As filed with the Securities and Exchange Commission
on March 31, 1997
Registration No. 33-34957
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO. 4
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
HOMESIDE MORTGAGE SECURITIES, INC.
(Exact name of registrant as specified in its charter)
7301 Baymeadows Way
Jacksonville, Florida 32256
Delaware (904) 281-3000 59-2957725
(State or (Address and telephone (I.R.S. Employer
other jurisdiction number of principal Identification
of incorporation executive offices) Number)
or organization)
Robert J. Jacobs, Esq.
HomeSide Mortgage Securities, Inc.
7301 Baymeadows Way
Jacksonville, Florida 32256
(904) 281-3000
(Name, address and telephone number of agent for service)
----------
Copies to:
David L. Sugerman, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
----------
Approximate date of commencement of proposed sale to public:
From time to time after this Amendment becomes effective.
If the only securities being registered on this Form are
being offered pursuant to dividend or interest reinvestment
plans, please check the following box. [ ]
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, other than securities
offered only in connection with dividend or interest reinvestment
plans, please check the following box. [ X ]
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
===========================================================================
<PAGE>
SUBJECT TO COMPLETION MARCH 31, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 199
HomeSide Mortgage Securities, Inc.
(Seller)
HomeSide Lending, Inc.
(Servicer)
$ (Approximate)
[REMIC Multi-Class] Mortgage Pass-Through Certificates, Series 199_
Principal and interest payable on the 25th day of
each month beginning in 199_.
----------
The [REMIC Multi-Class] [Mortgage] Pass-Through
Certificates, Series 199_ (the "Certificates") will represent
beneficial ownership interests in a trust fund (the "Trust
Fund"). The assets of the Trust Fund will consist primarily of a
pool (the "Mortgage Pool") of [fixed-rate,] [adjustable-rate,]
first-lien, fully-amortizing, conventional, one- to four-family
mortgage loans having original terms to maturity of ___ to ___
years (the "Mortgage Loans") and sold by HomeSide Mortgage
Securities, Inc. ("HMSI" or the "Seller"). See "Description of
the Mortgage Pools and the Mortgaged Properties" herein.
[Description of subordination of classes, if applicable.]
----------
NEITHER THESE CERTIFICATES NOR THE UNDERLYING MORTGAGE
LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------
Class Certificate Certificate [Scheduled Final
Principal Balance(1) Interest Rate Distribution Date(2)]
-------------------- ------------- --------------------
[Classes of
Certificates]
- -----------------
(1) Approximate, subject to adjustment as described herein.
(2) Determined on the basis of the assumptions set forth under "Yield
and Weighted Average Life Considerations--Final Payment Considerations
[and Scheduled Final Distribution Dates of the Certificates]" herein.
---------
<PAGE>
[Descriptions of material transfer restrictions on
certain Classes of Certificates.] [The Class R Certificates ("the
Residual Certificates") may not be purchased by or transferred to
(i) a Disqualified Organization or Book-Entry Nominee (as defined
in the accompanying Prospectus), (ii) except under limited
circumstances, a person who is not a U.S. Person (as defined in
the accompanying Prospectus), (iii) an ERISA Plan (as defined
herein) or (iv) any person or entity who the transferor has
reason to believe intends to impede the assessment or collection
of any federal, state or local taxes legally required to be paid
with respect thereto. See "ERISA Considerations" and "Description
of the Certificates--Restrictions on Transfer of the Residual
Certificates" herein.]
There is currently no secondary market for the
Certificates offered hereby and there can be no assurance that
such a market will develop. [ (the "Underwriter") has indicated
its intention to make a market in the Certificates offered
hereby, but it is not obligated to do so.] There is no assurance
that any such market, if established, will continue. See "Summary
of Terms--Liquidity Considerations."
[The Certificates offered hereby will be purchased by
the Underwriter from the Seller and are being offered by the
Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at
the time of sale. See "Plan of Distribution" herein. Proceeds to
the Seller from the sale of the Certificates will be
approximately % of the aggregate Scheduled Principal Balance of
the Mortgage Loans as of the Cut-Off Date, plus accrued interest
thereon from the Cut-off Date, before deducting issuance expenses
payable by the Seller.]
[The Certificates offered hereby are offered by the
Underwriter, as specified herein, subject to receipt and
acceptance thereof and subject to its right to reject any order
in whole or in part. It is expected that delivery of the
Certificates offered hereby [(other than the Class R and the
Class Certificates)] will be made through the book-entry
facilities of [The Depository Trust Company], and that delivery
of the Class R and the Class Certificates in definitive,
fully-registered form will be made at the offices of the
Underwriter, New York, New York, on or about , 199 .]
[UNDERWRITER]
The date of this Prospectus Supplement is , 199 .
S-2
<PAGE>
The Certificates offered hereby will be issued in the
classes (each, a "Class") and with the characteristics set forth
on the cover hereof. Interest will accrue on each Class of the
Certificates [other than the Class Certificates] at the
respective Certificate Interest Rates set forth on the cover
hereof. Principal and interest will be distributable on the
Certificates on each Distribution Date (as defined herein)
commencing in 199 . On each Distribution Date, to the extent
funds are available therefor, the amount of interest
distributable on each Certificate offered hereby [other than the
Class Certificates] will equal 30 days of interest at the
applicable Certificate Interest Rate on the Certificate Principal
Balance thereof immediately prior to such Distribution Date, less
such Certificate's share of any Net Interest Shortfall [and the
interest portion of any Realized Losses] (each as defined herein)
with respect to the Mortgage Loans. Principal of the Certificates
offered hereby [other than the Class Certificates] will be
distributable monthly on each Distribution Date to the extent and
in the manner described herein.
---------
The yield to maturity on the Certificates will be
affected, in varying degrees, by the rate and timing of principal
payments (including prepayments) on the Mortgage Loans included
in the related Mortgage Pool, which may be prepaid at any time
without penalty. [A rapid rate of principal prepayments will have
a material negative effect on the yield of the Class Certificates
and could result in the failure of investors in the Class
Certificates to fully recover their investment.]
[Beneficial interests in the Certificates offered
hereby [other than the Class R and the Class Certificates] will
be held by investors only through the book-entry facilities of
the Depository (as defined herein). Distributions on such Classes
of Certificates, and transfers of beneficial interests therein,
will be made as described herein. No person will be entitled to
receive a physical certificate representing such Certificates
except under the limited circumstances described herein. See
"Description of the Certificates--Book-Entry Certificates"
herein.]
---------
[For federal income tax purposes, an election will be
made to treat the Trust Fund as a "real estate mortgage investment
conduit" (a "REMIC"). Each Class of the Certificates other than
the Residual Certificates (the "Regular Certificates") will be
designated as regular interests in the REMIC and generally will
be treated as debt instruments for federal income tax purposes.
The Residual Certificates will be designated as the residual
interests in the REMIC. Prospective investors are cautioned that
the Residual Certificateholders' REMIC taxable income and the tax
liability thereon may exceed cash distributions to such holders
during certain periods, in which event such holders must have
sufficient alternative sources of funds to pay such tax
liability. See "Summary of Terms--Certain Federal Income Tax
Consequences" and "Certain Federal Income Tax Consequences"
herein and "Certain Federal Income Tax Consequences" in the
Prospectus.]
---------
The Certificates offered hereby constitute a part of a
series of Pass-Through Certificates being offered by HMSI from
time to time pursuant to its Prospectus dated , 199 of which this
Prospectus Supplement is a part. This Prospectus Supplement does
not contain complete information about the offering of the
Certificates. Additional information is contained in the
Prospectus and purchasers are urged to read both this Prospectus
Supplement and the Prospectus in full. Sales of the Certificates
may not be consummated unless the purchaser has received both
this Prospectus Supplement and the Prospectus.
S-3
<PAGE>
---------
Until 90 days after the date of this Prospectus
Supplement, all dealers effecting transactions in the
Certificates offered hereby, whether or not participating in this
distribution, may be required to deliver a Prospectus Supplement
and Prospectus to which it relates. This is in addition to the
obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON. THIS PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
CERTIFICATES OFFERED HEREBY NOR AN OFFER OF THE CERTIFICATES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AT ANY TIME DOES NOT IMPLY THAT INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF ANY
MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS SUPPLEMENT IS REQUIRED
BY LAW TO BE DELIVERED, THIS PROSPECTUS SUPPLEMENT WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY.
---------
[IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICE OF THE CERTIFICATES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.]
S-4
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by
reference to the detailed information appearing elsewhere herein
and in the Prospectus. Capitalized terms used herein and not
otherwise defined have the meanings assigned in the Prospectus.
Securities
Offered............... [REMIC Multi-Class] Mortgage Pass-Through
Certificates, Series 199 - (the
"Certificates"), in the Classes and
aggregate original Certificate Principal
Balances, subject to adjustment as
described herein (each a "Class
Certificate Principal Balance"), set
forth on the cover hereof. The aggregate
Scheduled Principal Balance (as defined
herein) of the Mortgage Loans underlying
the Certificates (the "Mortgage Loans")
will be approximately $
as of the Cut-off Date (subject to a
permitted upward or downward variance of up
to %).
Each of the Classes of Certificates
offered hereby, [other than the Class
Certificates and the Residual
Certificates], will be registered as a
single certificate held by a nominee of
[The Depository Trust Company] (the
"Depository"), and beneficial interests
therein will be held by investors through
the book-entry facilities of the
Depository, as described herein, in
minimum denominations in Certificate
Principal Balance of $ and integral
multiples of $1,000 in excess thereof.
[The Class Certificates will be [held by
investors through the book-entry
facilities of the Depository] [issued in
certificated form], in minimum
denominations in Notional Principal
Balance of $ and integral multiples of
$1,000 in excess thereof.] [The Class
Certificates will be issued in
certificated form in minimum
denominations in Certificate Principal
Balance of $ and integral multiples of
$1,000 in excess thereof.] [The Residual
Certificates will be issued in
certificated form as a single Certificate
representing the entire Class Certificate
Principal Balance thereof.]
Seller................ HomeSide Mortgage Securities, Inc. ("HMSI"
or the "Seller"). See "HomeSide Mortgage
Securities, Inc." in the Prospectus.
Servicer.............. HomeSide Lending, Inc. ("HLI" or the
"Servicer"). See "HomeSide Lending, Inc."
in the Prospectus. [Reference to other
direct servicers or subservicers to be
added if material.]
Trustee............... (the "Trustee"). See "The
Pooling and Servicing Agreement--Trustee"
herein.
Cut-off Date.......... 1, 199 .
S-5
<PAGE>
Closing Date.......... On or about , 199 .
Mortgage Pool......... The Certificates will represent the entire
beneficial interest in a trust fund (the
"Trust Fund"). The assets of the Trust
Fund will consist of a pool (the "Mortgage
Pool") of [fixed-rate,] [adjustable-rate,]
fully-amortizing, conventional mortgage
loans that are secured by first liens on
one- to four-family residential properties
(the "Mortgaged Properties"). The Mortgage
Loans will have original terms to maturity
of to years. See "Description of
the Mortgage Pools and the Mortgaged
Properties" herein.
Description of the
Certificates.......... The Certificates will be issued pursuant to
a Pooling and Servicing Agreement, to be
dated as of the Cut-Off Date (the
"Agreement"), among the Seller, the
Servicer and the Trustee. To the extent
funds are available therefor, distributions
on the Certificates will be made on the
25th day of each month or, if such 25th day
is not a business day, on the succeeding
business day (each, a "Distribution Date"),
commencing in 199 , to holders of
record on the close of business on the last
business day of the month preceding the
month of such Distribution Date (the
"Record Date").
Distributions on the
Certificates.......... Interest. On each Distribution Date,
interest will be distributable on each
Class of the Certificates [other than the
Class Certificates] from the Available
Funds (as defined herein) for such
Distribution Date in an aggregate amount
equal to the Accrued Certificate Interest
for such Class on such Distribution Date,
plus any Accrued Certificate Interest
thereon remaining undistributed from
previous Distribution Dates. Interest will
accrue on the Certificates offered hereby
[other than the Class Certificates] at
the respective Certificate Interest Rates
set forth on the cover hereof during each
one-month period ending on the last day of
the month preceding the month in which each
Distribution Date occurs (each, an
"Interest Accrual Period").
The "Accrued Certificate Interest" for
any Certificate for any Distribution Date
will equal the interest accrued during
the related Interest Accrual Period at
the applicable Certificate Interest Rate
on the Certificate Principal Balance
[(or, in the case of a Class Certificate,
the Notional Principal Balance)] of such
Certificate immediately prior to such
Distribution Date, less such
Certificate's share of any Net Interest
Shortfall (as defined herein) [and the
interest portion of Realized Losses] in
respect of the Mortgage Pool. Such
shortfall or losses will be allocated
among the related Certificates in
proportion to the amount of Accrued
S-7
<PAGE>
Certificate Interest that, in the absence
of such shortfall or losses, would have
been allocated thereto in respect of the
Mortgage Loans experiencing such
shortfalls or losses. Interest will be
calculated on the Certificates on the
basis of a 360-day year consisting of
twelve 30-day months.
See "Description of the
Certificates--Distributions on the
Certificates--Interest" herein.
Principal. Principal will be
distributable monthly on the Certificates
[other than the Class Certificates] on
each Distribution Date in an aggregate
amount (the "Principal Distribution
Amount") equal to the Available Funds (as
defined herein) in respect of the
Mortgage Pool remaining in the
Certificate Account after the
distribution of interest on the
Certificates on such Distribution Date.
Subject to such limitation, the Principal
Distribution Amount will be allocated
among the Classes of Certificates in the
manner described herein. Distributions of
principal on a Class of Certificates will
be made on a pro rata basis among all
outstanding Certificates of such Class.
See "Description of the
Certificates--Distributions on the
Certificates" herein.
[Description of any Classes with special
payment features, such as "planned
amortization" or "targeted amortization"
Certificates.]
[Additional Rights
of the Residual
Certificate-
holders............... In addition to distributions of principal
and interest payable out of the Available
Funds, the holders of the Class R
Certificates will be entitled to receive
(i) the amounts, if any, of Available Funds
remaining in the Certificate Account on any
Distribution Date after distributions of
principal and interest on the Certificates
on such date and (ii) the proceeds, if any,
of the assets of the Trust Fund remaining
in the REMIC after the Class Certificate
Principal Balances of all Classes of the
Certificates have been reduced to zero. It
is not anticipated that any material assets
will be remaining at any such time. See
"Description of the Certificates--Additional
Rights of the Residual Certificateholders"
herein.]
[Advances............. The Servicer will be obligated to advance
delinquent installments of principal and
interest (net of the related Servicing
Fees) on the Mortgage Loans included in
each Mortgage Pool under certain
circumstances. See "The Pooling and
Servicing Agreement--Advances" herein.]
