<PAGE>
Pursuant to Rule 424(b)(5)
Registration Statement File No. 333-37256
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 10, 2000)
[LOGO] $167,019,000 (APPROXIMATE)
---------------------------------------
C-BASS MORTGAGE LOAN ASSET-BACKED CERTIFICATES, SERIES 2000-CB3
CREDIT-BASED ASSET SERVICING AND SECURITIZATION LLC
Seller
---------------------------------------
LITTON LOAN SERVICING LP
Servicer
---------------------------------------
PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION
Depositor
---------------------------------------
<TABLE>
<CAPTION>
Initial Certificate Pass-Through
Class Balance(1) Rate
-------------------------------- ------------------- ------------
<S> <C> <C>
A-1F............................ $36,000,000 7.675%(2)
A-2F............................ 16,101,000 7.855%(2)
A-1A............................ 87,157,000 (3)
M-1............................. 10,135,000 8.215%(4)
M-2............................. 8,813,000 8.500%(4)
B............................... 8,813,000 8.500%(4)
</TABLE>
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(1) Plus or minus 5%
(2) The Class A-1F and Class A-2F Certificates will
be subject to an interest rate cap and, in the
case of the Class A-2F Certificates only, a 0.50%
per annum increase following the optional
termination date, as described in this prospectus
supplement.
(3) The Class A-1A Certificates will bear interest at
a variable rate that is subject to an interest
rate cap and a margin increase following the
optional termination date, as described in this
prospectus supplement.
(4) The Class M-1, Class M-2 and Class B Certificates
will be subject to an interest rate cap.
Only the six classes of certificates identified above
are being offered by this prospectus supplement and
the accompanying prospectus.
THE CERTIFICATES
o Represent ownership interests in a trust consisting
primarily of a pool of first and second lien
residential mortgage loans. The mortgage loans will
be segregated into two loan groups. Loan group 1
will consist of two sub-groups, one primarily
consisting of fixed-rate FHA insured and uninsured
mortgage loans and VA guaranteed mortgage loans and
one consisting of conventional fixed-rate mortgage
loans. Loan group 2 will consist of adjustable-rate
mortgage loans.
o The Class A-1F, Class A-2F and Class A-1A
Certificates will be senior certificates.
o The Class M-1, Class M-2 and Class B Certificates
are subordinate to and provide credit enhancement
for the Class A-1F, Class A-2F and Class A-1A
Certificates. The Class M-2 Certificates are also
subordinate to and provide credit enhancement for
the Class M-1 Certificates. The Class B Certificates
are subordinate to and provide credit enhancement
for the Class M-1 and Class M-2 Certificates.
CREDIT ENHANCEMENT
o Subordination--The subordinate certificates are
subordinate in right of certain payments to the
senior certificates.
o Overcollateralization--Certain excess interest
received from the mortgage loans will be applied as
payments of principal on the certificates to
maintain a required level of overcollateralization.
o Certain of the mortgage loans will be covered by
either insurance from the Federal Housing
Administration or a guaranty from the United States
Department of Veterans Affairs.
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 underwriters will offer the certificates offered by this prospectus
supplement from time to time at varying prices to be determined at the time of
sale. The certificates will be available for delivery to investors in book-entry
form through the facilities of The Depository Trust Company, Clearstream
Luxembourg and the Euroclear System on or about September 15, 2000.
PRUDENTIAL SECURITIES FIRST UNION SECURITIES, INC.
The date of this prospectus supplement is September 13, 2000
--------------------------------------------------------------------------------
CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE S-12 OF THIS PROSPECTUS
SUPPLEMENT AND ON PAGE 3 IN THE ACCOMPANYING PROSPECTUS.
The offered certificates are not insured or guaranteed by any governmental
agency or instrumentality.
The offered certificates represent interest in the trust only and will not be
obligations of or represent interests in any other entity. This prospectus
supplement may be used to offer and sell the offered certificates only if it is
accompanied by the prospectus.
--------------------------------------------------------------------------------
<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 certificates 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.
S-2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
----
<S> <C>
SUMMARY ........................................................................ 5
RISK FACTORS ................................................................... 12
Nature of sub-prime mortgage loans may increase risk of loss ................ 12
Inclusion of delinquent mortgage loans increases risk of loss ............... 12
There are risks involving unpredictability of prepayments and the
effect of prepayments on yields ........................................... 12
There are risks related to owner-financed mortgage loans .................... 13
The recovery of defaulted amounts under FHA and VA programs is uncertain..... 13
There are risks relating to alternatives to foreclosure ..................... 14
There is a risk that interest payments may be insufficient to maintain
overcollateralization ..................................................... 14
There is a risk that mortgage interest rates will affect the offered
certificates .............................................................. 14
There are risks relating to subordinate loans ............................... 15
There are risks in holding subordinate certificates ......................... 15
There is a risk that interest payments on the mortgage loans may be
insufficient to pay interest on your certificates ......................... 16
There is a risk relating to the potential inadequacy of credit enhancement
for the offered certificates .............................................. 16
There is a risk because the certificates are not obligations of any
entity .................................................................... 16
There is a risk that there may be a delay in receipt of liquidation proceeds,
and that liquidation proceeds may be less than the outstanding balance of
the mortgage loan ........................................................ 17
There is an increased risk of loss relating to high combined loan-to-value
ratios.................................................................... 17
There are risks relating to geographic concentration of the mortgage loans .. 17
There are risks relating to balloon loans ................................... 17
The lack of a secondary market may limit your ability to sell your
certificates ............................................................. 18
Violations of federal and state laws may cause losses on your
certificates ............................................................. 18
In the event the seller is not able to repurchase or replace defective
mortgage loans you may suffer losses on your certificates................. 19
Failure of the servicer to pay the premium due under the primary mortgage
insurance policy may result in a loss on the certificates ................ 19
THE MORTGAGE POOL .............................................................. 20
General ..................................................................... 20
Loan Group 1 Mortgage Loans Statistics ...................................... 22
Sub-group 1A Mortgage Loans Statistics ...................................... 30
Sub-group 1B Mortgage Loan Statistics ....................................... 31
Group 2 Mortgage Loan Statistics ............................................ 32
The Index ................................................................... 43
FHA Mortgage Loans and VA Mortgage Loans .................................... 45
Terms of the Mortgage Loans ................................................. 47
Primary Mortgage Insurance .................................................. 48
THE SELLER ..................................................................... 48
UNDERWRITING STANDARDS ......................................................... 48
THE SERVICER ................................................................... 50
THE POOLING AND SERVICING AGREEMENT ............................................ 51
General ..................................................................... 51
Assignment of the Mortgage Loans ............................................ 52
Payments on Mortgage Loans; Deposits to Collection Account and
Distribution Account .................................................... 53
Advances .................................................................... 54
The Trustee ................................................................. 55
Servicing and Other Compensation and Payment of Expenses .................... 55
Pledge and Assignment of Servicer's Rights .................................. 55
Termination ................................................................. 56
Optional Purchase of Defaulted Loans ........................................ 56
Events of Servicing Termination ............................................. 56
Rights upon Event of Servicing Termination .................................. 56
Voting Rights ............................................................... 57
Amendment ................................................................... 57
DESCRIPTION OF THE CERTIFICATES ................................................ 57
General ..................................................................... 57
Book-Entry Certificates ..................................................... 58
Allocation of Available Funds ............................................... 61
Interest Distributions ...................................................... 62
Principal Distributions ..................................................... 63
Allocation of Losses ........................................................ 67
Pass-Through Rates .......................................................... 70
Calculation of LIBOR ........................................................ 71
PREPAYMENT AND YIELD CONSIDERATIONS ............................................ 72
Additional Information ...................................................... 74
Weighted Average Lives ...................................................... 74
Final Scheduled Distribution Dates .......................................... 82
USE OF PROCEEDS ................................................................ 83
MATERIAL FEDERAL INCOME TAX CONSEQUENCES ....................................... 83
General ..................................................................... 83
Taxation of Regular Interests ............................................... 83
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
Taxation of the Basis Risk Arrangements ..................................... 84
REMIC Taxes and Reporting ................................................... 85
STATE TAX CONSIDERATIONS ....................................................... 86
ERISA CONSIDERATIONS ........................................................... 86
LEGAL INVESTMENT ............................................................... 88
PLAN OF DISTRIBUTION ........................................................... 88
ADDITIONAL INFORMATION ......................................................... 89
LEGAL MATTERS .................................................................. 89
RATINGS ........................................................................ 89
INDEX OF PRINCIPAL DEFINITIONS ................................................. 91
ANNEX I GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES .......... 1
</TABLE>
S-4
<PAGE>
Summary
o This summary highlights selected information from this
prospectus supplement and does not contain all of the
information that you need to consider in making your
investment decision. To understand all of the terms of the
offering of the certificates, carefully read this entire
prospectus supplement and the accompanying prospectus.
o This summary provides an overview of certain calculations,
cash flow priorities and other information to aid your
understanding and is qualified by the full description of
these calculations, cash flow priorities and other information
in this prospectus supplement and the accompanying prospectus.
Some of the information consists of forward-looking statements
relating to future economic performance or projections and
other financial items. Forward-looking statements are subject
to a variety of risks and uncertainties that could cause
actual results to differ from the projected results. Those
risks and uncertainties include, among others, general
economic and business conditions, regulatory initiatives and
compliance with governmental regulations, and various other
matters, all of which are beyond our control. Accordingly,
what actually happens may be very different from what we
predict in our forward-looking statements.
-------------------------------
Issuer
2000-CB3 Trust (the "Trust").
Title of Series
C-BASS Mortgage Loan Asset-Backed Certificates, Series 2000-CB3.
The Certificates
The Class A-1F, Class A-2F, Class A-1A, Class M-1, Class M-2, Class B, Class N,
Class X and Class R Certificates are the entire ownership interest in a trust
fund which is composed of first and second lien mortgage loans. The Trust will
issue the certificates pursuant to a pooling and servicing agreement among
Credit-Based Asset Servicing and Securitization LLC, as seller, Prudential
Securities Secured Financing Corporation, as depositor, Litton Loan Servicing
LP, as servicer, and The Chase Manhattan Bank, as trustee. The Trust is offering
the Class A-1F, Class A-2F, Class A-1A, Class M-1, Class M-2 and Class B
Certificates as book-entry securities clearing through The Depository Trust
Company ("DTC") (in the United States) or Clearstream Banking ("Clearstream" and
formerly known as Cedel Bank) or the Euroclear System ("Euroclear") (in Europe).
See "Description of the Certificates--Book-Entry Registration and Definitive
Certificates" in this Prospectus Supplement.
The Offered Certificates
The underwriters are offering to sell the Class A-1F, Class A-2F, Class A-1A,
Class M-1, Class M-2 and Class B Certificates. The Class N, Class X and Class R
Certificates are not being offered.
Depositor of Mortgage Loans
Prudential Securities Secured Financing Corporation, a Delaware corporation is
the depositor ("Depositor").
Mortgage Loan Seller
On the closing date, Credit-Based Asset Servicing and Securitization LLC will
sell the mortgage loans to the depositor. The mortgage loans were acquired
generally in accordance with the underwriting standards described in
"Underwriting Standards" in this Prospectus Supplement.
Servicer
Litton Loan Servicing LP will service the mortgage loans. Subject to certain
limitations, the servicer must advance delinquent payments of principal and
interest on the mortgage loans, other than with respect to simple interest
mortgage loans and REO Properties. See "Pooling and Servicing
Agreement--Advances" in this Prospectus Supplement and "Servicing of the
Loans--Advances and Limitations Thereon" in the Prospectus. The servicer is a
wholly-owned subsidiary of the seller of the mortgage loans.
S-5
<PAGE>
Trustee
The Chase Manhattan Bank, a New York banking corporation.
Cut-off Date
August 1, 2000.
Closing Date
On or about September 15, 2000.
Final Scheduled Distribution Dates
The final scheduled distribution date for each class of offered Certificates is
set forth below:
Final Scheduled
o Class Distribution Date
----- ------------------
o Class A-1F July 25, 2015
o Class A-2F March 25, 2034
o Class A-1A March 25, 2030
o Class M-1 March 25, 2034
o Class M-2 March 25, 2034
o Class B March 25, 2034
Each such final scheduled distribution date has been calculated as described
under "Prepayment and Yield Considerations--Final Scheduled Distribution Dates"
in this Prospectus Supplement.
The Mortgage Pool
On the closing date, the Trust will acquire a pool of mortgage loans that will
be divided into two loan groups, loan group 1 and loan group 2. Loan group 1 is
further divided into two sub-groups, sub-groups 1A and 1B.
Loan group 1 will consist of two sub-groups with the following aggregate
characteristics (percentages are based on the aggregate principal balance as of
August 1, 2000):
Aggregate Unpaid Principal Balance: $89,120,498
Aggregate Original Principal Balance: $93,012,122
Weighted Average Coupon (Gross): 9.532%
Gross Coupon Range: 6.000% to 17.250%
Average Unpaid Principal Balance: $82,519
Average Original Principal Balance: $86,122
Maximum Unpaid Principal Balance: $643,950
Minimum Unpaid Principal Balance: $2,233
Maximum Original Principal Balance: $650,000
Minimum Original Principal Balance: $10,527
Weighted Average Stated Remaining Term: 288 months
Stated Remaining Term Range: 2 to 403 months
Weighted Average Seasoning: 33 months
Age Range: 1 to 318 months
Weighted Average Original Term: 320 months
Original Term Range: 36 to 512 months
Weighted Average CLTV: 85.75%
CLTV Range: 11.05% to 116.73%
Loans with Prepayment Penalties 20.22%
Weighted Average Net Coupon 8.932%
Percentage of Second Liens 0.59%
Percentage of Simple Interest Loans 2.89%
Percentage of Loans with Mortgage Insurance 33.81%
Percentage of FHA Insured Loans 15.52%
Percentage of FHAUN Loans 2.13%
Percentage of VA Loans 4.39%
Percentage of Sub-Prime Loans 41.28%
Percentage of Performing Loans 66.74%
Percentage of Owner-Financed Loans 13.23%
Percentage of Sub-Performing Loans 8.83%
Sub-Performing with Forbearance Plans 1.16%
Sub-Performing with Bankruptcy Plans 0.99%
Percentage of Re-Performing Loans 24.44%
Re-Performing with Forbearance Plans 2.37%
Re-Performing with Bankruptcy Plans 8.71%
Percentage of Delinquent Loans 8.83%
30-59 Days Delinquent 5.91%
60-89 Days Delinquent 2.91%
Maximum ZIP Code
Concentration (%) 1.34%
Maximum ZIP Code
Concentration (ZIP) 11432
S-6
<PAGE>
Geographic Concentration in Excess of 5%
New York 20.96%
Texas 12.04%
California 11.96%
Florida 7.21%
Sub-group 1A will consist of FHA insured, FHAUN and VA guaranteed fixed-rate
mortgage loans with the following characteristics (percentages are based on the
aggregate principal balance of the applicable sub-group as of August 1, 2000):
Aggregate Unpaid Principal Balance: $19,649,399
Aggregate Original Principal Balance: $21,006,111
Weighted Average Coupon (Gross): 8.268%
Gross Coupon Range: 6.000% to 10.500%
Average Unpaid Principal Balance: $71,193
Average Original Principal Balance: $76,109
Maximum Unpaid Principal Balance: $246,337
Minimum Unpaid Principal Balance: $7,158
Maximum Original Principal Balance: $251,750
Minimum Original Principal Balance: $17,100
Weighted Average Stated Remaining Term: 295 months
Stated Remaining Term Range: 17 to 358 months
Weighted Average Seasoning: 63 months
Age Range: 2 to 318 months
Weighted Average Original Term: 358 months
Original Term Range: 180 to 360 months
Weighted Average CLTV: 93.39%
CLTV Range: 19.89% to 116.73%
Loans with Prepayment Penalties: 0.33%
Weighted Average Net Coupon 7.768%
Percentage of Second Liens 0%
Percentage of Simple Interest Loans 0.00%
Percentage of Loans with Mortgage Insurance 89.67%
Percentage of FHA Insured Loans 70.40%
Percentage of FHAUN Loans 9.67%
Percentage of VA Loans 19.93%
Percentage of Sub-Prime Loans 0.00%
Percentage of Performing Loans 18.68%
Percentage of Owner-Financed Loans 0.00%
Percentage of Sub-Performing Loans 11.15%
Sub-Performing with Forbearance Plans 2.63%
Sub-Performing with Bankruptcy Plans 4.48%
Percentage of Re-Performing Loans 70.17%
Re-Performing with Forbearance Plans 8.54%
Re-Performing with Bankruptcy Plans 36.35%
Percentage of Delinquent Loans 11.15%
30-59 Days Delinquent 5.50%
60-89 Days Delinquent 5.65%
Maximum ZIP Code
Concentration (%) 1.95%
Maximum ZIP Code
Concentration (ZIP) 92557
Geographic Concentration in Excess of 5%
California 17.07%
Texas 14.41%
New York 10.90%
Florida 8.41%
Maryland 5.67%
Tennessee 5.13%
Sub-group 1B will consist of conventional fixed-rate mortgage loans with the
following characteristics (percentages are based on the aggregate principal
balance of the applicable sub-group as of August 1, 2000):
Aggregate Unpaid Principal Balance: $69,471,099
Aggregate Original Principal Balance: $72,006,011
Weighted Average Coupon (Gross): 9.889%
Gross Coupon Range: 6.000% to 17.250%
Average Unpaid Principal Balance: $86,407
Average Original Principal Balance: $89,560
Maximum Unpaid Principal Balance: $643,950
Minimum Unpaid Principal Balance: $2,233
Maximum Original Principal Balance: $650,000
Minimum Original Principal Balance: $10,527
S-7
<PAGE>
Weighted Average Stated Remaining Term: 286 months
Stated Remaining Term Range: 2 to 403 months
Weighted Average Seasoning: 24 months
Age Range: 1 to 312 months
Weighted Average Original Term: 310 months
Original Term Range: 36 to 512 months
Weighted Average CLTV: 83.59%
CLTV Range: 11.05% to 110.88%
Loans with Prepayment Penalties: 25.85%
Weighted Average Net Coupon 9.261%
Percentage of Second Liens 0.75%
Percentage of Simple Interest Loans 3.71%
Percentage of Loans with Mortgage Insurance 18.01%
Percentage of FHA Loans 0.00%
Percentage of VA Loans 0.00%
Percentage of Sub-Prime Loans 52.96%
Percentage of Performing Loans 80.33%
Percentage of Owner-Financed Loans 16.98%
Percentage of Sub-Performing Loans 8.17%
Sub-Performing with
Forbearance Plans 0.75%
Sub-Performing with Bankruptcy
Plans 0.00%
Percentage of Re-Performing Loans 11.50%
Re-Performing with Forbearance
Plans 0.63%
Re-Performing with Bankruptcy
Plans 0.89%
Percentage of Delinquent Loans 8.17%
30-59 Days Delinquent 6.03%
60-89 Days Delinquent 2.14%
Maximum ZIP Code
Concentration (%) 1.72%
Maximum ZIP Code
Concentration (ZIP) 11432
Geographic Concentration in Excess of 5%
New York 23.80%
Texas 11.37%
California 10.52%
Florida 6.87%
Loan group 2 will consist of adjustable-rate mortgage loans with the following
characteristics (percentages are based on the aggregate principal balance as of
August 1, 2000):
Aggregate Unpaid Principal Balance: $87,157,008
Aggregate Original Principal Balance: $88,227,111
Weighted Average Coupon (Gross): 10.278%
Gross Coupon Range: 6.375% to 18.125%
Weighted Average Margin (Gross): 5.846%
Gross Margin Range: -0.380% to 8.700%
Weighted Average Life Cap (Gross): 16.300%
Gross Life Cap Range: Max 10.125% to 23.500%
Weighted Average Life Floor (Gross): 9.643%
Gross Life Floor Range: Min 0.125% to 17.500%
Average Unpaid Principal Balance: $114,379
Average Original Principal Balance $115,784
Maximum Unpaid Principal Balance: $534,610
Minimum Unpaid Principal Balance: $9,372
Maximum Original Principal Balance: $539,000
Minimum Original Principal Balance: $20,000
Weighted Average Stated Remaining Term: 345 months
Stated Remaining Term Range: 54 to 359 months
Weighted Average Seasoning: 14 months
Age Range: 1 to 186 months
Weighted Average Original Term: 359 months
Original Term Range: 120 to 361 months
Weighted Average CLTV: 80.34%
CLTV Range: 15.62% to 120.71%
Weighted Average Periodic Interest Cap: 1.081%
Periodic Interest Cap Range: 1.000% to 3.000%
Weighted Average Months to Interest Roll: 20 months
Months to Interest Roll Range: 1 to 71 months
Weighted Average Interest Roll Frequency: 7 months
Interest Frequency Range: 1 to 36 months
Weighted Average Initial Rate Cap: 2.320%
Initial Rate Cap Range: 1.000% to 5.000%
Loans with Prepayment Penalties 74.84%
Index
Six-Month LIBOR 91.09%
1 YR CMT 7.36%
Other 1.55%
Mortgage Interest Rates by Index
Six-Month LIBOR 10.48%
1 YR CMT 7.89%
Other 9.62%
Gross Margin by Index
Six-Month LIBOR 6.12%
1 YR CMT 2.91%
Other 3.22%
Weighted Average Net Coupon 9.562%
S-8
<PAGE>
Percentage of Simple Interest Loans 0.26%
Percentage of Loans with Mortgage Insurance 26.22%
Percentage of FHA Loans 2.08%
Percentage of FHAUN Loans 0.65%
Percentage of VA Loans 0.27%
Percentage of Sub-Prime Loans 96.51%
Percentage of Performing Loans 87.55%
Percentage of Owner-Financed Loans 0.00%
Percentage of Sub-Performing Loans 4.27%
Sub-Performing with Forbearance Plans 0.06%
Sub-Performing with Bankruptcy Plans 0.00%
Percentage of Re-Performing Loans 8.18%
Sub-Performing with Forbearance Plans 0.63%
Sub-Performing with Bankruptcy Plans 1.52%
Percentage of Delinquent Loans 4.27%
30-59 Days Delinquent 3.27%
60-89 Days Delinquent 1.00%
Maximum ZIP Code
Concentration (%) 1.03%
Maximum ZIP Code
Concentration (ZIP) 90068
Geographic Concentration in Excess of 5%
California 25.52%
Florida 7.99%
Washington 6.79%
Colorado 5.65%
See "The Mortgage Pool" in this Prospectus Supplement for more information about
the mortgage loans.
Distributions--General
The distribution date will be the 25th day of each month or, if such day is not
a business day, the next business day, beginning on September 25, 2000.
Distributions will generally include payments made on the mortgage loans during
the related collection period. The collection period for any distribution date
is the period from the second day of the calendar month preceding the month in
which the distribution date occurs through the first day of the calendar month
in which the distribution date occurs.
Record Date
The record date for each distribution date will be as follows: for the Class
A-1A Certificates, the business day before such distribution date (unless
definitive certificates are issued), and for the other certificates, the last
business day of the month preceding the month in which the distribution date
occurs (or the closing date, in the case of the first distribution date).
Interest Distributions
On each distribution date, you will be entitled to receive interest accrued on
your certificate during the related accrual period and any interest which you
earned previously but which you did not receive. The accrual period for all
offered certificates, except for the Class A-1A Certificates, is the month
immediately preceding the month in which such distribution date occurs. Except
for the first accrual period, the accrual period for the Class A-1A Certificates
is the period from the distribution date in the prior month to the day prior to
the current distribution date. The first accrual period for the Class A-1A
Certificates will begin on the closing date and end on September 24, 2000.
Interest will be calculated for all offered certificates, except for the Class
A-1A Certificates, on the basis of a 360-day year consisting of twelve 30-day
months. Interest will be calculated for the Class A-1A Certificates on the basis
of the actual number of days in the accrual period, based on a 360-day year.
There are certain circumstances which could reduce the amount of interest paid
to you. See "Description of the Certificates--Interest Distributions" in this
Prospectus Supplement.
Pass-Through Rates
Interest will accrue on the Class A-1F and Class A-2F Certificates during each
accrual period at a rate equal to the least of (i) the per annum rate for such
class as set forth on the cover page, plus, for the Class A-2F Certificates only
on each distribution date following the optional termination date, 0.50% per
annum, (ii) the Group 1 Net Funds Cap as described under "Description of the
Certificates--Pass-Through Rates" in this Prospectus Supplement, and (iii) the
Pool Cap, as described under "Description of the Certificates--Pass-Through
Rates" in this Prospectus Supplement.
Interest will accrue on the Class A-1A Certificates during each accrual period
at a rate equal to the least of (i) the sum of one-month LIBOR plus (a) a margin
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<PAGE>
of 0.31% on or prior to the optional termination date as described below under
"Optional Termination" and (b) a margin of 0.62% following the optional
termination date, (ii) the Group 2 Net Funds Cap as described under "Description
of the Certificates--Pass-Through Rates" in this Prospectus Supplement, and
(iii) the Pool Cap, as described under "Description of the
Certificates--Pass-Through Rates" in this Prospectus Supplement.
Interest will accrue on the Class M-1, Class M-2 and Class B Certificates during
each accrual period at a rate equal to the lesser of (i) the applicable per
annum rate for such class as set forth on the cover page, and (ii) the Pool Cap
as described under "Description of the Certificates--Pass-Through Rates" in this
Prospectus Supplement.
Principal Distributions
On each distribution date, you will receive a distribution of principal if there
are funds available on that date for your class of certificates. You should
review the priority of payments described under "Description of the
Certificates--Principal Distributions" in this Prospectus Supplement.
Credit Enhancement
Credit enhancement reduces the harm caused to holders of certificates by
shortfalls in payments received on the mortgage loans. They can reduce the
effect of shortfalls on all classes, or they can allocate shortfalls so they
affect some classes before others. This transaction employs the following four
forms of credit enhancement. See "Description of the Certificates" in this
Prospectus Supplement.
Subordination. On each distribution date, classes that are lower in order of
payment priority will not receive payments until the classes that are higher in
order of payment priority have been paid. If there are insufficient funds on a
distribution date to pay all classes, the subordinate classes are the first to
forego payment.
Overcollateralization. Although the total initial principal balance of the
mortgage loans is approximately $176,277,505, the total initial principal amount
of the offered certificates is only $167,019,000. The remaining 5.25% of the
total principal balance of the mortgage loans will absorb losses on the mortgage
loans before such losses affect the certificates. If the level of
overcollateralization falls below what is required under the pooling and
servicing agreement, the excess interest described in the next section will be
paid to the offered certificates as principal. This will have the effect of
reducing the principal balance of the certificates faster than the principal
balance of the mortgage loans until the required level of overcollateralization
is reached.
Monthly Excess Cashflow. Because more interest is expected to be paid by the
mortgagors than is necessary to pay the interest earned on the offered
certificates, we expect there to be excess interest each month. The excess
interest will be used to maintain overcollateralization, to pay interest that
was previously earned but not paid to the offered certificates, and to reimburse
the offered certificates for losses and certain shortfalls that they experienced
previously.
Application of Realized Losses. If, on any distribution date after the balances
of the offered certificates have been reduced by the amount of cash paid on that
date, the total principal balance of the offered certificates is greater than
the total principal balance of the mortgage loans, the principal balance of the
offered certificates that are lower in order of payment priority will be reduced
by the amount of such excess.
Optional Termination
The seller has the option to purchase all the mortgage loans and any properties
that the trust acquired in satisfaction of any of the mortgage loans. This
option can be exercised when the total principal balance of the mortgage loans,
including the mortgage loans related to the properties which the trust has
acquired, is 10% or less of the total principal balance of the mortgage loans on
the cut-off date. If the option is exercised, your certificate will be retired
early and you will be entitled to the following amounts to the extent available
therefor:
o the outstanding principal balance of your certificate;
o one month's interest on such balance at the related pass-through rate;
o any interest previously earned but not paid; and
o in the case of the Class A-1A Certificates only, any "LIBOR Carryover
Amount", as described in this Prospectus Supplement, from all previous
distribution dates.
You will receive the last two items only to the extent that there is enough cash
to make such payments. See "Pooling and Servicing Agreement--Termination" in
this Prospectus Supplement.
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Certain Material Federal Income Tax Consequences
Two or more real estate mortgage investment conduits (each, a "REMIC"), as
defined under Sections 860A through 860G of the Internal Revenue Code, will
constitute the trust assets. The Trustee will make an election to treat this
trust as a REMIC Trust for federal income tax purposes.
For further information regarding the federal income tax consequences of
investing in the offered certificates, see "Certain Material Federal Income Tax
Consequences" in this Prospectus Supplement and "Federal Income Tax
Consequences" in the Prospectus.
Ratings
The Trust will not issue the certificates unless they receive the respective
ratings set forth below from Standard & Poor's Ratings Services ("S&P"), Moody's
Investors Service, Inc. ("Moody's") and Fitch ("Fitch"):
Class S&P Moody's Fitch
----- --- ------- -----
A-1A AAA Aaa AAA
A-1F AAA Aaa AAA
A-2F AAA Aaa AAA
M-1 AA Aa2 AA
M-2 A A2 A
B BBB Baa2 BBB
The ratings on the certificates indicate the likelihood that you will receive
all funds to which you are entitled by the terms of your certificate. The rating
agency that issues the rating reviews the nature and credit quality of the
mortgage loans and the soundness of the structure which the depositor has
created to allow the payments on the mortgage loans to flow to the holders of
the certificates. A rating is not a recommendation to buy, sell or hold
securities and the rating agency can revise or withdraw it at any time. A rating
does not address the likelihood of the payment of any LIBOR Carryover Amount,
the frequency of prepayments on the mortgage loans or the effect of such
prepayments on your yield. See "Prepayment and Yield Considerations" and
"Ratings" in this Prospectus Supplement and "Prepayment and Yield
Considerations" in the Prospectus.
Legal Investment
You should consult with counsel to see if you are permitted to buy the offered
certificates, since legal investment rules will vary depending on the type of
entity purchasing the offered certificates, whether that entity is subject to
regulatory authority, and if so, by whom. The offered certificates will not be
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended, because the mortgage loans contain second
lien mortgage loans and owner-financed mortgage loans that were originated by
individuals and not by financial institutions or mortgagees approved by the
Secretary of Housing and Urban Development. See "Legal Investment" in this
Prospectus Supplement and in the Prospectus.
ERISA Considerations
The Class A Certificates may be purchased by an employee benefit plan or other
retirement arrangement subject to the Employee Retirement Income Security Act of
1974, as amended, or Section 4975 of the Internal Revenue Code of 1986, and by
persons investing on behalf of or with plan assets of such plans, provided
certain conditions are met. See "ERISA Considerations" in this Prospectus
Supplement and in the Prospectus.
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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.
Nature of sub-prime mortgage loans may increase risk of loss.
Approximately 41.28% of the mortgage loans in loan group 1 and
approximately 96.51% of the mortgage loans in loan group 2 (in each case, by
aggregate principal balance as of the cut-off date) are of sub-prime credit
quality; i.e. do not meet the customary credit standards of FHLMC and FNMA.
Delinquencies and liquidation proceedings are more likely with these mortgage
loans than with mortgage loans that satisfy such credit standards. In the event
these mortgage loans do become delinquent or subject to liquidation, you may
face delays in receiving payment and losses if the credit enhancements are
insufficient to cover the delays and losses.
Inclusion of delinquent mortgage loans increases risk of loss.
Approximately 5.91% and 2.91% of the mortgage loans in loan group 1 (by
aggregate principal balance as of the cut-off date) were 30 to 59 days and 60 to
89 days, respectively, contractually delinquent and approximately 3.27% and
1.00% of the mortgage loans in loan group 2 (by aggregate principal balance as
of the cut-off date) were 30 to 59 days and 60 to 89 days, respectively,
contractually delinquent. Approximately 24.44% and 8.18% of the mortgage loans
in loan group 1 and loan group 2, respectively (in each case, by aggregate
principal balance as of the cut-off date), were re-performing mortgage loans
that were 90 days or more contractually delinquent. As a result, the mortgage
pool may bear more risk than a pool of mortgage loans without any delinquencies
but with otherwise comparable characteristics. It is possible that a delinquent
mortgage loan (including a mortgage loan that is a re-performing mortgage loan)
will not ever become current or, if it does become current, that the mortgagor
may become delinquent again.
These past due payments on mortgage loans which were delinquent on
or prior to the cut-off date are called "arrearages" and, to the extent
previously advanced, are not a part of the Trust. The servicer will be required
to make advances of delinquent payments of principal and interest on delinquent
mortgage loans (other than simple interest mortgage loans), each to the extent
such advances are deemed recoverable, until such mortgage loans become current
or the related mortgaged property is acquired through foreclosure. In the event
that a mortgage loan is liquidated before the related arrearage is reduced to
zero, the arrearage, together with reimbursements for advances of principal and
interest and servicing advances with respect to such mortgage loan, will reduce
the liquidation proceeds available for distribution to certificateholders.
There are risks involving unpredictability of prepayments and the effect of
prepayments on yields.
Mortgagors may prepay their mortgage loans in whole or in part at any
time. We cannot predict the rate at which mortgagors will repay their mortgage
loans. A prepayment of a mortgage loan generally will result in a prepayment on
the certificates.
o If you purchase your certificates at a discount and principal
is repaid more slowly than you anticipate, then your yield may
be lower than you anticipate.
o If you purchase your certificates at a premium and principal
is repaid faster than you anticipate, then your yield may be
lower than you anticipate.
o The rate of prepayments on the mortgage loans will be
sensitive to prevailing interest rates. Generally, if
prevailing interest rates decline significantly below the
interest rates on the fixed-rate mortgage loans, those
mortgage loans are more likely to prepay than if prevailing
rates remain above the interest rates on such mortgage loans.
Conversely, if prevailing interest rates rise significantly,
the prepayments on fixed-rate mortgage loans are likely to
decrease.
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o Approximately 47.23% of the mortgage loans, representing
approximately 20.22% of the mortgage loans in loan group 1 (by
aggregate principal balance as of the cut-off date) and
approximately 74.84% of the mortgage loans in loan group 2 (by
aggregate principal balance as of the cut-off date) require
the mortgagor to pay a penalty if the mortgagor prepays the
mortgage loan during periods ranging from one year to five
years after the mortgage loan was originated. A prepayment
penalty may discourage a mortgagor from prepaying the mortgage
loan during the applicable period. Such prepayment penalties
will be distributed to holders of the Class N Certificates and
not to holders of the offered certificates.
o The seller may be required to purchase mortgage loans from the
Trust in the event certain breaches of representations and
warranties have not been cured. In addition, the seller has
the option to purchase mortgage loans sixty days or more
delinquent. These purchases will have the same effect on the
holders of the offered certificates as a prepayment of the
mortgage loans.
o If the rate of default and the amount of losses on the
mortgage loans is higher than you expect, then your yield may
be lower than you expect.
o The overcollateralization provisions are intended to result in
an accelerated rate of principal distributions to holders of
the offered certificates.
See "Prepayment and Yield Considerations" for a description of factors
that may influence the rate and timing of prepayments on the mortgage loans.
There are risks related to owner-financed mortgage loans.
Reduced underwriting standards. Approximately 13.23% of the mortgage
loans in loan group 1 (by aggregate principal balance as of the cut-off date)
are owner-financed mortgage loans. None of the mortgage loans in loan group 2
are owner-financed mortgage loans. These mortgage loans were originated by the
individual sellers of the related mortgaged property who generally are
inexperienced in matters pertaining to mortgage banking. These mortgage loans
were originated with less stringent standards than the other mortgage loans. The
mortgagor under an owner-financed mortgage loan generally does not complete a
mortgage loan application and the seller of the related property generally does
not verify the income or employment of the related mortgagor, nor obtain other
information customarily obtained during the mortgage loan origination process.
As a result, certain information concerning the owner-financed mortgage loans
that may be of interest to you is not available. In connection with an
acquisition of an owner-financed mortgage loan, the seller obtained and reviewed
the credit history and payment history of the mortgagor, as well as conducted an
assessment of the value of the property.
Appraisals may be inaccurate. In acquiring owner-financed mortgage
loans, the seller assesses the value of a property, generally using either a
prior appraisal, which must be re-certified if older than six months, or a
drive-by appraisal. A drive-by appraisal is not as accurate as a full real
estate appraisal because the appraiser does not have access to the interior of
the mortgaged property and may not have access to the rear of the mortgaged
property. As a result, the appraisal may reflect assumptions the appraiser made
regarding the interior or the rear of the mortgaged property which may not be
accurate. To the extent the seller has over-appraised the value of a property,
such amount may not be recovered during a liquidation proceeding.
The recovery of defaulted amounts under FHA and VA programs is
uncertain.
Approximately 19.77% of the mortgage loans in loan group 1 and
approximately 2.35% of the mortgage loans in loan group 2 (in each case, by
aggregate principal balance as of the cut-off date) are covered by either
insurance from the Federal Housing Administration or a guaranty from the United
States Department of Veterans Affairs. As described in this Prospectus
Supplement, the amount of coverage may be limited. In addition, recovery of the
insured amounts from these agencies is dependent upon material compliance by the
originator and the servicer with applicable regulations. These regulations are
subject to interpretative uncertainties. If upon filing a claim for recovery of
a defaulted amount, it is discovered that the mortgage loan did not comply with
a regulation, the servicer may not be able to fully recover the insured amounts.
Defaults on mortgage loans either guaranteed by the Federal Housing
Administration or insured by the United States Department of Veterans Affairs
should have the same effect
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on the related certificates as a prepayment of such mortgage loans. However, in
the event that such guaranty or insurance is no longer available to provide
protection or does not cover the full amount of the loss, any losses on such
mortgage loans will be borne by the related certificateholders. See "The
Mortgage Pool--FHA Mortgage Loans and VA Mortgage Loans" in this Prospectus
Supplement.
There are risks relating to alternatives to foreclosure.
Certain of the mortgage loans will be delinquent as of the closing
date. Other mortgage loans may become delinquent after the closing date. The
servicer may either foreclose on any such mortgage loan or work out an agreement
with the mortgagor, which may involve waiving or modifying certain terms of the
mortgage loan. If the servicer extends the payment period or accepts a lesser
amount than stated in the mortgage note in satisfaction of the mortgage note,
your yield may be reduced.
There is a risk that interest payments may be insufficient to maintain
overcollateralization.
Because the weighted average of the interest rates on the mortgage
loans is expected to be higher than the weighted average of the interest rates
on the certificates, the mortgage loans are expected to generate more interest
than is needed to pay interest owed on the certificates as well as certain fees
and expenses of the Trust. After these financial obligations of the Trust are
covered, the available excess interest will be used to maintain
overcollateralization. Any remaining interest will then be used to compensate
for losses that occur on the mortgage loans. We cannot assure you, however, that
enough excess interest will be generated to maintain the overcollateralization
level required by the rating agencies. The factors described below will affect
the amount of excess interest that the mortgage loans will generate:
o Every time a mortgage loan is prepaid in full, excess interest
will be reduced because the mortgage loan will no longer be
outstanding and generating interest or, in the case of a
partial prepayment, will be generating less interest.
o Every time a mortgage loan is liquidated or written off,
excess interest will be reduced because such mortgage loans
will no longer be outstanding and generating interest.
o If the rates of delinquencies, defaults or losses on the
mortgage loans are higher than expected, excess interest will
be reduced by the amount necessary to compensate for any
shortfalls in cash available on such date to pay
certificateholders.
o The pass-through rate of the Class A-1A Certificates is based
on one-month LIBOR while all the mortgage loans in loan group
2 have rates that are adjustable based on an index that in
certain cases is different from the index used to determine
rates on the Class A-1A Certificates. As a result, interest
rates on the Class A-1A Certificates may increase relative to
interest rates on the mortgage loans in loan group 2, thus
requiring that more of the interest generated by the mortgage
loans in loan group 2 be applied to cover interest on the
Class A-1A Certificates.
