financial strength is rated "AAA" by Standard & Poor's
and Standard & Poor's (Australia) Pty. Ltd. ____________ claims-paying ability
is rated "AAA" by Fitch IBCA, Inc. and Japan Rating and Investment Information,
Inc. These 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 the rating agencies.
Capitalization
The following table sets forth the capitalization of ____________ and
its wholly owned subsidiaries on ____________ the basis of generally accepted
accounting principles as of ____________:
[Certificate insurer to provide]
For further information concerning ____________, see the Consolidated
Financial Statements of ____________, and the certificates thereto, incorporated
by reference in this prospectus supplement. ____________ 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 ____________ and may be reviewed at
the EDGAR website maintained by the Commission. Copies of the statutory
quarterly and annual statements filed with the State of ____________ Insurance
Department by ____________ are available upon request to the State of
____________ Insurance Department.
Insurance Regulation
____________ is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of ____________, its
state of domicile. In addition, ____________ 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 ____________, ____________
is subject to Article __ of the ____________
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Insurance Law which, among other things, limits the business of each financial
guaranty insurer to financial guaranty insurance and similar lines, requires
that each financial guaranty insurer maintain a minimum surplus to
policyholders, establishes contingency, loss and unearned premium reserve
requirements for each financial guaranty insurer, and limits the size of
individual transactions -- "single risks" -- and the volume of transactions --
"aggregate risks" -- that may be underwritten by each financial guaranty
insurer. Other provisions of the ____________ Insurance Law, applicable to
non-life insurance companies such as ____________, 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 certificate will be directly related to the rate of
payment of principal of the mortgage loans, including for this purpose voluntary
payment in full of mortgage loans prior to stated maturity, liquidations due to
defaults, casualties and condemnations, and repurchases of or substitutions for
mortgage loans by ____________ or an affiliate of ____________ as required or
permitted under the Pooling and Servicing Agreement or the Loan Sale 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 these properties, and changes in the mortgagors'
housing needs, job transfers and unemployment.
The rate of prepayments on conventional mortgage loans has fluctuated
significantly in recent years. In general, if prevailing interest rates fall
significantly below the interest rates of some mortgage loans at the time of
origination, these mortgage loans may be subject to higher prepayment rates than
if prevailing rates remain at or above those at the time these mortgage loans
were originated. Conversely, if prevailing interest rates rise appreciably above
the interest rates of some mortgage loans at the time of origination, these
mortgage loans may experience a lower prepayment rate than if prevailing rates
remain at or below those at the time these 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 certificate will be affected by the rate of the payment of
principal on the mortgage loans. If the actual rate of payments on the mortgage
loans is slower than the rate anticipated by an investor who purchases a
certificate at a discount, the actual yield to the investor will be lower than
the investor's anticipated yield. If the actual rate of payments on the mortgage
loans is faster than the rate anticipated by an investor who purchases a
certificate at a premium, the actual yield to the investor will be lower than
the investor's anticipated yield.
The final stated maturity date is expected to be ____________ for the
class A-1 certificates and the class A-2 certificates. Each final stated
maturity date was calculated using the assumption that the final stated maturity
date is thirteen 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 ____________ is purchased
by the trust and included in each pool. The weighted
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average life of the certificates is likely to be shorter than would be the case
if payments actually made on the mortgage loans conformed to the foregoing
assumptions, and the final distribution date for any class of the certificates
could occur significantly earlier than the final stated maturity date because:
o prepayments, including, for this purpose, prepayments attributable
to foreclosure, liquidation, repurchase and the like, on mortgage
loans are likely to occur,
o thirteen months have been added to obtain the final stated
maturity date above,
o the over-collateralization provisions of the transaction result
in the application of Excess Interest to the payment of principal;
o 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 accounts; and
o the servicer may, at its option, call the class A-1 certificates
or the class A-2 certificates, separately, when the aggregate
outstanding principal balance of the class A-1 certificates or the
class A-2 certificates, respectively, is equal to or less than 10%
of the aggregate original principal balance of the class A-1
certificates or the class A-2 certificates, respectively.
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
the security is scheduled to be repaid to an investor. The weighted average life
of the certificates will be influenced by the rate at which principal of the
mortgage loans is paid, which may be in the form of scheduled amortization or
prepayments -- for this purpose, the term "prepayment" includes liquidations due
to default.
Prepayments on mortgage loans are commonly measured relative to a
prepayment model or standard. The model used in this prospectus supplement, Home
Equity Prepayment or HEP, is a prepayment assumption 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 the mortgage loans. For example, 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
modeling assumptions:
o The mortgage loans prepay at the indicated percentage of the
prepayment assumption,
o distributions on the certificates are received in cash on the
____ day of each month commencing in ____________,
o 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,
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o scheduled payments are assumed to be received on the last day of
each month commencing in ____________, or as presented in the
following table, and prepayments represent payments in full of
individual mortgage loans and are assumed to be received on the
last day of each month, commencing in ____________, or as
presented in the following table, and include thirty (30) days'
interest thereon,
o the certificates are purchased on ____________,
o the Specified Over-collateralized Amount is as enumerated in the
Pooling and Servicing Agreement,
o 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,
o the mortgage loans in pool I consist of ____________ mortgage
loans having the following characteristics:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Principal Mortgage Net Mortgage Original Amortizing Remaining Remaining Term to
Balance ($) Interest Rate (%) Interest Rate (%) Term (in months) Amortizing Maturity (in
Term (in months) (in months)
o The mortgage loans in pool II consists of ____________
mortgage loans having the following characteristics:
Principal Mortgage Net Mortgage Original Amortizing Remaining Remaining Term to
Balance ($) Interest Rate (%) Interest Rate (%) Term (in months) Amortizing Maturity (in
Term (in months) (in months)
</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
certificates assuming that the mortgage loans prepay according to the indicated
percentages of the prepayment assumption.
Weighted Average Lives
Class A-1 Certificates
Prepayment Weighted Average Earliest
Assumption (HEP) Life in Years Retirement Date
Class A-2 Certificates
Prepayment Weighted Average Earliest
Assumption (HEP) Life in Years Retirement Date
The foregoing tables were prepared assuming that:
o the weighted average life of each class of certificates is
determined by
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o multiplying the amount of each principal payment used
to retire that class of certificates by the number of
years from the closing date to the final distribution
date when that class of certificates is fully
retired,
o adding the results, and
o dividing the sum by the original principal balance
of that class; and
o the call of the class A-1 certificates or the class A-2
certificates, respectively, occurs as stated in this prospectus
supplement.
----------------------
There is no assurance that prepayments will occur or, if they do occur,
that they will occur at any percentage of HEP.
The Pooling and Servicing Agreement provides that none of the
certificate insurer, the trust, the trustee, the depositor, the originators or
the servicer will be liable to any holder for any loss or damage incurred by the
holder as a result of any difference in the rate of return received by the
holder as compared to the applicable certificate rate, to any holder of
certificates upon reinvestment of the funds received in connection with any
premature repayment of principal on the certificates, including any repayment
resulting from any prepayment by the mortgagor, any liquidation of the mortgage
loan, or any repurchase of or substitution for any mortgage loan by the
depositor or the servicer.
Material Federal Income Tax Considerations
The following discussion of material federal income tax consequences of
the purchase, ownership and disposition of the certificates is to be considered
only in connection with "Material Federal Income Tax Consequences" in the
accompanying prospectus. The discussion in this prospectus supplement 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 certificates.
An election will be made to treat the trust as a REMIC for federal
income tax purposes. __________, special tax counsel, will deliver its opinion
that, assuming compliance with the Pooling and Servicing Agreement, the trust
will be treated as a REMIC for federal income tax purposes. The class A
certificates will be designated as "regular interests" in the REMIC, and the
class R certificates will be designated as the sole "residual interest" in the
REMIC. The class R certificates are "REMIC Residual Certificates" for purposes
of the Prospectus.
The certificates possess special tax attributes by virtue of the REMIC
provisions of the Code. See "Material Federal Income Tax Consequences -- REMIC
Securities" in the Prospectus.
The class A certificates generally will be treated as debt instruments
for federal income tax purposes. Beneficial owners, or registered holders, in
the case of definitive certificates, of the class A certificates will be
required to report income on class A certificates in accordance with the accrual
method of accounting. It is not anticipated that the class A certificates will
be issued with original issue discount. See "Material Federal Income Tax
Consequences -- Original Issue Discount" in the Prospectus. The
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prepayment assumption for calculating original issue discount is 100% of the
Prepayment Assumption. See "Prepayment and Yield Considerations" herein.
ERISA Considerations
The Employee Retirement Income Security Act of 1974 and the Code
impose restrictions on
o employee benefit plans--as defined in Section 3(3) of ERISA,
o plans described in section 4975(e)(1) of the Code, including
individual retirement accounts or Keogh plans,
o any entities whose underlying assets include plan assets by reason
of a plan's investment in those entities and
o persons who have specified relationships to those Plans --
"Parties-inInterest" under ERISA and "Disqualified Persons" under
the Code.
Section 406 of ERISA prohibits plans from engaging in specified
transactions involving the assets of those plans with Parties-in-Interest under
those 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 under these 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 specified duties on persons
who are fiduciaries of plans subject to ERISA.
The Department of Labor has issued a regulation describing what
constitutes the assets of a lan when the plan acquires an equity interest in
another entity. This plan asset regulation states that, unless an exemption
described in the regulation is applicable, the underlying assets of an entity in
which a plan makes an equity investment will be considered, for purposes of
ERISA, to be the assets of the investing plan. Pursuant to the plan asset
regulation, if the assets of the trust were deemed to be plan assets by reason
of a plan's investment in any class A certificates, such plan assets would
include an undivided interest in any assets held in such trust. Therefore, in
the absence of an exemption, the purchase, sale or holding of any class A
certificate by a plan subject to Section 406 of ERISA or Section 4975 of the
Code might result in prohibited transactions and the imposition of excise taxes
and civil penalties.
On _______, the Department of Labor issued to ____________________ an
individual administrative exemption, Prohibited Transaction Exemption ____, from
some of the prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by a plan of certificates in
pass-through trusts that meet the conditions and requirements of this exemption.
Among the conditions that must be satisfied for this exemption to apply are the
following:
(a) The acquisition of the class A certificates by a plan is
on terms, including the price for the class A certificates, that are at
least as favorable to the plan as they would be in an arm's length
transaction with an unrelated party;
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<PAGE>
(b) The rights and interests evidenced by the class A
certificates acquired by the plan are not subordinated to the rights
and interests evidenced by other certificates of the trust fund;
(c) The class A certificates acquired by the plan have
received a rating at the time of such acquisition that is in one of the
three highest generic rating categories from any of Standard & Poor's,
Moody's, Fitch IBCA, or Duff & Phelps Credit Rating Co.;
(d) The sum of all payments made to the underwriter in
connection with the distribution of the class A certificates represents
not more than reasonable compensation for underwriting the class A
certificates. The sum of all payments made to and retained by the
servicer represents not more than reasonable compensation for the
servicer's services under the Pooling and Servicing Agreement and
reimbursement of the servicer's reasonable expenses in connection
therewith;
(e) The trustee is not an affiliate of any other member of
the restricted group; and
(f) The plan investing in the class A certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of
the Securities and Exchange Commission under the Securities Act of
1933.
The trust fund also must meet the following requirements:
o The corpus of the trust fund must consist solely of assets of the
type which have been included in other investment pools;
o certificates in such other investment pools must have been rated
in one of the three highest rating categories of Standard &
Poor's, Moody's, Duff & Phelps or Fitch IBCA for at least one year
prior to the plan's acquisition of certificates; and
o certificates evidencing interests in such other investment pools
must have been purchased by investors other than plans for at
least one year prior to any plan's acquisition of class A
certificates.
In order for the exemption to apply to the self-dealing/conflict of
interest prohibited transactions that may occur when a plan fiduciary causes the
plan to acquire class A certificates, the Exemption requires, among other
matters, that:
o in the case of an acquisition in connection with the initial
issuance of certificates, at least fifty percent of each class of
certificates in which plans have invested is acquired by persons
independent of the restricted group and at least fifty percent of
the aggregate interest in the trust fund is acquired by persons
independent of the restricted group;
o such fiduciary, or its affiliate, is an obligor with respect to 5
percent or less of the fair market value of the obligations
contained in the trust fund;
o the plan's investment in class A certificates does not exceed
twenty-five percent (25%) of all of the certificates outstanding
at the time of the acquisition and
o immediately after the acquisition, no more than twenty-five
percent (25%) of the assets of the plan are invested in
certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity.
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The exemption does not apply to specified prohibited transactions in
the case of plans sponsored by the underwriter, the trustee, the servicer, any
obligor with respect to more than 5% of the fair market value of the mortgage
loans included in the trust fund, any entity deemed to be a "sponsor" of the
trust fund as such term is defined in the exemption, or any affiliate of any
such party.
The exemption may be available for the purchase of the certificates by
plans following the expiration of the Pre-Funding Period. Before purchasing a
class A certificate, a fiduciary of an ERISA plan should make its own
determination as to the availability of the exemptive relief provided in the
exemption and whether the conditions of such exemption will be applicable to the
class A certificates. Any fiduciary of an ERISA plan considering whether to
purchase a class A certificate should also carefully review with its own legal
advisors the applicability of the fiduciary duty and prohibited transaction
provisions of ERISA and the Code to such investment. The exemption will not
apply with respect to the certificates until such time that the balance of the
Pre-Funding Account for that class is reduced to zero. Accordingly, until such
time, the certificates may not be purchased by any entity using the assets of a
plan.
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. A fiduciary of a governmental plan
should make its own determination as to the need for and the availability of any
exemptive relief under similar law.
The sale of certificates to a plan is in no respect a representation by
the depositor or the underwriter that this investment meets all relevant legal
requirements with respect to investments by plans generally or any particular
plan, or that this investment is appropriate for lans generally or any
particular ERISA plan.
Legal Investment
The certificates will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984.
Plan of Distribution
Subject to the terms and conditions of the Underwriting Agreement dated
____________ between the depositor and ____________, as underwriter, the
depositor has agreed to sell to the underwriter and the underwriter has agreed
to purchase from the depositor the certificates. The depositor is obligated to
sell, and the underwriter is obligated to purchase, all of the certificates
offered hereby if any are purchased.
The underwriter has advised the depositor that it proposes to offer the
certificates purchased by the underwriter for sale from time to time in one or
more negotiated transactions or otherwise, at market prices prevailing at the
time of sale, at prices related to these market prices or at negotiated prices.
The underwriter may effect these transactions by selling these certificates to
or through dealers, and these dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the underwriter or
purchasers of the certificates for whom they may act as agent. Any dealers that
participate with the underwriter in the distribution of the certificates
purchased by the underwriter may be deemed to be underwriters, and any discounts
or commissions received by them or the underwriter and any profit on the resale
of certificates by them or the underwriter may be deemed to be underwriting
discounts or commissions under the Securities Act of 1933.
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In connection with the offering of the certificates, the underwriter
and its affiliates may engage in transactions that stabilize, maintain or
otherwise affect the market price of the certificates. These transactions may
include stabilization transactions effected in accordance with Rule 104 of
Regulation M, pursuant to which that person may bid for or purchase the
certificates for the purpose of stabilizing its market price. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the certificates at a level above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph is
required, and, if they are taken, may be discontinued at any time without
notice.
For further information regarding any offer or sale of the certificates
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 specified liabilities,
including liabilities under the Securities Act.
Incorporation of Information by Reference
The Securities and Exchange Commission allows us to "incorporate by
reference" information already on file with it. This means that we can disclose
important information to you by referring you to those documents. This
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 Information by
Reference" and the financial statements of ________________________ included in,
or as exhibits to, the following documents:
o the Annual Report on Form 10-K for the year ended ____________; and
o the Quarterly Report on Form 10-Q for the quarter ended ____________.
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.
Additional Information
Prudential Securities Secured Financing Corporation has filed with the
Securities and Exchange Commission a registration statement under the Securities
Act of 1933, for the certificates offered pursuant to this prospectus
supplement. This prospectus supplement and the accompanying prospectus, which
form a part of the registration statement, omit specified information contained
in the 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.
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Experts
The consolidated balance sheets of ____________ and subsidiaries as of
____________ 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 ________________________, incorporated by reference in this prospectus
supplement, have been incorporated in this prospectus supplement in reliance on
the report of ____________, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
Legal Matters
Specified legal matters in connection with the certificates will be
passed upon for the originators, the depositor and the servicer by ____________,
____________, for the trust by ____________, ____________, and for the depositor
and the underwriter by ____________, ____________.
Ratings
It is a condition to the original issuance of the certificates that
they will receive ratings of [ ] by ________ and [ ] by ________. The ratings
assigned to the certificates will take into account the claims-paying ability of
the certificate insurer. Explanations of the significance of these ratings may
be obtained from ________________________ and _______________________. These
ratings will be the views only of the rating agencies. There is no assurance
that any of these ratings will continue for any period of time or that these
ratings will not be revised or withdrawn. Any such revision or withdrawal of
these ratings may have an adverse effect on the market price of the
certificates.
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Glossary
The following terms have the meanings given below when used in this
prospectus supplement.
Available Amount means, for any pool of mortgage loans and any
distribution date, the amount on deposit in the Distribution Account for that
pool, exclusive of the amount of any Insured Payment and the Servicing Fee, on
that distribution date.
Class A-1 Interest Distribution Amount means, for any distribution
date, an amount equal to the sum of the Current Interest for the class A-1
certificates on that distribution date, less the amount of any Class A-1
Mortgage Loan Interest Shortfalls relating to that distribution date.
Class A-1 Mortgage Loan Interest Shortfalls means, for any distribution
date, the aggregate of the Mortgage Loan Interest Shortfalls in pool I, if any,
for that distribution date, to the extent any Mortgage Loan Interest Shortfalls
are not paid by the servicer as Compensating Interest.
Class A-1 Certificate Rate means, for any distribution date, the per
annum rate equal to ____%.
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
certificates on that distribution date, less the amount of any Class A-2
Mortgage Loan Interest Shortfalls relating to that distribution date.
Class A-2 Mortgage Loan Interest Shortfalls for any distribution date
will be the aggregate of the Mortgage Loan Interest Shortfalls in pool II, if
any, for that distribution date, to the extent any Mortgage Loan Interest
Shortfalls are not paid by the servicer as Compensating Interest.
Class A-2 Certificate Rate means, for any distribution date, the per
annum rate equal to _____%.
Compensating Interest means an amount equal to the lesser of (a) the
aggregate of the Prepayment Interest Shortfalls for the a distribution date
resulting from principal prepayments in full during the due period and (b) its
aggregate servicing fees received in the due period
Current Interest for any pool of mortgage loans and any distribution
date is the interest that will accrue on the class of certificates for that pool
at the applicable certificate rate on the aggregate outstanding principal
balance of that class during the 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 that pool and that
distribution date over (y) the sum of
o the Interest Distribution Amount for that pool and that
distribution date,
o Principal Distribution Amount for that pool and that distribution
date -- calculated for this purpose without regard to any
Over-collateralization Increase Amount or portion thereof included
therein,
o any Reimbursement Amount or other amount owed to the certificate
insurer relating to that pool and
o the trustee's fees for that pool and that distribution date.
Excess Over-collateralized Amount means, for each pool of mortgage
loans and a distribution date, the difference, if any, between (a) the
Over-collateralized Amount that would apply on that
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distribution date after taking into account all distributions to be made on that
distribution date, except for any distributions of Over-collateralization
Reduction Amounts, and (b) the Specified Over-collateralized Amount.
Foreclosure Profits as to any servicer remittance date, are the excess,
if any, of (a) Net Liquidation Proceeds in respect of each mortgage loan that
became a Liquidated Mortgage Loan during the month immediately preceding the
month of that servicer remittance date over (b) the sum of the unpaid principal
balance of each 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 these proceeds are not
applied to the restoration of the mortgaged property or released to the
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:
o the Interest Distribution Amount for that pool and that
distribution date,
o the amount of the Over-collateralization Deficit applicable to
that pool and that distribution date, if any, and
o on the distribution date which is a final stated maturity date,
the aggregate outstanding principal balance for that class of
certificates.
Insured Payment for any pool of mortgage loans and any distribution
date will equal the amount by which the Insured Distribution Amount for that
pool and that distribution date exceeds the Available Amount less the trustee's
fees for that pool and that 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 the
mortgage loan, including, without duplication, unreimbursed expenses for real
property taxes and unreimbursed servicing advances. In no event may Liquidation
Expenses on a Liquidated Mortgage Loan exceed the Liquidation Proceeds.
Liquidated Loan Loss as to any Liquidated Mortgage Loan is the excess,
if any, of (a) the unpaid principal balance of that 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 over (b) the sum of the
Net Liquidation Proceeds and the amount of any previously unreimbursed Periodic
Advances in respect of the mortgage loan.
Liquidation Proceeds are amounts, other than Insurance Proceeds,
received by the servicer in connection with (a) the taking of all or a part of a
Mortgaged Property by exercise of the power of eminent domain or condemnation or
(b) 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 remittance date, are the
excess, if any, of (a) the aggregate Foreclosure Profits on that servicer
remittance date over (b) Liquidated Loan Losses on that servicer remittance
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 Mortgage Loan Interest Shortfalls means the Class A-1 Mortgage Loan
Interest Shortfalls or the Class A-2 Mortgage Loan Interest Shortfalls, as
applicable.
Net REO Proceeds as to any REO property, are REO Proceeds net of any
expenses of the servicer.
Over-collateralized Amount means, for any distribution date and a pool
of mortgage loans, the excess, if any, of (x) the sum of (a) the aggregate
principal balances of the mortgage loans in that pool as of the close of
business on the last day of the preceding calendar month and (b) the amounts, if
any, on deposit in the pre-funding accounts, over (y) the aggregate principal
balance of the class of certificates for that pool as of that distribution date
- --following the making of all distributions on that distribution date, other
than any Over-collateralization Increase Amount for that distribution date.
Over-collateralization Deficit for any distribution date, is the amount
by which the aggregate outstanding principal balance of the certificates exceeds
the sum of
o the aggregate principal balance of the mortgage loans,
o any amount on deposit in the pre-funding accounts on that
distribution date, and
o any amounts on deposit in the Cross-collateralization Reserve
Accounts on that distribution date, after application of all
amounts due on that 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 class of certificates for that pool
until the over-collateralization for that pool reaches the Specified
Over-collateralized Amount. This payment is limited to the extent of the
Available Amount as described in the definition of "Principal Distribution
Amount.
Over-collateralization Reduction Amount for any pool of mortgage loans
and any distribution date, is the difference, if any, between (a) the
Over-collateralized Amount for that pool that would apply on that distribution
date after taking into account all distributions to be made on that distribution
date -- except for any distributions of Over-collateralization Reduction Amounts
- -- and (b) the Specified Over-collateralized Amount for that pool and that
distribution date to the extent of principal available for distribution.
Periodic Advances means advances made by the servicer on each
distribution date for delinquent payments of interest on the mortgage loans, at
a rate equal to the interest rate on the mortgage note, less the servicing fee
rate.
Prepayment Interest Shortfall means, for any distribution date, an
amount equal to the excess, if any, of (a) thirty days' interest on the
outstanding principal balance of these mortgage loans at a per annum rate equal
to the mortgage interest rate -- or at any lower rate as may be in effect for
these mortgage loan because of application of the Civil Relief Act, any
reduction as a result of a bankruptcy proceeding and/or any reduction by a court
of the monthly payment due on these mortgage loan -- minus the rate at which the
servicing fee is calculated, over (b) the amount of interest actually remitted
by the
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mortgagor in connection with the principal prepayment in full, less the
servicing fee for that mortgage loan in that month.
Principal Distribution Amount for any pool of mortgage loans and any
distribution date will be the lesser of:
(a) the excess of (x) the sum, as of that distribution date,
of (A) the Available Amount for that pool and (B) any Insured Payment
on the class of certificates for that pool over (y) the sum of Interest
Distribution Amount for that pool, the trustee's fees, and the
Reimbursement Amount allocable to that class of certificates; and
(b) the sum, without duplication, of:
(1) all principal in respect of the mortgage
loans in that pool actually collected
during the related due period;
(2) the principal balance of each mortgage loan
that either was repurchased by the depositor
or purchased by the servicer on the servicer
remittance date from that pool, to the
extent the principal balance is actually
received by the trustee;
(3) any substitution adjustments delivered by
the depositor on the servicer remittance
date in connection with a substitution of a
mortgage loan in that pool, to the extent
the substitution adjustments are actually
received by the trustee;
(4) the Net Liquidation Proceeds actually
collected by the servicer of all mortgage
loans in that pool during the prior calendar
month, to the extent the Net Liquidation
Proceeds relate to principal;
(5) on the ____________ or ____________
distribution dates, moneys released from the
pre-funding account for that pool, if any;
(6) the proceeds received by the trustee upon
the exercise by the servicer of its option
to call the class of certificates for that
pool, to the extent those proceeds relate to
principal;
(7) the amount of any Over-collateralization
Deficit for that pool for that distribution
date;
(8) the proceeds received by the trustee on any
termination of the trust, to the extent
those proceeds relate to principal,
allocable to that pool;
(9) the amount of any Over-collateralization
Increase Amount for that pool for that
distribution date, to the extent of any
Excess Interest for that pool available for
that purpose, exclusive of the amount of
Excess Interest for that pool necessary to
make the payment of (A) any Net Mortgage
Loan Interest Shortfalls for that pool and
that distribution date and (B) the Shortfall
Amount for the other pool and that
distribution date;
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(10) if the certificate insurer shall so elect,
an amount of principal, including Liquidated
Loan Losses, that would have been payable
pursuant to clauses (1) through (9) above if
sufficient funds were available therefor;
minus
(11) the amount of any Over-collateralization
Reduction Amount for that pool for that
distribution date.
In no event will the Principal Distribution Amount for a pool for any
distribution date be (x) less than zero or (y) greater than the then outstanding
aggregate principal balance for the certificates.
Qualified Substitute Mortgage Loan means any mortgage loan or mortgage
loans substituted for a deleted mortgage loan and which, among other things,
o relates or relate to a detached one-family residence or to the
same type of residential dwelling or commercial property as the
deleted mortgage loan and, has or have the same or a better lien
priority as the deleted mortgage loan and has or have the same
occupancy status as the deleted mortgage loan or is or are
owner-occupied mortgaged property or properties,
o matures or mature no later than, and not more than one year
earlier than, the deleted mortgage loan,
o has or have a LTV or LTV at the time of the substitution no higher
than the LTV of the deleted mortgage loan,
o has or have a CLTV or CLTVs at the time of the substitution no
higher than the CLTV of the deleted mortgage loan,
o 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 that date,
o has or have a mortgage interest rate of at least the same interest
rate as the deleted mortgage loan and
o complies or comply, as of the date of substitution, with each
representation and warranty enumerated in the Loan Sale Agreement.
Reimbursement Amount means, for each pool of mortgage loans and each
distribution date, the lesser of (x) the excess of (a) the amount then on
deposit in the Distribution Account over (b) the Insured Distribution Amounts
for that pool and that distribution date and (y) the amount of all Insured
Payments and other amounts due to the certificate insurer for that pool pursuant
to the Insurance Agreement, including the premium amount, which have not been
previously paid.
REO Proceeds are monies received from any REO property, including,
without limitation, proceeds from the rental of the mortgaged property.
Shortfall Amount means, for a pool of mortgage loans and any
distribution date, the sum of
o any shortfall in the amount of the Interest Distribution Amount
for that pool actually distributed to the holders of the class of
certificates for that pool,
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o any shortfall in the amount of the Net Mortgage Loan Interest
Shortfalls for that pool actually distributed to the holders of
the class of certificates for that pool,
o the amount of any Over-collateralization Deficit for that pool and
that distribution date and
o any shortfall in the payment of any amounts owed the certificate
insurer.
Specified Over-collateralized Amount for a pool of mortgage loans and
any distribution date will be the amount of Over-collateralization which the
certificate insurer requires for that pool and that distribution date.
Specified Reserve Amount means, for each pool of mortgage loans and any
distribution date, the difference between (x) the Specified Over-collateralized
Amount for that pool and that distribution date and (y) the Over-collateralized
Amount for that pool on that distribution date.
S-59
<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, that 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 the offer
or solicitation is not qualified to do so or to anyone to
whom it is unlawful to make any 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
in this prospectus supplement or in the prospectus is
correct as of any time since the date of this prospectus
supplement or the prospectus.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Table of Contents...................................S-__
Summary.............................................S-__
Risk Factors........................................S-__
Transaction Overview................................S-__
The Mortgage Loan Pools.............................S-__
The Originators, the Depositor, the Servicer and the
Subservicer.....................................S-__
The Trustee.........................................S-__
The Collateral Agent................................S-__
Description of the Certificates.....................S-__
Servicing of the Mortgage Loans.....................S-__
The Certificate Insurance Policy....................S-__
The Certificate Insurer.............................S-__
Prepayment and Yield Considerations.................S-__
Material Federal Income Tax Considerations..........S-__
ERISA Considerations................................S-__
Legal Investment....................................S-__
Plan of Distribution................................S-__
Experts.............................................S-__
Ratings.............................................S-__
Legal Matters.......................................S-__
Glossary............................................S-__
PROSPECTUS
Summary of Prospectus.................................__
Risk Factors..........................................__
The Sponsor...........................................__
Use of Proceeds.......................................__
The Trustee...........................................__
The Trust Funds.......................................__
Description of the Securities.........................__
Credit Enhancement....................................__
Prepayment and Yield Considerations...................__
Servicing of the Loans................................__
Material Legal Aspects of the Loans...................__
Material Federal Income Tax Consequences..............__
State Tax Considerations..............................__
ERISA Considerations..................................__
Legal Investment......................................__
Plan of Distribution..................................__
Incorporation of Information by Reference.............__
Additional Information................................__
Legal Matters.........................................__
Rating................................................__
Glossary..............................................__
$_______________
______________________
Issuer
_________________________
Servicer
Prudential Securities
Secured Financing Corporation
Sponsor
$__________
Class A-1 Certificates
$__________
Class A-2 Certificates
Mortgage-Backed Certificates,
Series _______
__________________
PROSPECTUS SUPPLEMENT
__________________
___________________
__________
<PAGE>
PROSPECTUS
- --------------------------------------------------------------------------------
Prudential Securities Secured
Financing Corporation Asset-Backed Securities
Sponsor Issuable in Series
- --------------------------------------------------------------------------------
You should read the section entitled
"Risk Factors" starting on page 3 of
this prospectus and consider these
factors before making a decision to
invest in the securities.
Retain this prospectus for future
reference. This prospectus may not
be used to consummate sales of
securities unless accompanied by the
prospectus supplement relating to
the offering of the securities.
The Securities
o will be issued from time to time in series,
o will consist of either asset-backed certificates or
asset-backed notes,
o will be issued by a trust or other special purpose entity
established by the sponsor,
o will be backed by one or more pools of mortgage loans or
manufactured housing contracts held by the issuer,
o may have one or more forms of credit enhancement, such as
insurance policies or reserve funds.
Neither the Securities and Exchange Commission nor any state
securities commission has approved of disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
PRUDENTIAL SECURITIES
The date of this prospectus is _______, 1999
<PAGE>
Table of Contents
Summary of Prospectus..............................1
Risk Factors.......................................3
The Sponsor........................................6
Use of Proceeds....................................6
The Trustee........................................6
The Trust Funds....................................7
The Mortgage Loans...........................7
The Contracts...............................14
Fixed Retained Yield........................16
Insurance Policies..........................16
Acquisition of the Loans from the Originator17
Assignment of the Loans.....................18
Representations and Warranties..............19
Pre-Funding Accounts........................22
Description of the Securities.....................23
Distributions...............................24
Principal and Interest on the Securities....25
Form of Securities..........................25
Credit Enhancement................................27
Subordination...............................28
Overcollateralization.......................28
Cross-Collateralization.....................28
Surety Bonds................................28
Letters of Credit...........................29
Special Hazard Insurance Policies...........29
Reserve Funds...............................29
Other Insurance, Guarantees and Similar
Instruments or Agreements.................30
Reduction or Substitution of Credit
Enhancement...............................30
Prepayment and Yield Considerations...............30
Interest Rates..............................30
Interest Shortfalls Due to Principal
Prepayments...............................31
Weighted Average Life of Securities.........31
Servicing of the Loans............................33
The Servicer................................33
Payments on Loans...........................33
Advances and Limitations Thereon............36
Adjustment to Servicing Compensation in
Connection with Prepaid and Liquidated
Loans.....................................36
Reports to Securityholders..................36
Collection and Other Servicing Procedures...37
Enforcement of Due-on-Sale Clauses;
Realization Upon Defaulted Loans..........38
Servicing Compensation and Payment of
Expenses..................................39
Evidence as to Compliance...................40
atters Regarding the Servicer...............40
Events of Default; Rights Upon
Event of Default..........................41
Amendment...................................44
Termination; Purchase or Other
Disposition of Loans......................44
Material Legal Aspects of the Loans...............45
The Mortgage Loans..........................45
The Contracts...............................52
Installment Contracts.......................56
Soldiers' and Sailors' Civil Relief Act.....58
Type of mortgaged property..................59
Material Matters Relating to Insolvency.....59
Bankruptcy Laws.............................59
Material Federal Income Tax Consequences..........61
Grantor Trust Securities....................61
REMIC Securities............................63
Debt Securities.............................70
Partnership Interests.......................71
FASIT Securities............................73
Discount and Premium........................76
Backup Withholding..........................79
Foreign Investors...........................80
State Tax Considerations..........................81
ERISA Considerations..............................81
Certificates................................82
Notes.......................................84
Consultation with Counsel...................84
Legal Investment..................................85
Plan of Distribution..............................86
Incorporation of Information by Reference.........87
Additional Information............................88
Legal Matters.....................................89
Ratings...........................................89
Glossary..........................................90
ii
<PAGE>
Summary of Prospectus
This summary highlights selected information from this prospectus
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 your series of securities, read
carefully this entire prospectus and the accompanying prospectus
supplement.
The Sponsor
Prudential Securities Secured Financing Corporation will act as the sponsor
of the issuers, meaning that it will establish the issuers and cause them to
issue the securities.
Securities Offered
Each class of securities will consist of one or more classes of ownership
securities or debt securities. Ownership securities represent beneficial
ownership interests in the assets held by the issuer. Ownership securities will
be issued in the form of certificates. Debt securities represent indebtedness
secured by the assets of the issuer. Debt securities will be issued in the form
of notes.
Each series of securities will be issued in one or more classes, one or
more of which may be classes of:
o fixed-rate securities,
o adjustable-rate securities,
o compound-interest or accrual securities,
o planned-amortization-class securities,
o principal-only securities,
o interest-only securities,
o participating securities,
o senior securities, or
o subordinated securities.
The interest rate, principal balance, notional balance, minimum
denomination and form of each class of securities will be described in the
accompanying prospectus supplement. The securities will be available in either
fully registered or book-entry form, as described in the accompanying prospectus
supplement.
The Loans
Each issuer will hold one or more pools of loans, which may include:
o conventional mortgage loans or manufactured housing contracts secured
by one-to-four family residential properties and/or manufactured homes,
o mortgage loans secured by security interests in shares issued by
private, non-profit cooperative housing corporations,
o mortgage loans secured by junior liens on the mortgaged properties,
o mortgage loans with loan-to-value ratios in excess of the appraised
value of the mortgaged property,
o home improvement retail installment contracts, and
o revolving home equity lines of credit.
The sponsor will direct the issuer to acquire the loans from affiliated
originators, unaffiliated originators or warehouse trusts created by the sponsor
or an affiliate to finance the origination of loans.
Distributions on the Securities
Owners of securities will be entitled to receive payments in the manner
described in
1
<PAGE>
the accompanying prospectus supplement, which will specify:
o whether distributions will be made monthly, quarterly,
semi-annually or at other intervals and dates,
o the amount allocable to payments of principal and interest on
any distribution date, and
o whether distributions will be made on a pro rata, random lot,
or other basis.
Credit Enhancement
A series of securities, or classes within a series, may have the benefit of
one or more types of credit enhancement, including:
o the use of excess interest to cover losses and to create over-
collateralization,
o the subordination of distributions on the lower classes to the
distributions on more senior classes,
o the allocation of losses on the underlying loans to the lower
classes, and
o the use of cross support, reserve funds, financial guarantee
insurance policies, guarantees and letters of credit.
The protection against losses afforded by any credit enhancement will be
limited in the manner described in the accompanying prospectus supplement.
Redemption or Repurchase of Securities
One or more classes of securities may be redeemed or repurchased in whole
or in part by the issuer, the servicer, the provider of credit enhancement, or
their affiliates at the times described in the accompanying prospectus
supplement and at the price at least equal to the amount necessary to pay all
outstanding principal and accrued interest on the redeemed classes.