S-7
<PAGE>
Credit
Enhancement........... The forms of credit enhancement described
below will be employed in order to enhance
the likelihood of regular receipt by
Certificateholders of the scheduled amounts
due them and to afford such Certificate
limited protection against losses. See
"The Pooling and Servicing Agreement--
Insurance and Related Arrangements" herein.
[Description of applicable credit
enhancement, such as subordination,
mortgage pool insurance policy, special
hazard insurance policy or limited
guarantee.]
The amount of coverage under the
foregoing forms of credit enhancement is
limited, and payment thereunder is
subject to certain conditions and
limitations. In the event losses occur
which are not covered by such credit
enhancement, or losses occur in amounts
exceeding the coverage provided thereby,
shortfalls in distributions to
Certificateholders will occur.]
Prepayment and Yield
Considerations........ The rate of principal payments on the
Certificates, the aggregate amount of each
interest payment on the Certificates and
the yield to maturity of the Certificates
are related to the rate of principal
payments on or in respect of the Mortgage
Loans. Mortgage principal payments may be
in the form of scheduled principal
payments, voluntary prepayments by the
mortgagors (such as, for example,
prepayments in full due to refinancings or
prepayments in connection with biweekly
payment programs) and prepayments resulting
from default, foreclosure, casualty,
condemnation and similar events and certain
purchases by the Servicer or the Seller
of the Mortgage Loans under the
circumstances described herein.
Mortgagors are permitted to prepay the
Mortgage Loans, in whole or in part, at
any time without penalty. Mortgage
prepayment rates are likely to fluctuate
significantly. In general, when
prevailing mortgage interest rates
decline significantly below the interest
rates on the Mortgage Loans, the
prepayment rate on the Mortgage Loans is
likely to increase, and when prevailing
mortgage interest rates rise
significantly above the interest rates on
the Mortgage Loans in the Mortgage Pool,
the prepayment rate on such Mortgage
Loans is likely to decrease, although
other economic, geographic and social
factors also may influence the prepayment
rate. See "Yield and Weighted Average
Life Considerations--Prepayments."
Full and partial prepayments and other
unscheduled recoveries of principal will
reduce the amount of interest available
for distribution to Certificateholders in
the following month from the amount which
S-8
<PAGE>
would have been available in the absence
of such prepayments or recoveries. Any
shortfalls in interest as a result of
such early receipt of principal [to the
extent not offset by a Compensating
Interest Payment (as defined herein) made
by the Servicer] generally will produce a
lower yield on such Certificates than
would otherwise be the case. [The
interest distributable on the
Certificates will also be reduced by the
amount of Realized Losses in respect of
the Mortgage Pool.]
The yields to investors will be
sensitive in varying degrees to the rate
and timing of Mortgage Loan prepayments
(including unscheduled recoveries of
principal). The extent to which the yield
to maturity of a Certificate is sensitive
to prepayments and other unscheduled
receipts of principal will depend upon
the degree to which it is purchased at a
discount or premium. In the case of
Certificates purchased at a
premium, faster than anticipated rates of
principal payments on the Mortgage Loans
could result in actual yields to such
investors that are lower than the
anticipated yields. In the case of
Certificates purchased at a discount,
slower than anticipated rates of
principal payments could result in actual
yields to investors that are lower than
the anticipated yields.
Rapid rates of prepayments on the
Mortgage Loans are likely to coincide
with periods of low prevailing interest
rates. During such periods, the yields at
which an investor in the Certificates may
be able to reinvest amounts received as
payments on the investor's Certificates
may be lower than the yield on such
Certificates. Conversely, slow rates of
prepayments on the Mortgage Loans are
likely to coincide with periods of high
prevailing interest rates. During such
periods, the amount of payments available
to an investor for reinvestment at such
high rates may be relatively low.
The Certificates were structured on the
basis of, among other things, a
prepayment assumption of % of the
Prepayment Assumption (as defined herein)
and corresponding weighted average lives
as described herein. The weighted average
lives of the Certificates offered hereby
at % of the Prepayment Assumption, based
on the assumptions described under "Yield
and Weighted Average Life
Considerations--Weighted Average Lives of
the Certificates--Table of Class
Certificate Principal Balances" are set
forth in such table herein. The Mortgage
Loans are not likely to prepay at a
constant rate of % of the Prepayment
Assumption or any other constant rate,
S-9
<PAGE>
and the actual weighted average lives of
the related Certificates are likely to
differ from those shown in such tables.
The prepayment, yield and other assumptions
to be used for pricing purposes for the
respective Classes of Certificates may
vary as determined at the time of sale.
Each prospective investor is urged to
make an investment decision with respect
to the Certificates proposed to be
purchased by such investor based upon a
comparison of the desired yield to the
anticipated yield on such Certificates
resulting from the price to be paid by
such investor for such Certificates and
such investor's own determination as to
the anticipated rate of prepayments on
the related Mortgage Pool.
[Principal distributions on the
Certificates will be made by reference to
principal balance schedules, as described
herein.] The weighted average lives of
all Classes of the Certificates will be
affected in part by the prepayment
experience of the Mortgage Loans in the
related Mortgage Pool and the resulting
allocation of principal payments on the
Certificates.
The yield on certain Classes of the
Certificates also may be affected by any
purchase by the Servicer of the Mortgage
Loans in the Trust Fund as described
under "The Pooling and Servicing
Agreement--Termination" herein.
The effective yield to holders of
Certificates [other than the Class
Certificates] will be lower than the
yield otherwise produced by the
applicable Certificate Interest Rate and
the applicable purchase prices thereof
because, while interest will accrue from
the first day of each month, the
distribution of such interest will not be
made until the 25th day (or if such day
is not a business day, the immediately
following business day) of the month
following the month of accrual. In
addition, the effective yield on the
Certificates will be affected by any
interest shortfalls in respect of the
Mortgage Pool. See "Description of the
Certificates" herein.
[Optional
Termination........... The Servicer may, at its option, purchase
from the Trust Fund all of the Mortgage
Loans remaining in the Trust Fund, and
thereby effect the early retirement of the
Certificates, on any Distribution Date if
the aggregate Scheduled Principal Balance
of the Mortgage Loans in the Trust Fund is
less than 10% of the aggregate Scheduled
Principal Balance thereof as of the Cut-off
Date. See "The Pooling and Servicing
Agreement--Termination" herein.]
S-10
<PAGE>
[Scheduled
Final
Distribution
Dates................. The rate of payment of principal of the
Certificates will depend on the rate of
payment of principal of the related
Mortgage Loans which, in turn, will depend
on the characteristics of such Mortgage
Loans, the level of prevailing interest
rates and other economic, geographic and
social factors. No assurance can be given
as to the actual payment experience of the
Mortgage Loans. The Scheduled Final
Distribution Date for each Class of the
Certificates offered hereby is the date
months after the date on which the Class
Certificate Principal Balance thereof would
be reduced to zero based on certain
assumptions regarding the characteristics
of the Mortgage Loans and other assumptions
described herein. Because certain Mortgage
Loans will have remaining terms to maturity
that are shorter and Mortgage Rates that
are lower than those assumed in calculating
the Scheduled Final Distribution Dates of
such Certificates, the Class Certificate
Principal Balances of the Certificates may
be reduced to zero prior to their
respective Scheduled Final Distribution
Dates. In addition, delinquencies could
result in distributions after the
respective Scheduled Final Distribution
Dates except to the extent offset by any
advances made by the Servicer and the forms
of credit enhancement described herein. As
a result, the Class Certificate Principal
Balance of each Class of the Certificates
offered hereby may be reduced to zero
significantly earlier or later than its
respective Scheduled Final Distribution
Date.]
<PAGE>
Certain Federal
Income Tax
Consequences.......... [The Certificates other than the Class R
Certificates (the "Regular Certificates")
will be treated as regular interests in the
REMIC and generally will be treated as debt
instruments issued by such REMIC for
federal income tax purposes. Certain
Classes of the Regular Certificates may be
issued with original issue discount. The
prepayment assumption that will be used in
determining the rate of accrual of any
original issue discount on the Regular
Certificates for federal income tax
purposes (and whether such original issue
discount is de minimis), and that may be
used by a holder of a Regular Certificate
to amortize premium, will be % of the
Prepayment Assumption. No representation
is made that the Mortgage Loans in either
Mortgage Pool will prepay at such rate or
at any other rate.]
[The holders of the Residual
Certificates will be subject to special
federal income tax rules that may
significantly reduce the after-tax yield
of such Certificates. Further,
significant restrictions apply to the
transfer of the Residual Certificates.
S-11
<PAGE>
See "Description of the
Certificates--Restrictions on Transfer of
the Residual Certificates."]
See "Certain Federal Income Tax
Consequences" herein and "Certain Federal
Income Tax Consequences--REMIC
Certificates" in the Prospectus.]
Legal
Investment............ The Certificates offered hereby [will]
constitute "mortgage related securities"
for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA").
However, institutions whose investment
activities are subject to legal
investment laws and regulations or review
by certain regulatory authorities may be
subject to restrictions on investment in
the Certificates. See "Legal Investment
Matters" herein.
ERISA
Considerations........ Fiduciaries of employee benefit plans
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")
or plans subject to Section 4975 of the
Internal Revenue Code of 1986 (the "Code")
should carefully review with their legal
advisors whether the purchase or holding of
the Certificates offered hereby could give
rise to a transaction prohibited or not
otherwise permissible under ERISA or the
Code. [The Class Certificates and the
Residual Certificates may not be acquired
by an ERISA Plan and transfer thereof is
subject to the restrictions described
herein.] See "ERISA Considerations"
herein.
Certificate
Ratings............... It is a condition of issuance of the
Certificates that the Certificates offered
hereby be rated " " by [and " " by
]. The ratings of the Certificates
should be evaluated independently from
similar ratings on other types of
securities. 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 agency. The ratings do
not address the possibility that
Certificateholders may suffer a lower
than anticipated yield. See "Certificate
Ratings" herein.
Liquidity
Considerations........ There is currently no secondary market for
the Certificates offered hereby, and there
can be no assurance that such a market will
develop. [[Underwriter] has indicated its
intention to make a secondary market in the
Certificates offered hereby, but it is not
obligated to do so.] There can be no
assurance that a secondary market for
such Certificates will develop, or if it
does develop, will continue for the life
of the Certificates, or provide investors
with liquidity of investment. In
addition, there can be no assurance that
an investor in a Certificate will be able
<PAGE>
to sell such Certificate at a price that
is equal to or greater than the price at
which such investor purchased such
Certificate.
Information available to investors that
desire to sell their Certificates in the
secondary market may be limited. In
particular, price quotations regarding
specific Classes of the Certificates are
not currently available in any newspaper
or other source that is widely available
to investors.
Use of Proceeds....... The net proceeds from the sale of the
Certificates offered hereby will be used
for general corporate purposes, including
the acquisition of residential mortgage
loans.
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL AND THE MORTGAGED PROPERTIES
General
The Certificates will represent the entire beneficial
ownership interest in a trust fund (the "Trust Fund"). The Trust
Fund will consist primarily of a pool (the "Mortgage Pool") of
conventional, [fixed-rate,] [adjustable-rate,] fully-amortizing
mortgage loans (the "Mortgage Loans"). The Mortgage Loans are
secured by mortgages, deeds of trust or other security
instruments (each, a "Mortgage") creating first liens on one- to
four-family residential properties (the "Mortgaged Properties").
Certain data with respect to the Mortgage Loans is set
forth below. A detailed description of the Mortgage Pool on a
Current Report on Form 8-K (the "Detailed Description") will be
available to purchasers of the Certificates at or before, and
will be filed with the Securities and Exchange Commission within
fifteen days after, the initial delivery of the Certificates
offered hereby. The Detailed Description will specify the precise
aggregate Scheduled Principal Balance (as defined herein) of the
Mortgage Loans as of the Cut-off Date and will also include the
following information regarding the Mortgage Loans: the years of
origination, the mortgage interest rates borne by the Mortgage
Loans (the "Mortgage Rates"), the original loan-to-value ratios,
the types of properties securing the Mortgage Loans and the
geographical distribution of the Mortgage Loans by state. The
Detailed Description also will specify the original Class
Certificate Principal Balance (or, in the case of the Class
Certificates, the Notional Principal Balance) of each Class of
Certificates on the date of issuance of the Certificates, and
[information regarding exact amount of any forms of credit
enhancement]. The Agreement (as defined herein) and its exhibits,
will be filed as an exhibit to the Detailed Description.
The "Scheduled Principal Balance" of a Mortgage Loan
as of any Distribution Date is the unpaid principal balance of
such Mortgage Loan as specified in the amortization schedule at
the time relating thereto (before any adjustment to such schedule
by reason of bankruptcy or similar proceeding or any moratorium
or similar waiver or grace period) as of the first day of the
month preceding the month of such Distribution Date, after giving
effect to any previously applied partial principal prepayments,
the payment of principal due on such first day of the month [and
Deficient Valuations occurring after the Bankruptcy Termination
Date (as such terms are defined herein)], irrespective of any
delinquency in payment by the related borrower (the "Mortgagor").
The "Pool Scheduled Principal Balance" as of any Distribution
Date is equal to the aggregate Scheduled Principal Balances of
all of the Mortgage Loans in such Mortgage Pool that were
Outstanding Mortgage Loans on the first day of the month
preceding the month of such Distribution Date (or such other date
as is specified). An "Outstanding Mortgage Loan" is any Mortgage
Loan which has not been prepaid in full, has not become a
Liquidated Mortgage Loan and has not been repurchased.
[Description of limited documentation loans, if any,
Primary Mortgage Insurance Policy coverage, if applicable, and
other loan characteristics meriting description to be included if
material.]
S-14
<PAGE>
The Mortgage Loans
The Mortgage Loans will have an aggregate Scheduled
Principal Balance as of the Cut-off Date, after deducting
payments of principal due on or before such date, of
approximately $ . This amount is subject to a permitted upward
or downward variance of up to %.
The Mortgage Rates borne by the Mortgage Loans are ex-
pected to range from % to % per annum, and the weighted average
Mortgage Rate as of the Cut-off Date of such Mortgage Loans is
expected to be between % and % per annum. The original principal
balances of the Mortgage Loans are expected to range from $ to $ and,
as of the Cut-off Date, the average Scheduled Principal Balance of
the Mortgage Loans is not expected to exceed $ , after application of
payments due on or before the Cut-off Date. It is expected that
the month and year of the earliest origination date of any
Mortgage Loan will be , and the month and year of the latest
scheduled maturity date of any such Mortgage Loan will be . All
of the Mortgage Loans will have original terms to maturity of to
years, and it is expected that the weighted average scheduled
remaining term to maturity of the Mortgage Loans will be between
and months as of the Cut-off Date.
The Mortgage Loans are expected to have the following
additional characteristics (by Scheduled Principal Balance of all
the Mortgage Loans) as of the Cut-off Date:
No more than % of such Mortgage Loans will be Mortgage
Loans each having a Scheduled Principal Balance of more than $ .