There is a risk that mortgage interest rates will affect the offered
certificates.
The Class A-1A Certificates will accrue interest at a pass-through rate
based on the one-month LIBOR index plus a specified margin, but are subject to a
cap. The offered certificates (other than the Class A-1A Certificates) will
accrue interest at a fixed pass-through rate, subject to a cap. The cap on
interest paid on the Class A-1F, Class A-2F and Class A-1A Certificates will be
based on the weighted average of the interest rates on the mortgage loans in the
related loan group or in the pool, as applicable, adjusted for
overcollateralization and net of the lender-paid mortgage insurance premium and
certain expenses of the Trust. The cap on interest paid on the offered
certificates (other than the Class A-1F, Class A-2F and Class A-1A Certificates)
will be based on the weighted average of the interest rates on the mortgage
loans, adjusted for overcollateralization and net of certain expenses of the
Trust.
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The pass-through rate on the Class A-1A Certificates adjusts monthly
while the mortgage interest rates on the mortgage loans in loan group 2 are
based on various indices. Substantially all of the adjustable-rate mortgage
loans have periodic and maximum limitations on adjustments to the mortgage loan
rate. Consequently, the operation of the interest rate cap may limit increases
in the pass-through rate for extended periods in a rising interest rate
environment.
Although holders of the Class A-1A Certificates will be entitled to
receive any LIBOR carry-over amount from and to the limited extent of funds
available for such payments, there is no assurance that those funds will be
available or sufficient to pay such LIBOR carry-over amount.
If the operation of an interest rate cap limits the accrual of interest
on the offered certificates (other than the Class A-1A Certificates), holders of
those certificates will not be entitled to receive any carry-over amount and
their yield would be adversely affected.
There are risks relating to subordinate loans.
Approximately 0.59% of the mortgage loans in loan group 1 (by aggregate
principal balance as of the cut-off date) evidence a second lien that is
subordinate to the rights of the mortgagee under a first mortgage. The proceeds
from any liquidation, insurance or condemnation proceedings will be available to
satisfy the outstanding principal balance of such junior mortgage loans only to
the extent that the claims of any senior mortgage loans have been satisfied in
full, including any foreclosure costs. In circumstances where the servicer
determines that it would be uneconomical to foreclose on the related mortgaged
property, the servicer may write-off the entire outstanding principal balance of
the related mortgage loan as bad debt. The foregoing considerations will be
particularly applicable to junior mortgage loans that have high combined
loan-to-value ratios because the servicer is more likely to determine that
foreclosure would be uneconomical. You should consider the risk that to the
extent available credit enhancement does not cover losses on mortgage loans, the
holders of the certificates will bear such losses.
There are risks in holding subordinate certificates.
The protections afforded the senior certificates in this transaction
create risks for the subordinate certificates. Prior to any purchase of any
subordinate certificates, consider the following factors that may adversely
impact your yield:
o Because the subordinate certificates receive interest and
principal distributions after the related senior certificates
receive such distributions, there is a greater likelihood that
the subordinate certificates will not receive the
distributions to which they are entitled on any distribution
date.
o If a simple interest mortgage loan becomes delinquent or the
servicer determines not to advance a delinquent payment on an
actuarial mortgage loan because such amount is not recoverable
from a mortgagor, there may be a shortfall in distributions on
the certificates which will impact the subordinate
certificates.
o With respect to simple interest mortgage loans, if monthly
payments are made in any month less than 30 days after the
previous payment or shortfalls in interest collections result
from prepayments in full, there may be a shortfall in
distributions on the certificates. This will
disproportionately impact the subordinate certificates. In
addition, the portion of the shortfalls in the amount of
interest collections on actuarial mortgage loans that are
attributable to prepayments in full and are not covered by the
servicer and shortfalls in interest collections on any
mortgage loans arising from the timing of partial principal
prepayments may result in a shortfall in distributions on the
certificates, which will disproportionately impact the
subordinate certificates.
o The subordinate certificates are not expected to receive
principal distributions until, at the earliest, September
2003.
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<PAGE>
o Losses resulting from the liquidation of defaulted mortgage
loans will first reduce the level of overcollateralization, if
any, for the certificates. If there is no
overcollateralization, losses will be allocated to the
subordinate certificates. A loss allocation results in a
reduction in a certificate balance without a corresponding
distribution of cash to the holder. A lower certificate
balance will result in less interest accruing on the
certificate.
o The earlier in the transaction that a loss on a mortgage loan
occurs, the greater the impact on yield.
See "Description of the Certificates" and "Prepayment and Yield
Considerations" in this Prospectus Supplement for more detail.
There is a risk that interest payments on the mortgage loans may be insufficient
to pay interest on your certificates.
When a mortgage loan is prepaid in full, the mortgagor is charged
interest only up to the date on which payment is made, rather than for an entire
month. This may result in a shortfall in interest collections available for
payment on the next distribution date. Similarly, with respect to simple
interest mortgage loans, the mortgagor is only charged interest up to the date
on which payment is made. Therefore, if a mortgagor makes a payment on a simple
interest mortgage loan in any month less than 30 days after the previous payment
date, a shortfall in interest collections available for payment on the next
distribution date may result. The servicer is required to cover a portion of the
shortfall in interest collections that are attributable to prepayments in full
on actuarial mortgage loans, but only up to one-half of the servicing fee for
the related accrual period. The servicer is not required to cover any shortfall
in interest collections that are attributable to prepayments in full or the
timing of monthly payments on simple interest mortgage loans. If the credit
enhancement is insufficient to cover this shortfall in excess of the amount the
servicer covers, you may incur a loss.
In addition, the servicer will not cover shortfalls in interest
collections due to bankruptcy proceedings or the application of the Soldiers'
and Sailors' Civil Relief Act of 1940, as amended.
There is a risk relating to the potential inadequacy of credit enhancement for
the offered certificates.
The credit enhancement features described in the summary are intended
to enhance the likelihood that holders of the offered certificates will receive
regular payments of interest and principal.
If delinquencies or defaults occur on the mortgage loans, neither the
servicer nor any other entity will advance scheduled monthly payments of
interest and principal on delinquent or defaulted actuarial mortgage loans if
such advances are not likely to be recovered. Neither the servicer nor any other
entity will advance scheduled monthly payments of principal and interest on
simple interest mortgage loans. We cannot assure you that the applicable credit
enhancement will adequately cover any shortfalls in cash available to pay your
certificates as a result of such delinquencies or defaults.
If substantial losses occur as a result of defaults and delinquent
payments on the mortgage loans, you may suffer losses.
There is a risk because the certificates are not obligations of any entity.
The offered certificates represent an interest in the trust fund only.
No other person will insure or guarantee the offered certificates or will have
any obligation with respect to the certificates except for the obligations of
the depositor, the seller and the originator pursuant to certain limited
representations and warranties made with respect to the mortgage loans and of
the servicer with respect to its servicing obligations under the Pooling and
Servicing Agreement. No governmental agency or instrumentality will guarantee or
insure either the certificates or the underlying mortgage loans. Proceeds of the
assets included in the trust fund (including the mortgage loans) will be the
sole source of payments on the offered certificates. You will not be able to
receive money from any entity in the event that such proceeds are not enough to
make all payments provided for under the offered certificates.
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There is a risk that there may be a delay in receipt of liquidation proceeds,
and that liquidation proceeds may be less than the outstanding balance of the
mortgage loan.
Substantial delays could be encountered in connection with the
liquidation of delinquent mortgage loans. Further, liquidation expenses such as
legal fees, real estate taxes and maintenance and preservation expenses will
reduce the portion of liquidation proceeds payable to you. If a mortgaged
property fails to provide adequate security for the mortgage loan, you will
incur a loss on your investment if the credit enhancements are insufficient to
cover the loss.
There is an increased risk of loss relating to high combined loan-to-value
ratios.
Mortgage loans with higher combined loan-to-value ratios may present a
greater risk of loss than mortgage loans with combined loan-to-value ratios of
80% or below. Approximately 25.70% of the mortgage loans, representing
approximately 38.12% of the mortgage loans in loan group 1 and approximately
13.00% of the mortgage loans in loan group 2 (in each case, by aggregate
principal balance as of the cut-off date) had a combined loan-to-value ratio in
excess of 80%, and are not covered by a primary mortgage insurance policy,
insurance from the Federal Housing Administration or a guaranty from the United
States Department of Veterans Affairs.
There are risks relating to geographic concentration of the mortgage loans.
The following chart lists the states with the highest concentrations of
mortgage loans for each loan group, based on the aggregate principal balance of
the mortgage loans as of the cut-off date.
Loan Group 1 Loan Group 2
------------ ------------
New York 20.96% California 25.52%
Texas 12.04% Florida 7.99%
California 11.96% Washington 6.79%
Florida 7.21% Colorado 5.65%
Property in California may be particularly susceptible to certain types
of uninsurable hazards, such as earthquakes, hurricanes, floods, mudslides and
other natural disasters. Properties in Florida may be particularly susceptible
to certain types of uninsurable hazards such as hurricanes.
In addition, the conditions below will have a disproportionate impact
on the mortgage loans in general:
o Economic conditions in states listed above which may or may
not affect real property values may affect the ability of
mortgagors to repay their loans on time.
o Declines in the residential real estate markets in the states
listed above may reduce the values of properties located in
those states, which would result in an increase in the
loan-to-value ratios or combined loan-to-value ratios, as
applicable.
o Any increase in the market value of properties located in the
states listed above would reduce the loan-to-value ratios or
combined loan-to-value ratios and could, therefore, make
alternative sources of financing available to the mortgagors
at lower interest rates, which could result in an increased
rate of prepayment of the mortgage loans.
There are risks relating to balloon loans.
Balloon loans pose a risk because a mortgagor must make a large lump
sum payment of principal at the end of the loan term. If the mortgagor is unable
to pay the lump sum or refinance such amount, you may suffer a loss.
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Approximately 9.77% of the mortgage loans in loan group 1 and approximately
0.29% of the mortgage loans in loan group 2 (in each case, by aggregate
principal balance as of the cut-off date) are balloon loans.
The lack of a secondary market may limit your ability to sell your certificates.
The underwriters intend to make a secondary market in the certificates
they purchase, but they have no obligation to do so. There is no assurance that
such a secondary market will develop or, if it develops, that it will continue.
Consequently, you may not be able to sell your certificates readily or at prices
that will enable you to realize your desired yield. The market values of the
certificates are likely to fluctuate; these fluctuations may be significant and
could result in significant losses to you.
The secondary markets for mortgage backed securities have experienced
periods of illiquidity and can be expected to do so in the future. Illiquidity
can have a severely adverse effect on the prices of securities that are
especially sensitive to prepayment, credit, or interest rate risk, or that have
been structured to meet the investment requirements of limited categories of
investors.
Violations of federal and state laws may cause losses on your certificates.
Federal and state laws regulate the underwriting, origination,
servicing and collection of the loans. These laws have changed over time and
have become more restrictive or stringent with respect to specific activities of
the servicer and the originators. Actual or alleged violations of these federal
and state laws may, among other things:
o limit the ability of the servicer to collect principal or
interest on the mortgage loans,
o provide the mortgagors with a right to rescind the loans,
o entitle the mortgagors to refunds of amounts previously paid
or to set-off those amounts against their mortgage loan
obligations,
o result in a litigation proceeding being brought against the
Trust, and
o subject the Trust to liability for expenses, penalties and
damages resulting from the violations.
As a result, these violations or alleged violations could result in
shortfalls in the distributions due on your certificates. See "Risk
Factors--State and federal credit protection laws may limit collection of
principal and interest on the loans" in the Prospectus and "Material Legal
Aspects of the Loans" in the Prospectus. Approximately 0.66% of the mortgage
loans were originated with interest rates or fees which make them subject to the
Home Ownership and Equity Protection Act of 1994 ("High Cost Mortgage Loans")
and approximately 95.43% of the mortgage loans are not High Cost Mortgage Loans.
With respect to approximately 3.91% of the mortgage loans, the seller does not
have the data necessary to determine whether or not such mortgage loans are High
Cost Mortgage Loans. See "Risk Factors--State and federal credit protection laws
may limit collection of principal and interest on the loans" in the Prospectus.
The seller will make representations and warranties with respect to each
mortgage loan relating to compliance with federal and state laws at the time of
origination. The seller will be required to repurchase or replace any mortgage
loan that is not originated or serviced in compliance with all federal, state or
local laws. However, repurchase or replacement of the affected mortgage loans
will not necessarily fully compensate the Trust or certificateholders for any
losses arising from the related breach. For example, if a mortgagor brings legal
action against the Trust, the Trustee will be entitled to indemnification from
Trust property for its defense costs. The seller will neither indemnify the
Trust nor have any other responsibility to the Trust or certificateholders
(other than to repurchase or replace such loan) for any losses and liabilities
the Trust may suffer with respect to mortgage loans as to which the
representation as to compliance with laws is breached. As a result, shortfalls
in the distributions due on your certificates could occur.
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In the event the seller is not able to repurchase or replace defective mortgage
loans you may suffer losses on your certificates.
The seller will make various representations and warranties related to
the mortgage loans.
If the seller fails to cure a material breach of its representations
and warranties with respect to any mortgage loan in a timely manner, the seller
will be required to repurchase or replace the defective loan. See "The Pooling
and Servicing Agreement--Assignment of the Mortgage Loans" in this Prospectus
Supplement. In the event that the seller is not able to repurchase or replace
any defective mortgage loans at the date such action is required, for financial
or other reasons, you may suffer losses on your certificates. The inability of
the seller to repurchase or replace defective mortgage loans would likely cause
the mortgage loans to experience higher rates of delinquencies, defaults and
losses. As a result, shortfalls in the distributions due on your certificates
could occur.
Failure of the servicer to pay the premium due under the primary mortgage
insurance policy may result in a loss on the certificates.
Pursuant to the Pooling and Servicing Agreement, the servicer is
obligated to pay the premium due under the primary mortgage insurance policy
with respect to certain mortgage loans. The servicer's failure to pay such
premium, due to financial or other reasons, may result in the cancellation of
the primary mortgage insurance policy or failure of the insurer to pay amounts
otherwise due with respect to defaulted mortgage loans covered under such
policy. This will have an adverse affect on your certificates. See "The Mortgage
Pool--Primary Mortgage Insurance" in this Prospectus Supplement.
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THE MORTGAGE POOL
Credit-Based Asset Servicing and Securitization LLC (the "Seller")
provided the information set forth in the following paragraphs. None of the
Depositor, the Servicer, the Trustee, the Underwriters or any of their
respective affiliates have made or will make any representation as to the
accuracy or completeness of such information.
Certain information with respect to the Mortgage Loans to be included
in each Loan Group is set forth herein. Prior to the Closing Date, Mortgage
Loans may be removed from a Loan Group and other Mortgage Loans may be
substituted therefor. The Seller believes that the information set forth herein
with respect to each Loan Group as presently constituted is representative of
the characteristics of each Loan Group as it will be constituted at the Closing
Date, although certain characteristics of the Mortgage Loans in a Loan Group may
vary.
General
The assets included in the Trust (the "Trust Fund") will consist of a
pool of 1,842 closed-end, fixed-rate and adjustable-rate mortgage loans (the
"Mortgage Pool") having original terms to maturity ranging from 36 months to 512
months (the "Mortgage Loans") and an aggregate principal balance as of August 1,
2000 (the "Cut-off Date") of $176,277,505.39. All Mortgage Loan statistics set
forth herein are based on principal balances, interest rates, terms to maturity,
mortgage loan counts and similar statistics as of the Cut-off Date. All weighted
averages specified herein are based on the principal balances of the Mortgage
Loans in the related Loan Group or sub-group, as applicable, as of the Cut-off
Date, as adjusted for the principal payments received or advanced on or before
such date (each, a "Cut-off Date Principal Balance"). The "Principal Balance" of
a Mortgage Loan, as of any date, is equal to the principal balance of such
Mortgage Loan at its origination, less the sum of scheduled and unscheduled
payments and other recoveries in respect of principal made or advanced on such
Mortgage Loan. References to percentages of the Mortgage Loans mean percentages
based on the aggregate of the Cut-off Date Principal Balances of the Mortgage
Loans in the related Loan Group, unless otherwise specified. The "Pool Balance"
is equal to the aggregate of the Principal Balances of the Mortgage Loans in
both Loan Groups.
The Depositor will purchase the Mortgage Loans from the Seller pursuant
to the Mortgage Loan Purchase Agreement (the "Mortgage Loan Purchase
Agreement"), dated as of the Cut-off Date, between the Seller and the Depositor.
Pursuant to the Pooling and Servicing Agreement, the Depositor will cause the
Mortgage Loans to be assigned to the Trustee for the benefit of the
Certificateholders. See "The Pooling and Servicing Agreement" herein.
Each of the Mortgage Loans in the Mortgage Pool was selected from the
Seller's portfolio of mortgage loans. The Seller acquired the Mortgage Loans in
the secondary market in the ordinary course of its business and re-underwrote
the Mortgage Loans in accordance with its underwriting standards as described in
"Underwriting Standards" in this Prospectus Supplement. The Mortgage Loans in
the Mortgage Pool were originated or acquired by various entities. Approximately
19.72%, 16.75% and 13.23% of the Mortgage Loans in Loan Group 1 were originated
or acquired by Golden National Mortgage Banking Corp., Ocwen Financial Services,
Inc., and South Plains Mortgage, respectively. Approximately 36.38%, 24.07%,
12.29%, and 11.93% of the Mortgage Loans in Loan Group 2 were originated or
acquired by Aames Capital Corporation, Long Beach Mortgage Company, Ocwen
Financial Services, Inc., and United PanAm Mortgage, a division of Pan American
Bank, FSB, respectively.
Under the Pooling and Servicing Agreement, the Seller will make certain
representations and warranties to the Trustee relating to, among other things,
the due execution and enforceability of the Pooling and Servicing Agreement, its
title to the Mortgage Loans and certain characteristics of the Mortgage Loans
and, subject to certain limitations, will be obligated to repurchase or
substitute a similar mortgage loan for any Mortgage Loan as to which there
exists deficient documentation or an uncured breach of any such representation
or warranty, if such breach of any such representation or warranty materially
and adversely affects the Certificateholders' interests in such Mortgage Loan.
The Depositor will make no representations or warranties with respect to the
Mortgage Loans and will have no obligation to repurchase or substitute for
Mortgage Loans with deficient documentation or that are otherwise defective. The
Seller is selling the Mortgage Loans without recourse and will have no
obligation with respect to the Certificates in its capacity as Seller other than
the repurchase or substitution obligations described above.
S-20
<PAGE>
The Mortgage Pool will consist of two loan groups ("Loan Group 1" and
"Loan Group 2," respectively, and each, a "Loan Group"). Loan Group 1 is further
divided into two sub-groups ("Sub-group 1A" and "Sub-group 1B"). The Mortgage
Loans in Sub-group 1A (the "Sub-group 1A Mortgage Loans") consist of 276 FHA
Insured, FHAUN and VA guaranteed fixed-rate Mortgage Loans with an aggregate
principal balance (the "Sub-group 1A Loan Balance") of approximately $19,649,399
as of the Cut-off Date. The Mortgage Loans in Sub-group 1B (the "Sub-group 1B
Mortgage Loans" and, together with the Sub-group 1A Mortgage Loans, the "Group 1
Mortgage Loans") consist of 804 fixed-rate Mortgage Loans with an aggregate
principal balance (the "Sub-group 1B Loan Balance") of approximately $69,471,099
as of the Cut-off Date. The Mortgage Loans in Loan Group 2 (the "Group 2
Mortgage Loans") consist of 762 adjustable Mortgage Loans with an aggregate
principal balance (the "Group 2 Loan Balance") of approximately $87,157,008 as
of the Cut-off Date.
Each Loan Group consists of Performing Mortgage Loans, Sub-Performing
Mortgage Loans and Re-Performing Mortgage Loans, each as defined below:
o A "Performing Mortgage Loan" is a Mortgage Loan pursuant to
which no payment due under the related mortgage note (or any
modification thereto) prior to the Cut-off Date, is 30 or more
days Delinquent.
o A "Sub-Performing Mortgage Loan" is a Mortgage Loan (that
might be a Forbearance Plan Mortgage Loan or a Bankruptcy Plan
Mortgage Loan) pursuant to which a payment due prior to the
Cut-off Date under the terms of the related mortgage note (or
any modification thereto), is at least 30 but not more than 89
days Delinquent. Certain Sub-Performing Mortgage Loans have
been modified in writing and are also characterized as
follows:
(a) If a Sub-Performing Mortgage Loan is a "Forbearance
Plan Mortgage Loan", the related mortgagor must make
monthly payments ("Modified Scheduled Payments") in
an amount at least equal to the sum of (i) the amount
of the monthly scheduled payment of principal and
interest determined in accordance with such Mortgage
Loan's original amortization schedule ("Regular
Scheduled Payments") plus (ii) an additional amount
to be applied to pay down the total amount of
scheduled monthly payments due thereon on or before
the Cut-off Date but not received prior to the
Cut-off Date plus the aggregate amount of tax and
insurance advances made with respect to such Mortgage
Loan to the extent remaining outstanding as of the
Cut-off Date.
(b) If a Sub-Performing Mortgage Loan is a "Bankruptcy
Plan Mortgage Loan," the related mortgagor defaulted
and, after default, became the subject of a case
under Title 11 of the United States Code (the
"Bankruptcy Code") and, as of the Cut-off Date, had a
confirmed bankruptcy plan. Each such bankruptcy plan
generally requires the related mortgagor to make
Modified Scheduled Payments in an amount at least
equal to (i) the Regular Scheduled Payment plus (ii)
an additional amount sufficient to pay down overdue
amounts resulting from the period of default,
generally over a period of three to five years from
the commencement of such bankruptcy plan.
o A "Re-Performing Mortgage Loan" is a Mortgage Loan (that might
be a Forbearance Plan Mortgage Loan or a Bankruptcy Plan
Mortgage Loan) which had defaulted in the past and which is
currently at least 90 days Delinquent with respect to certain
Regular Scheduled Payments but which satisfies one of the
following criteria (the "Re-Performance Test"):
(a) the mortgagor has made at least three aggregate
Regular Scheduled Payments in the three calendar
months preceding the Cut-off Date (regardless of
either the timing of receipt of such payments or the
payment history of such loans prior to May 1, 2000),
or
(b) the mortgagor has made at least four aggregate
Regular Scheduled Payments in the four calendar
months preceding the Cut-off Date (regardless of
either the timing of receipt of such payments or the
payment history of such loans prior to April 1,
2000), or
S-21
<PAGE>
(c) the mortgagor has made at least five aggregate
Regular Scheduled Payments in the five calendar
months preceding the Cut-off Date (regardless of
either the timing of receipt of such payments or the
payment history of such loans prior to March 1,
2000).
A Mortgage Loan is "Delinquent" if the scheduled monthly payment of
principal and interest on such Mortgage Loan which is payable by the related
mortgagor under the related Mortgage Note (the "Monthly Payment") due on a due
date is not paid by the close of business on the next scheduled due date for
such Mortgage Loan. Thus, a Mortgage Loan for which the mortgagor failed to make
the Monthly Payment due on July 1, 2000 will be reported as Delinquent on August
2, 2000 if the payment is not made by the close of business on August 1, 2000.
With respect to certain Delinquent Mortgage Loans, the total amount of
scheduled Monthly Payments due thereon on or before the Cut-off Date but not
received prior to the Cut-off Date, together with any outstanding servicing
advances on such Mortgage Loans, is referred to as the "Arrearage." The Servicer
has previously made advances in respect of the Arrearages. Any Arrearage will
not be included as part of the Trust Fund and, accordingly, payments with
respect to Arrearage will not be payable to the Certificateholders as and when
received. However, the Servicer shall be required to make servicing advances on
Delinquent Mortgage Loans and make advances of delinquent payments of principal
and interest on Delinquent Mortgage Loans (other than Simple Interest Mortgage
Loans or REO Properties), each to the extent such advances are deemed
recoverable, until such Mortgage Loans become current or an REO Property.
Loan Group 1 Mortgage Loans Statistics
Loan Group 1 consists of FHA insured Mortgage Loans, FHAUN Mortgage
Loans, VA guaranteed Mortgage Loans and conventional fixed rate Mortgage Loans.
The Loan Group 1 Loan Balance as of the Cut-off Date is equal to approximately
$89,120,498 and the Arrearage is equal to approximately $4,722,767. The Loan
Group 1 Mortgage Loans have original terms to maturity ranging from 2 to 403
months. The following statistical information, unless otherwise specified, is
based upon the Loan Group 1 Loan Balance as of the Cut-off Date.
The Loan Group 1 Mortgage Loans are secured by mortgages, deeds of
trust or other similar security instruments (each, a "Mortgage") creating first
or second liens on one- to four-family residential properties consisting of
detached or semi-detached one- to four-family dwelling units and individual
condominium units (each, a "Mortgaged Property"). Approximately 38.12% of the
Loan Group 1 Mortgage Loans have a Combined Loan-to-Value Ratio in excess of 80%
and do not have primary mortgage insurance. There can be no assurance that the
Combined Loan-to-Value Ratio of any Loan Group 1 Mortgage Loan determined at any
time after origination is less than or equal to its original Combined
Loan-to-Value Ratio. Of the Loan Group 1 Mortgage Loans, 87.06% have scheduled
Monthly Payments due on the first day of the month (with respect to each
Mortgage Loan, a "Due Date").
Approximately 15.52% and 2.13% of the Loan Group 1 Mortgage Loans are
FHA and FHAUN Mortgage Loans, respectively. Approximately 4.39% of the Loan
Group 1 Mortgage Loans are VA Loans. See "The Mortgage Pool--FHA Mortgage Loans
and VA Mortgage Loans" in this Prospectus Supplement.
Approximately 66.74% of the Loan Group 1 Mortgage Loans are Performing
Mortgage Loans. Approximately 8.83% of the Loan Group 1 Mortgage Loans are
Sub-Performing Mortgage Loans, including 1.16% (of the Loan Group 1 Loan
Balance) that are Forbearance Plan Mortgage Loans and 0.99% (of the Loan Group 1
Loan Balance) that are Bankruptcy Plan Mortgage Loans. Of the Mortgage Loans in
Loan Group 1, approximately 5.91% are 30 to 59 days past due. Approximately
24.44% of the Loan Group 1 Mortgage Loans are Re-Performing Mortgage Loans,
including 2.37% (of the Loan Group 1 Loan Balance) that are Forbearance Plan
Mortgage Loans and 8.71% (of the Loan Group 1 Loan Balance) that are Bankruptcy
Plan Mortgage Loans.
Approximately 20.22% of the Loan Group 1 Mortgage Loans provide for
payment by the mortgagor of a prepayment charge in limited circumstances on
certain prepayments.
Approximately 9.77% of the Loan Group 1 Mortgage Loans are Balloon
Loans and 13.23% of the Loan Group 1 Mortgage Loans are Owner-Financed Mortgage
Loans.
S-22
<PAGE>
Each Loan Group 1 Mortgage Loan accrues interest at a per annum rate
(the "Mortgage Interest Rate") of not less than 6.000% per annum and not more
than 17.250% per annum and as of the Cut-off Date the weighted average Mortgage
Interest Rate of the Loan Group 1 Mortgage Loans was approximately 9.532% per
annum.
The weighted average remaining term to maturity of the Loan Group 1
Mortgage Loans will be approximately 288 months as of the Cut-off Date. None of
the Loan Group 1 Mortgage Loans had a first Due Date prior to March 1, 1974 or
after July 17, 2000 or will have a remaining term to maturity of less than 2
months or greater than 403 months as of the Cut-off Date. The month of the
latest maturity date of any Loan Group 1 Mortgage Loan is February 2033.
The average Principal Balance of the Loan Group 1 Mortgage Loans at
origination was approximately $86,122. The average Cut-off Date Principal
Balance of the Loan Group 1 Mortgage Loans was approximately $82,519.
Each Loan Group 1 Mortgage Loan had a Net Mortgage Interest Rate of not
less than 5.500% per annum, and not more than 16.750% per annum and as of the
Cut-off Date, the weighted average Net Mortgage Interest Rate of the Loan Group
1 Mortgage Loans was approximately 8.932%.
Approximately 0.59% of the Loan Group 1 Mortgage Loans are secured by a
second Mortgage that is junior to a first mortgage lien (a "First Lien") on the
related Mortgaged Property. No Loan Group 1 Mortgage Loan had a Cut-off Date
Principal Balance of greater than approximately $643,950 or less than
approximately $2,233.
The Loan Group 1 Mortgage Loans are expected to have the following
characteristics as of the Cut-off Date (the sum in any column may not equal the
total indicated due to rounding):
S-23
<PAGE>
Cut-off Date Principal Balances of the Loan Group 1 Mortgage Loans(1)
<TABLE>
<CAPTION>
Principal Balance % of Aggregate Principal Balance
Outstanding as of of Loan Group 1 Outstanding as of
Principal Balance ($) Number of Mortgage Loans the Cut-off Date the Cut-off Date
--------------------- ------------------------ ---------------- ---------------------------------
<S> <C> <C> <C>
0 to 25,000.00 112 $2,017,219.43 2.26%
25,000.01 to 50,000.00 294 11,118,300.52 12.48
50,000.01 to 75,000.00 264 16,190,196.86 18.17
75,000.01 to 100,000.00 146 12,606,635.92 14.15
100,000.01 to 150,000.00 129 15,813,374.93 17.74
150,000.01 to 175,000.00 35 5,669,038.57 6.36
175,000.01 to 200,000.00 21 3,933,884.93 4.41
200,000.01 to 250,000.00 37 8,276,796.37 9.29
250,000.01 to 300,000.00 21 5,635,537.04 6.32
300,000.01 to 350,000.00 11 3,496,359.88 3.92
350,000.01 to 400,000.00 4 1,517,920.43 1.70
400,000.01 to 450,000.00 3 1,248,484.23 1.40
450,000.01 to 500,000.00 2 952,798.32 1.07
600,000.00 to 750,000.00 1 643,950.20 0.72
------------------------ ---------------------------------------------------------
Total 1,080 $89,120,497.63 100.00%
</TABLE>
------------------
(1) The average Cut-off Date Principal Balance of the Loan Group 1 Mortgage
Loans was approximately $82,519.
S-24
<PAGE>
Original Terms to Maturity of the Loan Group 1 Mortgage Loans (1)
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 1 Outstanding as of
Original Term (months) Loans the Cut-off Date the Cut-off Date
----------------- ----------------------------------------------------------------------
<S> <C> <C> <C>
24 to 36 1 $32,922.88 0.04%
37 to 48 1 19,293.81 0.02
49 to 60 6 324,617.78 0.36
61 to 72 5 69,840.59 0.08
73 to 84 8 477,270.86 0.54
85 to 96 3 57,624.30 0.06
97 to 108 4 123,066.75 0.14
109 to 120 25 884,354.18 0.99
121 to 132 5 91,990.09 0.10
133 to 144 3 57,036.78 0.06
145 to 156 4 88,783.19 0.10
157 to 168 3 163,986.91 0.18
169 to 180 197 13,136,504.26 14.74
181 to 192 6 214,151.95 0.24
193 to 204 4 131,093.47 0.15
205 to 216 3 114,421.65 0.13
229 to 240 60 3,076,933.03 3.45
241 to 252 2 64,461.12 0.07
253 to 264 2 112,447.16 0.13
289 to 300 17 988,154.19 1.11
301 to 312 2 157,884.98 0.18
325 to 336 1 122,569.54 0.14
337 to 348 11 536,751.91 0.60
349 to 360 704 67,791,917.59 76.07
361 to 372 1 230,256.71 0.26
481 to 492 1 27,902.31 0.03
505 to 516 1 24,259.64 0.03
----------------- ----------------------------------------------------------------------
Total 1,080 $89,120,497.63 100.00%
</TABLE>
----------
(1) The weighted average original term of the Loan Group 1 Mortgage Loans
was approximately 320 months.
S-25
<PAGE>
Property Types of the Loan Group 1 Mortgage Loans
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 1 Outstanding as of
Property Type Loans the Cut-off Date the Cut-off Date
------------------------------------- ----------- ----------------- ---------------------------------
<S> <C> <C> <C>
2-Family 46 $6,983,858.48 7.84%
3-Family 13 1,709,536.33 1.92
4-Family 4 717,100.11 0.80
Condo 28 1,738,926.89 1.95
High Rise Condo 1 31,436.32 0.04
Manufactured 4 238,683.57 0.27
Multi Family 5 410,219.50 0.46
Mobile Home 28 1,340,811.10 1.50
Mixed Use 1 99,036.42 0.11
PUD 16 2,837,529.60 3.18
Single Family 925 72,650,052.95 81.52
Townhouse 9 363,306.36 0.41
----------- ----------------- ---------------------------------
Total 1,080 $89,120,497.63 100.00%
</TABLE>
----------
(1) PUD refers to a Planned Unit Development.
Occupancy Status of the Loan Group 1 Mortgage Loans(1)
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 1 Outstanding as of
Occupancy Status Loans the Cut-off Date the Cut-off Date
------------------------------------ ----------- -------------------- ----------------------------------
<S> <C> <C> <C>
Investor 69 $3,862,730.35 4.33%
Primary 999 84,758,226.11 95.11
Secondary 12 499,541.17 0.56
----------- -------------------- ----------------------------------
Total 1,080 $89,120,497.63 100.00%
</TABLE>
----------
(1) Based on a representation made by the borrower at the time of origination.
Purpose of the Loan Group 1 Mortgage Loans
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 1 Outstanding as of
Purpose Loans the Cut-off Date the Cut-off Date
------------------------------------ ------------ ----------------- ---------------------------------
<S> <C> <C> <C>
Cash Out 170 $15,523,228.14 17.42%
Purchase 794 62,965,557.20 70.65
Refinance 116 10,631,712.29 11.93
------------ ----------------- ---------------------------------
Total 1,080 $89,120,497.63 100.00%
</TABLE>
S-26
<PAGE>
Mortgage Interest Rates of the Loan Group 1 Mortgage Loans(1)
<TABLE>
<CAPTION>
Principal Balance % of Aggregate Principal
Outstanding as of the Balance of Loan Group 1 Outstanding
Mortgage Interest Rate (%) Number of Mortgage Loans Cut-off Date as of the Cut-off Date
-------------------------- ------------------------ --------------------- -----------------------------------
<S> <C> <C> <C>
5.500% to 6.000% 8 $435,335.31 0.49%
6.001% to 6.500% 3 228,153.84 0.26
6.501% to 7.000% 30 3,250,171.80 3.65
7.001% to 7.500% 38 3,710,700.51 4.16
7.501% to 7.750% 12 1,361,901.88 1.53
7.751% to 8.000% 139 10,720,106.39 12.03
8.001% to 8.250% 15 1,558,739.56 1.75
8.251% to 8.500% 123 8,229,701.76 9.23
8.501% to 8.750% 15 1,699,624.32 1.91
8.751% to 9.000% 54 4,517,846.46 5.07
9.001% to 9.250% 15 1,989,094.02 2.23
9.251% to 9.500% 77 8,417,438.12 9.45
9.501% to 9.750% 35 5,256,552.15 5.90
9.751% to 10.000% 127 9,251,091.14 10.38
10.001% to 10.250% 34 3,869,421.12 4.34
10.251% to 10.500% 63 5,480,797.34 6.15
10.501% to 10.750% 27 2,362,293.65 2.65
10.751% to 11.000% 47 4,300,022.55 4.82
11.001% to 11.250% 15 1,056,267.84 1.19
11.251% to 11.500% 82 4,452,068.57 5.00
11.501% to 11.750% 17 1,122,988.48 1.26
11.751% to 12.000% 32 1,823,449.53 2.05
12.001% to 12.250% 7 515,402.18 0.58
12.251% to 12.500% 10 581,477.06 0.65
12.501% to 12.750% 9 860,529.41 0.97
12.751% to 13.000% 6 477,140.41 0.54
13.001% to 13.250% 6 254,809.62 0.29
13.251% to 13.500% 11 456,591.66 0.51
13.501% to 13.750% 1 69,047.77 0.08
13.751% to 14.000% 3 78,683.27 0.09
14.001% to 14.250% 1 29,161.82 0.03
14.251% to 14.500% 3 189,597.81 0.21
14.501% to 14.750% 3 80,250.52 0.09
14.751% to 15.000% 3 77,940.65 0.09
15.001% to 15.250% 1 35,923.36 0.04
15.251% to 15.500% 2 95,247.47 0.11
15.751% to 16.000% 2 34,533.27 0.04
16.001% to 16.250% 1 105,459.32 0.12
16.501% to 16.750% 1 32,101.69 0.04
17.000% to 17.250% 2 52,834.00 0.06
------------------------ --------------------- -----------------------------------
Total 1,080 $89,120,497.63 100.00%
</TABLE>
(1) The weighted average Mortgage Interest Rate of the Loan Group 1
Mortgage Loans as of the Cut-off Date was approximately 9.532% per
annum.
S-27
<PAGE>
Combined Loan-to-Value of the Loan Group 1 Mortgage Loans(1)
<TABLE>
<CAPTION>
% of Aggregate Principal Balance of Loan
Number of Mortgage Principal Balance Outstanding Group 1 Outstanding as of
Combined Loan-to-Value (%) Loans as of the Cut-off Date the Cut-off Date
-------------------------- ------------------ ----------------------------- ----------------------------------------
<S> <C> <C> <C>
10.000 to 15.000 2 $49,523.72 0.06%
15.001 to 20.000 5 103,779.70 0.12
20.001 to 25.000 2 66,195.67 0.07
25.001 to 30.000 4 222,129.57 0.25
30.001 to 35.000 5 94,680.45 0.11
35.001 to 40.000 12 312,528.61 0.35
40.001 to 45.000 11 389,305.43 0.44
45.001 to 50.000 9 341,317.16 0.38
50.001 to 55.000 14 499,828.72 0.56
55.001 to 60.000 29 1,767,755.44 1.98
60.001 to 65.000 25 1,813,619.17 2.04
65.001 to 70.000 57 3,894,258.34 4.37
70.001 to 75.000 77 7,070,379.27 7.93
75.001 to 80.000 114 10,060,919.92 11.29
80.001 to 85.000 135 11,385,703.61 12.78
85.001 to 90.000 113 9,599,357.42 10.77
90.001 to 95.000 205 17,173,641.60 19.27
95.001 to 100.000 227 21,878,845.77 24.55
100.001 to 105.000 21 1,406,469.54 1.58
105.001 to 110.000 9 677,007.05 0.76
110.001 to 115.000 2 149,084.37 0.17
115.001 to 120.000 2 164,167.10 0.18
------------------ ----------------------------- ----------------------------------------
Total 1,080 $89,120,497.63 100.00%
</TABLE>
----------
(1) The weighted average Combined Loan-to-Value Ratio of the Loan Group 1
Mortgage Loans as of the Cut-off Date was approximately 85.75%.
The "Combined Loan-to-Value Ratio" of a Mortgage Loan shall generally
mean the ratio, expressed as a percentage of (i) the sum of (a) the principal
amount of the Mortgage Loan plus (b) the outstanding balance of the First Lien,
if any, of the Mortgage Loan over (ii) the appraised value of the related
Mortgaged Property at origination or the sale price, if the appraised value is
not available.