ERISA Limitations
Employee benefit plans should carefully review with their own legal
advisors whether the purchase or holding of the securities could give rise to a
transaction prohibited or otherwise impermissible under ERISA or the Internal
Revenue Code.
Material Federal Income Tax Consequences
Each class of securities offered by this prospectus and the accompanying
prospectus supplement will constitute one of the following for federal income
tax purposes:
o interests in a trust treated as a grantor trust,
o "regular interests" or "residual interests" in a trust treated
as one or more "real estate mortgage investment conduits",
o debt issued by the issuer,
o interests in an issuer which is treated as a partnership, or
o "regular interests", "high-yield interests" or "ownership
interests" in a trust treated as one or more "financial asset
securitization investment trusts".
2
<PAGE>
Risk Factors
You should consider the following risk factors prior to any purchase of
any class of securities. You should also consider the information under the
caption "Risk Factors" in the accompanying prospectus supplement.
Your investment in any security may be an illiquid investment; you should be
prepared to hold your security to maturity.
A secondary market for these securities is unlikely to develop. If it
does develop, it may not provide you with sufficient liquidity of
investment or continue for the life of these securities. The
underwriter(s) may establish a secondary market in the securities,
although no underwriter will be obligated to do so. The securities are
not expected to be listed on any securities exchange or quoted in the
automated quotation system of a registered securities association.
Issuance of the securities in book-entry form may also reduce the
liquidity in the secondary trading market, since some investors may be
unwilling to purchase securities for which they cannot obtain
definitive physical securities.
As a result of prepayment on the loans or early redemption of the securities,
you could be fully paid significantly earlier than would otherwise be the case,
which may adversely affect the yield to maturity on your securities.
The yield to maturity of the securities may be adversely affected by a
higher or lower than anticipated rate of prepayments on the loans. The
yield to maturity on interest-only securities purchased at premiums or
discounts to par will be extremely sensitive to the rate of prepayments
on the loans.
The underlying loans may be prepaid in full or in part at any time,
although prepayment may require the borrower to pay of a prepayment
penalty or premium. These penalties will generally not be property of
the issuer, and will not be available to fund distributions owing to
you. We cannot predict the rate of prepayments of the loans, which is
influenced by a wide variety of economic, social and other factors,
including prevailing mortgage market interest rates, the availability
of alternative financing, local and regional economic conditions and
homeowner mobility. Therefore, we can give no assurance as to the level
of prepayments that a trust fund will experience.
Prepayments may result from mandatory prepayments relating to unused
monies held in pre-funding accounts, voluntary early payments by
borrowers, including payments in connection with refinancings of the
first mortgages, sales of mortgaged properties subject to "due-on-sale"
provisions and liquidations due to default, as well as the receipt of
proceeds from physical damage, credit life and disability insurance
policies. In addition, repurchases or purchases from the issuer of
loans or the payment of substitution adjustments will have the same
effect on the securities as a prepayment of the loans.
One or more classes of securities of any series may be subject to
optional or mandatory redemption or in whole or in part, on or after a
specified date, or on or after the time when the aggregate outstanding
principal amount of the underlying loans or the securities is less than
a specified amount or percentage. You will
3
<PAGE>
bear the risk of reinvesting unscheduled distributions resulting from
a redemption.
Any of the foregoing principal prepayments may adversely affect the
yield to maturity of the prepaid securities. Since prevailing interest
rates are subject to fluctuation, there can be no assurance that you
will be able to reinvest these prepayments at a yield equaling or
exceeding the yield on your securities.
Credit enhancement, even if provided, will in any event be limited in both
amount and scope of coverage, and may not be sufficient to cover all losses or
risks on your investment.
Credit enhancement may be provided in limited amounts to cover some,
but not all, types of losses on the underlying loans and, in most
cases, will reduce over time in accordance with a schedule or formula.
Furthermore, credit enhancement may provide only very limited coverage
as to some types of losses, and may provide no coverage as to other
types of losses. Generally, credit enhancement does not directly or
indirectly guarantee to the investors any specified rate of
prepayments, which is one of the principal risks of your investment.
The amount and types of coverage, the identification of any entity
providing the coverage, the terms of any subordination and any other
information will be described in the accompanying prospectus
supplement.
Property values may decline, leading to higher losses on the loans.
An investment in securities such as these, which are backed by
residential real estate loans, may be affected by a decline in real
estate values and changes in the borrowers' financial condition. If
property values were to decline, the rates of delinquencies and
foreclosures may rise, thereby increasing the likelihood of loss. If
these losses are not covered by any credit enhancement, you will bear
all risk of these losses and will have to look primarily to the value
of the mortgaged properties for recovery of the outstanding principal
and unpaid interest on the defaulted loans.
Foreclosure of mortgaged properties involve delays and expense and could cause
losses on the loans.
Even if the mortgaged properties provide adequate security for the
loans, substantial delays could be encountered in connection with the
foreclosure of defaulted loans, and corresponding delays in the receipt
of the foreclosure proceeds could occur. Foreclosures are regulated by
state statutes, rules and judicial decisions and are subject to many of
the delays and expenses of other lawsuits, sometimes requiring several
years to complete. The servicer will be entitled to reimburse itself
for any expenses it has paid in attempting to recover amounts due on
the liquidated loans, including payments to prior lienholders, accrued
fees of the servicer, legal fees and costs of legal action, real estate
taxes, and maintenance and preservation expenses, which will reduce the
amount of the net recovery by the trust.
Environmental conditions on the mortgaged property may give rise to liability
for the issuer.
Real property pledged as security to a lender may be subject to
environmental risks which could cause losses on your securities. Under
the laws of some states, contamination of a mortgaged property may give
rise to a lien on the mortgaged property to assure the costs of
clean-up. In several states, this type of lien has
4
<PAGE>
priority over the lien of an existing mortgage or owner's interest
against the property. In addition, under the laws of some states and
under CERCLA, a lender may be liable, as an "owner" or "operator,"
for costs of addressing releases or threatened releases of hazardous
substances that require remedy at a property, if agents or employees
of the lender have become sufficiently involved in the operations of
the borrower, regardless of whether or not the environmental damage
or threat was caused by a prior owner. A lender also will increase
its risk of environmental liability upon the foreclosure of the
mortgaged property, since the lender may then become the legal owner
of the property.
State and federal credit protection laws may limit collection of principal and
interest on the loans.
Residential mortgage lending is highly regulated at both the federal
and state levels and violations of these laws, policies and principles
may limit the ability of the servicer to collect all or part of the
amounts due on the loans, may entitle the borrower to a refund of
amounts previously paid and, in addition, could subject the issuer, as
the owner of the loan, to damages and administrative enforcement. The
occurrence of any of the foregoing could cause losses on your
securities.
The Soldiers' and Sailors' Civil Relief Act may limit the ability to collect on
the loans.
The terms of the Soldiers' and Sailors' Civil Relief Act of 1940, or
similar state legislation, benefit mortgagors who enter military
service after the origination of his or her loan, including a mortgagor
who is a member of the National Guard or is in reserve status at the
time of the origination of the loan and is later called to active duty.
These mortgagors may not be charged interest, including fees and
charges, above an annual rate of 6% during the period of the
mortgagor's active duty status, unless a court orders otherwise upon
application of the lender. The implementation of the Soldiers' and
Sailors' Civil Relief Act could have an adverse effect, for an
indeterminate period of time, on the ability of the servicer to collect
full amounts of interest on these loans.
In addition, the Soldiers' and Sailors' Civil Relief Act imposes
limitations that would impair the ability of the servicer to foreclose
on loans during the mortgagor's period of active duty status. Thus, in
the event that these loans go into default, there may be delays and
losses occasioned by the inability to realize upon the mortgaged
property in a timely fashion.
The ratings assigned to your securities may be lowered or withdrawn.
The ratings assigned to the securities will be based on, among other
things, the adequacy of the value of the trust fund and any credit
enhancement for a series. Any rating which is assigned may not remain
in effect for any given period of time or may be lowered or withdrawn
entirely by the rating agencies if, in their judgment, circumstances in
the future so warrant. Ratings may also be lowered or withdrawn because
of an adverse change in the financial or other condition of a provider
of credit enhancement or a change in the rating of a credit enhancement
provider's long term debt.
5
<PAGE>
Some of the terms used in this prospectus are capitalized. These
capitalized terms have specified definitions, which are included at the end of
this prospectus under the heading "Glossary."
The Sponsor
Prudential Securities Secured Financing Corporation was incorporated in
the State of Delaware on August 26, 1988 as a wholly-owned, limited purpose
finance subsidiary of Prudential Securities Group Inc., a wholly-owned indirect
subsidiary of The Prudential Insurance Company of America. The sponsor's
principal executive offices are located at One New York Plaza, 14th Floor, New
York, New York 10292. Its telephone number is (212) 778-1000.
Unless otherwise specified in the applicable prospectus supplement, the
sponsor will have no servicing obligations or responsibilities for any mortgage
loan pool, contract pool or trust fund. The sponsor does not have, nor is it
expected in the future to have, any significant assets.
Neither the sponsor nor Prudential Securities Group Inc. nor any of
their affiliates, including The Prudential Insurance Company of America, will
insure or guarantee the securities of any series.
Use of Proceeds
Unless otherwise specified in the applicable prospectus supplement,
substantially all of the net proceeds from the sale of each series of securities
will be used for the purchase of the loans represented by the securities of a
series or to reimburse amounts previously used to effect the purchase of the
loans, the costs of carrying the loans until the sale of the securities and
other expenses connected with pooling the loans and issuing the securities.
The Trustee
The prospectus supplement for each series of securities will specify
the entity acting as trustee for a series. The commercial bank or trust company
serving as trustee may have normal banking relationships with the sponsor, the
issuer, the servicer or any of their respective affiliates. The trustee's
liability in connection with the issuance and sale of the securities is limited
solely to the express obligations of the trustee enumerated in the agreements
under which a series was issued.
The trustee may resign at any time, in which event the servicer will be
obligated to appoint a successor trustee. The servicer or the issuer may also
remove the trustee if the trustee ceases to be eligible to act as trustee for a
series under the Issuing Agreement, if the trustee becomes insolvent or in order
to change the situs of the trust fund for state-tax reasons. Upon becoming aware
of these circumstances, the servicer or the issuer, as the case may be, will
become obligated to appoint a successor trustee. The trustee may also be removed
at any time by the holders of securities evidencing not less than a specified
percentage of the voting interest in the trust fund. Any resignation and removal
of the trustee, and the appointment of a successor trustee, will not become
effective until acceptance of the appointment by the successor trustee. The
trustee, and any successor trustee, will have a combined capital and surplus, or
shall be a member of a bank holding system with an aggregate combined capital
and surplus, of at least $50,000,000 and will be subject to supervision or
examination by federal or state authorities.
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The Trust Funds
The securities offered by this prospectus will consist of either
asset-backed certificates or asset-backed notes, which represent either
beneficial ownership interests in, or debt secured by, the trust fund consisting
of the assets of a trust or another special-purpose entity issuing the
securities. The trust fund for each series of securities will consist primarily
of a segregated pool of loans comprised of mortgage loans and/or manufactured
housing contracts. In addition, a trust fund may also include one or more of the
following:
o amounts held from time to time in the Collection Account
relating to the securities;
o the issuer's interest in any primary mortgage insurance,
hazard insurance, title insurance and/or other insurance
policies relating to a loan;
o any property which initially secured a mortgage loan and which
has been acquired by foreclosure or trustee's sale or deed in
lieu of foreclosure or trustee's sale;
o any manufactured home which initially secured a contract and
which is acquired by repossession;
o any reserve funds;
o one or more guarantees, letters of credit, insurance policies,
surety bonds or any other credit enhancement arrangement; and
o any other assets as may be specified in the accompanying
prospectus supplement.
Some of the loans may be delinquent to the extent and as specified in
the accompanying prospectus supplement. The percentage of those loans which are
delinquent shall not exceed 10% of the aggregate principal balance of the loans
in the pool as of the cut-off date for that series. Unless otherwise specified
in the applicable prospectus supplement, the trust fund will not include,
however, the portion of interest on the loans which constitutes the Fixed
Retained Yield, if any. See "--Fixed Retained Yield" below.
The mortgage loan pool and/or contract pool for a series will be
originated or acquired by an originator of mortgage loans and/or contracts and
transferred to the issuer either directly by the originator or through a
special-purpose affiliate thereof. The mortgage loan pool or contract pool
relating to a series will be serviced by a servicer specified in the
accompanying prospectus supplement, which may be the originator, under a
Servicing Agreement.
The Mortgage Loans
Each mortgage loan pool will consist of mortgage loans evidenced by
promissory notes or other evidences of indebtedness that provide for an original
term to maturity of not more than 40 years, for monthly payments and for
interest on the outstanding principal amounts thereof at a rate that is either
fixed or adjustable, as described in the accompanying prospectus supplement. The
mortgage loans may provide for fixed level payments or be graduated payment
loans, graduated equity loans, balloon loans, buy-down loans or mortgage loans
with other payment characteristics as described in the accompanying prospectus
supplement. In addition, the mortgage loan pools may include participation
interests in mortgage loans, in which event references in this prospectus to
payments on mortgage loans underlying the participations shall mean payments
thereon allocable to the participation interests, and the meaning of other terms
relating to mortgage loans will be similarly adjusted. Similarly, the mortgage
loan pools may
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include mortgage loans for which a Fixed Retained Yield has been retained by the
originator, in which event references in this prospectus to mortgage loans and
payments thereon shall mean the mortgage loans exclusive of the Fixed Retained
Yield. The prospectus supplement for a series will specify whether there will be
any Fixed Retained Yield in any mortgage loan and, if so, the owner thereof. See
"Servicing of the Loans--Fixed Retained Yield" in this prospectus. The mortgage
loans will be secured by mortgages, deeds of trust or other similar security
instruments creating first, second or more junior liens on conventional one-to
four-family residential properties, which may include mixed-use or vacation
properties, all of which will be located in any of the fifty states, the
District of Columbia or the Commonwealth of Puerto Rico. The mortgage loans may
also consist of installment contracts for the sale of real estate. If so
provided in the applicable prospectus supplement, a mortgage loan pool may also
contain cooperative apartment loans evidenced by promissory notes secured by
security interests in shares issued by private, non-profit, cooperative housing
corporations and in the proprietary leases or occupancy agreements granting
exclusive rights to occupy specific dwellings in the cooperatives' buildings. In
the case of a cooperative apartment loan, the proprietary lease or occupancy
agreement securing the cooperative apartment loan is generally subordinate to
any blanket mortgage on the cooperative apartment building and/or the underlying
land. Additionally, the proprietary lease or occupancy agreement is subject to
termination and the cooperative shares are subject to cancellation by the
cooperative if the tenant-stockholder fails to pay maintenance or other
obligations or charges owed by the tenant-stockholder.
Each mortgage loan must have an original term of maturity of not less
than 5 years and not more than 40 years. Mortgage loans having LTVs at the time
of origination exceeding 80% will generally be supported by external credit
enhancement or be covered by primary mortgage insurance providing coverage on at
least the amount of the mortgage loan in excess of 75% of the original fair
market value of the mortgaged property and remaining in force until the
principal balance of the mortgage loan is reduced to 80% of the original fair
market value. The fair market value of the mortgaged property securing any
mortgage loan is, unless otherwise specified in the applicable prospectus
supplement, the lesser of (x) the appraised value of the mortgaged property
determined in an appraisal obtained by the originator of the mortgage loan at
origination, acquisition, or, in the case of a refinancing, an appraisal
obtained at the origination of the refinanced mortgage loan, and (y) the sale
price for the mortgaged property.
No assurance can be given that values of the mortgaged properties have
remained or will remain at the levels which existed on the dates of origination
of the mortgage loans. If the residential real estate market should experience
an overall decline in property values that caused the outstanding balances of
the mortgage loans and any secondary financing on the mortgaged properties in a
particular trust fund to become equal to or greater than the value of the
mortgaged properties, the actual rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced in the mortgage lending
industry. To the extent that the losses are not covered by the methods of credit
enhancement for the series or the insurance policies described in this
prospectus, they will be borne by holders of the securities of the series
relating to the trust fund. Furthermore, in a declining real estate market a new
appraisal could render the cut-off date LTVs of the mortgage loans as unreliable
measures of leverage.
The prospectus supplement for each series will describe selected
characteristics of the mortgage loan pool, which may include the aggregate
principal balance of the mortgage loans as of the cut-off date, the range of
original terms to maturity of the mortgage loans, the weighted average remaining
term to stated maturity at the cut-off date of the mortgage loans, the earliest
and latest origination dates of the mortgage loans, the range of loan interest
rates and Net Loan Rates borne by the mortgage loans, the weighted average loan
interest rate at the cut-off date of the mortgage loans, the range of LTVs at
the time of origination and the highest outstanding
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principal balance at origination of any mortgage loan. A maximum of 5% of the
mortgage loans, by aggregate principal balance as of the cut-off date, that are
included in a trust fund may deviate from the characteristics that are described
in the accompanying prospectus supplement.
All of the mortgage loans in a trust fund will have monthly payments
due on a specified day of each month and will, for mortgage loans secured by
residential mortgaged properties, require at least monthly payments of interest
on any outstanding balance. The mortgage loan pools may include adjustable-rate
mortgage loans that provide for payment adjustments to be made less frequently
than adjustments in the payments. Each adjustment in the loan interest rate
which is not made at the time of a corresponding adjustment in payments -- and
which adjusted amount of interest is not paid currently on a voluntary basis by
the mortgagor -- will result in either a decrease, if the loan interest rate
rises, or an increase, if the loan interest rate declines, in the rate of
amortization of the mortgage loan. Moreover, these payment adjustments on the
mortgage loans may be subject to a number of limitations, as specified in the
accompanying prospectus supplement, which may also affect the rate of
amortization on the mortgage loan. As a result of these provisions, or in
accordance with the payment schedules of some graduated payment loans and other
mortgage loans, the amount of interest accrued in any month may equal or exceed
the scheduled monthly payment on the mortgage loan. In any of these months, no
principal would be payable on the mortgage loan and, if the accrued interest
exceeded the scheduled monthly payment, there would be deferred interest.
Deferred interest is added to the principal balance of the mortgage loan and
will bear interest at the loan interest rate until paid. If these limitations
prevent the payments from being sufficient to amortize fully the mortgage loan
by its stated maturity date, a lump sum payment equal to the remaining unpaid
principal balance of the mortgage loan will be due on its stated maturity date.
See "Prepayment and Yield Considerations" in this prospectus.
The mortgaged properties will consist of residential properties,
including detached homes, townhouses, units in planned unit developments,
condominium units, mixed-use properties, vacation homes and small scale
multifamily properties, all of which constitute a "dwelling or mixed residential
and commercial structure" within the meaning of Section 3(a)(41)(A)(i) of the
Securities Exchange Act of 1934, except for a de minimis portion of any trust
fund which may be comprised of other types of properties. The mortgage loans
will be secured by liens on fee simple or leasehold interests -- in those states
in which long-term ground leases are used as an alternative to fee interests --
in the mortgaged properties, or liens on shares issued by cooperatives and the
proprietary leases or occupancy agreements occupy specified units in the
cooperatives' buildings. The geographic distribution of mortgaged properties
will be included in the accompanying prospectus supplement. Each prospectus
supplement will also describe the percentage of the aggregate principal balance
as of the cut-off date of the mortgage loans in the mortgage loan pool
representing the refinancing of existing mortgage indebtedness and the types of
mortgaged properties.
Buy-Down Loans. A trust fund may contain mortgage loans subject to
temporary buy-down plans under which the monthly payments made by the mortgagor
during the early years of the mortgage loan will be less than the scheduled
monthly payments on the mortgage loan. The shortfall in payment made by the
mortgagor under the terms of the buy-down plan will be compensated for from an
amount contributed by the originator of the mortgage loan or another source and,
if so specified in the accompanying prospectus supplement, placed in a custodial
account by the servicer. If the mortgagor on a buy-down loan prepays the
mortgage loan in its entirety, or defaults on the mortgage loan and the
mortgaged property is sold in liquidation thereof, during the period when the
mortgagor is not obligated, on account of the buy-down plan, to pay the full
scheduled monthly payment otherwise due on the buy-down loan, the unpaid
principal balance of the buy-down loan will be reduced by the amounts remaining
in the custodial
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account for the buy-down loan, and the amounts shall be deposited in the
Collection Account, net of any amounts paid in connection with the buy-down loan
by any insurer, guarantor or other person under a credit enhancement arrangement
described in the accompanying prospectus supplement.
Balloon Loans. A trust fund may include mortgage loans which are
amortized over 30 years or some other term, or which do not provide for
amortization prior to maturity, but which have a shorter term that causes the
outstanding principal balance of the mortgage loan to be due and payable at
maturity in an amount greater than the regular scheduled payment. If specified
in the accompanying prospectus supplement, the originator will be obligated to
refinance its balloon loan at its maturity at a new interest rate determined
prior to maturity by reference to an index plus a margin specified in the
mortgage note. The mortgagor is not, however, obligated to refinance the balloon
loan through the originator. In the event a mortgagor refinances a balloon loan,
the new loan will not be included in the trust fund. See "Prepayment and Yield
Considerations" in this prospectus.
Home Equity Lines of Credit. The trust fund may include "home equity
revolving lines of credit" or home equity lines. A home equity line establishes
a maximum credit limit for the borrower, and permits the borrower to draw
additional funds, and repay the aggregate outstanding balance in each case from
time to time in a manner so that the aggregate outstanding balance of the home
equity line does not exceed the maximum credit limit. Home equity lines are
generally evidenced by a loan agreement rather than a note. Home equity lines
generally may be drawn down from time to time by the borrower writing a check
against the account, or acknowledging the advance in a supplement to the loan
agreement. A home equity line will be secured by either a senior or a junior
lien mortgage, and will bear interest at either a fixed or an adjustable rate.
In a number of states, the borrower must, on the opening of an account,
draw an initial advance of not less than a specified amount. Home equity lines
generally amortize according to an amortization period established at the time
of the initial advance. The amortization period is the length of time in which
the initial advance plus interest will be repaid in full and generally ranges
from 5 years to 15 years depending on the credit limit assigned. Generally, the
amortization period will be longer the higher the credit limit. The minimum
monthly payment on a home equity line will generally be equal to the sum of the
following:
o a basic monthly payment in an amount necessary to completely repay
the then-outstanding balance and the applicable finance charge in
equal installments over the assigned amortization period;
o any monthly escrow charges;
o any delinquency or other similar charges; and
o any past due amounts, including past due finance charges.
The basic monthly payment amount is typically recomputed each time the
loan interest rate adjusts and whenever additional funds are advanced; the
recomputation in the case of an additional advance of funds may also reset the
amortization schedule. The effect of each additional advance of funds on the
home equity line is to reset the commencement date of the original maturity term
to the date of the additional advance. For example, a home equity line made
originally with a 15-year maturity from date of origination changes at the time
of the next adjustment or additional advance of funds to a home equity line with
a maturity of 15 years from the date of the additional advance of funds. For
some home equity lines, the same type of recomputation exists for adjustments of
the loan interest rate.
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Prior to the expiration of a specified period, the reduction of the
account to a zero balance and the closing of a home equity line account may
result in a prepayment penalty. A prepayment penalty also may be assessed
against the borrower if a home equity line account is closed by the servicer due
to a default by the borrower under the loan agreement.
Each loan agreement will provide that the servicer has the right to
require the borrower to pay the entire balance plus all other accrued but unpaid
charges immediately, and to cancel the borrower's credit privileges under the
loan agreement if, among other things, the borrower fails to make any minimum
payment when due under the loan agreement, if there is a material change in the
borrower's ability to repay the home equity line, or if the borrower sells any
interest in the property securing the loan agreement, thereby causing the
"due-on-sale" clause in the trust deed or mortgage to become effective.
Junior Liens. Mortgage loans which are secured by junior mortgages are
subordinate to the rights of the mortgagees under the senior mortgage or
mortgages. Accordingly, liquidation, insurance and condemnation proceeds
received in connection with the mortgaged property will be available to satisfy
the outstanding balance of the mortgage loan only to the extent that the claims
of the senior mortgages have been satisfied in full, including any liquidation
and foreclosure costs. In addition, a junior mortgagee foreclosing on its
mortgage may be required to purchase the mortgaged property for a price
sufficient to satisfy the claims of the holders of any senior mortgages which
are also being foreclosed. In the alternative, a junior mortgagee which acquires
title to a mortgaged property, through foreclosure, deed-in-lieu of foreclosure
or otherwise may take the property subject to any senior mortgages and continue
to perform the obligations on any senior mortgages, in which case the junior
mortgagee must comply with the terms of any senior mortgages or risk foreclosure
by the senior mortgagee.
High LTV Loans. A mortgage loan pool may include mortgage loans with
combined LTVs in excess of 100%, generally up to a maximum of 125%. For these
high LTV loans, more emphasis in the underwriting analysis is placed on the
borrower's payment history and ability to repay debt, rather than on the
collateral value of the mortgaged property. High LTV loans are generally
targeted as debt consolidation loans for repeat or frequent borrowers with
generally strong credit ratings. Lending decisions for high LTV loans are based
on an analysis of the prospective mortgagor's documented cash flow and credit
history supplemented by a collateral evaluation deemed appropriate by the
originator.
Graduated Equity Loans. A mortgage loan pool may include graduated
equity loans. Graduated equity loans are fixed-rate, fully-amortizing mortgage
loans which provide for monthly payments based on a 10- to 30-year amortization
schedule, and which provide for scheduled annual payment increases for a number
of years and level payments thereafter. The full amount of the scheduled payment
increases during the early years is applied to reduce the outstanding principal
balance of the mortgage loans.
Graduated Payment Loans. A mortgage loan pool may include graduated
payment loans. Graduated payment loans provide for payments of monthly
installments which increase annually in each of a specified number of initial
years and level monthly payments thereafter. Payments during the early years are
required in amounts lower than the amounts which would be payable on a level
debt service basis due to the deferral of a portion of the interest accrued on
the mortgage loan. Deferred interest is added to the principal balance of the
mortgage loan and is paid, together with interest thereon, in the later years of
the obligation. Because the monthly payments during the early years of the
mortgage loan are not sufficient to pay the full interest accruing on the
mortgage loan, the interest payments on the mortgage loan may not be sufficient
in its early years to meet its proportionate share of the distributions expected
to be made on the securities. Thus, if the mortgage loans include graduated
payment loans, the servicer will establish a reserve
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fund which, together with reinvestment income thereon, will be sufficient to
cover the amount by which payments of interest on the graduated payment loans
assumed in calculating distributions expected to be made on the securities of a
series exceed scheduled interest payments according to the relevant graduated
payment mortgage plan for the period during which excess occurs.
Convertible Mortgage Loans. A trust fund may contain convertible
mortgage loans which may either (x) switch from a fixed-rate mortgage to an
adjustable-rate mortgage under the terms of the underlying mortgage note or (y)
switch from an adjustable-rate mortgage to a fixed-rate mortgage under the terms
of the underlying mortgage note. These mortgage loans will be automatically
repurchased by the originator or the servicer upon the occurrence of the
conversion.
Payment Terms.
The payment terms of the mortgage loans to be included in a trust fund
for a series will be described in the accompanying prospectus supplement and may
include any of the following features of combinations thereof or other features
described in the accompanying prospectus supplement:
o Interest may be payable at a loan interest rate that may be a
fixed rate, a rate adjustable from time to time in relation to
an index, a rate that is fixed for a period of time and is
followed by an adjustable rate, a rate that otherwise varies
from time to time, or a rate that is convertible from an
adjustable rate to a fixed rate or a fixed rate to an
adjustable rate. Changes to a loan interest rate may be
subject to periodic limitations, maximum rates, minimum rates
or a combination of these limitations. Accrued interest may be
deferred and added to the principal of a mortgage loan for
these periods and under other circumstances as may be
specified in the accompanying prospectus supplement. Mortgage
loans may provide for the payment of interest at a rate lower
than the specified loan interest rate for a period of time of
for the life of the mortgage loan, and the amount of any
difference may be contributed from funds supplied by the
seller of the mortgaged property or another source.
o Principal may be payable on a level debt service basis to
fully amortize the mortgage loan over its term, may be
calculated on the basis of an assumed amortization schedule
that is significantly longer than the original term to
maturity or on a loan interest rate that is different from the
loan interest rate or may not be amortized during all or a
portion of the original term. Payment of all or a substantial
portion of the principal may be due on maturity. Principal may
include deferred interest that has been added to the principal
balance of the mortgage loan.
o Monthly payments of principal and interest may be fixed for
the life of the mortgage loan, may increase over a specified
period of time or may change from period to period. mortgage
loans may include limits on periodic increases or decreases in
the amount of monthly payments and may include maximum or
minimum amounts of monthly payments.
o Prepayments of principal may be subject to a prepayment fee,
which may be fixed for the life of the mortgage loan or may
decline over time, and may be prohibited for the life of the
mortgage loan or for specified periods. Some mortgage loans
may
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permit prepayments after expiration of the applicable
lockout period and may require the payment of a prepayment fee
in connection with any subsequent prepayment. Other mortgage
loans may permit prepayments without payment of a fee unless
the prepayment occurs during specified time periods. The
mortgage loans may include "due on sale" clauses which permit
the mortgagee to demand payment of the entire mortgage loan in
connection with the sale or particular transfers of the
mortgaged property. Other mortgage loans may be assumable by
persons meeting the then applicable underwriting standards of
the originator.
Amortization of the Mortgage Loans.
The mortgage loans will provide for payments that are allocated to
principal and interest according to either the actuarial method, the simple
interest method or the "Rule of 78s" method, as described in the accompanying
prospectus supplement. The accompanying prospectus supplement will state whether
any of the mortgage loans will provide for deferred interest or negative
amortization.
An actuarial mortgage loan provides for payments in level monthly
installments -- except, in the case of balloon loans, for the final payment --
consisting of interest equal to one-twelfth of the applicable loan interest rate
times the unpaid principal balance, with the remainder of the payment applied to
principal.
A simple interest mortgage loan provides for the amortization of the
amount financed under the mortgage loan over a series of equal monthly payments
- -- except, in the case of a balloon loan, for the final payment. Each monthly
payment consists of an installment of interest which is calculated on the basis
of the outstanding principal balance of the mortgage loan being multiplied by
the stated loan interest rate and further multiplied by a fraction, the
numerator of which is the number of days in the period elapsed since the
preceding payment of interest was made and the denominator of which is the
number of days in the annual period for which interest accrues on the mortgage
loan. As payments are received under a simple interest mortgage loan, the amount
received is applied first to interest accrued to the date of payment and the
balance is applied to reduce the unpaid principal balance. Accordingly, if a
borrower pays a fixed monthly installment on a simple interest mortgage loan
before its scheduled due date, the portion of the payment allocable to interest
for the period since the preceding payment was made will be less than it would
have been had the payment been made as scheduled, and the portion of the payment
applied to reduce the unpaid principal balance will be correspondingly greater.
However, the next succeeding payment will result in an allocation of a greater
amount to interest if the payment is made on its scheduled due date.
Conversely, if a borrower pays a fixed monthly installment after its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be greater than it would have
been had the payment been made as scheduled, and the remaining portion, if any,
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. If each scheduled payment under a simple interest mortgage
loan is made on or prior to its scheduled due date, the principal balance of the
mortgage loan will amortize in the manner described in the preceding paragraph.
However, if the borrower consistently makes scheduled payments after the
scheduled due date, the mortgage loan will amortize more slowly than scheduled.
If a simple interest mortgage loan is prepaid, the borrower is required to pay
interest only to the date of prepayment.
Some of the mortgage loans held by an issuer may be loans insured under
the FHA Title I credit insurance program created under Sections 1 and 2(a) of
the National Housing Act of 1934. Under the Title I program, the FHA is
authorized and empowered to insure qualified lending institutions against losses
on eligible loans. The Title I program operates as a coinsurance program in
which the FHA insures up to 90% of specified losses incurred on an individual
insured loan, including the unpaid principal balance of the loan, but only to
the extent of the
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insurance coverage available in the lender's FHA insurance
coverage reserve account. The owner of the loan bears the uninsured loss on each
loan. The types of loans which are eligible for insurance by the FHA under the
Title I program include property improvement loans made to finance actions or
items that substantially protect or improve the basic livability or utility of a
property and includes:
o single family, multifamily and nonresidential property improvement
loans;
o manufactured home improvement loans, where the home is classified
as personality;
o historic preservation loans; and
o fire safety equipment loans for existing health care facilities.
If specific information respecting the mortgage loans to be included in
a trust fund is not known to the issuer at the time the securities of a series
are initially offered, more general information of the nature described above
will be provided in the prospectus supplement and final specific information
will be disclosed in a Current Report on Form 8-K to be available to investors
on the date of issuance thereof and to be filed with the Securities and Exchange
Commission promptly after the initial issuance of the securities. A copy of the
Issuing Agreement for each series of securities will be attached to the Form 8-K
and will be available for inspection at the corporate trust office of the
trustee specified in the accompanying prospectus supplement. A schedule of the
mortgage loans relating to a series will be attached to the Issuing Agreement
delivered to the trustee upon delivery of the securities.
The Contracts
Each contract pool will consist of conventional manufactured housing
installment sales contracts and installment loan agreements originated by the
originator, or by a manufactured housing dealer in the ordinary course of
business and purchased by the originator. Each contract will be secured by
manufactured homes, each of which will be located in any of the fifty states,
the District of Columbia and the Commonwealth of Puerto Rico. The contracts will
be fully amortizing and will bear interest at a fixed or adjustable annual
percentage rate. The contract pool may include contracts for which a Fixed
Retained Yield has been retained, in which event references in this prospectus
to contracts and payments thereon shall mean the contracts exclusive of the
Fixed Retained Yield. The prospectus supplement for a series will specify
whether there will be any Fixed Retained Yield in any contract, and if so, the
owner thereof. See "Fixed Retained Yield" in this prospectus.
The originator will represent that the manufactured homes securing the
contracts consist of "manufactured homes" within the meaning of 42 United States
Code, Section 5402(6), which defines a "manufactured home" as "a structure,
transportable in one or more sections, which in the traveling mode, is eight
body feet or more in width or forty body feet or more in length, or, when
erected on site, is three hundred twenty or more square feet, and which is built
on a permanent chassis designed to be used as a dwelling with or without a
permanent foundation when connected to the required utilities, and includes the
plumbing, heating, air-conditioning, and electrical systems contained therein;
except that this term shall include any structure which meets all the
requirements of [this] paragraph except the size requirements and with respect
to which the manufacturer voluntarily files a certification required by the
Secretary of Housing and Urban Development and complies with the standards
established under [this] chapter."
Manufactured homes, unlike site-built homes, generally depreciate in
value. Consequently, at any time after origination it is possible, especially in
the case of contracts with
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high LTVs at origination, that the market value of a manufactured home may be
lower than the principal amount outstanding under the contract.
The prospectus supplement for each series will describe a number of
characteristics of the contracts, which may include the aggregate principal
balance of the contracts in the contract pool as of the cut-off date for a
series, the range of original terms to maturity of the contracts in the contract
pool, the weighted average remaining term to stated maturity at the cut-off date
of the contracts, the earliest and latest origination dates of the contracts,
the range of loan interest rates and Net Loan Rates borne by the contracts, the
weighted average Net Loan Rate at the cut-off date of the contracts, the range
of the contracts which had loan-to-value ratios at the time of origination of
the contracts and the highest outstanding principal balance at origination of
any contract. A maximum of 5%, by aggregate principal balance as of the cut-off
date, of the aggregate contracts that are included in a trust fund will deviate
from the characteristics that are described in the accompanying prospectus
supplement.
The fair market value of the manufactured home securing any contract
is, unless otherwise specified in the applicable prospectus supplement, either
(x) the appraised value of the manufactured home determined in an appraisal
obtained by the originator at origination or acquisition and (y) the sale price
for the property, plus, in either case, sales and other taxes and, to the extent
financed, filing and recording fees imposed by law, premiums for insurance and
prepaid finance charges.
The contracts in a trust fund will generally have due dates on the
first of each month and will be fully-amortizing contracts. Contracts may have
due dates which occur on a date other than the first of each month. The contract
pools may include adjustable rate contracts that provide for payment adjustments
to be made less frequently than adjustments in the payments. Each adjustment in
the loan interest rate which is not made at the time of a corresponding
adjustment in payments will result in a decrease, if the loan interest rate
rises, or an increase, if the loan interest rate declines, in the rate of
amortization of the contract. Moreover, the payment adjustments on the contracts
may be subject to specified limitations, as specified in the prospectus
supplement, which may also affect the rate of amortization on the contract. As a
result of these provisions, the amount of interest accrued in any month may
equal or exceed the scheduled monthly payment on the contract. In any of these
months, no principal would be payable on the contract, and if the accrued
interest exceeded the scheduled monthly payment, the excess interest due would
become deferred interest that is added to the principal balance of the contract.