No more than % of such Mortgage Loans will have a
loan-to-value ratio at origination in excess of %, no more than %
of such Mortgage Loans will have a loan-to-value ratio at
origination in excess of %, and none of such Mortgage Loans will
have a loan-to-value ratio at origination in excess of %. As of
the Cut-off Date, the weighted average loan-to-value ratio at
origination of such Mortgage Loans is expected to be between %
and %.
No more than % of such Mortgage Loans had a
loan-to-value ratio at origination calculated based on an
appraisal conducted more than one year before the origination
date thereof.
[The proceeds of at least % of such Mortgage Loans
will have been used to acquire the related Mortgaged Property.
The proceeds of the remainder of such Mortgage Loans will have
been used to refinance an existing loan. No more than % of such
Mortgage Loans will have been "Cash-Out Refinance Loans" (as
defined in the Prospectus).]
[No more than % of such Mortgage Loans will be
temporary buy-down Mortgage Loans. The portion of the interest
rate paid by the related Mortgagor will not increase by more than
one percentage point for each six month period. No Mortgage Rate
may exceed the "bought down" rate by more than percentage points,
and no buy-down period will exceed years.]
No more than % of such Mortgage Loans will be secured
by Mortgaged Properties located in any one postal zip code area.
Between % and % of such Mortgage Loans will be secured by
Mortgaged Properties located in . The majority of the
Mortgage Loans will be secured by Mortgaged Properties located
S-15
<PAGE>
in , , and . No
more than % of such Mortgage Loans will be secured by Mortgaged
Properties located in any one state except .
At least % of such Mortgage Loans will be secured by
Mortgaged Properties determined by the Seller to be the primary
residence of the Mortgagor. The sole basis for such determination
will be the making of a representation by the Mortgagor at
origination that the underlying property will be used as the
Mortgagor's primary residence.
At least % of such Mortgage Loans will be secured by
single-family, detached residences.
[No more than % of such Mortgage Loans will be
secured by condominium units.]
Set forth below is a description of certain additional
characteristics of the Mortgage Loans expected to be included in
the Trust Fund.
Cut-off Date Scheduled Principal Balances
Percentage
of Cut-off
Date
Cut-off Date Aggregate
Range of Cut-off Number of Scheduled Principal
Date Principal Balance Mortgage Loans Principal Balance Balance
---------------------- -------------- ----------------- ----------
Total .................... $ 100.00%
====== ================ =======
Loan-to-Value Ratio (1)
Percentage
of Cut-off
Date
Cut-off Date Aggregate
Range of Combined Number of Scheduled Principal
Loan-to-Value Ratios Mortgage Loans Principal Balance Balance
---------------------- -------------- ----------------- ----------
Total .................... $ 100.00%
====== ================ =======
(1) The "Loan-to-Value Ratio" of a Mortgage Loan is the ratio
(expressed as a percentage) that the original principal
balance of such Mortgage Loan bears to the appraised value
(or the purchase price, if greater) of the related
Mortgaged Property at the time such Mortgage Loan was
originated (or if the proceeds of such Mortgage Loan were
used to refinance an existing mortgage, the appraised value
based on the most recent appraisal).
S-16
<PAGE>
Mortgage Rates
Percentage
of Cut-off
Date
Cut-off Date Aggregate
Range of Number of Scheduled Principal
Mortgage Rates Mortgage Loans Principal Balance Balance
---------------------- -------------- ----------------- ----------
Total .................... $ 100.00%
====== ================ =======
Geographic Distribution of Mortgaged Properties
Percentage
of Cut-off
Date
Cut-off Date Aggregate
Number of Scheduled Principal
State Mortgage Loans Principal Balance Balance
---------------------- -------------- ----------------- ----------
Total .................... $ 100.00%
====== ================ =======
Year of Origination
Percentage
of Cut-off
Date
Cut-off Date Aggregate
Number of Scheduled Principal
Year of Origination Mortgage Loans Principal Balance Balance
---------------------- -------------- ----------------- ----------
Total .................... $ 100.00%
====== ================ =======
S-17
<PAGE>
Months Remaining to Stated Maturity as of the Cut-off Date
Percentage
of Cut-off
Date
Number of Cut-off Date Aggregate
Months Remaining Number of Scheduled Principal
to Stated Maturity Mortgage Loans Principal Balance Balance
---------------------- -------------- ----------------- ----------
Total .................... $ 100.00%
====== ================ =======
Types of Mortgaged Properties
Percentage
of Cut-off
Date
Cut-off Date Aggregate
Number of Scheduled Principal
Property Type Mortgage Loans Principal Balance Balance
---------------------- -------------- ----------------- ----------
Single-family
detached.................
Single-family
attached ................
2-4 Units ................
Total .................... $ 100.00%
====== ================ =======
Use of Mortgaged Properties (1)
Percentage
of Cut-off
Date
Cut-off Date Aggregate
Range of Combined Number of Scheduled Principal
Loan-to-Value Ratios Mortgage Loans Principal Balance Balance
---------------------- -------------- ----------------- ----------
Investor................
Second home.............
Primary residence.......
Total .................... $ 100.00%
====== ================ =======
(1) Based on information supplied by the Mortgagor in the loan application.
S-18
<PAGE>
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to a Pooling
and Servicing Agreement to be dated as of the Cut-off Date (the
"Agreement"), between HMSI, as seller, HLI, as servicer, and the
Trustee. Reference is made to the Prospectus for important
additional information regarding the terms and conditions of the
Agreement and the Certificates. The Certificates will be issued
in Classes, and in the aggregate original Certificate Principal
Balance of approximately $ , subject to a permitted upward or
downward variance in the aggregate of up to % [and, as to any
particular Class, of up to %]. Any such variance will be
allocated so as to approximate the material characteristics of
the Classes of Certificates described herein.
As described below, each Class of the Certificates
[(other than the Class R Certificate (the "Residual
Certificates") and the Class Certificates] will be issued in
book-entry form, and beneficial interests therein will be held by
investors through the book-entry facilities of the Depository (as
defined below), in minimum denominations in Certificate Principal
Balance of $ and in integral multiples of $1,000 in excess
thereof. [The Class Certificates will be [held by investors
through the book-entry facilities of the Depository] [issued in
certificated form], in minimum denominations in Notional
Principal Balance of $ and integral multiples of $1,000 in excess
thereof.] [The Class Certificates will be issued in certificated
form in minimum denominations in Certificate Principal Balance of
$ and in integral multiples of $1,000 in excess thereof.] [The
Residual Certificates will be issued in certificated form as a
single Certificate representing the entire Class Certificate
Principal Balance thereof.] Notwithstanding the minimum
denominations of the Certificates described herein, one
Certificate of each Class [other than the Residual Certificates]
may be issued in a lower amount. [In addition, one Certificate of
each Class issued in book-entry form may be issued in
certificated form to the extent that the aggregate Certificate
Principal Balance of such Class does not equal a denomination
accepted by the Depository.]
S-19
<PAGE>
Book-Entry Certificates
Each Class of the Certificates offered hereby [other
than the Class Certificates and the Residual Certificates]
(collectively, the "Book-Entry Certificates") will be registered
as a single certificate held by a nominee of The Depository Trust
Company (together with any successor depository selected by the
Servicer, the "Depository"). Beneficial interests in the
Book-Entry Certificates will be held by investors through the
book-entry facilities of the Depository, as described herein. The
Servicer has been informed by the Depository that its nominee
will be [Cede & Co. ("Cede")]. Accordingly, [Cede] is expected to
be the holder of record of the Book-Entry Certificates. 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").
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 the Depository (or of a participating
firm that acts as agent for the Financial Intermediary, whose
interest will in turn be recorded on the records of the
Depository, if the beneficial owner's Financial Intermediary is
not a Depository participant). Therefore, the beneficial owner
must rely on the foregoing procedures to evidence its beneficial
ownership of a Book-Entry Certificate. Beneficial ownership of a
Book-Entry Certificate may only be transferred by compliance with
the procedures of such Financial Intermediaries and Depository
participants.
The Depository, which is a New York-chartered limited
purpose trust company, performs services for its participants,
some of which (and/or their representatives) own the Depository.
In accordance with its normal procedures, the Depository is
expected to record the positions held by each Depository
participant in the Book-Entry Certificates, whether held for its
own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject
to the rules, regulations and procedures governing the Depository
and Depository participants as in effect from time to time.
Distributions of principal of and interest on the
Book-Entry Certificates will be made on each Distribution Date by
the Trustee to the Depository. The Depository will be responsible
for crediting the amount of such payments to the accounts of the
applicable Depository participants in accordance with the
Depository's normal procedures. Each Depository 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 the Depository. Because the Depository can only act on
behalf of Financial Intermediaries, the ability of a beneficial
owner to pledge Book-Entry Certificates to persons or entities
that do not participate in the Depository system, or otherwise take
actions in respect of such Book-Entry Certificates, may be limited due
to the lack of physical certificates for such Book-Entry Certificates.
In addition, issuance of the Book-Entry Certificates in book-
entry form may reduce the liquidity of such Certificates in the
S-20
<PAGE>
secondary market since certain potential investors may be
unwilling to purchase Certificates for which they cannot obtain
physical certificates.
The Depository has advised the Servicer and the
Trustee that, unless and until Definitive Certificates are
issued, the Depository will take any action permitted to be taken
by a Certificateholder under the Agreement only at the direction
of one or more Financial Intermediaries to whose Depository
accounts the Book-Entry Certificates are credited. The Depository
may take conflicting actions with respect to other Book-Entry
Certificates to the extent that such actions are taken on behalf
of Financial Intermediaries whose holdings include such
Book-Entry Certificates.
Definitive Certificates will be issued to beneficial
owners of the related Book-Entry Certificates, or their nominees,
rather than to the Depository, only if (a) the Depository or the
Servicer advises the Trustee in writing that the Depository is no
longer willing, qualified or able to discharge properly its
responsibilities as nominee and depository with respect to the
Certificates and the Servicer or the Trustee is unable to locate
a qualified successor; (b) the Servicer, at its sole option,
elects to terminate the book-entry system through the Depository;
or (c) after the occurrence of an Event of Default (as described
in the accompanying Prospectus) beneficial owners of the
Book-Entry Certificates aggregating not less than 51% of the
aggregate voting rights allocated thereto advise the Trustee and
the Depository through the Financial Intermediaries in writing
that the continuation of a book-entry system through the
Depository (or a successor thereto) is no longer in the best
interests of beneficial owners of the Certificates.
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 the Depository of Definitive
Certificates. Upon surrender by the Depository of the global
certificate or certificates representing the Certificates and
instructions for re-registration, the Trustee will issue the
Definitive Certificates, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as
Certificateholders under the Agreement. Following the issuance of
Definitive Certificates, distribution of principal and interest
on the Certificates will be made by the Trustee directly to
holders of Definitive Certificates in accordance with the
procedures set forth in the Agreement.
The Non-Book-Entry Certificates
The [Class Certificates and the Residual Certificates]
(collectively, the "Non-Book Entry Certificates") will be issued
in fully-registered, certificated form. The Non-Book Entry
Certificates will be transferable and exchangeable on a
Certificate Register to be maintained at the corporate trust
office in the city in which the Trustee is located or such other
office or agency maintained for such purposes by the Trustee in
New York City. Under the Agreement, the Trustee will initially be
appointed as the Certificate Registrar. No service charge will be
made for any registration of transfer or exchange of the Non-Book
Entry Certificates, but payment of a sum sufficient to cover any
tax or other governmental charge may be required by the Trustee.
[See "Restrictions on Transfer of the Residual Certificates"
herein.]
Distributions of principal and interest, if any, on each
Distribution Date on the Non-Book Entry Certificates will be
made to the persons in whose names such Certificates are
registered at the close of business on the last business day
of the month immediately preceding the month of such
Distribution Date. Distributions will be made by check or
money order mailed to the person entitled thereto at
the address appearing in the Certificate Register or,
upon written request by the Certificateholder to the
S-21
<PAGE>
Trustee, by wire transfer to a United States depository institution
designated by such Certificateholder and acceptable to the
Trustee or by such other means of payment as such
Certificateholder and the Trustee may agree; provided, however,
that the final distribution in retirement of the Non-Book Entry
Certificates will be made only upon presentation and surrender of
such Certificates at the office or agency of the Trustee
specified in the notice to the Certificateholders thereof of such
final distribution.
[The Agreement will provide that no transfer of the
Class Certificates may be made unless the Trustee has received
(i) a certificate to the effect that the proposed transferee is
not an ERISA Plan (as defined herein) or (ii) an opinion of
counsel relating to such transfer in form and substance
satisfactory to the Trustee and the Company. See "ERISA
Considerations" herein.]
Available Funds
The amount of funds ("Available Funds") in respect of
the Mortgage Pool that will be available for distribution to
holders of the Certificates on each Distribution Date will be the
amount then on deposit in the Certificate Account, as described
in the accompanying Prospectus under "The Pooling and Servicing
Agreement--Payments on Mortgage Loans; Certificate Account."
Distributions on the Certificates
Interest. Interest will accrue on the Certificates
[other than the Class Certificates] offered hereby at the
respective Certificate Interest Rates set forth on the cover
hereof during each one-month period ending on the last day of the
month preceding the month in which each Distribution Date occurs
(each, an "Interest Accrual Period"). [Describe different
Interest Accrual Period for other Classes if applicable.]
Interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
The "Accrued Certificate Interest" for any Certificate
for any Distribution Date will equal the interest accrued during
the related Interest Accrual Period at the applicable Certificate
Interest Rate on the Certificate Principal Balance [(or, in the
case of a Class Certificate, the Notional Principal Balance)] of
such Certificate immediately prior to such Distribution Date,
less such Certificate's share of any allocable Net Interest
Shortfall (as defined below) [and the interest portion of
Realized Losses] in respect of the Mortgage Loans with respect to
such Distribution Date.
The "Certificate Principal Balance" of any Certificate
as of any Distribution Date will equal such Certificate's
Certificate Principal Balance on the Closing Date as reduced by
(a) all amounts distributed on previous Distribution Dates on
such Certificate on account of principal and (b) the principal
portion of all Realized Losses in respect of the Mortgage Loans
in the related Mortgage Pool previously allocated to such
Certificate.
With respect to any Distribution Date, the "Net
Interest Shortfall" allocable to Certificateholders will equal
the excess of the aggregate Interest Shortfalls with respect to
such Distribution Date over the Compensating Interest Payment (as
defined herein), if any, for such Distribution Date.