S-28
<PAGE>
Geographic Distribution of the Loan Group 1 Mortgage Loans(1)
<TABLE>
<CAPTION>
% of Aggregate Principal Balance of
Number of Principal Balance Outstanding Loan Group 1 Outstanding as
Location Mortgage Loans as of the Cut-off Date of the Cut-off Date
-------- -------------- ----------------------------- -----------------------------------
<S> <C> <C> <C>
Alabama 29 $1,378,354.51 1.55%
Arizona 21 1,097,977.32 1.23
Arkansas 5 222,377.18 0.25
California 96 10,662,210.48 11.96
Colorado 10 1,439,058.55 1.61
Connecticut 8 851,525.46 0.96
Delaware 3 204,423.60 0.23
Florida 91 6,425,126.89 7.21
Georgia 33 3,131,388.16 3.51
Hawaii 1 125,222.99 0.14
Idaho 2 163,445.01 0.18
Illinois 23 2,247,723.87 2.52
Indiana 15 975,153.48 1.09
Iowa 3 143,057.07 0.16
Kansas 5 237,021.95 0.27
Kentucky 9 462,046.54 0.52
Louisiana 19 1,373,580.37 1.54
Maine 2 96,570.19 0.11
Maryland 32 3,147,876.41 3.53
Massachusetts 15 1,894,582.63 2.13
Michigan 38 1,991,477.00 2.23
Minnesota 3 237,518.90 0.27
Mississippi 8 546,728.19 0.61
Missouri 14 806,349.58 0.90
Montana 1 101,779.14 0.11
Nebraska 1 14,633.78 0.02
Nevada 8 833,381.37 0.94
New Hampshire 3 193,312.21 0.22
New Jersey 30 3,437,770.68 3.86
New Mexico 3 437,419.64 0.49
New York 115 18,678,293.87 20.96
North Carolina 21 1,261,931.86 1.42
Ohio 33 1,894,835.77 2.13
Oklahoma 17 676,792.32 0.76
Oregon 6 780,537.99 0.88
Pennsylvania 35 2,007,131.88 2.25
Puerto Rico 4 188,102.00 0.21
Rhode Island 6 437,402.75 0.49
South Carolina 16 1,114,095.56 1.25
South Dakota 1 27,013.59 0.03
Tennessee 27 1,661,998.15 1.86
Texas 217 10,726,996.22 12.04
Utah 5 472,826.02 0.53
Vermont 1 61,719.64 0.07
Virginia 14 982,311.75 1.10
Washington 23 2,819,546.75 3.16
West Virginia 3 120,598.20 0.14
Wisconsin 5 329,270.16 0.37
-------------- ----------------------------- -----------------------------------
Total 1,080 $89,120,497.63 100.00%
</TABLE>
----------
(1) The greatest ZIP Code geographic concentration of the Loan Group 1
Mortgage Loans, by Loan Group 1 Loan Balance as of the Cut-off Date,
was approximately 1.34% in the 11432 ZIP Code, located in New York.
S-29
<PAGE>
Documentation Levels of the Loan Group 1 Mortgage Loans(1)
<TABLE>
<CAPTION>
Number of Mortgage Principal Balance Outstanding as % of Aggregate Principal Balance of Loan Group 1
Documentation Level Loans of the Cut-off Date Outstanding as of the Cut-off Date
------------------- ------------------ -------------------------------- ------------------------------------------------
<S> <C> <C> <C>
Alternate 111 $9,658,339.18 10.84%
Full 542 48,888,392.69 54.86
Income Stated 38 5,978,009.34 6.71
Limited 97 10,611,502.39 11.90
Missing 59 3,779,779.45 4.24
No Documentation 233 10,204,474.58 11.45
------------------ -------------------------------- ------------------------------------------------
1,080 $89,120,497.63 100.00%
</TABLE>
----------
(1) For a description of each documentation level, see "Underwriting
Standards" in this Prospectus Supplement.
Status of the Loan Group 1 Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate Principal Balance
Principal Balance Outstanding of Loan Group 1 Outstanding
Status Number of Mortgage Loans as of the Cut-off Date as of the Cut-off Date
---------------- ------------------------ ----------------------------- --------------------------------
<S> <C> <C> <C>
30 Days Past Due 74 $5,268,001.61 5.91%
60 Days Past Due 36 2,596,908.91 2.91
Current 667 59,475,290.91 66.74
Reperforming 303 21,780,296.20 24.44
------------------------ ----------------------------- --------------------------------
Total 1,080 $89,120,497.63 100.00%
</TABLE>
Sub-group 1A Mortgage Loans Statistics
Sub-group 1A consists of FHA, FHAUN and VA Mortgage Loans. The
Sub-group 1A Loan Balance as of the Cut-off Date is equal to approximately
$19,649,399 and the Arrearage is equal to approximately $1,977,261. The
Sub-group 1A Mortgage Loans have original terms to maturity ranging from 180 to
360 months. The following statistical information, unless otherwise specified,
is based upon the Sub-group 1A Loan Balance as of the Cut-off Date.
The Sub-group 1A Mortgage Loans are secured by Mortgages creating first
or second liens on the related Mortgaged Properties. Approximately 9.49% of the
Sub-group 1A Mortgage Loans have a Combined Loan-to-Value Ratio in excess of 80%
and do not have primary mortgage insurance. There can be no assurance that the
Combined Loan-to-Value Ratio of any Sub-group 1A Mortgage Loan determined at any
time after origination is less than or equal to its original Combined
Loan-to-Value Ratio. Of the Sub-group 1A Mortgage Loans, 99.73% have a Due Date
on the first day of the month.
Approximately 70.44% of the Sub-group 1A Mortgage Loans are FHA
Mortgage Loans, approximately 19.93% of the Sub-group 1A Mortgage Loans are VA
Mortgage Loans and approximately 9.67% of the Sub-group 1A Mortgage Loans are
FHAUN Mortgage Loans. See "The Mortgage Pool--FHA Mortgage Loans and VA Mortgage
Loans" in this Prospectus Supplement.
Approximately 88.85% of the Sub-group 1A Mortgage Loans are Performing
or Reperforming Mortgage Loans. Approximately 11.15% of the Sub-group 1A
Mortgage Loans are Sub-Performing Mortgage Loans, including 2.63% (of the
Sub-group 1A Loan Balance) that are Forbearance Plan Mortgage Loans and 4.48%
(of the Sub-group 1A Loan Balance) that are Bankruptcy Plan Mortgage Loans. Of
the Mortgage Loans in Sub-group 1A, approximately 5.50% are 30 to 59 days past
due. Approximately 70.17% of the Sub-group 1A Mortgage Loans are Re-Performing
Mortgage Loans, including 8.54% (of the Sub-group 1A Loan Balance) that are
Forbearance Plan Mortgage Loans and 36.35% (of the Sub-group 1A Loan Balance)
that are Bankruptcy Plan Mortgage Loans.
S-30
<PAGE>
Of the Sub-group 1A Mortgage Loans, 0.33% provide for payment by the
mortgagor of a prepayment charge in limited circumstances on certain
prepayments.
None of the Sub-group 1A Mortgage Loans are Balloon Loans and none of
the Sub-group 1A Mortgage Loans are Owner-Financed Mortgage Loans.
Each Sub-group 1A Mortgage Loan accrues interest at a Mortgage Interest
Rate of not less than 6.000% per annum and not more than 10.500% per annum and
as of the Cut-off Date the weighted average Mortgage Interest Rate of the
Sub-group 1A Mortgage Loans was approximately 8.268% per annum.
The weighted average remaining term to maturity of the Sub-group 1A
Mortgage Loans will be approximately 295 months as of the Cut-off Date. None of
the Sub-group 1A Mortgage Loans had a first Due Date prior to March 1, 1974 or
after July 1, 2000 or will have a remaining term to maturity of less than 17
months or greater than 358 months as of the Cut-off Date. The month of the
latest maturity date of any Sub-group 1A Mortgage Loan is June 1, 2030.
The average Principal Balance of the Sub-group 1A Mortgage Loans at
origination was approximately $76,109. The average Cut-off Date Principal
Balance of the Sub-group 1A Mortgage Loans was approximately $71,193.
Each Sub-group 1A Mortgage Loan had a Net Mortgage Interest Rate of not
less than 5.500% per annum, and not more than 10.000% per annum and as of the
Cut-off Date, the weighted average Net Mortgage Interest Rate of the Sub-group
1A Mortgage Loans was approximately 7.768%.
None of the Sub-group 1A Mortgage Loans are secured by a second
Mortgage that is junior to a First Lien on the related Mortgaged Property. No
Sub-group 1A Mortgage Loan had a Cut-off Date Principal Balance of greater than
approximately $246,337 or less than approximately $7,158.
Sub-group 1B Mortgage Loan Statistics
Sub-group 1B consists of fixed-rate Mortgage Loans. The Sub-group 1B
Loan Balance as of the Cut-off Date is equal to approximately $69,471,099 and
the Arrearage is equal to approximately $2,745,507. The Sub-group 1B Mortgage
Loans have original terms to maturity ranging from 36 to 512 months. The
following statistical information, unless otherwise specified, is based upon the
Sub-group 1B Loan Balance as of the Cut-off Date.
The Sub-group 1B Mortgage Loans are secured by Mortgages creating first
or second liens on the related Mortgaged Properties. Approximately 46.22% of the
Sub-group 1B Mortgage Loans have a Combined Loan-to-Value Ratio in excess of 80%
and do not have primary mortgage insurance. There can be no assurance that the
Combined Loan-to-Value Ratio of any Sub-group 1B Mortgage Loan determined at any
time after origination is less than or equal to its original Combined
Loan-to-Value Ratio. Approximately 83.48% of the Sub-group 1B Mortgage Loans
have scheduled Monthly Payments due on the Due Date.
Approximately 91.83% of the Sub-group 1B Mortgage Loans are Performing
or Reperforming Mortgage Loans. Approximately 8.17% of the Sub-group 1B Mortgage
Loans are Sub-Performing Mortgage Loans, including 0.75% (of the Sub-group 1B
Loan Balance) that are Forbearance Plan Mortgage Loans. Of the Mortgage Loans in
Sub-group 1B, approximately 6.03% are 30 to 59 days past due and approximately
2.14% are 60 to 89 days or more days past due. Approximately 11.50% of the
Sub-group 1B Mortgage Loans are Re-Performing Mortgage Loans, including 0.63%
(of the Sub-group 1B Loan Balance) that are Forbearance Plan Mortgage Loans and
0.89% (of the Sub-group 1B Loan Balance) that are Bankruptcy Plan Mortgage
Loans.
Approximately 25.85% of the Sub-group 1B Mortgage Loans provide for
payment by the Mortgagor of a prepayment charge in limited circumstances on
certain prepayments. No such prepayment charge will be distributed to the
holders of the Offered Certificates.
S-31
<PAGE>
Approximately 12.53% of the Sub-group 1B Mortgage Loans will not fully
amortize by their respective maturity dates (each, a "Balloon Loan"). The
Monthly Payment for each Balloon Loan is based on an amortization schedule
ranging from 108 months to 413 months, except for the final payment (the
"Balloon Payment") which is due and payable between the 36th month and the 180th
month following origination of such Mortgage Loan, depending on the terms of the
related mortgage note. With respect to the majority of the Balloon Loans, the
Monthly Payments for such Balloon Loans amortize over 358 months, but the
Balloon Payment is due on the 171th month. The amount of the Balloon Payment on
each Balloon Loan is substantially in excess of the amount of the scheduled
Monthly Payment for such Mortgage Loan.
Approximately 16.98% of the Sub-group 1B Mortgage Loans are
Owner-Financed Mortgage Loans.
Each Sub-group 1B Mortgage Loan accrues interest at a Mortgage Interest
Rate of not less than 6.000% per annum and not more than 17.250% per annum and
as of the Cut-off Date the weighted average Mortgage Interest Rate of the
Sub-group 1B Mortgage Loans was approximately 9.889% per annum.
Each Sub-group 1B Mortgage Loan had a Net Mortgage Interest Rate of not
less than 5.500% per annum, and not more than 16.750% per annum and as of the
Cut-off Date, the weighted average Net Mortgage Interest Rate of the Sub-group
1B Mortgage Loans was approximately 9.261%.
The weighted average remaining term to maturity of the Sub-group 1B
Mortgage Loans will be approximately 286 months as of the Cut-off Date. None of
the Sub-group 1B Mortgage Loans had a first Due Date prior to September 1, 1974
or after July 17, 2000 or will have a remaining term to maturity of less than 2
months or greater than 403 months as of the Cut-off Date. The month of the
latest maturity date of any Sub-group 1B Mortgage Loan is February 27, 2033.
The average Principal Balance of the Sub-group 1B Mortgage Loans at
origination was approximately $89,560. The average Cut-off Date Principal
Balance of the Sub-group 1B Mortgage Loans was approximately $86,407.
Approximately 0.75% of the Sub-group 1B Mortgage Loans are secured by a
second Mortgage that is junior to a First Lien on the related Mortgaged
Property, and approximately 99.25% of the Sub-group 1B Mortgage Loans are
secured by a First Lien on the related Mortgaged Property.
No Sub-group 1B Mortgage Loan had a Cut-off Date Principal Balance of
greater than approximately $643,950 or less than approximately $2,233.
Loan Group 2 Mortgage Loan Statistics
Loan Group 2 consists of 762 adjustable-rate Mortgage Loans. The Group
2 Loan Balance as of the Cut-off Date is equal to approximately $87,157,008 and
the Arrearage is equal to approximately $1,769,400. The Group 2 Mortgage Loans
have original terms to maturity ranging from 120 months to 361 months. The
following statistical information, unless otherwise specified, is based upon the
Group 2 Loan Balance as of the Cut-off Date.
The Group 2 Mortgage Loans are secured by Mortgages which create First
Liens on the related Mortgaged Properties. Approximately 13.00% of the Group 2
Mortgage Loans have a Combined Loan-to-Value Ratio in excess of 80% and do not
have FHA insurance, a VA guaranty or primary mortgage insurance. There can be no
assurance that the Combined Loan-to-Value Ratio of any Group 2 Mortgage Loan
determined at any time after origination is less than or equal to its original
Combined Loan-to-Value Ratio. Approximately 98.14% of the Group 2 Mortgage Loans
have scheduled Monthly Payments due on the Due Date.
Approximately 2.08% and 0.65% of the Group 2 Mortgage Loans are FHA
Mortgage Loans and FHAUN Mortgage Loans, respectively. Approximately 0.27% of
the Group 2 Mortgage Loans are VA Mortgage Loans. See "The Mortgage Pool--FHA
Mortgage Loans and VA Mortgage Loans."
S-32
<PAGE>
Approximately 0.29% of the Group 2 Mortgage Loans are Adjustable Rate
Mortgage ("ARM") Balloon Loans.
Approximately 95.73% of the Group 2 Mortgage Loans are Performing or
Reperforming Mortgage Loans. Approximately 4.27% of the Group 2 Mortgage Loans
are Sub-Performing Mortgage Loans, including 0.06% that are Forbearance Plan
Mortgage Loans. Of the Mortgage Loans in Loan Group 2, approximately 3.27% are
30 to 59 days past due and approximately 1.00% are 60 to 89 days or more past
due. Approximately 8.18% of the Group 2 Mortgage Loans are Re-Performing
Mortgage Loans including 0.63% that are Forbearance Plan Mortgage Loans and
1.52% that are Bankruptcy Plan Mortgage Loans.
Approximately 74.84% of the Group 2 Mortgage Loans provide for payment
by the mortgagor of a prepayment charge in limited circumstances on certain
prepayments.
The weighted average remaining term to maturity of the Group 2 Mortgage
Loans will be approximately 345 months as of the Cut-off Date. None of the Group
2 Mortgage Loans had a first Due Date prior to March 1, 1985 or after August 1,
2000 or will have a remaining term to maturity of less than 54 months or greater
than 359 months as of the Cut-off Date. The month of the latest maturity date of
any Group 2 Mortgage Loan is July 1, 2030.
The average Principal Balance of the Group 2 Mortgage Loans at
origination was approximately $115,784. The average Cut-off Date Principal
Balance of the Group 2 Mortgage Loans was approximately $114,379.
A substantial majority of the Group 2 Mortgage Loans provide for
semi-annual adjustment to the Mortgage Interest Rate thereon and for
corresponding adjustments to the Monthly Payment amount due thereon, in each
case on each adjustment date applicable thereto (each such date, an "Adjustment
Date"). On each Adjustment Date for each Group 2 Mortgage Loan, the Mortgage
Interest Rate thereon will be adjusted to equal the sum of the index applicable
to determining the Mortgage Interest Rate on each Group 2 Mortgage Loan (the
"Index") and a fixed percentage amount (the "Gross Margin"). The Mortgage
Interest Rate on each such Group 2 Mortgage Loan will not increase or decrease
by more than 5.000% per annum on the first related Adjustment Date (the "Initial
Periodic Rate Cap") and 3.000% on any Adjustment Date thereafter (the "Periodic
Rate Cap"); provided, however, 0.37% of the Group 2 Mortgage Loans do not have
an Initial Periodic Rate Cap or a Periodic Rate Cap. The Group 2 Mortgage Loans
have a weighted average Initial Periodic Rate Cap of approximately 2.320% per
annum and a weighted average Periodic Rate Cap of approximately 1.081% per annum
thereafter (excluding those loans without periodic caps). Each Mortgage Interest
Rate on each such Group 2 Mortgage Loan will not exceed a specified maximum
Mortgage Interest Rate over the life of such Group 2 Mortgage Loan (the "Maximum
Mortgage Interest Rate") or be less than a specified minimum Mortgage Interest
Rate over the life of such Group 2 Mortgage Loan (the "Minimum Mortgage Interest
Rate"). Effective with the first Monthly Payment due on each Group 2 Mortgage
Loan after each related Adjustment Date, the Monthly Payment amount will be
adjusted to an amount that will amortize fully the outstanding Principal Balance
of the related Mortgage Loan over its remaining term, and pay interest at the
Mortgage Interest Rate as so adjusted. Due to the application of the Periodic
Rate Caps and the Maximum Mortgage Interest Rates, the Mortgage Interest Rate on
each such Mortgage Loan, as adjusted on any related Adjustment Date, may be less
than the sum of the Index and the related Gross Margin, rounded as described
herein. See "The Mortgage Pool--The Index" in this Prospectus Supplement. None
of the Group 2 Mortgage Loans permits the related mortgagor to convert the
adjustable Mortgage Interest Rate thereon to a fixed Mortgage Interest Rate.
The Group 2 Mortgage Loans had Mortgage Interest Rates as of the
Cut-off Date of not less than 6.375% per annum and not more than 18.125% per
annum and the weighted average Mortgage Interest Rate was approximately 10.278%
per annum. As of the Cut-off Date, the Group 2 Mortgage Loans had Gross Margins
ranging from -0.380% to 8.700%, Minimum Loan Rates ranging from 0.125% per annum
to 17.500% per annum and Maximum Loan Rates ranging from 10.125% per annum to
23.500% per annum (except for 1.68% Group 2 Mortgage Loans that do not have
Maximum Loan Rates). As of the Cut-off Date, the weighted average Gross Margin
was approximately 5.846%, the weighted average Minimum Loan Rate was
approximately 9.643% per annum and the weighted average Maximum Loan Rate was
approximately 16.300% per annum (exclusive of the Mortgage Loans that do not
have a Maximum Loan Rate). The latest next Adjustment Date following the Cut-off
Date on any Group 2 Mortgage Loan occurs in July 1, 2006 and the weighted
average number of months to the next Adjustment Date following the Cut-off Date
for all of the Group 2 Mortgage Loans is 20 months.
S-33
<PAGE>
Each Group 2 Mortgage Loan had a Net Mortgage Interest Rate of not less
than 5.875% per annum, and not more than 17.625% per annum and as of the Cut-off
Date, the weighted average Net Mortgage Interest Rate of the Group 2 Mortgage
Loans was approximately 9.562%.
No Group 2 Mortgage Loan had a Cut-off Date Principal Balance of
greater than approximately $534,610 or less than approximately $9,372. The Group
2 Mortgage Loans are expected to have the following characteristics as of the
Cut-off Date (the sum in any column may not equal the total indicated due to
rounding):
S-34
<PAGE>
Cut-off Date Principal Balances of the Group 2 Mortgage Loans(1)
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 2 Outstanding as of
Principal Balance ($) Loans the Cut-off Date the Cut-off Date
------------------------ ----------- ----------------- ---------------------------------
<S> <C> <C> <C>
0 to 25,000.00 7 $138,575.19 0.16%
25,000.01 to 50,000.00 94 3,662,585.26 4.20
50,000.01 to 75,000.00 178 11,101,849.84 12.74
75,000.01 to 100,000.00 139 12,097,777.58 13.88
100,000.01 to 150,000.00 178 21,921,209.43 25.15
150,000.01 to 175,000.00 45 7,314,084.29 8.39
175,000.01 to 200,000.00 29 5,417,949.52 6.22
200,000.01 to 250,000.00 42 9,232,163.18 10.59
250,000.01 to 300,000.00 27 7,173,326.19 8.23
300,000.01 to 350,000.00 9 2,956,172.73 3.39
350,000.01 to 400,000.00 5 1,844,227.33 2.12
400,000.01 to 450,000.00 2 863,985.83 0.99
450,000.01 to 500,000.00 6 2,898,491.00 3.33
500,000.01 to 600,000.00 1 534,610.39 0.61
----------- ----------------- ---------------------------------
Total 762 $87,157,007.76 100.00%
</TABLE>
----------
(1) The average Cut-off Date Principal Balance of the Group 2 Mortgage
Loans was approximately $114,379.
Original Terms to Maturity of the Group 2 Mortgage Loans(1)
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 2 Outstanding as of
Original Term (months) Loans the Cut-off Date the Cut-off Date
--------------------- ----------- ----------------- ---------------------------------
<S> <C> <C> <C>
108 to 120 1 $86,404.99 0.10%
169 to 180 4 234,744.86 0.27
229 to 240 3 74,946.53 0.09
289 to 300 4 341,715.85 0.39
349 to 360 749 86,294,251.99 99.01
361 to 372 1 124,943.54 0.14
----------- ----------------- ---------------------------------
Total 762 $87,157,007.76 100.00%
</TABLE>
----------
(1) The weighted average original term of the Group 2 Mortgage Loans was
approximately 359 months.
Property Types of the Group 2 Mortgage Loans
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 2 Outstanding as of
Property Type Loans the Cut-off Date the Cut-off Date
--------------------------------- ------------ ----------------- ---------------------------------
<S> <C> <C> <C>
2-Family 25 $2,364,433.66 2.71%
3-Family 10 1,193,559.17 1.37
4-Family 6 855,060.75 0.98
Condo 43 3,980,491.10 4.57
High Rise Condo 4 382,443.80 0.44
Low Rise Condo 1 109,266.95 0.13
Manufactured 3 255,780.23 0.29
Multi Family 1 77,844.95 0.09
Mobile Home 32 2,759,171.01 3.17
PUD 28 4,388,520.75 5.04
Single Family 603 70,201,585.56 80.55
Townhouse 6 588,849.83 0.68
------------ ----------------- ---------------------------------
Total 762 $87,157,007.76 100.00%
</TABLE>
----------
(1) PUD refers to Planned Unit Development.
S-35
<PAGE>
Occupancy Status of the Group 2 Mortgage Loans (1)
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 2 Outstanding as of
Occupancy Status Loans the Cut-off Date the Cut-off Date
---------------------------- ----------- ----------------- ---------------------------------
<S> <C> <C> <C>
Investor 59 $5,357,398.72 6.15%
Primary 700 81,577,225.95 93.60
Secondary 3 222,383.09 0.26
----------- ----------------- ---------------------------------
Total 762 $87,157,007.76 100.00%
</TABLE>
----------
(1) Based on a representation made by the borrower at the time of
origination.
Purpose of the Group 2 Mortgage Loans
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 2 Outstanding as of
Purpose Loans the Cut-off Date the Cut-off Date
------------------------- ----------- ----------------- ----------------------------------
<S> <C> <C> <C>
Cash Out 237 $29,831,238.67 34.23%
Construction 6 858,057.21 0.98
Purchase 413 44,563,288.57 51.13
Refinance 106 11,904,423.31 13.66
----------- ----------------- ----------------------------------
Total 762 $87,157,007.76 100.00%
</TABLE>
S-36
<PAGE>
Mortgage Interest Rates of the Group 2 Mortgage Loans(1)
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 2 Outstanding as of
Mortgage Interest Rate (%) Loans the Cut-off Date the Cut-off Date
-------------------------- ----------- ----------------- ----------------------------------
<S> <C> <C> <C>
6.000% to 6.500% 2 $72,680.81 0.08%
6.501% to 7.000% 8 1,130,260.67 1.30
7.001% to 7.500% 18 1,599,561.26 1.84
7.501% to 7.750% 14 1,366,143.07 1.57
7.751% to 8.000% 11 1,274,254.26 1.46
8.001% to 8.250% 9 1,528,537.58 1.75
8.251% to 8.500% 13 1,552,771.86 1.78
8.501% to 8.750% 17 2,569,698.24 2.95
8.751% to 9.000% 30 5,079,809.45 5.83
9.001% to 9.250% 23 3,003,444.21 3.45
9.251% to 9.500% 44 6,410,577.75 7.36
9.501% to 9.750% 47 6,158,255.45 7.07
9.751% to 10.000% 53 7,782,566.98 8.93
10.001% to 10.250% 47 5,807,638.79 6.66
10.251% to 10.500% 63 6,928,227.80 7.95
10.501% to 10.750% 43 4,330,987.99 4.97
10.751% to 11.000% 56 5,330,144.43 6.12
11.001% to 11.250% 46 5,511,158.38 6.32
11.251% to 11.500% 60 5,628,649.32 6.46
11.501% to 11.750% 30 2,683,602.17 3.08
11.751% to 12.000% 41 3,821,805.90 4.38
12.001% to 12.250% 21 1,910,594.55 2.19
12.251% to 12.500% 18 1,644,206.17 1.89
12.501% to 12.750% 12 1,315,967.27 1.51
12.751% to 13.000% 8 516,972.08 0.59
13.001% to 13.250% 3 377,962.82 0.43
13.251% to 13.500% 9 792,993.47 0.91
13.501% to 13.750% 4 326,232.93 0.37
13.751% to 14.000% 4 237,842.17 0.27
14.001% to 14.250% 1 95,075.34 0.11
14.501% to 14.750% 5 318,306.61 0.37
15.001% to 15.250% 1 29,133.50 0.03
18.001% to 18.500% 1 20,944.48 0.02
----------- ----------------- ----------------------------------
Total 762 $87,157,007.76 100.00%
</TABLE>
------------
(1) The weighted average Mortgage Interest Rate of the Group 2 Mortgage
Loans as of the Cut-off Date was approximately 10.278% per annum.
S-37
<PAGE>
Combined Loan-to-Value of the Group 2 Mortgage Loans(1)
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 2 Outstanding as of
Combined Loan-to-Value (%) Loans the Cut-off Date the Cut-off Date
-------------------------- ----------- ----------------- ---------------------------------
<S> <C> <C> <C>
15.000 to 20.000 1 $9,371.69 0.01%
30.001 to 35.000 1 31,390.43 0.04
35.001 to 40.000 1 171,105.99 0.20
40.001 to 45.000 4 251,592.88 0.29
45.001 to 50.000 5 290,933.70 0.33
50.001 to 55.000 4 318,925.09 0.37
55.001 to 60.000 12 1,806,225.87 2.07
60.001 to 65.000 41 4,495,447.03 5.16
65.001 to 70.000 45 5,137,890.89 5.89
70.001 to 75.000 64 6,509,702.37 7.47
75.001 to 80.000 291 34,369,553.99 39.43
80.001 to 85.000 95 11,631,106.57 13.35
85.001 to 90.000 145 16,538,272.52 18.98
90.001 to 95.000 24 3,141,192.33 3.60
95.001 to 100.000 24 1,985,369.53 2.28
100.001 to 105.000 3 361,692.54 0.41
110.001 to 115.000 1 58,952.15 0.07
120.001 to 125.000 1 48,282.19 0.06
----------- ----------------- ---------------------------------
Total 762 $87,157,007.76 100.00%
</TABLE>
----------
(1) The weighted average Combined Loan-to-Value Ratio of the Group 2
Mortgage Loans as of the Cut-off Date was approximately 80.34%.
S-38
<PAGE>
Geographic Distribution of the Group 2 Mortgage Loans(1)
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 2 Outstanding as of
Location Loans the Cut-off Date the Cut-off Date
------------------------ ----------- ----------------- ----------------------------------
<S> <C> <C> <C>
Alabama 1 $190,438.47 0.22%
Alaska 2 144,409.45 0.17
Arizona 23 3,000,697.00 3.44
Arkansas 1 39,961.27 0.05
California 124 22,242,683.81 25.52
Colorado 42 4,920,940.58 5.65
Connecticut 7 781,631.11 0.90
Delaware 2 188,493.29 0.22
Florida 80 6,964,878.78 7.99
Georgia 18 2,185,064.70 2.51
Hawaii 4 927,061.27 1.06
Idaho 2 89,892.88 0.10
Illinois 38 3,865,471.10 4.44
Indiana 15 1,206,333.83 1.38
Iowa 8 517,926.83 0.59
Kansas 3 111,173.46 0.13
Kentucky 5 474,812.66 0.54
Louisiana 7 448,192.91 0.51
Maine 4 364,115.95 0.42
Maryland 9 1,276,875.51 1.47
Massachusetts 13 1,839,083.98 2.11
Michigan 33 3,254,497.57 3.73
Minnesota 19 2,087,294.27 2.39
Mississippi 2 113,779.33 0.13
Missouri 26 1,887,537.23 2.17
Montana 5 507,864.98 0.58
Nebraska 4 346,146.02 0.40
Nevada 17 1,901,744.05 2.18
New Hampshire 4 370,693.31 0.43
New Jersey 8 1,228,333.31 1.41
New Mexico 6 680,031.42 0.78
New York 23 2,743,894.25 3.15
North Carolina 10 804,834.34 0.92
Ohio 42 3,037,999.00 3.49
Oklahoma 2 77,332.48 0.09
Oregon 18 2,246,741.03 2.58
Pennsylvania 12 819,324.74 0.94
South Carolina 6 498,331.82 0.57
Tennessee 12 1,060,844.33 1.22
Texas 34 3,306,332.78 3.79
Utah 12 1,388,985.75 1.59
Vermont 1 72,167.51 0.08
Virginia 9 823,017.46 0.94
Washington 46 5,914,325.17 6.79
Wisconsin 3 204,816.77 0.23
----------- ----------------- ----------------------------------
Total 762 $87,157,007.76 100.00%
</TABLE>
----------
(1) The greatest ZIP Code geographic concentration of the Group 2 Mortgage
Loans, by Group 2 Loan Balance as of the Cut-off Date, was
approximately 1.03% in the 90068 ZIP Code, located in California.
S-39
<PAGE>
Documentation Levels of the Group 2 Mortgage Loans(1)
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 2 Outstanding as of
Documentation Level Loans the Cut-off Date the Cut-off Date
------------------- ----------- ----------------- ---------------------------------
<S> <C> <C> <C>
Alternate 92 $11,760,217.51 13.49%
Full 492 54,445,189.29 62.47
Income Stated 80 9,930,773.52 11.39
Limited 72 8,747,465.99 10.04
Missing 18 1,414,354.23 1.62
No Documentation 8 859,007.22 0.99
----------- ----------------- ---------------------------------
Total 762 $87,157,007.76 100.00%
</TABLE>
----------
(1) For a description of each documentation level, see "Underwriting
Standards" in this Prospectus Supplement.
Status of the Group 2 Mortgage Loans
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 2 Outstanding as of
Status Loans the Cut-off Date the Cut-off Date
---------------- ----------- ----------------- ---------------------------------
<S> <C> <C> <C>
Current 647 $76,307,294.73 87.55%
Re-performing 77 7,128,924.28 8.18
30 Days Past Due 29 2,847,009.08 3.27
60 Days Past Due 9 873,779.67 1.00
----------- ----------------- ---------------------------------
Total 762 $87,157,007.76 100.00%
</TABLE>
S-40
<PAGE>
Loan Group 2 Maximum Loan Rate
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
Maximum Loan Rate of Mortgage Outstanding as of of Loan Group 2 Outstanding as of
(%) Loans the Cut-off Date the Cut-off Date
------------------ ----------- ----------------- ---------------------------------
<S> <C> <C> <C>
N/A 14 $1,431,253.34 1.64%
10.000 to 10.500 3 273,801.23 0.31
10.501 to 11.000 8 711,219.41 0.82
11.001 to 11.500 11 818,736.53 0.94
11.501 to 12.000 16 1,827,193.82 2.10
12.001 to 12.500 10 828,143.02 0.95
12.501 to 13.000 3 436,879.72 0.50
13.001 to 13.500 3 562,245.41 0.65
13.501 to 14.000 10 1,741,638.41 2.00
14.001 to 14.500 10 1,647,882.40 1.89
14.501 to 15.000 34 5,633,857.85 6.46
15.001 to 15.500 52 8,081,105.39 9.27
15.501 to 16.000 76 10,784,079.72 12.37
16.001 to 16.500 99 11,805,752.22 13.55
16.501 to 17.000 116 12,810,231.23 14.70
17.001 to 17.500 106 10,980,147.90 12.60
17.501 to 18.000 87 8,441,758.28 9.69
18.001 to 18.500 46 4,380,056.23 5.03
18.501 to 19.000 30 2,118,585.87 2.43
19.001 to 19.500 12 963,118.68 1.11
19.501 to 20.000 6 411,871.64 0.47
20.501 to 21.000 6 303,209.05 0.35
21.001 to 21.500 1 77,641.84 0.09
21.501 to 22.000 1 29,133.50 0.03
23.001 to 23.500 1 20,944.48 0.02
Uncapped 1 36,520.59 0.04
----------- ----------------- ---------------------------------
Total 762 $87,157,007.76 100.00%
</TABLE>
S-41
<PAGE>
Loan Group 2 Minimum Loan Rate
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
Minimum Loan Rate of Mortgage Outstanding as of of Loan Group 2 Outstanding as of
(%) Loans the Cut-off Date the Cut-off Date
-------------------- ----------- ----------------- ---------------------------------
<S> <C> <C> <C>
N/A 1 $9,371.69 0.01%
0.000 to 1.000 10 869,977.86 1.00
1.001 to 1.500 10 746,569.02 0.86
1.501 to 2.000 10 807,787.46 0.93
2.001 to 2.500 10 761,795.63 0.87
2.501 to 3.000 21 2,821,812.33 3.24
3.001 to 3.500 6 649,881.27 0.75
3.501 to 4.000 2 149,423.12 0.17
4.001 to 4.500 1 77,979.49 0.09
4.501 to 5.000 2 214,975.98 0.25
5.001 to 5.500 2 298,671.52 0.34
5.501 to 6.000 4 421,284.43 0.48
6.001 to 6.500 5 510,271.55 0.59
6.501 to 7.000 3 267,324.26 0.31
7.001 to 7.500 6 899,353.97 1.03
7.501 to 8.000 3 728,364.29 0.84
8.001 to 8.500 12 1,879,743.53 2.16
8.501 to 9.000 40 6,612,166.98 7.59
9.001 to 9.500 65 9,640,991.80 11.06
9.501 to 10.000 109 14,866,134.75 17.06
10.001 to 10.500 106 12,070,267.74 13.85
10.501 to 11.000 105 10,406,493.44 11.94
11.001 to 11.500 96 10,349,086.15 11.87
11.501 to 12.000 67 5,755,069.97 6.60
12.001 to 12.500 32 2,847,984.90 3.27
12.501 to 13.000 17 1,325,316.26 1.52
13.001 to 13.500 6 560,356.99 0.64
13.501 to 14.000 4 264,187.92 0.30
14.001 to 14.500 1 95,075.34 0.11
14.501 to 15.000 4 199,210.14 0.23
15.001 to 15.500 1 29,133.50 0.03
17.001 to 17.500 1 20,944.48 0.02
----------- ----------------- ---------------------------------
Total 762 $87,157,007.76 100.00%
</TABLE>
S-42
<PAGE>
Loan Group 2 Gross Margin
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
Gross Margin of Mortgage Outstanding as of of Loan Group 2 Outstanding as of
(%) Loans the Cut-off Date the Cut-off Date
----------------------- ----------- ----------------- ---------------------------------
<S> <C> <C> <C>
[less than] 0.000 1 $9,371.69 0.01%
1.000 to 2.000 12 850,589.83 0.98
2.001 to 3.000 58 5,908,070.54 6.78
3.001 to 4.000 10 1,007,951.98 1.16
4.001 to 5.000 61 8,500,561.20 9.75
5.001 to 6.000 244 30,567,307.38 35.07
6.001 to 7.000 313 34,944,860.40 40.09
7.001 to 8.000 55 4,642,751.48 5.33
8.001 to 9.000 8 725,543.26 0.83
----------- ----------------- ---------------------------------
Total 762 $87,157,007.76 100.00%
</TABLE>
Loan Group 2 Initial Rate Cap
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 2 Outstanding as of
Initial Rate Cap (%) Loans the Cut-off Date the Cut-off Date
-------------------- ----------- ----------------- ---------------------------------
<S> <C> <C> <C>
None 6 $318,588.91 0.37%
1.000 205 25,542,720.30 29.31
1.500 20 1,872,320.22 2.15
2.000 39 4,963,205.09 5.69
3.000 491 54,192,578.50 62.18
5.000 1 267,594.74 0.31
----------- ----------------- ---------------------------------
Total 762 $87,157,007.76 100.00%
</TABLE>
Loan Group 2 Periodic Rate Cap
<TABLE>
<CAPTION>
Number Principal Balance % of Aggregate Principal Balance
of Mortgage Outstanding as of of Loan Group 2 Outstanding as of
Periodic Rate Cap (%) Loans the Cut-off Date the Cut-off Date
--------------------- ----------- ----------------- ---------------------------------
<S> <C> <C> <C>
None 6 $318,588.91 0.37%
1.000 671 77,390,295.22 88.79
1.500 52 5,295,149.98 6.08
2.000 27 3,542,598.59 4.06
3.000 6 610,375.06 0.70
----------- ----------------- ---------------------------------
Total 762 $87,157,007.76 100.00%
</TABLE>
The Index
With respect to approximately 91.09% of the Group 2 Mortgage Loans, the
Index is the average of interbank offered rates for six-month U.S. dollar
deposits in the London market based on quotations of major banks, and most
recently available as of a day specified in the related note as published by
Fannie Mae ("Six Month LIBOR"); with respect to approximately 7.36% of the Group
2 Mortgage Loans, the Index is the weekly average yield on United States
Treasury securities adjusted to a constant maturity of one year as published by
the Federal Reserve Board in Statistical Release H.15(519) and most recently
available as of a day specified in the related note ("One Year CMT"); and with
respect to approximately 1.55% of the Group 2 Mortgage Loans, the Index is a
variety of indices, none of which comprise more than 0.40% of the Group 2
Mortgage Loans. Listed below are some historical values for the months indicated
of two of the indices.