Deferred interest will bear interest at the loan interest rate until paid. If
these limitations prevent the payments from being sufficient to amortize fully
the contract by its stated maturity date, a lump sum payment equal to the
remaining unpaid principal balance will be due on its stated maturity date. See
"Prepayment and Yield Considerations" in this prospectus.
The geographic distribution of manufactured homes will be stated in the
accompanying prospectus supplement. Each prospectus supplement will state the
percentage of the aggregate principal balance of any contracts as of the cut-off
date in the contract pool which are secured by manufactured homes which have
become permanently affixed to real estate. Each prospectus supplement will also
state the percentage of the aggregate principal balance of the contracts as of
the cut-off date in the contract pool representing the refinancing of existing
mortgage indebtedness.
If specific information respecting the contracts to be included in a
trust fund is not known to the issuer at the time the securities of a series are
initially offered, more general information of the nature described above will
be provided in the prospectus supplement and final specific information will be
disclosed in a Current Report on Form 8-K to be available to investors on the
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date of issuance thereof and to be filed with the Securities and Exchange
Commission promptly after the initial issuance of the securities.
Fixed Retained Yield
The prospectus supplement for a series will specify whether a Fixed
Retained Yield has been retained for the loans of a series, and, if so, the
owner thereof. Any Fixed Retained Yield will be established on a loan-by-loan
basis and will be specified in the schedule of loans attached as an exhibit to
the applicable Issuing Agreement. The servicer may deduct the Fixed Retained
Yield from payments as received and prior to deposit of these payments in the
Collection Account for a series or may, unless an election has been made to
treat the trust fund, or a portion of the trust fund, as a REMIC, withdraw the
Fixed Retained Yield from the Collection Account after the entire payment has
been deposited in the Collection Account. Notwithstanding the foregoing, any
partial payment or recovery of interest received by the servicer relating to a
loan, whether paid by the mortgagor or obligor or received as Liquidation
Proceeds, Insurance Proceeds or otherwise, after deduction of all applicable
servicing fees, will be allocated between Fixed Retained Yield, if any, and
interest on a pari passu basis.
Insurance Policies
The Issuing Agreement may require the servicer to cause to be
maintained for each loan a standard hazard insurance policy issued by a
generally acceptable insurer insuring the mortgaged property underlying the
mortgage loan or the manufactured home underlying the contract against loss by
fire, with extended coverage. Standard hazard insurance policies will generally
be in an amount at least equal to the lesser of 100% of the insurable value of
the improvements which are a part of the mortgaged property or manufactured home
or the principal balance of the loan; provided, however, that this insurance may
not be less than the minimum amount required to fully compensate for any damage
or loss on a replacement cost basis. The servicer may also maintain on property
acquired upon foreclosure, or deed in lieu of foreclosure, of any mortgage loan,
and on any manufactured home acquired by repossession a standard hazard
insurance policy in an amount that is at least equal to the lesser of 100% of
the insurable value of the improvements which are a part of the property or the
insurable value of the manufactured home or the principal balance of the loan
plus, if required by the applicable Issuing Agreement, accrued interest and
liquidation expenses; provided, however, that this insurance may not be less
than the minimum amount required to fully compensate for any damage or loss on a
replacement cost basis. Any amounts collected under any insurance policies,
other than amounts to be applied to the restoration or repair of the mortgaged
property or manufactured home or released to the borrower in accordance with
normal servicing procedures, will be deposited in the Collection Account.
The standard hazard insurance policies covering the mortgaged
properties generally will cover physical damage to, or destruction of, the
improvements on the mortgaged property caused by fire, lightning, explosion,
smoke, windstorm, hail, riot, strike and civil commotion, subject to the
conditions and exclusions particularized in each policy. Because the standard
hazard insurance policies relating to the mortgage loans will be underwritten by
different insurers and will cover mortgaged properties located in various
states, these policies will not contain identical terms and conditions. The most
significant terms thereof, however, generally will be determined by state law
and generally will be similar. Most of these policies typically will not cover
any physical damage resulting from the following: war, revolution, governmental
actions, floods and other water-related causes, earth movement, including
earthquakes, landslides and mudflows, nuclear reaction, wet or dry rot, vermin,
rodents, insects or domestic animals, hazardous wastes or hazardous substances,
theft and, in some cases, vandalism. The foregoing list is merely indicative of
particular kinds of uninsured risks and is not intended to be all-inclusive.
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The standard hazard insurance policies covering the contracts will
provide, at a minimum, the same coverage as a standard form fire and extended
coverage insurance policy that is customary for manufactured housing in the
state in which the manufactured home is located.
The servicer may maintain a blanket policy insuring against hazard
losses on all of the mortgaged properties or manufactured homes in lieu of
maintaining the required standard hazard insurance policies. The servicer will
be liable for the amount of any deductible under a blanket policy if the amount
would have been covered by a required standard hazard insurance policy, had it
been maintained.
In general, if a mortgaged property or manufactured home is located in
an area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards and the flood insurance has been made
available, the Issuing Agreement will require the servicer to cause to be
maintained a flood insurance policy meeting the requirements of the current
guidelines of the Federal Insurance Administration with a generally acceptable
insurance carrier. Generally, the Issuing Agreement will require that the flood
insurance be in an amount not less than the lesser of (x) the amount required to
compensate for any loss or damage to the mortgaged property on a replacement
cost basis and (y) the maximum amount of insurance which is available under the
federal flood insurance program.
Any losses incurred in connection with loans due to uninsured risks,
including earthquakes, mudflows, floods, hazardous wastes and hazardous
substances, or insufficient hazard insurance proceeds could affect distributions
to the securityholders.
The servicer shall obtain and maintain at its own expense and keep in
full force and effect a blanket fidelity bond and an error and omissions
insurance policy covering the servicer's officers and employees as well as
office persons acting on behalf of the servicer in connection with the servicing
of the trust fund.
Although the terms and conditions of primary mortgage insurance
policies differ, each primary mortgage insurance policy will generally cover
losses up to an amount equal to the excess of the unpaid principal amount of a
defaulted mortgage loan or contract, plus accrued and unpaid interest thereon
and approved expenses, over a specified percentage of the value of the mortgaged
property or manufactured home.
As conditions precedent to the filing or payment of a claim under a
primary mortgage insurance policy, the insured will typically be required, in
the event of default by the mortgagor, among other things, to:
o advance or discharge (x) hazard insurance premiums and (y) as
necessary and approved in advance by the insurer, real estate
taxes, protection and preservation expenses and foreclosure and
similar costs;
o in the event of any physical loss or damage to the mortgaged
property, have the mortgaged property restored to at least its
condition at the effective date of the primary mortgage insurance
policy; and
o if the insurer pays the entire amount of the loss or damage,
tender to the insurer good and merchantable title to, and
possession of, the mortgaged property.
Acquisition of the Loans from the Originator
The loans underlying a series of securities will be acquired by the
issuer from the originator, either directly or through a special-purpose
affiliate of the originator, under a Loan Sale Agreement. Each loan so acquired
will have been originated or acquired by the originator
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thereof in accordance with the underwriting criteria specified in the
accompanying prospectus supplement. In the Loan Sale Agreement, the originator
will make a number of representations and warranties concerning the loans being
acquired from the originator as described in this prospectus under
"--Representations and Warranties".
Assignment of the Loans
At the time of the issuance of the securities of a series, the issuer
will cause the mortgage loans comprising the mortgage loan pool, including any
rights to, or security interests in, leases, rents and personal property, or the
contracts comprising the contract pool included in the trust fund to be assigned
to the trustee, together with all principal and interest received by or on
behalf of the issuer on or in connection with the loans after the cut-off date,
other than principal and interest due on or before the cut-off date and other
than any Fixed Retained Yield, and the originator shall thereupon be liable to
the trustee for defective loan documents or an uncured breach of the
representations or warranties regarding the loans, to the extent described
below. The trustee or its agent will, concurrently with the assignment,
authenticate and deliver the securities evidencing a series to the issuer in
exchange for the loans. Each loan will be identified in a schedule appearing as
an exhibit to the applicable Issuing Agreement. Each schedule will include,
among other things, the unpaid principal balance as of the close of business on
the applicable cut-off date, the scheduled monthly payment of principal, if any,
and interest, the maturity date and the loan interest rate for each loan in the
trust fund.
For each mortgage loan in a trust fund, the mortgage note or other
promissory note, any assumption, modification or conversion to fixed interest
rate agreement, a copy of any recorded UCC-1 financing statements and
continuation statements, together with original executed UCC-2 or UCC-3
financing statements disclosing an assignment of a security interest in any
personal property constituting security for repayment of the mortgage loan to
the trustee, an executed re-assignment of assignment of leases, rents and
profits to the trustee if the assignment of leases, rents and profits is
separate from the mortgage, a mortgage assignment in recordable form and the
recorded mortgage or other documents as are required under applicable law to
create a perfected security interest in the mortgaged property in favor of the
trustee will be delivered to the trustee or to a designated custodian; provided,
that, in instances where recorded documents cannot be delivered due to delays in
connection with recording, copies thereof, certified by the originator to be
true and complete copies of these documents, sent for recording, may be
delivered and the original recorded documents will be delivered promptly upon
receipt. As to each mortgage loan for which there is primary mortgage insurance,
the certificate of primary mortgage insurance will be delivered to the trustee.
The assignment of each mortgage will be recorded promptly after the initial
issuance of securities for the trust fund, except in states where, the recording
is not required to protect the trustee's interest in the mortgage loan against
the claim of any subsequent transferee or any successor to or creditor of the
originator or any affiliate of the originator.
For any mortgage loans which are cooperative apartment loans, the
issuer will cause to be delivered to the trustee or to a designated custodian
the original cooperative note, the security agreement, the proprietary lease or
occupancy agreement, the recognition agreement, an executed financing agreement
and the relevant stock certificate and blank stock powers. The originator will
cause to be filed in the appropriate office an assignment and a refinancing
statement evidencing the trustee's security interest in each cooperative
apartment loan.
For each contract, there will be delivered to the trustee or to a
designated custodian the original contract and copies of documents and
instruments to each contract and the security interest in the property securing
each contract. In order to give notice of the right, title and interest of
securityholders to the contracts, the sponsor will cause a UCC-1 financing
statement to be executed identifying the trustee as the secured party and
identifying all contracts as collateral.
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The contracts will not be stamped or otherwise marked to reflect their
assignment to the issuer. Therefore, if, through negligence, fraud or otherwise,
a subsequent purchaser were able to take physical possession of the contracts
without notice of the assignment, the interest of securityholders in the
contracts could be defeated. See "Material Legal Aspects of the Loans."
The trustee or the designated custodian will hold the documents
relating to mortgage loans generally or contracts in trust for the benefit of
securityholders of the series and will review the documents within 45 days of
the date of the applicable Issuing Agreement. If any document is not delivered
or is found to be defective in any material respect or has not been recorded as
required by the applicable Loan Sale Agreement, the trustee or a designated
custodian shall immediately notify the servicer and the issuer, and the servicer
shall immediately notify the originator. If the originator cannot cure the
omission or defect within 60 days after receipt of notice, the originator will
be obligated, under the Loan Sale Agreement, either to repurchase the loan from
the trustee within 60 days after receipt of notice, at a price equal to the then
unpaid principal balance thereof, plus accrued and unpaid interest at the
applicable loan interest rate, less any Fixed Retained Yield and less the rate,
if any, of servicing fee payable in connection with the loan, through the last
day of the month in which the repurchase takes place or to substitute one or
more new loans for the loan. In the case of a loan so repurchased, the purchase
price will be deposited in the Collection Account. In the case of a
substitution, the substitution will be made in accordance with the standards
described in "-- Representations and Warranties" below.
There can be no assurance that the originator will fulfill this
repurchase or substitution obligation. The servicer will be obligated to enforce
the obligation to the same extent as it must enforce the obligation of the
originator for a breach of representation or warranty. However, as in the case
of an uncured breach of a representation or warranty, neither the servicer,
unless the servicer is the originator, nor the issuer will be obligated to
purchase or substitute for the loan if the originator defaults on its repurchase
or substitution obligation, unless the breach also constitutes a breach of the
representations or warranties of the servicer or the issuer, as the case may be.
This repurchase or substitution obligation constitutes the sole remedy available
to the securityholders or the trustee for omission of, or a material defect in,
a constituent document.
The trustee will be authorized to appoint a custodian to maintain
possession of the documents relating to the loans. The custodian will keep the
documents as the trustee's agent under a custodial agreement.
Representations and Warranties
The originator, in the Loan Sale Agreement, will have made a number of
representations and warranties concerning the mortgage loans. The originator
will have represented, among other things, substantially to the effect that:
o immediately prior to the sale and transfer of the mortgage loans,
the originator had good title to, and was the sole owner of, each
mortgage loan and there had been no other assignment or pledge
thereof;
o as of the date of the transfer, the mortgage loans are subject to
no offsets, defenses or counterclaims;
o each mortgage loan at the time it was made complied in all
material respects with applicable state and federal laws,
including, usury, equal credit opportunity and disclosure laws;
o a lender's policy of title insurance was issued on the date of the
origination of each mortgage loan and each policy is valid and
remains in full force and effect;
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o as of the date of the transfer, each mortgaged property is free of
material damage and is in adequate repair and each mortgage is a valid
lien on the mortgaged property, subject only to
o the lien of current real property taxes and assessments,
o covenants, conditions and restrictions, rights of way, easements and
other matters of public record as of the date of the recording of
the mortgage, exceptions appearing of record and either being
acceptable to mortgage lending institutions generally or
specifically reflected in the lender's policy of title insurance
issued on the date of origination and either (x) specifically
referred to in the appraisal made in connection with the origination
of the mortgage loan or (y) which do not adversely affect the
appraised value of the mortgaged property as set forth in the
appraisal,
o other matters to which like properties are commonly subject which do
not materially interfere with the benefits of the security intended
to be provided by the mortgage, and
o in the case of second or more junior loans any senior loans of
record as of the date of recording of the mortgage loan;
o as of the date of the transfer, there are no delinquent tax or assessment
liens against the mortgaged property that would permit taxing authority to
initiate foreclosure proceedings; and
o for each mortgage loan, if the mortgaged property is located in an area
identified by the Federal Emergency Management Agency as having special
flood hazards and subject in particular circumstances to the availability
of flood insurance under the federal flood insurance program, the
mortgaged property is covered by flood insurance meeting the requirements
of the applicable Issuing Agreement.
The originator, in the Loan Sale Agreement, will have made a number of
representations and warranties concerning the contracts. The originator will
have represented, among other things, substantially to the effect that:
o immediately prior to the sale and transfer of the contracts, the
originator had good title to, and was the sole owner of, each contract and
there had been no other assignment or pledge thereof,
o as of the date of the transfer, the contracts are subject to no offsets,
defenses or counterclaims,
o each contract at the time it was made complied in all material respects
with applicable state and federal laws, including usury, equal credit
opportunity and disclosure laws,
o as of the date of the transfer, each contract is a valid first lien on the
manufactured home and the manufactured home is free of material damage and
is in adequate repair,
o as of the date of the transfer, there are no delinquent tax or assessment
liens against the manufactured home, and
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o for each contract, the manufactured home securing the contract is
covered by a standard hazard insurance policy in the amount
required by the Issuing Agreement and all premiums then due on the
insurance have been paid in full.
All of the representations and warranties of the originator concerning
a loan will have been made as of the date on which the originator sold the loan
to the issuer. A substantial period of time may have elapsed between the date as
of which the representations and warranties were made and the later date of
initial issuance of the securities. Since the representations and warranties
referred to in the preceding paragraphs are the only representations and
warranties that will be made by the originator, the repurchase obligation
described below will not arise if, during the period commencing on the date of
sale of a loan by the originator, the relevant event occurs that would have
given rise to this kind of obligation had the event occurred prior to sale of
the affected loan. However, the issuer will not include any loan in the trust
fund for any series of securities if anything has come to the issuer's attention
that would cause it to believe that the representations and warranties of the
originator will not be accurate and complete in all material respects concerning
the loan as of the date of initial issuance of the securities.
The servicer, or the trustee if the servicer is the originator, will
promptly notify the originator of any breach of any representation or warranty
made by it concerning a loan which materially and adversely affects the
interests of the securityholders in the loan. If the originator cannot cure the
breach within 60 days after notice from the servicer or the trustee, as the case
may be, then the originator will be obligated either (1) to repurchase the loan
from the trust fund at the applicable purchase price or (2) subject to the
trustee's approval and to the extent permitted by the Issuing Agreement, to
substitute for the Deleted Loan one or more loans, as the case may be, but only
if (a) for a trust fund or a portion of the trust fund for which a REMIC
election is to be made, the substitution is effected within two years of the
date of initial issuance of the securities or (b) for a trust fund for which no
REMIC election is to be made, the substitution is effected within 120 days of
the date of initial issuance of the securities.
Any substitute loan will, on the date of substitution:
o have a LTV no greater than that of the Deleted Loan,
o have a loan interest rate not less than the loan interest rate of the
Deleted Loan,
o have a Net Loan Rate not less than the Net Loan Rate of the Deleted
Loan,
o have a remaining term to maturity not greater than that of the
Deleted Loan, and
o comply with all of the representations and warranties contained in
the Loan Sale Agreement as of the date of substitution.
If substitution is to be made for a Deleted Loan with an adjustable
loan interest rate, the substitute loan will also bear interest based on the
same index, margin, frequency and month of adjustment as the Deleted Loan. In
the event that one substitute loan is substituted for more than one Deleted
Loan, or more than one substitute loan is substituted for one or more Deleted
Loans, then the amount described above will be determined on the basis of
aggregate principal balances -- provided, that in all events the tests for a
"qualified mortgage" as described in Section 860G of the Code are met as to each
substituted loan -- the rates will be determined on the basis of weighted
average loan interest rates and Net Loan Rates, as the case may be, and the
terms will be determined on the basis of weighted average remaining terms to
maturity. In the case of a substitute loan, the mortgage file relating, thereto
will be delivered to the trustee or the designated
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custodian and the originator will pay an amount equal to the excess of (x) the
unpaid principal balance of the Deleted Loan, over (y) the unpaid principal
balance of the substitute loan or loans, together with interest on the excess at
the loan interest rate to the next scheduled due date of the Deleted Loan. This
amount will be deposited in the Collection Account for distribution to
securityholders. Except in those cases in which the servicer is the originator,
the servicer will be required under the applicable Issuing Agreement to enforce
this repurchase or substitution obligation for the benefit of the trustee and
the holders of the securities, following the practices it would employ in its
good faith business judgment were it the owner of the loan. This repurchase or
substitution obligation will constitute the sole remedy available to holders of
securities or the trustee for a breach of representation by the originator.
None of the sponsor, the issuer or the servicer, unless the servicer is
the originator, will be obligated to purchase or substitute for a loan if the
originator defaults on its obligation to do so, and no assurance can be given
that the originator will carry out their respective repurchase obligations.
The originator, the servicer or another entity specified in the
accompanying prospectus supplement, will make the representations and warranties
as to the types and geographical concentration of the mortgage loan pool or
contract pool and as to other matters concerning the pools as may be described
the accompanying prospectus supplement. Upon a breach of any representation or
warranty which materially and adversely affects the interests of the
securityholders in a loan, the entity making the representation or warranty will
be obligated either to cure the breach in all material respects, repurchase the
loan at the purchase price or substitute for the loan in the manner, and subject
to the conditions, described above regarding the obligations of the originator
in connection with missing or defective loan documents or the breach of the
originator's representations and warranties. This repurchase or substitution
obligation constitutes the sole remedy available to the securityholders or the
trustee for a breach of a representation or warranty by the originator, the
servicer or the other party, respectively.
Pre-Funding Accounts
A trust fund may include one or more Pre-Funding Accounts. On the
closing date for a series, a portion of the proceeds of the sale of the
securities of a series will be deposited in the Pre-Funding Account and may be
used to acquire additional loans or subsequent loans during the Pre-Funding
Period. If any funds remain on deposit in the Pre-Funding Account at the end of
Pre-Funding Period, that amount will be applied in the manner specified in the
accompanying prospectus supplement to prepay the securities of that series.
If a Pre-Funding Account is established,
o the Pre-Funding Period will not extend beyond the last day of the
third full month after the closing date,
o the additional loans to be acquired during the Pre-Funding Period
will be subject to the same representations and warranties and
satisfy the same eligibility requirements as the loans included in
the trust fund on the closing date, subject to the exceptions that
are expressly stated in the accompanying prospectus supplement,
and
o prior to the purchase of additional loans, the amount on deposit
in the Pre-Funding Account will be invested in one or more
eligible investments allowed by the rating agencies or any Credit
Enhancer, which eligible investment must mature no later than the
business day prior to the next distribution date.
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If a Pre-Funding Account is established, one or more capitalized
interest accounts may be established and maintained with the trustee, for the
benefit of the securityholders. On the closing date for a series, a portion of
the proceeds of the sale of the securities of a series will be deposited in the
capitalized interest account and used to fund the excess, if any, of (a) the sum
of the amount of interest accrued on the securities of a series and specified
fees or expenses during the Pre-Funding Period, over (b) the amount of interest
available therefor from the loans in the trust fund. Any amounts on deposit in
the capitalized interest account at the end of the Pre-Funding Period that are
not necessary for these purposes will be distributed to the person specified in
the accompanying prospectus supplement.
If a trust fund includes a Pre-Funding Account and the principal
balance of additional loans delivered to the issuer during the Pre-Funding
Period is less than the original amount on deposit in the Pre-Funding Account,
the securityholders will receive a prepayment of principal as and to the extent
described in the accompanying prospectus supplement. Any principal prepayment
may adversely affect the yield to maturity of these securities. Since prevailing
interest rates are subject to fluctuation, there can be no assurance that
investors will be able to reinvest these prepayments at yields equaling or
exceeding the yields on the securities. It is possible that the yield on any
reinvestment will be lower, and may be significantly lower, than the yield on
the securities.
Description of the Securities
The securities will be issued in series. Each series of securities or,
in some instances, two or more series of securities will be issued under an
Issuing Agreement. The following summaries describe particular provisions of the
Issuing Agreements. The summaries are not complete and are subject to all of the
provisions of the Issuing Agreement for the issuer and the accompanying
prospectus supplement. We will file each Issuing Agreement executed and
delivered for each series with the Securities and Exchange Commission as an
exhibit to a Current Report on Form 8-K promptly after issuance of the
securities of a series. We will provide a copy of the Issuing Agreement, without
exhibits, relating to any series without charge upon written request of a holder
of a security of a series addressed to Prudential Securities Secured Financing
Corporation, One New York Plaza, 14th Floor, New York, New York 10292,
Attention: Managing Director-Asset Backed Finance Group.
Neither the securities nor the underlying loans will be guaranteed or
insured by any governmental agency or instrumentality or the sponsor, the
issuer, the servicer, the trustee, the originator or any of their respective
affiliates.
The securities will consist of two basic types: certificates
representing beneficial ownership interests in the assets held by the issuer and
notes representing debt secured by the assets held by the issuer. Each series or
class of securities may have a different Interest Rate, which may be fixed or
adjustable. The accompanying prospectus supplement will specify the Interest
Rate for each series or class of securities, or the initial Interest Rate and
the method for determining subsequent changes to the Interest Rate.
A series may include one or more classes of Strip Securities or Accrual
Securities. In addition, a series may include two or more classes that differ as
to timing, sequential order, priority of payment, Interest Rate or amount of
distributions of principal or interest or both. Distributions of principal or
interest or both on any class may be made upon the occurrence of specified
events, in accordance with a schedule or formula, or on the basis of collections
from designated portions of the pool.
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A series of securities may include one or more classes of securities
that are senior to one or more classes of securities which are subordinate to
particular distributions of principal and interest and allocations of losses on
the loans. In addition, some classes of senior or subordinate securities may be
senior to other classes of senior or subordinate securities in connection with
the distributions or losses.
Each issuer may also issue classes of Equity Participation Securities.
These classes of securities may constitute what are commonly referred to as the
"residual interest," "ownership interest", "seller's interest" or the "general
partnership interest," depending upon the treatment of the issuer for federal
income tax purposes and generally will not be styled as having principal and
interest components. Any losses suffered by the trust fund will generally be
absorbed first by the class of Equity Participation Securities.
Distributions.
Securityholders will be entitled to receive payments on their
securities on specified distribution dates. Distribution dates will occur
monthly, quarterly or semi-annually, as specified in the accompanying prospectus
supplement. The distribution date will be the specified day of each month, or,
in the case of quarterly-pay securities, the specified day of every third month;
and, in the case of semi-annually-pay securities, the specified day of every
sixth month, or if this day is not a business day, the next succeeding business
day.
The accompanying prospectus supplement will describe a record date
preceding the distribution date, as of which the trustee or its paying agent
will fix the identity of the securityholders for the purpose of receiving
payments on the next succeeding distribution date. The record date will be
either the close of business as of the last day of the calendar month which
precedes the distribution date or the day immediately prior to the distribution
date.
The accompanying prospectus supplement and the Issuing Agreement will
describe a remittance period which occurs prior to each distribution date. For
example, in the case of monthly-pay securities, the calendar month preceding the
month in which a distribution date occurs. Interest accrued and principal
collected on the pool during a remittance period will be required to be remitted
by the servicer to the trustee prior to the distribution date and will be used
to distribute payments to securityholders on the distribution date. The Issuing
Agreement may provide that all or a portion of the principal collected on the
pool may be applied by the trustee to the acquisition of additional loans during
a specified period, rather than used to distribute payments of principal to
securityholders during that period, with the result that the securities possess
an interest-only period, also commonly referred to as a revolving period, which
will be followed by an amortization period. Any interest-only or revolving
period may, upon the occurrence of specified events, terminate prior to the end
of the specified period and result in the earlier than expected amortization of
the securities.
Beginning on the distribution date in the month following the month --
or, in the case of quarterly-pay securities, the third month following the month
and each third month thereafter or, in the case of semi-annually-pay securities,
the sixth month following the month and each sixth month thereafter -- in which
the cut-off date occurs for a series of securities, distributions of principal
and accrued interest or, where applicable, of principal-only or interest-only,
on each class of securities entitled thereto will be made either by the trustee
or a paying agent appointed by the trustee, to the persons who are registered as
securityholders at the close of business on the record date. Interest that
accrues and is not payable on a class of securities will generally be added to
the principal balance of each security of a class. Distributions will be made in
immediately available funds, by wire transfer or otherwise, to the account of a
securityholder at a bank or other entity having appropriate facilities therefor,
if the securityholder has so notified the trustee or the paying agent, as the
case may be, and the Issuing Agreement provides for the form
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of payment, or by check mailed to the address of the person entitled thereto as
it appears on the security register; provided, however, that the final
distribution in retirement of the securities, other than any book-entry
securities, will be made only upon presentation and surrender of the securities
at the office or agency of the trustee specified in the notice to
securityholders of the final distribution.
Principal and Interest on the Securities
The method of determining, and the amount of, distributions of
principal and interest, or, where applicable, of principal-only or
interest-only, on a particular series of securities will be described in the
accompanying prospectus supplement. Each class of securities, other than
particular classes of Strip Securities, may bear interest at a different
Interest Rate. The accompanying prospectus supplement will specify the Interest
Rate for each class, or in the case of an adjustable Interest Rate, the initial
Interest Rate and the method for determining the Interest Rate. Interest on the
securities will be calculated either on the basis of a 360-day year consisting
of twelve 30-day months, on the basis of the actual number of days in the
accrual period over 360 or on the basis of the actual number of days in the
accrual period over 365.
On each distribution date for a series of securities, the trustee will
distribute or cause the paying agent to distribute, as the case may be, to each
holder of record on the record date of a class of securities, an amount equal to
the percentage interest represented by the security held by the holder
multiplied by the distribution amount for that class. The distribution amount
for a class of securities for any distribution date will be the portion, if any,
of the principal distribution amount allocable to a class for the distribution
date, plus, if the class is entitled to payments of interest on the distribution
date, the interest accrued at the applicable Interest Rate on the principal
balance or notional amount of a class, less the amount of any deferred interest
added to the principal balance of the mortgage loans and/or the outstanding
balance of one or more classes of securities on the due date and any other
interest shortfalls allocable to securityholders which are not covered by
advances or the applicable credit enhancement.
In the case of a series of securities that includes two or more classes
of securities, the timing, sequential order, priority of payment or amount of
distributions of principal, and any schedule or formula or other provisions
applicable to the determination thereof, including distributions among multiple
classes of senior securities or subordinate securities, of each class shall be
as provided in the accompanying prospectus supplement. Generally, distributions
of principal of any class of securities will be made on a pro rata basis among
all of the securities of a class.
On or prior to the second business day next preceding the distribution
date, or any earlier day as shall be agreed by the Credit Enhancer, if any, and
the trustee, the trustee will determine the amounts of principal and interest
which will be passed through to securityholders on the immediately succeeding
distribution date. If the amount in the Collection Account is insufficient to
cover the amount to be passed through to securityholders, the trustee will be
required to notify the Credit Enhancer, if any, under the Issuing Agreement for
the purpose of funding this deficiency.
Form of Securities
The securities of each series will be issued as physical certificates
in fully registered form only in the denominations specified in the accompanying
prospectus supplement, and will be transferable and exchangeable at the
corporate trust office of the registrar of the securities named in the
accompanying prospectus supplement. No service charge will be made for any
registration of exchange or transfer of securities, but the trustee may require
payment of a sum sufficient to cover any tax or other governmental charge.
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If so specified in the accompanying prospectus supplement, specified
classes of a series of securities will be issued in uncertificated book-entry
form, and will be registered in the name of Cede, the nominee of DTC. 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 UCC and a "clearing agency" registered under the provisions of
Section 17A of the Securities Exchange Act of 1934. DTC was created to hold
securities for its participating organizations and facilitate the clearance and
settlement of securities transactions between these participants through
electronic book-entry changes in their accounts, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
other organizations. Indirect access to the DTC system also is available to
others like brokers, dealers, banks and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
Under a book-entry format, securityholders that are not participants or
indirect participants but desire to purchase, sell or otherwise transfer
ownership of securities registered in the name of Cede & Co., as nominee of DTC,
may do so only through participants and Indirect participants. In addition,
these securityholders will receive all distributions of principal of and
interest on the securities from the trustee through DTC and its participants.
Under a book-entry format, securityholders will receive payments after the
distribution date because, while payments are required to be forwarded to Cede &
Co., as nominee for DTC, on each distribution date, DTC will forward the
payments to its participants, which thereafter will be required to forward the
payments to indirect participants or securityholders. Unless and until physical
securities are issued, it is anticipated that the only securityholder will be
Cede & Co., as nominee of DTC, and that the beneficial holders of book-entry
securities will not be recognized by the trustee as securityholders under the
Issuing Agreement. The beneficial holders of the securities will only be
permitted to exercise the rights of securityholders under the Issuing Agreement
indirectly through DTC and its participants who in turn will exercise their
rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
participants on whose behalf it acts in connection with the securities and is
required to receive and transmit payments of principal of and interest on the
securities. Participants and indirect participants with which securityholders
have accounts for their book-entry securities similarly are required to make
book-entry transfers and receive and transmit the payments on behalf of their
respective securityholders. Accordingly, although securityholders will not
possess securities, the rules provide a mechanism by which securityholders will
receive distributions and will be able to transfer their interests.
Unless and until physical securities are issued, securityholders who
are not participants may transfer ownership of securities only through
participants by instructing the participants to transfer securities, by
book-entry transfer, through DTC for the account of the purchasers of the
securities, which account is maintained with their respective participants.
Under the rules and in accordance with DTC's normal procedures, transfers of
ownership of securities will be executed through DTC and the accounts of the
respective participants at DTC will be debited and credited. Similarly, the
respective participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing securityholders.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and banks, the ability of a securityholder to
pledge securities to persons or entities that do not participate in the DTC
system, or otherwise take actions concerning the securities may be limited due
to the lack of a physical security.
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DTC in general advises that it will take any action permitted to be
taken by a securityholder under an Issuing Agreement only at the direction of
one or more participants to whose account with DTC the securities are credited.
Additionally, DTC in general advises that it will take these actions in
connection with specified percentages of the securityholders only at the
direction of and on behalf of participants whose holdings include current
principal amounts of outstanding securities that satisfy the specified
percentages. DTC may take conflicting actions in connection with other current
principal amounts of outstanding securities to the extent that these actions are
taken on behalf of participants whose holdings include the requisite current
principal amounts of outstanding securities.
Any securities initially registered in the name of Cede & Co., as
nominee of DTC, will be issued in fully registered, certificated form to
securityholders or their nominees, rather than to DTC or its nominee only under
the events specified in the Issuing Agreement and described in the accompanying
prospectus supplement. Upon the occurrence of any of the events specified in the
Issuing Agreement and the prospectus supplement, DTC will be required to notify
all participants of the availability through DTC of physical securities. Upon
surrender by DTC of the securities representing the securities and instruction
for reregistration, the trustee will issue the securities in the form of
physical certificates, and thereafter the trustee will recognize the holders of
the physical certificates as securityholders. Thereafter, payments of principal
of and interest on the securities will be made by the trustee directly to
securityholders in accordance with the procedures described in this prospectus
and in the Issuing Agreement. The final distribution of any security, whether
physical certificates or securities registered in the name of Cede & Co.,
however, will be made only upon presentation and surrender of the securities on
the final distribution date at the office or agency as is specified in the
notice of final payment to securityholders.
None of the sponsor, the issuer, the originator, the servicer or the
trustee will have any liability for any actions taken by DTC, or its nominee, or
Cedelbank or the Euroclear System, including, without limitation, actions for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the securities held by Cede & Co., as nominee for DTC, or
for maintaining, supervising or reviewing any records relating to the beneficial
ownership interests.
Credit Enhancement
Various forms of credit enhancement may be provided for one or more
classes of a series of securities or for the loans in the trust fund. Credit
enhancement may be in the form of:
o the subordination of one or more classes of subordinate securities
to provide credit support to one or more classes of senior
securities,
o overcollateralization,
o cross-collateralization,
o the use of a surety bond, financial guaranty insurance policy,
special hazard insurance policy, letter of credit or other third
party guarantees,
o the use of a reserve fund, or
o any combination of the foregoing.
Any credit enhancement may not provide protection against all risks of
loss and may not guarantee repayment of the entire principal balance of the
securities and interest thereon. If
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losses occur that exceed the amount covered by credit enhancement or are not
covered by the credit enhancement, holders of one or more classes of securities
will bear their allocable share of deficiencies.
The descriptions of any insurance policies or bonds described in this
prospectus or any prospectus supplement and the coverage thereunder are not
complete and are qualified in their entirety by reference to the actual forms of
the policies, copies of which are available upon request.
Subordination
The subordination of one or more classes of subordinate securities
provides credit enhancement to the senior securities. For any senior/subordinate
series of securities, the total amount available for distribution on each
distribution date, as well as the method for allocating this amount among the
various classes of securities included in a series, will be described in the
accompanying prospectus supplement. Generally, the amount available for
contribution will be allocated first to interest on the senior securities of a
series, and then to principal of the senior securities up to the amounts
determined as specified in the accompanying prospectus supplement and the
Issuing Agreement, prior to allocation to the subordinate securities of a
series. In the event of any realized losses on the loans, the rights of the
subordinate securityholders to receive distributions from the loans will be
subordinate to the rights of the senior securityholders.
Overcollateralization
Subordination provisions of a series may be used to accelerate the
amortization of one or more classes of securities relative to the amortization
of the underlying loans. The accelerated amortization is achieved by the
application of excess interest to the payment of principal of one or more
classes of securities. This acceleration feature creates, for the loans or
groups thereof, overcollateralization which results from the excess of the
aggregate principal balance of the loans, or a group thereof, over the principal
balance of the class. This acceleration may continue for the life of the
security, or may be limited. In the case of limited acceleration, once the
required level of overcollateralization is reached, the limited acceleration
feature may cease, unless necessary to maintain the required level of
overcollateralization.
Cross-Collateralization
The beneficial ownership of separate groups of assets included in a
trust fund or the obligations to make payments secured by a pledge of a separate
group of assets included in a trust fund may be evidenced by separate classes of
the series. In this case, credit enhancement may be provided by a
cross-collateralization feature which requires that distributions to be made on
one class of securities may be made from excess amounts available from other
asset groups within the same trust fund which support other classes of
securities. The prospectus supplement for a series that includes a
cross-collateralization feature will describe the manner and conditions for
applying the cross-collateralization feature.