An "Interest Shortfall" in respect of a Mortgage
Pool may result from (i) certain prepayments or other
unscheduled recoveries of principal of Mortgage Loans or (ii) a
reduction in the interest rate on a Mortgage Loan due to the
application of the Soldiers' and Sailors' Civil Relief Act of
S-22
<PAGE>
1940 whereby, in general, members of the Armed Forces who entered
into mortgages prior to the commencement of military service may have
the interest rates on those mortgage loans reduced for the duration
of their active military service. See "Certain Legal Aspects of
the Mortgage Loans and Contracts--The Mortgage Loans--Soldiers'
and Sailors' Civil Relief Act" in the Prospectus. As to any
Distribution Date and any Mortgage Loan with respect to which a
prepayment or other unscheduled recovery of principal in full has
occurred during the preceding month, the resulting "Interest
Shortfall" generally will equal the difference between (a) one
month's interest at the Mortgage Rate net of the applicable
Servicing Fee (as defined herein) (the "Net Mortgage Rate") on
the Scheduled Principal Balance of such Mortgage Loan, and (b)
the amount of interest at the Net Mortgage Rate actually received
with respect to such Mortgage Loan. [In the case of a partial
prepayment, the resulting "Interest Shortfall" will equal one
month's interest at the applicable Net Mortgage Rate on the
amount of such prepayment.]
The Net Interest Shortfall [and the interest portion
of any Realized Losses (see "Allocation of Losses on the
Certificates")] in respect of the Mortgage Loans will, on each
Distribution Date, be allocated among all the Certificates in
proportion to the amount of Accrued Certificate Interest that, in
the absence of such shortfall and losses, would have been
allocated thereto in respect of the Mortgage Loans experiencing
such shortfall or losses.
[If the Available Funds are insufficient on any
Distribution Date to distribute the aggregate Accrued Certificate
Interest on the Certificates to such Certificateholders, any
shortfall in available amounts will be allocated among the
Classes of Certificates in proportion to the amounts of Accrued
Certificate Interest otherwise distributable thereon. The amount
of any such undistributed Accrued Certificate Interest will be
added to the amount to be distributed in respect of interest on
the Certificates on subsequent Distribution Dates. No interest
will accrue on any Accrued Certificate Interest remaining
undistributed from previous Distribution Dates.]
Principal. Distributions in reduction of the Class
Certificate Principal Balance of each Certificate [other than a
Class Certificate] will be made on each Distribution Date.
Principal will be distributed monthly on each Distribution Date
in the manner described below in an aggregate amount equal to the
Available Funds remaining in the Certificate Account after the
payment of interest on the Certificates on such Distribution Date
(the "Principal Distribution Amount").
[Description of the manner of allocation of principal
among the Classes.]
Allocation of Realized Losses on the Certificates. [A
"Realized Loss" with respect to a Mortgage Loan is (i) a
Bankruptcy Loss (as defined below) or (ii) as to any Liquidated
Mortgage Loan the unpaid principal balance thereof plus accrued
and unpaid interest thereon at the Net Mortgage 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. 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.]
In the event of a personal bankruptcy of a Mortgagor,
the bankruptcy court may establish 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 could reduce the secured debt to
such value. In such case, the holder of such Mortgage Loan
would become an unsecured creditor to the extent of the
S-23
<PAGE>
difference between the outstanding principal balance of such
Mortgage Loan and such reduced secured debt (a "Deficient
Valuation"). In addition, certain other modifications of the
terms of a Mortgage Loan can result from a bankruptcy proceeding,
including the reduction of the amount of the monthly payment
on the related Mortgage Loan (a "Debt Service Reduction"). A
"Bankruptcy Loss" with respect to any Mortgage Loan is a
Deficient Valuation or Debt Service Reduction.
[Description of allocation of losses among Certificates.]
All allocations of Realized Losses with respect to the
Mortgage Loans will be accomplished on a Distribution Date by
reducing the applicable Class Certificate Principal Balance by
the appropriate pro rata share of any such losses occurring
during the month preceding the month of such Distribution Date
and, accordingly, will be taken into account in determining the
distributions of principal on the Certificates commencing on the
following Distribution Date.
[The interest portion of all Realized Losses in
respect of the Mortgage Loans will be allocated among the
outstanding Classes of Certificates to the extent described under
"Interest" above.]
[Additional Rights of the Residual Certificateholders
The Residual Certificates will remain outstanding for
so long as the Trust Fund shall exist, whether or not they are
receiving current distributions of principal or interest. In
addition to distributions of principal and interest distributable
as described under "Distributions on the Certificates," the
holders of the Class R Certificates will be entitled to receive
(i) the amounts, if any, of Available Funds remaining in the
Certificate Account on any Distribution Date after distributions
of principal and interest on the Certificates on such date and
(ii) the proceeds of the assets of the Trust Fund, if any,
remaining in the REMIC on the final Distribution Date for the
Certificates, after distributions in respect of any accrued and
unpaid interest on such Certificates, and after distributions in
respect of principal have reduced the Class Certificate Principal
Balances of the Certificates to zero. It is not anticipated that
there will be any material assets remaining in the Trust Fund at
any such time. See "Certain Federal Income Tax
Consequences--Residual Certificates" herein.]
[Restrictions on Transfer of the Residual Certificates
The Residual Certificates will be subject to the
restrictions on transfer described in the Prospectus under
"Certain Federal Income Tax Consequences--REMIC
Certificates--Transfers of Residual Certificates--Disqualified
Organizations," "--Foreign Investors" and "--Noneconomic Residual
Interests." In addition, the Agreement provides that the Residual
Certificates may not be acquired by an ERISA Plan. The Residual
Certificates will contain a legend describing the foregoing
restrictions.]
YIELD AND WEIGHTED AVERAGE LIFE CONSIDERATIONS
Yield
The effective yield on the Certificates will depend
upon, among other things, the price at which such Certificates
are purchased and the rate and timing of payments of principal
(including both scheduled and unscheduled payments) of the
Mortgage Loans underlying such Certificates.
S-24
<PAGE>
The yields to investors will be sensitive in varying
degrees to the rate of prepayments on the Mortgage Loans in the
Mortgage Pool. The extent to which the yield to maturity of a
Certificate is sensitive to prepayments will depend upon the
degree to which it is purchased at a discount or premium. In the
case of Certificates purchased at a premium, faster than
anticipated rates of principal payments on the Mortgage Loans in
the Mortgage Pool could result in actual yields to investors that
are lower than the anticipated yields. In the case of
Certificates purchased at a discount, slower than anticipated
rates of principal payments on the Mortgage Loans in the Mortgage
Pool could result in actual yields to investors that are lower
than the anticipated yields.
Rapid rates of prepayments on the Mortgage Loans in
the Mortgage Pool are likely to coincide with periods of low
prevailing interest rates. During such periods, the yields at
which an investor in the Certificates may be able to reinvest
amounts received as payments on the investor's Certificates may
be lower than the yield on such Certificates. Conversely, slow
rates of prepayments on the Mortgage Loans in the Mortgage Pool
are likely to coincide with periods of high rates. During such
periods, the amount of payments available to an investor for
reinvestment at such high rates may be relatively low.
The Mortgage Loans in the Mortgage Pool will not
prepay at any constant rate, nor will all of the Mortgage Loans
in the Mortgage Pool prepay at the same rate at any one time. The
timing of changes in the rate of prepayments may affect the
actual yield to an investor, even if the average rate of
principal prepayments is consistent with the investor's
expectation. In general, the earlier a prepayment of principal on
the Mortgage Loans in the Mortgage Pool, the greater the effect
on the yield to an investor in the Certificates. As a result, the
effect on the yield of principal prepayments on the Mortgage
Loans in the Mortgage Pool occurring at a rate higher (or lower)
than the rate anticipated by the investor during the period
immediately following the issuance of the Certificates is not
likely to be offset by a later equivalent reduction (or increase)
in the rate of principal prepayments.
The Mortgage Loans will bear interest at fixed
Mortgage Rates, payable in arrears. [Each monthly interest
payment on a Mortgage Loan is calculated as 1/12th of the
applicable Mortgage Rate times the outstanding principal balance
of such Mortgage Loan on the first day of the month.]
The effective yield to holders of Certificates [other
than the Class Certificates] will be lower than the yield
otherwise produced by the applicable Certificate Interest Rate
and the applicable purchase prices thereof because, while
interest will accrue from the first day of each month, the
distribution of such interest will not be made until the 25th day
(or if such day is not a business day, the immediately following
business day) of the month following the month of accrual. In
addition, the effective yield on the Certificates will be
affected by any interest shortfalls in respect of the Mortgage
Pool. See "Description of the Certificates" herein.
Prepayments
The rate of payment of principal of the Certificates
will be affected primarily by the amount and timing of principal
payments received on or in respect of the related Mortgage Loans.
Such principal payments will include scheduled payments as well
as voluntary prepayments by borrowers (such as, for example,
prepayments in full due to refinancings or prepayments in
connection with biweekly payment programs) and prepayments
resulting from foreclosure, condemnation and other
dispositions of the Mortgaged Properties, from repurchase
by the Seller of any Mortgage Loan as to which there has been
S-25
<PAGE>
a material breach of warranty or defect in documentation
(or deposit of certain amounts in respect of delivery of a
substitute Mortgage Loan therefor), from a purchase by the
Servicer of certain Mortgage Loans modified at the request
of the Mortgagor, and from an exercise by the Servicer of
its option to purchase a Defaulted Mortgage Loan. Mortgagors
are permitted to prepay the Mortgage Loans, in whole or
in part, at any time without penalty.
A number of social, economic, tax, geographic,
demographic, legal and other factors may influence prepayments of
the Mortgage Loans. These factors may include the age of such
Mortgage Loans, the geographic distribution of the Mortgaged
Properties, the payment terms of such Mortgage Loans, the
characteristics of the borrowers, homeowner mobility, economic
conditions generally and in the geographic area in which the
Mortgaged Properties are located, enforceability of due-on-sale
clauses, prevailing interest rates in relation to the interest
rates on such Mortgage Loans, the availability of mortgage funds,
the use of second or "home equity" mortgage loans by mortgagors,
the use of the properties as second or vacation homes, the extent
of the mortgagors' net equity in the Mortgaged Properties,
tax-related considerations and, where investment properties are
securing such Mortgage Loans, the availability of other
investments. The rate of principal payment may also be subject to
seasonal variations.
The rate of principal prepayments on pools of
conventional mortgage loans has fluctuated significantly in
recent years. Generally, if prevailing interest rates were to
fall significantly below the interest rates on the Mortgage Loans
in the Mortgage Pool, such Mortgage Loans would be expected to
prepay at higher rates than if prevailing rates were to remain at
or above the interest rates on such Mortgage Loans. Conversely,
if interest rates were to rise significantly above the interest
rates on the Mortgage Loans in the Mortgage Pool, such Mortgage
Loans would be expected to prepay at lower rates than if
prevailing rates were to remain at or below the interest rates on
such Mortgage Loans.
Full or partial prepayments of principal on the
Mortgage Loans in the Mortgage Pool are passed through to the
Certificateholders in the month following the month of receipt.
Any prepayment of a Mortgage Loan or liquidation of a Mortgage
Loan (by foreclosure proceedings or by virtue of the purchase of
a Mortgage Loan in advance of its stated maturity as required or
permitted by the Agreement) will have the effect of passing
through to the Certificateholders principal amounts [(or, in the
case of the Class Certificates, reducing the Notional Principal
Balance thereof)] which would otherwise be passed through (or
reduced) in amortized increments over the remaining term of such
Mortgage Loan.
When a claim is paid under certain insurance policies,
accrued interest is paid only to the date of payment of the
claim, without regard to timing of distribution thereof to
Certificateholders. When a full prepayment is made on a Mortgage
Loan during a month, the Mortgagor is charged interest on the
days in the month actually elapsed up to the date of such
prepayment, at a daily interest rate (determined by dividing the
Mortgage Rate by 360) which is applied to the principal amount of
the loan so prepaid. In either case, and in other cases where an
unscheduled recovery of principal is received in respect of
Mortgage Loans, the amount of interest to be distributed to
Certificateholders in respect of the Mortgage Pool will be less
than the amount which would have been distributed in the absence
of such occurrences. Such shortfalls will be borne by
Certificateholders to the extent described herein. The Servicer's
purchase of certain modified Mortgage Loans from the Trust Fund
may similarly reduce the amount of interest to be distributed to
the Certificateholders. See "Servicing of the Mortgage
Loans--Certain Modifications and Refinancings" in the Prospectus.
S-26
<PAGE>
[Any partial prepayment will be applied to the balance
of the related Mortgage Loan as of the first day of the month of
receipt, will be passed through to the Certificateholders in the
following month and will reduce the aggregate amount of interest
distributed to the Certificateholders in such month in an amount
equal to 30 days of interest at the related Certificate Interest
Rate on the amount of such prepayment.]
The yield on certain Classes of the Certificates also
may be affected by any purchase by the Servicer of the Mortgage
Loans as described under "The Pooling and Servicing
Agreement--Termination" herein.
Final Payment Considerations [and Scheduled Final
Distribution Dates of the Certificates]
The rate of payment of principal of the Certificates
will depend on the rate of payment of principal of the related
Mortgage Loans (including prepayments, defaults, delinquencies
and liquidations) which, in turn, will depend on the
characteristics of such Mortgage Loans, the level of prevailing
interest rates and other economic, geographic, social and other
factors, and no assurance can be given as to the actual payment
experience. The hypothetical scenario discussed below includes
assumptions about the characteristics of the Mortgage Loans in
the Mortgage Pool which will differ from the actual
characteristics thereof.
[The Scheduled Final Distribution Date for each Class
of the Certificates offered hereby is the date which is months
after the date on which the Class Certificate Principal Balance
thereof would be reduced to zero on the basis of the assumptions
in clauses (i), (iii) through (vi), (viii) and (ix) of the
Modeling Assumptions (as defined herein), and the additional
assumptions that (i) each Mortgage Loan has an original and
remaining term to maturity of months, (ii) each such Mortgage
Loan has a Mortgage Rate of % and Net Mortgage Rate of %, and
(iii) no prepayments of the Mortgage Loans occur.
[Notwithstanding the foregoing, the Scheduled Final Distribution
Date for the Class R Certificates is the latest Scheduled Final
Distribution Date of the other Classes of Certificates.] Because
certain Mortgage Loans will have remaining terms to stated
maturity that are shorter and Mortgage Rates that are lower than
those assumed in calculating the Scheduled Final Distribution
Dates of the Certificates offered hereby, the Class Certificate
Principal Balances thereof may be reduced to zero prior to their
Scheduled Final Distribution Dates. In addition, to the extent
delinquencies and defaults are not offset by any advances made by
the Servicer and the forms of credit enhancement described
herein, delinquencies and defaults could result in distributions
after the respective Scheduled Final Distribution Dates of the
Certificates. As a result, the Class Certificate Principal
Balance of each Class of the Certificates may be reduced to zero
significantly earlier or later than its respective Scheduled
Final Distribution Date.]