S-43
<PAGE>
Six-Month LIBOR
<TABLE>
<CAPTION>
Year
-----------------------------------------------------------------------------------------------
Month 2000 1999 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
January 6.29% 4.97% 5.63% 5.69% 5.27% 6.69% 3.38%
February 6.33% 5.13% 5.70% 5.69% 5.30% 6.44% 4.00%
March 6.53% 5.06% 5.75% 5.94% 5.50% 6.50% 4.25%
April 6.73% 5.04% 5.81% 6.00% 5.56% 6.38% 4.69%
May 7.11% 5.25% 5.75% 6.00% 5.63% 6.00% 5.00%
June 7.00% 5.65% 5.78% 5.91% 5.79% 6.00% 5.25%
July 6.89% 5.71% 5.75% 5.80% 5.88% 5.88% 5.31%
August 6.83% 5.92% 5.59% 5.84% 5.77% 5.91% 5.31%
September 5.96% 5.25% 5.84% 5.73% 5.95% 5.75%
October 6.12% 4.98% 5.79% 5.57% 5.88% 5.94%
November 6.06% 5.15% 5.91% 5.54% 5.69% 6.56%
December 6.13% 5.07% 5.84% 5.60% 5.51% 7.00%
</TABLE>
S-44
<PAGE>
One Year CMT
<TABLE>
<CAPTION>
Year
-----------------------------------------------------------------------------------------------
Month 2000 1999 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
January 6.12% 4.51% 5.24% 5.61% 5.09% 7.05% 3.54%
February 6.22% 4.70% 5.31% 5.53% 4.94% 6.70% 3.87%
March 6.22% 4.78% 5.39% 5.80% 5.34% 6.43% 4.32%
April 6.15% 4.69% 5.38% 5.99% 5.54% 6.27% 4.82%
May 6.33% 4.85% 5.44% 5.87% 5.64% 6.00% 5.31%
June 6.17% 5.10% 5.41% 5.69% 5.81% 5.64% 5.27%
July 6.08% 5.03% 5.36% 5.54% 5.85% 5.59% 5.48%
August 6.18% 5.20% 5.21% 5.56% 5.67% 5.75% 5.56%
September 5.25% 4.71% 5.52% 5.83% 5.62% 5.76%
October 5.43% 4.12% 5.46% 5.55% 5.59% 6.11%
November 5.55% 4.53% 5.46% 5.42% 5.43% 6.54%
December 5.84% 4.52% 5.53% 5.47% 5.31% 7.14%
</TABLE>
If any Index becomes unpublished or is otherwise unavailable, the
Servicer will select an alternative index which is based upon comparable
information.
FHA Mortgage Loans and VA Mortgage Loans
Approximately 70.40% of the Sub-group 1A Mortgage Loans are subject to
FHA insurance as described herein (the "FHA Mortgage Loans") and approximately
19.93% of the Sub-group 1A Mortgage Loans are subject to a VA guarantee as
described herein (the "VA Mortgage Loans"). The remaining Mortgage Loans in
Sub-group 1A, representing approximately 9.67% of the Sub-group 1A Mortgage
Loans, are Mortgage Loans which were originated using FHA documents but, for
varying reasons, are not subject to FHA insurance (the "FHAUN Mortgage Loans").
The Seller acquired the FHAUN Mortgage Loans without any FHA insurance in
effect. Approximately 2.35% of the Group 2 Mortgage Loans are FHA Mortgage Loans
or are VA Mortgage Loans. All FHA Mortgage Loans and VA Mortgage Loans must
conform to HUD or VA origination guidelines, as the case may be, at the time of
origination. The FHA Mortgage Loans will be insured by the Federal Housing
Administration (the "FHA") of the United States Department of Housing and Urban
Development ("HUD") as authorized under the National Housing Act of 1934, as
amended (the "National Housing Act"), and the United States Housing Act of 1937,
as amended (the "United States Housing Act"). No FHA Mortgage Loan may have an
interest rate or original principal amount exceeding the applicable FHA limits
at the time of origination of such FHA Mortgage Loan.
The VA Mortgage Loans will be partially guaranteed by The United States
Department of Veterans Affairs (the "VA") under the Servicemen's Readjustment
Act of 1944, as amended. The Servicemen's Readjustment Act of 1944, as amended,
permits a veteran (or in certain instances the spouse of a veteran) to obtain a
mortgage loan guarantee by the VA covering mortgage financing of the purchase of
a one- to four-family dwelling unit at interest rates permitted by the VA. The
program has a current mortgage loan limit of $203,000, requires no down payment
from the purchaser and permits the guarantee of mortgage loans of generally up
to 30 years' duration. However, no VA Mortgage Loan will have an original
principal amount greater than five times the amount of the related guarantee.
The Servicer collects insurance premiums for the FHA Mortgage Loans and
pays them to the FHA. The regulations governing FHA-insured single-family
mortgage insurance programs generally provide that insurance benefits are
payable upon foreclosure (or other acquisition of possession) and conveyance of
the mortgaged premises to HUD. With respect to a defaulted FHA Mortgage Loan,
the Servicer may be limited in its ability to initiate foreclosure proceedings.
Historically, pursuant to an assignment program (the "Assignment Program"), HUD
in certain circumstances offered qualified mortgagors who had defaulted on an
FHA insured mortgage loan an
S-45
<PAGE>
opportunity to avoid foreclosure and retain their homes. Under the Assignment
Program, the FHA serviced FHA-insured mortgage loans that had defaulted and been
assigned to HUD under the Assignment Program. In addition, HUD gave forbearance
for a period of no longer than 36 months to mortgagors who had demonstrated a
temporary inability to make full payments due to circumstances beyond the
mortgagor's control such as a reduction in income or increase in expenses. The
Assignment Program was terminated and replaced with mandatory loss mitigation
procedures in April 1996 whereby servicers of defaulted FHA-insured mortgage
loans must choose from a variety of tools to cure a default prior to filing an
FHA insurance claim.
HUD has the option, in most cases, to pay insurance claims in cash or
in debentures issued by HUD. Presently, claims for most programs are being paid
in cash and, for the most part, claims have not been paid in debentures since
1965. HUD debentures issued in satisfaction of FHA insurance claims bear
interest at the applicable HUD debenture interest rate and mature 20 years from
the date of issue.
The amount of insurance benefits the FHA generally pays is equal to the
entire unpaid principal amount of the defaulted FHA Mortgage Loan, adjusted to
reimburse the Servicer of that FHA Mortgage Loan for certain costs and expenses
and to deduct certain amounts the Servicer receives or retains after default.
When entitlement to insurance benefits results from foreclosure (or other
acquisition of possession) and conveyance to HUD, the Servicer is generally
compensated for no more than two-thirds of its foreclosure costs and attorneys'
fees (which fees are evaluated based upon HUD guidelines), and is compensated
for accrued and unpaid mortgage interest for a limited period prior to the
institution of foreclosure or other acquisition in general only to the extent it
was allowed pursuant to a forbearance plan approved by HUD, and the Servicer is
otherwise in material compliance with FHA regulations. Provided that the
Servicer is in material compliance with FHA regulations, the Servicer will
generally be entitled to the debenture interest which would have been earned, as
of the date the cash payment is received, had the benefits been paid in
debentures. Except where unpaid mortgage interest is recoverable pursuant to an
approved special forbearance plan, such debenture interest is generally payable
from a date 60 days after the mortgagor's first uncorrected failure to perform
any obligation or make any payment due under the mortgage loan, which results in
no recovery of interest accrued during the first two months of delinquency.
Under certain circumstances, as set forth in the regulations, HUD is
authorized to request or require the Servicer to pursue a deficiency judgment
against any defaulting mortgagor. In this regard, HUD may request or require the
Servicer (as the case may be under the regulations) to pursue a deficiency
judgment in connection with the foreclosure. Under neither case would the
Servicer be responsible for collecting on the judgment. Further, in all cases,
HUD may reimburse the Servicer for all additional costs of seeking the judgment.
As of the date hereof, the maximum guarantees that may be issued by the
VA under a VA Mortgage Loan are generally (a) as to loans with an original
principal amount of $45,000 or less, 50% of such loan, (b) as to loans with an
original principal amount of greater than $45,000, but not more than $56,250,
$22,500; (c) as to loans with an original principal amount of more than $56,250,
but not more than $144,000, the lesser of $36,000 or 40% of the loan, and (d) as
to loans with an original principal amount of more than $144,000 (for an
owner-occupied, single-family home or condominium unit), the lesser of $50,750
or 25% of the loan. The liability on the guaranty is reduced or increased pro
rata with any reduction or increase in the amount of indebtedness, but in no
event will the amount payable on the guaranty exceed the amount of the original
guaranty. The VA may, at its option and without regard to the guaranty, make
full payment to a mortgage holder of unsatisfied indebtedness on a mortgage upon
its assignment to the VA.
With respect to a defaulted VA Mortgage Loan, the Servicer is, absent
exceptional circumstances, authorized to announce its intention to foreclose
only when the default has continued for three months. However, notwithstanding
the foregoing, the regulations require the Servicer to take immediate action if
it determines that the debtor has abandoned the property to be foreclosed upon
or that the property has been or may be subject to extraordinary waste or if
there exist conditions justifying the appointment of a receiver for the
property. Generally, a claim for the guaranty is submitted after liquidation of
the mortgaged property. Upon default and subsequent termination of a
VA-guaranteed loan by a servicer, the VA makes a determination, using a formula,
whether it will reduce its maximum claim liability by acquiring and reselling
the property or by paying the claim on its guaranty without such acquisition. If
the VA determines it will acquire the property, it will establish a maximum
price, known as the specified amount, which the servicer may bid at the
foreclosure sale in order for the servicer to subsequently convey the property
to the VA. If the servicer purchases the property at the sale for no more than
such
S-46
<PAGE>
specified amount, it may convey the property to the VA in return for the payment
of such amount. The VA also pays, up to the maximum amount of the loan guaranty,
the claim for the difference between the price paid for the property and any
balance remaining on the loan. If, however, the VA determines that acquiring and
disposing of the property would increase rather than reduce the government's
loss, it will not establish a maximum bid price for the holder to bid at the
foreclosure sale (thus, a "no-bid"), but rather will solely pay the guaranty
claim up to the maximum amount of the guaranty, once the loss on the loan has
been established. In the event of a no-bid, the servicer must foreclose on the
defaulted VA Mortgage Loan and thus a loss may be incurred on such mortgage loan
in an amount equal to the difference between (a) the total indebtedness and (b)
the sum of (i) the guaranteed amount and (ii) the proceeds of any foreclosure.
The amount payable under the guaranty will be the percentage of the VA
Mortgage Loan originally guaranteed applied to the indebtedness outstanding as
of the applicable date of computation specified in the VA regulations. Payments
under the guaranty will be applied to the unpaid principal amount of the VA
Mortgage Loan, interest accrued on the unpaid balance thereof to the appropriate
date of computation and limited expenses of the mortgagee, but in each case only
to the extent that such amounts have not been recovered through liquidation of
the mortgaged property. The amount payable under the guaranty may in no event
exceed the amount of the original guaranty.
Terms of the Mortgage Loans
The Mortgage Loans accrue interest on a simple interest basis (the
"Simple Interest Mortgage Loans") or a self-amortizing basis (the "Actuarial
Mortgage Loans"). Approximately 1.59% of the Mortgage Loans are expected to be
Simple Interest Mortgage Loans, and approximately 98.41% of the Mortgage Loans
are expected to be Actuarial Mortgage Loans, in each case as a percentage of the
Cut-off Date Principal Balance.
For Simple Interest Mortgage Loans, the Mortgage Loan is amortized over
a series of equal monthly payments. Each monthly interest payment is calculated
by multiplying the outstanding Principal Balance of the loan by the stated
interest rate. Such product is then multiplied by a fraction, the numerator of
which is the number of days elapsed since the preceding payment of interest was
made and the denominator of which is either 365 or 360, depending on applicable
state law. Payments received on a Simple Interest Mortgage Loan are applied
first to interest accrued to the date payment is received and second to reduce
the unpaid Principal Balance of the Mortgage Loan. Accordingly, if a mortgagor
makes a payment on the Mortgage Loan less than 30 days after the previous
payment, the interest collected for the period since the preceding payment was
made will be less than 30 days' interest, and the amount of principal repaid in
such month will be correspondingly greater. Conversely, if a mortgagor makes a
payment on the Mortgage Loan more than 30 days after the previous payment, the
interest collected for the period since the preceding payment was made will be
greater than 30 days' interest, and the amount of principal repaid in the month
will be correspondingly reduced. As a result, based on the payment
characteristics of a particular mortgagor, the principal due on the final due
date of a Simple Interest Mortgage Loan may vary from the principal payment that
would be made if payments for such Mortgage Loan were always made on their due
dates.
For Actuarial Mortgage Loans, interest will be calculated based on a
360-day year of twelve 30-day months. When a full prepayment of principal is
made on an Actuarial Mortgage Loan during a month, the mortgagor is charged
interest only on the days of the month actually elapsed up to the date of such
prepayment, at a daily interest rate that is applied to the principal amount of
the loan so prepaid. When a partial prepayment of principal is made on an
Actuarial Mortgage Loan during a month, the mortgagor generally is not charged
interest on the amount of the partial prepayment during the month in which such
prepayment is made.
If a mortgagor pays more than one installment on a Simple Interest
Mortgage Loan at a time, the regular installment will be treated as described
above. However, the entire amount of the additional installment will be treated
as a receipt of one or more regular principal payments and applied to reduce the
Principal Balance of the related Mortgage Loan. Although such mortgagor will not
be required to make the next monthly installment, interest will continue to
accrue on the Principal Balance of such Mortgage Loan, as reduced by the
application of the early installment. As a result, when such mortgagor pays the
next required installment on a Simple Interest Mortgage Loan, such payment may
be insufficient to cover the interest that has accrued since the last payment by
the mortgagor. Notwithstanding such insufficiency, such Mortgage Loan would be
considered to be current. This
S-47
<PAGE>
situation would continue until the monthly installments are once again
sufficient to cover all accrued interest and to reduce the Principal Balance of
such Mortgage Loan. Depending on the Principal Balance and interest rate of the
related Mortgage Loan and on the number of installments paid early, there may be
extended periods of time during which Simple Interest Mortgage Loans in respect
of which such additional installments have been made are not amortizing and are
considered current.
Primary Mortgage Insurance
Approximately 14.04% of the Group 1 Mortgage Loans and approximately
23.87% of the Group 2 Mortgage Loans (in each case, by aggregate Principal
Balance as of the Cut-off Date) are covered by a primary mortgage insurance
policy.
THE SELLER
Credit-Based Asset Servicing and Securitization LLC is a Delaware
limited liability company with its principal place of business in New York, New
York. The information set forth in the following paragraphs has been provided by
the Seller and neither the Depositor nor any other party makes any
representation as to the accuracy or completeness of such information.
The Seller was established in July 1996 as a venture of Mortgage
Guaranty Insurance Corporation ("MGIC"), Enhance Financial Services Group, Inc.
("EFSG") and certain members of management of the Seller. Each of MGIC and EFSG
has approximately a 46% interest in the Seller with the management of the Seller
owning the remainder. EFSG and MGIC are publicly traded companies which file
such periodic reports with the Securities and Exchange Commission (the
"Commission") as are required by the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, as
interpreted by the staff of the Commission thereunder. As previously announced
by EFSG, it has retained Morgan Stanley Dean Witter & Co. to explore and analyze
strategic alternatives to maximize its shareholder value. Such alternatives may
include the sale of EFSG's 46% interest in the Seller.
On June 30, 2000, the Seller had approximately $960 million in assets,
approximately $730 million in liabilities and approximately $231.6 million in
equity.
The Seller's principal business is the purchasing of performing,
sub-performing and non-performing residential mortgage loans from banks and
other financial institutions and individuals and mortgage-related securities,
including non-investment grade subordinated securities, for investment and
securitization. Substantially all of the mortgage loans the Seller owns are
serviced by its wholly-owned subsidiary, Litton Loan Servicing LP. The Seller
does not originate mortgages. The Seller is a HUD-approved investing mortgagee.
UNDERWRITING STANDARDS
The following is a description of the underwriting standards used by
the Seller in connection with its acquisition of the Mortgage Loans.
Each Mortgage Loan included in the Trust Fund has satisfied the credit,
appraisal and underwriting guidelines the Seller established that are described
below. To determine satisfaction of such guidelines, the Seller or a loan
reviewer in general reviewed the files related to the Mortgage Loans in
connection with the acquisition of the Mortgage Loans by the Seller. These files
may include the documentation pursuant to which the mortgage loan was originally
underwritten, as well as the mortgagor's payment history on the mortgage loan.
The Seller's underwriting guidelines when re-underwriting mortgage loans are
intended to evaluate the mortgagor's credit standing, repayment ability and
willingness to repay debt, as well as the value and adequacy of the mortgaged
property as collateral. In general, to establish the adequacy of the mortgaged
property as collateral, the Seller will obtain a current appraisal, broker's
price opinion, and/or drive-by or desk review of such property, prepared within
six months of the Seller's purchase. A mortgagor's ability and willingness to
repay debts (including the Mortgage Loan) in a timely fashion
S-48
<PAGE>
must be demonstrated by the quality, quantity and durability of income history,
history of debt management, history of debt repayment, and net worth
accumulation. Accordingly, the Seller also obtains and reviews a current credit
report for the mortgagor.
The Seller purchases mortgage loans that were originated pursuant to
one of the following documentation programs:
Full Documentation. Mortgage loans originally underwritten with "Full
Documentation" include a detailed application designed to provide pertinent
credit information. As part of the description of the mortgagor's financial
condition, the mortgagor was required to fill out a detailed application
designed to provide pertinent credit information. As part of the description of
the mortgagor's financial condition, the mortgagor provided a balance sheet,
current as of the origination of the mortgage loan, describing assets and
liabilities and a statement of income and expenses, as well as authorizing the
originator to obtain a credit report which summarizes the mortgagor's credit
history with local merchants and lenders and any record of bankruptcy. In
addition, an employment verification was obtained wherein the employer reported
the length of employment with that organization, the mortgagor's salary as of
the mortgage loan's origination, and an indication as to whether it is expected
that the mortgagor will continue such employment after the mortgage loan's
origination. If a mortgagor was self-employed when such mortgagor's loan was
originated, the mortgagor submitted copies of signed tax returns. The originator
was also provided with deposit verification at all financial institutions where
the mortgagor had demand or savings accounts.
In determining the adequacy of the property as collateral at
origination, an independent appraisal was made of each property considered for
financing. The appraiser inspected the property and verified that it was in good
condition and that construction, if new, had been completed at the time of the
loan's origination. Such appraisal was based on the appraiser's judgment of
values, giving appropriate weight to both the then market value of comparable
homes and the cost of replacing the property.
Other Levels of Documentation. Other mortgage loans purchased and
re-underwritten by the Seller were originally underwritten pursuant to
alternative documentation programs that require less documentation and
verification than do traditional "Full Documentation" programs, including "No
Documentation," "Limited Documentation" and "Alternative Documentation" programs
for certain qualifying mortgage loans. Under a "No Documentation" program, the
originator does not undertake verification of a mortgagor's income or assets.
Under a "Limited Documentation" program, certain underwriting documentation
concerning income and employment verification is waived. "Alternative
Documentation" programs allow a mortgagor to provide W-2 forms instead of tax
returns, permits bank statements in lieu of verification of deposits and permits
alternative methods of employment verification. Under "Stated Documentation"
programs, a mortgagor's income is deemed to be that stated on the mortgage
application and is not independently verified by the originator. These are
underwriting programs designed to streamline the underwriting process by
eliminating the requirement for income verification. Depending on the facts and
circumstances of a particular case, the originator of the mortgage loan may have
accepted other mortgage loans based on limited documentation that eliminated the
need for either income verification and/or asset verification. The objective use
of limited documentation is to shift the emphasis of the underwriting process
from the credit standing of the mortgagor to the value and adequacy of the
mortgaged property as collateral.
Owner-Financed Mortgage Loans. The Owner-financed Mortgage Loans
comprise approximately 2.95% of the Group 1 Mortgage Loans and none of the Group
2 Mortgage Loans (in each case, by aggregate Principal Balance as of the Cut-off
Date).
The Seller routinely purchases mortgage loans which are owner-financed
mortgage loans ("Owner-financed Mortgage Loans"). Owner-financed Mortgage Loans
are originated by the individual sellers of the related mortgaged property who
generally are inexperienced in matters pertaining to mortgage banking. These
mortgage loans were originated with less stringent standards than the other
mortgage loans the Seller purchases typically. The mortgagor under an
owner-financed mortgage loan generally does not complete a mortgage loan
application and the seller of the related property generally does not verify the
income or employment of the related mortgagor. In connection with the Seller's
acquisition of an Owner-financed Mortgage Loan, the Seller obtained and reviewed
the credit history and payment history of the mortgagor. In deciding to purchase
Owner-financed Mortgage Loans, the Seller generally places considerable emphasis
on the value of the mortgaged property. The
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Seller, in connection with its underwriting of an Owner-financed Mortgage Loan,
calculates the loan-to-value ratio of the mortgage loan at the time of
acquisition for underwriting purposes to determine the mortgagor's equity in the
related mortgaged property. A drive-by appraisal of the market value of each
mortgaged property relating to an Owner-financed Mortgage Loan generally was
obtained within 90 days prior to the Seller's purchase of such mortgage loan.
However, in certain instances, the Seller may have utilized a previous appraisal
if it was completed within one year prior to the Seller's purchase, in which
case the Seller will generally require the appraiser to recertify the value in
such appraisal. The Seller may have acquired an Owner-financed Mortgage Loan
based upon a statistical valuation provided by independent data providers of the
mortgaged property and subsequently obtained a drive-by appraisal, generally
within three months of acquisition.
For a discussion of the certain risks related to Owner-financed
Mortgage Loans that a Certificateholder should consider prior to purchase, see
"Risk Factors--There are risks related to owner-financed mortgage loans" in this
Prospectus Supplement.
THE SERVICER
Litton Loan Servicing LP provided the information set forth in the
following paragraphs. None of the Depositor, the Seller, the Trustee, the
Underwriters or any of their respective affiliates have made or will make any
representation as to the accuracy or completeness of such information.
Litton Loan Servicing LP (the "Servicer"), a Delaware limited
partnership and a wholly-owned subsidiary of the Seller, will act as the
servicer of the Mortgage Loans pursuant to the Pooling and Servicing Agreement.
Litton Loan Servicing LP was formed in December 1996, with all of the general
and limited partnership interests owned by EFSG, MGIC and C-BASS Holding LLC. On
October 1, 1998 Litton Loan Servicing, Inc. was a wholly-owned subsidiary of
EFSG and transferred its business to the Servicer. From and after October 1,
1998, the Servicer has been conducting all activities formerly conducted by
Litton Loan Servicing, Inc. The Servicer currently employs approximately 226
individuals. The main office of the Servicer is located at 5373 W. Alabama,
Houston, Texas 77056. The Servicer is currently a FNMA and FHLMC approved
servicer and an approved FHA and VA lender with a servicing portfolio in excess
of $5.159 billion. The Servicer specializes in servicing sub-performing mortgage
loans and entering into workouts with the related mortgagors. Recent
transactions for which the Servicer acts as servicer include C-BASS ABS, LLC
1998-1, Merrill Lynch Mortgage Investors, Inc. Series 1998-FF2, Series 1998-FF3,
Series 1998-GN3, Series 1999-H1, Series 1999-H2, Series 1999-CB1, Series
1999-CB2, Series 1999-CB4, Series 1999-NC1, Series 2000-FF1, Series 2000-CB1,
New Century Mortgage Securities, Inc., Series 1999-NCC, Financial Asset
Securities Corp., Series 1998-3, Series 1999-CB5, Series 2000-1, Asset Backed
Funding Corporation, Series 1999-1, Series 2000-CB2 and PaineWebber Mortgage
Acceptance Corporation IV, Series 2000-HE-1.
Fitch assigned the Servicer its RSS1 residential special servicer
rating on November 16, 1999. The rating is based on the Servicer's ability to
manage and liquidate nonperforming residential mortgage loans and real estate
owned assets. This RSS1 rating is the highest special servicer rating attainable
from Fitch which reflects the Servicer's sophisticated proprietary default
management technology, the financial strength of its well-capitalized parent and
its highly experienced management and staff.
Fitch assigned the Servicer its RPS2 primary servicer rating for
sub-prime and high loan-to-value ratio product. The RPS2 rating is currently the
highest subprime primary servicer rating attainable from Fitch for any subprime
servicer, which is based on the strength of the Servicer's loan administration
processes including new loan set-up procedures and related technology, loan
accounting/cash management and loan reporting. The RPS2 rating for high
loan-to-value ratio product is based on the Servicer's intensive focus on early
collection and loss mitigation.
In addition, Fitch has also assigned the Servicer its Special Servicer
DesignationTM for residential mortgages.
Delinquency and Foreclosure Experience. The following table sets forth
the delinquency and foreclosure experience of the mortgage loans the Servicer
serviced as of the dates indicated. The Servicer's portfolio of mortgage loans
may differ significantly from the Mortgage Loans in terms of interest rates,
principal balances, geographic distribution, types of properties and other
possibly relevant characteristics. There can be no assurance,
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and no representation is made, that the delinquency and foreclosure experience
with respect to the Mortgage Loans will be similar to that reflected in the
table below, nor is any representation made as to the rate at which losses may
be experienced on liquidation of defaulted Mortgage Loans. The actual
delinquency experience on the Mortgage Loans will depend, among other things,
upon the value of the real estate securing such Mortgage Loans and the ability
of the related mortgagor to make required payments. It should be noted that the
Servicer's business emphasizes to a certain degree the acquisition of servicing
rights with respect to non-performing and subperforming mortgage loans and the
Servicer has been an active participant in the market for such servicing rights
since 1997. The acquisition of such servicing rights may have affected the
delinquency and foreclosure experience of the Servicer.
Delinquency and Foreclosure Experience(1)
<TABLE>
<CAPTION>
As of June 30, 2000 As of December 31, 1999
------------------- -----------------------
Principal % by Principal Principal % by Principal
No. of Loans Balance(2) Balance No. of Loans Balance(2) Balance
------------ -------------- -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Current Loans 52,563 $3,675,087,921 71.23% 37,105 $2,580,776,677 69.98%
Period of Delinquency(3)
30 Days 6,966 $475,432,588 9.22% 4,638 $323,122,291 8.76%
60-89 Days 2,545 $179,993,605 3.49% 1,886 $133,339,006 3.62%
90 Days or More 2,691 $167,920,092 3.25% 2,056 $127,745,979 3.46%
----- ------------ ----- ----- ------------ -----
Total Delinquency 12,202 $823,346,285 15.96% 8,580 $584,207,276 15.84%
Foreclosures/Bankruptcy(4) 6,932 $545,896,899 10.58% 5,503 $433,109,387 11.74%
Real Estate Owned 1,713 $114,812,609 2.23% 1,264 $89,691,707 2.43%
----- ------------ ----- ----- ----------- -----
Total Portfolio 73,410 $5,159,143,714 100.00% 52,452 $3,687,785,047 100.00%
------ -------------- ------- ------ -------------- -------
<CAPTION>
As of December 31, 1998
-----------------------
Principal % by Principal
No. of Loans Balance(2) Balance
------------ -------------- --------------
<S> <C> <C> <C>
Current Loans 39,063 $2,489,678,138 78.01%
Period of Delinquency(3)
30 Days 3,689 $233,734,152 7.32%
60-89 Days 1,497 $87,944,512 2.76%
90 Days or More 2.578 $121,504,523 3.81%
----- ------------ -----
Total Delinquency 7,764 $443,183,187 13.89%
Foreclosures/Bankruptcy(4) 2,780 $197,668,255 6.19%
Real Estate Owned 1.009 $60,867,154 1.91%
----- ----------- -----
Total Portfolio 50.616 $3,191,396,734 100.00%
------ -------------- -------
</TABLE>
----------
(1) The table shows mortgage loans which were delinquent or for which
foreclosure proceedings had been instituted as of the date indicated.
(2) For the Real Estate Owned properties, the principal balance is at the
time of foreclosure.
(3) No mortgage loan is included in this section of the table as delinquent
until it is 30 days past due.
(4) Exclusive of the number of loans and principal balance shown in Period
of Delinquency.
It is unlikely that the delinquency experience of the Mortgage Loans
comprising the Mortgage Pool will correspond to the delinquency experience of
the Servicer's mortgage portfolio set forth in the foregoing table. The
statistics shown above represent the delinquency experience for the Servicer's
mortgage servicing portfolio only for the periods presented, whereas the
aggregate delinquency experience on the Mortgage Loans comprising the Mortgage
Pool will depend on the results obtained over the life of the Mortgage Pool. The
Servicer does not have significant historical delinquency, bankruptcy,
foreclosure or default experience that may be referred to for purposes of
estimating the future delinquency and loss experience of Mortgage Loans. There
can be no assurance that the Mortgage Loans comprising the Mortgage Pool will
perform consistent with the delinquency or foreclosure experience described
herein. It should be noted that if the residential real estate market should
experience an overall decline in property values, the actual rates of
delinquencies and foreclosures could be higher than those previously experienced
by the Servicer. In addition, adverse economic conditions may affect the timely
payment by mortgagors of scheduled payments of principal and interest on the
Mortgage Loans and, accordingly, the actual rates of delinquencies and
foreclosures with respect to the Mortgage Pool.
THE POOLING AND SERVICING AGREEMENT
General
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, dated as of August 1, 2000 (the "Pooling and Servicing Agreement"),
by and among the Depositor, the Seller, the Servicer and the Trustee. The Trust
Fund created under the Pooling and Servicing Agreement will consist of (i) all
of the Depositor's right, title and interest in the Mortgage Loans, the related
mortgage notes, mortgages and other related documents, (ii) all payments on or
collections in respect of the Mortgage Loans due after the Cut-off Date,
together with any proceeds thereof, (iii) any Mortgaged Properties acquired on
behalf of Certificateholders by foreclosure or by deed in lieu of foreclosure,
and any revenues received thereon, (iv) the rights of the Trustee under all
insurance policies
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required to be maintained pursuant to the Pooling and Servicing Agreement and
(v) the rights of the Depositor under the Mortgage Loan Purchase Agreement. The
Offered Certificates will be transferable and exchangeable at the corporate
trust offices of the Trustee.
Assignment of the Mortgage Loans
On or about September 15, 2000 ( the "Closing Date" ), the Depositor
will transfer to the Trust Fund all of its right, title and interest in and to
each Mortgage Loan, the related mortgage notes, mortgages and other related
documents (collectively, the "Related Documents"), including all scheduled
payments with respect to each such Mortgage Loan due after the Cut-off Date and
all rights under the related FHA Insurance Agreements and the VA Guarantees. The
Trustee, concurrently with such transfer, will deliver the Certificates to the
Depositor. Each Mortgage Loan transferred to the Trust Fund will be identified
on a schedule (the "Mortgage Loan Schedule") delivered to the Trustee pursuant
to the Pooling and Servicing Agreement. Such Mortgage Loan Schedule will include
information such as the Principal Balance of each Mortgage Loan as of the
Cut-off Date, its Mortgage Interest Rate as well as other information.
The Pooling and Servicing Agreement will require that, within the time
period specified therein, the Seller will deliver or cause to be delivered to
Bank One Trust Company, NA (the "Custodian"), as the Trustee's agent for such
purpose, the mortgage notes endorsed to the Trustee on behalf of the
Certificateholders and the Related Documents. In lieu of delivery of original
mortgages or mortgage notes, if such original is not available or lost, the
Seller may deliver or cause to be delivered true and correct copies thereof, or,
with respect to a lost mortgage note, a lost note affidavit executed by the
Seller or the originator of such Mortgage Loan.
Within 60 days following the Closing Date, the Trustee will review (or
cause the Custodian to review) the Mortgage Loans and the Related Documents
pursuant to the Pooling and Servicing Agreement and if any Mortgage Loan or
Related Document is found to be defective in any material respect and such
defect has a material and adverse effect on the Certificateholders and is not
cured within 120 days following notification thereof to the Seller (or within 90
days of the earlier of the Seller's discovery or receipt of notification if such
defect would cause the Mortgage Loan not to be a "qualified mortgage" for REMIC
purposes) and the Trustee by the Custodian (or 150 days following the Closing
Date, in the case of missing mortgages or assignments), the Seller will be
obligated to either (i) substitute for such Mortgage Loan an Eligible Substitute
Mortgage Loan; however, such substitution is permitted only within two years of
the Closing Date and may not be made unless an opinion of counsel is provided to
the effect that such substitution will not disqualify any of the REMICs
comprising the Trust Fund as a REMIC or result in a prohibited transaction tax
under the Code or (ii) purchase such Mortgage Loan at a price (the "Purchase
Price") equal to the outstanding Principal Balance of such Mortgage Loan as of
the date of purchase, plus all accrued and unpaid interest thereon, computed at
the Mortgage Interest Rate through the end of the calendar month in which the
purchase is effected, plus the amount of any unreimbursed Advances and Servicing
Advances made by the Servicer. If, however, a Mortgage Loan is discovered to be
defective in a manner that would cause it to be a "defective obligation" within
the meaning of Treasury regulations relating to REMICs, the Seller will be
obligated to cure the defect or make the required purchase or substitution no
later than 90 days after the earlier of its discovery or receipt of notification
of the defect. The Purchase Price will be deposited in the Collection Account on
or prior to the next succeeding Determination Date after such obligation arises.
The obligation of the Seller to repurchase or substitute for a Defective
Mortgage Loan is the sole remedy regarding any defects in the Mortgage Loans and
Related Documents available to the Trustee or the Certificateholders.
In connection with the substitution of an Eligible Substitute Mortgage
Loan, the Seller will be required to deposit in the Collection Account on or
prior to the next succeeding Determination Date after such obligation arises an
amount (the "Substitution Adjustment") equal to the excess of the Principal
Balance of the related Defective Mortgage Loan over the Principal Balance of
such Eligible Substitute Mortgage Loan.
An "Eligible Substitute Mortgage Loan" is a mortgage loan the Seller
substitutes for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance), not in excess of, and not more than 5% less than,
the Principal Balance of the Defective Mortgage Loan; (ii) have a Mortgage
Interest Rate, with respect to a Group 1 Mortgage Loan, not less than the
Mortgage Interest Rate of the Defective Mortgage Loan and not more than 1% in
excess of the Mortgage Interest Rate of such
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Defective Mortgage Loan or, with respect to a Group 2 Mortgage Loan, have a
Maximum Loan Rate and Minimum Loan Rate not less than the respective rate for
the Defective Mortgage Loan and have a Gross Margin equal to or greater than the
Defective Mortgage Loan; (iii) have the same Due Date as the Defective Mortgage
Loan; (iv) have a remaining term to maturity not more than one year earlier and
not later than the remaining term to maturity of the Defective Mortgage Loan;
(v) comply with each representation and warranty as to the Mortgage Loans set
forth in the Pooling and Servicing Agreement (deemed to be made as of the date
of substitution); (vi) have been underwritten or re-underwritten by the Seller
in accordance with the same underwriting criteria and guidelines as the Mortgage
Loans being replaced; (vii) must be of the same or better credit quality as the
Mortgage Loan being replaced; and (viii) satisfy certain other conditions
specified in the Pooling and Servicing Agreement.
The Seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan (e.g., Cut-off Date Principal Balance
and the Mortgage Interest Rate). In addition, the Seller will represent and
warrant, on the Closing Date, that, among other things: (i) at the time of
transfer to the Depositor, the Seller has transferred or assigned all of its
right, title and interest in each Mortgage Loan and the Related Documents, free
of any lien; and (ii) each Mortgage Loan complied, at the time of origination,
in all material respects with applicable state and federal laws. Upon discovery
of a breach of any such representation and warranty which materially and
adversely affects the interests of the Certificateholders in the related
Mortgage Loan and Related Documents, the Seller will have a period of 90 days
after discovery or notice of the breach to effect a cure. If the breach cannot
be cured within the 90-day period, the Seller will be obligated to (i)
substitute for such Defective Mortgage Loan an Eligible Substitute Mortgage Loan
or (ii) purchase such Defective Mortgage Loan from the Trust Fund. The same
procedure and limitations that are set forth above for the substitution or
purchase of Defective Mortgage Loans as a result of deficient documentation
relating thereto will apply to the substitution or purchase of a Defective
Mortgage Loan as a result of a breach of a representation or warranty in the
Pooling and Servicing Agreement that materially and adversely affects the
interests of the Certificateholders.
Mortgage Loans required to be transferred to the Seller as described in
the preceding paragraphs are referred to as "Defective Mortgage Loans."
Pursuant to the Pooling and Servicing Agreement, the Servicer will
service and administer the Mortgage Loans as more fully set forth therein.
Payments on Mortgage Loans; Deposits to Collection Account and Distribution
Account
The Servicer will establish and maintain or cause to be maintained a
separate trust account (the "Collection Account") for the benefit of the holders
of the Certificates. The Collection Account will be an Eligible Account (as
defined herein). Upon receipt by the Servicer of amounts in respect of the
Mortgage Loans (excluding amounts representing the Servicing Fee, the mortgage
insurance premiums, reimbursement for Advances and Servicing Advances, insurance
proceeds to be applied to the restoration or repair of a Mortgaged Property or
similar items), the Servicer will deposit such amounts in the Collection
Account. Amounts so deposited may be invested in Eligible Investments (as
described in the Pooling and Servicing Agreement) maturing no later than one
Business Day prior to the date on which the amount on deposit therein is
required to be deposited in the Distribution Account. A "Business Day" is any
weekday that is not a federally recognized holiday, beginning at 9:00 a.m.
Eastern Time and ending at 5:00 p.m. Eastern Time. The Trustee will establish an
account (the "Distribution Account") into which will be deposited amounts
withdrawn from the Collection Account for distribution to Certificateholders on
a Distribution Date. The Distribution Account will be an Eligible Account.
Amounts on deposit therein may be invested in Eligible Investments maturing on
or before the Business Day prior to the related Distribution Date unless such
Eligible Investments are invested in investments managed or advised by the
Trustee or an affiliate thereof, in which case such Eligible Investments may
mature on the related Distribution Date.
An "Eligible Account" is a segregated account that is (i) an account or
accounts maintained with a federal or state chartered depository institution or
trust company the short-term unsecured debt obligations of which (or, in the
case of a depository institution or trust company that is the principal
subsidiary of a holding company, the short-term unsecured debt obligations of
such holding company) are rated "A-1" (or the equivalent) by each of the Rating
Agencies at the time any amounts are held on deposit therein, (ii) an account or
accounts the deposits in which are fully insured by the Federal Deposit
Insurance Corporation (to the limits established by such corporation),
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the uninsured deposits in which account are otherwise secured such that, as
evidenced by an opinion of counsel delivered to the Trustee and to each Rating
Agency, the Certificateholders will have a claim with respect to the funds in
such account or a perfected first priority security interest against such
collateral (which shall be limited to Eligible Investments) securing such funds
that is superior to claims of any other depositors or creditors of the
depository institution with which such account is maintained, (iii) a trust
account or accounts maintained with the trust department of a federal or state
chartered depository institution, national banking association or trust company
acting in its fiduciary capacity or (iv) otherwise acceptable to each Rating
Agency without reduction or withdrawal of their then current ratings of the
Certificates as evidenced by a letter from each Rating Agency to the Trustee.
Eligible Investments are specified in the Pooling and Servicing Agreement and
are limited to investments which meet the criteria of the Rating Agencies from
time to time as being consistent with their then current ratings of the
Certificates.