The coverage provided by one or more forms of credit enhancement may
apply concurrently to two or more separate trust funds. If applicable, the
prospectus supplement will identify the trust funds to which the
credit-collateralization relates and the manner of determining the amount of the
coverage provided thereby and of the application of the coverage to the
identified trust funds.
Surety Bonds
A surety bond or financial guaranty insurance policy may be obtained
and maintained for each class or series of securities. The bond insurer will be
described in the accompanying prospectus supplement. This description will
include financial information for the bond insurer.
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A surety bond will unconditionally and irrevocably guarantee to
securityholders that an amount equal to each full and complete insured payment
will be received by the trustee on behalf of securityholders, for distribution
by the trustee to each securityholder. The amount of any insured payment will be
defined in the accompanying prospectus supplement, and will generally equal the
full amount of the distributions of principal and interest to which
securityholders are entitled under the Issuing Agreement plus any other amounts
specified in the Issuing Agreement or in the accompanying prospectus supplement.
The specific terms of any surety bond will be described in the
accompanying prospectus supplement. Surety bonds may apply only to specified
classes, or may apply at the loan level and only to specified loans. Surety
bonds may have limitations including limitations on the bond insurer's
obligation to guarantee the obligations of the originator to repurchase or
substitute for any loans. surety bonds will not guarantee any specified rate of
prepayments. In addition, insured payments will generally not be available to
cover interest shortfalls arising from the application of the Soldiers' and
Sailors' Civil Relief Act.
Subject to the terms of the Issuing Agreement, the bond insurer may be
subrogated to the rights of each securityholder to receive payments under the
securities to the extent of any payment by the bond insurer under the surety
bond.
Letters of Credit
A letter of credit may be obtained from a bank and delivered to the
trustee. The letter of credit may provide direct coverage for the securities or
support the issuer's or any other person's obligation under a purchase
obligation to make payments to the trustee on one or more components of credit
enhancement. The bank issuing the letter of credit, as well as the amount
available under the letter of credit for each component of credit enhancement,
will be specified in the accompanying prospectus supplement and the Issuing
Agreement.
Special Hazard Insurance Policies
Any insurance policy covering special hazard losses which may be
obtained by the issuer for a trust fund will be issued by the insurer named in
the accompanying prospectus supplement. Each special hazard insurance policy
will protect holders of the series of securities from (x) losses due to direct
physical damage to a mortgaged property other than any loss of a type covered by
a hazard insurance policy or a flood insurance policy, if applicable, and (y)
losses from partial damage caused by reason of the application of the
co-insurance clauses contained in hazard insurance policies. Aggregate claims
under a special hazard insurance policy will be limited to a maximum amount of
coverage, as stated in the accompanying prospectus supplement and the Issuing
Agreement.
Reserve Funds
If so provided in the accompanying prospectus supplement, the issuer
will deposit or cause to be deposited in reserve fund any combination of cash,
one or more irrevocable letters of credit or one or more eligible investments in
specified amounts, amounts otherwise distributable to subordinate
securityholders, or any other instrument satisfactory to the rating agencies
rating the series, which will be applied and maintained in the manner and under
the conditions specified in the accompanying prospectus supplement. In the
alternate or in addition to an initial deposit, a reserve fund may be funded
through application of all or a portion of amounts otherwise payable on any
subordinate securities, on any Equity Participation Security or otherwise.
Amounts in a reserve fund may be distributed to securityholders, or applied to
reimburse the servicer for outstanding advances or may be used for other
purposes.
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Other Insurance, Guarantees and Similar Instruments or Agreements
A trust fund may include in lieu of some or all of the foregoing or in
addition thereto, third party guarantees, and other arrangements for maintaining
timely payments or providing additional protection against losses on all or any
specified portion of the assets included in the trust fund, paying
administrative expenses, or accomplishing the other purpose as may be described
in the prospectus supplement. The trust fund may include a guaranteed investment
contract or reinvestment agreement under which funds held in one or more
accounts will be invested at a specified rate. If any class of securities has a
floating Interest Rate, or if any of the loans has a floating coupon rate, the
trust fund may include an interest rate swap contract, an interest rate cap
agreement or similar contract providing limited protection against interest rate
risks.
Reduction or Substitution of Credit Enhancement
The amount of credit support provided by any of the forms of credit
enhancement, including, without limitation, a surety bond, special hazard
insurance policy, letter of credit, or any alternative form of credit
enhancement, may be reduced under specified circumstances. In most cases, the
amount available under any credit enhancement will be subject to periodic
reduction in accordance with a schedule or formula on a nondiscretionary basis
under the terms of the Issuing Agreement as the aggregate outstanding principal
balance of the loans declines. Additionally, in some cases, the credit
enhancement, and any replacements therefor, may be replaced, reduced or
terminated upon the written assurance from each rating agency rating a series
that the then current rating of the securities will not be adversely affected.
Furthermore, in the event that the credit rating of any obligor under any Credit
Enhancer is downgraded, the credit rating of the securities may be downgraded to
a corresponding level, and neither the sponsor nor the issuer thereafter will be
obligated to obtain replacement credit enhancement in order to restore the
rating of the securities, and also will be permitted to replace the credit
enhancement with other credit enhancement instruments issued by Credit Enhancer
whose credit ratings are equivalent to the downgraded level and in lower amounts
which would satisfy the downgraded level; provided, that the then current,
albeit downgraded, rating of the series of securities is maintained. Where the
credit enhancement is in the form of a reserve fund, a permitted reduction in
the amount of credit enhancement will result in a release of all or a portion of
the assets in the reserve fund to any of the holders of the Equity Participation
Securities, the sponsor, the servicer, the originator or the other person that
is entitled thereto. Any assets so released will not be available to fund
distribution obligations in future periods.
Prepayment and Yield Considerations
Interest Rates
Any class of securities of a series may have a fixed Interest Rate, or
an Interest Rate which varies based on changes in an index or based on changes
based on the underlying loans or may receive interest payments from the
underlying loans in another manner specified in the accompanying prospectus
supplement.
The prospectus supplement for each series will specify the range and
the weighted average of the loan interest rates and Net Loan Rates for the loans
underlying a series as of the cut-off date. Each monthly interest payment on a
loan will generally be calculated as the product of one-twelfth of the
applicable loan interest rate at the time of the calculation and the then unpaid
principal balance on the loan. If the trust fund includes adjustable-rate loans
or includes loans with different Net Loan Rates, the weighted average Net Loan
Rate may vary from time to time as described below. See "The Trust Funds." The
prospectus supplement for a series will
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also specify the initial Interest Rate for each class of securities of a series
having an Interest Rate and will specify whether each Interest Rate is fixed or
is variable.
The Net Loan Rate for any adjustable rate loan will change with any
changes in the index specified in the accompanying prospectus supplement on
which the loan interest rate adjustments are based, subject to any applicable
periodic or aggregate caps or floors on the loan interest rate or other
limitations described in the accompanying prospectus supplement. The weighted
average Net Loan Rate for any series may vary due to changes in the Net Loan
Rates of adjustable rate loans, to the timing of the loan interest rate
readjustments of the loans and to different rates of payment of principal of
fixed or adjustable rate loans bearing different loan interest rates.
If the trust fund for a series includes adjustable rate loans, any
limitations on the periodic changes in a mortgagor's or obligor's monthly
payment, any limitations on the adjustments to the Net Loan Rates or loan
interest rates, any provision that could result in deferred interest and the
effects, if any, thereof on the yield on securities of the series will be
discussed in the accompanying prospectus supplement.
No distribution of principal and only a partial distribution of
interest will be made to securityholders on a negatively amortizing loan.
Distribution of the portion of scheduled interest at the applicable Net Loan
Rate representing deferred interest on the loan will be passed through to the
securityholders on the distribution date following the due date on which it is
received. Deferred interest will bear interest at the Net Loan Rate for the
loan. For federal income tax purposes, deferred interest may constitute interest
income to the trust fund and to securityholders at the time that it accrues,
rather than at the time that it is paid. See "Material Federal Income Tax
Consequences."
Interest Shortfalls Due to Principal Prepayments
When a loan is prepaid in full, the mortgagor or obligor pays interest
on the amount prepaid only to the date of prepayment and not thereafter.
Similarly, Liquidation Proceeds and Insurance Proceeds are also likely to
include interest only to the time of payment. When a loan is prepaid in part,
and the prepayment is applied as of a date other than the due date occurring in
the month of receipt or the due date occurring in the month following the month
of receipt, the mortgagor or obligor pays interest on the amount prepaid only to
the date of prepayment and not thereafter. The effect of the foregoing is to
reduce the aggregate amount of interest which would otherwise be passed through
to securityholders if the loan were outstanding, or if the partial prepayment
were applied, on the succeeding due date. To mitigate this reduction in yield,
the Issuing Agreement will provide whether, in connection with any principal
prepayment or liquidation of any loan underlying the securities of a series, the
servicer will pay into the Collection Account for a series to the extent funds
are available for this purpose from the aggregate servicing fees, or portion
thereof as specified in the accompanying prospectus supplement, which the
servicer is entitled to receive relating to mortgagor or obligor payments or
other recoveries distributed on the distribution date, the amount, if any, as
may be necessary to assure that the amount paid into the Collection Account from
the loan includes an amount equal to interest at the Net Loan Rate for the loan
for the period from the date of the prepayment or liquidation to but not
including the next due date. See "Servicing of the Loans--Adjustment to
Servicing Compensation in Connection with Prepaid and Liquidated Loans."
Weighted Average Life of Securities
Weighted average life of a security refers to the average amount of
time that will elapse from the date of issuance of the security until each
dollar in reduction of the principal amount of the security is distributed to
the investor. The weighted average life and the yield to maturity of
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any class of the securities of a series will be influenced by, among other
things, the rate at which principal on the loans included in the mortgage loan
pool or contract pool for the security is paid, which is determined by scheduled
amortization and prepayments. For this purpose, the term "prepayments" includes
prepayments and liquidations due to default, casualty, condemnation and the
like.
The loans may generally be prepaid in full or in part at any time, and
fixed rate loans will generally contain due-on-sale clauses permitting the
holder to accelerate the maturity of the loan upon conveyance of the mortgaged
property or manufactured home.
Prepayments on loans are commonly measured relative to a prepayment
standard or model. The prospectus supplement for each series will describe one
or more the prepayment standards or models and will contain tables setting forth
the weighted average life of each class and the percentage of the original
aggregate principal amount of each class that would be outstanding on specified
distribution dates for a series based on the assumptions stated in the
accompanying prospectus supplement, including assumptions that prepayments on
the loans are made at rates corresponding to various percentages of the
prepayment standard or model specified in the accompanying prospectus
supplement.
There is, however, no assurance that prepayment of the loans underlying
a series of securities will conform to any level of the prepayment standard or
model specified in the accompanying prospectus supplement. A number of economic,
geographic, social and other factors may affect prepayment experience. These
factors may include homeowner mobility, economic conditions, changes in
mortgagor's or obligor's housing needs, job transfers, unemployment, mortgagor's
or obligor's net equity in the properties securing the loans, servicing
decisions, enforceability of due-on-sale clauses, market interest rates, the
magnitude of taxes, and the availability of funds for refinancing. In general,
however, if prevailing interest rates fall significantly below the loan interest
rates on the loans underlying a series of securities, the prepayment rates of
the loans are likely to be higher than if prevailing rates remain at or above
the rates borne by the loans. It should be noted that securities of a series may
evidence an interest in a trust fund with different loan interest rates.
Accordingly, the prepayment experience of the securities will to some extent be
a function of the mix of loan interest rates of the loans. In addition, the
terms of the Servicing Agreement will require the servicer to enforce any
due-on-sale clause to the extent specified in the Servicing Agreement. See
"Servicing of the Loans--Enforcement of Due-on-Sale Clauses; Realization Upon
Defaulted Loans" and "Material Legal Aspects of the Loans--Due-On-Sale Clauses"
for a description of particular provisions of each Servicing Agreement and a
number of legal developments that may affect the prepayment experience on the
loans.
A lower rate of principal prepayments than anticipated would negatively
affect the total return to investors in any securities of a series that are
offered at a discount to their principal amount or, if applicable, their parity
price, and a higher rate of principal prepayments than anticipated would
negatively affect the total return to investors in the securities of a series
that are offered at a premium to their principal amount or, if applicable, their
parity price. Parity price is the price at which a security will yield its
coupon, after giving effect to any payment delay. In addition, the yield to
investors in a class of securities which bears interest at an adjustable
Interest Rate, will also be affected by changes in the index on which any
adjustable Interest Rate is based. Changes in the index may not correlate with
changes in prevailing mortgage interest rates or financing rates for
manufactured housing, and the effect, if any, thereof on the yield of the
securities will be discussed in the accompanying prospectus supplement. The
yield on some types of securities may be particularly sensitive to prepayment
rates, and further information concerning the yield on the securities will be
included in the applicable prospectus supplement.
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At the request of the mortgagor or obligor, the servicer may refinance
the loans in any trust fund by accepting prepayments thereon and making new
loans secured by a mortgage on the same property or a security interest in the
same manufactured home. Upon this refinancing, the new loans will not be
included in the trust fund. A mortgagor or obligor may be legally entitled to
require the servicer to allow a refinancing. Any refinancing will have the same
effect as a prepayment in full of the loan.
The originator may be obligated, under specified circumstances, to
repurchase some of the loans. In addition, the terms of insurance policies
relating to the loans may permit the applicable insurer to purchase delinquent
loans. The proceeds of any repurchase will be deposited in the Collection
Account and the repurchase will have the same effect as a prepayment in full of
the loan. See "The Trust Funds--Assignment of the Loans." In addition, the
servicer may have the option to purchase all, but not less than all, of the
loans in any trust fund under specified limited conditions. For any series of
securities for which an election has been made to treat the trust fund or a
portion of the trust fund as a REMIC, any purchase may be effected only in a
"qualified liquidation," as defined in Code Section 860F(a)(4)(A). See
"Servicing of the Loans--Termination; Purchase or other Disposition of Loans."
Servicing of the Loans
The following summaries describe particular provisions of the Servicing
Agreements which relate to trust funds comprised of loans. The summaries do not
purport to be complete and are subject to and are qualified in their entirety by
reference to, all the provisions of the Servicing Agreement for each series
which may further modify the provisions summarized below. The provisions of each
Servicing Agreement will vary depending upon the nature of the securities to be
issued thereunder and the nature of the trust fund. We will file each Servicing
Agreement executed and delivered for each series with the Securities and
Exchange Commission as an exhibit to a Current Report on Form 8-K promptly after
issuance of the securities of a series.
The Servicer
The servicer under each Servicing Agreement will be named in the
accompanying prospectus supplement. The servicer for each series will service
the loans contained in the trust fund for a series. For trust funds comprised of
mortgage loans, the servicer will be a seller/servicer approved by FNMA or
FHLMC. Any servicer may delegate its servicing responsibilities to one or more
sub-servicers, but will not be relieved of its liabilities with respect thereto.
The servicer will make a number of representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Servicing Agreement. An uncured breach of a
representation or warranty that in any respect materially and adversely affects
the interests of the securityholders will constitute an event of default by the
servicer under the Servicing Agreement. See "Servicing of the Loans--Rights Upon
Event of Default; Events of Default--Loans."
Payments on Loans
The servicer or the trustee will, as to each series of securities,
establish and maintain, or cause to be established and maintained the Collection
Account. The Collection Account will be maintained with a depository (1) whose
long-term debt obligations at the time of any deposit in the Collection Account
are rated not lower than the rating on the series of securities at the time of
the initial issuance thereof, (2) the deposits in which are insured by the
Federal Deposit Insurance Corporation through either the Bank Insurance Fund or
the Savings Association Insurance Fund,
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to the limit established by the FDIC, and the uninsured deposits in which
accounts are otherwise secured so that, as evidenced by an opinion of counsel,
the trustee for the benefit of the securityholders of the series has a claim to
funds in the Collection Account for a series, or a perfected security interest
in any collateral, which shall be limited to eligible investments, securing the
funds, that is superior to the claims of any other sponsor or general creditor
of the depository or (3) which is otherwise acceptable to each rating agency
rating a series.
A Collection Account may be maintained as an interest bearing or a
non-interest bearing account, or the funds held in the Collection Account may be
invested pending each succeeding distribution date in eligible investments
satisfactory to the rating agencies or any Credit Enhancer. Any of these
eligible investments shall mature not later than the business day preceding the
next distribution date and none of these investments shall be sold or disposed
of prior to the maturity date of the eligible investment; however, in the event
that an election has been made to treat the trust fund or a portion of the trust
fund of a series as a REMIC, no eligible investments will be sold or disposed of
at a gain prior to maturity unless the servicer has received an opinion of
counsel or other evidence satisfactory to it that the sale or disposition will
not cause the trust fund or a portion of the trust fund to be subject to the tax
on "prohibited transactions" imposed by Code Section 860F(a)(1), otherwise
subject the trust fund or a portion of the trust fund to tax, or cause the trust
fund of a portion of the trust fund to fail to qualify as a REMIC. Any interest
or other income earned on funds in the Collection Account is generally paid to
the servicer or its designee as additional servicing compensation.
The servicer will deposit in the Collection Account for each series of
securities any amounts representing scheduled payments of principal and interest
on the loans due after the applicable cut-off date but received prior thereto,
and, the following payments and collections received or made by it on the loans
subsequent to the applicable cut-off date, other than payments due on or before
the cut-off date:
o all payments on account of principal, including prepayments, and
interest, net of any portion thereof retained by a sub-servicer as
its servicing compensation and net of any Fixed Retained Yield;
o Net Liquidation Proceeds;
o Net Insurance Proceeds;
o all amounts required to be deposited in the Collection Account
from any reserve fund, and amounts available under any other form
of credit enhancement applicable to a series;
o all advances made by the servicer;
o all amounts withdrawn from buy-down funds or other funds described
in the accompanying prospectus supplement, if any, for the loans,
in accordance with the terms of the respective agreements
applicable thereto;
o all proceeds from the repurchase of loans by the originator; and
o all other amounts required to be deposited in the Collection
Account under the Servicing Agreement
Notwithstanding the foregoing, the servicer will be entitled, at its
election, either (a) to withhold and pay itself the applicable servicing fee
and/or to withhold and pay to the owner thereof any Fixed Retained Yield from
any payment or other recovery on account of interest as received and prior to
deposit in the Collection Account or (b) to withdraw the applicable servicing
fee and/or any Fixed Retained Yield from the Collection Account after the entire
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payment or recovery has been deposited in the Collection Account; however, for
each trust fund or a portion of the trust fund as to which a REMIC election has
been made, the servicer will, in each instance, withhold and pay to the owner
thereof the Fixed Retained Yield prior to deposit of the payment or recovery in
the Collection Account.
Advances, amounts withdrawn from any reserve fund, and amounts
available under any other form of credit enhancement will be deposited in the
Collection Account not later than the business day preceding the distribution
date on which the amounts are required to be distributed. All other amounts will
be deposited in the Collection Account not later than the business day next
following the day of receipt and posting by the servicer.
If the servicer deposits in the Collection Account for a series any
amount not required to be deposited in the Collection Account, it may at any
time withdraw this amount from the Collection Account.
The servicer is permitted, from time to time, to make withdrawals from
the Collection Account for the following purposes, to the extent permitted in
the applicable Servicing Agreement:
o to reimburse itself for advances;
o to reimburse itself from Liquidation Proceeds for expenses incurred
by the servicer in connection with the liquidation of any defaulted
loan or property acquired in respect thereof and for amounts
expended in good faith in connection with the restoration of damaged
property, to reimburse itself from Insurance Proceeds for expenses
incurred by the servicer in connection with the restoration,
preservation or repair of the mortgaged properties or manufactured
homes and expenses incurred in connection with collecting on the
insurance policies and, to the extent that Liquidation Proceeds or
Insurance Proceeds after the reimbursement are in excess of the
unpaid principal balance of the loans together with accrued and
unpaid interest thereon at the applicable Net Loan Rate through the
last day of the month in which the Liquidation Proceeds or Insurance
Proceeds were received, to pay to itself out of the excess the
amount of any unpaid servicing fees and any assumption fees, late
payment charges or other mortgagor or obligor charges on the loans;
o to pay to itself the applicable servicing fee and/or pay the owner
thereof any Fixed Retained Yield, in the event the servicer is not
required, and has elected not, to withhold the amounts out of any
payment or other recovery on a particular loan prior to the deposit
of the payment or recovery in the Collection Account;
o to reimburse itself and the issuer for specified expenses, including
taxes paid on behalf of the trust fund, incurred by and recoverable
by or reimbursable to it or the issuer, as the case may be;
o to pay to the originator for each loan or property acquired in
respect thereof that has been repurchased by the originator, as the
case may be, all amounts received thereon and not distributed as of
the date as of which the purchase price of the loan was determined;
o to pay itself any interest earned on or investment income earned on
funds in the Collection Account, all interest or income to be
withdrawn not later than the next distribution date;
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o to make withdrawals from the Collection Account in order to make
distributions to securityholders; and
o to clear and terminate the Collection Account.
Advances and Limitations Thereon
The accompanying prospectus supplement will describe the circumstances,
if any, under which the servicer will make advances relating to delinquent
payments on loans. The servicer will be obligated to make advances, and the
obligation may be limited in amount, or may not be activated until a portion of
a specified reserve fund is depleted. Advances are intended to provide liquidity
and not to guarantee or insure against losses. Accordingly, any funds advanced
are recoverable by the servicer out of amounts received on particular loans
which represent late recoveries of principal or interest, proceeds of insurance
policies or Liquidation Proceeds respecting which any advance was made. If an
advance is made and subsequently determined to be nonrecoverable from late
collections, proceeds of insurance policies, or Liquidation Proceeds from the
loan, the servicer may be entitled to reimbursement from other funds in the
Collection Account, or from a specified reserve fund as applicable, to the
extent specified in the accompanying prospectus supplement.
Adjustment to Servicing Compensation in Connection with Prepaid and Liquidated
Loans
When a mortgagor or obligor prepays a loan in full, the mortgagor or
obligor pays interest on the amount prepaid only to the date on which the
principal prepayment is made. Similarly, Liquidation Proceeds from a mortgaged
property or manufactured home will not include interest for any period after the
date on which the liquidation took place, and Insurance Proceeds may include
interest only to the date of settlement of the claims. Further, when a loan is
prepaid in part, and the prepayment is applied as of a date other than a due
date, the mortgagor or obligor pays interest on the amount prepaid only to the
date of prepayment and not thereafter. The effect of the foregoing is to reduce
the aggregate amount of interest which would otherwise be passed through to
securityholders if the loan were outstanding, or if the partial prepayment were
applied, on the succeeding due date. In order to mitigate the adverse effect to
securityholders of a series resulting from the prepayment or liquidation of a
loan or settlement of an insurance claim with respect thereto, the amount of the
aggregate servicing fees may be reduced by an amount equal to the accrual of
interest on any prepaid or liquidated loan at the Net Loan Rate from the date of
its prepayment or liquidation or the date of the insurance settlement to the
next due date. These reductions in the aggregate servicing fees will be made by
the servicer on the loans under the applicable Servicing Agreement but only to
the extent that the aggregate amount of this interest does not exceed the
aggregate servicing fees relating to mortgagor or obligor payments or other
recoveries distributed on the distribution date. The amount of the offset
against the aggregate servicing fees will be included in the scheduled
distributions to securityholders on the distribution date on which the principal
prepayments, Liquidation Proceeds or Insurance Proceeds are passed through to
securityholders. See "Prepayment and Yield Considerations."
Reports to Securityholders
Unless otherwise specified or modified in the Servicing Agreement for
each series, a statement setting forth the following information, if applicable,
will be included with each distribution to securityholders of record of a
series:
(a) the amount of principal distributed to holders of the
securities and the outstanding principal balance of the securities
following the distribution;
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(b) the amount of interest distributed to holders of the
securities and the current interest on the securities;
(c) the amounts of
(1) any overdue accrued interest included in the
distribution,
(2) any remaining overdue accrued interest on the
securities or
(3) any current shortfall in amounts to be distributed
as accrued interest to holders of the securities;
(d) the amounts of
(1) any overdue payments of scheduled principal
included in the distribution,
(2) any remaining overdue principal amounts on the
securities,
(3) any current shortfall in receipt of scheduled
principal payments on the loans
or
(4) any realized losses or Liquidation Proceeds to be
allocated as reductions in the outstanding
principal balances of the securities;
(e) the amount received under any credit enhancement, and
the remaining amount available under the credit
enhancement;
(f) the amount of any delinquencies on the payments on the
loans;
(g) the book value of any REO property acquired by the trust
fund; and
(h) any other information as specified in the Issuing
Agreement.
In addition, within a reasonable period of time after the end of each
calendar year, the trustee will furnish to each holder of record at any time
during the calendar year (x) the aggregate of amounts reported under clauses
(a), (b), and (d)(4) above for the calendar year and (y) the information
specified in the Issuing Agreement to enable securityholders to prepare their
tax returns including, without limitation, the amount of original issue discount
accrued on the securities, if applicable. Information in the distribution date
and annual statements provided to the holders will not have been examined and
reported upon by an independent public accountant. However, the servicer will
provide to the trustee a report by independent public accountants concerning the
servicer's servicing of the loans. See "--Evidence as to Compliance" in this
prospectus.
A series of securities or one or more classes of a series may be issued
in book-entry form. In this event, owners of beneficial interests in the
securities will not be considered holders and will not receive the reports
directly from the trustee. The trustee will forward the reports only to the
entity or its nominee which is the registered holder of the global certificate
which evidences the book-entry securities. Beneficial owners will receive the
reports from the participants and indirect participants of the applicable
book-entry system in accordance with the practices and procedures of these
entities.
Collection and Other Servicing Procedures
The servicer, directly or through sub-servicers, will make reasonable
efforts to collect all payments called for under the loans and will, consistent
with the Servicing Agreement, follow the collection procedures as it follows for
mortgage loans or manufactured housing contracts serviced by it that are
comparable to the loans, as the case may be. Consistent with the above, the
servicer may, in its discretion, (x) waive any prepayment charge, assumption
fee, late payment charge or any other charge in connection with the prepayment
of a loan and (y) arrange with a mortgagor or
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obligor a schedule for the liquidation of deficiencies running for not more than
six months after the applicable due date.
In accordance with the Servicing Agreement, the servicer, to the extent
permitted by law, will establish and maintain or will cause to be established
and maintained one or more escrow accounts in which the servicer will be
required to deposit or cause to be deposited payments by mortgagors or obligors,
as applicable, for taxes, assessments, mortgage and hazard insurance premiums
and other comparable items. Withdrawals from the escrow accounts may be made to
effect timely payment of taxes, assessments, mortgage and hazard insurance, to
refund to mortgagors or obligors amounts determined to be overages, to pay
interest to mortgagors or obligors on balances in the escrow accounts, if
required, to repair or otherwise protect the mortgaged properties or
manufactured homes and to clear and terminate this account. The servicer will be
responsible for the administration of each escrow account. The servicer will be
obligated to advance particular amounts which are not timely paid by mortgagors
or obligors, to the extent that the servicer determines that the amounts will be
recoverable out of Insurance Proceeds, Liquidation Proceeds, or otherwise.
Alternatively, if specified in the Servicing Agreement, in lieu of establishing
a escrow account, the servicer may procure a performance bond or other form of
insurance coverage, in an amount acceptable to each rating agency rating the
series of securities, covering loss occasioned by the failure to escrow these
amounts.
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Loans
Each Servicing Agreement will provide that, when any mortgaged property
or manufactured home is conveyed by the mortgagor or obligor, the servicer will
exercise its rights to accelerate the maturity of the loan under any
"due-on-sale" clause applicable thereto, if any, unless (a) it is not
exercisable under applicable law or (b) this exercise would result in loss of
insurance coverage on the loan. In this case, the servicer is authorized to take
or enter into an assumption and modification agreement from or with the person
to whom the mortgaged property or manufactured home has been or is about to be
conveyed, and the person will become liable under the mortgage note or contract
and, unless prohibited by applicable state law, the mortgagor or obligor remains
liable thereon; provided, that the loan will continue to be covered by any pool
insurance policy and any primary mortgage insurance policy, and the loan
interest rate for the loan and the payment terms shall remain unchanged. The
servicer will also be authorized, with the prior approval of any pool insurer
and any primary mortgage insurer, if any, to enter into a substitution of
liability agreement with this person, and the original mortgagor or obligor will
be released from liability and this person will be substituted as mortgagor or
obligor and becomes liable under the mortgage note or contract.
The servicer is obligated under the Servicing Agreement to realize upon
defaulted loans to the extent provided in the Servicing Agreement. However, in
the case of foreclosure or of damage to a mortgaged property or manufactured
home from an uninsured cause, the servicer is not required to expend its own
funds to foreclose, repossess or restore any damaged property, unless it
reasonably determines (x) that this foreclosure, repossession or restoration
will increase the proceeds to securityholders of a series of liquidation of the
loan after reimbursement of the servicer for its expenses and (y) that these
expenses will be recoverable to it through Liquidation Proceeds or Insurance
Proceeds. In the event that the servicer has expended its own funds for
foreclosure or to restore damaged property, it will be entitled to charge the
Collection Account for a series an amount equal to all costs and expenses
incurred by it.
The servicer may foreclose against property securing a defaulted loan
either by foreclosure, by sale or by strict foreclosure and in the event a
deficiency judgment is available against the mortgagor or other person may
proceed for the deficiency. See "Material Legal Aspects of the Loans--The
Mortgage Loans--Anti-Deficiency Legislation and Other Limitations
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on Lenders" for a description of the availability of deficiency judgments. It is
anticipated that in most cases the servicer will not seek deficiency judgments
against any mortgagor or obligor, and the servicer is not required under the
Servicing Agreement to seek deficiency judgments.
For a trust fund, or one or more segregated pools of assets in the
trust fund, as to which a REMIC election has been made, if the trustee acquires
ownership of any mortgaged property or manufactured home as a result of a
default or imminent default of any loan secured by the mortgaged property or
manufactured home, the trustee generally will be required to dispose of the
property with two (2) years following its acquisition by the trust fund. The
servicer also will be required to administer the mortgaged property or
manufactured home in a manner which does not cause the mortgaged property or
manufactured home to fail to qualify as "foreclosure property" within the
meaning of Code Section 860G(a)(8) or result in the receipt by the trust fund of
any "net income from foreclosure property" within the meaning of Code Section
860G(c). In general, this would preclude the holding of the mortgaged property
or manufactured home as a dealer in the property or the receipt of rental income
based on the profits of the lessee.
The servicer may modify, waive or amend the terms of any loan without
the consent of the trustee or any securityholder. These modifications, waivers
or amendments shall only be given if the servicer determines that it is in the
best interests of securityholders and, generally, only if the loan is in default
or the servicer has determined that default is reasonably foreseeable.
Servicing Compensation and Payment of Expenses
For each series of securities, the servicer will be entitled to be paid
a servicing fee on the loans until termination of the Servicing Agreement. The
servicer, at its election, will pay itself the servicing fee for a series on
each loan by (a) withholding the servicing fee from any scheduled payment of
interest prior to deposit of the payment in the Collection Account for a series
or (b) withdrawing the servicing fee from the Collection Account after the
entire interest payment has been deposited in the Collection Account. The
servicer may also pay itself out of the Liquidation Proceeds or Insurance
Proceeds from a loan, or withdraw from the Collection Account, the servicing fee
on the loan or other recoveries with respect thereto to the extent provided in
the Servicing Agreement. The servicing fee on the loans underlying the
securities of a series will be specified in the applicable prospectus
supplement. Any additional servicing compensation in the form of prepayment
charges, assumption fees, late payment charges or otherwise will be retained by
the servicer to the extent not required to be deposited in the Collection
Account.
In addition to amounts payable to any sub-servicer, the servicer will
pay all expenses incurred in connection with the servicing of the loans
underlying a series, including, without limitation, payment of the hazard
insurance policy premiums and fees or other amounts payable in accordance with
any applicable agreement for the provision of credit enhancement for a series,
payment of the fees and disbursements of the trustee and any custodian, fees due
to the independent accountants and expenses incurred in connection with
distributions and reports to securityholders. However, some of these expenses
may be reimbursable to the servicer under the terms of the Issuing Agreement. In
addition, the servicer will be entitled to reimbursement for particular expenses
incurred by it in connection with the liquidation of defaulted loans. In the
event that claims are either not made or are not fully paid from any applicable
form of credit enhancement, the trust fund will suffer a loss to the extent that
Net Liquidation Proceeds and Net Insurance Proceeds are less than the principal
balance of the loan, plus accrued interest thereon at the Net Loan Rate. In
addition, the servicer will be entitled to reimbursement of expenditures
incurred by it in connection with the restoration of any mortgaged property or
manufactured home, the right of reimbursement being prior to the rights of the
securityholders to receive Liquidation Proceeds and Insurance Proceeds. The
servicer is also entitled to reimbursement
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from the Collection Account of advances, of advances made by it to pay taxes or
insurance premiums on any mortgaged property or manufactured home and of
particular losses against which it is indemnified by the trust fund.
Evidence as to Compliance
The applicable Servicing Agreement for each series will provide that
each year, a firm of independent public accountants will furnish a statement to
the trustee to the effect that this firm has examined specified documents and
records relating to the servicing of the loans by the servicer and that, on the
basis of the examination, this firm is of the opinion that the servicing has
been conducted in compliance with the Servicing Agreement, except for (x) any
exceptions as the firm believes to be immaterial and (y) any other exceptions as
are stated in this statement.
The applicable Servicing Agreement for each series will also provide
for delivery to the trustee for a series of an annual statement signed by an
officer of the servicer to the effect that the servicer has fulfilled its
obligations under the Servicing Agreement throughout the preceding calendar
year.
Matters Regarding the Servicer
The servicer may not resign from its obligations and duties under the
Servicing Agreement for each series, except upon its determination that its
duties thereunder are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities of a
type and nature presently carried on by it. No resignation will become effective
until the trustee for a series or a successor servicer has assumed the
servicer's obligations and duties under the Servicing Agreement. If the servicer
resigns for any of the foregoing reasons and the trustee is unable or unwilling
to assume responsibility for servicing the loans, it may appoint another
institution as servicer, as described under "Servicing of the Loans--Events of
Default; Rights Upon Event of Default " below.
The Servicing Agreement will provide that neither the servicer nor any
director, officer, employee or agent of either of them will be under any
liability to the trust fund or the securityholders, for the taking of any action
or for refraining from the taking of any action in good faith in accordance with
the Servicing Agreement or for errors in judgment; provided, however, that none
of the servicer or any director, officer, employee or agent of the servicer will
be protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of his or its
duties or by reason of reckless disregard of his or its obligations and duties
thereunder. The Servicing Agreement will further provide that the servicer and
any director, officer, employee or agent of the servicer shall be entitled to
indemnification by the trust fund and will be held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
the Servicing Agreement or the securities other than any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or negligence in
the performance of his or its duties thereunder or by reason of reckless
disregard of his or its obligations and duties thereunder. In addition, the
Servicing Agreement will provide that the servicer will not be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its duties under the Servicing Agreement and that in its opinion
may involve it in any expense or liability. The servicer may, however, in its
discretion, undertake any action deemed by it necessary or desirable in
connection with the Servicing Agreement and the rights and duties of the parties
thereto and the interests of the securityholders thereunder. In this event, the
legal expenses and costs of the action and any liability resulting therefrom
will be expenses, costs and liabilities of the trust fund, and the servicer will
be entitled to be reimbursed therefor out of the Collection Account, and any
loss to the trust fund arising from the right of reimbursement will be allocated
pro rata among the various classes of securities unless otherwise specified in
the applicable Servicing Agreement.
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Any person into which the servicer may be merged or consolidated, or
any person resulting from any merger, conversion or consolidation to which the
servicer is a party, or any person succeeding to the business through the
transfer of substantially all of its assets, or otherwise, of the servicer will
be the successor of the servicer under the Servicing Agreement; provided, that
the successor or resulting entity is qualified to service mortgage loans for
FNMA or FHLMC and that each rating agency's rating of any securities for a
series in effect immediately prior to this event is not adversely affected
thereby.
The servicer also may have the right to assign its rights and delegate
its duties and obligations under the Servicing Agreement to an affiliate or in
connection with a sale or transfer of a substantial portion of its mortgage or
manufactured housing servicing portfolio; provided, that
o in the case of a transfer by a servicer of mortgage loans, the
purchaser or transferee accepting the assignment or delegation is
qualified to service mortgage loans for FNMA or FHLMC,
o the purchaser or transferee is reasonably satisfactory to the
issuer and the trustee for a series and executes and delivers to
the issuer and the trustee an agreement, in form and substance
reasonably satisfactory to the issuer and the trustee, which
contains an assumption by the purchaser or transferee of the due
and punctual performance and observance of each covenant and
condition to be performed or observed by the servicer under the
Servicing Agreement from and after the date of the agreement; and
o each rating agency's rating of any securities for a series in
effect immediately prior to the assignment, sale or transfer is
not qualified, downgraded or withdrawn as a result of the
assignment, sale or transfer or
In the case of any assignment or delegation, the servicer will be
released from its obligations under the Servicing Agreement except for
liabilities and obligations incurred prior to the assignment and delegation.