Weighted Average Lives of the Certificates
The weighted average life of a Certificate is
determined by (a) multiplying the reduction, if any, in the
Certificate Principal Balance thereof on each Distribution Date
by the number of years from the date of issuance to such
Distribution Date, (b) summing the results and (c) dividing the
sum by the aggregate reductions in the Certificate Principal
Balance of such Certificate.
The weighted average lives of the Certificates will be
affected, to varying degrees, by the rate of principal payments on the
related Mortgage Loans, the timing of changes in such rate of payments
S-27
<PAGE>
and the priority sequence of distributions of principal of
such Certificates. The interaction of the foregoing
factors may have different effects on the various Classes of the
Certificates and the effects on any Class may vary at different
times during the life of such Class. Further, to the extent the
prices of a Class of Certificates represent discounts or premiums
in respect of their respective original Class Certificate
Principal Balances, variability in the weighted average lives of
such Classes of Certificates could result in variability in the
related yields to maturity.
[Prepayments on mortgage loans are commonly measured
relative to a prepayment standard or model. The model used in
this Prospectus Supplement (the "Prepayment Assumption")
represents an assumed rate of prepayment each month relative to
the then outstanding principal balance of a pool of mortgage
loans. The Prepayment Assumption does not purport to be either a
historical description of the prepayment experience of any pool
of mortgage loans or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage
Loans in either Mortgage Pool. A prepayment assumption of 100% of
the Prepayment Assumption assumes prepayment rates of 0.2% per
annum of the then outstanding principal balance of such mortgage
loans in the first month of the life of the mortgage loans and
increasing by 0.2% per annum in each month thereafter until the
thirtieth month. Beginning in the thirtieth month and in each
month thereafter during the life of the mortgage loans, 100% of
the Prepayment Assumption assumes a constant prepayment rate of
6.0% per annum.
[Discussion of yield considerations relating to
planned amortization class or other scheduled balance
Certificates, and other Classes meriting special discussion if
applicable.]
Table of Certificate Principal Balances. The following
table sets forth the percentages of the initial Class Certificate
Principal Balance of each Class of Certificates offered hereby
that would be outstanding after each of the dates shown at the
specified constant percentages of the Prepayment Assumption and
the corresponding weighted average life of each such Class of
Certificates. For purposes of calculations under the columns at
the indicated percentages of the Prepayment Assumption [(other
than 0% of the Prepayment Assumption)] set forth in the table, it
is assumed with respect to the Mortgage Loans (the "Modeling
Assumptions") that [(i) the distributions in respect of the
Certificates are made and received in cash on the 25th day of
each month commencing in 199 , (ii) such Mortgage Loans prepay at
the specified constant percentages of the Prepayment Assumption,
(iii) the aggregate outstanding principal balance of such
Mortgage Loans as of the Cut-off Date is $ , (iv) no defaults or
delinquencies in the payment by Mortgagors of principal of and
interest on such Mortgage Loans are experienced and the Seller
and Servicer do not purchase any such Mortgage Loans as permitted
or required by the Agreement, (v) the Servicer does not exercise
its option to purchase all the Mortgage Loans in the Trust Fund
as described under the caption "The Pooling and Servicing
Agreement--Termination," (vi) scheduled monthly payments on such
Mortgage Loans are received on the first day of each month
commencing in 199 , and are computed prior to giving effect to
prepayments received in the prior month, (vii) prepayments
representing payment in full of individual Mortgage Loans are
received on the last day of each month (commencing , 199 ) and
include 30 days' interest thereon, (viii) the scheduled monthly
payment for each such Mortgage Loan has been calculated based on
its outstanding balance, interest rate and remaining term to
maturity such that such Mortgage Loan will amortize in amounts
sufficient to repay the remaining balance of such Mortgage Loan
by its remaining term to maturity and (ix) the initial Class
Certificate Principal Balance and Certificate Interest Rate for
each Class of Certificates offered hereby are as indicated on the
cover page hereof].
S-28
<PAGE>
[The information under the columns set forth in the
table at 0% of the Prepayment Assumption was calculated on the
basis of the assumptions set forth in clauses (i), (iii) through
(vi), (viii) and (ix) of the preceding sentence and the
additional assumptions that (i) each Mortgage Loan has an
original and remaining term to maturity of months, (ii) each such
Mortgage Loan bears interest at a rate of % per annum, and (iii)
no prepayments are experienced on such Mortgage Loans.]
It is not likely that the Mortgage Loans will prepay
at a constant level of the Prepayment Assumption. In addition,
because certain of such Mortgage Loans will have remaining terms
to maturity and will bear interest at rates that are different
from those assumed, the actual Class Certificate Principal
Balance of each Class of Certificates outstanding at any time and
the actual weighted average life of each Class of such
Certificates may differ from the corresponding information in the
table for each indicated percentage of the Prepayment Assumption.
Furthermore, even if all the Mortgage Loans prepay at the
indicated percentages of the Prepayment Assumption and the
weighted average mortgage interest rate and weighted average
remaining term to maturity of such Mortgage Loans were to equal
the weighted average mortgage interest rate and weighted average
remaining term to maturity of the assumed Mortgage Loans, due to
the actual distribution of remaining terms to maturity and
interest rates among the Mortgage Loans, the actual Class
Certificate Principal Balance of each Class of Certificates
outstanding at any time and the actual weighted average life of
each Class of such Certificates would differ (which difference
could be material) from the corresponding information set forth
in the following table.
S-29
<PAGE>
Percent of Original Class Certificate Principal Balance
Outstanding of the Certificates
Class
------------------------------------
Prepayment Assumption
------------------------------------
Distribution Date 0% % % %
- ----------------- --- --- --- ---
Initial Percentage 100 100 100 100
[Annual Distribution
Dates]
Weighted Average Life
(in years)(1)
Class
------------------------------------
Prepayment Assumption
------------------------------------
Distribution Date 0% % % %
- ----------------- --- --- --- ---
Initial Percentage 100 100 100 100
[Annual Distribution
Dates]
Weighted Average Life
(in years)(1)
Class
------------------------------------
Prepayment Assumption
------------------------------------
Distribution Date 0% % % %
- ----------------- --- --- --- ---
Initial Percentage 100 100 100 100
[Annual Distribution
Dates]
Weighted Average Life
(in years)(1)
Class
------------------------------------
Prepayment Assumption
------------------------------------
Distribution Date 0% % % %
- ----------------- --- --- --- ---
Initial Percentage 100 100 100 100
[Annual Distribution
Dates]
Weighted Average Life
(in years)(1)
- ---------------------
(1) The weighted average life of a Certificate is determined by
(a) multiplying the reduction, if any, in the Certificate
Principal Balance thereof on each Distribution Date by the number
of years from the date of issuance to such Distribution Date, (b)
summing the results and (c) dividing the sum by the aggregate
reductions in the Certificate Principal Balance of such
Certificate.
[Computational Materials. The Seller intends, at the
request of the Underwriter, to file certain additional
statistical tables and other computational materials (the
"Computational Materials") with respect to one or more Classes of
Certificates offered hereby with the Securities and Exchange
Commission in a Current Report on Form 8-K. See "Incorporation of
Certain Documents by Reference" in the Prospectus. The
Computational Materials were prepared solely by the Underwriter,
and neither the Seller nor the Servicer prepared or participated
in the preparation of the Computational Materials. The
Underwriter has advised the Seller and the Servicer as follows:
(i) the Computational Materials were prepared at the request of
certain prospective investors in the Certificates, based on
assumptions provided by, and satisfying the special requirements
of, such investors; (ii) the Computational Materials may be based
on assumptions that differ from those set forth herein; and (iii)
the Computational Materials may not be relevant to or appropriate
for investors other than those specifically requesting them.]
HOMESIDE MORTGAGE SECURITIES, INC.
HMSI is a Delaware corporation and a wholly-owned
subsidiary of HLI. HMSI has not had and is not expected to have
any business operations other than offering Certificates and
related activities. HMSI's principal offices are located at 7301
Baymeadows Way, Jacksonville, Florida 32256. Its telephone number
is (904) 281-3000. See "HomeSide Mortgage Securities, Inc." in
the accompanying Prospectus.
HOMESIDE LENDING, INC.
HLI is a [Florida] corporation and a wholly-owned
subsidiary of HomeSide, Inc., a Delaware corporation. The
principal offices of HLI are located at 7301 Baymeadows Way,
Jacksonville, Florida 32256. Its telephone number is (904)
281-3000. See "HomeSide Lending, Inc." in the accompanying
Prospectus.
DELINQUENCY AND FORECLOSURE EXPERIENCE OF THE SERVICER
The following delinquency tables set forth certain
information concerning the delinquency and foreclosure experience
on one- to four-family, first-lien, conventional residential
mortgage loans serviced directly by HLI (the "Servicing
Portfolio"). [The Servicing Portfolio does not include
mortgage loans that were serviced or sub-serviced by
others.] The Servicing Portfolio includes mortgage loans
(other than loans serviced for the Government National
Mortgage Association) that had been included in the
S-30
<PAGE>
servicing portfolio of HomeSide Holdings, Inc. ("HHI") and were
transferred to HLI for servicing in May 1996. [Dates as of which
data are given to be updated as necessary.]
As of , 199
---------------------------
By Dollar
By No. of Amount of
Loans Loans
--------- ---------
(Dollar amounts in thousands)
Total portfolio ............. $
Period of delinquency(1)
30 to 59 days ........... $
60 to 89 days ...........
90 days or more(2) ......
--------- ---------
Total delinquent loans $
========= =========
Percent of portfolio % %
As of , 199
---------------------------
By Dollar
By No. of Amount of
Loans Loans
--------- ---------
(Dollar amounts in thousands)
Total portfolio ............. $
Period of delinquency(1)
30 to 59 days ........... $
60 to 89 days ...........
90 days or more(2) ......
--------- ---------
Total delinquent loans $
========= =========
Percent of portfolio % %
As of , 199
---------------------------
By Dollar
By No. of Amount of
Loans Loans
--------- ---------
(Dollar amounts in thousands)
Total portfolio ............. $
Period of delinquency(1)
30 to 59 days ........... $
60 to 89 days ...........
90 days or more(2) ......
--------- ---------
Total delinquent loans $
========= =========
Percent of portfolio % %
- --------------
(1) The indicated periods of delinquency are based on the number
of days past due on a contractual basis, based on a 30-day
month. No mortgage loan is considered delinquent for these
purposes until the monthly anniversary of its contractual due
date (e.g., a mortgage loan with a payment due on January 1
would first be considered delinquent on February 1). The
delinquencies reported above were determined as of the dates
indicated.
(2) Includes pending foreclosures.
At ,
---------------------------------------
199 199 199
---------- ---------- ---------
(Dollar amounts in thousands)
Total portfolio.......... $ $ $
Foreclosures(1)..........
Foreclosure ratio........ % % %
- --------------
(1) Foreclosed loans represents the principal balance of mortgage
loans secured by mortgaged properties, the title to which has
been acquired by the Servicer, by investors or by an insurer
following foreclosure or delivery of a deed in lieu of
foreclosure and which had not been liquidated at the end of the
period indicated. The length of time necessary to complete the
liquidation of such mortgaged properties may be affected by
prevailing economic conditions and the marketability of the
mortgaged properties.
The delinquency and foreclosure experience set forth
above is historical and is based on the servicing of mortgage
loans that may not be representative of the Mortgage Loans in the
Mortgage Pool. Consequently, there can be no assurance that the
delinquency and foreclosure experience on the Mortgage Loans in
the Mortgage Pool will be consistent with the data set forth
above. The Servicing Portfolio, for example, includes mortgage
loans having a wide variety of payment characteristics (e.g.,
fixed-rate mortgage loans, adjustable-rate mortgage loans and
graduated payment mortgage loans) and mortgage loans secured by
mortgage properties in geographic locations that may not be
representative of the geographic locations of the Mortgage Loans
in the Mortgage Pool.
S-31
<PAGE>
[Discussion of material trends, changes and anomalies
reflected in above tables to be included, if applicable.]
[The size of the Servicing Portfolio has rapidly
increased over the periods indicated as a result of new loan
originations, the acquisition of a significant portion of HHI's
servicing portfolio and acquisitions of servicing rights (some of
which related to recently originated mortgage loans), and,
consequently, the Servicing Portfolio includes many mortgage
loans which have not been outstanding long enough to have
seasoned to a point where delinquencies would be fully reflected.
In the absence of substantial continuous additions of servicing
for recently originated mortgage loans to the Servicing
Portfolio, it is possible that the delinquency and foreclosure
percentages experienced in the future could be significantly
higher than those indicated in the tables above.] [Other specific
factors that may have a material impact on future experience to
be discussed, if applicable.]
THE POOLING AND SERVICING AGREEMENT
The Certificates will be issued pursuant to the
Agreement. The following summaries describe certain provisions of
the Agreement. See "The Pooling and Servicing Agreement" in the
accompanying Prospectus for summaries of certain other provisions
of the Agreement. The summaries below do not purport to be
complete and are subject to, and qualified in their entirety by
reference to, the provisions of the Agreement. Where particular
provisions or terms used in the Agreement are referred to, such
provisions or terms are as specified in the Agreement.
Assignment of Mortgage Loans
At the time of issuance of the Certificates, the
Seller will assign the Mortgage Loans in the Mortgage Pool to the
Trustee, together with all principal and interest received on or
with respect to such Mortgage Loans on or after the Cut-Off Date
other than principal and interest due and payable on or before
the Cut-Off Date and other than principal prepayments received on
or before the Cut-Off Date. The Trustee will, concurrently with
such assignment, execute, countersign and deliver the
Certificates to the Seller in exchange for the Mortgage Loans.
Each Mortgage Loan will be identified in a schedule appearing as
an exhibit to the Agreement. Any substitute Mortgage Loan will be
identified in an amended schedule maintained by the Trustee. See
"The Pooling and Servicing Agreement--Assignment of Mortgage
Loans; Warranties" in the Prospectus.
In addition, the Seller will, as to each Mortgage
Loan, deliver to the Trustee (i) the Note, endorsed to the order
of, or assigned to, the Trustee by the holder/payee thereof
without recourse; (ii) the "buy-down" agreement (if applicable);
(iii) a Mortgage and Mortgage assignment meeting the requirements
of the Agreement; (iv) all Mortgage assignments from the original
holder of the Mortgage Loan, through any subsequent transferees
to the transferee to the Trustee; (v) an officer's certificate
regarding the original Lender's Title Insurance Policy, or other
evidence of title; (vi) as to each Mortgage Loan, an original
certificate of Primary Mortgage Insurance Policy to the extent
required under the applicable requirements for the Mortgage Pool;
and (vii) [other documents, if any, to be specified as relevant].
All documents so delivered are to be original executed documents,
provided, however, that in instances where the original recorded
document has been retained by the applicable jurisdiction or has
not yet been returned from recordation, the Seller may deliver a
photocopy containing a certification of the appropriate judicial or
S-32
<PAGE>
other governmental authority of the jurisdiction, and the
Servicer shall cause the originals of each Mortgage and Mortgage
assignment which is so unavailable to be delivered to the Trustee
as soon as available.