Advances
Subject to the following limitations, the Servicer will be obligated to
advance or cause to be advanced at least one Business Day prior to each
Distribution Date its own funds, or funds in the Collection Account that are not
included in the Available Funds for such Distribution Date, in an amount equal
to the aggregate of all payments of principal and interest, net of the Servicing
Fee and any mortgage insurance premiums that were due during the related
Collection Period on the Actuarial Mortgage Loans, other than Balloon Payments,
and that were not received by the related Determination Date and, with respect
to Balloon Loans which are Actuarial Mortgage Loans, with respect to which the
Balloon Payment is not made when due, an assumed monthly payment that would have
been due on the related Due Date based on the original principal amortization
schedule for such Balloon Loan (any such advance, an "Advance").
The Servicer will not make any Advances of principal or interest with
respect to Simple Interest Mortgage Loans or REO Properties.
Advances with respect to Actuarial Mortgage Loans are required to be
made only to the extent the Servicer deems them to be recoverable from related
late collections, insurance proceeds or liquidation proceeds. The purpose of
making such Advances is to maintain a regular cash flow to the
Certificateholders, rather than to guarantee or insure against losses. The
Servicer will not be required, however, to make any Advances with respect to
reductions in the amount of the Monthly Payments on the Mortgage Loans due to
bankruptcy proceedings or the application of the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended (the "Relief Act"). Subject to the recoverability
standard above, the Servicer's obligation to make Advances as to any Actuarial
Mortgage Loan will continue until the earlier of such time as the Trust acquires
title to the related Mortgaged Property or such Mortgage Loan is paid in full by
the mortgagor or disposed of by the Trust.
All Advances will be reimbursable to the Servicer from late
collections, insurance proceeds and liquidation proceeds from the Mortgage Loan
as to which such unreimbursed Advance was made. In addition, any Advances
previously made in respect of any Mortgage Loan that the Servicer deems to be
nonrecoverable from related late collections, insurance proceeds or liquidation
proceeds may be reimbursed to the Servicer out of any funds in the Collection
Account prior to the distributions on the Certificates. In the event the
Servicer fails in its obligation to make any such Advance, the Trustee, in its
capacity as successor Servicer, will be obligated to make any such Advance, to
the extent required in the Pooling and Servicing Agreement.
In the course of performing its servicing obligations, the Servicer
will pay all reasonable and customary "out-of-pocket" costs and expenses
incurred in the performance of its servicing obligations, including, but not
limited to, the cost of (i) the preservation, restoration and protection of the
Mortgaged Properties, (ii) any enforcement or judicial proceedings, including
foreclosures, and (iii) the management and liquidation of Mortgaged Properties
acquired in satisfaction of the related mortgage. Each such expenditure will
constitute a "Servicing Advance."
The Servicer's right to reimbursement for Servicing Advances is limited
to late collections on the related Mortgage Loan, including liquidation
proceeds, released mortgaged property proceeds, insurance proceeds and such
other amounts the Servicer may collect from the related mortgagor or otherwise
relating to the Mortgage Loan in respect of which such unreimbursed amounts are
owed, unless such amounts are deemed to be nonrecoverable by
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the Servicer, in which event reimbursement will be made to the Servicer from any
funds in the Collection Account prior to the distributions on the Certificates.
The Trustee
The Chase Manhattan Bank, a New York banking corporation, will act as
trustee (the "Trustee") for the Certificates pursuant to the Pooling and
Servicing Agreement. The Trustee's offices for notices under the Pooling and
Servicing Agreement are located at 450 West 33rd Street, 14th floor, New York,
New York 10001, Attention: Capital Markets Fiduciary Services, C-BASS Series
2000-CB3. The Trustee's telephone number is (212) 946-3200. The principal
compensation to be paid to the Trustee in respect of its obligations under the
Pooling and Servicing Agreement will be the "Trustee Fee." The Pooling and
Servicing Agreement will provide that the Trustee and any director, officer,
employee or agent of the Trustee will be indemnified by the Trust Fund and will
be held harmless against any loss, liability or expense (not including expenses,
disbursements and advances incurred or made by the Trustee in the ordinary
course of the Trustee's performance in accordance with the provisions of the
Pooling and Servicing Agreement) the Trustee incurs arising out of or in
connection with the acceptance or administration of its obligations and duties
under the Pooling and Servicing Agreement, other than any loss, liability or
expense (i) that constitutes a specific liability of the Trustee under the
Pooling and Servicing Agreement or (ii) incurred by reason of willful
misfeasance, bad faith or negligence in the performance of the Trustee's duties
under the Pooling and Servicing Agreement, or by reason of reckless disregard,
of the Trustee's obligations and duties under the Pooling and Servicing
Agreement.
Servicing and Other Compensation and Payment of Expenses
The principal compensation (the "Servicing Fee") to be paid to the
Servicer in respect of its servicing activities for the Certificates will be at
the "Servicing Fee Rate" of 0.50% per annum on the Principal Balance of each
Mortgage Loan. As additional servicing compensation, the Servicer is entitled to
retain all service-related fees, including assumption fees, modification fees,
extension fees and late payment charges, to the extent collected from
mortgagors, together with any interest or other income earned on funds held in
the Collection Account and any escrow accounts. The Servicer is obligated to
offset any Prepayment Interest Shortfall on Actuarial Mortgage Loans on any
Distribution Date (payments the Servicer makes in satisfaction of such
obligation, "Compensating Interest") by an amount not in excess of one-half of
its Servicing Fee for such Distribution Date. The Servicer will not offset any
Prepayment Interest Shortfall on Simple Interest Mortgage Loans on any
Distribution Date. The Servicer is obligated to pay certain insurance premiums
and certain ongoing expenses associated with the Mortgage Pool and incurred by
the Servicer in connection with its responsibilities under the Pooling and
Servicing Agreement and is entitled to reimbursement therefor as provided in the
Pooling and Servicing Agreement.
The Servicer, in its capacity as a special servicer, is also entitled
to an additional servicing fee (the "Special Servicing Fee"), in connection with
Mortgage Loans that are 90 or more days Delinquent. As more fully described in
the Pooling and Servicing Agreement, the Special Servicing Fee is equal to $150
per Mortgage Loan that are 90 or more days Delinquent, payable monthly for
eighteen consecutive months commencing in the first month after the Cut-off Date
in which payments on such Mortgage Loan are 90 or more days Delinquent, unless
such Mortgage Loan becomes less than 90 days Delinquent or is liquidated or
repurchased. The Servicer will remain entitled to receive any Special Servicing
Fees owed but not paid from previous Distribution Dates.
The "Determination Date" with respect to any Distribution Date will be
the 10th day of the calendar month in which such Distribution Date occurs or, if
such day is not a Business Day, the Business Day immediately preceding such 10th
day. With respect to any Determination Date and each Mortgage Loan as to which a
principal prepayment in full was applied during the prior calendar month, the
"Prepayment Interest Shortfall" is an amount equal to the interest at the
Mortgage Interest Rate for such Mortgage Loan (net of the Servicing Fee Rate and
mortgage insurance premium) on the amount of such principal prepayment for the
number of days commencing on the date on which the principal prepayment is
applied and ending on the last day of the prior calendar month.
Pledge and Assignment of Servicer's Rights
On or after the Closing Date, the Servicer will pledge and assign all
of its right, title and interest in, to and under the Pooling and Servicing
Agreement to any one or more lenders (each, a "Servicing Rights Pledgee")
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selected by the Servicer, including First Union National Bank, as the
representative of certain lenders. In the event that an Event of Servicing
Termination (as defined below) occurs, the Trustee and the Depositor have agreed
to the appointment of the selected Serving Rights Pledgee or its designee as the
successor servicer, provided that at the time of such appointment the Servicing
Rights Pledgee or such designee meets the requirements of a successor servicer
described in the Pooling and Servicing Agreement (including being acceptable to
the Rating Agencies) and that the selected Servicing Rights Pledgee or such
designee agrees to be subject to the terms of the Pooling and Servicing
Agreement.
Termination
The Seller will have the right to purchase all of the Mortgage Loans
and REO Properties in the Trust Fund and thereby effect the early retirement of
the Certificates, on any Distribution Date on which the aggregate Principal
Balance of such Mortgage Loans and REO Properties is less than 10% of the
aggregate Principal Balance of the Mortgage Loans as of the Cut-Off Date. The
first Distribution Date on which such option could be exercised is referred to
herein as the "Optional Termination Date". In the event that the option is
exercised, the purchase will be made at a price (the "Termination Price")
generally equal to par plus accrued interest for each Mortgage Loan at the
related Mortgage Interest Rate to but not including the first day of the month
in which such purchase price is distributed plus the amount of any unreimbursed
Advances and Servicing Advances made by the Servicer. Proceeds from such
purchase will be included in Available Funds and will be distributed to the
holders of the Certificates in accordance with the Pooling and Servicing
Agreement. Any such purchase of Mortgage Loans and REO Properties will result in
the early retirement of the Certificates.
Optional Purchase of Defaulted Loans
As to any Mortgage Loan which is Delinquent in payment by 60 days or
more, the Seller may, at its option, purchase such Mortgage Loan from the Trust
Fund at the Purchase Price for such Mortgage Loan.
Events of Servicing Termination
Events of Servicing Termination will consist, among other things, of:
(i) any failure by the Servicer to deposit in the Collection Account or
Distribution Account the required amounts or remit to the Trustee any payment
which continues unremedied for one Business Day following written notice to the
Servicer; (ii) any failure of the Servicer to make any Advance with respect to
an Actuarial Mortgage Loan or to cover any Prepayment Interest Shortfalls on
Actuarial Mortgage Loans, as described herein, which failure continues
unremedied for one Business Day; (iii) any failure of the Servicer to observe or
perform in any material respect any other of its covenants or agreements in the
Pooling and Servicing Agreement, which continues unremedied for 30 days after
the first date on which (x) the Servicer has knowledge of such failure or (y)
written notice of such failure is given to the Servicer; (iv) insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, and certain actions by or on behalf of the Servicer indicating its
insolvency or inability to pay its obligations; or (v) cumulative Realized
Losses as of any Distribution Date exceed the amount specified in the Pooling
and Servicing Agreement.
Rights upon Event of Servicing Termination
So long as an Event of Servicing Termination under the Pooling and
Servicing Agreement remains unremedied, the Trustee may, and at the direction of
the holders of the Offered Certificates evidencing not less than 51% of the
Voting Rights is required to, terminate all of the rights and obligations of the
Servicer in its capacity as servicer with respect to the Mortgage Loans, as
provided in the Pooling and Servicing Agreement, whereupon the Trustee will
succeed to all of the responsibilities and duties of the Servicer under the
Pooling and Servicing Agreement, including the obligation to make any required
Advances subject to the pledge and assignment to First Union as described above.
No assurance can be given that termination of the rights and obligations of the
Servicer under the Pooling and Servicing Agreement would not adversely affect
the servicing of the related Mortgage Loans, including the delinquency
experience of such Mortgage Loans.
No holder of an Offered Certificate, solely by virtue of such holder's
status as a holder of an Offered Certificate, will have any right under the
Pooling and Servicing Agreement to institute any proceeding with respect
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thereto, unless such holder previously has given to the Trustee written notice
of default and unless the holders of Offered Certificates having not less than
51% of the Voting Rights evidenced by the Offered Certificates so agree and have
offered indemnity satisfactory to the Trustee.
Voting Rights
With respect to any Determination Date, the percentage of all the
Voting Rights allocated among holders of the Certificates (other than the Class
N, Class X and Class R Certificates) will be 98% and will be allocated among the
classes of such Certificates in the proportion that the aggregate Certificate
Principal Balance of all the Certificates of such class then outstanding bear to
the aggregate Certificate Principal Balance of all Certificates then
outstanding. With respect to any Determination Date, the percentage of all the
Voting Rights allocated among holders of the Class N and Class X Certificates
will be 2%. The Voting Rights allocated to a class of Certificates will be
allocated among all holders of each such class in proportion to the outstanding
certificate balances (or Percentage Interest) of such Certificates. The Class R
Certificates will not have any Voting Rights.
Amendment
The Seller, the Depositor, the Servicer and the Trustee may amend the
Pooling and Servicing Agreement without the consent of the holders of the
Certificates, for any of the purposes set forth in the Pooling and Servicing
Agreement itself. In addition, the Seller, the Depositor, the Servicer and the
Trustee and the holders of a majority in interest of any class of Offered
Certificates affected thereby may amend the Pooling and Servicing Agreement 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 of any class of Offered Certificates;
provided, however, that no such amendment may (i) reduce in any manner the
amount of, or delay the timing of, distributions required to be made on any
class of Offered Certificates without the consent of the holders of such
Certificates; (ii) adversely affect in any material respect the interests of the
holders of any class of Offered Certificates in a manner other than as described
in clause (i) above, without the consent of the holders of such class evidencing
percentage interests aggregating at least 66%; or (iii) reduce the aforesaid
percentage of aggregate outstanding principal amounts of Offered Certificates,
the holders of which are required to consent to any such amendment, without the
consent of the holders of all such Certificates.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement. Set forth below are summaries of the specific terms and provisions
pursuant to which the Offered Certificates will be issued. The following
summaries do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, the provisions of the Pooling and Servicing
Agreement. When particular provisions or terms used in the Pooling and Servicing
Agreement are referenced, the actual provisions (including definitions of terms)
are incorporated by reference.
The Trust will issue the Class A-1F, Class A-2F, Class A-1A
Certificates (the "Class A Certificates" or the "Senior Certificates"), the
Class M-1, Class M-2, Class B, Class N and Class X Certificates (the
"Subordinated Certificates") and the Class R Certificates (the "Residual
Certificates"). The Senior Certificates, the Subordinated Certificates and the
Residual Certificates are collectively referred to herein as the "Certificates."
Only the Class A, Class M-1, Class M-2 and Class B Certificates are offered
hereby (the "Offered Certificates").
The Offered Certificates will have the respective Original Certificate
Principal Balances specified on the cover hereof, subject to a permitted
variance of plus or minus five percent.
The Offered Certificates will be issued in book-entry form as described
below. The Offered Certificates will be issued in minimum dollar denominations
of $25,000 and integral multiples of $1 in excess thereof.
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Distributions on the Offered Certificates will be made by the Trustee
on the 25th day of each month, or if such day is not a Business Day, on the
first Business Day thereafter, commencing in September 2000 (each, a
"Distribution Date"), to the persons in whose names such Certificates are
registered at the close of business on the Record Date. With respect to the
Offered Certificates (other than the Class A-1A Certificates), the "Record Date"
is the last Business Day of the month immediately preceding the month in which
the related Distribution Date occurs or the Closing Date, in the case of the
first Distribution Date. With respect to the Class A-1A Certificates, the
"Record Date" is the Business Day immediately preceding such Distribution Date;
provided, however, that if any Class A-1A Certificate becomes a Definitive
Certificate (as defined herein), the Record Date for such Certificate will be
the last Business Day of the month immediately preceding the month in which the
related Distribution Date occurs.
Book-Entry Certificates
The Offered Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership interests in
the Offered Certificates ("Certificate Owners") will hold such Certificates
through DTC in the United States, or Clearstream or Euroclear (in Europe) if
they are participants of such systems (the "Participants"), or indirectly
through organizations which are participants in such systems (the "Indirect
Participants"). The Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate Certificate Principal Balance of such
Certificates and will initially be registered in the name of Cede & Co., the
nominee of DTC. Clearstream and Euroclear will hold omnibus positions on behalf
of their participants through customers' securities accounts in Clearstream's
and Euroclear's names on the books of their respective depositaries which in
turn will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank will act as depositary for
Clearstream and The Chase Manhattan Bank will act as depositary for Euroclear
(in such capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Investors may hold such beneficial interests in the
Book-Entry Certificates in minimum denominations of $25,000. Except as described
below, no person acquiring a Book-Entry Certificate (each, a "beneficial owner")
will be entitled to receive a physical certificate representing such Certificate
(a "Definitive Certificate"). Unless and until Definitive Certificates are
issued, it is anticipated that the only "Certificateholder" of the Offered
Certificates will be Cede & Co., as nominee of DTC. Certificate Owners will not
be Certificateholders as that term is used in the Pooling and Servicing
Agreement. Certificate Owners are only permitted to exercise their rights
indirectly through Participants and DTC.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC Participant and on
the records of Clearstream or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of and
interest on the Book-Entry Certificates from the Trustee through DTC and DTC
Participants. While the Book-Entry Certificates are outstanding (except under
the circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Book-Entry Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Book-Entry Certificates.
Participants and Indirect Participants with whom Certificate Owners have
accounts with respect to Book-Entry Certificates are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess certificates representing their respective interests in the
Book-Entry Certificates, the Rules provide a mechanism by which Certificate
Owners will receive distributions and will be able to transfer their interest.
Certificateholders will not receive or be entitled to receive
certificates representing their respective interests in the Book-Entry
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Certificateholders who are not
Participants may transfer ownership of Book-Entry Certificates only through
Participants and Indirect Participants by instructing such Participants and
Indirect Participants to transfer Book-Entry Certificates, by book-entry
transfer, through DTC for the account of the
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purchasers of such Book-Entry Certificates, which account is maintained with
their respective Participants. Under the Rules and in accordance with DTC's
normal procedures, transfers of ownership of Book-Entry Certificates will be
executed through DTC and the accounts of the respective Participants at DTC will
be debited and credited. Similarly, the Participants and Indirect Participants
will make debits or credits, as the case may be, on their records on behalf of
the selling and purchasing Certificateholders.
Because of time zone differences, credits of securities received in
Clearstream or Euroclear as a result of a transaction with a Participant will be
made during subsequent securities settlement processing and dated the Business
Day following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Clearstream Participants on such Business Day. Cash received in
Clearstream or Euroclear as a result of sales of securities by or through a
Clearstream 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 Clearstream or Euroclear cash account only as of the Business Day
following settlement in DTC. For information with respect to tax documentation
procedures relating to the Certificates, see "Material Federal Income Tax
Consequences--Partnership Interests," "Material Federal Income Tax
Consequences--Debt Securities," "Material Federal Income Tax
Consequences--Foreign Investors," and "Material Federal Income Tax
Consequences--Backup Withholding" in the Prospectus and "Global Clearance,
Settlement and Tax Documentation Procedures--Certain U.S. Federal Income Tax
Documentation Requirements" in Annex I in this Prospectus Supplement.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Clearstream 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 Clearstream
Participants or Euroclear Participants, on the other, will be effected in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Clearstream Participants and Euroclear Participants may not deliver
instructions directly to the European Depositaries.
DTC which is a New York-chartered limited purpose trust company,
performs services for its Participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC Participant in the Book-Entry
Certificates, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of Book-Entry Certificates will be
subject to the Rules, as in effect from time to time.
Clearstream, 67 Bd Grande-Duchesse Charlotte, L-1331 Luxembourg, was
incorporated in 1970 as a limited company under Luxembourg law. Clearstream is
owned by banks, securities dealers and financial institutions, and currently has
about 100 shareholders, including U.S. financial institutions or their
subsidiaries. No single entity may own more than five percent of Clearstream's
stock.
Clearstream is registered as a bank in Luxembourg, and as such is
subject to regulation by the Institute Monetaire Luxembourgeois ("IML"), the
Luxembourg Monetary Authority, which supervises Luxembourg banks.
Clearstream holds securities for its customers ("Clearstream
Participants") and facilitates the clearance and settlement of securities
transactions by electronic book-entry transfers between their accounts.
Clearstream provides various services, including safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream also deals with domestic securities markets
in several countries through established depository and custodial relationships.
Clearstream has established an electronic bridge with Morgan Guaranty Trust as
the Euroclear Operator in Brussels to facilitate settlement of trades between
systems. Clearstream currently accepts over 70,000 securities issues on its
books.
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Clearstream's customers are world-wide financial institutions including
underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations. Clearstream's United States customers are limited to
securities brokers and dealers and banks. Currently, Clearstream has
approximately 3,000 customers located in over 60 countries, including all major
European countries, Canada, and the United States. Indirect access to
Clearstream is available to other institutions which clear through or maintain a
custodial relationship with an account holder of Clearstream.
The Euroclear System ("Euroclear") was created in 1968 to hold
securities for its participants ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may be settled in any of 29
currencies, including United States dollars. Euroclear includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described above. Euroclear is operated by the
Brussels, Belgium office of Morgan Guaranty Trust Company of New York (the
"Euroclear Operator"), under contract with Euroclear Clearance Systems S.C., a
Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for Euroclear on behalf
of Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to Cede & Co., as nominee of DTC. DTC will be
responsible for crediting the amount of such payments to the accounts of the
applicable DTC Participants in accordance with DTC's normal procedures. Each DTC
Participant will be responsible for disbursing such payments to the beneficial
owners of the Book-Entry Certificates that it represents and to each Financial
Intermediary for which it acts as agent. Each such Financial Intermediary will
be responsible for disbursing funds to the beneficial owners of the Book-Entry
Certificates that it represents.
Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede & Co. Distributions with
respect to Certificates held through Clearstream or Euroclear will be credited
to the cash accounts of Clearstream Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Material Federal Income Tax Consequences--Partnership Interests," "Material
Federal Income Tax Consequences--Debt Securities," "Material Federal Income Tax
Consequences--Foreign Investors," and "Material Federal Income Tax
Consequences--Backup Withholding" in the Prospectus. Because DTC can only act on
behalf of DTC Participants, the ability of a beneficial owner to pledge
Book-Entry Certificates to persons or entities that do not participate in the
Depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such Certificates in the secondary
market since certain potential investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates.
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Monthly and annual reports on the Trust Fund will be provided to Cede &
Co., as nominee of DTC, and may be made available by Cede & Co. to beneficial
owners upon request, in accordance with the rules, regulations and procedures
creating and affecting the DTC Participants to whose DTC accounts the Book-Entry
Certificates of such beneficial owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action the holders of the Book-Entry
Certificates are permitted to take under the Pooling and Servicing Agreement
only at the direction of one or more Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates are credited, to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings include
such Book-Entry Certificates. Clearstream or the Euroclear Operator, as the case
may be, will take any other action permitted to be taken by a Certificateholder
under the Agreement on behalf of a Clearstream Participant or Euroclear
Participant only in accordance with its relevant rules and procedures and
subject to the ability of the Relevant Depositary to effect such actions on its
behalf through DTC. DTC may take actions, at the direction of the related
Participants, with respect to some Book-Entry Certificates which conflict with
actions taken with respect to other Book-Entry Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as nominee and
depository with respect to the Book-Entry Certificates and the Depositor or the
Trustee is unable to locate a qualified successor, (b) the Depositor, at its
sole option, with the consent of the Trustee, elects to terminate a book-entry
system through DTC or (c) after the occurrence of an Event of Default,
beneficial owners having Percentage Interests aggregating not less than 51% of
the Book-Entry Certificates advise the Trustee and DTC through the Financial
Intermediaries and the DTC Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as
Certificateholders under the Agreement.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Book-Entry Certificates among
participants of DTC, Clearstream and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
Neither the Depositor, the Servicer nor 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 Cede &
Co. as nominee for DTC, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Allocation of Available Funds
Distributions to holders of each class of Offered Certificates will be
made on each Distribution Date from Available Funds. "Available Funds" will be
equal to the sum of the following amounts with respect to the Mortgage Loans,
net of amounts reimbursable or payable to the Servicer, including the Servicing
Fee and any accrued and unpaid Servicing Fee and the Lender-paid Mortgage
Insurance Fee: (i) the aggregate amount of Monthly Payments on the Mortgage
Loans due during the related Collection Period and received by the Trustee one
business day prior to the related Distribution Date, (ii) certain unscheduled
payments in respect of the Mortgage Loans, including prepayments (but excluding
any prepayment penalties and Arrearages collected), insurance proceeds and
liquidation proceeds (including any HLTV Account Allocation) net of certain
expenses received during the related Prepayment Period, (iii) payments from the
Servicer in connection with Advances and Prepayment Interest Shortfalls for such
Distribution Date, (iv) the Purchase Price for any repurchased Mortgage Loan
deposited to the Collection Account during the related Prepayment Period, (v)
any Substitution Adjustments deposited in the Collection Account during the
related Prepayment Period, and (vi) on the Distribution Date on which the Trust
is to be terminated in accordance with the Pooling and Servicing Agreement, the
Termination Price.
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The "Collection Period" with respect to any Distribution Date means the
period from the second day of the calendar month preceding the month in which
such Distribution Date occurs through the first day of the month in which such
Distribution Date occurs.
The "Prepayment Period" with respect to any Distribution Date means the
calendar month preceding the month in which such Distribution Date occurs.
Interest Distributions
On each Distribution Date, based upon the information provided to it in
the Remittance Report, the Trustee will distribute the Interest Remittance
Amount in the following order of priority to the extent available:
first, to the Trustee, the Trustee Fee;
second, concurrently, to the Class A-1F, Class A-2F and Class A-1A
Certificates, pro rata, the applicable Accrued Certificate Interest for such
Distribution Date;
third, concurrently, to the Class A-1F, Class A-2F and Class A-1A
Certificates, pro rata, the applicable Interest Carry Forward Amount for the
Class A-1F, Class A-2F and Class A-1A Certificates, respectively;
fourth, to the Class M-1 Certificates, the Accrued Certificate Interest
thereon for such Distribution Date;
fifth, to the Class M-2 Certificates, the Accrued Certificate Interest
thereon for such Distribution Date;
sixth, to the Class B Certificates, the Accrued Certificate Interest
thereon for such Distribution Date; and
seventh, the amount, if any, of the Interest Remittance Amount
remaining after application with respect to the priorities set forth above which
is defined as the "Monthly Excess Interest Amount" for such Distribution Date
and will be applied as described below under "Description of the
Certificates--Application of Monthly Excess Cashflow Amounts."
"Accrued Certificate Interest" for each Class of Offered Certificates
and each Distribution Date means an amount equal to the interest accrued during
the related Interest Accrual Period on the Certificate Principal Balance of such
class of Certificates, minus each class's Interest Percentage of shortfalls
caused by the Relief Act for such Distribution Date.
"Interest Carry Forward Amount" means for any class of Certificates and
any Distribution Date the sum of (a) the excess, if any, of the Accrued
Certificate Interest and any Interest Carry Forward Amount for the prior
Distribution Date, over the amount in respect of interest actually distributed
on each class on such prior Distribution Date and (b) interest on such excess at
the applicable Pass-Through Rate (x) with respect to the Offered Certificates
(other than the Class A-1A Certificates) on the basis of a 360-day year
consisting of twelve 30-day months and (y) with respect to the Class A-1A
Certificates, on the basis of the actual number of days elapsed since the prior
Distribution Date. The "Class A Interest Carry Forward Amount" for any
Distribution Date is the sum of the Interest Carry Forward Amounts for the Class
A Certificates for such Distribution Date.
"Interest Remittance Amount" means, as of any Determination Date, the
sum, without duplication, of (i) all interest collected or advanced with respect
to the related Collection Period on the Mortgage Loans (less the Servicing Fee,
the mortgage insurance premiums, certain amounts available for reimbursement of
Advances and Servicing Advances as described above under "The Pooling and
Servicing Agreement--Advances" and certain other reimbursable expenses pursuant
to the Pooling and Servicing Agreement), (ii) all Compensating Interest the
Servicer paid on such Determination Date with respect to the Mortgage Loans and
(iii) the portion of any payment in connection with any substitution, Purchase
Price, Termination Price, liquidation proceeds (net of certain expenses) or
insurance proceeds relating to interest with respect to the Mortgage Loans
received during the related Collection Period.
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The "Interest Accrual Period" for any Distribution Date and each class
of Offered Certificates, other than the Class A-1A Certificates, will be from
and including the first day of each month, commencing August 1, 2000, to and
including the last day of such month. With respect to the Offered Certificates
other than the Class A-1A Certificates, all calculations of interest will be
made on the basis of a 360-day year assumed to consist of twelve 30-day months.
With respect to the Class A-1A Certificates, the "Interest Accrual Period" for
any Distribution Date will be the period from the preceding Distribution Date,
or in the case of the first Distribution Date, from the Closing Date, to the day
prior to the current Distribution Date, and calculations of interest will be
made on the basis of the actual number of days in the Interest Accrual Period
and on a 360-day year.
The "Interest Percentage" is, with respect to any class of Certificates
and any Distribution Date, the ratio (expressed as a decimal carried to six
places) of the Accrued Certificate Interest for such class to the Accrued
Certificate Interest for all classes, in each case with respect to such
Distribution Date.
If the Interest Remittance Amount and the Monthly Excess Cashflow
Amount are insufficient on any Distribution Date to distribute the aggregate
Accrued Certificate Interest on the Class A Certificates entitled to
distributions of interest, any shortfall in available amounts will be allocated
to the Class A Certificates pro rata in accordance with their Interest
Percentages.
Principal Distributions
With respect to each Distribution Date (a) before the Stepdown Date or
(b) with respect to which a Trigger Event is in effect, Holders of the Class
A-1F and Class A-2F Certificates will in the aggregate be entitled to receive
the Group 1 Principal Percentage of the Principal Distribution Amount for such
Distribution Date and the Holders of the Class A-1A Certificates will be
entitled to receive the Group 2 Principal Percentage of the Principal
Distribution Amount for such Distribution Date, until the Certificate Principal
Balances thereof have been reduced to zero. Principal amounts otherwise
distributable to the Class A-1F and Class A-2F Certificates will be distributed
to the Class A-1A Certificates once the Certificate Principal Balances of the
Class A-1F and Class A-2F Certificates have been reduced to zero. Principal
amounts otherwise distributable to the Class A-1A Certificates will be
distributed to the Class A-1F and Class A-2F Certificates once the Certificates
Principal Balance of the Class A-1A Certificates has been reduced to zero.
Amounts allocated to the Class A-1F and Class A-2F Certificates will be
distributed sequentially to the Class A-1F and Class A-2F Certificates, in that
order, until the Certificate Principal Balances thereof are reduced to zero.
Once the Certificate Principal Balances of the Class A Certificates have been
reduced to zero, the Holders of the Class M-1 Certificates will be entitled to
receive 100% of the Principal Distribution Amount for such Distribution Date
until the Certificate Principal Balance of the Class M-1 Certificates has been
reduced to zero. Similarly once the Certificate Principal Balance of the Class
M-1 Certificates has been reduced to zero, the Holders of the Class M-2
Certificates will be entitled to receive 100% of the Principal Distribution
Amount until the Certificate Principal Balance of the Class M-2 Certificates has
been reduced to zero. Finally, once the Certificate Principal Balance of the
Class M-2 Certificates has been reduced to zero, the Holders of the Class B
Certificates will be entitled to receive 100% of the Principal Distribution
Amount until the Certificate Principal Balance of the Class B Certificates has
been reduced to zero.
The "Group 1 Principal Percentage" with respect to any Distribution
Date and the Class A-1F and Class A-2F Certificates, will be the percentage
equivalent of a fraction, the numerator of which is the amount of principal
collections (including any principal advanced by the Servicer) allocable to Loan
Group 1 for the related Collection Period or Prepayment Period, as applicable,
and the denominator of which is the amount of principal collections (including
any principal advanced by the Servicer) allocable to Loan Group 1 and Loan Group
2 for the related Collection Period or Prepayment Period, as applicable. The
"Group 2 Principal Percentage" with respect to any Distribution Date and the
Class A-1A Certificates, will be the percentage equivalent of a fraction, the
numerator of which is the amount of principal collections (including any
principal advanced by the Servicer) allocable to Loan Group 2 for the related
Collection Period or Prepayment Period, as applicable, and the denominator of
which is the amount of principal collections (including any principal advanced
by the Servicer) allocable to Loan Group 1 and Loan Group 2 for the related
Collection Period or Prepayment Period, as applicable.
With respect to each Distribution Date (a) on or after the Stepdown
Date and (b) as long as a Trigger Event is not in effect, the Holders of all
classes of Certificates will be entitled to receive payments of principal, in
the order of priority and in the amounts set forth below:
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first, concurrently as follows:
(i) the Group 1 Principal Percentage of the lesser of (x) the
Principal Distribution Amount and (y) Class A Principal Distribution Amount will
be distributed sequentially, to the Class A-1F and Class A-2F Certificates, in
that order, until the Certificate Principal Balance of each such class has been
reduced to zero and then to the Class A-1A Certificates, until the Certificate
Principal Balance of such class has been reduced to zero; and
(ii) the Group 2 Principal Percentage of the lesser of (x) the
Principal Distribution Amount and (y) Class A Principal Distribution Amount will
be distributed to the Class A-1A Certificates, until the Certificate Principal
Balance of such class has been reduced to zero and then sequentially to the
Class A-1F and Class A-2F Certificates, in that order, until the Certificates
Principal Balance of each such class has been reduced to zero;
second, the lesser of (x) the excess of (i) the Principal Distribution
Amount over (ii) the amount distributed to the Class A Certificates in priority
first above and (y) the Class M-1 Principal Distribution Amount will be
distributed to the Class M-1 Certificates, until the Certificate Principal
Balance thereof has been reduced to zero;
third, the lesser of (x) the excess of (i) the Principal Distribution
Amount over (ii) the sum of the amount distributed to the Class A Certificates
in priority first above and the amount distributed to the Class M-1 Certificates
in priority second above and (y) the Class M-2 Principal Distribution Amount
will be distributed to the Class M-2 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero;
fourth, the lesser of (x) the excess of (i) the Principal Distribution
Amount over (ii) the sum of the amount distributed to the Class A Certificates
pursuant to priority first above, the amount distributed to the Class M-1
Certificates pursuant to priority second above and the amount distributed to the
Class M-2 Certificates pursuant to priority third above and (y) the Class B
Principal Distribution Amount will be distributed to the Class B Certificates,
until the Certificate Principal Balance thereof has been reduced to zero; and
fifth, any amount of the Principal Distribution Amount remaining after
making all of the distributions in priority first, second, third and fourth
above will be included as part of the Monthly Excess Cashflow Amount and will be
applied as described below under "Description of the Certificates--Application
of Monthly Excess Cashflow Amounts."
For purposes of the foregoing, the following terms will have the
respective meanings set forth below.
The "Certificate Principal Balance" with respect to any class of
Certificates and any Distribution Date, will equal the principal balance of such
class on the date of the initial issuance of the Certificates as reduced, but
not below zero, by:
o all amounts distributed on previous Distribution Dates on such
class on account of principal; and
o such class's pro rata share of any Applied Realized Loss
Amount for previous Distribution Dates.
"Class A Principal Distribution Amount" means as of any Distribution
Date on or after the Stepdown Date and as long as a Trigger Event is not in
effect, the excess of (x) the sum of the Certificate Principal Balances of the
Class A Certificates immediately prior to such Distribution Date over (y) the
lesser of (A) the product of (i) approximately 58.00% and (ii) the Pool Balance
as of the last day of the related Collection Period and (B) the Pool Balance as
of the last day of the related Collection Period minus the product of (i) 0.50%
and (ii) the Pool Balance on the Cut-off Date.
"Class M-1 Principal Distribution Amount" means as of any Distribution
Date on or after the Stepdown Date and as long as a Trigger Event is not in
effect, the excess of (x) the sum of (i) the sum of the Certificate Principal
Balances of the Class A Certificates (after taking into account the payment of
the Class A Principal Distribution Amount on such Distribution Date) and (ii)
the Certificate Principal Balance of the Class M-1
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Certificates immediately prior to such Distribution Date over (y) the lesser of
(A) the product of (i) approximately 69.50% and (ii) the Pool Balance as of the
last day of the related Collection Period and (B) the Pool Balance as of the
last day of the related Collection Period minus the product of (i) 0.50% and
(ii) the Pool Balance on the Cut-off Date.
"Class M-2 Principal Distribution Amount" means as of any Distribution
Date on or after the Stepdown Date and as long as a Trigger Event is not in
effect, the excess of (x) the sum of (i) the sum of the Certificate Principal
Balances of the Class A Certificates (after taking into account the payment of
the Class A Principal Distribution Amount on such Distribution Date), (ii) the
Certificate Principal Balance of the Class M-1 Certificates (after taking into
account the payment of the Class M-1 Principal Distribution Amount on such
Distribution Date) and (iii) the Certificate Principal Balance of the Class M-2
Certificates immediately prior to such Distribution Date over (y) the lesser of
(A) the product of (i) approximately 79.50% and (ii) the Pool Balance as of the
last day of the related Collection Period and (B) the Pool Balance as of the
last day of the related Collection Period minus the product of (i) 0.50% and
(ii) the Pool Balance on the Cut-off Date.
"Class B Principal Distribution Amount" means as of any Distribution
Date on or after the Stepdown Date and as long as a Trigger Event is not in
effect, the excess of (x) the sum of (i) the sum of the Certificate Principal
Balances of the Class A Certificates (after taking into account the payment of
the Class A Principal Distribution Amount on such Distribution Date), (ii) the
Certificate Principal Balance of the Class M-1 Certificates (after taking into
account the payment of the Class M-1 Principal Distribution Amount on such
Distribution Date), (iii) the Certificate Principal Balance of the Class M-2
Certificates (after taking into account the payment of the Class M-2 Principal
Distribution Amount on such Distribution Date), and (iv) the Certificate
Principal Balance of the Class B Certificates immediately prior to such
Distribution Date over (y) the lesser of (A) the product of (i) approximately
89.50% and (ii) the Pool Balance as of the last day of the related Collection
Period and (B) the Pool Balance as of the last day of the related Collection
Period minus the product of (i) 0.50% and (ii) the Pool Balance on the Cut-off
Date.
"Extra Principal Distribution Amount" means, as of any Distribution
Date, the lesser of (x) the Monthly Excess Interest Amount for such Distribution
Date and (y) the Overcollateralization Deficiency for such Distribution Date.
"Overcollateralization Amount" means, as of any Distribution Date the
excess, if any, of (x) the Pool Balance as of the last day of the immediately
preceding Collection Period over (y) the aggregate Certificate Principal Balance
of all classes of Offered Certificates (after taking into account all
distributions of principal on such Distribution Date).
"Overcollateralization Deficiency" means, as of any Distribution Date,
the excess, if any, of (x) the Targeted Overcollateralization Amount for such
Distribution Date over (y) the Overcollateralization Amount for such
Distribution Date, calculated for this purpose after taking into account the
reduction on such Distribution Date of the Certificate Principal Balances of all
classes of Certificates resulting from the distribution of the Principal
Distribution Amount (but not the Extra Principal Distribution Amount) on such
Distribution Date, but prior to taking into account any Applied Realized Loss
Amounts on such Distribution Date.
"Overcollateralization Release Amount" means, with respect to any
Distribution Date on or after the Stepdown Date on which a Trigger Event is not
in effect, the lesser of (x) the Principal Remittance Amount for such
Distribution Date and (y) the excess, if any, of (i) the Overcollateralization
Amount for such Distribution Date, assuming that 100% of the Principal
Remittance Amount is applied as a principal payment on the Certificates on such
Distribution Date, over (ii) the Targeted Overcollateralization Amount for such
Distribution Date.
"Principal Distribution Amount" means as of any Distribution Date, the
sum of (i) the Principal Remittance Amount (minus the Overcollateralization
Release Amount, if any) and (ii) the Extra Principal Distribution Amount, if
any.