Events of Default; Rights Upon Event of Default
Servicing Agreement. Events of default under the Servicing Agreement
generally include:
o any failure by the servicer to deposit amounts in the Collection
Account, which failure continues unremedied for the number of days
specified in the accompanying prospectus supplement after the
giving of written notice of any failure to the servicer by the
trustee for a series, or to the servicer and the trustee by the
holders of a series evidencing not less than a specified
percentage of the aggregate voting rights of the securities for a
series,
o any failure by the servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the
applicable Issuing Agreement which continues unremedied for the
number of days specified in the accompanying prospectus supplement
after the giving of written notice of any failure to the servicer
by the trustee, or to the servicer and the trustee by the holders
of a series evidencing not less than a specified percentage of the
aggregate voting rights of the securities for a series, and
o particular events of insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings and particular
actions by the servicer indicating its insolvency, reorganization
or inability to pay its obligations.
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The Servicing Agreement will specify the circumstances under which the
trustee of the holders of securities may remove the servicer upon the occurrence
and continuance of an event of default thereunder, whereupon the trustee will
succeed to all the responsibilities, duties and liabilities of the servicer
under the Servicing Agreement and will be entitled to reasonable servicing
compensation not to exceed the applicable servicing fee, together with other
servicing compensation in the form of assumption fees, late payment charges or
otherwise as provided in the Servicing Agreement.
In the event that the trustee is unwilling or unable so to act, it may
select, or petition a court of competent jurisdiction to appoint, a finance
institution, bank or loan servicing institution with a net worth specified in
the accompanying prospectus supplement to act as successor servicer under the
provisions of the applicable Servicing Agreement. The successor servicer would
be entitled to reasonable servicing compensation in an amount not to exceed the
servicing fee stated in the accompanying prospectus supplement, together with
the other servicing compensation in the form of assumption fees, late payment
charges or otherwise, as provided in the Servicing Agreement.
During the continuance of any event of default of a servicer under a
Servicing Agreement, the trustee will have the right to take action to enforce
its rights and remedies and to protect and enforce the rights and remedies of
the holders of a series, and holders of securities evidencing not less than a
specified percentage of the aggregate voting rights of the securities for a
series may direct the time, method and place of conducting any proceeding for
any remedy available to the trustee or exercising any trust or power conferred
upon that trustee. However, the trustee will not be under any obligation to
pursue any remedy or to exercise any of these trusts or powers unless the
securityholders have offered the trustee reasonable security or indemnity
against the cost, expenses and liabilities which may be incurred by the trustee
in pursuing the remedy. The trustee may decline to follow any direction by the
securityholders if the trustee determines that the action or proceeding so
directed may not lawfully be taken or would involve it in personal liability or
be unjustly prejudicial to the nonassenting holders.
Indenture. Events of default under the indenture for each series of
notes generally include:
o a default in the payment of any principal of or interest on any
note of a series, which continues for the period of time specified
in the accompanying prospectus supplement;
o failure to perform any other covenant of the issuer in the
indenture which continues for the period of time specified in the
accompanying prospectus supplement after notice thereof is given
in accordance with the procedures described in the accompanying
prospectus supplement;
o any representation or warranty made by the issuer in the indenture
or in any certificate or other writing delivered pursuant to the
indenture or in connection with the indenture concerning or
affecting a series having been incorrect in a material respect as
of the time made, and the breach is not cured within the period of
time specified in the accompanying prospectus supplement after
notice thereof is given in accordance with the procedures
described in the accompanying prospectus supplement;
o specified events of bankruptcy, insolvency, receivership or
liquidation of the issuer; or
o any other event of default provided for the notes of that series.
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If an event of default on the notes of any series at the time
outstanding occurs and is continuing, either the trustee or the holders of a
majority of the then aggregate outstanding amount of the notes of a series may
declare the principal amount of all the notes of a series to be due and payable
immediately. This declaration may, under some circumstances, be rescinded and
annulled by the holders of a majority in aggregate outstanding amount of the
notes of a series.
If, following an event of default for any series of notes, the notes of
a series have been declared to be due and payable, the trustee may, in its
discretion, notwithstanding this acceleration, elect to maintain possession of
the collateral securing the notes of a series and to continue to apply
distributions on the collateral as if there had been no declaration of
acceleration if the collateral continues to provide sufficient funds for the
payment of principal of and interest on the notes of a series as they would have
become due if there had not been a declaration. In addition, the trustee may not
sell or otherwise liquidate the collateral securing the notes of a series
following an event of default other than a default in the payment of any
principal or interest on any note of a series for thirty (30) days or more,
unless (a) the holders of 100% of the then aggregate outstanding amount of the
notes of a series consent to the sale, (b) the proceeds of the sale or
liquidation are sufficient to pay in full the principal of and accrued interest
due and unpaid on the outstanding notes of a series at the date of the sale or
(c) the trustee determines that the collateral would not be sufficient on an
ongoing basis to make all payments on the notes as these payments would have
become due if the notes had not been declared due and payable, and the trustee
obtains the consent of the holders of a specified percentage of the then
aggregate outstanding amount of the notes of a series.
In the event that the trustee liquidates the collateral in connection
with an event of default involving a default for thirty (30) days or more in the
payment of principal of or interest on the notes of a series, the indenture
provides that the trustee will have a prior lien on the proceeds of any
liquidation for unpaid fees and expenses. As a result, upon the occurrence of
this event of default, the amount available for distribution to the noteholders
may be less than would otherwise be the case. However, the trustee may not
institute a proceeding for the enforcement of its lien except in connection with
a proceeding for the enforcement of the lien of the Indenture for the benefit of
the noteholders after the occurrence of this event of default.
In the event the principal of the notes of a series is declared due and
payable, as described above, the holders of any notes issued at a discount from
par may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of the discount which is unamortized.
Subject to the provisions of the indenture relating to the duties of
the trustee, in case an event of default shall occur and be continuing for a
series of Notes, the trustee will be under no obligation to exercise any of the
rights or powers under the indenture at the request or direction of any of the
holders of notes of a series, unless the holders offered to the trustee security
or indemnity satisfactory to it against the costs, expenses and liabilities
which might be incurred by it in complying with the request or direction.
Subject to these provisions for indemnification and specified limitations
contained in the indenture, the holders of a majority of the then aggregate
outstanding amount of the notes of a series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the trustee or exercising any trust or power conferred on the trustee for the
notes of a series, and the holders of a majority of the then aggregate
outstanding amount of the notes of a series may, in some cases, waive any
default with respect thereto, except a default in the payment of principal or
interest or a default of a covenant or provision of the indenture that cannot be
modified without the waiver or consent of all the holders of the outstanding
notes of a series affected thereby.
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Amendment
Each Issuing Agreement may be amended by the parties thereto without
the consent of the securityholders,
o to cure any ambiguity,
o to correct or supplement any provision of the Issuing Agreement
that may be inconsistent with any over provision of the Issuing
Agreement,
o to comply with the requirements of the Code, or
o to make any other provisions concerning matters or questions
arising under the Issuing Agreement that are not inconsistent with
the provisions thereof;
provided, that the action will not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of the securityholders of
the series.
The Issuing Agreement may also be amended by the with the consent of
the holders of securities evidencing interests aggregating not less than a
specified percentage of the voting interests evidenced by the securities
affected thereby, for the purpose of adding any provisions to or changing in any
manner or eliminating, any of the provisions of the Issuing Agreement or of
modifying in any manner the rights of the securityholders; provided, however,
that no amendment may (x) reduce in any manner the amount of, or delay the
timing of, any payments received on or in connection with loans that are
required to be distributed on any securities, without the consent of the holder
of the security, (y) adversely affect in any material respect the interests of
the holders of a class of securities of a series in a manner other than that
described in clause (i) above without the consent of the holders of securities
aggregating not less than a specified percentage of the Voting Interests
evidenced by the class, or (iii) reduce the aforesaid percentage of the
securities, the holders of which are required to consent to the amendment,
without the consent of the holders of all securities of the class affected then
outstanding.
Termination; Purchase or Other Disposition of Loans
The obligations created by the Issuing Agreement for a series of
securities will terminate upon the earlier of (i) the later of the final payment
or other liquidation of the last loan subject thereto and the disposition of all
property acquired upon foreclosure of any loan and (ii) any purchase or
disposition described in the following paragraph. In no event, however, will the
trust created by the Issuing Agreement continue beyond the expiration of 21
years from the death of the late survivor of persons named in the Issuing
Agreement. For each series of securities, the trustee will give written notice
of termination of the Issuing Agreement to each securityholder, and the final
distribution will be made only upon surrender and cancellation of the securities
at an office or agency appointed by the sponsor and specified in the notice of
termination.
Repurchase of the Remaining Loans. The Issuing Agreement for each
series may permit, but not require, the servicer or other entity specified in
the accompanying prospectus supplement to purchase from the trust fund for a
series all remaining loans at a price equal to 100% of the aggregate principal
balance of the loans plus, for any property acquired in respect of a loan, if
any, the outstanding principal balance of the loan at the time of foreclosure,
less, in either case, unreimbursed advances, in the case of the loans, only to
the extent not already reflected in the computation of the aggregate principal
balance of the loans, and unreimbursed expenses that are reimbursable under the
terms of the Issuing Agreement plus, in either case, accrued interest thereon at
the weighted average rate on the loans through the last day of the remittance
period in which the repurchase occurs; provided, however, that if an election is
made for treatment as a REMIC under the Code, the repurchase price may equal the
greater of (a) 100% of the aggregate principal balance of the loans, plus
accrued interest thereon at the applicable Net Loan Rates on
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the loans through the last day of the month of the repurchase and (b) the
aggregate fair market value of the loans plus the fair market value of any
property acquired in respect of a loan and remaining in the trust fund. The
exercise of this right will effect early retirement of the securities of a
series, but this entity's right to so purchase is subject to the aggregate
principal balance of the loans at the time of repurchase being less than a fixed
percentage, which shall not exceed 20%, to be stated in the Issuing Agreement,
of the aggregate principal balance of the loans as of the cut-off date.
Mandatory Termination; Auction Sale. The trustee, the servicer or the
originator may be required to effect early retirement of a series of securities
by soliciting competitive bids for the purchase of the trust fund.
The mandatory termination may take the form of an auction sale. Within
a particular period following the failure of the holder of the optional
termination right to exercise the right, the required party shall solicit bids
for the purchase of all loans remaining in the trust fund. In the event that
satisfactory bids, which would not be less than an amount necessary to pay all
principal and interest on the securities outstanding, are received as specified
in the Issuing Agreement, the net sale proceeds will be distributed to
securityholders, in the same order of priority as collections received on the
loans. If satisfactory bids are not received, this party shall decline to sell
the loans and shall not be under any obligation to solicit any further bids or
otherwise negotiate any further sale of the loans. This sale and consequent
termination of the trust fund must constitute a "qualified liquidation" of each
REMIC established by the issuer under Section 860F of the Code, including,
without limitation, the requirement that the qualified liquidation takes place
over a period not to exceed 90 days.
Material Legal Aspects of the Loans
The following discussion contains summaries of particular legal aspects
of mortgage loans and manufactured housing contracts which are general in
nature. Because these legal aspects are governed by applicable state law, which
laws may differ substantially, the summaries do not purport to be complete nor
to reflect the laws of any particular state, nor to encompass the laws of all
states in which the security for the loans is situated. The summaries are
qualified in their entirety by reference to the applicable federal and state
laws governing the loans.
The Mortgage Loans
The mortgage loans will, in general, be secured by either first, second
or more junior mortgages, deeds of trust, or other similar security agreements
depending upon the prevailing practice in the state in which the underlying
property is located. A mortgage creates a lien upon the real property described
in the mortgage. There are two parties to a mortgage: the mortgagor, who is the
borrower; and the mortgagee, who is the lender. In a mortgage state instrument,
the mortgagor delivers to the mortgagee a note or bond evidencing the loan and
the mortgage. Although a deed of trust is similar to a mortgage, a deed of trust
has three parties: a borrower called the trustor, who is similar to a mortgagor,
a lender called the beneficiary, who is similar to a mortgagee, and a
third-party grantee called the trustee. Under a deed of trust, the borrower
grant the property, irrevocably until the debt is paid, in trust, generally with
a power of sale, to the trustee to secure payment of the loan. The trustee's
authority under a deed of trust and the mortgage's authority under a mortgage
are governed by the express provisions of the deed of trust or mortgage,
applicable law, and, in some cases, for a deed of trust, the directions of the
beneficiary.
The real property covered by a mortgage is most often the fee estate in
land and improvements. However, a mortgage may encumber other interests in real
property like a
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tenant's interest in a lease of land or improvements, or both, and the leasehold
estate created by the lease. A mortgage covering an interest in real property
other than the fee estate requires special provisions in the instrument creating
the interest or in the mortgage to protect the mortgagee against termination of
the interest before the mortgage is paid.
Foreclosure
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right of foreclosure is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming. After the completion of a judicial foreclosure proceeding, the
court may issue a judgment of foreclosure and appoint a receiver or other
officer to conduct the sale of the property. In some states, mortgages may also
be foreclosed by advertisement, by a power of sale provided in the mortgage.
Foreclosure of a mortgage by advertisement is essentially similar to foreclosure
of a deed of trust by nonjudicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust that
authorizes the trustee to sell the property to a third party upon any default by
the borrower under the terms of the note or deed of trust. In some states, this
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest of record in the real property, including any junior
lienholders. If the deed of trust is not reinstated within any applicable cure
period, a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers. In addition,
some state be laws require that a copy of the notice of sale be posted on the
property and sent to all parties having an interest of record in the property.
In some states, the borrower-trustor has the right to reinstate the
loan at any time following default until shortly before the trustee's sale. In
general, the borrower, or any other person having, a junior encumbrance on the
real estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Some state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather, it is common for the lender to purchase the property from the trustee or
receiver for an amount equal to the unpaid principal amount of the note, accrued
and unpaid interest and the expenses of foreclosure. Thereafter, subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
obtaining hazard insurance and making the repairs at its own expense as are
necessary to render the property suitable for sale. The lender commonly will
obtain the services of a real estate broker and pay the broker a commission in
connection with the sale of the property. Depending upon market conditions, the
ultimate proceeds of the sale of the property may not equal the lender's
investment in the property. Any loss may be reduced by the receipt of mortgage
insurance proceeds.
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Foreclosure on Shares of Cooperatives
The cooperative shares owned by the tenant-stockholder and pledged to
the lender are, in almost all cases, subject to restrictions on transfer
described in the cooperative's certificate of incorporation and by-laws, as well
as the proprietary lease of occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by the tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by the
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the cooperative to terminate the lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate the lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under the proprietary
lease or occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure
on a cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
Foreclosure on the cooperative shares is accomplished by a sale in
accordance with the provisions of Article 9 of the UCC and the security
agreement relating to those shares. Article 9 of the UCC requires that a sale be
conducted in a "commercially reasonable" manner. Whether a foreclosure sale has
been conducted in a "commercially reasonable" manner will depend on the facts in
each case. In determining commercial reasonableness, a court will look to the
notice given the debtor and the method, manner, time, place and terms of the
foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "--Anti-Deficiency Legislation and
Other Limitations on Lenders" below.
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Rights of Redemption
In some states, after sale in accordance with a deed of trust and/or
foreclosure of a mortgage, the borrower and particular foreclosed junior lienors
are given a statutory period in which to redeem the property from the
foreclosure sale. In most states where the right of redemption is available,
statutory redemption may occur upon payment of the foreclosure purchase price,
accrued interest and taxes. In some states, the right to redeem is an equitable
right. The effect of a right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser at a foreclosure sale, or of any
purchaser from the lender subsequent to judicial foreclosure or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has run.
Junior Mortgages; Rights of Senior Mortgages
The mortgage loans are secured by mortgages or deeds of trust some of
which are junior to other mortgages or deeds of trust held by other lenders or
institutional investors. The rights of the Trust, and therefore the
securityholders, as mortgagee under a junior mortgage or beneficiary under a
junior deed of trust, are subordinate to those of the mortgagee under the senior
mortgage or beneficiary under the senior deed of trust, including the prior
rights of the senior mortgagee to receive hazard insurance and condemnation
proceeds and to cause the property securing the mortgage loan to be sold upon
default of the mortgagor or trustor, thereby extinguishing the junior
mortgagee's or junior beneficiary's lien unless the junior mortgagee or junior
beneficiary asserts its subordinate interest in the property in foreclosure
litigation and, possibly, satisfies the defaulted senior mortgage or deed of
trust. As discussed more fully below, a junior mortgagee or junior beneficiary
may satisfy a defaulted senior loan in full and, in some states, may cure the
default and loan. In most states, no notice of default is required to be given
to a junior mortgagee or junior beneficiary and junior mortgagees or junior
beneficiaries are seldom given notice of defaults or senior mortgages. In order
for a foreclosure action in some states to be effective against a junior
mortgagee or junior beneficiary, the junior mortgagee or junior beneficiary must
be named in any foreclosure action, thus giving notice to junior lienors. It is
standard practice of the originators to protect their interest by attending any
sale of which they have notice or appearing and bidding for, or redeeming, the
property if it is in their best interest to do so.
The standard form of the mortgage or deed of trust used by most
institutional lenders, including the originators, confers on the mortgagee or
beneficiary the right both to receive all proceeds collected under any hazard
insurance policy and all awards made in connection with any condemnation
proceedings, and to apply the proceeds and awards to any indebtedness secured by
the mortgage or deed of trust. Thus, in the event improvements on the property
are damaged or destroyed by fire or other casualty, or in the event the property
is taken by condemnation, the mortgagee or beneficiary under any underlying
senior mortgages will have the prior right to collect and apply any insurance
proceeds payable under a hazard insurance policy to restore or repair the
property if feasible, and to collect any remaining insurance proceeds or any
award of damages in connection with the condemnation and to apply the same to
the indebtedness secured by the senior mortgages or deeds of trust. Proceeds in
excess of the amount of senior mortgage indebtedness, in most cases, may be
applied to the indebtedness of a junior mortgage or trust deed.
The form of mortgage or deed of trust used by most institutional
lenders typically contains a "future advance" clause, which provides, in
essence, that additional amounts advanced to or on behalf of the mortgagor or
trustor by the mortgagee or beneficiary are to be secured by the mortgage or
deed of trust. The priority of any advance made under the clause depends, in
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some states, on whether the advance was an "obligatory" or "optional" advance.
If the mortgagee or beneficiary is obligated to advance the additional amounts,
the advance is entitled to receive the same priority as amounts initially
advanced under the mortgage or deed of trust, notwithstanding the fact that
there may be junior mortgages or deeds of trust and other liens which intervene
between the date of recording of the mortgage or deed of trust and the date of
the future advance, and, in some states, notwithstanding that the mortgagee or
beneficiary had actual knowledge of the intervening junior mortgages or deeds of
trust and other liens at the time of the advance. Where the mortgagee or
beneficiary is not obligated to advance additional amounts or, in some states,
has actual knowledge of the intervening junior mortgages or deeds of trust and
other liens, the advance will be subordinate to the intervening junior mortgages
or deeds of trust and other liens. Priority of advances under a "future advance"
cause rests, in some states, on state statutes giving priority to all advances
made under the loan agreement to a "credit limit" amount stated in the recorded
mortgage.
Another provision sometimes included in the form of the mortgage or
deed of trust used by institutional lenders, and included in some of the forms
used by the originators, obligates the mortgagor or trustor to pay, before
delinquency, all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to perform
any of these obligations, the mortgagee or beneficiary is given the right under
some mortgages or deeds of trust to perform the obligations itself, at its
election, with the mortgagor or trustor agreeing to reimburse the mortgagee or
beneficiary for any sums expended by the mortgagee or beneficiary on behalf of
the mortgagor or trustor. All sums so expended by the mortgagee or beneficiary
become part of the indebtedness secured by the mortgage or deed of trust.
Anti-Deficiency Legislation and Other Limitations on Lenders
Some states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgage under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the former
borrower equal in most cases to the difference between the amount due to the
lender and the net amount realized upon the foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust
the security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In some other states, the lender has the option of bringing a personal
action against the borrower on the debt without first exhausting the security;
however, in some of these states, the lender, following judgment on the personal
action, may be deemed to have elected a remedy and may be precluded from
exercising remedies on the security. Consequently, the practical effect of the
election requirement, when applicable, is that lenders will usually proceed
first against the security rather than bringing a personal action against the
borrower.
Other statutory provisions may limit any deficiency judgment against
the former borrower following a foreclosure sale to the excess of the
outstanding debt over the fair market value of the property at the time of the
sale. The purpose of these statutes is to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as a
result of low or no bids at the foreclosure sale.
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In some states, exceptions to the anti-deficiency statutes are provided
for in particular instances where the value of the lender's security has been
impaired by acts or omissions of the borrower, for example, in the event of
waste of the property.
Generally, Article 9 of the UCC governs foreclosure on cooperative
shares and the proprietary lease or occupancy agreement and foreclosure on the
beneficial interest in a land trust. Some courts have interpreted Section 9-504
of the UCC to prohibit a deficiency award unless the creditor establishes that
the sale of the collateral, which, in the case of a mortgage loan secured by
shares of a cooperative, would be the shares and the proprietary lease or
occupancy agreement, was conducted in a commercially reasonable manner.
In addition to anti-deficiency and similar legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act and state laws affording
relief to debtors, may interfere with or affect the ability of a secured
mortgage lender to realize upon its security. For example, in a Chapter 13
proceeding under the federal Bankruptcy Code, when a court determines that the
value of a home is less than the principal balance of the loan, the court may
prevent a lender from foreclosing on the home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the value
of the home as it exists at the time of the proceeding, leaving the lender as a
general unsecured creditor for the difference between that value and the amount
of outstanding indebtedness. A bankruptcy court may grant the debtor a
reasonable time to cure a payment default, and in the case of a mortgage loan
not secured by the debtor's principal residence, also may reduce the monthly
payments due under the mortgage loan, change the rate of interest and alter the
mortgage loan repayment schedule. Some court decisions have applied the relief
to claims secured by the debtor's principal residence.
The Code, provides priority to specified tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to these tax
liens over the lien of the mortgage of deed of trust. Some environmental
protection laws may also impose liability for cleanup expenses on owners by
foreclosure on real property, which liability may exceed the value of the
property involved. Numerous federal and some state consumer protection laws
impose substantive requirements upon mortgage lenders in connection with the
origination, servicing and the enforcement of mortgage loans. These laws include
the federal Truth in Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act, and
similar statutes and regulations. These federal laws and state laws impose
specific statutory liabilities upon lenders who originate or service mortgage
loans and who fail to comply with the provisions of the law. In some cases, this
liability may affect assignees of the mortgage loans.
"Due-on-Sale" Clauses
The forms of note, mortgage and deed of trust relating to conventional
mortgage loans may contain a "due-on-sale" clause permitting acceleration of the
maturity of a loan if the borrower transfers its interest in the property. In
recent years, court decisions and legislative actions placed substantial
restrictions on the right of lenders to enforce the clauses in many states.
However, effective October 15, 1982, Congress enacted the Garn Act which
purports to preempt state laws which prohibit the enforcement of "due-on-sale"
clauses by providing among other matters, that "due-on-sale" clauses in some
loans, which loans may include the mortgage loans, made after the effective date
of the Garn Act are enforceable, within specified limitations as set forth in
the Garn Act and the regulations promulgated thereunder. "Due-on-sale" clauses
contained in mortgage loans originated by federal savings and loan associations
or federal savings banks are fully enforceable under regulations of the Office
of Thrift Supervision, as successor to the Federal Home Loan Bank Board, which
preempt state law restrictions on the enforcement of
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the clauses. Similarly, "due-on-sale" clauses in mortgage loans made by national
banks and federal credit unions are now fully enforceable under preemptive
regulations of the Office of the Comptroller of the Currency and the National
Credit Union Administration, respectively.
The Garn Act created a limited exemption from its general rule of
enforceability for "due-on-sale" clauses in some "window period" mortgage loans
which were originated by non-federal lenders and made or assumed in some "window
period" states during the "window period," prior to October 15, 1982, in which
that state prohibited the enforcement of "due-on-sale" clauses by constitutional
provision, statute or statewide court decision. Though neither the Garn Act nor
the OTS regulations promulgated thereunder actually names the window period
states, FHLMC has taken the position, in prescribing mortgage loan servicing
standards for mortgage loans which it has purchased, that the window period
states were: Arizona, Arkansas, California, Colorado, Georgia, Iowa, Michigan,
Minnesota, New Mexico, Utah and Washington. Under the Garn Act, unless a window
period state took action by October 15, 1985, the end of the window period, to
further regulate enforcement of "due-on-sale" clauses in window period mortgage
loans, "due-on-sale" clauses would become enforceable even in window period
loans. Five of the window period states, Arizona, Minnesota, Michigan, New
Mexico and Utah, have taken actions which restrict the enforceability of
"due-on-sale" clauses in window period loans beyond October 15, 1985. The
actions taken vary among these states.
By virtue of the Garn Act, the servicer may generally be permitted to
accelerate any conventional mortgage loan which contains a "due-on-sale" clause
upon transfer of an interest in the property subject to the mortgage or deed of
trust. For any mortgage loan secured by a residence occupied or to be occupied
by the borrower, this ability to accelerate will not apply to particular types
of transfers, including:
o the granting of a leasehold interest which has a term of three
years or less and which does not contain an option to purchase,
o a transfer to a relative resulting from the death of a borrower,
or a transfer where the spouse or children becomes an owner of the
property in each case where the transferee(s) will occupy the
property,
o a number resulting from a decree of dissolution of marriage, legal
separation agreement or from an incidental property settlement
agreement by which the spouse becomes an owner of the property,
o the creation of a lien or other encumbrance subordinate to the
lender's security instrument which does not relate to a transfer
of rights of occupancy in the property; provided, that the lien or
encumbrance is not created by a contract for deed,
o a transfer by devise, descent or operation of law on the death of
a joint tenant or tenant by the entirety, and
o other transfers as set forth in the Garn Act and the regulations
thereunder.
The extent of the effect of the Garn Act on the average lives and
delinquency rates of the mortgage loans cannot be predicted. See "Prepayment
and Yield Considerations."
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, provides that state usury limitations shall not apply to
specified types of residential first mortgage loans originated by specified
lenders after March 31, 1980. The OTS is authorized to issue rules and
regulations and to publish interpretations governing implementation of Title V.
The statute
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authorized any state to reimpose interest rate limits by adopting before April
1, 1983, a law or constitutional provision which expressly rejects application
of the federal law. Fifteen states have adopted laws reimposing or reserving the
right to impose interest rate limits. In addition, even where Title V is not so
rejected, any state is authorized to adopt a provision limiting specified other
loan charges.
Unless otherwise specified in the accompanying prospectus supplement,
the originator will represent and warrant in the Loan Sale Agreement that all of
the mortgage loans were originated in full compliance with applicable state
laws, including usury laws. See "The Trust Funds--Representations and
Warranties."
Adjustable Rate Loans
The laws of some states may provide that mortgage notes relating to
adjustable rate loans are not negotiable instruments under the UCC. In this
event, the trustee will not be deemed to be a "holder in due course" within the
meaning of the UCC and may take this mortgage note subject to a number of
restrictions on its ability to foreclose and to a number of contractual defenses
available to a mortgagor.
Enforceability of Provisions
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In some states, there are
or may be specific limitations upon late charges which a lender may collect from
a borrower for delinquent payments. Some states also limit the amounts that a
lender may collect from a borrower as an additional charge if the loan is
prepaid. Under the servicing agreement, late charges and prepayment fees, to the
extent permitted by law and not waived by the servicer, will be retained by the
servicer as additional servicing compensation.
Courts have applied general equitable principles upon foreclosure.
These equitable principles are generally designed to relieve the borrower from
the legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have sustained their judgment for the
lender's judgment and have required lenders to reinstate loans or recast payment
schedules to accommodate borrowers who are suffering from temporary financial
disability. In some cases, courts have limited the right of lenders to foreclose
if the default under the mortgage instrument is not monetary, like the borrower
failing to adequately maintain the property or the borrower executing a second
mortgage or deed of trust affecting the property. In other cases, some courts
have been faced with the issue whether federal or state constitutional
provisions reflecting due process concerns for adequate notice require that
borrowers under deeds of trust receive notices in addition to the
statutorily-prescribed minimum requirements. For the most part, these cases have
upheld the notice provisions as being reasonable or have found that the sale by
a trustee under a deed of trust or under a mortgage having a power of sale does
not involve sufficient state action to afford constitutional protections to the
borrower.
The Contracts
As a result of the assignment of the contracts to the trustee, the
trust fund will succeed collectively to all of the rights, including the right
to receive payment on the contracts, and will assume the obligations of the
obligee under the contracts. Each contract evidences both (a) the obligation of
the obligor to repay the loan evidenced thereby, and (b) the grant of a security
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interest in the manufactured home to secure repayment of the loan. Particular
aspects of both features of the contracts are described more fully below.
The contracts generally are "chattel paper" as defined in the UCC in
effect in the states in which the manufactured homes initially were registered.
Under the UCC, the sale of chattel paper is treated in a manner similar to
perfection of a security interest in chattel paper. Under the servicing
agreement, the servicer will transfer physical possession of the contracts to
the trustee or a designated custodian or may retain possession of the contracts
as custodian for the trustee. In addition, the servicer will make an appropriate
filing of a UCC-1 financing statement in the appropriate states to give notice
of the trustee's ownership of the contracts. Unless otherwise specified in the
accompanying prospectus supplement, the contracts will not be stamped or marked
otherwise to reflect their assignment from the issuer to the trustee. Therefore,
if through negligence, fraud or otherwise, a subsequent purchaser were able to
take physical possession of the contracts without notice of the assignment, the
trustee's interest in contracts could be defeated.
Security Interests in the manufactured homes
Security interests in manufactured homes may be perfected either by
notation of the secured party's lien on the certificate of title or by delivery
of the required documents and payment of a fee to the state motor vehicle
authority, depending on state law. In some non-title states, perfection under
the provisions of the UCC is required. The servicer may effect the notation or
delivery of the required documents and fees, and obtain possession of the
certificate of title, as appropriate under the laws of the state in which any
manufactured home securing a manufactured housing conditional sales contract is
registered. In the event the servicer fails, due to clerical errors, to effect
the notation or delivery, or files the security interest under the wrong law,
the securityholders may not have a first priority security interest in the
manufactured home securing a contract. As manufactured homes have become larger
and often have been attached to their sites without any apparent intention to
move them, courts in many states have held that manufactured homes, under some
circumstances, may become subject to real estate title and recording laws. As a
result, a security interest in a manufactured home could be rendered subordinate
to the interests of other parties claiming an interest in the home under
applicable state real estate law. In order to perfect a security interest in a
manufactured home under real estate laws, the secured party must file either a
"fixture filing" under the provisions of the UCC or a real estate mortgage under
the real estate laws of the state where the home is located. These filings must
be made in the real estate records office of the county where the home is
located. Substantially all of the contracts contain provisions prohibiting the
borrower from permanently attaching the manufactured home to its site. So long
as the borrower does not violate this agreement, a security interest in the
manufactured home will be governed by the certificate of title laws or the UCC,
and the notation of the security interest on the certificate of title or the
filing of a UCC financing statement will be effective to maintain the priority
of the security interest in the manufactured home. If, however, a manufactured
home is permanently attached to its site, other parties could obtain an interest
in the manufactured home which is prior to the security interest originally
retained by the originator and transferred to the issuer. For a series of
securities and if so described in the accompanying prospectus supplement, the
servicer may be required to perfect a security interest in the manufactured home
under applicable real estate laws. The servicer will represent that at the date
of the initial issuance of the securities it has obtained a perfected first
priority security interest by proper notation or delivery of the required
documents and fees for substantially all of the manufactured homes securing the
contracts.
The sponsor will cause the security interests in the manufactured homes
to be assigned to the trustee on behalf of the securityholders. Unless otherwise
specified in the accompanying prospectus supplement, neither the sponsor nor the
trustee will amend the securities of title to identify the trustee or the trust
fund as the new secured party, and neither the sponsor nor the
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servicer will deliver the securities of title to the trustee or note thereon the
interest of the trustee. Accordingly, the servicer or the originator, which
continue to be named as the secured party on the securities of title relating to
the manufactured homes. In many states, the assignment is an effective
conveyance of the security interest without amendment of any lien noted on the
certificate of title and the new secured party succeeds to the issuer's rights
as the secured party. However, in some states there exists a risk that, in the
absence of an amendment to the certificate of title, the assignment of the
security interest in the manufactured home might not be effective or perfected
or that, in the absence of this notation or delivery to the trustee, the
assignment of the security interest in the manufactured home might not be
effective against creditors of the servicer, or the originator, or a trustee in
bankruptcy of the servicer, or the originator.
In the absence of fraud, forgery or permanent affixation of the
manufactured home to its site by the manufactured home owner, or administrative
error by state recording officials, the notation of the lien of the servicer or
the originator, on the certificate of title or delivery of the required
documents and fees will be sufficient to protect the securityholders against the
rights of subsequent purchasers of a manufactured home or subsequent lenders who
take a security interest in the manufactured home. If there are any manufactured
homes as to which the security interest assigned to the trustee is not
perfected, the security interest would be subordinate to, among others,
subsequent purchasers for value of manufactured homes and holders of perfected
security interests. There also exists a risk in not identifying the trustee as
the new secured party on the certificate of title that, through fraud or
negligence, the security interest of the securityholders could be released.
In the event that the owner of a manufactured home moves it to a state
other than the state in which the manufactured home initially is registered,
under the laws of most states the perfected security interest in the
manufactured home would continue for four months after relocation and thereafter
until the owner re-registers the manufactured home in this state. If the owner
were to relocate a manufactured home to another state and not re-register the
manufactured home in this state, and if steps are not taken to re-perfect the
trustee's security interest in this state, the security interest in the
manufactured home would cease to be perfected. A majority of states generally
require surrender of a certificate of title to re-register a manufactured home;
accordingly, the trustee must surrender possession if it holds the certificate
of title to the manufactured home or, in the case of manufactured homes
registered in states which provide for notation of lien, the servicer would
receive notice of surrender if the security interest in the manufactured home is
noted on the certificate of title. Accordingly, the trustee would have the
opportunity to re-perfect its security interest in the manufactured home in the
state of relocation. In states which do not require a certificate of title for
registration of a manufactured home, re-registration could defeat perfection. In
the ordinary course of servicing the manufactured housing conditional sales
contracts, the servicer takes steps to effect the re-perfection upon receipt of
notice of registration or information from the obligor as to relocation.
Similarly, when an obligor under a manufactured housing conditional sales
contract sells a manufactured home, the trustee or its designated custodian must
surrender possession of the certificate of title or the servicer will receive
notice as a result of its lien noted thereon and accordingly will have an
opportunity to require satisfaction of the manufactured housing conditional
sales contract before release of the lien. Under the Servicing Agreement, the
servicer is obligated to take steps, at the servicer's expense, as are necessary
to maintain perfection of security interests in the manufactured homes.
Under the laws of most states, liens for repairs performed on a
manufactured home and liens for personal property taxes take priority over a
perfected security interest. The originator will represent in the Loan Sale
Agreement that it has no knowledge of any liens on any manufactured home
securing payment on any contract. However, these liens could arise at any
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time during the term of a contract. No notice will be given to the trustee or
securityholders in the event this type of lien arises.
Enforcement of Security Interests in manufactured homes
The servicer on behalf of the trustee, to the extent required by the
Servicing Agreement, may take action to enforce the trustee's security interest
for contracts in default by repossession and resale of the manufactured homes
securing these defaulted contracts. So long as the manufactured home has not
become subject to the real estate law, a creditor can repossess a manufactured
home securing a contract by voluntary surrender, by "self-help" repossession
that is "peaceful" or, in the absence of voluntary surrender and the ability to
repossess without breach of the peace, by judicial process. The holder of a
contract must give the debtor a number of days' notice, which varies from 10 to
30 days depending on the state, prior to commencement of any repossession. The
UCC and consumer protection laws in most states place restrictions on
repossession sales, including requiring prior notice to the debtor and
commercial reasonableness in effecting a repossession sale. The law in most
states also requires that the debtor be given notice of any sale prior to resale
of the unit so that the debtor may redeem at or before this resale. In the event
of a repossession and resale of a manufactured home, the trustee would be
entitled to be paid out of the sale proceeds before the proceeds could be
applied to the payment of the claims of unsecured creditors or the holders of
subsequently perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the manufactured home securing debtor's loan. However, some states
impose prohibitions or limitations on deficiency judgments, and in many cases
the defaulting borrower would have no assets with which to pay a judgment.