[Advances
In the event that any Mortgagor fails to make any
payment of principal or interest required under the terms of a
Mortgage Loan, the Servicer will advance the entire amount of
such payment, net of the applicable Servicing Fee, less the
amount of any such payment that the Servicer reasonably believes
will not be recoverable out of liquidation proceeds or otherwise.
The amount of any scheduled payment required to be advanced by
the Servicer will not be affected by any agreement between the
Servicer and a Mortgagor providing for the postponement or
modification of the due date or amount of such scheduled payment.
The Servicer will be entitled to reimbursement for any such
advance from related late payments on the Mortgage Loan as to
which such advance was made. Furthermore, in the event that any
Mortgage Loan as to which an advance has been made is foreclosed
while in the Trust Fund, the Servicer will be entitled to
reimbursement for such advance from related liquidation proceeds
or insurance proceeds prior to payment to Certificateholders of
the related Mortgage Pool of the Scheduled Principal Balance of
such Mortgage Loan plus accrued interest at the Net Mortgage
Rate.
If the Servicer makes a good faith judgment that all
or any portion of any advance made by it with respect to any
Mortgage Loan may not ultimately be recoverable from related
liquidation proceeds (a "Nonrecoverable Advance"), the Servicer
will so notify the Trustee and the Servicer will be entitled to
reimbursement for such Nonrecoverable Advance from recoveries on
all other unrelated Mortgage Loans included in the related
Mortgage Pool. The Servicer's judgment that it has made a
Nonrecoverable Advance with respect to any Mortgage Loan will be
based upon its assessment of the value of the related Mortgaged
Property and such other facts and circumstances as it may deem
appropriate in evaluating the likelihood of receiving liquidation
proceeds, net of expenses, equal to or greater than the aggregate
amount of unreimbursed advances made with respect to such
Mortgage Loan.]
[The Trustee will make advances of delinquent
principal and interest payments to the extent described above in
the event of a failure by the Servicer to perform its obligation
to do so, provided that the Trustee will not make such advance to
the extent that it reasonably believes such advance would be a
Non Recoverable Advance. The Trustee will be entitled to
reimbursement for advances in a manner similar to the Servicer's
entitlement.]
Purchases of Defaulted Mortgage Loans
Under the Agreement, the Servicer will have the option
(but not the obligation) to purchase any Mortgage Loan as to
which the Mortgagor has failed to make unexcused payment in full
of three or more scheduled payments of principal and interest (a
"Defaulted Mortgage Loan"). Any such purchase will be for a price
equal to 100% of the outstanding principal balance of such
Mortgage Loan, plus accrued and unpaid interest thereon at the
Net Mortgage Rate (less any amounts representing previously
unreimbursed advances). The purchase price for any Defaulted
Mortgage Loan will be deposited in the Certificate Account on the
business day prior to the Distribution Date on which the
proceeds of such purchase are to be distributed to the
Certificateholders.
S-33
<PAGE>
Servicing Compensation and Payment of Expenses
The Servicer's primary compensation for its servicing
activities will come from the payment to it, with respect to each
interest payment on any Mortgage Loan, of the "Servicing Fee" at
the rate described below. As to each Mortgage Loan, the Servicing
Fee will be a fixed rate per annum of the outstanding principal
balance of such Mortgage Loan, expected to range from % to %,
with an anticipated initial weighted average rate of between
approximately % and %. [The servicing compensation of any direct
servicer of any Mortgage Loan will be paid out of the related
Servicing Fee, and the Servicer will retain the balance as part
of its servicing compensation (subject to its obligation to make
Compensating Interest Payments, as described below).]
[To the extent that any voluntary prepayments by
Mortgagors result in an Interest Shortfall with respect to any
Distribution Date, the Servicer will be obligated to remit an
amount sufficient to pass through to Certificateholders the full
amount of interest to which they would have been entitled in the
absence of such prepayments, but in no event greater than the
aggregate amount received by the Servicer on account of its
Servicing Fees (net of any servicing compensation paid to any
direct servicer) in connection with such Distribution Date (such
amount, a "Compensating Interest Payment"). Because the net
amount received by the Company on account of its Servicing Fee is
generally less in the case of Mortgage Loans master-serviced by
the Company than in the case of Mortgage Loans which the Servicer
services directly, the amounts available for any Compensating
Interest Payment with respect to any Distribution Date generally
decrease to the extent the proportion of Outstanding Mortgage
Loans master-serviced by the Servicer increases, and increase to
the extent the proportion of such Mortgage Loans decreases.]
The Servicer will pay expenses incurred in connection
with its responsibilities under the Agreement, subject to limited
reimbursement as described herein and in the accompanying
Prospectus. See "The Pooling and Servicing Agreement--Servicing
and Other Compensation and Payment of Expenses" in the
accompanying Prospectus for information regarding other possible
compensation to the Servicer.
[Description of sub-servicing of Mortgage Loans to
be added, if material]
Trustee
The Trustee for the Certificates offered hereby will
be . The Corporate Trust Office of the Trustee is located at .
[Termination
The Servicer may, at its option, purchase all of the
Mortgage Loans underlying the Certificates and thereby effect the
early retirement of the Certificates and cause the termination of
the Trust Fund [and the REMIC constituted by the Trust Fund], if
on any Distribution Date (i) the aggregate Scheduled Principal
Balance of the Mortgage Loans in the Trust Fund is less than 10%
of the aggregate Scheduled Principal Balance thereof as of the
Cut-Off Date. [The Servicer may not exercise the
foregoing option unless the Trustee has received an opinion of
counsel that the exercise of such option will not subject the
Trust Fund to a tax on prohibited transactions or result in the
failure of such Trust Fund to qualify as a REMIC.]
S-34
<PAGE>
Any such purchase by the Servicer of the assets
included in the Trust Fund will be at a price equal to the sum of
(a) 100% of the unpaid principal balance of each Mortgage Loan in
the Trust Fund (other than a Mortgage Loan described in clause
(b) below) as of such date, plus accrued and unpaid interest
thereon at the related Net Mortgage Rate (less any amounts
representing previously unreimbursed advances) and (b) the
appraised value of any property acquired in respect of a related
Mortgage Loan (less any amounts representing previously
unreimbursed advances in respect thereof and a good faith
estimate of liquidation expenses). If the related Available Funds
on the final Distribution Date is less than the aggregate
Certificate Principal Balance of all outstanding Certificates
plus accrued and unpaid interest thereon, then such shortfall
will be allocated on the final Distribution Date to each Class of
Certificates of the related Mortgage Pool in accordance with the
priorities described under "Description of the
Certificates--Distributions on the Certificates".]
In no event will the Trust Fund created by the
Agreement continue beyond the expiration of 21 years from the
death of the last survivor of a certain person named in such
Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
[An election will be made to treat the Trust Fund as a
REMIC for federal income tax purposes.
The Certificates, other than the Class R Certificates,
will be designated as the "regular interests" in the REMIC and
the Class R Certificates will be designated as the "residual
interests" in the REMIC.
Regular Certificates. The Regular Certificates
generally will be treated as debt instruments issued by a REMIC
for federal income tax purposes. Income on Regular Certificates
must be reported under an accrual method of accounting. Certain
Classes of Regular Certificates may be issued with original issue
discount in an amount equal to the excess of their initial
respective Class Certificate Principal Balances (plus accrued
interest from the last day preceding the issue date corresponding
to a Distribution Date through the issue date) over their issue
prices (including all accrued interest). The Prepayment
Assumption that is to be used in determining the rate of accrual
of original issue discount and whether the original issue
discount is considered de minimis, and that may be used by a
holder of a Regular Certificate to amortize premium, will be % of
the Prepayment Assumption. No representation is made as to the
actual rate at which the Mortgage Loans will prepay. See "Certain
Federal Income Tax Consequences--REMIC Certificates--Income from
Regular Certificates" in the accompanying Prospectus.
Residual Certificates. The holders of the Class R
Certificates must include the taxable income of the REMIC in
their federal taxable income. The resulting tax liability of the
holders may exceed cash distributions to such holders during
certain periods. All or a portion of the taxable income from a
Residual Certificate recognized by a holder may be treated as
"excess inclusion" income, which with limited exceptions is
subject to U.S. federal income tax in all events.
[Under Treasury regulations, the Class R Certificates
will not have "significant value." As a result, thrift
institutions will not be permitted to offset their net operating
losses against such excess inclusion income. In addition, under
those regulations, the Class R Certificate may be considered to be a
S-35
<PAGE>
"noneconomic residual interest," with the result that
transfers thereof will be disregarded in certain circumstances
for federal income tax purposes.]
Prospective purchasers of a Residual Certificate
should consider carefully the tax consequences of an investment
in Residual Certificates discussed in the Prospectus and should
consult their own tax advisors with respect to those
consequences. See "Certain Federal Income Tax Consequences--REMIC
Certificates--Income from Residual Certificates; --Taxation of
Certain Foreign Investors; --Servicing Compensation and Other
REMIC Pool Expenses; --Transfers of Residual
Certificates."]
ERISA CONSIDERATIONS
As described in the Prospectus under "ERISA
Considerations," the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Code impose certain duties
and restrictions on any person which is an employee benefit plan
within the meaning of Section 3(3) of ERISA or a plan subject to
Section 4975 of the Code or any person utilizing the assets of
such employee benefit plan or other plan (an "ERISA Plan") and
certain persons who perform services for ERISA Plans. For
example, unless exempted, an investment by an ERISA Plan in the
Certificates offered hereby may constitute or give rise to a
prohibited transaction under ERISA or Section 4975 of the Code.
The United States Department of Labor (the "DOL") has issued
certain such exemptions from these prohibitions which might be
applicable in connection with an ERISA Plan's purchase of certain
of the Certificates offered hereby, including Prohibited
Transaction Class Exemption 83-1 ("PTE 83-1"). [In particular,
the exemptive relief provided by PTE 83-1 may be available with
respect to the initial acquisition and holding of certain Classes
of Certificates offered hereby, provided that the conditions
specified in PTE 83-1 are satisfied.] See "ERISA Considerations"
in the accompanying Prospectus.
[The DOL has issued to (the "Underwriters") an
individual administrative exemption, Prohibited Transaction
Exemption ( Fed. Reg. , , 19 ), as amended (the "Exemption"),
from certain of the prohibited transaction provisions of ERISA
with respect to the initial purchase, the holding, and the
subsequent resale by an ERISA Plan of certificates in
pass-through trusts that meet the conditions and requirements of
the Exemption. The Exemption might apply to the acquisition,
holding and resale of the Certificates offered hereby [other than
the Class Certificates] by an ERISA Plan, provided that specified
conditions are met.]
[Among the conditions which would have to be satisfied
for the Exemption to apply to the acquisition by an ERISA Plan of
the Certificates offered hereby [other than the Class
Certificates] are the following: (i) the Underwriters are the
sole underwriters or the managers or co-managers of the
underwriting syndicate, for such Certificates, (ii) such
Certificates are rated in one of the three highest generic rating
categories by or at the time of the acquisition of such
Certificates by the ERISA Plan, (iii) such Certificates represent
a beneficial ownership interest in, among other things,
obligations that bear interest or are purchased at a discount and
which are secured by single-family residential, multifamily
residential or commercial real property (including obligations
secured by leasehold interests on commercial real property),
or fractional undivided interests in such obligations,
(iv) such Certificates are not subordinated to other
certificates issued by the Trust Fund in respect of the
Mortgage Pool, (v) the ERISA Plan investing in such 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, (vi) the acquisition of the Certificates
is on terms that are at least as favorable to the ERISA Plan as
S-36
<PAGE>
they would be in an arm's length transaction with an unrelated
third party, (vii) the Trustee is not an affiliate of any member
of the "Restricted Group" (as defined below) and (viii) the
compensation to the Underwriters represents not more than
reasonable compensation for underwriting such Certificates, the
proceeds to the Seller pursuant to the assignment of the related
Mortgage Loans (or interests therein) to the Trustee represent
not more than the fair market value of such Mortgage Loans (or
interests) and the sum of all payments made to and retained by
the Seller represents not more than reasonable compensation for
the Servicer's services under the Agreement and reimbursement of
the Seller's reasonable expenses in connection therewith.]
[In addition, if certain additional conditions
specified in the Exemption are satisfied, the Exemption may
provide an exemption from the prohibited transaction provisions
of ERISA relating to possible self-dealing transactions by
fiduciaries who have discretionary authority, or render
investment advice, with respect to ERISA Plan assets used to
purchase the Certificates offered hereby [other than Class
Certificates] if the fiduciary (or its affiliate) is an obligor
on any of the Mortgage Loans held in the Mortgage Pool.]
[The Exemption would not be available with respect to
ERISA Plans sponsored by any of the following entities (or any
affiliate of any such entity): (i) the Seller, (ii) the
Underwriters, (iii) the Trustee, (iv) any entity that provides
insurance or other credit support to the Trust Fund in respect of
the relevant Mortgage Pool or (v) any obligor with respect to
Mortgage Loans included in the Mortgage Pool constituting more
than five percent of the aggregate unamortized principal balance
of the assets in such Mortgage Pool (the "Restricted Group").]
Before purchasing any Certificate offered hereby, a
fiduciary of an ERISA Plan should make its own determination as
to the availability of the exemptive relief provided in the
Exemption or the availability of any other prohibited transaction
exemptions, and whether the conditions of any such exemption will
be applicable to such Certificate.
[The Exemption does not apply to the initial purchase,
the holding or the subsequent resale of the Class Certificates
because such Certificates are subordinate to the Senior
Certificates. Accordingly, ERISA Plans may not purchase the Class
Certificates. In this regard, an insurance company proposing to
invest assets of its general account in the Class , Certificates
should consider the extent to which such investment would be
subject to the requirements of ERISA under the U.S. Supreme
Court's decision in John Hancock Mutual Life Insurance Co. v.
Harris Trust and Savings Bank and under subsequent guidance that
has or may become available relating to that decision. In
particular, such an insurance company should consider the
retroactive and prospective exemptive relief proposed by the
Department of Labor for transactions involving insurance company
general accounts in respect of Application No. D-9622, 59 Fed.
Reg. 43134 (August 22, 1994).]
Any fiduciary of an ERISA Plan considering whether to
purchase any Certificate should not only consider the
applicability of exemptive relief, but should also carefully
review with its own legal advisors the applicability of the
fiduciary duty and prohibited transaction provisions of ERISA and
the Code to such investment. See "ERISA Considerations" in the
accompanying Prospectus.