"Principal Remittance Amount" means, with respect to any Distribution
Date, to the extent of funds available therefor as described herein the amount
equal to the sum (less certain amounts available for reimbursement of Advances
and Servicing Advances as described above under "The Pooling and Servicing
Agreement--Advances"
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and certain other reimbursable expenses pursuant to the Pooling and Servicing
Agreement) of the following amounts (without duplication) with respect to the
Mortgage Loans and the immediately preceding Collection Period: (i) each payment
of principal on a Mortgage Loan due during such Collection Period and received
by the Servicer on or prior to the related Determination Date, including any
Advances with respect thereto, (ii) all full and partial principal prepayments
received by the Servicer during the related Prepayment Period, (iii) the
liquidation proceeds (net of certain expenses) allocable to principal actually
collected by the Servicer during the related Prepayment Period, (iv) the portion
of the Purchase Price allocable to principal of all repurchased Defective
Mortgage Loans with respect to such Prepayment Period and (v) any Substitution
Adjustments received on or prior to the previous Determination Date and not yet
distributed, and (vi) on the Distribution Date on which the Trust is to be
terminated in accordance with the Pooling and Servicing Agreement, that portion
of the Termination Price in respect of principal.
"Re-Performing 60+ Day Delinquent Loan" means each Mortgage Loan with
respect to which, as of any date of determination, (x) any portion of a Monthly
Payment is, as of the last day of the prior Collection Period, two months or
more past due and (y) with respect to which the mortgagor has made three Monthly
Payments within the three calendar months preceding such date of determination.
To the extent that, as of any date of determination, more than 20% of the
Mortgage Loans (measured by scheduled principal balance) are Re-Performing 60+
Day Delinquent Loans, the Re-Performing 60+ Day Delinquent Loans constituting
such excess shall be deemed to be 60+ Day Delinquent Loans.
"Senior Enhancement Percentage" for any Distribution Date is the
percentage obtained by dividing (x) the sum of (i) the aggregate Certificate
Principal Balance of the Subordinated Certificates and (ii) the
Overcollateralization Amount, in each case before taking into account the
distribution of the Principal Distribution Amount on such Distribution Date by
(y) the Pool Balance as of the last day of the related Collection Period.
"Senior Specified Enhancement Percentage" on any date of determination
thereof means approximately 42.00%.
"60+ Day Delinquent Loan" means each Mortgage Loan with respect to
which any portion of a Monthly Payment is, as of the last day of the prior
Collection Period, two months or more past due (other than a Re-Performing 60+
Day Delinquent Loan), each Mortgage Loan in foreclosure, all REO Property and
each Mortgage Loan for which the Mortgagor has filed for bankruptcy after the
Closing Date. Any Mortgage Loan which, on a 3-month rolling average basis, has
made its scheduled principal and interest payments, will not be considered to be
a 60+ Day Delinquent Loan.
"Stepdown Date" means the later to occur of (x) the earlier to occur of
(A) the Distribution Date in September 2003 and (B) the Distribution Date on
which the aggregate Certificate Principal Balance of the Class A Certificates is
reduced to zero, and (y) the first Distribution Date on which the Senior
Enhancement Percentage is greater than or equal to the Senior Specified
Enhancement Percentage.
"Targeted Overcollateralization Amount" means as of any Distribution
Date, (x) prior to the Stepdown Date, 5.25% of the initial Pool Balance and (y)
on and after the Stepdown Date, the lesser of (i) 5.25% of the initial Pool
Balance and (ii) the greater of (A) 10.50% of the Pool Balance as of the last
day of the related Collection Period and (B) 0.50% of the initial Pool Balance.
A "Trigger Event" has occurred on a Distribution Date if (i) the
six-month rolling average of 60+ Day Delinquent Loans equals or exceeds 45% of
the Senior Enhancement Percentage; provided, that if the Certificate Principal
Balance of the Senior Certificates has been reduced to zero, a Trigger Event
will have occurred if the six-month rolling average of 60+ Day Delinquent Loans
equals or exceeds 20% or (ii) the aggregate amount of Realized Losses incurred
since the Cut-off Date through the last day of the related Collection Period
divided by the initial Pool Balance exceeds the applicable percentages set forth
below with respect to such Distribution Date:
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Distribution Date Occurring In Percentage
------------------------------ ----------
September 2003 through August 2004 2.75%
September 2004 through August 2005 3.50%
September 2005 through August 2006 4.00%
September 2006 and thereafter 4.50%
Allocation of Losses
A "Realized Loss" is:
o as to any Liquidated Mortgage Loan, the unpaid Principal
Balance thereof plus accrued and unpaid interest thereon at
the Mortgage Interest Rate through the last day of the month
of liquidation, less the net proceeds from the liquidation of,
and any insurance proceeds from, such Mortgage Loan and the
related Mortgaged Property.
o as to any Mortgage Loan, a Deficient Valuation.
o as to any Mortgage Loan, a reduction in the Principal Balance
thereof resulting from a Servicer Modification.
A "Liquidated Mortgage Loan" is any defaulted Mortgage Loan as to which
the Servicer has determined that all amounts which it expects to recover from or
on account of such Mortgage Loan have been recovered.
A Realized Loss may result from the personal bankruptcy of a mortgagor
if the bankruptcy court establishes the value of the Mortgaged Property at an
amount less than the then outstanding Principal Balance of the Mortgage Loan
secured by such Mortgaged Property and reduces the secured debt to such value.
In such case, the Trust, as the holder of such Mortgage Loan, would become an
unsecured creditor to the extent of the difference between the outstanding
Principal Balance of such mortgage loan and such reduced secured debt (such
difference, a "Deficient Valuation").
If a Mortgage Loan is in default, or if default is reasonably
foreseeable, the Servicer may permit a modification of such Mortgage Loan to
reduce its Principal Balance and/or extend its term to a term not longer than
the latest maturity date of any other Mortgage Loan (any such modification, a
"Servicer Modification"). Any such principal reduction will constitute a
Realized Loss at the time of such reduction. An extension of the term will not
result in a Realized Loss unless coupled with a principal reduction.
Realized Losses will, in effect, be absorbed first by the Class X
Certificates (through the application of the Monthly Excess Interest Amount to
fund such deficiency, as well as through a reduction in the
Overcollateralization Amount).
If, after giving effect to the distribution of the Principal
Distribution Amount on any Distribution Date the aggregate Certificate Principal
Balance of the Offered Certificates exceeds the Pool Balance as of the end of
the related Collection Period, such excess will be allocated against the Class
B, Class M-2 and Class M-1 Certificates, and the Class A-1F, Class A-2F and
Class A-1A Certificates pro rata, in that order and until the respective
Certificate Principal Balances thereof are reduced to zero. Any allocation of
such excess in reduction of a Certificate Principal Balance is referred to as an
"Applied Realized Loss Amount." Any such reduction of a Certificate Principal
Balance will not be reversed or reinstated. However, on future Distribution
Dates, Certificateholders of the related class may receive amounts in respect of
prior reductions in the related Certificate Principal Balances as described
below. Such subsequent payments will be applied in the reverse of the order set
forth above.
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Application of Monthly Excess Cashflow Amounts.
The weighted average Net Mortgage Interest Rate for the Mortgage Loans
is generally expected to be higher than the weighted average of the Pass-Through
Rates on the Offered Certificates, thus generating certain excess interest
collections which, in the absence of losses, will not be necessary to fund
interest distributions on the Certificates. This excess interest for a
Collection Period, together with interest on the Overcollateralization Amount
itself, is the "Monthly Excess Interest Amount."
The "Net Mortgage Interest Rate" for each Mortgage Loan is the
applicable Mortgage Interest Rate, less (i) the Servicing Fee Rate, (ii) the
rate at which the Trustee Fee accrues and (iii) the rate at which the mortgage
insurance premium, if any, is calculated.
The required level of overcollateralization for any Distribution Date
is the Targeted Overcollateralization Amount. The Targeted Overcollateralization
Amount is initially $9,254,569.
If Realized Losses not covered by an application of the Monthly Excess
Interest Amount occur, such Realized Losses will result in an
Overcollateralization Deficiency (since it will reduce the Pool Balance without
giving rise to a corresponding reduction of the aggregate Certificate Principal
Balance of the Certificates). The cashflow priorities of the Trust Fund require
that, in this situation, an Extra Principal Distribution Amount be paid (subject
to the availability of any Monthly Excess Cashflow Amount in subsequent months)
for the purpose of re-establishing the Overcollateralization Amount at the
then-required Targeted Overcollateralization Amount.
On and after the Stepdown Date and assuming that a Trigger Event is not
in effect, the Targeted Overcollateralization Amount may be permitted to
decrease or "step-down." If the Targeted Overcollateralization Amount is
permitted to "step-down" on a Distribution Date, the Pooling and Servicing
Agreement permits a portion of the Principal Remittance Amount for such
Distribution Date not to be passed through as a distribution of principal on the
Offered Certificates on such Distribution Date. This has the effect of
decelerating the amortization of the Certificates relative to the Pool Balance,
thereby reducing the actual level of the Overcollateralization Amount to the
new, lower Targeted Overcollateralization Amount. This portion of the Principal
Remittance Amount not distributed as principal on the Certificates therefore
releases overcollateralization from the Trust Fund. The amount of such releases
are the "Overcollateralization Release Amounts."
On any Distribution Date, the sum of the Monthly Excess Interest
Amount, the Overcollateralization Release Amount and any portion of the
Principal Distribution Amount (without duplication) remaining after principal
distributions on the Offered Certificates is the "Monthly Excess Cashflow
Amount", which is required to be applied in the following order of priority (the
"Monthly Excess Cashflow Allocation") on such Distribution Date:
(i) to fund any remaining applicable Accrued Certificate Interest for
such Distribution Date, pro rata, among the Class A-1F, Class A-2F and
Class A-1A Certificates;
(ii) to fund the remaining Interest Carry Forward Amounts for the
classes of Class A Certificates, if any, pro rata, among the Class A-1F,
Class A-2F and Class A-1A Certificates;
(iii) to fund the Extra Principal Distribution Amount for such
Distribution Date;
(iv) to fund any remaining Accrued Certificate Interest for such
Distribution Date for the Class M-1 Certificates;
(v) to fund the Interest Carry Forward Amount for the Class M-1
Certificates, if any;
(vi) to fund the Class M-1 Realized Loss Amortization Amount for such
Distribution Date;
(vii) to fund any remaining Accrued Certificate Interest for such
Distribution Date for the Class M-2 Certificates;
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(viii) to fund the Interest Carry Forward Amount for the Class M-2
Certificates, if any;
(ix) to fund the Class M-2 Realized Loss Amortization Amount for such
Distribution Date;
(x) to fund any remaining Accrued Certificate Interest for such
Distribution Date for the Class B Certificates;
(xi) to fund the Interest Carry Forward Amount for the Class B
Certificates, if any;
(xii) to fund the Class B Realized Loss Amortization Amount for such
Distribution Date;
(xiii) to fund the amount of any Class A-1A LIBOR Carryover Amount;
(xiv) to pay any Special Servicing Fees for such Distribution Date or
which remain unpaid from any previous Distribution Date; and
(xv) to fund distributions to the Holders of the Class N, Class X and
Class R Certificates in the amounts specified in the Pooling and Servicing
Agreement.
For purposes of the foregoing, the following terms will have the
respective meanings set forth below.
"Class M-1 Applied Realized Loss Amount" means, as to the Class M-1
Certificates and as of any Distribution Date, the lesser of (x) the Certificate
Principal Balance thereof (after taking into account the distribution of the
Principal Distribution Amount on such Distribution Date, but prior to the
application of the Class M-1 Applied Realized Loss Amount, if any, on such
Distribution Date) and (y) the excess of (i) the Applied Realized Loss Amount as
of such Distribution Date over (ii) the sum of the Class M-2 Applied Realized
Loss Amount and the Class B Applied Realized Loss Amount, in each case as of
such Distribution Date.
"Class M-1 Realized Loss Amortization Amount" means, as to the Class
M-1 Certificates and as of any Distribution Date, the lesser of (x) the Unpaid
Realized Loss Amount for the Class M-1 Certificates as of such Distribution Date
and (y) the excess of (i) the Monthly Excess Cashflow Amount over (ii) the sum
of the amounts described in clauses (i) through (v) of the Monthly Excess
Cashflow Allocation for such Distribution Date.
"Class M-2 Applied Realized Loss Amount" means, as to the Class M-2
Certificates and as of any Distribution Date, the lesser of (x) the Certificate
Principal Balance thereof (after taking into account the distribution of the
Principal Distribution Amount on such Distribution Date, but prior to the
application of the Class M-2 Applied Realized Loss Amount, if any, on such
Distribution Date) and (y) the excess of (i) the related Applied Realized Loss
Amount as of such Distribution Date over (ii) the Class B Applied Realized Loss
Amount as of such Distribution Date.
"Class M-2 Realized Loss Amortization Amount" means, as to the Class
M-2 Certificates and as of any Distribution Date, the lesser of (x) the Unpaid
Realized Loss Amount for the Class M-2 Certificates as of such Distribution Date
and (y) the excess of (i) the Monthly Excess Cashflow Amount over (ii) the sum
of the amounts described in clauses (i) through (viii) of the Monthly Excess
Cashflow Allocation for such Distribution Date.
"Class B Applied Realized Loss Amount" means, as to the Class B
Certificates and as of any Distribution Date, the lesser of (x) the Certificate
Principal Balance thereof (after taking into account the distribution of the
Principal Distribution Amount on such Distribution Date, but prior to the
application of the Class B Applied Realized Loss Amount, if any, on such
Distribution Date) and (y) the Applied Realized Loss Amount as of such
Distribution Date.
"Class B Realized Loss Amortization Amount" means, as to the Class B
Certificates and as of any Distribution Date, the lesser of (x) the Unpaid
Realized Loss Amount for the Class B Certificates as of such Distribution Date
and (y) the excess of (i) the Monthly Excess Cashflow Amount over (ii) the sum
of the amounts described in clauses (i) through (xi) of the Monthly Excess
Cashflow Allocation for such Distribution Date.
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"Realized Loss Amortization Amount" means each of the Class M-1
Realized Loss Amortization Amount, the Class M-2 Realized Loss Amortization
Amount and the Class B Realized Loss Amortization Amount.
"Unpaid Realized Loss Amount" means for any class of Subordinated
Certificates and as to any Distribution Date, the excess of (x) the cumulative
amount of related Applied Realized Loss Amounts with respect to such class for
all prior Distribution Dates over (y) the cumulative amount of related Realized
Loss Amortization Amounts with respect to such class for all prior Distribution
Dates.
Pass-Through Rates
Interest for each Distribution Date will accrue on the Offered
Certificates (other than the Class A Certificates) during the related Interest
Accrual Period at a rate equal to the lesser of (i) the applicable per annum
rate for such class as set forth on the cover page of this Prospectus Supplement
(each such rate, a "Pass-Through Rate") and (ii) the Pool Cap for such
Distribution Date. The Pass-Through Rate is 7.675% for the Class A-1F
Certificates, 7.855% for the Class A-2F Certificates, 6.93% for the Class A-1A
Certificates, 8.215% for the Class M-1 Certificates, 8.500% for the Class M-2
Certificates, and 8.500% for the Class B Certificates.
Interest for each Distribution Date will accrue on the Class A-1F
Certificates during the related Interest Accrual Period at a rate equal to the
least of (i) 7.675% per annum, (ii) the Group 1 Net Funds Cap for such
Distribution Date and (iii) the Pool Cap.
Interest for each Distribution Date will accrue on the Class A-2F
Certificates during the related Interest Accrual Period at a rate equal to the
least of (i) 7.855% per annum, or on each Distribution Date following the
Optional Termination Date, 8.355% per annum, (ii) the Group 1 Net Funds Cap for
such Distribution Date and (iii) the Pool Cap.
Interest for each Distribution Date will accrue on the Class A-1A
Certificates during the related Interest Accrual Period at a rate equal to the
least of (i) the Pass-Through Rate for the Class A-1A Certificates for such
Distribution Date, (ii) the Group 2 Net Funds Cap for such Distribution Date and
(iii) the Pool Cap.
With respect to the Offered Certificates, other than the Class A-1A
Certificates, interest in respect of any Distribution Date will accrue during
the related Interest Accrual Period on the basis of a 360-day year consisting of
twelve 30-day months. With respect to the Class A-1A Certificates, interest in
respect of any Distribution Date will accrue during the related Interest Accrual
Period on the basis of a 360-day year and the actual number of days elapsed.
The Pass-Through Rate for the Class A-1A Certificates for each
Distribution Date will be LIBOR as of the related LIBOR Determination Date plus
the Class A-1A Certificate Margin. The "Class A-1A Certificate Margin" on each
Distribution Date on or prior to the Optional Termination Date will equal 0.31%
per annum and on each Distribution Date following the Optional Termination Date,
will equal 0.62% per annum.
The "Group 1 Net Funds Cap" for any Distribution Date will equal the
product of (i) the average of the Net Mortgage Interest Rates of the Group 1
Mortgage Loans, weighted on the basis of the related Mortgage Loan balances as
of the first day of the related Collection Period, and (ii) the Pool Balance
divided by the aggregate Certificate Principal Balance of the Offered
Certificates.
The "Group 2 Net Funds Cap" for any Distribution Date will equal the
product of (i) the average of the Net Mortgage Interest Rates of the Group 2
Mortgage Loans, weighted on the basis of the related Mortgage Loan balances as
of the first day of the related Collection Period, expressed on the basis of an
assumed 360-day year and the actual number of days elapsed during the related
accrual period, and (ii) the Pool Balance divided by the aggregate Certificate
Principal Balance of the Offered Certificates.
The "Pool Cap" for any Distribution Date will equal the product of (i)
the average of the Net Mortgage Interest Rates, weighted on the basis of the
Mortgage Loan balances as of the first day of the related Collection Period, and
(ii) the Pool Balance divided by the aggregate Certificate Principal Balance of
the Offered Certificates.
S-70
<PAGE>
If on any Distribution Date, the Accrued Certificate Interest for the
Class A-1A Certificates is based on the Group 2 Net Funds Cap or the Pool Cap,
the excess of (i) the amount of interest the Class A-1A Certificates would have
been entitled to receive on such Distribution Date based on its applicable
Pass-Through Rate, over (ii) the amount of interest the Class A-1A Certificates
received on such Distribution Date based on the Group 2 Net Funds Cap or the
Pool Cap, together with the unpaid portion of any such excess from prior
Distribution Dates (and interest accrued thereon at the then applicable
Pass-Through Rate on the Class A-1A Certificates) will be the "Class A-1A LIBOR
Carryover Amount". Any LIBOR Carryover Amount on the Class A-1A Certificates
will be paid on future Distribution Dates from and to the extent of funds
available in a reserve fund maintained by the Trustee (the "Excess Reserve Fund
Account"). The source of funds on deposit in the Excess Reserve Fund Account
will be limited to an initial deposit of $5,000 and, as provided in the Pooling
and Servicing Agreement, amounts that would otherwise be distributed on the
Class X Certificates. The Class A-1A LIBOR Carryover Amount is referred to as a
"LIBOR Carryover Amount".
Calculation of LIBOR
LIBOR for the first Distribution Date will be determined on the second
business day preceding the Closing Date and for each subsequent Distribution
Date will be determined on the second business day prior to the immediately
preceding Distribution Date (each such date, a "LIBOR Determination Date"). With
respect to each Distribution Date, "LIBOR" will equal the interbank offered rate
for one-month United States dollar deposits in the London market as quoted on
Telerate Page 3750 as of 11:00 A.M., London time, on the related LIBOR
Determination Date. "Telerate Page 3750" means the display designated as page
3750 on the Bridge Telerate (or such other page as may replace page 3750 on that
service for the purpose of displaying London interbank offered rates of major
banks). If such rate does not appear on such page (or such other page as may
replace that page on that service, or if such service is no longer offered, such
other service for displaying LIBOR or comparable rates as may be selected by the
Trustee after consultation with the Servicer), the rate will be the Reference
Bank Rate. The "Reference Bank Rate" will be determined on the basis of the
rates at which deposits in U.S. Dollars are offered by the reference banks
(which shall be three major banks that are engaged in transactions in the London
interbank market, selected by the Trustee after consultation with the Servicer)
as of 11:00 A.M., London time, on the related LIBOR Determination Date to prime
banks in the London interbank market for a period of one month in amounts
approximately equal to the Certificate Principal Balance of the Class A-1A
Certificates. The Trustee will request the principal London office of each of
the reference banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate will be the arithmetic mean of the quotations.
If on such date fewer than two quotations are provided as requested, the rate
will be the arithmetic mean of the rates quoted by one or more major banks in
New York City, selected by the Trustee after consultation with the Servicer, as
of 11:00 A.M., New York City time, on such date for loans in U.S. Dollars to
leading European banks for a period of one month in amounts approximately equal
to the Certificate Principal Balance of the Class A-1A Certificates. If no such
quotations can be obtained, the rate will be LIBOR for the prior Distribution
Date.
The establishment of LIBOR on each LIBOR Determination Date by the
Trustee and the Trustee's calculation of the rate of interest applicable to the
Class A-1A Certificates for the related Interest Accrual Period shall (in the
absence of manifest error) be final and binding.
HLTV Reserve Account
The Pooling and Servicing Agreement establishes an account (the "HLTV
Reserve Account"), which is not part of the Trust Fund, but is held in trust by
the Trustee on behalf of the Certificateholders. The HLTV Reserve Account will
not be an asset of any REMIC. Holders of the Certificates will be entitled to
receive payments from the HLTV Reserve Account to the extent of amounts on
deposit therein in an amount equal to any required HLTV Account Allocation.
On the Closing Date, the Seller will deposit the HLTV Initial
Allocation with respect to each Mortgage Loan with a Combined Loan-to-Value
Ratio greater than 100% (an "HLTV Mortgage Loan") in the HLTV Reserve Account.
Thereafter, upon the liquidation of any HLTV Mortgage Loan, an amount equal to
the related HLTV Account Allocation will be deposited on the Distribution Date
following such liquidation to the Collection Account as a portion of Available
Funds for the related Loan Group.
S-71
<PAGE>
With respect to each HLTV Mortgage Loan, any excess of the HLTV Initial
Allocation over the HLTV Account Allocation will be remitted to the Seller on
the Distribution Date on which an HLTV Account Allocation is made and under
certain other circumstances described in the Pooling and Servicing Agreement.
The "HLTV Initial Allocation" for each HLTV Mortgage Loan is equal to
the excess of the Cut-off Date Principal Balance of such HLTV Mortgage Loan over
the value of the related Mortgaged Property, as determined by an independent
appraiser, as of the Cut-off Date. The HLTV Initial Allocation may be released
from time to time as provided in the Pooling and Servicing Agreement with
certain of the funds therein released to the Seller.
The "HLTV Account Allocation" for any Distribution Date, with respect
to each HLTV Mortgage Loan which was liquidated during the related Collection
Period, is the lesser of (i) the HLTV Initial Allocation and (ii) the HLTV
Liquidation Allocation.
The "HLTV Liquidation Allocation" for each liquidated HLTV Mortgage
Loan, is the excess, if any, of the related Principal Balance of such HLTV
Mortgage Loan as of the date of liquidation over the net liquidation proceeds,
as determined by the Servicer and indicated on its remittance report.
Prepayment and YIELD Considerations
The yields to maturity and weighted average lives of the Offered
Certificates will depend upon, among other things, the price at which such
Offered Certificates are purchased, the amount and timing of principal payments
on the applicable Loan Group, the allocation of Available Funds to various
classes of Offered Certificates, the amount and timing of mortgagor
delinquencies and defaults on the Mortgage Loans, the rate of liquidations and
Realized Losses and the allocation of Realized Losses to various classes of
Offered Certificates.
The rate of payment of principal, the aggregate amount of distributions
and the yield to maturity of the Offered Certificates will be affected by the
rate of defaults resulting in Realized Losses, by the severity of these losses
and by the timing thereof. If a purchaser of an Offered Certificate calculates
its anticipated yield based on an assumed rate of default and amount of Realized
Losses that is lower than the default rate and amount of losses actually
incurred, its actual yield to maturity will be lower than that so calculated.
The timing of Realized Losses will also affect an investor's actual yield to
maturity, even if the average rate of defaults and severity of losses are
consistent with an investor's expectations. In general, the earlier a loss
occurs, the greater is the effect on an investor's yield to maturity. There can
be no assurance as to the delinquency, foreclosure or loss experience with
respect to the Mortgage Loans. Some of the Mortgage Loans may have a greater
than normal risk of future defaults and delinquencies, as compared to newly
originated, high quality one- to four-family residential mortgage loans of
comparable size and geographic concentration because such Mortgage Loans have in
the past defaulted, and in addition, the Bankruptcy Plan Mortgage Loans have
been involved in subsequent proceedings under the federal Bankruptcy Code,
either as liquidations under Chapter 7 or reorganizations with approved
bankruptcy plans under Chapters 11 or 13. See "The Mortgage Pool--General" in
this Prospectus Supplement.
The rate of principal payments, the aggregate amount of distributions
and the yields to maturity of the Offered Certificates will be related to the
rate and timing of payments of principal on the Mortgage Loans. The rate of
principal payments on the Mortgage Loans will in turn be affected by the
amortization schedules of the Mortgage Loans and by the rate of principal
prepayments (including for this purpose prepayments resulting from refinancing,
liquidations of the Mortgage Loans due to defaults, casualties or condemnations
and repurchases by the Seller or Servicer). Because certain of the Mortgage
Loans contain prepayment penalties, the rate of principal payments may be less
than the rate of principal payments for mortgage loans which did not have
prepayment penalties. The Mortgage Loans are subject to the "due-on-sale"
provisions included therein. See "The Mortgage Pool" in this Prospectus
Supplement.
Unscheduled payments of principal (whether resulting from prepayments,
repurchases, liquidations, casualties or condemnations) will result in
distributions on the related Offered Certificates of principal amounts which
would otherwise be distributed over the remaining terms of the Mortgage Loans.
Since the rate of payment of principal on the Mortgage Loans will depend on
future events and a variety of other factors, no assurance can be given as to
such rate or the rate of principal prepayments. The extent to which the yield to
maturity of a class of Offered Certificates may vary from the anticipated yield
will depend upon the degree to which such class of Offered
S-72
<PAGE>
Certificates is purchased at a discount or premium, and the degree to which the
timing of payments thereon is sensitive to prepayments, liquidations and
purchases of the Mortgage Loans. Further, an investor should consider the risk
that, in the case of any Offered Certificate purchased at a discount, a slower
than anticipated rate of principal payments (including prepayments) on the
Mortgage Loans could result in an actual yield to such investor that is lower
than the anticipated yield and, in the case of any Offered Certificate purchased
at a premium, a faster than anticipated rate of principal payments on the
Mortgage Loans could result in an actual yield to such investor that is lower
than the anticipated yield.
The rate of principal payments (including prepayments) on pools of
mortgage loans may vary significantly over time and may be influenced by a
variety of economic, geographic, social and other factors, including changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity
in the mortgaged properties and servicing decisions. In general, if prevailing
interest rates were to fall significantly below the Mortgage Interest Rates on
the Mortgage Loans, such Mortgage Loans could be subject to higher prepayment
rates than if prevailing interest rates were to remain at or above the Mortgage
Interest Rates on such Mortgage Loans. Conversely, if prevailing interest rates
were to rise significantly, the rate of prepayments on such Mortgage Loans would
generally be expected to decrease. As is the case with the Group 1 Mortgage
Loans, the Group 2 Mortgage Loans may be subject to a greater rate of principal
prepayments in a low interest rate environment. For example, if prevailing
interest rates were to fall, mortgagors with adjustable-rate Mortgage Loans may
be inclined to refinance their adjustable-rate Mortgage Loans with a fixed-rate
loan to "lock in" a lower interest rate. The existence of the applicable
Periodic Rate Cap and Maximum Rate also may affect the likelihood of prepayments
resulting from refinancings. No assurances can be given as to the rate of
prepayments on the Mortgage Loans in stable or changing interest rate
environments. In addition, the delinquency and loss experience of the Group 2
Mortgage Loans may differ from that on the Group 1 Mortgage Loans because the
amount of the Monthly Payments on the Group 2 Mortgage Loans are subject to
adjustment on each Adjustment Date. In addition, a majority of the Group 2
Mortgage Loans will not have their initial Adjustment Date for one to five years
after the origination thereof. The prepayment experience of the Delayed First
Adjustment Mortgage Loans may differ from that of the other Group 2 Mortgage
Loans. The Delayed First Adjustment Mortgage Loans may be subject to greater
rates of prepayments as they approach their initial Adjustment Dates even if
market interest rates are only slightly higher or lower than the Mortgage
Interest Rates on the Delayed First Adjustment Mortgage Loans as borrowers seek
to avoid changes in their Monthly Payments.
The weighted average life and yield to maturity of each class of
Certificates will also be influenced by the amount of Monthly Excess Cashflow
Amounts generated by the Mortgage Loans and applied in reduction of the
Certificate Principal Balances of such Certificates. The level of Monthly Excess
Cashflow Amounts available on any Distribution Date to be applied in reduction
of the Certificate Principal Balance of the Certificates will be influenced by,
among other factors, (i) the overcollateralization level of the Mortgage Loans
at such time (i.e., the extent to which interest on the Mortgage Loans is
accruing on a higher Principal Balance than the aggregate Certificate Principal
Balance of the Certificates); (ii) the delinquency and default experience of the
Mortgage Loans; and (iii) the level of the various indices for the Group 2
Mortgage Loans. To the extent that greater amounts of Monthly Excess Cashflow
Amounts are distributed in reduction of the Certificate Principal Balance of a
class of Certificates, the weighted average life thereof can be expected to
shorten. No assurance can be given as to the amount of Monthly Excess Cashflow
Amounts distributed at any time or in the aggregate.
For ease of presentation, Loan Group 1 has been divided into two
sub-groups. Each sub-group consists of Mortgage Loans with distinct
characteristics which are likely to produce differing prepayment, delinquency
and loss experience among the sub-groups. However, since the Class A-1F and
Class A-2F Certificates represent an interest in Loan Group 1 (including both
sub-groups), the prepayment, delinquency and loss experience on such classes of
Senior Certificates will represent a combination of the experience on the two
sub-groups. Similarly, the prepayment, delinquency and loss experience on the
Subordinated Certificates will reflect a combination of the experience of both
Loan Groups. There can be no assurance that any such combined experience will
correlate with the experience expected on a particular sub-group or loan group
of Mortgage Loans.
The Subordinated Certificates are not expected to receive any principal
distributions until at least the Distribution Date in September 2003 (unless the
Certificate Principal Balance of the Senior Certificates are reduced to zero
prior thereto). As a result, the weighted average lives of the Subordinated
Certificates will be longer than would have been the case if principal
distributions were to be made on a pro rata basis. The longer weighted
S-73
<PAGE>
average lives may increase the risk that an Applied Realized Loss Amount will be
allocated to one or more classes of Subordinated Certificates.
Additional Information
The Depositor has filed certain yield tables and other computational
materials with respect to certain classes of the Class A Certificates with the
Commission in a report on Form 8-K and may file certain additional yield tables
and other computational materials with respect to one or more classes of Offered
Certificates with the Commission in a report on Form 8-K. Such tables and
materials were prepared by one or more of the Underwriters at the request of
certain prospective investors, based on assumptions provided by, and satisfying
the special requirements of, such prospective investors. Such tables and
assumptions may be based on assumptions that differ from the Structuring
Assumptions. Accordingly, such tables and other materials may not be relevant to
or appropriate for investors other than those specifically requesting them.
Weighted Average Lives
The timing of changes in the rate of principal prepayments on the
Mortgage Loans may significantly affect an investor's actual yield to maturity,
even if the average rate of principal prepayments is consistent with such
investor's expectation. In general, the earlier a principal prepayment on the
Mortgage Loans occurs, the greater the effect of such principal prepayment on an
investor's yield to maturity. The effect on an investor's yield of principal
prepayments occurring at a rate higher (or lower) than the rate anticipated by
the investor during the period immediately following the issuance of the Offered
Certificates may not be offset by a subsequent like decrease (or increase) in
the rate of principal prepayments.
The projected weighted average life of any class of Offered
Certificates is the average amount of time that will elapse from the Closing
Date, until each dollar of principal is scheduled to be repaid to the investors
in such class of Offered Certificates. Because it is expected that there will be
prepayments and defaults on the Mortgage Loans, the actual weighted average
lives of the classes of Offered Certificates are expected to vary substantially
from the weighted average remaining terms to stated maturity of the Mortgage
Loans as set forth herein under "The Mortgage Pool."
Prepayments on mortgage loans are commonly measured relative to a
prepayment model or standard. The prepayment models used in this Prospectus
Supplement ("Prepayment Models") are based on an assumed rate of prepayment each
month of the then unpaid principal balance of a pool of mortgage loans similar
to the Mortgage Loans. The Prepayment Model used in this Prospectus Supplement
(the "Constant Prepayment Rate" or "CPR") is a prepayment assumption which
represents a constant assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of mortgage loans for the life of such
mortgage loans. For Loan Group 1, a 100% Prepayment Assumption assumes a
prepayment rate of 12% CPR with respect to Sub-group 1A and 21% CPR with respect
to Sub-group 1B.
For Group 2, the Prepayment Assumption used in this Prospectus
Supplement (the "Prepayment Vector" or "PV") 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 such
mortgage loans. A 100% Prepayment Assumption for the Group 2 Loans assumes
prepayment rates of 3.5% per annum of the then outstanding principal balance of
the related mortgage loans in the first month of life of those mortgage loans
and an additional 3.5% per annum in each month thereafter up to and including
the 10th month, from the 11th month through the 22nd month a prepayment rate of
35% CPR, from the 23rd month through the 25th month a prepayment rate of 50%
CPR, from the 26th month through the 34th month a prepayment rate of 35% CPR, in
the 35th month through the 37th month a prepayment rate of 50% CPR and in the
38th month and in each month thereafter during the life of those mortgage loans
a prepayment rate of 35% CPR. No prepayment assumption purports to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
related mortgage loans.
The tables on pages S-76 through S-81 were prepared on the basis of the
assumptions in the following paragraph and the tables set forth below. There may
be certain differences between the loan characteristics included in such
assumptions and the characteristics of the actual Mortgage Loans. Any such
discrepancy may have an effect
S-74
<PAGE>
upon the percentages of Original Certificate Principal Balances outstanding and
weighted average lives of the Offered Certificates set forth in the tables on
pages S-76 through S-81. In addition, since the actual Mortgage Loans in the
Trust Fund will have characteristics that differ from those assumed in preparing
the tables set forth below, the distributions of principal of the Offered
Certificates may be made earlier or later than indicated in the tables.
The percentages and weighted average lives in the tables on pages S-76
through S-81 were determined using the following assumptions collectively (the
"Structuring Assumptions"): (i) the Mortgage Loans consist of 2 groups of loans
with the characteristics set forth in the table below, (ii) the closing date for
the Offered Certificates occurs on September 15, 2000 and the Offered
Certificates were sold to investors on such date, (iii) distributions on the
Certificates are made on the 25th day of each month regardless of the day on
which the Distribution Date actually occurs, commencing in September 2000, in
accordance with the allocation of Available Funds set forth above under
"Description of the Certificates", (iv) the Mortgage Loans prepay in accordance
with the Prepayment Scenarios indicated, (v) prepayments include thirty days'
interest thereon, (vi) the Seller is not required to substitute or repurchase
any or all of the Mortgage Loans pursuant to the Pooling and Servicing Agreement
and no optional termination is exercised, except with respect to the entries
identified by the row heading "Weighted Average Life to Call" in the tables
below, (vii) the Overcollateralization Target Amount is set initially as
specified herein and thereafter decreases as described in the definition
thereof, (viii) scheduled payments for all Mortgage Loans are received on the
Due Date commencing in September 2000, the principal portion of such payments is
computed prior to giving effect to prepayments received in such month and there
are no losses or delinquencies with respect to such Mortgage Loans, (ix) all
Mortgage Loans prepay at the same rate and all such payments are treated as
prepayments in full of individual Mortgage Loans, with no shortfalls in
collection of interest, (x) such prepayments are received on the last day of
each month commencing in August 2000, (xi) LIBOR is at all times equal to 6.62%,
(xii) the Pass-Through Rates for the Offered Certificates are as set forth or
described on the cover of this Prospectus Supplement, (xiii) the Mortgage
Interest Rate for each Adjustable Rate Mortgage Loan is adjusted on its next
Adjustment Date (and on subsequent Adjustment Dates, if necessary) to equal the
sum of (a) the assumed level of the Index and (b) the respective Gross Margin
(such sum being subject to the applicable Periodic Rate Caps, Minimum Loan Rates
and Maximum Loan Rates), and (xiv) with respect to the Adjustable Rate Mortgage
Loans, the 1 Year CMT Index is equal to 6.20%, and 6 Month LIBOR is equal to
6.82%. Nothing contained in the foregoing assumptions should be construed as a
representation that the Mortgage Loans will not experience delinquencies or
losses.
Based on the foregoing assumptions and the following assumed mortgage
loan characteristics, the tables indicate the projected weighted average lives
of each class of Offered Certificates, and set forth the percentages of the
original Certificate Principal Balance of each such class that would be
outstanding after each of the dates shown.