Some other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade
Commission is intended to defeat the ability of the transferor of a consumer
credit contract which is the seller of goods which gave rise to the transaction,
and specified lenders and assignees, to transfer the contract free of notice of
claims by the debtor thereunder. The effect of this rule is to subject the
assignee of this type of contract to all claims and defenses which the debtor
could assert against the seller of goods. Liability under this rule is limited
to amounts paid under a contract; however, the obligor also may be able to asset
the rule to set off remaining amounts due as a defense against a claim brought
by the trustee against the obligor. Numerous other federal and state consumer
protection laws impose requirements applicable to the origination and lending
under the contracts, including the Truth in Lending Act, the Federal Trade
Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the
Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and the
Uniform Consumer Credit Code. In the case of some of these laws, the failure to
comply with their provisions may affect the enforceability of the contract.
Transfers of manufactured homes; Enforceability of "Due-on-Sale" Clauses
The contracts, in general, prohibit the sale or transfer of the
manufactured homes without the consent of the servicer and permit the
acceleration of the maturity of the contracts by the servicer upon any sale or
transfer that is not consented to.
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In the case of a transfer of a manufactured home after which the
servicer desires to accelerate the maturity of the contract, the servicer's
ability to do so will depend on the enforceability under state law of the
"due-on-sale" clause. The Garn Act preempts, subject to a number of exceptions
and conditions, state laws prohibiting enforcement of "due-on-sale" clauses
applicable to the manufactured homes. Consequently, in some states the servicer
may be prohibited from enforcing a "due-on-sale" clause on some manufactured
homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980 provides that, subject to the following conditions, state
usury limitations shall not apply to any loan which is secured by a first lien
on particular kinds of manufactured housing. The contracts would be covered if
they satisfy a number of conditions, among other things, governing the terms of
any prepayments, late charges and deferral fees and requiring a 30-day notice
period prior to instituting any action leading to repossession of the unit.
Title V authorized any state to reimpose limitations on interest rates
and finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, and state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
The originator will represent that all of the contracts comply with applicable
usury law.
Formaldehyde Litigation Involving Contracts
A number of lawsuits have been brought in the United States alleging
personal injury from exposure to the chemical formaldehyde, which is preset in
many building materials, including the components of manufactured housing as
plywood flooring and wall paneling. Some of these lawsuits were brought against
manufacturers of manufactured housing, suppliers of component parts, and persons
in the distribution process. The sponsor is aware of a limited number of cases
in which plaintiffs have won judgments in these lawsuits.
The holder of any contract secured by a manufactured home for which a
formaldehyde claim has been successfully asserted may be liable to the obligor
for the amount paid by the obligor on the contract and may be unable to collect
amounts still due under the contract. The successful assertion of the claim
constitutes a breach of a representation or warranty of the person specified in
the accompanying prospectus supplement, and the securityholders would suffer a
loss only to the extent that (x) this person breached its obligation to
repurchase the contract in the event an obligor is successful in asserting a
claim, and (y) this person, the servicer or the trustee were unsuccessful in
asserting any claim of contribution or subrogation on behalf of the
securityholders against the manufacturer or other persons who were directly
liable to the plaintiff for the damages. Typical products liability insurance
policies held by manufacturers and component suppliers of manufactured homes may
not cover liabilities arising from formaldehyde in manufactured housing, with
the result that recoveries from the manufacturers, suppliers or other persons
may be limited to their corporate assets without the benefit of insurance.
Installment Contracts
The loans may also consist of installment contracts. Under an
installment contract the lender retains legal title to the property and enters
into an agreement with the borrower for the payment of the purchase price, plus
interest, over the term of the contract. Only after full performance by the
borrower of the contract is the lender obligated to convey title to the real
estate to the purchaser. As with mortgage or deed of trust financing, during the
effective period of the Installment contract, the borrower is generally
responsible for maintaining the property in
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good condition and for paying real estate taxes, assessments and hazard
insurance premiums associated with the property.
The method of enforcing the rights of the lender under an installment
contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able under state statute, to enforce the contract
strictly according to the terms. The terms of installment contracts generally
provide that upon a default by the borrower, the borrower loses his or her right
to occupy the property, the entire indebtedness is accelerated, and the buyer's
equitable interest in the property is forfeited. The lender in this situation
does not have to foreclosure in order to obtain title to the property, although
in some cases a quiet title action is in order if the borrower has filed the
Installment contract in local land records and an ejectment action may be
necessary to recover possession. In a few states, particularly in cases of
borrower default during the early years of an installment contract, the courts
will permit ejectment of the buyer and a forfeiture of his or her interest in
the property. However, most state legislatures have enacted provisions by
analogy to mortgage law protecting borrowers under installment contracts from
the harsh consequences of forfeiture. Under these statutes, a judicial or
nonjudicial foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace period during which
the contract may be reinstated upon full payment of the default amount and the
borrower may have a post-foreclosure statutory redemption right. In other
states, courts in equity may permit a borrower with significant investment in
the property under an Installment contract for the sale of real estate to share
in the proceeds of sale of the property after the indebtedness is repaid or may
otherwise refuse to enforce the forfeiture clause. Nevertheless, generally
speaking, the lender's procedures for obtaining possession and clear title under
an Installment contract for the sale of real estate in a given state are simpler
and less time-consuming and costly than are the procedures for foreclosing and
obtaining clear title to a mortgaged property.
Environmental Risks
Real property pledged for a loan as security to a lender may be subject
to unforeseen environmental risks. Of particular concern may be those mortgaged
properties which have been the site of manufacturing, industrial or disposal
activity. These environmental risks may give rise to (a) a diminution in value
of property securing any loan or the inability to foreclose against the property
or (b) in some circumstances as more fully described below, liability for
clean-up costs or other remedial actions, which liability could exceed the value
of the property or the principal balance of the loan.
Under the laws of some states, failure to perform the remediation
required or demanded by the state of any environmental condition or circumstance
that
o may pose an imminent or substantial endangerment to the public
health or welfare or the environment,
o may result in a release or threatened release of any hazardous
material,
o may give rise to any environmental claim or demand, or
o may give rise to a lien on the property to ensure the
reimbursement of remedial costs incurred by the state to
remedy the environmental condition.
In several states these liens have priority over the lien of an
existing mortgage against the property. The value of a mortgaged property as
collateral for a loan could therefore be adversely affected by the existence of
any environmental condition.
The state of the law is currently unclear as to whether and under what
circumstances clean-up costs, or the obligation to take remedial actions, could
be imposed on a secured lender
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like the trust fund. Under the laws of some states and under the CERCLA, a
lender may be liable as an "owner or operator" for costs of addressing releases
or threatened releases of hazardous substances on a mortgaged property if the
lender or its agents or employees have participated in the management of the
operations of the borrower, even though CERCLA's definition of "owner or
operator," however, is a person "who without participating in the management of
the facility, holds indicia of ownership primarily to protect his security
interest". This exemption for holders of a security interest like a secured
lender applies only when the lender seeks to protect its security interest in
the contaminated facility or property. Thus, if a lender's activities begin to
encroach on the actual management of the facility or property, the lender faces
potential liability as an "owner or operator" under CERCLA. Similarly, when a
lender forecloses and takes title to a contaminated facility or property,
whether it holds the facility or property as an investment or leases it to a
third party, the lender may incur potential CERCLA liability.
A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly contained
CERCLA's secured-creditor exemption. The court held that a lender need not have
involved itself in the day-to-day operations of the facility or participated in
decisions relating to hazardous waste to be liable under CERCLA; rather,
liability could attach to a lender if its involvement with the management of the
facility is broad enough to support the inference that the lender had the
capacity to influence the borrower's treatment of hazardous waste. The court
added that a lender's capacity to influence the decisions could be inferred from
the extent of its involvement in the facility's financial management. A
subsequent decision by the United States Court of Appeals for the Ninth Circuit
in In re Bergsoe Metal Corp., disagreeing with the Fleet Factors court, held
that a secured lender had no liability absent "some actual management of the
facility" on the part of the lender. On April 29, 1992, the United States
Environmental Protection Agency issued a final rule interpreting and delineating
CERCLA's secured-creditor exemption. The final rule defines a specific the range
of permissible actions that may be undertaken by a holder of a contaminated
facility without exceeding the bounds of the secured-creditor exemption.
Issuance of this rule by the EPA under CERCLA would not necessarily affect the
potential for liability in actions by either a state or a private party under
CERCLA or in actions under other federal or state laws which may impose
liability on "owners or operators" but do not incorporate the second-creditor
exemption.
If a lender is or becomes liable for clean-up costs, it may bring an
action for contribution against the current owners or operators, the owners or
operators at the time of on-site disposal activity or any other party who
contributed to the environmental hazard, but these persons or entities may be
bankrupt or otherwise judgment proof. Furthermore, this action against the
borrower may be adversely affected by the limitations on recourse in the
documents in the loan document file. Similarly, in some states anti-deficiency
legislation and other statues requiring the lender to exhaust its security
before bringing a personal action against the borrower-trustor may curtail the
lender's ability to recover from its borrower the environmental clean-up and
other costs and liabilities by the lender. See "--Anti-Deficiency Legislation
and Other Limitations on Lenders".
Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, a borrower who enters military service after the origination of the
borrower's loan, including a borrower who is a member of the National Guard or
is in reserve status at the time of the origination of the loan and is later
called to active duty, may not be charged interest above an annual rate of 6%
during the period of the borrower's active duty status, unless a court orders
otherwise upon application of the lender. It is possible that this action could
have an effect, for an indeterminate period of time, on the ability of the
servicer to collect full amounts of interest on
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some of the loans in a trust fund. Any shortfall in interest collections
resulting from the application of the Soldiers' and Sailors' Civil Relief Act
could result in losses to the holders of the securities of the series. In
addition, the Soldiers' and Sailors' Civil Relief Act imposes limitations which
would impair the ability of the servicer to foreclose on an affected loan during
the borrower's period of active duty status. Thus, in the event that this type
of loan goes into default, there may be delays and losses occasioned by the
inability to realize upon the mortgaged property or manufactured home in a
timely fashion.
Type of mortgaged property
The lender may be subject to additional risk depending upon the type
and use of the mortgaged property in question. For instance, mortgaged
properties which are hospitals, nursing homes or convalescent homes may present
special risks to lenders in large part due to significant governmental
regulation of the operation, maintenance, control and financing of health care
institutions. Mortgages on mortgaged properties which are owned by the borrower
under a condominium form of ownership are subject to the declaration, by-laws
and other rules and regulations of the condominium association. mortgaged
properties which are hotels or motels may present additional risk to the lender
in that: (x) hotels and motels are typically operated in accordance with
franchise, management and operating agreements which may be terminable by the
operator; and (y) the transferability of the hotel's operating, liquor and other
licenses to the entity acquiring the hotel either through purchase or
foreclosure is subject to the vagaries of local law requirements. In addition,
mortgaged properties which are multifamily residential properties may be subject
to rent control laws, which could impact the future cash flows of these
properties. Finally, mortgaged properties which are financed in the installment
sales contract method may leave the holder of the note exposed to tort and other
claims as the true owner of the property which could impact the availability of
cash to pass through to investors.
Material Matters Relating to Insolvency
The originator, the issuer and the sponsor intend that the transfer of
the loans to the issuer constitute a sale rather for a pledge of the loans to
secure indebtedness of the originator. However, if the originator were to become
a debtor under the federal bankruptcy code or be placed in a conservatorship or
receivership under FIRREA, as the case may be, it is possible that a creditor,
receiver, conservator or trustee-in-bankruptcy of the originator may argue that
the sale of the loans by the originator is a pledge of the loans rather than a
sale. This position, if argued or accepted by a court, could result in a delay
in or reduction of distributions to the securityholders.
Under FIRREA, the FDIC as receiver or conservator of a servicer subject
to its jurisdiction may enforce a contract notwithstanding any provision of the
contract providing for termination thereof by reason of the insolvency of, or
appointment of a receiver or conservator for, the servicer. Consequently,
provisions in a Servicing Agreement providing for an Event of Default upon
specified events of insolvency, receivership or conservatorship of the servicer
may not be enforceable against the FDIC as receiver or conservator to the extent
that the exercise of these rights is based solely upon the insolvency of or
appointment of a receiver or conservator for the servicer. In addition, the FDIC
may transfer the assets and liabilities of an institution in receivership or
conservatorship to another institution.
Bankruptcy Laws
Numerous statutory provisions, including the federal bankruptcy laws
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to obtain payment of the loan, to realize
upon collateral and/or enforce a deficiency judgment. For example, under federal
bankruptcy law, virtually all actions, including foreclosure actions and
deficiency judgment proceedings, are automatically stayed upon the filing of the
bankruptcy
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petition, and, often, no interest or principal payments are made during the
course of the bankruptcy proceeding. The delay and the consequences thereof
caused by or on behalf of a junior lienor may stay the senior lender from taking
action to foreclose out the junior lien. In a case under the Bankruptcy Code,
the lender is precluded from foreclosing without authorization from the
bankruptcy court. In addition, a court with federal bankruptcy jurisdiction may
permit a debtor through his or her Chapter 11 or Chapter 13 rehabilitative plan
to cure a monetary default on a mortgage loan on the debtor's residence by
paying arrearage within a reasonable time period and reinstating the original
mortgage loan payment schedule even though the lender accelerated the mortgage
loan and final judgment of foreclosure had been entered in state court, provided
no sale of the residence had yet occurred, prior to the filing of the debtor's
petition. Some courts with federal bankruptcy jurisdiction have approved plans,
based on the particular facts of the reorganization case, that effected the
curing of a mortgage loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan secured by property of the debtor may be modified.
These courts have suggested that the modifications may include reducing the
amount of each monthly payment, changing the rate of interest, altering the
repayment schedule, and reducing the lender's security interest to the value of
the residence, thus leaving the lender in the position of a general unsecured
creditor for the difference between the value of the residence and the
outstanding balance of the loan.
Federal bankruptcy law may also interfere with or affect the ability of
the secured mortgage lender to enforce an assignment by a mortgagor of rent and
leases on the mortgaged property if the mortgagor is in a bankruptcy proceeding.
Under Section 362 of the Bankruptcy Code, the mortgagee will be stayed from
enforcing the assignment, and the legal proceedings necessary to resolve the
issue can be time-consuming and may result in significant delays in the receipt
of the rents. Rents may also escape an assignment thereof
o if the assignment is not fully perfected under state law prior to
commencement of the bankruptcy proceeding,
o to the extent these rents are used by the borrower to maintain the
mortgaged property, or for other court authorized expenses, or
o to the extent other collateral may be substituted for the rents.
To the extent a mortgagor's ability to make payment on a mortgage loan
is dependent on payments under a lease of the property, the ability may be
impaired by the commencement of a bankruptcy proceeding relating to a lessee
under the lease. Under the federal bankruptcy laws, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy against
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order for a
default under the lease that occurred prior to the filing of the lessee's
petition.
In addition, federal bankruptcy law generally provides that a trustee
or debtor in possession in a bankruptcy or reorganization case under the
Bankruptcy Code may, subject to approval of the court (a) assume the lease and
retain it or assign it to a third party or (b) reject the lease. If the lease is
assumed, the trustee or debtor in possession, or assignee, if applicable, must
cure any defaults under the lease, compensate the lessor for its losses and
provide the lessor with "adequate assurance" of future performance. These
remedies may be insufficient, however, as the lessor may be forced to continue
under the lease with a lessee that is a poor credit risk or an unfamiliar tenant
if the lease was assigned, and any assurances provided to the lessor may, in
fact, be inadequate. Furthermore, there is likely to be a period of time between
the date upon which a lessee files a bankruptcy petition and the date upon which
the lease is assumed or rejected.
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Although the lessee is obligated to make all lease payments currently during the
post-petition period, there is a risk that the payments will not be made due to
the lessee's poor financial condition. If the lease is rejected, the lessor will
be treated as an unsecured creditor on its claim for damages for termination of
the lease and the mortgagor must release the mortgage property before the flow
of lease payments will recommence. In addition, under Section 502(b)(6) of the
Bankruptcy Code, a lessor's damages for lease rejection are limited by a
formula.
In a bankruptcy or similar proceeding, action may be taken seeking the
recovery as a preferential transfer to the trust fund of any payments made by
the mortgagor under the mortgage loan. Moreover, some recent court decisions
suggest that even a non-collusive, regularly conducted foreclosure sale may be
challenged in a bankruptcy proceeding as a "fraudulent conveyance," regardless
of the parties' intent, if a bankruptcy court determines that the mortgaged
property has been sold for less than fair consideration while the mortgagor was
insolvent and within one year, or within any longer state statutes of
limitations if the trustee in bankruptcy elects to proceed under state
fraudulent conveyance law, of the filing of bankruptcy.
Material Federal Income Tax Consequences
The following is a discussion of the material federal income tax
consequences to investors of the purchase, ownership and disposition of the
securities offered hereby. The discussion is based upon laws, regulations,
rulings and decisions now in effect, all of which are subject to change. The
discussion below 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 are urged to consult their own tax advisors in
determining the particular federal, state and local consequences to them of the
purchase, ownership and disposition of the securities.
The following discussion addresses securities of five general types:
o Grantor Trust Securities,
o REMIC Securities,
o Debt Securities,
o Partnership Interests, and
o FASIT Securities.
The prospectus supplement for each series of securities will indicate
whether a REMIC or FASIT election(s) will be made for the trust and, if a REMIC
or FASIT election is to be made, will identify all "regular interests" and
"residual interests" in the REMIC or all "regular interests," "high-yield
interests" and the "ownership interest" in the FASIT.
The Taxpayer Relief Act of 1997 adds provisions to the Code that
require the recognition of gain upon the "constructive sale of an appreciated
financial position." A constructive sale of an appreciated financial position
occurs if a taxpayer enters into particular transactions or series of
transactions in connection with a financial instrument that have the effect of
substantially eliminating the taxpayer's risk of loss and opportunity for gain
on the financial instrument. These provisions apply only to classes of
securities that do not have a principal balance.
Grantor Trust Securities
For each series of Grantor Trust Securities, special tax counsel to the
sponsor, will deliver its opinion to the sponsor that the trust will be
classified as a grantor trust and not as an association taxable as a
corporation. This opinion shall be attached on Form 8-K to be filed with
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the Securities and Exchange Commission within fifteen days after the initial
issuance of the securities or filed with the Commission as a post-effective
amendment to the prospectus. Accordingly, each beneficial owner of a Grantor
Trust Security will generally be treated as the owner of an interest in the
loans included in the grantor trust.
Special Tax Attributes
Unless otherwise disclosed in a accompanying prospectus supplement,
special tax counsel to the sponsor, will deliver its opinion to the sponsor that
(a) Grantor Trust Fractional Interest Securities will represent interests in (x)
"loans . . . secured by an interest in real property" within the meaning of
section 7701(a)(19)(C)(v) of the Code; and (y) "obligations (including any
participation or certificate of beneficial ownership therein) which . . . are
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code; and (b) interest on Grantor Trust Fractional
Interest Securities will be considered "interest on obligations secured by
mortgages on real property or on interests in real property" within the meaning
of Section 856(c)(3)(B) of the Code. In addition, the Grantor Trust Strip
Securities will be "obligations (including any participation or certificate of
beneficial ownership therein) . . . principally secured by an interest in real
property" within the meaning of Section 860G(a)(3)(A) of the Code. We will file
this opinion with the Securities and Exchange Commission on Form 8-K within
fifteen (15) days after the initial issuance of the securities or as a
post-effective amendment to the prospectus.
Taxation of Beneficial Owners of Grantor Trust Securities
Beneficial owners of Grantor Trust Fractional Interest Securities
generally will be required to report on their federal income tax returns their
respective shares of the income from the loans, including amounts used to pay
reasonable servicing fees and other expenses but excluding amounts payable to
beneficial owners of any corresponding Grantor Trust Strip Securities, and,
subject to the limitations described below, will be entitled to deduct their
shares of any reasonable servicing fees and other expenses. If a beneficial
owner acquires a Grantor Trust Fractional Interest Security for an amount that
differs from its outstanding principal amount, the amount includible in income
on a Grantor Trust Fractional Interest Security may differ from the amount of
interest distributable thereon. See "--Discount and Premium," below. Individuals
holding a Grantor Trust Fractional Interest Security directly or through some
pass-through entities will be allowed a deduction for reasonable servicing fees
and expenses only to the extent that the aggregate of the beneficial owner's
miscellaneous itemized deductions exceeds 2% of the beneficial owner's adjusted
gross income. Further, beneficial owners, other than corporations, subject to
the alternative minimum tax may not deduct miscellaneous itemized deductions in
determining alternative minimum taxable income.
Beneficial owners of Grantor Trust Strip Securities generally will be
required to treat the securities as "stripped coupons" under Section 1286 of the
Code. Accordingly, beneficial owner will be required to treat the excess of the
total amount of payments on a Grantor Trust Strip Security over the amount paid
for the security as original issue discount and to include the discount in
income as it accrues over the life of the security. See "--Discount and
Premium," below.
Grantor Trust Fractional Interest Securities may also be subject to the
coupon stripping rules if a class of Grantor Trust Strip Securities is issued as
part of the same series of securities. The consequences of the application of
the coupon stripping rules would appear to be that any discount arising upon the
purchase of a Grantor Trust Fractional Interest Security, and perhaps all stated
interest thereon, would be classified as original issue discount and includible
in the beneficial owner's income as it accrues, regardless of the beneficial
owner's method of accounting, as described below under
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"--Discount and Premium." The coupon stripping rules will not apply, however, if
(x) the pass-through rate is no more than 100 basis points lower than the gross
rate of interest payable on the underlying loans and (y) the difference between
the outstanding principal balance on the security and the amount paid for the
security is less than 0.25% of the principal balance times the weighted average
remaining maturity of the security.
Sales of Grantor Trust Securities
Any gain or loss recognized on the sale of a Grantor Trust Security,
which is equal to the difference between the amount realized on the sale and the
adjusted basis of the Grantor Trust Security, will be capital gain or loss,
except to the extent of accrued and unrecognized market discount, which will be
treated as ordinary income, and in the case of banks and other financial
institutions except as provided under Section 582(c) of the Code. The adjusted
basis of a Grantor Trust Security will generally equal its cost, increased by
any income reported by the originator, including original issue discount and
market discount income, and reduced, but not below zero, by any previously
reported losses, any amortized premium and by any distributions of principal.
Grantor Trust Reporting
The trustee will furnish to each beneficial owner of a Grantor Trust
Fractional Interest Security with each distribution a statement setting forth
the amount of the distribution allocable to principal on the underlying loans
and to interest thereon at the interest rate attributable to the security. In
addition, within a reasonable time after the end of each calendar year, based on
information provided by the servicer, the trustee will furnish to each
beneficial owner during the year any customary factual information as the
servicer deems necessary or desirable to enable beneficial owners of Grantor
Trust Securities to prepare their tax returns and will furnish comparable
information to the Internal Revenue Service as and when required to do so by
law.
REMIC Securities
If provided in a accompanying prospectus supplement, an election will
be made to treat an issuer as a REMIC under the Code. Qualification as a REMIC
requires ongoing compliance with a number of conditions. For each series of
securities for which a REMIC election is made, special tax counsel to the
sponsor, will deliver its opinion to the sponsor that, assuming compliance with
the Issuing Agreement, the issuer will be treated as a REMIC for federal income
tax purposes. We will file this opinion with the Commission on Form 8-K within
fifteen days after the initial issuance of the securities or as a post-effective
amendment to the prospectus.
A REMIC Trust will not be subject to federal income tax except for
income from prohibited transactions and in particular other instances described
below. See "--Taxes on a REMIC Trust." Generally, the total income from the
loans in a REMIC Trust will be taxable to the beneficial owners of the
securities of that series, as described below.
The REMIC Regulations provide some guidance regarding the federal
income tax consequences associated with the purchase, ownership and disposition
of REMIC Securities. While a number of material provisions of the REMIC
Regulations are discussed below, investors should consult their own tax advisors
regarding the possible application of the REMIC Regulations in their specific
circumstances.
Special Tax Attributes
REMIC Regular Securities and REMIC Residual Securities will be "regular
or residual interests in a REMIC" within the meaning of Section
7701(a)(19)(C)(xi) of the Code and "real estate assets" within the meaning of
Section 856(c)(5)(A) of the Code. If at any time during a calendar year less
than 95% of the assets of a REMIC Trust consist of "qualified mortgages", within
the meaning of Section 860G(a)(3) of the Code, then the portion of the REMIC
Regular
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Securities and REMIC Residual Securities that are qualifying assets under those
Sections during the calendar year may be limited to the portion of the assets of
the REMIC Trust that are qualified mortgages. Similarly, income on the REMIC
Regular Securities and REMIC Residual Securities will be treated as "interest on
obligations secured by mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code, subject to the same limitation described in the
preceding sentence. For purposes of applying this limitation, a REMIC Trust
should be treated as owning the assets represented by the qualified mortgages.
The assets of the trust fund will include, in addition to the loans, payments on
the loans held pending distribution on the REMIC Regular Securities and REMIC
Residual Securities and any reinvestment income thereon. REMIC Regular
Securities and REMIC Residual Securities held by a financial institution to
which Section 585, 586 or 593 of the Code applies will be treated as evidences
of indebtedness for purposes of Section 582(c)(1) of the Code. REMIC Regular
Securities will also be qualified mortgages in connection with other REMICs and
FASITs.
Taxation of Beneficial Owners of REMIC Regular Securities
Except as indicated below in this federal income tax discussion, the
REMIC Regular Securities will be treated for federal income tax purposes as debt
instruments issued by the REMIC Trust on the Settlement Date and not as
ownership interests in the REMIC Trust or its assets. Beneficial owners of REMIC
Regular Securities that otherwise report income under a cash method of
accounting will be required to report income on the securities under an accrual
method. For additional tax consequences relating to REMIC Regular Securities
purchased at a discount or with premium, see "--Discount and Premium," below.
Taxation of Beneficial Owners of REMIC Residual Securities
Daily Portions. Except as indicated below, a beneficial owner of a
REMIC Residual Security for a REMIC Trust generally will be required to report
its daily portion of the taxable income or net loss of the REMIC Trust for each
day during a calendar quarter that the beneficial owner owned the REMIC Residual
Security. For this purpose, the daily portion shall be determined by allocating
to each day in the calendar quarter its ratable portion of the taxable income or
net loss of the REMIC Trust for the quarter and by allocating the amount so
allocated among the beneficial owners of REMIC Residual Securities on this day
in accordance with their percentage interests on this day. Any amount included
in the gross income or allowed as a loss of any beneficial owner of this REMIC
Residual Security by virtue of this paragraph will be treated as ordinary income
or loss.
The requirement that each beneficial owner of a REMIC Residual Security
report its daily portion of the taxable income or net loss of the REMIC Trust
will continue until there are no securities of any class outstanding, even
though the beneficial owner of the REMIC Residual Security may have received
full payment of the stated interest and principal on its REMIC Residual
Security.
The trustee will provide to beneficial owners of REMIC Residual
Securities of each series of securities (x) the information as is necessary to
enable them to prepare their federal income tax returns and (y) any reports
regarding the securities of a series that may be required under the Code.
Taxable Income or Net Loss of a REMIC Trust. The taxable income or net
loss of a REMIC Trust will be the income from the qualified mortgages it holds
and any reinvestment earnings less deductions allowed to the REMIC Trust. This
taxable income or net loss for a given calendar quarter will be determined in
the same manner as for an individual having the calendar year as the taxable
year and using the accrual method of accounting, with specified modifications.
The first modification is that a deduction will be allowed for accruals of
interest, including any
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original issue discount, but without regard to the investment interest
limitation in Section 163(d) of the Code, on the REMIC Regular Securities, but
not the REMIC Residual Securities, even though REMIC Regular Securities are for
non-tax purposes evidences of beneficial ownership rather than indebtedness of a
REMIC Trust. Second, market discount or premium equal to the difference between
the total stated principal balances of the qualified mortgages and the basis to
the REMIC Trust in the qualified mortgages generally will be included in income,
in the case of discount, or deductible, in the case of premium, by the REMIC
Trust as it accrues under a constant yield method, taking into account the
Prepayment Assumption. See "--Discount and Premium--Original Issue Discount,"
below. The basis to a REMIC Trust in the qualified mortgages is the aggregate of
the issue prices of all the REMIC Regular Securities and REMIC Residual
Securities in the REMIC Trust on the Settlement Date. If, however, a substantial
amount of a class of REMIC Regular Securities or REMIC Residual Securities has
not been sold to the public, then the fair market value of all the REMIC Regular
Securities or REMIC Residual Securities in that class as of the date of the
prospectus supplement should be substituted for the issue price.
The third modification is that no item of income, gain, loss or
deduction allocable to a prohibited transaction will be taken into account. See
"--Taxes on a REMIC Trust--Prohibited Transactions" below. Fourth, a REMIC Trust
generally may not deduct any item that would not be allowed in calculating the
taxable income of a partnership by virtue of Section 703(a)(2) of the Code.
Finally, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code will not be applied at the REMIC Trust
level to any servicing and guaranty fees. See, however, "--Pass-Through of
Servicing and Guaranty Fees to Individuals" below. In addition, under the REMIC
Regulations, any expenses that are incurred in connection with the formation of
a REMIC Trust and the issuance of the REMIC Regular Securities and REMIC
Residual Securities are not treated as expenses of the REMIC Trust for which a
deduction is allowed. If the deductions allowed to a REMIC Trust exceed its
gross income for a calendar quarter, the excess will be a net loss for the REMIC
Trust for that calendar quarter. The REMIC Regulations also provide that any
gain or loss to a REMIC Trust from the disposition of any asset, including a
qualified mortgage or "permitted investment", as defined in Section 860G(a)(5)
of the Code, will be treated as ordinary gain or loss.
A beneficial owner of a REMIC Residual Security may be required to
recognize taxable income without being entitled to receive a corresponding
amount of cash. This could occur, for example, if the qualified mortgages are
considered to be purchased by the REMIC Trust at a discount, some or all of the
REMIC Regular Securities are issued at a discount, and the discount included as
a result of a prepayment on a loan that is used to pay principal on the REMIC
Regular Securities exceeds the REMIC Trust's deduction for unaccrued original
issue discount relating to the REMIC Regular Securities. Taxable income may also
be greater in earlier years because interest expense deductions, expressed as a
percentage of the outstanding principal amount of the REMIC Regular Securities,
may increase over time as the earlier classes of REMIC Regular Securities are
paid, whereas interest income on any given loan expressed as a percentage of the
outstanding principal amount of that loan, will remain constant over time.
Basis Rules and Distributions. A beneficial owner of a REMIC Residual
Security has an initial basis in its security equal to the amount paid for the
REMIC Residual Security. This basis is increased by amounts included in the
income of the beneficial owner and decreased by distributions and by any net
loss taken into account on the REMIC Residual Security. A distribution on a
REMIC Residual Security to a beneficial owner is not included in gross income to
the extent it does not exceed the beneficial owner's basis in the REMIC Residual
Security, adjusted as described above, and, to the extent it exceeds the
adjusted basis of the REMIC Residual Security, shall be treated as gain from the
sale of the REMIC Residual Security.
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A beneficial owner of a REMIC Residual Security is not allowed to take
into account any net loss for any calendar quarter to the extent the net loss
exceeds the beneficial owner's adjusted basis in its REMIC Residual Security as
of the close of the calendar quarter, determined without regard to the net loss.
Any loss disallowed by reason of this limitation may be carried forward
indefinitely to future calendar quarters and, subject to the same limitation,
may be used only to offset income from the REMIC Residual Security.
Excess Inclusions. Any excess inclusions on a REMIC Residual Security
are subject to a number of special tax rules. For a beneficial owner of a REMIC
Residual Security, the excess inclusion for any calendar quarter is defined as
the excess, if any, of the daily portions of taxable income over the sum of the
"daily accruals" for each day during this quarter that the REMIC Residual
Security was held by the beneficial owner. The daily accruals are determined by
allocating to each day during a calendar quarter its ratable portion of the
product of the "adjusted issue price" of the REMIC Residual Security at the
beginning of the calendar quarter and 120% of the "federal long-term rate" in
effect on the Settlement Date, based on quarterly compounding, and properly
adjusted for the length of the quarter. For this purpose, the adjusted issue
price of a REMIC Residual Security as of the beginning of any calendar quarter
is equal to the issue price of the REMIC Residual Security, increased by the
amount of daily accruals for all prior quarters and decreased by any
distributions made on the REMIC Residual Security before the beginning of the
quarter. The issue price of a REMIC Residual Security is the initial offering
price to the public, excluding bond houses and brokers, at which a substantial
number of the REMIC Residual Securities was sold. The federal long-term rate is
a blend of current yields on Treasury securities having a maturity of more than
nine years, computed and published monthly by the IRS.
In general, beneficial owners of REMIC Residual Securities with excess
inclusion income cannot offset the income by losses from other activities. For
beneficial owners that are subject to tax only on unrelated business taxable
income, as defined in Section 511 of the Code, an excess inclusion of the
beneficial owner is treated as unrelated business taxable income. For variable
contracts, within the meaning of Section 817 of the Code, a life insurance
company cannot adjust its reserve to the extent of any excess inclusion, except
as provided in regulations. The REMIC Regulations indicate that if a beneficial
owner of a REMIC Residual Security is a member of an affiliated group filing a
consolidated income tax return, the taxable income of the affiliated group
cannot be less than the sum of the excess inclusions attributable to all
residual interests in REMICs held by members of the affiliated group. For a
discussion of the effect of excess inclusions on particular foreign investors
that own REMIC Residual Securities, see "--Foreign Investors" below.
The Treasury Department also has the authority to issue regulations
that would treat all taxable income of a REMIC Trust as excess inclusions if the
REMIC Residual Security does not have "significant value." Although the Treasury
Department did not exercise this authority in the REMIC Regulations, future
regulations may contain this type of rule. If this type of rule were adopted, it
is unclear how significant value would be determined for these purposes. If no
rule is applicable, excess inclusions should be calculated as discussed above.
In the case of any REMIC Residual Securities that are held by a real
estate investment trust, the aggregate excess inclusions on the REMIC Residual
Securities reduced, but not below zero, by the real estate investment trust
taxable income, within the meaning of Section 857(b)(2) of the Code, excluding
any net capital gain, will be allocated among the shareholders of the trust in
proportion to the dividends received by the shareholders from the trust, and any
amount so allocated will be treated as an excess inclusion on a REMIC Residual
Security as if held directly by the shareholder. Similar rules will apply in the
case of regulated investment companies, common trust funds and some cooperatives
that hold a REMIC Residual Security.
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Pass-Through of Servicing and Guaranty Fees to Individuals. A
beneficial owner of a REMIC Residual Security who is an individual will be
required to include in income a share of any servicing and guaranty fees. A
deduction for the fees will be allowed to the beneficial owner only to the
extent that the fees, along with some of the beneficial owner's other
miscellaneous itemized deductions exceed 2% of the beneficial owner's adjusted
gross income. In addition, a beneficial owner of a REMIC Residual Security may
not be able to deduct any portion of the fees in computing the beneficial
owner's alternative minimum tax liability. A beneficial owner's share of the
fees will generally be determined by (x) allocating the amount of the expenses
for each calendar quarter on a pro rata basis to each day in the calendar
quarter and (y) allocating the daily amount among the beneficial owners in
proportion to their respective holdings on this day.
Taxes on a REMIC Trust
Prohibited Transactions. The Code imposes a tax on a REMIC equal to
100% of the net income derived from "prohibited transactions." In general, a
prohibited transaction means the disposition of a qualified mortgage other than
in accordance with specified exceptions, the receipt of investment income from a
source other than a loan or other permitted investments, the receipt of
compensation for services, or the disposition of an asset purchased with the
payments on the qualified mortgages for temporary investment pending
distribution on the regular and residual interests.
Contributions to a REMIC after the Startup Day. The Code imposes a tax
on a REMIC equal to 100% of the value of any property contributed to the REMIC
after the "startup day", which is generally the same as the Settlement Date.
Exceptions are provided for cash contributions to a REMIC:
o during the three month period beginning on the startup day,
o made to a qualified reserve fund by a beneficial owner of a
residual interest,
o in the nature of a guarantee,
o made to facilitate a qualified liquidation or clean-up call, and
o as otherwise permitted by Treasury regulations.