A qualified pension plan or other entity that is exempt
from federal income taxation pursuant to Section 501 of the Code
(a "Tax-Exempt Investor") nonetheless will be subject to federal
S-37
<PAGE>
income taxation to the extent that its income is "unrelated
business taxable income" within the meaning of Section
512 of the Code. [The Residual Certificates constitute the
residual interest in the REMIC constituted by the Trust Fund, and
all "excess inclusions" allocated to the Residual Certificates,
if held by a Tax-Exempt Investor, will be considered "unrelated
business taxable income" and thus will be subject to federal
income tax.] See "Certain Federal Income Tax
Consequences--Residual Certificates" herein and "Certain Federal
Income Tax Consequences--Federal Income Tax Consequences for
REMIC Certificates--Taxation of Residual Certificates" in the
Prospectus.
[The Agreement will contain certain restrictions on
the transferability of the Class Certificates. See "Description
of the Certificates--The Non-Book-Entry Certificates" herein. The
Agreement provides that the Residual Certificates may not be
acquired by an ERISA Plan. See "Description of the
Certificates--Restrictions on Transfer of the Residual
Certificates" herein.]
LEGAL INVESTMENT MATTERS
[The Certificates offered hereby constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"), and, as such, are legal
investments for certain entities to the extent provided in SMMEA.
However, institutions subject to the jurisdiction of the Office
of the Comptroller of the Currency, the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the National
Credit Union Administration or state banking or insurance
authorities should review applicable rules, supervisory policies
and guidelines of these agencies before purchasing any of the
Certificates, as certain Classes may be deemed to be unsuitable
investments under one or more of these rules, policies and
guidelines and certain restrictions may apply to investments in
other Classes. It should also be noted that certain states have
enacted legislation limiting to varying extents the ability of
certain entities (in particular insurance companies) to invest in
mortgage related securities. Investors should consult with their
own legal advisors in determining whether and to what extent the
Certificates constitute legal investments for such investors.]
See "Legal Investment Matters" in the accompanying Prospectus.
PLAN OF DISTRIBUTION
[Subject to the terms and conditions set forth in the
Underwriting Agreement between the Seller and the Underwriter,
the Certificates offered hereby are being purchased from the
Seller by the Underwriter upon issuance. Distribution of the
Certificates offered hereby will be made by the Underwriter from
time to time in negotiated transactions or otherwise at varying
prices to be determined at the time of sale. Proceeds to the
Seller from the sale of the Certificates will be % of the
aggregate initial Principal Balance of the Mortgage Loans as of
the Cut-Off Date, plus accrued interest thereon from the Cut-Off
Date to the Closing Date, but before deducting issuance expenses
payable by the Seller. In connection with the purchase and sale
of the Certificates offered hereby, the Underwriter may be deemed
to have received compensation from the Seller in the form of
underwriting discounts.
The Seller has agreed to indemnify the Underwriter
against, or make contributions to the Underwriters with respect to,
certain liabilities, including liabilities under the Securities
Act of 1933, as amended.]
S-38
<PAGE>
CERTIFICATE RATINGS
It is a condition of issuance of the Certificates that
the Certificates offered hereby be rated " " by [and " " by ].
[Description of rating criteria of each rating agency.]
The ratings of the Certificates should be evaluated
independently from similar ratings on other types of securities.
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 agency.
The Seller has not requested a rating of the
Certificates offered hereby by any rating agency other than [and
], and has not provided information relating to the Certificates
offered hereby by any rating agency other than [and ]. However,
there can be no assurance as to whether any other rating agency
will rate the Certificates offered hereby or, if another rating
agency were to do so, what rating would be assigned to the
Certificates by such rating agency. Any such unsolicited rating
assigned by another rating agency to the Certificates offered
hereby may be lower than the rating assigned to such Certificates
by [and ].
LEGAL MATTERS
Certain legal matters in respect of the Certificates
will be passed upon for the Seller by Cleary, Gottlieb, Steen &
Hamilton, New York, New York, and for the Underwriters by .
<PAGE>
INDEX OF CERTAIN PROSPECTUS SUPPLEMENT DEFINITIONS
Defined Term Page
- ------------ ----
Accrued Certificate Interest....................................
Agreement.......................................................
Available Funds.................................................
Bankruptcy Loss.................................................
beneficial owner................................................
Book-Entry Certificates.........................................
Cede............................................................
Certificate Principal Balance...................................
Certificates....................................................
Class...........................................................
Class Certificate Principal Balance.............................
Code............................................................
Collection Account..............................................
Compensating Interest Payment...................................
Debt Service Reduction..........................................
Defaulted Mortgage Loan.........................................
Deficient Valuation.............................................
Definitive Certificate..........................................
Depository......................................................
Detailed Description............................................
Distribution Date...............................................
DOL.............................................................
ERISA...........................................................
ERISA Plan......................................................
Exemption.......................................................
FDIC............................................................
Financial Intermediary..........................................
HHI.............................................................
HLI.............................................................
HMSI............................................................
Interest Accrual Period.........................................
Interest Shortfall..............................................
Liquidated Mortgage Loan........................................
Mortgage........................................................
Mortgage Loans..................................................
Mortgage Pool ..................................................
Mortgage Rates..................................................
mortgage related securities.....................................
Mortgaged Properties............................................
Mortgagor.......................................................
Net Interest Shortfall..........................................
Net Mortgage Rate...............................................
S-40
<PAGE>
Nonrecoverable Advance..........................................
Notional Principal Balance......................................
Outstanding Mortgage Loan.......................................
Pool Scheduled Principal Balance................................
Prepayment Assumption...........................................
Prepayment Period...............................................
Primary Mortgage Insurance Policy...............................
Realized Loss...................................................
Record Date.....................................................
Regular Certificates............................................
regular interests...............................................
Relocation Loans................................................
[REMIC].........................................................
Residual Certificates...........................................
residual interests..............................................
Restricted Group................................................
Scheduled Principal Balance.....................................
Servicing Fee...................................................
Servicing Portfolio.............................................
SMMEA...........................................................
Tax-Exempt Investor.............................................
Trust Fund......................................................
Trustee.........................................................
Underwriters....................................................
S-41
<PAGE>
[Back cover page]
No person has been authorized to give any information or to
make any representations other than those contained in this
Prospectus Supplement or the Prospectus and, if given or made,
such information or representations must not be relied upon as
having been authorized. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell or the solicitation
of an offer to buy any securities other than the securities
described in this Prospectus Supplement or an offer to sell or
the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus Supplement or the
Prospectus nor any sale made thereunder shall, under any
circumstances, create any implication that the information
contained herein or therein is correct as of any time subsequent
to the date of such information.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
----
Summary of Terms...............................................
Description of the Mortgage Pool and the Mortgaged Properties..
Description of the Certificates................................
Yield and Weighted Average Life Considerations.................
HomeSide Mortgage Securities, Inc..............................
HomeSide Lending, Inc..........................................
Delinquency and Foreclosure Experience of the Servicer.........
The Pooling and Servicing Agreement............................
Certain Federal Income Tax Consequences........................
ERISA Considerations...........................................
Legal Investment Matters.......................................
Plan of Distribution...........................................
Certificate Ratings............................................
Legal Matters..................................................
Index of Certain Prospectus Supplement Definitions.............
PROSPECTUS
Available Information..........................................
Incorporation of Certain Documents by Reference................
Reports to Certificateholders..................................
Summary of Prospectus..........................................
Description of the Certificates................................
The Mortgage Pools.............................................
Credit Support.................................................
Yield, Maturity and Weighted Average Life Considerations.......
HomeSide Mortgage Securities, Inc..............................
HomeSide Lending, Inc..........................................
Servicing of the Mortgage Loans................................
The Pooling and Servicing Agreement............................
Certain Legal Aspects of the Mortgage Loans....................
Legal Investment Matters.......................................
ERISA Considerations...........................................
Certain Federal Income Tax Consequences........................
Plan of Distribution..........................................
Use of Proceeds................................................
Financial Information..........................................
Legal Matters..................................................
<PAGE>
Until 90 days after the date of this Prospectus Supplement,
all dealers effecting transactions in the Certificates offered
hereby, whether or not participating in this distribution, may be
required to deliver a Prospectus Supplement and Prospectus to
which it relates. This is in addition to the obligation of
dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriters and with respect to their unsold
allotments or subscriptions.
HomeSide Mortgage Securities, Inc.
(Seller)
$
(Approximate)
[REMIC Multi-Class][Mortgage]
Pass-Through Certificates,
Series 199 -
-------
PROSPECTUS SUPPLEMENT
-------
[Underwriter]
, 199
<PAGE>
SUBJECT TO COMPLETION MARCH 31, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION
OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER
THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
Mortgage Pass-Through Certificates (Issuable in Series)
HOMESIDE MORTGAGE SECURITIES, INC.
Seller
HOMESIDE LENDING, INC.
Servicer
Each Certificate offered hereby will evidence a
beneficial ownership interest in one of a number of trust funds
(each a "Trust Fund") created by HomeSide Mortgage Securities,
Inc. ("HMSI" or the "Seller"), formerly known as BancBoston
Mortgage Securities, Inc., from time to time. As specified in the
related Prospectus Supplement, the property of each Trust Fund
will consist of a pool of one- to four-family residential
mortgage loans (the "Mortgage Loans") and related property and
interests conveyed to such Trust Fund by the Seller. Unless
otherwise specified in the related Prospectus Supplement, each
pool will consist entirely of fixed-rate, first-lien Mortgage
Loans or entirely of adjustable-rate, first-lien Mortgage Loans
originated by HomeSide Lending, Inc. ("HLI" or the "Servicer"),
formerly known as BancBoston Mortgage Corporation, either
directly or through correspondent originators, or originated by
other originators and, in any such case, acquired by the Seller.
Information regarding the size, composition and other
characteristics of the mortgage pool relating to such Series,
will be furnished in the related Prospectus Supplement at the
time such Series is offered. If specified in the related
Prospectus Supplement, a Trust Fund may also include one or more
of the following: reinvestment income, reserve accounts,
insurance policies, guarantees or similar instruments or
agreements.
The Certificates may be sold from time to time in one
or more series on terms determined at the time of sale and
specified in the Prospectus Supplement relating to such series.
Each series of Certificates will be issued in a single class or
in two or more classes. The Certificates of each class will
evidence the beneficial ownership of (i) any distributions in
respect of the assets of the Trust Fund that are allocable to
principal of the Certificates in the amount of the aggregate
original principal balance, if any, of such class of Certificates
as specified in the related Prospectus Supplement and (ii) any
distributions in respect of the assets of the Trust Fund that are
allocable to interest on the principal balance or notional
principal balance of such Certificates at the interest rate, if
any, applicable to such class of Certificates as specified in the
related Prospectus Supplement. One or more classes of each series
(i) may be entitled to receive distributions allocable to
principal, principal prepayments, interest or any combination
thereof prior to one or more other classes of Certificates of
such series or after the occurrence of certain events and (ii)
may be subordinated in the right to receive such distributions on
such Certificates to one or more senior classes of Certificates,
in each case as specified in the related Prospectus Supplement.
Interest on each class of Certificates entitled to distributions
allocable to interest will accrue at a fixed rate or at a rate
that is subject to change from time to time as specified in the
related Prospectus Supplement on an actual or notional principal
amount, may represent a specified portion of interest received on
some or all of the assets of the Trust Fund or may otherwise be
determined as specified in the related Prospectus Supplement. The
Seller may retain or hold for sale from time to time one or more
classes of a series of Certificates.
Distributions on the Certificates of a series will be
made only from the assets of the related Trust Fund. The
Certificates of any series will not be insured or guaranteed by
any governmental entity or by any other person.
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR
AN INTEREST IN HOMESIDE MORTGAGE SECURITIES, INC., HOMESIDE
LENDING, INC. OR ANY OF THEIR AFFILIATES. THE CERTIFICATES WILL
NOT BE SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY NOR HAS THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY PASSED UPON THE
ACCURACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS.
Except as otherwise specifically provided in the
applicable Prospectus Supplement (which may also provide that a
party other than the Seller shall have some or all of the
following obligations), the Seller's only obligations with
respect to the Certificates will be its obligation, pursuant to
its representations and warranties, to repurchase Mortgage Loans
under certain circumstances, and its obligations, if any, as
principal obligor in connection with certain credit enhancements
that may be described in the Prospectus Supplement. Except as
otherwise specifically provided in the applicable Prospectus
Supplement and except for certain representations and warranties
relating to the Servicer, the Servicer's obligations with respect
to each Series of Certificates will be limited to its contractual
servicing obligations, including any obligation it may have to
advance, under the circumstances specified in the Prospectus
Supplement, delinquent payments on the Mortgage Loans included in
the related Trust Fund, and its obligations pursuant to certain
representations and warranties made by it.
The yield on each class of Certificates of a series
will be affected by the rate of payment of principal (including
prepayments) on the assets in the related Trust Fund and the
timing of receipt of such payments as described herein and in the
related Prospectus Supplement. Each series of Certificates may be
subject to early termination only under the circumstances
described herein and in the related Prospectus Supplement.
If specified in a Prospectus Supplement, an election
will be made to treat the related Trust Fund as a "real estate
mortgage investment conduit" ("REMIC") for federal income tax
purposes, or two REMIC elections may be made with respect to the
related Trust Fund. See "Certain Federal Income Tax
Consequences".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or
more different methods, including offerings through underwriters,
as more fully described under "Plan of Distribution" herein and
in the related Prospectus Supplement. There will have been no
public market for any series of Certificates prior to the
offering thereof. Accordingly, once an offering of any Series of
Certificates has been made, there can be no assurance that a
secondary market for Certificates of such Series will develop or,
if it does develop, that such market will continue.
Retain this Prospectus for future reference. This
Prospectus may not be used to consummate sales of Certificates
unless accompanied by a Prospectus Supplement.
The date of this Prospectus is ____________, 199 .
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a series of
Certificates being offered hereby will, among other things, set
forth with respect to such series of Certificates (i) information
as to the assets comprising the Trust Fund, including the
characteristics of the Mortgage Loans, Non-Agency Certificates or
Agency Certificates (as such terms are defined herein) and, if
applicable, the insurance, guarantees or other instruments or
agreements included in the Trust Fund and the amount and source
of any reserve accounts; (ii) the aggregate original principal
balance of each class of Certificates entitled to distributions
allocable to principal and, if a fixed rate of interest, the
interest rate for each class of such Certificates entitled
to distributions allocable to interest; (iii) information
as to any class of Certificates that has a rate of interest
that is subject to change from time to time and the
basis on which such interest rate will be determined; (iv)
information as to any class of Certificates on which interest
will accrue and be added to the principal or, if applicable, the
notional principal balance thereof; (v) information as to the
method used to calculate the amount of interest to be paid on any
class entitled to distributions of interest only; (vi)
information as to the nature and extent of subordination with
respect to any class of Certificates that is subordinate in right
of payment to any other class; (vii) the circumstances, if any,
under which the Trust Fund is subject to early termination;
(viii) if applicable, the final distribution date and the first
mandatory principal distribution date of each class of such
Certificates; (ix) the method used to calculate the aggregate
amounts of principal and interest required to be distributed on
each distribution date in respect of each class of such
Certificates and, with respect to any series consisting of more
than one class, the basis on which such amounts will be allocated
among the classes of such series; (x) the distribution date for
each class of the Certificates, the date on which payments
received in respect of the assets included in the Trust Fund
during the related period will be deposited in the related
Certificate Account (as defined herein) and, if applicable, the
assumed reinvestment rate applicable to payments received in
respect of such assets and the date on which such payments are
assumed to be received for such series of Certificates; (xi) the
name of the trustee of the Trust Fund; (xii) information with
respect to the administrator, if any, of the Trust Fund; (xiii)
whether an election will be made to treat all or a portion of the
Trust Fund as a REMIC or a double REMIC and, if applicable, the
designation of the regular interests and residual interests
therein; and (xiv) information with respect to the plan of
distribution of such Certificates.