S-75
<PAGE>
Assumed Mortgage Loan Characteristics
<TABLE>
<CAPTION>
Stated
Remaining
Coll Type Current Bal WAC(Gross) Net Coupon Term Original Term Remaining Index Type Gross Margin
Term
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 FIXED FHA/VA 101,308.39 7.59509 7.09509 N 180 138 N/A N/A
2 FIXED 5,705,088.41 9.19538 8.69538 N 168 137 N/A N/A
3 FIXED 1,015,975.54 11.05850 10.29206 N 174 160 N/A N/A
4 FIXED FHA/VA 19,483,905.94 8.26772 7.76772 N 359 296 N/A N/A
5 FIXED FHA/VA 64,184.75 9.50000 9.00000 N 360 318 N/A N/A
6 FIXED 41,477,754.46 9.60434 8.93064 N 349 322 N/A N/A
7 FIXED 12,567,360.10 10.48161 9.87683 N 354 342 N/A N/A
8 FIXED 4,331,250.95 11.06419 10.56419 137 354 324 N/A N/A
9 FIXED 4,373,669.09 10.35619 9.82974 159 361 346 N/A N/A
10 ARM 175,312.60 10.25000 9.75000 N 360 351 6 Month LIBOR 6.99000
11 ARM 91,728.44 10.99000 10.49000 N 360 352 6 Month LIBOR 6.95000
12 ARM 39,240.54 7.87500 7.37500 N 360 323 1 YR CMT 2.75000
13 ARM 68,295.91 8.18000 7.68000 N 360 217 1 YR CMT 2.75000
14 ARM 128,725.10 8.75000 8.25000 N 360 244 1 YR CMT 3.00000
15 ARM 7,442,997.83 10.67485 9.95600 N 360 347 6 Month LIBOR 6.02092
16 ARM 6,165,868.68 10.45163 9.77747 N 360 343 6 Month LIBOR 6.17560
17 ARM 19,237,387.14 10.29293 9.68994 N 360 352 6 Month LIBOR 6.59912
18 ARM 14,385,150.88 10.06650 9.21303 N 360 357 6 Month LIBOR 5.76429
19 ARM 1,841,639.07 7.35005 6.85005 N 360 325 1 YR CMT 2.79684
20 ARM 273,908.44 9.12001 8.62001 N 346 257 1 YR CMT 3.12001
21 ARM 84,802.54 7.12500 6.62500 N 360 202 6 Month LIBOR 2.00000
22 ARM 4,136,538.08 11.48576 10.36212 N 360 356 6 Month LIBOR 5.99297
23 ARM 9,657,637.43 10.09736 9.52590 N 360 351 6 Month LIBOR 6.09010
24 ARM 7,964,912.19 10.72648 9.93597 N 360 358 6 Month LIBOR 5.90543
25 ARM 5,904,413.49 10.96719 9.96038 N 359 357 6 Month LIBOR 5.99332
26 ARM 4,316,468.29 8.02776 7.48603 N 358 289 1 YR CMT 2.94130
27 ARM 118,851.46 8.75000 8.25000 N 360 266 1 YR CMT 2.50000
28 ARM 31,390.43 13.85000 13.35000 N 360 311 1 YR CMT 6.76000
29 ARM 408,593.08 9.09413 8.59413 N 328 222 6 Month LIBOR 2.78373
30 ARM 240,421.41 7.48240 6.98240 N 343 215 6 Month LIBOR 2.40120
31 ARM 2,649,495.82 12.16005 11.62517 303 360 322 6 Month LIBOR 6.14282
32 ARM 1,793,228.91 10.36192 9.72618 N 357 334 6 Month LIBOR 6.05616
<CAPTION>
Coll Type Service Fee 1stInt Reset IntAdj Freq Life Cap Life Floor Initial Adj.Cap Periodic Adj. Cap
<C> <C> <C> <C> <C> <C> <C> <C>
1 FIXED FHA/VA 0.50000 N/A N/A N/A N/A N/A N/A
2 FIXED 0.50000 N/A N/A N/A N/A N/A N/A
3 FIXED 0.76644 N/A N/A N/A N/A N/A N/A
4 FIXED FHA/VA 0.50000 N/A N/A N/A N/A N/A N/A
5 FIXED FHA/VA 0.50000 N/A N/A N/A N/A N/A N/A
6 FIXED 0.67370 N/A N/A N/A N/A N/A N/A
7 FIXED 0.60478 N/A N/A N/A N/A N/A N/A
8 FIXED 0.50000 N/A N/A N/A N/A N/A N/A
9 FIXED 0.52645 N/A N/A N/A N/A N/A N/A
10 ARM 0.50000 4 6 16.25000 10.25000 1.00000 1.00000
11 ARM 0.50000 4 6 16.99000 10.99000 1.00000 1.00000
12 ARM 0.50000 2 12 12.25000 2.25000 1.00000 1.00000
13 ARM 0.50000 1 24 15.50000 2.75000 2.00000 2.00000
14 ARM 0.50000 28 36 14.87500 3.00000 3.00000 3.00000
15 ARM 0.71885 13 6 16.68367 10.11500 2.63704 1.18189
16 ARM 0.67416 8 6 16.96246 10.34336 2.24258 1.06882
17 ARM 0.60299 16 6 16.49180 10.27756 1.58285 1.03254
18 ARM 0.85347 21 6 16.16538 10.06639 2.79734 1.00587
19 ARM 0.50000 37 12 12.63480 2.90989 2.34766 1.91175
20 ARM 0.50000 9 36 14.38504 3.12001 2.24002 2.24002
21 ARM 0.50000 10 12 14.00000 4.00000 2.00000 2.00000
22 ARM 1.12364 33 6 17.55300 11.34349 2.96097 1.01301
23 ARM 0.57146 27 6 16.77968 10.09722 2.82430 1.00300
24 ARM 0.79051 34 6 16.72648 10.72648 3.00000 1.00000
25 ARM 1.00681 36 6 16.96719 10.96719 2.87369 1.00000
26 ARM 0.54173 7 12 12.63570 2.49017 1.24613 1.27232
27 ARM 0.50000 2 6 11.87500 2.50000 1.00000 1.00000
28 ARM 0.50000 5 6 20.85000 13.85000 1.50000 1.50000
29 ARM 0.50000 10 12 13.29048 5.79121 1.95413 1.95413
30 ARM 0.50000 3 1 14.52445 2.40120 1.00000 1.00000
31 ARM 0.53488 4 6 16.91463 8.77299 1.31116 1.25628
32 ARM 0.63574 5 6 15.31027 9.16121 1.10296 1.07859
</TABLE>
S-76
<PAGE>
Percent of Original Principal Balance Outstanding(1)
Class A-1F
------------------------------------------
Prepayment
Assumption
----- ----- ----- ----- -----
Distribution Date 0% 75% 100% 125% 150%
----- ----- ----- ----- -----
Initial Balance 100 100 100 100 100
August 25, 2001 97 62 51 39 27
August 25, 2002 94 30 11 0 0
August 25, 2003 90 3 0 0 0
August 25, 2004 86 0 0 0 0
August 25, 2005 82 0 0 0 0
August 25, 2006 77 0 0 0 0
August 25, 2007 72 0 0 0 0
August 25, 2008 67 0 0 0 0
August 25, 2009 60 0 0 0 0
August 25, 2010 53 0 0 0 0
August 25, 2011 46 0 0 0 0
August 25, 2012 29 0 0 0 0
August 25, 2013 23 0 0 0 0
August 25, 2014 6 0 0 0 0
August 25, 2015 0 0 0 0 0
August 25, 2016 0 0 0 0 0
August 25, 2017 0 0 0 0 0
August 25, 2018 0 0 0 0 0
August 25, 2019 0 0 0 0 0
August 25, 2020 0 0 0 0 0
August 25, 2021 0 0 0 0 0
August 25, 2022 0 0 0 0 0
August 25, 2023 0 0 0 0 0
August 25, 2024 0 0 0 0 0
August 25, 2025 0 0 0 0 0
August 25, 2026 0 0 0 0 0
August 25, 2027 0 0 0 0 0
August 25, 2028 0 0 0 0 0
August 25, 2029 0 0 0 0 0
August 25, 2030 0 0 0 0 0
Weighted Average Life(2)
to Maturity 9.267 1.413 1.048 0.821 0.666
Weighted Average Life(2)
to Call 9.267 1.413 1.048 0.821 0.666
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of Certificates
by the number of years from the date of issuance of the Certificates to
the related Distribution Date, (ii) summing the results, and (iii)
dividing the sum by the aggregate amount of the assumed net reduction in
the Certificate Principal Balance of such class of Certificates.
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Percent of Original Principal Balance Outstanding(1)
Class A-2F
-----------------------------------------
Prepayment
Assumption
----- ----- ----- ----- -----
Distribution Date 0% 75% 100% 125% 150%
----- ----- ----- ----- -----
Initial Balance 100 100 100 100 100
August 25, 2001 100 100 100 100 100
August 25, 2002 100 100 100 85 47
August 25, 2003 100 100 54 8 0
August 25, 2004 100 78 51 8 0
August 25, 2005 100 52 24 8 0
August 25, 2006 100 31 3 0 0
August 25, 2007 100 12 0 0 0
August 25, 2008 100 0 0 0 0
August 25, 2009 100 0 0 0 0
August 25, 2010 100 0 0 0 0
August 25, 2011 100 0 0 0 0
August 25, 2012 100 0 0 0 0
August 25, 2013 100 0 0 0 0
August 25, 2014 100 0 0 0 0
August 25, 2015 98 0 0 0 0
August 25, 2016 81 0 0 0 0
August 25, 2017 63 0 0 0 0
August 25, 2018 43 0 0 0 0
August 25, 2019 21 0 0 0 0
August 25, 2020 0 0 0 0 0
August 25, 2021 0 0 0 0 0
August 25, 2022 0 0 0 0 0
August 25, 2023 0 0 0 0 0
August 25, 2024 0 0 0 0 0
August 25, 2025 0 0 0 0 0
August 25, 2026 0 0 0 0 0
August 25, 2027 0 0 0 0 0
August 25, 2028 0 0 0 0 0
August 25, 2029 0 0 0 0 0
August 25, 2030 0 0 0 0 0
Weighted Average Life(2)
to Maturity 17.558 5.215 3.878 2.611 1.976
Weighted Average Life(2)
to Call 17.558 5.215 3.878 2.611 1.976
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of Certificates
by the number of years from the date of issuance of the Certificates to
the related Distribution Date, (ii) summing the results, and (iii)
dividing the sum by the aggregate amount of the assumed net reduction in
the Certificate Principal Balance of such class of Certificates.
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Percent of Original Principal Balance Outstanding(1)
Class A-1A
-----------------------------------------
Prepayment
Assumption
----- ----- ----- ----- -----
Distribution Date 0% 75% 100% 125% 150%
----- ----- ----- ----- -----
Initial Balance 100 100 100 100 100
August 25, 2001 99 75 66 58 49
August 25, 2002 99 53 40 30 20
August 25, 2003 98 38 25 15 3
August 25, 2004 98 32 24 15 3
August 25, 2005 97 28 21 15 3
August 25, 2006 96 25 19 13 3
August 25, 2007 95 22 15 9 3
August 25, 2008 94 20 12 7 3
August 25, 2009 93 16 9 5 3
August 25, 2010 92 13 7 4 2
August 25, 2011 91 11 6 3 2
August 25, 2012 89 9 4 2 1
August 25, 2013 88 7 3 2 1
August 25, 2014 86 6 3 1 0
August 25, 2015 84 5 2 1 0
August 25, 2016 81 4 2 0 0
August 25, 2017 78 3 1 0 0
August 25, 2018 75 2 1 0 0
August 25, 2019 72 2 0 0 0
August 25, 2020 67 1 0 0 0
August 25, 2021 58 1 0 0 0
August 25, 2022 52 0 0 0 0
August 25, 2023 46 0 0 0 0
August 25, 2024 38 0 0 0 0
August 25, 2025 31 0 0 0 0
August 25, 2026 23 0 0 0 0
August 25, 2027 15 0 0 0 0
August 25, 2028 9 0 0 0 0
August 25, 2029 3 0 0 0 0
August 25, 2030 0 0 0 0 0
Weighted Average Life(2)
to Maturity 20.959 4.187 3.077 2.276 1.400
Weighted Average Life(2)
to Call 20.848 3.702 2.636 1.900 1.226
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of Certificates
by the number of years from the date of issuance of the Certificates to
the related Distribution Date, (ii) summing the results, and (iii)
dividing the sum by the aggregate amount of the assumed net reduction in
the Certificate Principal Balance of such class of Certificates.
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Percent of Original Principal Balance Outstanding(1)
Class M-1
-----------------------------------------
Prepayment
Assumption
----- ----- ----- ----- -----
Distribution Date 0% 75% 100% 125% 150%
----- ----- ----- ----- -----
Initial Balance 100 100 100 100 100
August 25, 2001 100 100 100 100 100
August 25, 2002 100 100 100 100 100
August 25, 2003 100 100 100 100 100
August 25, 2004 100 79 58 100 100
August 25, 2005 100 64 44 35 100
August 25, 2006 100 52 33 22 65
August 25, 2007 100 42 26 16 40
August 25, 2008 100 34 20 12 23
August 25, 2009 100 28 16 9 11
August 25, 2010 100 23 12 7 4
August 25, 2011 100 18 10 5 2
August 25, 2012 100 15 7 4 0
August 25, 2013 100 12 6 2 0
August 25, 2014 100 9 4 0 0
August 25, 2015 100 8 4 0 0
August 25, 2016 100 6 1 0 0
August 25, 2017 100 5 0 0 0
August 25, 2018 100 4 0 0 0
August 25, 2019 100 3 0 0 0
August 25, 2020 100 0 0 0 0
August 25, 2021 99 0 0 0 0
August 25, 2022 89 0 0 0 0
August 25, 2023 78 0 0 0 0
August 25, 2024 65 0 0 0 0
August 25, 2025 52 0 0 0 0
August 25, 2026 39 0 0 0 0
August 25, 2027 25 0 0 0 0
August 25, 2028 15 0 0 0 0
August 25, 2029 5 0 0 0 0
August 25, 2030 0 0 0 0 0
Weighted Average Life(2)
to Maturity 25.141 7.481 5.958 5.578 6.896
Weighted Average Life(2)
to Call 24.956 6.697 5.257 4.984 5.028
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of Certificates
by the number of years from the date of issuance of the Certificates to
the related Distribution Date, (ii) summing the results, and (iii)
dividing the sum by the aggregate amount of the assumed net reduction in
the Certificate Principal Balance of such class of Certificates.
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Percent of Original Principal Balance Outstanding(1)
Class M-2
-----------------------------------------
Prepayment
Assumption
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Distribution Date 0% 75% 100% 125% 150%
----- ----- ----- ----- -----
Initial Balance 100 100 100 100 100
August 25, 2001 100 100 100 100 100
August 25, 2002 100 100 100 100 100
August 25, 2003 100 100 100 100 100
August 25, 2004 100 79 58 48 97
August 25, 2005 100 64 44 30 23
August 25, 2006 100 52 33 22 14
August 25, 2007 100 42 26 16 10
August 25, 2008 100 34 20 12 7
August 25, 2009 100 28 16 9 5
August 25, 2010 100 23 12 7 2
August 25, 2011 100 18 10 5 0
August 25, 2012 100 15 7 2 0
August 25, 2013 100 12 6 0 0
August 25, 2014 100 9 4 0 0
August 25, 2015 100 8 1 0 0
August 25, 2016 100 6 0 0 0
August 25, 2017 100 5 0 0 0
August 25, 2018 100 2 0 0 0
August 25, 2019 100 0 0 0 0
August 25, 2020 100 0 0 0 0
August 25, 2021 99 0 0 0 0
August 25, 2022 89 0 0 0 0
August 25, 2023 78 0 0 0 0
August 25, 2024 65 0 0 0 0
August 25, 2025 52 0 0 0 0
August 25, 2026 39 0 0 0 0
August 25, 2027 25 0 0 0 0
August 25, 2028 15 0 0 0 0
August 25, 2029 4 0 0 0 0
August 25, 2030 0 0 0 0 0
Weighted Average Life(2)
to Maturity 25.136 7.432 5.807 5.093 5.051
Weighted Average Life(2)
to Call 24.956 6.697 5.156 4.543 4.567
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of Certificates
by the number of years from the date of issuance of the Certificates to
the related Distribution Date, (ii) summing the results, and (iii)
dividing the sum by the aggregate amount of the assumed net reduction in
the Certificate Principal Balance of such class of Certificates.
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Percent of Original Principal Balance Outstanding(1)
Class B
-----------------------------------------
Prepayment
Assumption
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Distribution Date 0% 75% 100% 125% 150%
----- ----- ----- ----- -----
Initial Balance 100 100 100 100 100
August 25, 2001 100 100 100 100 100
August 25, 2002 100 100 100 100 100
August 25, 2003 100 100 100 100 100
August 25, 2004 100 79 58 42 30
August 25, 2005 100 64 44 30 21
August 25, 2006 100 52 33 22 14
August 25, 2007 100 42 26 16 10
August 25, 2008 100 34 20 12 5
August 25, 2009 100 28 16 9 1
August 25, 2010 100 23 12 4 0
August 25, 2011 100 18 10 1 0
August 25, 2012 100 15 5 0 0
August 25, 2013 100 12 2 0 0
August 25, 2014 100 9 0 0 0
August 25, 2015 100 6 0 0 0
August 25, 2016 100 3 0 0 0
August 25, 2017 100 0 0 0 0
August 25, 2018 100 0 0 0 0
August 25, 2019 100 0 0 0 0
August 25, 2020 100 0 0 0 0
August 25, 2021 99 0 0 0 0
August 25, 2022 89 0 0 0 0
August 25, 2023 78 0 0 0 0
August 25, 2024 65 0 0 0 0
August 25, 2025 52 0 0 0 0
August 25, 2026 39 0 0 0 0
August 25, 2027 25 0 0 0 0
August 25, 2028 15 0 0 0 0
August 25, 2029 0 0 0 0 0
August 25, 2030 0 0 0 0 0
Weighted Average Life(2)
to Maturity 25.119 7.307 5.643 4.787 4.406
Weighted Average Life(2)
to Call 24.956 6.697 5.101 4.332 4.009
(1) Rounded to the nearest whole percentage
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of Certificates
by the number of years from the date of issuance of the Certificates to
the related Distribution Date, (ii) summing the results, and (iii)
dividing the sum by the aggregate amount of the assumed net reduction in
the Certificate Principal Balance of such class of Certificates.
Final Scheduled Distribution Dates
The Final Scheduled Distribution Date of each class of Offered
Certificates is set forth under "Summary of Prospectus Supplement" in this
Prospectus Supplement. The Final Scheduled Distribution Dates for the Class A-1F
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and Class A-1A Certificates have been calculated on the basis of the Structuring
Assumptions and the assumptions that there are no prepayments and no Monthly
Excess Interest Amounts are used to create overcollateralization. The Final
Scheduled Distribution Date for each other class of Offered Certificates has
been set to equal the Distribution Date in the thirteenth month after the month
of maturity of the latest maturing Mortgage Loan. Since the rate of
distributions in reduction of the Certificate Principal Balance of each class of
Offered Certificates will depend on the rate of payment (including prepayments)
of the Mortgage Loans, the Certificate Principal Balance of any such class could
be reduced to zero significantly earlier or later than the Final Scheduled
Distribution Date. The rate of payments on the Mortgage Loans will depend on
their particular characteristics, as well as on prevailing interest rates from
time to time and other economic factors, and no assurance can be given as to the
actual payment experience of the Mortgage Loans.
Use of Proceeds
The Depositor will apply the net proceeds of the sale of the Offered
Certificates to the purchase price of the Mortgage Loans transferred to the
Trust Fund. See "Plan of Distribution" in this Prospectus Supplement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
General
The Pooling and Servicing Agreement provides that the Trust Fund, will
comprise multiple REMICs organized in a tiered REMIC structure consisting of one
or more Lower Tier REMICs and one Upper Tier REMIC. Each Lower Tier REMIC will
issue uncertificated regular interests and those interests will be held entirely
by the REMIC immediately above it in the tiered structure. Each of the Lower
Tier REMICs and the Upper Tier REMIC will designate a single class of interests
as the residual interest in that REMIC. The Class R Certificate will represent
beneficial ownership of the residual interests in each of the REMICs. Elections
will be made to treat each Lower Tier REMIC and the Upper Tier REMIC as a REMIC
for federal income tax purposes. Except to the extent described in the next
paragraph, each class of Offered Certificates will represent beneficial
ownership of the corresponding class of regular interests issued by the Upper
Tier REMIC. The Trust Fund will also include a grantor trust which will hold the
uncertificated interests in the Upper Tier REMIC and the Basis Risk
Arrangements, as defined below.
The Offered Certificates will represent beneficial ownership of the
corresponding class of regular interests issued by the Upper Tier REMIC and of
(i) any excess of the interest actually distributable on each class of Offered
Certificates over the rate at which interest accrued on the related class of
regular interests using a capped rate computed on the basis of the Certificate
Principal Balance of such class and the weighted average of the Net Mortgage
Interest Rates of the Mortgage Pool ("Rate Payments") (or in the case of the
Class A Certificates a weighted average based on the related mortgage pools' net
mortgage rate, if lower), and (ii) in the case of the Class A-1A Certificates,
the right to receive LIBOR Carryover Amounts (together with the right to receive
Rate Payments, the "Basis Risk Arrangement") from amounts otherwise
distributable to the Class N and Class X Certificates as part of the Monthly
Excess Cashflow Amount. Holders of Offered Certificates must allocate their
basis between their regular interest and their right to receive such basis risk
payments as set forth below under "Material Federal Income Tax
Consequences--Taxation of Basis Risk Arrangements."
Upon the issuance of the Offered Certificates, Brown & Wood LLP ("Tax
Counsel") will deliver its opinion to the effect that, assuming compliance with
the Pooling and Servicing Agreement, for federal income tax purposes, each Lower
Tier REMIC and the Upper Tier REMIC will qualify as a REMIC within the meaning
of Section 860D of the Internal Revenue Code of 1986, as amended (the "Code").
In addition, Tax Counsel will deliver an opinion concluding that the Basis Risk
Reserve Fund is an "outside reserve fund" and the rights of the holders of the
Offered Certificates to receive payments from the Basis Risk Arrangement
represent for federal income tax purposes contractual rights that are separate
from the regular interests within the meaning of Treasury regulation section
1.860G-2(i). The Trustee intends to treat the Basis Risk Arrangement as creating
interest rate cap agreements subject to the rules applicable to notional
principal contracts for federal income tax purposes.
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Taxation of Regular Interests
A holder of an Offered Certificate of any Class of Offered Certificates
will be treated for federal income tax purposes as owning an interest in regular
interests in the Upper Tier REMIC. The (i) Class A-1A and Class A-1F, and (ii)
all the other Offered Certificates will also represent beneficial ownership of
the rights to receive their respective Rate Payments and, in the case of the
Class A-1A Certificates, the LIBOR Carryover Amounts. Prospective investors
should consult their tax advisors regarding the tax treatment of the rights of
such Certificates.
A holder of an Offered Certificate must allocate its purchase price for
the Offered Certificate between its two components-the REMIC regular interest
component and the Basis Risk Arrangement component. For information reporting
purposes, the Trustee will assume that, with respect to any Offered Certificate,
the Basis Risk Arrangement component will have only nominal value relative to
the value of the regular interest component. The IRS could, however, argue that
the Basis Risk Arrangement component has significant value, and if that argument
were to be sustained, the regular interest component could be viewed as having
been issued with an additional amount of original issue discount ("OID") (which
could cause the total amount of discount to exceed a statutorily defined de
minimis amount). See "Material Federal Income Tax Consequences--REMIC
Securities" in the Prospectus.
For federal income tax reporting purposes, the classes of Offered
Certificates may be treated as having been issued with original issue discount
("OID"). The prepayment assumption that will be used in determining the rate of
accrual of original issue discount, premium and market discount, if any, for
federal income tax purposes will be based on the assumption that subsequent to
the date of any determination the Mortgage Loans will prepay at a constant rate
of 12% CPR with respect to Sub-group 1A, 21% CPR with respect to Sub-group 1B
and 100% of the prepayment assumption with respect to Loan Group 2. No
representation is made that the Mortgage Loans will prepay at such rate or at
any other rate. See "Material Federal Income Tax Consequences--REMIC
Securities," "Material Federal Income Tax Consequences--Debt Securities," and
"Material Federal Income Tax Consequences--Discount and Premium" in the
Prospectus.
The IRS has issued regulations (the "OID Regulations") under Sections
1271 to 1275 of the Code generally addressing the treatment of debt instruments
issued with original issue discount. Purchasers of the Offered Certificates
should be aware that the OID Regulations do not adequately address certain
issues relevant to, or are not applicable to, securities such as the Offered
Certificates. Because of the uncertainty concerning the application of Section
1272(a)(6) of the Code to such Certificates, and because the rules of the OID
Regulations are limited in their application in ways that could preclude their
application to such Certificates even in the absence of Section 1272(a)(6) of
the Code, the IRS could assert that the Offered Certificates should be treated
as issued with original issue discount or should be governed by the rules
applicable to debt instruments having contingent payments or by some other
manner not yet set forth in regulations. Prospective purchasers of the Offered
Certificates are advised to consult their tax advisors concerning the tax
treatment of such Certificates.
The Offered Certificates generally will be treated as assets described
in Section 7701(a)(19)(C) of the Code and "real estate assets" under Section
856(c)(4)(A) of the Code, in the same proportion that the assets in the Trust
Fund would be so treated. In addition, interest on the Offered Certificates
generally will be treated as "interest on obligations secured by mortgages on
real property" under Section 856(c)(3)(B) of the Code, to the extent that the
Offered Certificates are treated as "real estate assets" under Section
856(c)(4)(A) of the Code. See "Material Federal Income Tax Consequences--REMIC
Securities" in the Prospectus. If more than 95% of the regular interests and
income qualify for these treatments, the regular interests generally will
qualify for such treatments in their entirety. However, no portion of an Offered
Certificateholder's basis or income allocable to a Basis Risk Arrangement will
qualify for such treatment. As a result, Offered Certificates are not suitable
investments for inclusions in another REMIC.
Taxation of the Basis Risk Arrangements
As indicated above, the "Basis Risk Arrangement" is a portion of the
purchase price paid by a holder to acquire an Offered Certificate that will be
attributable to the holder's right to receive payments with respect to the Rate
Payments, (in the case of the Class A-1A Certificates, including the LIBOR
Carryover Amount). The portion
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of the overall purchase price attributable to the Basis Risk Arrangement
component must be amortized over the life of the Offered Certificate, taking
into account the declining balance of the related Regular Interest component.
Treasury regulations concerning notional principal contracts provide alternative
methods for amortizing the purchase price of an interest rate cap contract.
Under one method, the level yield constant interest method, the price paid for
an interest rate cap agreement is amortized over the life of the cap as though
it were the principal amount of a loan bearing interest at a reasonable rate.
Holders are urged to consult their tax advisors concerning the methods that can
be employed to amortize the portion of the purchase price paid for the Basis
Risk Arrangement component of an Offered Certificate.
Any payments made to a holder from the Basis Risk Reserve Fund will be
treated by the Trustee as periodic payments on an interest rate cap agreement.
To the extent the sum of such periodic payments for any year exceed that year's
amortized cost of the Basis Risk Arrangement component, such excess is ordinary
income. If for any year the amount of that year's amortized cost exceeds the sum
of the periodic payments, such excess is allowable as an ordinary deduction.
Prospective investors in the Offered Certificates should consult their tax
advisors regarding the tax treatment of the rights of such Certificates to Basis
Risk Arrangement.
Any amount of proceeds from the sale, redemption or retirement of an
Offered Certificate that is considered to be allocated to rights under a Basis
Risk Arrangement would be considered a "termination payment" under the Swap
Regulations. It is anticipated that the Trustee will account for any termination
payments for reporting purposes in accordance with the Swap Regulations, as
described below.
Termination Payments. Any amount of sales proceeds that is considered
to be allocated to the selling beneficial owner's rights under the applicable
Basis Risk Arrangement in connection with the sale or exchange of an Offered
Certificate would be considered a "termination payment" under the Swap
Regulations allocable to that Offered Certificate. A holder of an Offered
Certificate will have gain or loss from such a termination of a Basis Risk
Arrangement equal to (i) any termination payment it received or is deemed to
have received minus (ii) the unamortized portion of any premium paid (or deemed
paid) by the beneficial owner upon entering into or acquiring its interest in a
Basis Risk Arrangement.
Gain or loss realized upon the termination of a Basis Risk Arrangement
will generally be treated as capital gain or loss. Moreover, in the case of a
bank or thrift institution, Code Section 582(c) would likely not apply to treat
such gain or loss as ordinary.
Application of the Straddle Rules. The Offered Certificates,
representing beneficial ownership of the corresponding regular interest and the
applicable Basis Risk Arrangement, may constitute positions in a straddle, in
which case, the straddle rules of Code Section 1092 would apply. A selling
beneficial owner's capital gain or loss with respect to such regular interest
would be short-term because the holding period would be tolled under the
straddle rules. Similarly, capital gain or loss realized in connection with the
termination of the applicable Basis Risk Arrangement would be short-term. If the
holder of an Offered Certificate incurred or continued indebtedness to acquire
or hold such Offered Certificate, the holder would generally be required to
capitalize a portion of the interest paid on such indebtedness until termination
of the Basis Risk Arrangement.
REMIC Taxes and Reporting
It is not anticipated that the Trust Fund will engage in any
transactions that would subject it to the prohibited transactions tax as defined
in Section 860F(a)(2) of the Code, the contributions tax as defined in Section
860G(d) of the Code or the tax on net income from foreclosure property as
defined in Section 860G(c) of the Code. However, in the event that any such tax
is imposed on the Trust Fund, such tax will be borne (i) by the Trustee, if the
Trustee has breached its obligations with respect to REMIC compliance under the
Agreement, (ii) the Servicer, if the Servicer has breached its obligations with
respect to REMIC compliance under the Agreement, and (iii) otherwise by the
Trust Fund, with a resulting reduction in amounts otherwise distributable to
Holders of the Offered Certificates. See "Description of the Securities" and
"Material Federal Income Tax Consequences--REMIC Securities" in the Prospectus.
The responsibility for filing annual federal information returns and
other reports will be borne by the Trustee. See "Material Federal Income Tax
Consequences--REMIC Securities" in the Prospectus.
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For further information regarding the federal income tax consequences
of investing in the Offered Certificates, see "Material Federal Income Tax
Consequences--REMIC Securities" in the Prospectus.
STATE TAX CONSIDERATIONS
The Depositor makes no representations regarding the tax consequences
of purchase, ownership or disposition of the Offered Certificates under the tax
laws of any state. Investors considering an investment in the Offered
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the federal,
state, local or foreign income tax consequences of the purchase, ownership and
disposition of the Offered Certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), prohibits "parties in interest" with respect to an employee
benefit plan subject to ERISA and/or a plan or other arrangement subject to the
excise tax provisions set forth under Section 4975 of the Code (each of the
foregoing, a "Plan") from engaging in certain transactions involving such Plan
and its assets unless a statutory, regulatory or administrative exemption
applies to the transaction. Section 4975 of the Code imposes certain excise
taxes on prohibited transactions involving plans described under that Section;
ERISA authorizes the imposition of civil penalties for prohibited transactions
involving plans not covered under Section 4975 of the Code. Any Plan fiduciary
which proposes to cause a Plan to acquire any of the Certificates should consult
with its counsel with respect to the potential consequences under ERISA and the
Code of the Plan's acquisition and ownership of such Certificates. See "ERISA
Considerations" in the Prospectus.
Certain employee benefit plans, including governmental plans and
certain church plans, are not subject to ERISA's requirements. Accordingly,
assets of such plans may be invested in the Certificates without regard to the
ERISA considerations described herein and in the Prospectus, subject to the
provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
may nonetheless be subject to the prohibited transaction rules set forth in
Section 503 of the Code.
Except as noted above, 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. A fiduciary which decides to
invest the assets of a Plan in the Certificates should consider, among other
factors, the extreme sensitivity of the investments to the rate of principal
payments (including prepayments) on the Mortgage Loans.
The DOL issued to Prudential Securities Incorporated an individual
administrative exemption, Prohibited Transaction Exemption 90-32 (the
"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 the Exemption to apply
are the following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as favorable to the
Plan as they would be in an arm's length transaction with an unrelated party;
(2) the rights and interests evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from S&P, Moody's or Fitch (collectively, the "Exemption Rating
Agencies");
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(4) the trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the 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 seller pursuant to the assignment of the
loans to the trust represents not more than the fair market value of such loans;
the sum of all payments made to and retained by the servicer represents not more
than reasonable compensation for such person's services under the agreement
pursuant to which the loans are pooled and reimbursements of such person's
reasonable expenses in connection therewith; and
(6) the Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933.
The trust must also meet the following requirements:
(i) the corpus of the trust must consist solely of assets of
the type that have been included in other investment pools;
(ii) certificates in such other investment pools must have
been rated in one of the three highest generic rating categories by an
Exemption Rating Agency for at least one year prior to the Plan's
acquisition of certificates; and
(iii) certificates evidencing interests in such other
investment pools must have been purchased by investors other than Plans
for at least one year prior to any Plan's acquisition of the
certificates.
Moreover, the Exemption provides relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust holding
receivables as to which the fiduciary (or its affiliate) is an obligor provided
that, among other requirements, (i) in the case of an acquisition in connection
with the initial issuance of certificates, at least fifty percent (50%) of each
class of certificates in which Plans have invested is acquired by persons
independent of the Restricted Group; (ii) such fiduciary (or its affiliate) is
an obligor with respect to five percent (5%) or less of the fair market value of
the obligations contained in the trust; (iii) a Plan's investment in
certificates of any class does not exceed twenty-five percent (25%) of all of
the certificates of that class outstanding at the time of the acquisition; and
(iv) immediately after the acquisition, no more than twenty-five percent (25%)
of the assets of any Plan with respect to which such person is a fiduciary are
invested in certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity. The Exemption does not
apply to Plans sponsored by the sponsor, the Underwriters, the Trustee, the
Servicer, any obligor with respect to Mortgage Loans included in the Trust
constituting more than five percent of the aggregate unamortized principal
balance of the assets in the Trust, or any affiliate of such parties (the
"Restricted Group").
The Exemption will apply to the acquisition and holding by Plans of the
Class A Certificates if all conditions of the Exemptions are met.
Because the characteristics of the Class M-1, Class M-2 and Class B
Certificates may not meet the requirements of the Exemption or any other issued
exemption under ERISA, the purchase and holding of the Class M-1, Class M-2 and
Class B Certificates by a Plan or by individual retirement accounts or other
plans subject to Section 4975 of the Code may result in prohibited transactions
or the imposition of excise taxes or civil penalties. Consequently, transfers of
the Class M-1, Class M-2 and Class B Certificates will not be registered by the
Trustee unless the Trustee receives: (i) a representation from the transferee of
such Certificate, acceptable to and in form and substance satisfactory to the
Trustee, to the effect that such transferee is not an employee benefit plan
subject to Section 406 of ERISA or a plan or arrangement subject to Section 4975
of the Code, nor a person acting on behalf of any such plan or arrangement nor
using the assets of any such plan or arrangement to effect such transfer; (ii)
if the purchaser is an insurance company, a representation that the purchaser is
an insurance company which is purchasing such Certificates with funds contained
in an "insurance company general account" (as such term is defined in
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Section V(e) of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")) and
that the purchase and holding of such Certificates are covered under Sections I
and III of PTCE 95-60; or (iii) an opinion of counsel satisfactory to the
Trustee that the purchase or holding of such Certificate by a Plan, any person
acting on behalf of a Plan or using such Plan's assets, will not result in the
assets of the Trust Fund being deemed to be "plan assets" and subject to the
prohibited transaction requirements of ERISA and the Code and will not subject
the Trustee to any obligation in addition to those undertaken in the Pooling and
Servicing Agreement. Such representation as described above will be deemed to
have been made to the Trustee by a beneficial owner's acceptance of a Class M-1,
Class M-2 or Class B Certificate in book-entry form. In the event that such
representation is violated, or any attempt to transfer to a Plan or person
acting on behalf of a Plan or using a Plan's assets is attempted without the
opinion of counsel described above, such attempted transfer or acquisition shall
be void and of no effect.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1
described in the Prospectus and the Exemption, and the potential consequences in
their specific circumstances, prior to making an investment in the Offered
Certificates. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the Class A Certificates is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the composition of the
Plan's investment portfolio.
It should be noted that in promulgating the Exemption (and PTCE 83-1
and PTCE 95-60) the DOL may not have had under its consideration pools with
features of the exact nature as those of the Mortgage Pool, particularly the
HLTV Reserve Account with respect to HLTV Mortgage Loans. However, the language
of the Exemption may be reasonably construed to permit the use of the HLTV
Reserve Account.
The DOL has proposed amendments to the Exemption that, if finalized in
the form proposed, would generally be effective as of August 23, 2000. Among
other changes, the proposed amendments would permit Plans to purchase
certificates rated in any of the four highest ratings categories and
subordinated to other certificates issued by the Trust, assuming that all other
requirements of the Exemption were met. This change, if adopted as proposed,
could permit the Class M-1, Class M-2 and Class B Certificates to be purchased
by Plans. If all other conditions of the Exemption were met, the proposed
amendments would also permit Plans to purchase certain certificates issued by
Trusts containing loans that were not fully secured. It is not certain if these
proposed amendments will be finalized, or whether they will be finalized in the
form in which they were proposed. Fiduciaries of Plans should and other
prospective investors may wish to consult with their advisors regarding the
effect on the Certificates of the proposed amendments.
LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended ("SMMEA"), because the Mortgage Pool includes second lien
Mortgage Loans and Owner-financed Mortgage Loans that were originated by
individuals and not by financial institutions or mortgagees approved by the
Secretary of Housing and Urban Development.
There may be restrictions on the ability of certain investors,
including depository institutions, either to purchase the Offered Certificates
or to purchase Offered Certificates representing more than a specified
percentage of the investor's assets. Investors should consult their own legal
advisors in determining whether and to what extent the Offered Certificates
constitute legal investments for such investors. See "Legal Investment" in the
Prospectus.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Depositor and Prudential Securities Incorporated
("Prudential"), an affiliate of the Depositor, as representative (in such
capacity, the "Representative") of Prudential and First Union Securities
(together with Prudential, the "Underwriters"), the Underwriters have severally
agreed to purchase and the Depositor has agreed to sell to the Underwriters the
Offered Certificates.
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Distribution of the Offered Certificates will be made by the
Underwriters from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. The Underwriters may effect
such transactions by selling Offered Certificates to or through dealers and such
dealers may receive from the Underwriters, for which it acts as agent,
compensation in the form of underwriting discounts, concessions or commissions.
The Underwriters and any dealers that participate with the Underwriters in the
distribution of such Offered Certificates may be deemed to be underwriters, and
any discounts, commissions or concessions received by them, and any profits on
resale of the Offered Certificates purchased by them, may be deemed to be
underwriting discounts and commissions under the 1933 Act.
The Depositor has been advised by the Underwriters that they intend to
make a market in the Offered Certificates but have no obligation to do so. There
can be no assurance that a secondary market for the Offered Certificates will
develop or, if it does develop, that it will continue.
The Depositor has agreed to indemnify the Underwriters against, or make
contributions to the Underwriters with respect to, certain liabilities,
including liabilities under the Act.
ADDITIONAL INFORMATION
Prudential Securities Secured Financing Corporation has filed with the
Securities and Exchange Commission a registration statement (Registration No.
333-37256) under the Securities Act of 1933, with respect to the Offered
Certificates offered pursuant to this prospectus supplement. This prospectus
supplement and the accompanying prospectus, which form a part of the
registration statement, omit certain information contained in such registration
statement pursuant to the rules and regulations of the Securities and Exchange
Commission. You may read and copy the registration statement at the Public
Reference Room at the Securities and Exchange Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. and at the Securities and Exchange
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York, 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the Public Reference
Rooms. In addition, the Securities and Exchange Commission maintains a site on
the World Wide Web containing reports, proxy materials, information statements
and other items. The address is http://www.sec.gov.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Offered
Certificates will be passed upon for the Depositor and for the Underwriter by
Brown & Wood LLP, New York, New York.
RATINGS
It is a condition to the issuance of the Offered Certificates that the
Certificates receive the following ratings from S&P, Moody's and Fitch:
Class S&P Moody's Fitch
----- --- ------- -----
A-1A AAA Aaa AAA
A-1F AAA Aaa AAA
A-2F AAA Aaa AAA
M-1 AA Aa2 AA
M-2 A A2 A
B BBB Baa2 BBB
A securities rating addresses the likelihood of the receipt by a
certificateholder of distributions on the Mortgage Loans. The rating takes into
consideration the characteristics of the Mortgage Loans and the structural,
legal and tax aspects associated with the certificates. The ratings on the
Offered Certificates do not, however, constitute statements regarding the
likelihood of the payment of any LIBOR Carryover Amount, the frequency of
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prepayments on the Mortgage Loans, or the possibility that a holder of an
Offered Certificate might realize a lower than anticipated yield.
The Depositor has not engaged any rating agency other than the Rating
Agencies to provide ratings on the Offered Certificates. However, there can be
no assurance as to whether any other rating agency will rate the Offered
Certificates, or, if it does, what rating would be assigned by any such other
rating agency. Any rating on the Offered Certificates by another rating agency,
if assigned at all, may be lower than the ratings assigned to the Offered
Certificates by the Rating Agencies.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating. In the event that the ratings
initially assigned to any of the Offered Certificates by the Rating Agencies are
subsequently lowered for any reason, no person or entity is obligated to provide
any additional support or credit enhancement with respect to such Offered
Certificates.