Net Income from Foreclosure Property. The Code imposes a tax on a REMIC
equal to the highest corporate rate on "net income from foreclosure property."
The terms "foreclosure property", which includes property acquired by deed in
lieu of foreclosure, and "net income from foreclosure property" are defined by
reference to the rules applicable to real estate investment trusts. Generally,
foreclosure property would be treated as such for a period of three years, with
a possible extension. Net income from foreclosure property generally means gain
from the sale of foreclosure property that is inventory property and gross
income from foreclosure property other than qualifying rents and other
qualifying income for a real estate investment trust.
Sales of REMIC Securities
Except as provided below, if a REMIC Regular Security or REMIC Residual
Security is sold, the seller will recognize gain or loss equal to the difference
between the amount realized in the sale and its adjusted basis in the security.
The adjusted basis of a REMIC Regular Security generally will equal the cost of
the security to the seller, increased by any original issue discount or market
discount included in the seller's gross income on the security and reduced by
distributions on the security previously received by the seller of amounts
included in the stated redemption price at maturity and by any premium that has
reduced the seller's interest income on the security. See "--Discount and
Premium." The adjusted basis of a REMIC Residual Security is determined as
described above under "--Taxation of Beneficial Owners of REMIC Residual
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Securities--Basis Rules and Distributions." Except as provided in the following
paragraph or under Section 582(c) of the Code, any gain or loss will be capital
gain or loss, provided the security is held as a "capital asset", which is
generally, property held for investment, within the meaning of Section 1221 of
the Code.
Gain from the sale of a REMIC Regular Security that might otherwise be
capital gain will be treated as ordinary income to the extent that the gain does
not exceed the excess, if any, of (x) the amount that would have been includible
in the income of the beneficial owner of a REMIC Regular Security had income
accrued at a rate equal to 110% of the "applicable federal rate", generally, an
average of current yields on Treasury securities, as of the date of purchase
over (y) the amount actually includible in the beneficial owner's income. In
addition, gain recognized on this type of sale by a beneficial owner of a REMIC
Regular Security who purchased the security at a market discount would also be
taxable as ordinary income in an amount not exceeding the portion of the
discount that accrued during the period the security was held by the beneficial
owner, reduced by any market discount includible in income under the rules
described below under "--Discount and Premium."
If a beneficial owner of a REMIC Residual Security sells its REMIC
Residual Security at a loss, the loss will not be recognized if, within six
months before or after the sale of the REMIC Residual Security, the beneficial
owner purchases another residual interest in any REMIC or any interest in a
taxable mortgage pool, as defined in Section 7701(i) of the Code, comparable to
a residual interest in a REMIC. This disallowed loss would be allowed upon the
sale of the other residual interest, or comparable interest, if the rule
referred to in the preceding sentence does not apply to that sale. While this
rule may be modified by Treasury regulations, no regulations on this point have
yet been published.
Transfers of REMIC Residual Securities. Section 860E(e) of the Code
imposes a substantial tax, payable by the transferor, or, if a transfer is
through a broker, nominee, or other middleman as the transferee's agent, payable
by that agent, upon any transfer of a REMIC Residual Security to a disqualified
organization and upon a pass-through entity, including regulated investment
companies, real estate investment trusts, common trust funds, partnerships,
trusts, estates, some cooperatives, and nominees, that owns a REMIC Residual
Security if this pass-through entity has a disqualified organization as a
record-holder. For purposes of the preceding sentence, a transfer includes any
transfer of record or beneficial ownership, whether by a purchase, a default
under a secured lending agreement or otherwise.
The term "disqualified organization" includes the United States, any
state or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing,
other than specified taxable instrumentalities, any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas, or any organization, other than a farmers' cooperative, that is exempt
from federal income tax, unless the organization is subject to the tax on
unrelated business income. Moreover, an entity will not qualify as a REMIC
unless there are reasonable arrangements designed to ensure that (x) residual
interests in the entity are not held by disqualified organizations and (y)
information necessary for the application of the tax described in this
prospectus will be made available. Restrictions on the transfer of a REMIC
Residual Security and other provisions that are intended to meet this
requirement are described in the pooling and servicing agreement, and will be
discussed more fully in the accompanying prospectus supplement relating to the
offering of any REMIC Residual Security. In addition, a pass-through entity,
including a nominee, that holds a REMIC Residual Security may be subject to
additional taxes if a disqualified organization is a record-holder in the REMIC
Residual Security. A transferor of a REMIC Residual Security, or an agent of a
transferee of a REMIC Residual Security, as the case may be, will be relieved of
the tax liability if (a) the transferee furnishes to the transferor, or the
transferee's agent, an affidavit
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that the transferee is not a disqualified organization, and (b) the transferor,
or the transferee's agent, does not have actual knowledge that the affidavit is
false at the time of the transfer. Similarly, no such tax will be imposed on a
pass-through entity for a period for an interest in the REMIC Residual Security
owned by a disqualified organization if (x) the record-holder of this interest
furnishes to the pass-through entity an affidavit that it is not a disqualified
organization, and (y) during the period, the pass-through entity has no actual
knowledge that the affidavit is false.
The Taxpayer Relief Act of 1997 adds provisions to the Code that will
apply to an "electing large partnership." If an electing large partnership holds
a Residual Certificate, all interests in the electing large partnership are
treated as held by disqualified organizations for purposes of the tax imposed
upon a pass-through entity by Section 860E(e) of the Code. An exception to this
tax, otherwise available to a pass-through entity that is furnished affidavits
by record holders of interests in the entity and that does not know the
affidavits are false, is not available to an electing large partnership.
Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" to a U.S. Person, as defined below in "Foreign Investors--Grantor
Trust Securities and REMIC Regular Securities", will be disregarded for all
federal tax purposes unless no significant purpose of the transfer is to impede
the assessment or collection of tax. A REMIC Residual Security would be treated
as constituting a noneconomic residual interest unless, at the time of the
transfer, (x) the present value of the expected future distributions on the
REMIC Residual Security is no less than the product of the present value of the
"anticipated excess inclusions" on the security and the highest corporate rate
of tax for the year in which the transfer occurs, and (y) the transferor
reasonably expects that the transferee will receive distributions from the
applicable REMIC Trust in an amount sufficient to satisfy the liability for
income tax on any "excess inclusions" at or after the time when the liability
accrues. Anticipated excess inclusions are the excess inclusions that are
anticipated to be allocated to each calendar quarter, or portion thereof,
following the transfer of a REMIC Residual Security, determined as of the date
the security is transferred and based on events that have occurred as of that
date and on the Prepayment Assumption. See "--Discount and Premium" and
"--Taxation of Beneficial Owners of REMIC Residual Securities--Excess
Inclusions."
The REMIC Regulations provide that a significant purpose to impede the
assessment or collection of tax exists if, at the time of the transfer, a
transferor of a REMIC Residual Security has "improper knowledge" -- i.e., either
knew, or should have known, that the transferee would be unwilling or unable to
pay taxes due on its share of the taxable income of the REMIC Trust. A
transferor is presumed not to have improper knowledge if (x) the transferor
conducts, at the time of a transfer, a reasonable investigation of the financial
condition of the transferee and, as a result of the investigation, the
transferor finds that the transferee has historically paid its debts as they
come due and finds no significant evidence to indicate that the transferee will
not continue to pay its debts as they come due in the future; and (y) the
transferee makes a number of representations to the transferor in the affidavit
relating to disqualified organizations discussed above. Transferors of a REMIC
Residual Security should consult with their own tax advisors for further
information regarding these transfers.
Reporting and Other Administrative Matters. For purposes of the
administrative provisions of the Code, each REMIC Trust will be treated as a
partnership and the beneficial owners of REMIC Residual Securities will be
treated as partners. The trustee will prepare, sign and file federal income tax
returns for each REMIC Trust, which returns are subject to audit by the IRS.
Moreover, within a reasonable time after the end of each calendar year, the
trustee will furnish to each beneficial owner that received a distribution
during the year a statement setting forth the portions of any distributions that
constitute interest distributions, original issue discount,
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and any other information as is required by Treasury regulations and, for
beneficial owners of REMIC Residual Securities in a REMIC Trust, information
necessary to compute the daily portions of the taxable income, or net loss, of
the REMIC Trust for each day during this year. The trustee will also act as the
tax matters partner for each REMIC Trust, either in its capacity as a beneficial
owner of a REMIC Residual Security or in a fiduciary capacity. Each beneficial
owner of a REMIC Residual Security, by the acceptance of its REMIC Residual
Security, agrees that the trustee will act as its fiduciary in the performance
of any duties required of it in the event that it is the tax matters partner.
Each beneficial owner of a REMIC Residual Security is required to treat
items on its return consistently with the treatment on the return of the REMIC
Trust, unless the beneficial owner either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC Trust. The IRS may assert a deficiency
resulting from a failure to comply with the consistency requirement without
instituting an administrative proceeding at the REMIC Trust level.
Termination
In general, no special tax consequences will apply to a beneficial
owner of a REMIC Regular Security upon the termination of a REMIC Trust by
virtue of the final payment or liquidation of the last loan remaining in the
trust fund. If a beneficial owner of a REMIC Residual Security's adjusted basis
in its REMIC Residual Security at the time the termination occurs exceeds the
amount of cash distributed to the beneficial owner in liquidation of its
interest, although the matter is not entirely free from doubt, it would appear
that the beneficial owner of the REMIC Residual Security is entitled to a loss
equal to the amount of this excess.
Debt Securities
For each series of Debt Securities, special tax counsel to the sponsor,
will deliver its opinion to the sponsor that the securities will be classified
as debt secured by the loans. We will file this opinion with the Securities and
Exchange Commission on Form 8-K within fifteen days after the initial issuance
of the securities or as a post-effective amendment to the prospectus.
Accordingly, the Debt Securities will not be treated as ownership interests in
the loans or the issuer. Beneficial owners will be required to report income
received on the Debt Securities in accordance with their normal method of
accounting. For additional tax consequences relating to Debt Securities
purchased at a discount or with premium, see "--Discount and Premium," below.
Special Tax Attributes
As described above, Grantor Trust Securities will possess specified
special tax attributes by virtue of their being ownership interests in the
underlying loans. Similarly, REMIC Securities will possess similar attributes by
virtue of the REMIC provisions of the Code. In general, Debt Securities will not
possess these special tax attributes. Investors to whom these attributes are
important should consult their own tax advisors regarding investment in Debt
Securities.
Sale or Exchange of Debt Securities
If a beneficial owner of a Debt Security sells or exchanges the
security, the beneficial owner will recognize gain or loss equal to the
difference, if any, between the amount received and the beneficial owner's
adjusted basis in the security. The adjusted basis in the security generally
will equal its initial cost, increased by any original issue discount or market
discount previously included in the seller's gross income on the security and
reduced by the payments previously received on the security, other than payments
of qualified stated interest, and by any amortized premium.
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In general, except as described in "--Discount and Premium--Market
Discount," below, except for particular financial institutions subject to
Section 582(c) of the Code, any gain or loss on the sale or exchange of a Debt
Security recognized by an investor who holds the security as a capital asset,
within the meaning of Section 1221 of the Code, will be capital gain or loss and
will be long-term or short-term depending on whether the security has been held
for more than one year.
Debt Securities Reporting
The trustee will furnish to each beneficial owner of a Debt Security
with each distribution a statement setting forth the amount of the distribution
allocable to principal on the underlying loans and to interest thereon at the
interest rate attributable to the security. In addition, within a reasonable
time after the end of each calendar year, based on information provided by the
servicer, the trustee will furnish to each beneficial owner during this year any
customary factual information as the servicer deems necessary or desirable to
enable beneficial owners of Debt Securities to prepare their tax returns and
will furnish comparable information to the IRS as and when required to do so by
law.
Partnership Interests
For each series of Partnership Interests, special tax counsel to the
sponsor, will deliver its opinion to the sponsor that the issuer will be treated
as a partnership and not an association taxable as a corporation for federal
income tax purposes. We will file this opinion with the Securities and Exchange
Commission on Form 8-K within fifteen days after the initial issuance of the
securities or as a post-effective amendment to the prospectus. Accordingly, each
beneficial owner of a Partnership Interest will generally be treated as the
owner of an interest in the loans.
Special Tax Attributes
As described above, REMIC Securities will possess specified special tax
attributes by virtue of the REMIC provisions of the Code. In general,
Partnership Interests will not possess these special tax attributes. Investors
to whom these attributes are important should consult their own tax advisors
regarding investment in Partnership Interests.
Taxation of Beneficial Owners of Partnership Interests
If the issuer is treated as a partnership for federal income tax
purposes, the issuer will not be subject to federal income tax. Instead, each
beneficial owner of a Partnership Interest will be required to separately take
into account its allocable share of income, gains, losses, deductions, credits
and other tax items of the issuer. These partnership allocations are made in
accordance with the Code, Treasury regulations and the partnership agreement or
in this case, the trust agreement or other similar agreement.
The issuer's assets will be the assets of the partnership. The issuer's
income will consist primarily of interest and finance charges earned on the
underlying loans. The issuer's deductions will consist primarily of interest
accruing on any indebtedness issued by the issuer, servicing and other fees, and
losses or deductions upon collection or disposition of the issuer's assets.
In some instances, the issuer could have an obligation to make payments
of withholding tax on behalf of a beneficial owner of a Partnership Interest.
See "--Backup Withholding" and "--Foreign Investors."
Substantially all of the taxable income allocated to a beneficial owner
of a Partnership Interest that is a pension, profit sharing or employee benefit
plan or other tax-exempt entity, including an individual retirement account,
will constitute "unrelated business taxable income" generally taxable to that
holder under the Code.
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Under Section 708 of the Code, the issuer will be deemed to terminate
for federal income tax purposes if 50% or more of the capital and profits
interests in the issuer are sold or exchanged within a 12-month period. Under
Treasury regulations issued on May 9, 1997 if a termination occurs, the issuer
is deemed to contribute all of its assets and liabilities to a newly formed
partnership in exchange for a partnership interest. Immediately thereafter, the
terminated partnership distributes interests in the new partnership to the
purchasing partner and remaining partners in proportion to their interests in
liquidation of the terminated partnership.
Sale or Exchange of Partnership Interests
Generally, capital gain or loss will be recognized on a sale or
exchange of Partnership Interests in an amount equal to the difference between
the amount realized and the seller's tax basis in the Partnership Interests
sold. A beneficial owner's tax basis in a Partnership Interest will generally
equal the beneficial owner's cost increased by the beneficial owner's share of
issuer income and decreased by any distributions received on the Partnership
Interest. In addition, both the tax basis in the Partnership Interest and the
amount realized on a sale of a Partnership Interest would take into account the
beneficial owner's share of any indebtedness of the issuer. A beneficial owner
acquiring Partnership Interests at different prices may be required to maintain
a single aggregate adjusted tax basis in the Partnership Interest, and upon sale
or other disposition of some of the Partnership Interests, allocate a portion of
the aggregate tax basis to the Partnership Interests sold, rather than
maintaining a separate tax basis in each Partnership Interest for purposes of
computing gain or loss on a sale of that Partnership Interest.
Any gain on the sale of a Partnership Interest attributable to the
beneficial owner's share of unrecognized accrued market discount on the assets
of the issuer would generally be treated as ordinary income to the holder and
would give rise to special tax reporting requirements. If a beneficial owner of
a Partnership Interest is required to recognize an aggregate amount of income
over the life of the Partnership Interest that exceeds the aggregate cash
distributions with respect thereto, the excess will generally give rise to a
capital loss upon the retirement of the Partnership Interest. If a beneficial
owner sells its Partnership Interest at a profit or loss, the transferee will
have a higher or lower basis in the Partnership Interests than the transferor
had. The tax basis of the issuer's assets will not be adjusted to reflect that
higher or lower basis unless the issuer files an election under Section 754 of
the Code.
Partnership Reporting
The trustee is required to
o keep complete and accurate books of the issuer,
o file a partnership information return on IRS Form 1065 with the
IRS for each taxable year of the issuer and
o report each beneficial owner's allocable share of items of issuer
income and expense to beneficial owners and the IRS on Schedule
K-1.
The issuer will provide the Schedule K-1 information to nominees that
fail to provide the issuer with the information statement described below and
the nominees will be required to forward the information to the beneficial
owners of the Partnership Interests. Generally, beneficial owners of a
Partnership Interest must file tax returns that are consistent with the
information return filed by the issuer or be subject to penalties unless the
beneficial owner of a Partnership Interest notifies the IRS of all
inconsistencies.
Under Section 6031 of the Code, any person that holds Partnership
Interests as a nominee at any time during a calendar year is required to furnish
the issuer with a statement containing
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specified information on the nominee, the beneficial owners and the Partnership
Interests so held. This information includes
o the name, address and taxpayer identification number of the
nominee and
o as to each beneficial owner
o the name, address and identification number of this person,
o whether this person is a United States person, a
tax-exempt entity or a foreign government, an
international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and
o specified information on Partnership Interests that were
held, bought or sold on behalf of this person throughout
the year.
In addition, brokers and financial institutions that hold Partnership
Interests through a nominee are required to furnish directly to the issuer
information as to themselves and their ownership of Partnership Interests. A
clearing agency registered under Section 17A of the Securities Exchange Act of
1934, is not required to furnish any of this information statement to the
issuer. Nominees, brokers and financial institutions that fail to provide the
issuer with the information described above may be subject to penalties.
The Code provides for administrative examination of a partnership as if
the partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after the
date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the issuer by the appropriate
taxing authorities could result in an adjustment of the returns of the
beneficial owner of a Partnership Interests, and, under particular
circumstances, a beneficial owner of a Partnership Interest may be precluded
from separately litigating a proposed adjustment to the items of the issuer. An
adjustment could also result in an audit of the beneficial owner of a
Partnership Interest's returns and adjustments of items note related to the
income and losses of the issuer.
FASIT Securities
If provided in a accompanying prospectus supplement, an election will
be made to treat the issuer as a FASIT within the meaning of Code Section
860L(a). Qualification as a FASIT requires ongoing compliance with a number of
conditions. For each series of securities for which an election is made, special
tax counsel to the sponsor, will deliver its opinion to the sponsor that,
assuming compliance with the Issuing Agreement, the issuer will be treated as a
FASIT for federal income tax purposes. We will file this opinion with the
securities and Exchange Commission on Form 8-K within fifteen days after the
initial issuance of the securities or as a post-effective amendment to the
prospectus.
Special Tax Attributes
FASIT Securities held by a real estate investment trust will constitute
"real estate assets" within the meaning of Code Sections 856(c)(5)(A) and
856(c)(6) and interest on the FASIT Regular Securities will be considered
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Code Section 856(c)(3)(B) in the same
proportion that, for both purposes, the assets of the FASIT Trust and the income
thereon would be so treated. FASIT Regular Securities held by a domestic
building and loan association will be treated as "regular interest[s] in a
FASIT" under Code Section 7701(a)(19)(C)(xi), but only in the proportion that
the FASIT Trust holds "loans . . . secured by an interest in real property which
is . . . residential real property" within the meaning of Code Section
7701(a)(19)(C)(v). If at all times 95% or more of the assets of the FASIT Trust
or the
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income thereon qualify for the foregoing treatments, the FASIT Regular
Securities will qualify for the corresponding status in their entirety. For
purposes of Code Section 856(c)(5)(A), payments of principal and interest on a
loan that are reinvested pending distribution to holders of FASIT Regular
Securities should qualify for this treatment. FASIT Regular Securities held by a
regulated investment company will not constitute "government securities" within
the meaning of Code Section 851(b)(4)(A)(i). FASIT Regular Securities held by
particular financial institutions will constitute an "evidence of indebtedness"
within the meaning of Code Section 582(c)(1).
Taxation of Beneficial Owners of FASIT Regular Securities
A FASIT Trust will not be subject to federal income tax except on
income from prohibited transactions and in some other instances as described
below. The FASIT Regular Securities generally will be treated for federal income
tax purposes as newly-originated debt instruments. In general, interest,
original issue discount and market discount on a FASIT Regular Security will be
treated as ordinary income to the beneficial owner, and principal payments,
other than principal payments that do not exceed accrued market discount, on an
FASIT Regular Security will be treated as a return of capital to the extent of
the beneficial owner's basis allocable thereto. Beneficial owners must use the
accrual method of accounting in connection with FASIT Regular Securities,
regardless of the method of accounting otherwise used by the beneficial owners.
See "--Discount and Premium" below.
In order for the FASIT Trust to qualify as a FASIT, there must be
ongoing compliance with the requirements set forth in the Code. The FASIT must
fulfill an asset test, which requires that substantially all the assets of the
FASIT, as of the close of the third calendar month beginning after the Startup
Day, and at all times thereafter, must consist of cash or cash equivalents,
particular debt instruments, other than debt instruments issued by the owner of
the FASIT or a related party, and hedges, and contracts to acquire the same,
foreclosure property and regular interests in another FASIT or in a REMIC. Based
on identical statutory language applicable to REMICs, it appears that the
"substantially all" requirement should be met if at all times the aggregate
adjusted basis of the nonqualified assets is less than one percent of the
aggregate adjusted basis of all the FASIT's assets. The FASIT provisions of the
Code, Sections 860H through 860L, also require the FASIT ownership interest and
particular "high-yield regular interests" to be held only by specified fully
taxable domestic corporations.
Permitted debt instruments must bear interest, if any, at a fixed or
qualified variable rate. Permitted hedges include interest rate or foreign
currency notional principal contracts, letters of credit, insurance, guarantees
of payment default and similar instruments to be provided in regulations, and
which are reasonably required to guarantee or hedge against the FASIT's risks
associated with being the obligor on interests issued by the FASIT. Foreclosure
property is real property acquired by the FASIT in connection with the default
or imminent default of a qualified mortgage, provided the issuer had no
knowledge or reason to know as of the date the asset was acquired by the FASIT
that a default had occurred or would occur.
In addition to the foregoing requirements, the various interests in a
FASIT also must meet a number of requirements. All of the interests in a FASIT
must be either of the following: (a) one or more classes of regular interests or
(b) a single class of ownership interest. A regular interest is an interest in a
FASIT that is issued on or after the Startup Day with fixed terms, is designated
as a regular interest, and
(1) unconditionally entitles the holder to receive a specified
principal amount, or other similar amount,
(2) provides that interest payments, or other similar amounts, if
any, at or before maturity either are payable based on a fixed
rate or a qualified variable rate,
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(3) has a stated maturity of not longer than 30 years,
(4) has an issue price not greater than 125% of its stated
principal amount, and
(5) has a yield to maturity not greater than five percentage
points higher than the applicable Federal rate, as defined in
Code Section 1274(d).
A regular interest that is described in the preceding sentence except
that if fails to meet one or more of requirements (1), (2) (4) or (5) is a
"high-yield regular interest." A high-yield regular interest that fails
requirement (2) must consist of a specified, nonvarying portion of the interest
payments on the permitted assets, by reference to the REMIC rules. An ownership
interest is an interest in a FASIT other than a regular interest that is issued
on the Startup Day, is designated an ownership interest and is held by a single,
fully-taxable, domestic corporation. An interest in a FASIT may be treated as a
regular interest even if payments of principal on this interest are subordinated
to payments on other regular interests or the ownership interest in the FASIT,
and are dependent on the absence of defaults or delinquencies on permitted
assets lower than reasonably expected returns on permitted assets, unanticipated
expenses incurred by the FASIT or prepayment interest shortfalls.
If an entity fails to comply with one or more of the ongoing
requirements of the Code for status as a FASIT during any taxable year, the Code
provides that the entity or applicable potion thereof will not be treated as a
FASIT thereafter. In this event, any entity that holds mortgage loans and is the
obligor on debt obligations with two or more maturities, like the trust fund,
may be treated as a separate association taxable as a corporation, and the FASIT
Regular Securities may be treated as equity interests the FASIT Regular
Securities. The legislative history to the FASIT Provisions indicates, however,
that an entity can continue to be a FASIT if loss of its status was inadvertent,
it takes prompt steps to requalify and other requirements that may be provided
in Treasury regulations are met. Loss of FASIT status results in retirement of
all regular interests and their reissuance. If the resulting instruments would
be treated as equity under general tax principles, cancellation of debt income
may result.
Taxes on a FASIT Trust
Income from particular transactions by a FASIT, called prohibited
transactions, are taxable to the holder of the ownership interest in a FASIT at
a 100% rate. Prohibited transactions generally include
o the disposition of a permitted asset other than for
o foreclosure, default, or imminent default,
o bankruptcy or insolvency of the FASIT,
o a qualified or complete liquidation,
o substitution for another permitted debt instrument or
distribution of the debt instrument to the holder of the
ownership interest to reduce overcollateralization, but
only if a principal purpose of acquiring the debt
instrument which is disposed of was not the recognition of
gain, or the reduction of a loss, on the withdrawn asset
as a result of an increase in the market value of the
asset after its acquisition by the FASIT or
o the retirement of a class of FASIT regular interests;
o the receipt of income from nonpermitted assets;
o the receipt of compensation for services; or
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o the receipt of any income derived from a loan originated by the
FASIT.
It is unclear the extent to which tax on these transactions could be
collected from the FASIT Trust directly under the applicable statutes rather
than from the holder of the FASIT Residual Security.
Due to the complexity of these rules, the absence of Treasury
Regulations and the current uncertainty as to the manner to their application to
the trust and to holders of FASIT Securities, it is particularly important that
potential investors consult their own tax advisors regarding the tax treatment
of their acquisition, ownership and disposition of the FASIT Regular Securities.
Discount and Premium
A security purchased for an amount other than its outstanding principal
amount will be subject to the rules governing original issue discount, market
discount or premium. In addition, all Grantor Trust Strip Securities and some
Grantor Trust Fractional Interest Securities will be treated as having original
issue discount by virtue of the coupon stripping rules in Section 1286 of the
Code. In very general terms,
o original issue discount is treated as a form of interest and must
be included in a beneficial owner's income as it accrues,
regardless of the beneficial owner's regular method of accounting,
using a constant yield method;
o market discount is treated as ordinary income and must be included
in a beneficial owner's income as principal payments are made on
the security, or upon a sale of a security; and
o if a beneficial owner so elects, premium may be amortized over the
life of the security and offset against inclusions of interest
income.
These tax consequences are discussed in greater detail below.
Original Issue Discount
In general, a security will be considered to be issued with original
issue discount equal to the excess, if any, of its "stated redemption price at
maturity" over its "issue price." The issue price of a security is the initial
offering price to the public, excluding bond houses and brokers, at which a
substantial number of the securities were sold. The issue price also includes
any accrued interest attributable to the period between the beginning of the
first Accrual Period and the Settlement Date. The stated redemption price at
maturity of a security that has a notional principal amount or receives
principal only or that is or may be an Accrual Security is equal to the sum of
all distributions to be made under the security. The stated redemption price at
maturity of any other security is its stated principal amount, plus an amount
equal to the excess, if any, of the interest payable on the first distribution
date over the interest that accrues for the period from the Settlement Date to
the first distribution date. The trustee will supply, at the time and in the
manner required by the IRS, to beneficial owners, brokers and middlemen
information concerning the original issue discount accruing on the securities.
Notwithstanding the general definition, original issue discount will be
treated as zero if the discount is less than 0.25% of the stated redemption
price at maturity of the security multiplied by its weighted average life. The
weighted average life of a security is apparently computed for this purpose as
the sum, for all distributions included in the stated redemption price at
maturity, of the amounts determined by multiplying (x) the number of complete
years, rounding down for partial years, from the Settlement Date until the date
on which each distribution is expected to be made under the Prepayment
Assumption by (y) a fraction, the
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numerator of which is the amount of the distribution and the denominator of
which is the security's stated redemption price at maturity. Even if original
issue discount is treated as zero under this rule, the actual amount of original
issue discount must be allocated to the principal distributions on the security
and, when each distribution is received, gain equal to the discount allocated to
the distribution will be recognized.
Section 1272(a)(6) of the Code contains special original issue discount
rules directly applicable to REMIC Securities and Debt Securities. The Taxpayer
Relief Act of 1997 extends application of Section 1272(a)(6) to the Grantor
Trust Securities for tax years beginning after August 5, 1997. Under these
rules, (a) the amount and rate of accrual of original issue discount on each
series of securities will be based on (x) the Prepayment Assumption, and (y) in
the case of a security calling for a variable rate of interest, an assumption
that the value of the index upon which the variable rate is based remains equal
to the value of that rate on the Settlement Date, and (b) adjustments will be
made in the amount of discount accruing in each taxable year in which the actual
prepayment rate differs from the Prepayment Assumption.
Section 1272(a)(6)(B)(iii) of the Code requires that the prepayment
assumption used to calculate original issue discount be determined in the manner
prescribed in Treasury regulations. To date, no regulations of this type have
been promulgated. The legislative history of this Code provision indicates that
the assumed prepayment rate must be the rate used by the parties in pricing the
particular transaction. The sponsor anticipates that the Prepayment Assumption
for each series of securities will be consistent with this standard. The sponsor
makes no representation, however, that the loans for a given series will prepay
at the rate reflected in the Prepayment Assumption for that series or at any
other rate. Each investor must make its own decision as to the appropriate
prepayment assumption to be used in deciding whether or not to purchase any of
the securities.
Each beneficial owner must include in gross income the sum of the
"daily portions" of original issue discount on its security for each day during
its taxable year on which it held the security. For this purpose, in the case of
an original beneficial owner, the daily portions of original issue discount will
be determined as follows. A calculation will first be made of the portion of the
original issue discount that accrued during each "accrual period." Original
issue discount calculations must be based on accrual periods of no longer than
one year either (x) beginning on a distribution date, or, in the case of the
first accrual period, the Settlement Date, and ending on the day before the next
distribution date or (y) beginning on the next day following a distribution date
and ending on the next distribution date.
Under Section 1272(a)(6) of the Code, the portion of original issue
discount treated as accruing for any accrual period will equal the excess, if
any, of (x) the sum of (A) the present values of all the distributions remaining
to be made on the security, if any, as of the end of the accrual period and (B)
the distribution made on the security during the accrual period of amounts
included in the stated redemption price at maturity, over (y) the adjusted issue
price of the security at the beginning of the accrual period. The present value
of the remaining distributions referred to in the preceding sentence will be
calculated based on
o the yield to maturity of the security, calculated as of the
Settlement Date, giving effect to the Prepayment Assumption,
o events, including actual prepayments, that have occurred prior to
the end of the accrual period,
o the Prepayment Assumption, and
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o in the case of a security calling for a variable rate of interest,
an assumption that the value of the index upon which this variable
rate is based remains the same as its value on the Settlement Date
over the entire life of the security.
The adjusted issue price of a security at any time will equal the issue
price of the security, increased by the aggregate amount of previously accrued
original issue discount on the security, and reduced by the amount of any
distributions made on the security as of that time of amounts included in the
stated redemption price at maturity. The original issue discount accruing during
any accrual period will then be allocated ratably to each day during the period
to determine the daily portion of original issue discount.
In the case of Grantor Trust Strip Securities and some REMIC
Securities, the calculation described in the preceding paragraph may produce a
negative amount of original issue discount for one or more accrual periods. No
definitive guidance has been issued regarding the treatment of the negative
amounts. The legislative history to Section 1272(a)(6) indicates that the
negative amounts may be used to offset subsequent positive accruals but may not
offset prior accruals and may not be allowed as a deduction item in a taxable
year in which negative accruals exceed positive accruals. Beneficial owners of
the securities should consult their own tax advisors concerning the treatment of
the negative accruals.
A subsequent purchaser of a security that purchases the security at a
cost less than its remaining stated redemption price at maturity also will be
required to include in gross income for each day on which it holds the security,
the daily portion of original issue discount on the security -- but reduced, if
the cost of the security to the purchaser exceeds its adjusted issue price, by
an amount equal to the product of (x) the daily portion and (y) a constant
fraction, the numerator of which is the excess and the denominator of which is
the sum of the daily portions of original issue discount on the security for all
days on or after the day of purchase.
Market Discount
A beneficial owner that purchases a security at a market discount, that
is, at a purchase price less than the remaining stated redemption price at
maturity of the security, or, in the case of a security with original issue
discount, its adjusted issue price, will be required to allocate each principal
distribution first to accrued market discount on the security, and recognize
ordinary income to the extent the distribution does not exceed the aggregate
amount of accrued market discount on the security not previously included in
income. For securities that have unaccrued original issue discount, the market
discount must be included in income in addition to any original issue discount.
A beneficial owner that incurs or continues indebtedness to acquire a security
at a market discount may also be required to defer the deduction of all or a
portion of the interest on this indebtedness until the corresponding amount of
market discount is included in income. In general terms, market discount on a
security may be treated as accruing either (x) under a constant yield method or
(y) in proportion to remaining accruals of original issue discount, if any, or
if none, in proportion to remaining distributions of interest on the security,
in any case taking into account the Prepayment Assumption. The trustee will make
available, as required by the IRS, to beneficial owners of securities
information necessary to compute the accrual of market discount.
Notwithstanding the above rules, market discount on a security will be
considered to be zero if the discount is less than 0.25% of the remaining stated
redemption price at maturity of the security multiplied by its weighted average
remaining life. Weighted average remaining life presumably would be calculated
in a manner similar to weighted average life, taking into account payments,
including prepayments, prior to the date of acquisition of the security by the
subsequent purchaser. If market discount on a security is treated as zero under
this rule, the actual amount of market discount must be allocated to the
remaining principal distributions on the
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security and, when each distribution is received, gain equal to the discount
allocated to the distribution will be recognized.
Premium
A purchaser of a Premium Security need not include in income any
remaining original issue discount and may elect, under Section 171(c)(2) of the
Code, to treat the premium as "amortizable bond premium." If a beneficial owner
makes this election, the amount of any interest payment that must be included in
the beneficial owner's income for each period ending on a distribution date will
be reduced by the portion of the premium allocable to the period based on the
Premium Security's yield to maturity. This premium amortization should be made
using constant yield principles. If the election is made by the beneficial
owner, the election will also apply to all fully taxable bonds, or bonds the
interest on which is not excludible from gross income, held by the beneficial
owner at the beginning of the first taxable year to which the election applies
and to all fully taxable bonds thereafter acquired by it, and is irrevocable
without the consent of the IRS. If this election is not made, (x) the beneficial
owner must include the full amount of each interest payment in income as it
accrues, and (y) the premium must be allocated to the principal distributions on
the Premium Security and when each distribution is received a loss equal to the
premium allocated to the distribution will be recognized. Any tax benefit from
the premium not previously recognized will be taken into account in computing
gain or loss upon the sale or disposition of the Premium Security.
Some securities may provide for only nominal distributions of principal
in comparison to the distributions of interest thereon. It is possible that the
IRS or the Treasury Department may issue guidance excluding the securities from
the rules generally applicable to debt instruments issued at a premium. In
particular, it is possible that these securities will be treated as having
original issue discount equal to the excess of the total payments to be received
thereon over its issue price. In this event, Section 1272(a)(6) of the Code
would govern the accrual of the original issue discount, but a beneficial owner
would recognize substantially the same income in any given period as would be
recognized if an election were made under Section 171(c)(2) of the Code. Unless
and until the Treasury Department or the IRS publishes specific guidance
relating to the tax treatment of the securities, the trustee intends to furnish
tax information to beneficial owners of the securities in accordance with the
rules described in the preceding paragraph.
Special Election
For any security acquired on or after April 4, 1994, a beneficial owner
may elect to include in gross income all "interest" that accrues on the security
by using a constant yield method. For purposes of the election, the term
"interest" includes stated interest, acquisition discount, original issue
discount, de minimis original issue discount, market discount, de minimis market
discount and unstated interest as adjusted by any amortizable bond premium or
acquisition premium. A beneficial owner should consult its own tax advisor
regarding the time and manner of making and the scope of the election and the
implementation of the constant yield method.
Backup Withholding
Distributions of interest and principal, as well as distributions of
proceeds from the sale of securities, may be subject to the "backup withholding
tax" under Section 3406 of the Code at a rate of 31% if recipients of the
distributions fail to furnish to the payor particular information, including
their taxpayer identification numbers, or otherwise fail to establish an
exemption from this tax. Any amounts deducted and withheld from a distribution
to a recipient would be allowed as a credit against the recipient's federal
income tax. Furthermore, penalties may be imposed by
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the IRS on a recipient of distributions that is required to supply information
but that does not do so in the proper manner.
The Internal Revenue Service recently issued final "withholding
regulations", which change some of the rules relating to particular presumptions
currently available relating to information reporting and backup withholding.
The withholding regulations would provide alternative methods of satisfying the
beneficial ownership certification requirement. The withholding regulations are
effective December 31, 2000, although valid withholding certificates that are
held on December 31, 2000 remain valid until the earlier of December 31, 2000 or
the due date of expiration of the certificate under the rules as currently in
effect.