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INDEX OF PRINCIPAL DEFINITIONS
60+ Day Delinquent Loan ................................................... 66
Accrued Certificate Interest .............................................. 62
Actuarial Mortgage Loans .................................................. 47
Adjustment Date ........................................................... 33
Advance ................................................................... 54
Alternative Documentation ................................................. 49
Applied Realized Loss Amount .............................................. 67
Arrearage ................................................................. 22
Assignment Program ........................................................ 45
Available Funds ........................................................... 61
Balloon Loan .............................................................. 32
Balloon Payment ........................................................... 32
Banc of America ........................................................... 88
Bankruptcy Code ........................................................... 21
Bankruptcy Plan Mortgage Loan ............................................. 21
Basis Risk Arrangement .................................................... 83
beneficial owner .......................................................... 58
Book-Entry Certificates ................................................... 58
Business Day .............................................................. 53
Certificate Owners ........................................................ 58
Certificate Principal Balance ............................................. 64
Certificateholder ......................................................... 58
Certificates .............................................................. 57
Class A Certificates ...................................................... 57
Class A Interest Carry Forward Amount ..................................... 62
Class A Principal Distribution Amount ..................................... 64
Class A-1A Certificate Margin ............................................. 70
Class A-1A LIBOR Carryover Amount ......................................... 71
Class A-1A Net Funds Cap .................................................. 70
Class A-1F Net Funds Cap .................................................. 70
Class B Applied Realized Loss Amount ...................................... 69
Class B Principal Distribution Amount ..................................... 65
Class B Realized Loss Amortization Amount ................................. 69
Class M-1 Applied Realized Loss Amount .................................... 69
Class M-1 Principal Distribution Amount ................................... 64
Class M-1 Realized Loss Amortization Amount ............................... 69
Class M-2 Applied Realized Loss Amount .................................... 69
Class M-2 Principal Distribution Amount ................................... 65
Class M-2 Realized Loss Amortization Amount ............................... 69
Clearstream ............................................................... 5
Clearstream Participants .................................................. 59
Closing Date .............................................................. 52
Code ...................................................................... 83
Collection Account ........................................................ 53
Collection Period ......................................................... 62
Combined Loan-to-Value Ratio .............................................. 28
Commission ................................................................ 48
Compensating Interest ..................................................... 55
Constant Prepayment Rate .................................................. 74
Cooperative ............................................................... 60
CPR ....................................................................... 74
Custodian ................................................................. 52
Cut-off Date .............................................................. 20
Cut-off Date Principal Balance ............................................ 20
Defective Mortgage Loans .................................................. 53
Deficient Valuation ....................................................... 67
Definitive Certificate .................................................... 58
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Delinquent ................................................................ 22
Depositor ................................................................. 5
Determination Date ........................................................ 55
Distribution Account ...................................................... 53
Distribution Date ......................................................... 58
DTC ....................................................................... 5
Due Date .................................................................. 22
EFSG ...................................................................... 48
Eligible Account .......................................................... 53
Eligible Substitute Mortgage Loan ......................................... 52
ERISA ..................................................................... 86
Euroclear ................................................................. 5,60
Euroclear Operator ........................................................ 60
Euroclear Participants .................................................... 60
European Depositaries ..................................................... 58
Exemption Rating Agencies ................................................. 86
Extra Principal Distribution Amount ....................................... 65
FHA ....................................................................... 45
FHA Mortgage Loans ........................................................ 45
Financial Intermediary .................................................... 58
First Lien ................................................................ 23
Fitch ..................................................................... 11
Forbearance Plan Mortgage Loan ............................................ 21
Full Documentation ........................................................ 49
Gross Margin .............................................................. 33
Group 1 Mortgage Loans .................................................... 21
Group 1 Net Funds Cap ..................................................... 70
Group 1 Principal Percentage .............................................. 63
Group 2 Loan Balance ...................................................... 21
Group 2 Mortgage Loans .................................................... 21
Group 2 Net Funds Cap ..................................................... 70
Group 2 Principal Percentage .............................................. 63
High Cost Mortgage Loans .................................................. 18
HLTV Account Allocation ................................................... 72
HLTV Initial Allocation ................................................... 72
HLTV Liquidation Allocation ............................................... 72
HLTV Mortgage Loan ........................................................ 71
HLTV Reserve Account ...................................................... 71
HUD ....................................................................... 45
IML ....................................................................... 59
Index ..................................................................... 33
Indirect Participants ..................................................... 58
Initial Periodic Rate Cap ................................................. 33
Interest Accrual Period ................................................... 63
Interest Carry Forward Amount ............................................. 62
Interest Percentage ....................................................... 63
Interest Remittance Amount ................................................ 62
LIBOR ..................................................................... 71
LIBOR Carryover Amount .................................................... 71
LIBOR Determination Date .................................................. 71
Limited Documentation ..................................................... 49
Liquidated Mortgage Loan .................................................. 67
Loan Group ................................................................ 21
Loan Group 1 .............................................................. 21
Loan Group 2 .............................................................. 21
Maximum Loan Rate ......................................................... 33
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MGIC ...................................................................... 48
Minimum Loan Rate ......................................................... 33
Modified Scheduled Payments ............................................... 21
Monthly Excess Cashflow Allocation ........................................ 68
Monthly Excess Cashflow Amount ............................................ 68
Monthly Excess Interest Amount ............................................ 62
Monthly Payment ........................................................... 22
Moody's ................................................................... 11
Mortgage .................................................................. 22
Mortgage Interest Rate .................................................... 23
Mortgage Loan Purchase Agreement .......................................... 20
Mortgage Loan Schedule .................................................... 52
Mortgage Loans ............................................................ 20
Mortgage Pool ............................................................. 20
Mortgaged Property ........................................................ 22
National Housing Act ...................................................... 45
Net Mortgage Interest Rate ................................................ 68
New Regulations ........................................................... 3
No Documentation .......................................................... 49
no-bid .................................................................... 47
Offered Certificates ...................................................... 57
OID ....................................................................... 84
OID Regulations ........................................................... 84
One Year CMT .............................................................. 43
Optional Termination Date ................................................. 56
Overcollateralization Amount .............................................. 65
Overcollateralization Deficiency .......................................... 65
Overcollateralization Release Amount ...................................... 65
Overcollateralization Release Amounts ..................................... 68
Owner-financed Mortgage Loans ............................................. 49
Participants .............................................................. 58
Pass Through Rate ......................................................... 70
Pass-Through Rate ......................................................... 70
Performing Mortgage Loan .................................................. 21
Periodic Rate Cap ......................................................... 33
Plan ...................................................................... 86
Pool Balance .............................................................. 20
Pool Cap .................................................................. 70
Pooling and Servicing Agreement ........................................... 51
Prepayment Interest Shortfall ............................................. 55
Prepayment Period ......................................................... 62
Principal Balance ......................................................... 20
Principal Distribution Amount ............................................. 65
Principal Remittance Amount ............................................... 65
Prudential ................................................................ 88
PTCE 95-60 ................................................................ 88
Purchase Price ............................................................ 52
Rate Payments ............................................................. 83
Realized Loss ............................................................. 67
Realized Loss Amortization Amount ......................................... 70
Record Date ............................................................... 58
Reference Bank Rate ....................................................... 71
Regular Scheduled Payments ................................................ 21
Related Documents ......................................................... 52
Relevant Depositary ....................................................... 58
Relief Act ................................................................ 54
REMIC ..................................................................... 11
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Re-Performance Test ....................................................... 21
Re-Performing 60+ Day Delinquent Loan ..................................... 66
Re-Performing Mortgage Loan ............................................... 21
Representative ............................................................ 88
Residual Certificates ..................................................... 57
Restricted Group .......................................................... 87
Rules ..................................................................... 58
S&P ....................................................................... 11
Seller .................................................................... 20
Senior Certificates ....................................................... 57
Senior Enhancement Percentage ............................................. 66
Senior Specified Enhancement Percentage ................................... 66
Servicer .................................................................. 50
Servicer Modification ..................................................... 67
Servicing Advance ......................................................... 54
Servicing Fee ............................................................. 55
Servicing Fee Rate ........................................................ 55
Simple Interest Mortgage Loans ............................................ 47
Six Month LIBOR ........................................................... 43
SMMEA ..................................................................... 88
Special Servicing Fee ..................................................... 55
Stated Documentation ...................................................... 49
Stepdown Date ............................................................. 66
Structuring Assumptions ................................................... 75
Sub-group 1A .............................................................. 21
Sub-group 1A Loan Balance ................................................. 21
Sub-group 1A Mortgage Loans ............................................... 21
Sub-group 1B .............................................................. 21
Sub-group 1B Loan Balance ................................................. 21
Sub-group 1B Mortgage Loans ............................................... 21
Subordinated Certificates ................................................. 57
Sub-Performing Mortgage Loan .............................................. 21
Substitution Adjustment ................................................... 52
Targeted Overcollateralization Amount ..................................... 66
Tax Counsel ............................................................... 83
Telerate Page 3750 ........................................................ 71
Termination Price ......................................................... 56
Terms and Conditions ...................................................... 60
Trigger Event ............................................................. 66
Trust ..................................................................... 5
Trust Fund ................................................................ 20
Trustee ................................................................... 55
Trustee Fee ............................................................... 55
U.S. Person ............................................................... 4
Underwriters .............................................................. 88
United States Housing Act ................................................. 45
Unpaid Realized Loss Amount ............................................... 70
VA ........................................................................ 45
VA Mortgage Loans ......................................................... 45
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the Offered Certificates will
be offered globally (the "Global Securities") and will be available only in
book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company ("DTC"), Clearstream or
Euroclear. The Global Securities will be tradable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Clearstream and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Clearstream or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Clearstream and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Clearstream and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to conventional eurobonds, except
that there will be no temporary global security and no "lock-up" or restricted
period. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Clearstream
or Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no 'lock-up' or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
loan asset backed certificates issues in same-day funds.
Trading between Clearstream and/or Euroclear Participants. Secondary
market trading between Clearstream Participants or Euroclear Participants will
be settled using the procedures applicable to conventional eurobonds in same-day
funds.
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Trading between DTC seller and Clearstream or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Clearstream Participant or a Euroclear Participant, the
purchaser will send instructions to Clearstream or Euroclear through a
Clearstream Participant or Euroclear Participant at least one business day prior
to settlement. Clearstream or Euroclear will instruct the respective Depositary,
as the case may be, to receive the Global Securities against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date, on the basis of
either a 360-day year comprised of 30-day months or the actual number of days in
such accrual period and a year assumed to consist of 360 days, as applicable.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. Payment
will then be made by the respective Depositary of the DTC Participant's account
against delivery of the Global Securities. After settlement has been completed,
the Global Securities will be system and by the clearing system, in accordance
with its usual procedures, to the Clearstream Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Clearstream or Euroclear cash
debt will be valued instead as of the actual settlement date.
Clearstream Participants and Euroclear Participants will need to
make available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Clearstream or Euroclear. Under
this approach, they may take on credit exposure to Clearstream or Euroclear
until the Global Securities are credited to their accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of
credit to them, Clearstream Participants or Euroclear Participants can elect not
to preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Clearstream Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment income on
the Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will depend
on each Clearstream Participant's or Euroclear Participant's particular cost of
funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global Securities
to the respective European Depositary for the benefit of Clearstream
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
Trading between Clearstream or Euroclear Seller and DTC Purchaser. Due
to time zone differences in their favor, Clearstream Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Clearstream or Euroclear through a Clearstream Participant or
Euroclear Participant at least one business day prior to settlement. In these
cases Clearstream or Euroclear will instruct the respective Depositary, as
appropriate, to deliver the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment to and excluding the settlement date
on the basis of either a 360-day year comprised of 30-day months or the actual
number of days in such accrual period and a year assumed to consist of 360 days,
as applicable. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the account of the Clearstream Participant
or Euroclear Participant the following day, and receipt of the cash proceeds in
the Clearstream Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Clearstream Participant or Euroclear
Participant have a line of credit with its respective clearing system and elect
to be in debt in anticipation of receipt of the sale proceeds in its account,
the back-valuation will extinguish any overdraft incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the Clearstream Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
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Finally, day traders that use Clearstream or Euroclear and that
purchase Global Securities from DTC Participants for delivery to Clearstream
Participants or Euroclear Participants should note that these trades would
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(a) borrowing through Clearstream or Euroclear for one day (until the
purchase side of the day trade is reflected in their Clearstream or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Clearstream or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the Clearstream Participant or
Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Clearstream or Euroclear (or through DTC if the holder has an address outside
the U.S.) will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners residing in
a country that has a tax treaty with the United States can obtain an exemption
or reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only
for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the Certificate
Owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Except as discussed below, Form W-8 and Form 1001 are
effective for three calendar years and Form 4224 is effective for one calendar
year.
Final withholding regulations (the "New Regulations") effective January
1, 2001 affect the documentation required from non-U.S. Persons having validly
existing IRS Forms, such as IRS Form W-8, 1001 or 4224. The New
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<PAGE>
Regulations replace a number of current tax certification forms (including IRS
Forms W-9, 1001 and 4224, as discussed above) with a new series of IRS Forms W-8
and generally standardize the period of time for which withholding agents can
rely on such forms (although certain of the new forms may remain valid
indefinitely if the beneficial owner provides a Unites States taxpayer
identification number and the information on the form does not change). Existing
forms and statements will remain valid until the earlier of their expiration or
December 31, 2000.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity treated as a corporation
or partnership for United States federal income tax purposes organized in or
under the laws of the United States or any state thereof or the District of
Columbia (unless, in the case of a partnership, Treasury regulations provide
otherwise) or (iii) an estate the income of which is includible in gross income
for United States tax purposes, regardless of its source, or (iv) a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have authority
to control all substantial decisions of the trust. Notwithstanding the preceding
sentence, to the extent provided in Treasury regulations, certain trusts in
existence on August 20, 1996, and treated as United States persons prior to such
date, that elect to continue to be treated as United States persons will also be
a U.S. Person. This summary does not deal with all aspects of U.S. Federal
income tax withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for specific
tax advice concerning their holding and disposing of the Global Securities.
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<PAGE>
PROSPECTUS
--------------------------------------------------------------------------------
PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION Asset-Backed Securities
Sponsor Issuable in Series
--------------------------------------------------------------------------------
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 or private
securities or agency
securities,
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 August 10, 2000
--------------------------------------------------------------------------------
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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
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............................... 13
Commercial Loans............................ 14
MBS......................................... 15
Fixed Retained Yield........................ 16
Insurance Policies.......................... 16
Acquisition of the Trust Assets............. 18
Assignment of the Loans..................... 18
Representations and Warranties.............. 19
Pre-Funding Accounts........................ 21
DESCRIPTION OF THE SECURITIES.................... 22
Distributions............................... 23
Principal and Interest on the Securities.... 24
Form of Securities.......................... 25
CREDIT ENHANCEMENT............................... 26
Subordination............................... 27
Overcollateralization....................... 27
Cross-Collateralization..................... 27
Surety Bonds................................ 27
Letters of Credit........................... 28
Special Hazard Insurance Policies........... 28
Reserve Funds............................... 28
Other Insurance, Guarantees and
Similar Instruments or Agreements......... 28
Reduction or Substitution of Credit
Enhancement............................... 28
PREPAYMENT AND YIELD CONSIDERATIONS.............. 29
Interest Rates.............................. 29
Interest Shortfalls Due to Principal
Prepayments............................... 29
Weighted Average Life of Securities......... 30
SERVICING OF THE LOANS........................... 31
The Servicer................................ 31
Payments on Loans........................... 31
Advances and Limitations Thereon............ 33
Adjustment to Servicing
Compensation in Connection with
Prepaid and Liquidated Loans.............. 34
Reports to Securityholders.................. 34
Collection and Other Servicing Procedures... 35
Enforcement of Due-on-Sale Clauses;
Realization Upon Defaulted Loans.......... 35
Servicing Compensation and Payment
of Expenses............................... 36
Evidence as to Compliance................... 37
Matters Regarding the Servicer.............. 37
Events of Default; Rights Upon Event
of Default................................ 38
Amendment................................... 40
Termination; Purchase or Other Disposition
of Loans.................................. 41
MATERIAL LEGAL ASPECTS OF THE LOANS.............. 42
The Mortgage Loans.......................... 42
The Contracts............................... 48
Installment Contracts....................... 51
Soldiers' and Sailors' Civil Relief Act..... 53
Type of mortgaged property.................. 53
Commercial Loans............................ 54
Leases and Rents............................ 54
Material Matters Relating to
Insolvency................................ 55
Bankruptcy Laws............................. 55
MATERIAL FEDERAL INCOME TAX CONSEQUENCES......... 57
Grantor Trust Securities.................... 57
REMIC Securities............................ 59
Debt Securities............................. 65
Partnership Interests....................... 66
FASIT Securities............................ 68
Discount and Premium........................ 70
Backup Withholding.......................... 73
Foreign Investors........................... 74
STATE TAX CONSIDERATIONS......................... 75
ERISA CONSIDERATIONS............................. 75
Certificates................................ 76
Notes....................................... 77
Consultation with Counsel................... 77
LEGAL INVESTMENT................................. 78
PLAN OF DISTRIBUTION............................. 79
INCORPORATION OF INFORMATION BY
REFERENCE...................................... 80
ADDITIONAL INFORMATION........................... 80
LEGAL MATTERS.................................... 81
RATINGS.......................................... 81
GLOSSARY......................................... 82
</TABLE>
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<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 ASSETS
Each issuer will hold one or more pools of:
o conventional mortgage loans or manufactured housing contracts secured by
one-to-four family residential properties, manufactured homes and/or
commercial properties,
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,
o revolving home equity lines of credit, and
o private or agency securities.
The sponsor will direct the issuer to acquire the assets from affiliated
sellers, unaffiliated sellers 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 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,
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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,
their affiliates or a designated securityholder 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.
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<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 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
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<PAGE>
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 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.
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<PAGE>
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.
COMMERCIAL MORTGAGE LOANS MAY INVOLVE GREATER RISK OF LOSS THAN RESIDENTIAL
MORTGAGE LOANS, WHICH COULD LEAD TO LOSSES ON YOUR SECURITIES.
Mortgage loans made with respect to commercial properties, including
traditional commercial properties, and multifamily and mixed use properties
that are predominantly used for commercial purposes, may entail risks of
delinquency and foreclosure, and risks of loss in the event thereof, that
are greater than similar risks associated with single family property. The
ability of a mortgagor to repay a loan secured by an income-producing
property typically is dependent primarily upon the successful operation of
such property rather than any independent income or assets of the mortgagor;
thus, the value of an income-producing property is directly related to the
net operating income derived from such property. In contrast, the ability of
a mortgagor to repay a single family loan typically is dependent primarily
upon the mortgagor's household income, rather than the capacity of the
property to produce income; thus, other than in geographical areas where
employment is dependent upon a particular employer or an industry, the
mortgagor's income tends not to reflect directly the value of such property.
A decline in the net operating income of an income-producing property will
likely affect both the performance of the related loan as well as the
liquidation value of such property, whereas a decline in the income of a
mortgagor on a single family property will likely affect the performance of
the related loan but may not affect the liquidation value of such property.
Moreover, a decline in the value of a mortgaged property will increase the
risk of loss particularly with respect to any related junior mortgage loan.
The performance of a mortgage loan secured by an income-producing property
leased by the mortgagor to tenants as well as the liquidation value of such
property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both.
The risks associated with such loans may be offset by the number of tenants
or, if applicable, a diversity of types of business operated by such
tenants.
The mortgage loans may be nonrecourse loans or loans for which recourse may
be limited. With respect to those limited recourse mortgage loans, in the
event of mortgagor default, recourse may be had only against the specific
property and such other assets, if any, as have been pledged to secure the
related mortgage loan. With respect to those mortgage loans that provide for
recourse against the mortgagor and its assets generally, there can be no
assurance that such recourse will ensure a recovery in respect of a
defaulted mortgage loan greater than the liquidation value of the related
mortgaged property.
Further, the concentration of default, foreclosure and loss risks in
individual mortgagors or mortgage loans on commercial properties could be
greater than for single family loans because the related mortgage loans
could have higher principal balances and may consist of leases to only a
single lessee or a limited number of lessees.
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."
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<PAGE>
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 or private or agency securities ("MBS"). As used herein, loans
refers to both whole loans (or certain balances thereof) and loans underlying
MBS. 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 a seller of mortgage loans and/or contracts and transferred to
the issuer either directly by the seller 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 include mortgage loans for which a Fixed Retained Yield has been
retained by the seller, 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
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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 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
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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 that no more than five percent (5%) of
any trust fund may be comprised of commercial properties, including traditional
commercial properties, multifamily properties and mixed use properties that are
predominantly used for commercial purposes. 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 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.
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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.
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
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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 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 seller 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 or
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 permit prepayments after expiration of
the
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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 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
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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 or
acquired by the seller, or by a manufactured housing dealer in the ordinary
course of business and purchased by the seller. 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 seller 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 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.
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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
date of issuance thereof and to be filed with the Securities and Exchange
Commission promptly after the initial issuance of the securities.
COMMERCIAL LOANS
The mortgage loans may be secured by liens on, or security interests in,
mortgaged properties consisting of (1) primarily residential properties
consisting of five or more rental or cooperatively owned dwelling units in
high-rise, mid-rise or garden apartment buildings and which may include limited
retail, office or other commercial space ("multifamily properties," and the
related loans, "multi-family loans"), (2) retail stores and establishments, (3)
office buildings, or (4) hotels or motels, nursing homes, assisted living
facilities, continuum care facilities, day care centers, schools, hospitals or
other healthcare related facilities, industrial properties, warehouse
facilities, mini-warehouse facilities, self-storage facilities, distribution
centers, transportation centers, parking facilities, entertainment and/or
recreation facilities, movie theaters, restaurants, golf courses, car washes,
automobile dealerships, mobile home parks, mixed use (including mixed commercial
uses and mixed commercial and residential uses) and/or unimproved land
(collectively, the "commercial properties" and the related loans, "commercial
loans"). The mortgage loans will be secured by first or junior mortgages or
deeds of trust or other similar security instruments creating a first or junior
lien on mortgaged property. Commercial loans will generally also be secured by
an assignment of leases and rents and/or operating or other cash flow guarantees
relating to the mortgage loan. It is anticipated that the mortgagors will be
required to maintain hazard insurance on the mortgaged properties in accordance
with the terms of the underlying mortgage loan documents.
Multifamily properties are residential income-producing properties
consisting of five or more rental or cooperatively owned dwelling units in
high-rise, mid-rise or garden apartment buildings and which may include limited
retail, office or other commercial space. Multifamily leases tend to be
relatively short-term (i.e., one to five years). Multifamily properties face
competition from other such properties within the same geographical area, and
compete on the basis of rental rates, amenities, physical condition and
proximity to retail centers and transportation. Certain states and
municipalities may regulate the relationships between landlords and residential
tenants and may impose restrictions on rental rates.
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Retail properties are generally income-producing properties leased by
borrowers to tenants that sell various goods and services. The leases may be
short- or long-term and may have a base rent component and an additional rental
component tied to sales. Retail properties may include single- or
multiple-tenant properties, in the latter case such as shopping malls or strip
shopping centers. Some retail properties have anchor tenants or are located
adjacent to an anchor store. While there is no strict definition of an anchor,
it is generally understood that a retail anchor tenant is proportionately larger
in size and is vital in attracting customers to the retail property, whether or
not such retail anchor is located on the related mortgaged property. Retail
properties compete on the basis of the physical attributes of the properties,
access to major roadways, availability of parking and rental rates. Retail
properties may face competition from sources within the geographical real estate
market, and in addition, unlike other income producing properties, from sources
outside a given real estate market. Catalogue retailers, home shopping networks,
the Internet, telemarketing and outlet centers all compete with more traditional
retail properties for consumer dollars spent on products and services sold in
retail stores. Continued growth of these alternative retail outlets (which are
often characterized by lower operating costs) could adversely affect the rents
collectible at retail properties.
Office properties are income-producing properties in which the borrower
leases space to commercial tenants for office use. Such properties may be
single- or multiple-tenant properties and may be high-rise, mid-rise or low-rise
buildings. Leases may be short- or long-term leases. Office properties compete
on the basis of the physical attributes of and amenities provided by the
building, proximity to sources of transportation and rental rates.
Pursuant to a lease assignment, the related mortgagor may assign its
rights, title and interest as lessor under each lease and the income derived
therefrom to the related mortgagee, while retaining a license to collect the
rents for so long as there is no default. If the mortgagor defaults, the license
terminates and the mortgagee or its agent is entitled to collect the rents from
the related lessee or lessees for application to the monetary obligations of the
mortgagor. State law may limit or restrict the enforcement of the lease
assignments by a mortgagee until it takes possession of the related mortgaged
property and/or a receiver is appointed.
MBS
Any MBS will have been issued pursuant to a pooling and servicing
agreement, a participation agreement, a trust agreement, an indenture or similar
agreement (an "MBS Agreement"). A seller (the "MBS Issuer") and/or servicer (the
"MBS Servicer") of the underlying mortgage loans (or underlying MBS) will have
entered into the MBS Agreement with a trustee or a custodian under the MBS
Agreement (the "MBS Trustee"), if any, or with the original purchaser of the
interest in the underlying mortgage loans or MBS evidenced by the MBS.
Distributions of any principal or interest, as applicable, will be made on
MBS on the dates specified in the related Prospectus Supplement. The MBS may be
issued in one or more classes with characteristics similar to the classes of
securities described in this prospectus. Any principal or interest distributions
will be made on the MBS by the MBS Trustee or the MBS Servicer. The MBS Issuer
or the MBS Servicer or another person specified in the related Prospectus
Supplement may have the right or obligation to repurchase or substitute assets
underlying the MBS after a certain date or under other circumstances specified
in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other forms of
credit support similar to that described for the securities under "Credit
Enhancement" in this prospectus may be provided with respect to the MBS. The
type, characteristics and amount of such credit support, if any, will be a
function of certain characteristics of the underlying mortgage loans or
underlying MBS evidenced by or securing such MBS and other factors and generally
will have been established for the MBS on the basis of requirements of either
any rating agency that may have assigned a rating to the MBS or the initial
purchasers of the MBS.
The Prospectus Supplement for a series of securities evidencing interests
in mortgage loans that include MBS will specify, to the extent available to the
Depositor, (i) the aggregate approximate initial and outstanding principal
amount or notional amount, as applicable, and type of the MBS to be included in
the Trust Fund, (ii) the original and remaining term to stated maturity of the
MBS, if applicable, (iii) whether
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such MBS is entitled only to interest payments, only to principal payments or to
both, (iv) the pass-through or bond rate of the MBS or formula for determining
such rates, if any, (v) the applicable payment provisions for the MBS,
including, but not limited to, any priorities, payment schedules and
subordination features, (vi) the MBS Issuer, MBS servicer and MBS trustee, as
applicable, (vii) certain characteristics of the credit support, if any, such as
subordination, reserve funds, insurance policies, letters of credit or
guarantees relating to the related underlying mortgage loans, the underlying MBS
or directly to such MBS, (viii) the terms on which the related underlying
mortgage loans or underlying MBS for such MBS or the MBS may, or are required
to, be purchased prior to their maturity, (ix) the terms on which mortgage loans
or underlying MBS may be substituted for those originally underlying the MBS,
(x) the servicing fees payable under the MBS Agreement, (xi) the type of
information in respect of the underlying mortgage loans described above, and the
type of information in respect of the Underlying MBS described in this
paragraph, (xii) the characteristics of any cash flow agreements that are
included as part of the trust fund evidenced or secured by the MBS and
(xiii) whether the MBS is in certificated form or held through a depository such
as The Depository Trust Company.
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,
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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.
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.
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ACQUISITION OF THE TRUST ASSETS
The loans underlying a series of securities will be acquired by the issuer
either directly or through a special-purpose affiliate of the issuer, from
originators or sellers which may be affiliates of the issuer, under Loan Sale
Agreements. Each loan so acquired will have been originated or acquired by the
sellers thereof in accordance with the underwriting criteria specified in the
accompanying prospectus supplement. In the Loan Sale Agreements, the sellers
will make a number of representations and warranties concerning the loans being
acquired from the sellers 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 seller 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 seller 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 seller
or any affiliate of the seller.
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 sellers 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. 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
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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 seller. If the seller cannot cure the omission or
defect within 60 days after receipt of notice, the seller 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 seller 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 seller
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 seller, nor the issuer will be obligated to purchase or
substitute for the loan if the seller 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
Unless otherwise specified in the related Prospectus Supplement, each
seller, in the Loan Sale Agreements, will have made a number of representations
and warranties concerning the mortgage loans. The seller will have represented,
among other things, substantially to the effect that:
o immediately prior to the sale and transfer of the mortgage loans, the
seller 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;
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,
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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.
Unless otherwise specified in the related Prospectus Supplement, each
seller, in the Loan Sale Agreement, will have made a number of representations
and warranties concerning the contracts. The seller will have represented, among
other things, substantially to the effect that:
o immediately prior to the sale and transfer of the contracts, the seller
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
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 seller concerning a loan
will have been made as of the date on which the seller sold the loan to the
issuer, or one of its affiliates. 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 seller, the repurchase
obligation described below will not arise if, during the period commencing on
the date of sale of a loan by the seller, 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
seller 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 seller, will promptly
notify the seller 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 seller cannot cure the breach within 60 days
after notice from the servicer or the trustee, as the case may be, then the
seller 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.
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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 custodian and the seller 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 seller, 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 seller.
None of the sponsor, the issuer or the servicer, unless the servicer is the
seller, will be obligated to purchase or substitute for a loan if the seller
defaults on its obligation to do so, and no assurance can be given that the
seller will carry out their respective repurchase obligations.
The seller, 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 seller in
connection with missing or defective loan documents or the breach of the
seller'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 seller, 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.
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If a Pre-Funding Account is established,
o the Pre-Funding Period will not extend beyond the period specified in the
accompanying prospectus supplement,
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.
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 seller 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.
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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.
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 of payment, or by
check mailed to the address of the person entitled thereto as it appears on the
security register; provided, however,
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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.
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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.
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 seller, 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 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.
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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.
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 seller 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.
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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.
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
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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 seller 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 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
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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 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,
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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.
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 seller 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. 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
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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, 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 seller; 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
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.
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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 seller for each loan or property acquired in respect
thereof that has been repurchased by the seller, 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;
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.
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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;
(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.
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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 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
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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 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
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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 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
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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.
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
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 under the standards set forth in the Servicing
Agreement,
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.
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.
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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.
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
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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.
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.
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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 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
seller 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.
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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 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
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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.
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.
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Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "--Anti-Deficiency Legislation and
Other Limitations on Lenders" below.
Rights of Redemption
In some states, after sale 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 some states, on
whether the advance was an
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"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.
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.
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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 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.
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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
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
seller 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.
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Some of the commercial loans will include a "debt-acceleration" clause,
which permits the lender to accelerate the full debt upon a monetary or
nonmonetary default of the borrower. The courts of all states will enforce
clauses providing for acceleration in the event of a material payment default
after giving effect to any appropriate notices. The courts of any state,
however, may refuse to permit foreclosure of a mortgage or deed of trust when an
acceleration of the indebtedness would be inequitable or unjust or the
circumstances would render the acceleration unconscionable. Furthermore, in some
states, the borrower may avoid foreclosure and reinstate an accelerated loan by
paying only the defaulted amounts and the costs and attorneys' fees incurred by
the lender in collecting such defaulted payments.
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
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,
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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 seller 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 servicer will
deliver the securities of title to the trustee or note thereon the interest of
the trustee. Accordingly, the servicer or the seller, 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 seller, or a trustee in bankruptcy of the servicer, or the
seller.
In the absence of fraud, forgery or permanent affixation of the
manufactured home to its site by the manufactured home owner, or administrative
error by state recording officials, the notation of the lien of the servicer or
the seller, 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
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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 seller 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 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
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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.
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 seller 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
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is the lender obligated to convey title to the real estate to the purchaser. As
with mortgage or deed of trust financing, during the effective period of the
Installment contract, the borrower is generally responsible for maintaining the
property in good condition and for paying real estate taxes, assessments and
hazard insurance premiums associated with the property.
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 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
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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 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,
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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,
motels, golf courses, restaurants, movie theaters, car washes, and auto
dealerships 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.
The ability of borrowers under commercial loans to make timely payment on
their loans may be dependent upon such factors as location, market demographics,
the presence of certain other retail outlets in the same shopping center,
competition from catalog and internet retailers and insolvency of tenants.
Furthermore, such factors as the management skill, experience and financial
resources of the operator (which may be other than the borrower), national and
regional economic conditions and other factors may affect the ability of
borrowers to make payments when due.
COMMERCIAL LOANS
The market value of any commercial property, including traditional
commercial, multifamily and mixed use properties that are predominantly used for
commercial purposes, obtained in foreclosure or by deed in lieu of foreclosure
will be based substantially on the operating income obtained from renting the
units. Because a default on a commercial loan is likely to have occurred because
operating income, net of expenses, is insufficient to make debt service payments
on such mortgage loan, it can be anticipated that the market value of such
property will be less than was anticipated when such mortgage loan was
originated. To the extent that the equity in the property does not absorb the
loss in market value and such loss is not covered by other credit support, a
loss may be experienced. With respect to multifamily property consisting of an
apartment building owned by a cooperative, the cooperative's ability to meet
debt service obligations on the mortgage loan, as well as all other operating
expenses, will be dependent in large part on the receipt of maintenance payments
from the tenant-stockholders. Unanticipated expenditures may in some cases have
to be paid by special assessments of the tenant-stockholders. The cooperative's
ability to pay the principal amount of the mortgage loan at maturity may depend
on its ability to refinance the mortgage loan. The depositor, the seller and the
master Servicer will have no obligation to provide refinancing for any such
mortgage loan.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the mortgagor retains a revocable license to
collect the rents for so long as there is not default. Under such assignments,
the mortgagor typically assigns its right, title and interest as lessor under
each lease and the income derived therefrom to the mortgagee, while retaining a
license to collect the rents for so long as there is no default under the
mortgage loan documentation. The manner of perfecting the mortgagee's interest
in rents may depend on whether the mortgagor's assignment was absolute or one
granted as security for the loan. Failure to properly perfect the mortgagee's
interest in rents may result in the loss of substantial pool of funds, which
could otherwise serve as a source of repayment of such loan. If the mortgagor
defaults, the license terminates and the lender is entitled to collect the
rents. Local law may require that the lender take possession of the property
and/or obtain a court-appointed receiver before becoming entitled to collect the
rents. In most states, hotel and motel room rates are considered accounts
receivable under the UCC; generally these rates are either assigned by the
mortgagor, which remains entitled to collect such rates absent a default, or
pledged by the mortgagor, as security for the loan. In general, the lender must
file financing statements in order to perfect its security interest in the rates
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and must file continuation statements, generally every five years, to maintain
perfection of such security interest. Even if the lender's security interest in
room rates is perfected under the UCC, the lender will generally be required to
commence a foreclosure or otherwise take possession of the property in order to
collect the room rates after a default.
Even after a foreclosure, the potential rent payments from the property may
be less than the periodic payments that had been due under the mortgage. For
instance, the net income that would otherwise be generated from the property may
be less than the amount that would have been needed to service the mortgage debt
if the leases on the property are at below-market rents, or as the result of
excessive maintenance, repair or other obligations which a lender succeeds to as
landlord.
MATERIAL MATTERS RELATING TO INSOLVENCY
The seller, 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 seller. However, if the seller 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 seller may argue that the sale of
the loans by the seller 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 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
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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. 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.
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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 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.
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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 "--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 seller, 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.
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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 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
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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 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.
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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.
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
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
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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 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
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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.
Proposed Treasury regulations issued on February 4, 2000 (the "New Proposed
Regulations") would modify the safe harbor under which transfers of noneconomic
residual interests are treated as not disregarded for federal income tax
purposes. Under the New Proposed Regulations, a transfer of a noneconomic
residual interest would not qualify under this safe harbor unless the present
value of the anticipated tax liabilities associated with holding the residual
interest does not exceed the sum of the present value of the sum of (i) any
consideration given to the transferee to acquire the interest, (ii) future
distributions on the interest, and (iii) any anticipated tax savings associated
with holding the interest as the REMIC generates losses. For purposes of this
calculation, the present value generally is calculated using a discount rate
equal to the applicable federal rate. The New Proposed Regulations have a
proposed effective date of February 4, 2000.
In addition, President Clinton's Fiscal Year 2001 Budget Proposal contains
a provision under which a REMIC would be secondarily liable for the tax
liability of its residual interest. The proposal states that it would be
effective for REMICs created after the date of enactment. It is unknown whether
this provision will be included in any bill introduced to Congress this year or
if introduced whether it will be enacted.
Prospective investors in REMIC Residual Securities should consult their tax
advisors regarding the New Proposed Regulations and the Fiscal Year 2001 Budget
Proposals.
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, 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
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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.
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.
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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.
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.
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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 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.
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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 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
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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,
(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
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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
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.
Proposed FASIT Regulations
The Treasury Department filed proposed regulations interpreting the FASIT
Provisions ("proposed FASIT regulations") with the Federal Register on Friday,
February 4, 2000. The proposed FASIT regulations generally would be effective on
the date they are issued as final regulations. Certain anti-abuse rules are,
however, proposed to be effective on February 4, 2000. The proposed FASIT
regulations would, among other things, provide procedures for making a FASIT
election, refine the definition of certain terms used in the FASIT provisions,
provide penalties that would apply upon cessation of FASIT status, provide rules
for the tax treatment of transfers of assets to the FASIT, and establish
anti-abuse rules to preclude use of the FASIT vehicle for a transaction that did
not primarily concern the securitization of financial assets.
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.
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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 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
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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
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
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distributions on the 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 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, 2001 or
the due date of expiration of the certificate under the rules as currently in
effect.
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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--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
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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.
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
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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:
(a) 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;
(b) 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;
(c) the certificates acquired by the plan 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.;
(d) the trustee is not an affiliate of any other member of the
Restricted Group;
(e) 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 sellers 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;
(f) 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
(g) 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
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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;
(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.
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
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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 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
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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.
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
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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.
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 Brown & Wood LLP, Washington, D.C. 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 seller in the Loan Sale Agreement and which must be repurchased or
substituted for by the seller.
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.
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
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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 seller, either directly or through a special-purpose
affiliate or the seller.
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.
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.
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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 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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$167,019,000
(APPROXIMATE)
CREDIT-BASED ASSET SERVICING AND
SECURITIZATION LLC
SELLER
LITTON LOAN SERVICING LP
SERVICER
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
DEPOSITOR
C-BASS MORTGAGE LOAN ASSET-BACKED CERTIFICATES, SERIES 2000-CB3
------------------------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------------------------
PRUDENTIAL SECURITIES
FIRST UNION SECURITIES, INC.
You should rely only on the information contained or incorporated by
reference in this Prospectus Supplement and the accompanying Prospectus. We have
not authorized anyone to provide you with different information.
We are not offering the C-BASS Mortgage Loan Asset-Backed Certificates,
Series 2000-CB3 in any state where the offer is not permitted.
We do not claim that the information in this Prospectus Supplement and
Prospectus is accurate as of any date other than the dates stated on the
respective covers.
Dealers will deliver a Prospectus Supplement and Prospectus when acting
as underwriters of the C-BASS Mortgage Loan Asset-Backed Certificates, Series
2000-CB3 and with respect to their unsold allotments or subscriptions. In
addition, all dealers selling the C-BASS Mortgage Loan Asset-Backed
Certificates, Series 2000-CB3 will be required to deliver a Prospectus
Supplement and Prospectus for ninety days following the date of this Prospectus
Supplement.
September 13, 2000