Foreign Investors
The withholding regulations would require, in the case of securities
held by a foreign partnership, that (x) the certification described above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide specified information, including a United States taxpayer
identification number. See "--Backup Withholding" above. A look-through rule
would apply in the case of tiered partnerships. Non-U.S. Persons should consult
their own tax advisors regarding the application to them of the withholding
regulations.
Grantor Trust Securities and REMIC Regular Securities
Distributions made on a Grantor Trust Security, Debt Security or a
REMIC Regular Security to, or on behalf of, a beneficial owner that is not a
U.S. Person generally will be exempt from U.S. federal income and withholding
taxes. This exemption is applicable provided
o the beneficial owner is not subject to U.S. tax as a result of a
connection to the United States other than ownership of the
security,
o the beneficial owner signs a statement under penalties of perjury
that certifies that the beneficial owner is not a U.S. Person, and
provides the name and address of the beneficial owner, and
o the last U.S. Person in the chain of payment to the beneficial
owner receives the statement from the beneficial owner or a
financial institution holding on its behalf and does not have
actual knowledge that the statement is false.
Beneficial owners should be aware that the IRS might take the position
that this exemption does not apply to a beneficial owner that also owns 10% or
more of the REMIC Residual Securities of any REMIC trust, or to a beneficial
owner that is a "controlled foreign corporation" described in Section
881(c)(3)(C) of the Code.
REMIC Residual Securities
Amounts distributed to a beneficial owner of a REMIC Residual Security
that is a not a U.S. Person generally will be treated as interest for purposes
of applying the 30%, or lower treaty rate, withholding tax on income that is not
effectively connected with a U.S. trade or business. Temporary Treasury
Regulations clarify that amounts not constituting excess inclusions that are
distributed on a REMIC Residual Security to a beneficial owner that is not a
U.S. Person generally will be exempt from U.S. federal income and withholding
tax, subject to the same conditions applicable to distributions on Grantor Trust
Securities, Debt Securities and REMIC Regular Securities, as described above,
but only to the extent that the obligations directly underlying the REMIC Trust
that issued the REMIC Residual Security, for example, loans or regular interests
in another REMIC or FASIT, were issued after July 18, 1984. In no case will any
portion of REMIC income that constitutes an excess inclusion be entitled to any
exemption from the withholding tax or a reduced treaty rate for withholding. See
"--REMIC Securities--
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Taxation of Beneficial Owners of REMIC Residual Securities--Excess Inclusions"
in this prospectus.
Partnership Interests
Depending upon the particular terms of the Issuing Agreement and Loan
Sale Agreement, an issuer may be considered to be engaged in a trade or business
in the United States for purposes of federal withholding taxes for non-U.S.
Persons. If the issuer is considered to be engaged in a trade or business in the
United States for these purposes and the issuer is treated as a partnership, the
income of the issuer distributable to a non-U.S. Person would be subject to
federal withholding tax. Also, in these cases, a non-U.S. beneficial owner of a
Partnership Interest that is a corporation may be subject to the branch profits
tax. If the issuer is notified that a beneficial owner of a Partnership Interest
is a foreign person, the issuer may withhold as if it were engaged in a trade or
business in the United States in order to protect the issuer from possible
adverse consequences of a failure to withhold. A foreign holder generally would
be entitled to file with the IRS a claim for refund of withheld taxes, taking
the position that no taxes were due because the issuer was not in a U.S.
trade or business.
FASIT Regular Securities
Some "high-yield" FASIT Regular Securities may not be sold to or
beneficially owned by non-U.S. Persons. Any purported transfer will be null and
void and, upon the trustee's discovery of any purported transfer in violation of
this requirement and the last preceding owner of the high-yield FASIT Regular
Securities will be restored to ownership thereof as completely as possible. The
last preceding owner will, in any event, be taxable on all income on the
high-yield FASIT Regular Securities for federal income tax purposes. The Issuing
Agreement will provide that, as a condition to transfer of a high-yield FASIT
Regular Security, the proposed transferee must furnish an affidavit as to its
status as a U.S. Person and otherwise as a permitted transferee.
State Tax Considerations
In addition to the federal income tax consequences described in
"Material Federal Income Tax Consequences," potential investors should consider
the state and local income tax consequences of the acquisition, ownership, and
disposition of the securities. State and local income tax law may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state or locality.
Therefore, potential investors should consult their own tax advisors concerning
the various state and local tax consequences of an investment in the securities.
The federal income tax discussions set forth above are included for
general information only and may not be applicable depending upon an investor's
particular tax situation. Prospective purchasers should consult their tax
advisers concerning the tax consequences to them of the purchase, ownership and
disposition of the securities, including the tax consequences under state,
local, foreign and other tax laws and the possible effects of changes in federal
or other tax laws.
ERISA Considerations
ERISA and Section 4975 of the Code impose a number of requirements on
those employee benefit plans to which they apply and on those persons who are
fiduciaries of these plans. The following is a general discussion of the
requirements, and a number of applicable exceptions to and administrative
exemptions from the requirements.
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Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing or other employee benefit plan and some individual retirement
arrangements from engaging in specified transactions involving "plan assets"
with persons that are "parties in interest" under ERISA or "disqualified
persons" under the Code for the plan, unless a statutory or administrative
exemption applies to the transaction. ERISA and the Code also prohibit generally
a number of actions involving conflicts of interest by persons who are
fiduciaries of these plans or arrangements. A violation of these "prohibited
transaction" rules may generate excise tax and other liabilities under ERISA and
the Code for these persons. In addition, investments by plans are subject to
ERISA's general fiduciary requirements, including the requirement of investment
prudence and diversification and the requirement that a plan's investments be
made in accordance with the documents governing the plan. Employee benefit plans
that are governmental plans, as defined in Section 3(32) of ERISA, and some
church plans, as defined in Section 3(33) of ERISA, are not subject to ERISA
requirements. Accordingly, assets of these plans may be invested in securities
without regard to the ERISA considerations discussed below, subject to the
provisions of other applicable federal, state and local law. Any plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code,
however, is subject to the prohibited transaction rules set forth in Section 503
of the Code.
Some transactions involving the issuer might be deemed to constitute
prohibited transactions under ERISA and the Code for a plan, including an
individual retirement arrangement, that purchased securities, if the assets of
the issuer were deemed to be assets of the Plan. Under a "plan asset regulation"
issued by the United States Department of Labor, the assets of the issuer would
be treated as plan assets of a plan for the purposes of ERISA and the Code only
if the plan acquired an equity interest in the issuer and none of the exceptions
contained in the plan asset regulation were applicable. An "equity interest" is
defined under the plan asset regulation as an interest other than an instrument
which is treated as indebtedness under applicable local law and which has no
substantial equity features. In addition, in John Hancock Mutual Life Insurance
Co. v. Harris Trust and Savings Bank, 510 U.S. 86 (1993), the United States
Supreme Court ruled that assets held in an insurance company's general account
may be deemed to be "plan assets" for ERISA purposes under particular
circumstances. Therefore, in the absence of an exemption, the purchase, sale or
holding of a security by a plan, including some individual retirement
arrangements, 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.
Certificates
The Department of Labor has issued to various underwriters individual
prohibited transaction exemptions, which generally exempt from the application
of the prohibited transaction provisions of Sections 406(a), 406(b)(1),
406(b)(2) and 407(a) of ERISA and the excise taxes imposed under Sections
4975(a) and (b) of the Code, particular transactions in connection with the
initial purchase, the holding and the subsequent resale by plans of certificates
in pass-through trusts that consist of secured receivables, secured loans and
other secured obligations that meet the conditions and requirements of these
underwriter exemptions. These underwriter exemptions will only be available for
securities that are certificates.
Among the conditions that must be satisfied in order for the
underwriter exemptions to apply to offered certificates are the following:
(i) the acquisition of the certificates by a plan is on
terms, including the price for the certificates, that are at least as
favorable to the plan as they would be in an arm's-length transaction
with an unrelated party;
(j) the rights and interests evidenced by the certificates
acquired by the plan are not subordinated to the rights and interests
evidenced by other certificates of the trust;
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(k) the certificates acquired by the p1lan have received a
rating at the time of the acquisition that is one of the three highest
generic rating categories from Standard & Poor's Rating Services, a
division of The McGraw-Hill Companies, Moody's Investors Service, Inc.,
Duff & Phelps Credit Rating Co., or Fitch IBCA, Inc.;
(l) the trustee is not an affiliate of any other member of
the Restricted Group;
(m) the sum of all payments made to and retained by the
underwriters in connection with the distribution of the certificates
represents not more than reasonable compensation for underwriting the
certificates; the sum of all payments made to and retained by the
originators and the sponsor under the assignment of the loans to the
trust fund represents not more than the fair market value of the loans;
the sum of all payments made to and retained by any servicer represents
not more than reasonable compensation for this person's services under
the pooling and servicing agreement and reimbursement of this person's
reasonable expenses in connection therewith;
(n) the plan investing in the certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D
under the Securities Act of 1933; and
(o) in the event that all of the obligations used to fund
the trust have not been transferred to the trust on the closing date,
additional obligations of the types specified in the prospectus
supplement and/or pooling and servicing agreement having an aggregate
value equal to no more than 25% of the total principal amount of the
certificates being offered by the trust may be transferred to the
trust, in exchange for amounts credited to the account funding the
additional obligations, within a funding period of no longer than 90
days or 3 months following the closing date.
The trust fund must also meet the following requirements:
o the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
o certificates in the other investment pools must have been rated in
one of the three highest rating categories of Standard & Poor's,
Moody's, Fitch IBCA or Duff & Phelps for at least one year prior
to the plan's acquisition of certificates; and
o certificates evidencing interests in the other investment pools
must have been purchased by investors other than plans for at
least one (1) year prior to the plan's acquisition of
certificates.
Moreover, the underwriter exemptions provide relief from specified
self-dealing/conflict of interest prohibited transactions that may occur when
the plan fiduciary causes a plan to acquire certificates in a trust in which the
fiduciary, or its affiliate, is an obligor on the receivables held in the trust;
provided, that, among other requirements,
(1) in the case of an acquisition in connection with the initial
issuance of certificates, at least fifty percent of each class of
certificates in which plans have invested is acquired by persons
independent of the Restricted Group and at least fifty percent of
the aggregate interest in the trust is acquired by persons
independent of the Restricted Group;
(2) the fiduciary, or its affiliate, is an obligor in connection with
five percent or less of the fair market value of the obligations
contained in the trust;
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(3) the plan's investment in certificates of any class does not exceed
twenty-five percent of all of the certificates of that class
outstanding at the time of the acquisition; and
(4) immediately after the acquisition, no more than twenty-five
percent of the assets of the plan for which this person is a
fiduciary are invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same
entity.
The underwriter exemptions do not apply to plans sponsored by the
Restricted Group.
In addition to the underwriter exemptions, the Department of Labor has
issued PTCE 83-1 which provides an exemption for particular transactions
involving the sale or exchange of specified residential mortgage pool
pass-through certificates by plans and for transactions in connection with the
servicing and operation of the mortgage loan pool.
Notes
The underwriter exemptions will not be available for securities which
are notes. If the notes are treated as having substantial equity features, the
purchase, holding and resale of the notes could result in a transaction that is
prohibited under ERISA or the Code. However, if the notes are treated as
indebtedness without substantial equity features, the issuer's assets would not
be deemed assets of a plan. The acquisition or holding of the notes by or on
behalf of a plan could nevertheless give rise to a prohibited transaction, if
the acquisition and holding of Notes by or on behalf of a plan were deemed to be
a prohibited loan to a party in interest for this plan. Some exemptions from the
prohibited transaction rules could be applicable to the purchase and holding of
notes by a plan, depending on the type and circumstances of the plan fiduciary
making the decision to acquire the notes. Included among these exemptions are:
PTCE 84-14, regarding specified transactions effected by "qualified professional
asset managers"; PTCE 90-1, regarding specified transactions entered into by
insurance company pooled separate accounts; PTCE 91-38, regarding specified
transactions entered into by bank collective investment funds; PTCE 95-60,
regarding specified transactions entered into by insurance company general
accounts; and PTCE 96-23, regarding specified transactions effected by "in-house
asset managers". Each purchaser and each transferee of a note that is treated as
debt for purposes of the plan asset regulation may be required to represent and
warrant that its purchase and holding of the note will be covered by one of the
exemptions listed above or by another Department of Labor class exemption.
Consultation with Counsel
The prospectus supplement for each series of securities will provide
further information which plans should consider before purchasing the offered
securities. A plan fiduciary considering the purchase of securities should
consult its tax and/or legal advisors regarding whether the assets of the issuer
would be considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules and other ERISA issues and their potential
consequences. Moreover, each plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the securities is appropriate for the plan, taking into account
the overall investment policy of the plan and the composition of the plan's
investment portfolio. The sale of securities to a plan is in no respect a
representation by the sponsor, the issuer or the underwriter(s) that this
investment meets all relevant requirements for investments by plans generally or
any particular plan or that this investment is appropriate for plans generally
or any particular plan.
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Legal Investment
If specified in the accompanying prospectus supplement, the securities
of one or more classes offered by this prospectus will constitute "mortgage
related securities" for purposes of SMMEA, so long as they are rated in one of
the two highest rating categories by at least one nationally recognized
statistical rating organization. As "mortgage related securities," the
securities will constitute legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities, including,
but not limited to, state-chartered savings banks, commercial banks, savings and
loan associations and insurance companies, as well as trustees and state
government employee retirement systems, created in accordance with or existing
under the laws of the United States or of any state, including the District of
Columbia and Puerto Rico, whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for the entities. Under
SMMEA, a number of states enacted legislation, on or before the October 3, 1991
cutoff for the enactments, limiting to varying extends the ability of particular
entities, in particular, insurance companies, to invest in "mortgage related
securities," in most cases by requiring the affected investors to rely solely
upon existing state law, and not SMMEA. Accordingly, the investors affected by
the legislation will be authorized to invest in the securities only to the
extent provided in the legislation.
SMMEA also amended the legal investment authority of federally
chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal
with mortgage related securities without limitation as to the percentage of
their assets represented thereby, federal credit unions may invest in mortgage
related securities, and national banks may purchase mortgage related securities
for their own account without regard to the limitations generally applicable to
investment securities set forth in 12 U.S.C. ss. 24 (Seventh), subject in each
case to the regulations as the applicable federal regulatory authority may
prescribe. In this connection, federal credit unions should review National
Credit Union Administration Letter to Credit Unions No. 96, as modified by
Letter No. 108, which includes guidelines to assist federal credit unions in
making investment decisions for mortgage related securities. The National Credit
Union Administration has adopted rules, effective December 2, 1991, which
prohibit federal credit unions from investing in particular mortgage related
securities, including securities like some series or classes of the securities,
except under limited circumstances.
All depository institutions considering an investment in the securities
should review the "Supervisory Policy Statement on Securities Activities" dated
January 28, 1992 of the Federal Financial Institutions Examination Council. This
Policy Statement, which has been adopted by the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance Corporation, the
Comptroller of the Currency and the Office of Thrift Supervision, effective
February 10, 1992, and by the National Credit Union Administration, with a
number of modifications, effective June 26, 1992, prohibits institutions from
investing in some "high-risk" mortgage securities, including securities like
some classes of the securities, except under limited circumstances, and sets
forth specified investment practices deemed to be unsuitable for regulated
institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by these authorities before purchasing any securities,
as some series or classes may be deemed unsuitable investments, or may otherwise
be restricted, under the rules, policies or guidelines, in specified instances
irrespective of SMMEA.
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The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not
"interest-bearing" or "income-paying" and, with regard to any securities issued
in book-entry form, provisions which may restrict or prohibit investment in
securities which are issued in book-entry form.
Other classes of securities offered by this prospectus will not
constitute "mortgage related securities" under SMMEA because they will not
represent beneficial ownership interests in qualifying mortgage loans under
SMMEA. The appropriate characterization of those securities under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase the securities, may be subject to significant
interpretive uncertainties. All investors whose investment authority is subject
to legal restrictions should consult their own legal advisors to determine
whether, and to what extent, the securities will constitute legal investments
for them.
No representation is made as to the proper characterization of the
securities for legal investment or financial institution regulatory purposes, or
as to the ability of particular investors to purchase securities under
applicable legal investment restrictions. The uncertainties described above, and
any unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the securities, may adversely affect
the liquidity of the non-SMMEA securities.
Investors should consult with their own legal advisors in determining
whether and to what extent the securities constitute legal investments for these
investors.
Plan of Distribution
The issuer may sell the securities offered hereby in series either
directly or through underwriters. The accompanying prospectus supplement or
prospectus supplements for each series will describe the terms of the offering
for that series and will state the public offering or purchase price of each
class of securities of a series, or the method by which the price is to be
determined, and the net proceeds to the issuer from the sale.
If the sale of any securities is made in accordance with an
underwriting agreement under which one or more underwriters agree to act in this
capacity, the securities will be acquired by these underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices to be determined at the time of sale or at the time of commitment
therefor. Firm commitment underwriting and public reoffering by underwriters may
be done through underwriting syndicates or through one or more firms acting
alone. The specific managing underwriter or underwriters, if any, for the offer
and sale of a particular series of securities will be printed on the cover of
the prospectus supplement for a series and the members of the underwriting
syndicate, if any, will be named in the accompanying prospectus supplement. The
prospectus supplement will describe any discounts and commissions to be allowed
or paid by the issuer to the underwriters, any other items constituting
underwriting compensation and any discounts and commissions to be allowed or
paid to the dealers. The obligations of the underwriters will be subject to a
number of conditions precedent. Unless otherwise provided in the accompanying
prospectus supplement, the underwriters of a sale of any class of securities
will be obligated to purchase all of the securities if any are purchased. In
accordance with each underwriting agreement, the sponsor will
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indemnity the underwriters against specified civil liabilities, including
liabilities under the Securities Act of 1933.
In connection with any offering, the underwriters may over-allot or
effect transactions which stabilize or maintain the market prices of the
securities at levels above those which might otherwise prevail in the open
market. This stabilizing, if commenced by the underwriters, may be discontinued
at any time.
If any securities are offered other than through underwriters acting
under underwriting agreements, the accompanying prospectus supplement or
prospectus supplements will contain information regarding the terms of the
offering and any agreements to be entered into in connection with the offering.
Purchasers of securities, including dealers, may, depending on the
facts and circumstances of the purchases, be deemed to be "underwriters" within
the meaning of the Securities Act, in connection with reoffers and sales by them
of securities. securityholders should consult with their legal advisors in this
regard prior to any reoffer and sale.
If specified in the prospectus supplement relating to a series of
securities, the sponsor, any affiliate thereof or any other person or persons
specified in the prospectus supplement may purchase some or all of one or more
classes of securities of a series from the underwriter or underwriters or any
other person or persons specified in the accompanying prospectus supplement. The
purchaser may thereafter from time to time offer and sell, by this prospectus
and the accompanying prospectus supplement, some or all of the securities so
purchased, directly, through one or more underwriters to be designated at the
time of the offering of the securities, through dealers acting as agent and/or
principal as in any other manner as may be specified in the accompanying
prospectus supplement. The offering may be restricted in the manner specified in
the accompanying prospectus supplement. These transactions may be effected at
market prices prevailing at the time of sale, at negotiated prices or at fixed
prices. Any underwriters and dealers participating in the purchaser's offering
of the securities may receive compensation in the form of underwriting discounts
or commissions from the purchaser and the dealers may receive commissions from
the investors purchasing the securities for whom they may act as agent, which
discounts or commissions will not exceed those customary in those types of
transactions involved. Any dealer that participates in the distribution of the
securities may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, and any commissions and discounts received by the dealer
and any profit on the resale of the securities by the dealer might be deemed to
be underwriting discounts and commissions under the Securities Act of 1933.
Incorporation of Information by Reference
There are incorporated in this prospectus by reference all documents
and reports filed or caused to be filed by the sponsor under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after the date of
this prospectus and prior to the termination of any offering of securities
evidencing interests in this prospectus, including the sponsor's latest annual
report on Form 10-K. Any statement contained in a document incorporated or
deemed to be incorporated by reference in this prospectus shall be deemed to be
modified or superseded for all purposes of this prospectus to the extent that a
statement contained in this prospectus, in the accompanying prospectus
supplement or in any other subsequently filed document which also is or is
deemed to be incorporated by reference modifies or replaces the statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
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The sponsor will provide, or cause to be provided, without charge to
each person to whom this prospectus is delivered in connection with the offering
of one or more classes of a series, a list identifying all filings of the
sponsor under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act,
since the latest fiscal year covered by its annual report on Form 10-K, and a
copy of any or all documents or reports incorporated in this prospectus by
reference, in each case to the extent the documents or reports relate to one or
more of classes of a series, other than the exhibits to the documents, unless
the exhibits are specifically incorporated by reference in the documents.
Requests to the sponsor should be directed to: Prudential Securities Secured
Financing Corporation, One New York Plaza, 14th Floor, New York, New York 10292,
Attention: Managing Director-Asset-Backed Finance Group, (212) 778-1000.
Additional Information
The sponsor has filed a registration statement under the Securities Act
of 1933 with the Securities and Exchange Commission for the securities offered
by this prospectus. This prospectus contains, and the prospectus supplement for
each series of securities will contain, a summary of the material terms of the
documents referred to in this prospectus and in the accompanying prospectus, but
neither contains nor will contain all of the information included in the
registration statement of which this prospectus is a part. For further
information, you should read the registration statement and any amendments
thereof and exhibits thereto. You may obtain a copy of the registration
statement from the Public Reference Room of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of the
prescribed charges, or you may examine the registration statement free of charge
at the Securities and Exchange Commission's offices, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at the regional offices of the Securities and Exchange
Commission located at Room 1400, 75 Park Place, New York, New York 10007 and
Northwestern Atrium Center, 500 West Madison Street, Suite 400, Chicago,
Illinois 60661-2511. Information about the operation of the Public Reference
Room may be obtained by contracting the Securities and Exchange Commission at
1-800-SEC-0330. In addition, the Securities and Exchange Commission maintains a
site on the World Wide Web containing reports, proxy and information statements
and other items. The address of the site is http://www.sec.gov.
Each issuer will be required to file particular reports with the
Securities and Exchange Commission in accordance with the requirements of the
Securities Exchange Act of 1934. Each issuer will suspend filing the reports if
and when the reports are no longer required under the Securities Exchange Act of
1934.
In connection with each distribution, and annually, the sponsor will
cause the servicer to furnish securityholders with statements containing
information about the assets of the issuer, as described in this prospectus and
in the prospectus supplement for a series. See "Servicing of the Loans--Reports
to Securityholders." The servicer for each series will furnish periodic
statements setting forth specified information to the trustee for a series and,
in addition, annually will furnish the trustee with a statement from a firm of
independent public accounts concerning the examination of specified documents
and records relating to the servicing of the mortgage loans and/or manufactured
housing contracts held by the issuer. See "Servicing of the Loans--Evidence as
to Compliance" in this prospectus. Copies of the monthly and annual statements
provided by the servicer to the trustee will be furnished to securityholders of
the series upon request addressed to Prudential Securities Secured Financing
Corporation, One New York Plaza, 14th Floor, New York, New York 10292,
Attention: Managing Director-Asset-Backed Finance Group, (212) 778-1000.
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Copies of FHLMC's most recent Offering Circular for FHLMC securities,
FHLMCs Information Statement and the most recent Supplement to the Information
Statement and any quarterly report made available by FHLMC can be obtained by
writing or calling the Investor Inquiry Department at FHLMC at 8200 Jones Branch
Drive, McLean Virginia 22102. Outside Washington, D.C. metropolitan area,
telephone 800-336-FMPC; within Washington, D.C. metropolitan area, telephone
703-759-8160. The sponsor has not and will not participate in the preparation of
FHLMC's Offering Circulars, Information Statements or Supplements.
Copies of FNMA's most recent prospectus for FNMA securities and FNMA's
annual report and quarterly financial statements as well as other financial
information are available from the Senior Vice President for Investor Relations
of FNMA, 3900 Wisconsin Avenue, N.W., Washington, D.C. 20016 (202-752-7115). The
sponsor has not and will not participate in the preparation of FNMA's
prospectuses.
You should rely only on the information contained in this prospectus
and in the accompanying prospectus supplement. We have not authorized anyone to
provide any information that is different. This prospectus and any accompanying
prospectus supplement do not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the securities offered hereby and thereby
nor an offer of the securities to any person in any state or other jurisdiction
in which the offer would be unlawful. The information included in this
prospectus speaks as of the date hereof. You should not assume that it will
remain correct after this date.
Legal Matters
A number of legal matters and tax matters will be passed upon for the
sponsor by Dewey Ballantine LLP, New York, New York and/or any other counsel as
will be named on the accompanying prospectus supplement.
Ratings
At the date of issuance of each series of securities, the securities
offered hereby will be rated in one of the four highest categories by at least
one nationally recognized statistical rating agency. These ratings address, in
the opinion of the rating agency, the likelihood that the issuer will be able to
make timely payment of all amounts due on the series of securities in accordance
with their terms. The ratings will neither address any prepayment or yield
considerations applicable to any securities nor constitute a recommendation to
buy, sell or hold any securities and may be subject to revision or withdrawal at
any time by the assigning rating agency. Each securities rating should be
evaluated independently of any other rating.
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Glossary
The following terms have the meanings given below when used in this
prospectus or the accompanying prospectus supplement.
Accrual Securities means one or more classes of securities as to which
a portion of the accrued interest will not be distributed but rather will be
added to the principal balance of the security, or notional principal balance in
the case of Accrual Securities which are also Strip Securities, on each
distribution date.
CERCLA means the federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980.
Collection Account means a segregated trust account or accounts for a
series, established and maintained with the trustee, for the benefit of the
securityholders, for the deposit of collections on the underlying loans.
Credit Enhancer means the provider of any credit enhancement for a
series, including bond insurers, guarantors and letter of credit banks.
Debt Securities means securities that are intended to be treated for
federal income tax purposes as indebtedness secured by the underlying loans held
by the issuer.
Deleted Loan means a loan which breaches the representations and
warranties made by the originator in the Loan Sale Agreement and which must be
repurchased or substituted for by the originator.
Equity Participation Securities means any class of securities or
interests in the issuer which represent the right to receive the proceeds of the
trust fund after all required payments have been made to the holders of the
securities and following any required deposits to any reserve fund that may be
established for the benefit of the securities, including FASIT Ownership
Securities and REMIC Residual Securities.
FASIT Ownership Securities means securities of the one separate class
of a series which has been designated as the "ownership interest" of the FASIT
Trust in the accompanying prospectus supplement.
FASIT Regular Securities means securities of each class of a series
which has been designated as the "regular interests" or "high-yield regular
interests" of the FASIT Trust in the accompanying prospectus supplement.
FASIT Securities means securities representing interests in a trust, or
a segregated pool or pools of assets therein, which the issuer will covenant to
elect to have treated as a FASIT under Sections 860H through 860L of the Code.
FASIT Trust means an issuer for which a FASIT election is made.
FIRREA means the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989.
Fixed Retained Yield means, for any loan, the portion, if any, of
interest, at the loan interest rate, that is retained by the issuer or other
owner thereof and not included in the trust fund.
Garn Act means the Garn-St Germain Depository Institutions Act of 1982.
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Grantor Trust Fractional Interest Security means a Grantor Trust
Security representing an undivided equitable ownership interest in the principal
of the loans constituting the grantor trust, together with interest thereon at a
pass-through rate.
Grantor Trust Securities means securities representing interests in a
grantor trust which the issuer will covenant not to elect to have treated as a
REMIC or a FASIT.
Grantor Trust Strip Security means a Grantor Trust Security
representing ownership of all or a portion of the difference between interest
paid on the loans constituting the grantor trust and interest paid to the
beneficial owners of Grantor Trust Fractional Interest Securities issued by the
grantor trust.
Insurance Proceeds means all proceeds received by the servicer under
any title, hazard or other insurance policy covering any loan, other than
proceeds to be applied to the restoration or repair of the mortgaged property or
manufactured home or released to the mortgagor or obligor in accordance with the
Servicing Agreement.
Interest Rate means, for each class of securities, the rate at which
interest accrues on the securities, which may be fixed rate, adjustable rate, or
rate based upon the underlying loans, as specified in the accompanying
prospectus supplement.
Issuing Agreement means, means
o for each series of Grantor Trust Securities, REMIC Securities and
FASIT Securities, a pooling and servicing agreement,
o for each series of Debt Securities, an indenture, and
o for each series of Partnership Interests, a trust agreement or other
similar agreement.
Liquidation Proceeds means all amounts received by the servicer in
connection with the liquidation of defaulted loans or property acquired in
respect thereof, whether through foreclosure sale or otherwise, including
payments in connection with defaulted loans received from the mortgagor or
obligor other than amounts required to be paid to the mortgagor or obligor under
the terms of the applicable loan or otherwise in accordance with law.
Loan Sale Agreement means the agreement or agreement under which the
issuer obtained the loans from the originator, either directly or through a
special-purpose affiliate or the originator.
Net Insurance Proceeds means Insurance Proceeds, less expenses incurred
in connection with collecting on insurance policies, less any unreimbursed
advances on the loan, less, in the discretion of the servicer, but only to the
extent of the amount permitted to be withdrawn from the Collection Account, any
unpaid servicing fees on the loan.
Net Liquidation Proceeds means Liquidation Proceeds, less expenses
incurred in connection with the liquidation, less other reimbursed servicing
costs associated with the liquidation, less specified amounts applied to the
restoration, preservation or repair of the mortgaged property or manufactured
home, less any unreimbursed advances on the loan and, in the discretion of the
servicer, but only to the extent of the amount permitted to be withdrawn from
the Collection Account, less any unpaid servicing fees on the loans or the
mortgaged properties or manufactured homes.
Net Loan Rate means, for each loan, the loan interest rate, less the
Fixed Retained Yield, if any, less any servicing fee applicable to the loan.
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Partnership Interests means securities representing interests in a
trust that is intended to be treated as a partnership under the Code.
PCTE means a Prohibited Transaction Class Exemption issued by the
Department of Labor.
Pre-Funding Account means a segregated trust account or accounts
established and maintained with the trustee, for the benefit of the
securityholders, for the deposit of funds to be used by the issuer to purchase
additional loans during the Pre-Funding Period.
Pre-Funding Period means the period stated in the accompanying
prospectus supplement during which additional loans may be purchased by the
issuer with the funds on deposit in the Pre-Funding Account.
Premium Security means a security that is purchased at a cost greater
than its remaining stated redemption price at maturity.
Prepayment Assumption means the assumption used to calculate the rate
at which the loans prepay, as specified in the accompanying prospectus
supplement.
REMIC Regular Securities means the securities of each class of a series
which have been designated as "regular interests" of the REMIC Trust in the
accompanying prospectus supplement.
REMIC Regulations means the regulations issued by the Treasury
Department on December 23, 1992 for REMICs.
REMIC Residual Securities means the securities of each class of a
series which have been designated as "residual interests" of the REMIC Trust in
the accompanying prospectus supplement.
REMIC Securities means securities representing interests in a trust, or
a segregated pool or pools of assets therein, which the issuer will covenant to
elect to have treated as a REMIC under Sections 860A through 860G of the Code.
REMIC Trust means an issuer for which a REMIC election is made.
Restricted Group means the sponsor, the issuer, the underwriter(s), the
trustee, the servicer, any obligor on loans included in the trust fund
constituting more than five percent of the aggregate unamortized principal
balance of the assets in the trust fund, or any affiliate of these parties.
Servicing Agreement means, for a series of securities, the agreement
concerning the servicing of the loans, which may be a servicing agreement,
pooling and servicing agreement, sale and servicing agreement, or other similar
agreement.
Settlement Date means, unless otherwise stated in the accompanying
prospectus supplement, the date the securities are first sold to the public.
SMMEA means the Secondary Mortgage Market Enhancement Act of 1984.
Startup Day means, unless otherwise stated in the accompanying
prospectus supplement, the date of the initial issuance of the FASIT Securities.
Strip Securities means securities entitled to (x) principal
distributions, with disproportionate, nominal or no interest distributions, or
(y) interest distributions, with disproportionate, nominal or no principal
distributions.
U.S. Person means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political
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subdivision thereof, an estate that is subject to U.S. federal income tax
regardless of the source of its income, or a trust if a court within the United
States can exercise primary supervision over its administration and at least one
United States person has the authority to control all substantial decisions of
the trust.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses in connection with the
issuance and distribution of the Securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates,
except the SEC registration fee.
SEC registration fee..................................... $ 417,000
Legal fees and expenses.................................. 200,000
Accounting fees and expenses............................. 120,000
Blue Sky fees and expenses............................... 60,000
Rating Agency fees....................................... 100,000
Owner Trustee fees and expenses.......................... 60,000
Indenture Trustee fees and expenses...................... 120,000
Credit Enhancer ......................................... 200,000
Printing and engraving................................... 150,000
Miscellaneous............................................ 200,000
------------
Total............................................. $ 1,627,000
------------
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any persons, including officers and
directors, who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, for criminal proceedings,
had no reasonable cause to believe that his conduct was illegal. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer of
director actually and reasonably incurred.
The agreements which the Registrant will enter into for each series of
Securities will provide that the Registrant and any director, officer, employee
or agent of the Registrant will be entitled to indemnification by the Trust Fund
and will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to such agreements or the Securities,
other than any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance of his or its duties
thereunder or by reason of reckless disregard of his or its obligations and
duties thereunder.
Section 8 of the form of underwriting agreements filed as a part of
Exhibit 1 to this Registration Statement provides for indemnification of
directors and officers who sign the Registration Statement and controlling
persons of the Registrant by the underwriters, and for indemnification of each
underwriter and its controlling person by the Registrant, against certain
liabilities.
II-1
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Item 16. Exhibits.
Exhibit
- -------
1.1* Form of Underwriting Agreement.
4.1* Form of Pooling and Servicing Agreement, including form of
Certificates.
4.2* Form of Indenture, including form of Notes and certain other
related agreements as Exhibits thereto.
4.3* Form of Trust Agreement.
4.4* Form of Securitization Sponsorship Agreement.
5.1* Opinion of Dewey Ballantine LLP regarding legality.
8.1* Opinion of Dewey Ballantine LLP regarding tax matters.
10.1* Form of Loan Sale Agreement.
10.2* Form of Sale and Servicing Agreement.
23.1* Consent of Dewey Ballantine LLP (included as part of Exhibits
5.1 and 8.1).
24.1* Power of Attorney (included as part of the signature page to
Form S-3).
25.1* Statement of Eligibility and Qualification of the Indenture
Trustee (Form T-1).
- -------------------
* Previously filed.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which is registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the Registration Statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
II-2
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(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the Securities being registered which remain unsold at
the termination of the offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referred to in Item 15 of
this Registration Statement, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the Securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
(d) That,
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(e) To file an application for the purpose of determining the eligibility
of the trustee to act under subsection (a) of Section 310 of the Trust Indenture
Act in accordance with the rules and regulations prescribed by the Commission
under Section 305(b)(2) of the Trust Indenture Act.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No.3 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on the 22nd day of June,
1999.
PRUDENTIAL SECURITIES SECURED FINANCING
CORPORATION
By /s/ Vincent T. Pica, II
-----------------------
Vincent T. Pica, II
President and Director
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 3 has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Vincent T. Pica, II President (Principal Executive Officer) June 22, 1999
- --------------------------------- and Director
Vincent T. Pica, II
* Director June 22, 1999
- ---------------------------------
P. Carter Rise
* Director June 22, 1999
- ---------------------------------
Martin Pfinsgraff
* Director June 22, 1999
- ---------------------------------
Leland B. Paton
* Chief Financial Officer (Principal June 22, 1999
- --------------------------------- Financial Officer and Principal
William J. Horan Accounting Officer)
By: /s/ Vincent T. Pica, II June 22, 1999
------------------------------
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Description of Document
- ------- -----------------------
1.1* Form of Underwriting Agreement.
4.1* Form of Pooling and Servicing Agreement, including form of
Certificates.
4.2* Form of Indenture, including form of Notes and certain
other related agreements as Exhibits thereto.
4.3* Form of Trust Agreement.
4.4* Form of Securitization Sponsorship Agreement.
5.1* Opinion of Dewey Ballantine LLP regarding legality.
8.1* Opinion of Dewey Ballantine LLP regarding tax matters.
10.1* Form of Loan Sale Agreement.
10.2* Form of Sale and Servicing Agreement.
23.1* Consent of Dewey Ballantine LLP (included as part of Exhibits
5.1 and 8.1).
24.1* Power of Attorney (included as part of the signature page to
Form S-3).
25.1* Statement of Eligibility and Qualification of the Indenture
Trustee (Form T-1).
- -------------------
* Previously filed.