AVAILABLE INFORMATION
HMSI will be subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), with respect to the series of Certificates offered hereby
and by the related Prospectus Supplement, and in accordance
therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such
reports and other information can be inspected and copied at the
public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at Seven World Trade Center, Suite
1300, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained upon written request addressed to
the Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
HMSI has filed with the Commission a Registration
Statement under the Securities Act of 1933, as amended, with
respect to the Certificates. This Prospectus, which forms a part
of the Registration Statement, omits certain information
contained in such Registration Statement pursuant to the rules
and regulations of the Commission. The Registration Statement can
be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission as described in
the preceding paragraph.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Seller pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act with respect
to a series of Certificates subsequent to the date of this
Prospectus and the related Prospectus Supplement and prior to
<PAGE>
the termination of the offering of such series of Certificates
shall be deemed to be incorporated by reference in this
Prospectus as supplemented by the related Prospectus Supplement.
If so specified in any such document, such document shall also be
deemed to be incorporated by reference in the Registration
Statement of which this Prospectus forms a part.
Any statement contained herein or in a Prospectus
Supplement for a series of Certificates or in a document
incorporated or deemed to be incorporated by reference herein or
therein shall be deemed to be modified or superseded for purposes
of this Prospectus and such Prospectus Supplement to the extent
that a statement contained herein or in such Prospectus
Supplement or in any subsequently filed document which also is or
is deemed to be incorporated by reference herein or in such
Prospectus Supplement modifies or supersedes such statement,
except to the extent that such subsequently filed document
expressly states otherwise. Any such statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus or the
related Prospectus Supplement or, if applicable, the Registration
Statement.
The Seller will provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus
and the related Prospectus Supplement is delivered, on the
written or oral request of any such person, a copy of any and all
of the documents incorporated herein by reference, except the
exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests
for such copies should be directed to the Office of the
Secretary, HomeSide Mortgage Securities, Inc., 7301 Baymeadows
Way, Jacksonville, Florida 32256. Telephone requests for such
copies should be directed to the Office of the Secretary at (904)
281-3000.
--------
Until 90 days after the date of each Prospectus
Supplement, all dealers effecting transactions in the series of
Certificates covered by such Prospectus Supplement, whether or
not participating in the distribution thereof, may be required to
deliver such Prospectus Supplement and this Prospectus. This is
in addition to the obligation of dealers to deliver a Prospectus
Supplement and Prospectus when acting as underwriters of the
series of Certificates covered by such Prospectus Supplement and
with respect to their unsold allotments or subscriptions.
No person has been authorized to give any information
or to make any representations other than those contained in this
Prospectus and any Prospectus Supplement with respect hereto and,
if given or made, such information or representations must not be
relied upon as having been authorized. This Prospectus and any
Prospectus Supplement with respect hereto do not constitute an
offer to sell or a solicitation of an offer to buy any securities
other than the Certificates offered hereby and thereby nor an
offer to sell or a solicitation of an offer to buy the
Certificates to any person in any state or other jurisdiction in
which such offer or solicitation would be unlawful. Neither the
delivery of this Prospectus or any Prospectus Supplement with
respect hereto nor any sale made hereunder and thereunder shall,
under any circumstances, create any implication that the
information herein or therein is correct as of any time
subsequent to the date of such information.
--------
REPORTS TO CERTIFICATEHOLDERS
The Trustee will provide to the holders of
Certificates of each series, annually and with respect to each
Distribution Date, reports concerning the Trust Fund related to
such Certificates. See "The Pooling and Servicing Agreement--
Reports to Certificateholders".
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<PAGE>
TABLE OF CONTENTS
SUMMARY OF PROSPECTUS.............................................1
DESCRIPTION OF THE CERTIFICATES...................................7
GENERAL...........................................................7
CLASSES OF CERTIFICATES...........................................8
DISTRIBUTIONS OF PRINCIPAL AND INTEREST...........................9
GENERAL...........................................................9
Distributions of Interest.......................................9
Distributions of Principal.....................................10
Unscheduled Distributions......................................10
THE MORTGAGE POOLS...............................................11
CREDIT SUPPORT...................................................13
GENERAL..........................................................13
PURCHASE OF LIQUIDATING LOANS....................................14
LIMITED GUARANTEE OF THE GUARANTOR...............................15
SUBORDINATION....................................................15
CROSS-SUPPORT....................................................16
POOL INSURANCE...................................................16
SPECIAL HAZARD INSURANCE.........................................17
BANKRUPTCY BOND..................................................18
REPURCHASE BOND..................................................19
GUARANTEED INVESTMENT CONTRACTS..................................19
RESERVE ACCOUNTS.................................................19
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS
OR AGREEMENTS...................................................20
YIELD, MATURITY AND WEIGHTED AVERAGE LIFE CONSIDERATIONS.........20
HOMESIDE MORTGAGE SECURITIES, INC................................21
HOMESIDE LENDING, INC............................................22
REAL ESTATE LENDING..............................................22
CORRESPONDENT PRODUCTION.........................................22
CO-ISSUE PRODUCTION..............................................23
BROKER PRODUCTION................................................23
CONSUMER DIRECT..................................................23
LOAN UNDERWRITING POLICIES.......................................23
SERVICING OF THE MORTGAGE LOANS..................................24
COLLECTION AND OTHER SERVICING PROCEDURES........................25
PRIVATE MORTGAGE INSURANCE.......................................26
HAZARD INSURANCE.................................................26
ADVANCES.........................................................27
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES.........28
RESIGNATION, SUCCESSION AND INDEMNIFICATION OF THE SERVICER......29
THE POOLING AND SERVICING AGREEMENT..............................29
ASSIGNMENT OF MORTGAGE LOANS; WARRANTIES.........................29
PAYMENTS ON MORTGAGE LOANS; CERTIFICATE ACCOUNT..................31
i
<PAGE>
REPURCHASE OR SUBSTITUTION.......................................31
CERTAIN MODIFICATIONS AND REFINANCINGS...........................32
EVIDENCE AS TO COMPLIANCE........................................33
LIST OF CERTIFICATEHOLDERS.......................................33
THE TRUSTEE......................................................33
REPORTS TO CERTIFICATEHOLDERS....................................34
EVENTS OF DEFAULT................................................35
RIGHTS UPON EVENT OF DEFAULT.....................................35
AMENDMENT........................................................36
TERMINATION; PURCHASE OF MORTGAGE LOANS..........................36
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS......................37
GENERAL..........................................................37
FORECLOSURE......................................................37
RIGHT OF REDEMPTION..............................................39
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS.....39
ENFORCEABILITY OF CERTAIN PROVISIONS.............................40
APPLICABILITY OF USURY LAWS......................................40
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT..........................41
ENVIRONMENTAL CONSIDERATIONS.....................................41
TRUTH IN LENDING ACT.............................................41
LEGAL INVESTMENT MATTERS.........................................42
ERISA CONSIDERATIONS.............................................43
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..........................45
GENERAL..........................................................45
REMIC ELECTIONS..................................................45
REMIC CERTIFICATES...............................................45
TAX OPINION......................................................45
STATUS OF CERTIFICATES...........................................46
INCOME FROM REGULAR CERTIFICATES.................................46
Market Discount................................................48
Premium........................................................49
Retail Regular Certificates....................................49
Variable Rate Regular Certificates.............................49
Subordinated Certificates......................................50
INCOME FROM RESIDUAL CERTIFICATES................................50
Taxation of REMIC Income.......................................50
Losses.........................................................51
Excess Inclusions..............................................51
Distributions..................................................51
Prohibited Transactions; Special Taxes.........................51
Negative Value Residual Certificates...........................51
SALE OR EXCHANGE OF CERTIFICATES.................................52
TAXATION OF CERTAIN FOREIGN INVESTORS............................52
Regular Certificates...........................................52
Residual Certificates..........................................53
TRANSFERS OF RESIDUAL CERTIFICATES...............................53
Disqualified Organizations.....................................53
Foreign Investors..............................................54
Noneconomic Residual Certificates..............................55
SERVICING COMPENSATION AND OTHER REMIC POOL EXPENSES.............55
ii
<PAGE>
REPORTING AND ADMINISTRATIVE MATTERS.............................55
NON-REMIC CERTIFICATES...........................................56
TRUST FUND AS GRANTOR TRUST......................................56
STATUS OF THE CERTIFICATES.......................................56
POSSIBLE APPLICATION OF STRIPPED BOND RULES......................57
TAXATION OF CERTIFICATES IF STRIPPED BOND RULES DO NOT APPLY.....57
DISCOUNT.........................................................57
Premium........................................................58
TAXATION OF CERTIFICATES IF STRIPPED BOND RULES APPLY............58
SALES OF CERTIFICATES............................................58
FOREIGN INVESTORS................................................59
REPORTING........................................................59
BACKUP WITHHOLDING...............................................59
PLAN OF DISTRIBUTION.............................................59
USE OF PROCEEDS..................................................60
FINANCIAL INFORMATION............................................61
LEGAL MATTERS....................................................61
iii
<PAGE>
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by
reference to the detailed information appearing elsewhere in this
Prospectus and by reference to the Prospectus Supplement to be
prepared in connection with each Series of Certificates. Unless
otherwise specified, capitalized terms used and not defined in
this Summary of Prospectus have the meanings given to them in
this Prospectus and in the related Prospectus Supplement.
Title of Securities Mortgage Pass-Through Certificates,
issuable in series.
Seller Servicer HomeSide Mortgage Securities, Inc.
("HMSI" or the "Seller"), formerly known
as BancBoston Mortgage Securities, Inc.
See "HomeSide Mortgage Securities,
Inc." HomeSide Lending, Inc. ("HLI" or
the "Servicer"), formerly known as
BancBoston Mortgage Corporation. See
"HomeSide Lending, Inc." If specified
in the Prospectus Supplement, HSMC will
service, and may act as master servicer
with respect to, the Mortgage Loans
included in the Trust Fund.
Description of
Certificates Each Certificate will represent a
beneficial ownership interest in one of
a number of trusts to be created by the
Seller from time to time pursuant to a
pooling and servicing agreement (each,
an "Agreement") between the Seller and
the commercial bank or trust company
acting as trustee specified in the
Prospectus Supplement. The property of
each trust (a "Trust Fund") will consist
of a pool (a "Mortgage Pool") of
residential one- to four-family mortgage
loans (the "Mortgage Loans") and related
property and interests conveyed to each
Trust Fund by the Seller. As specified
in the related Prospectus Supplement,
each Mortgage Pool will consist entirely
of fixed-rate or adjustable-rate
Mortgage Loans originated by the
Servicer, either directly or through
correspondent originators, or originated
by other originators and, in any such
case, acquired by the Servicer. If
specified in the related Prospectus
Supplement, a Trust Fund may also
include one or more of the following:
reinvestment income, reserve accounts,
insurance policies, guarantees or
similar instruments or agreements
intended to decrease the likelihood that
Certificateholders will experience
delays in distributions of scheduled
payments on, or losses in respect of,
the assets in such Trust Fund. The
Certificates of any series will be
entitled to payment only from the assets
of the related Trust Fund.
The Certificates of any series may be
issued in a single class or in two or
more classes, as specified in the
Prospectus Supplement. One or more
classes of Certificates of each series
(i) may be entitled to receive
distributions allocable only to
principal, only to interest or to any
combination thereof; (ii) may be
entitled to receive distributions only
of prepayments of principal throughout
the lives of the Certificates or during
specified periods; (iii) may be
subordinated in the right to receive
distributions of scheduled payments of
principal, prepayments of principal,
interest or any combination thereof to
one or more other classes of
Certificates of such series throughout
the lives of the Certificates or during
specified periods; (iv) may be entitled
to receive such distributions only
after the occurrence of events
specified in the Prospectus Supplement;
(v) may be entitled to receive
distributions in accordance with a
schedule or formula or on the basis of
collections from designated portions of
the assets in the Trust Fund; (vi) as
to Certificates entitled to
distributions allocable to interest,
may be entitled to receive interest at
a fixed rate or a rate that is subject
to change from time to time; and (vii)
as to Certificates entitled to
distributions allocable to interest,
may be entitled to distributions allocable to
1
<PAGE>
interest only after the occurrence of
events specified in the Prospectus
Supplement and may accrue interest
until such events occur, in
each case as specified in the
Prospectus Supplement. The timing and
amounts of such distributions may vary
among classes, over time, or otherwise
as specified in the related Prospectus
Supplement.
The Seller may retain or hold for sale
from time to time one or more classes
of a series of Certificates.
The Certificates will be offered in
fully-registered form only in the
denominations specified in the
Prospectus Supplement. The Certificates
will not be guaranteed or insured by
any governmental agency or
instrumentality or any other issuer
and, except as described in the
Prospectus Supplement, the Mortgage
Loans included in the related Trust
Fund will not be guaranteed or insured
by any governmental agency or
instrumentality or any other person.
Distributions on
the Certificates Distributions on the Certificates
entitled thereto will be made on the
25th day (or, if such day is not a
business day, the business day
immediately following such 25th day) of
each month or such other date specified
in the Prospectus Supplement solely out
of the payments received in respect of
the assets of the related Trust Fund.
The amount allocable to payments of
principal and interest on any
distribution date will be determined as
specified in the Prospectus Supplement.
All distributions will be made pro rata
to Certificateholders of the class
entitled thereto or by the other method
specified in the Prospectus Supplement.
The aggregate original principal
balance of the Certificates will equal
the aggregate distributions allocable
to principal that such Certificates
will be entitled to receive. If
specified in the Prospectus Supplement,
the Certificates of a series will have
an aggregate original principal balance
equal to the aggregate unpaid principal
balance of the related Mortgage Loans
as of the first day of the month of
creation of the Trust Fund and will
bear interest in the aggregate at a
rate equal to the interest rate borne
by the underlying Mortgage Loans, net
of servicing fees payable to the
Servicer and any primary or
sub-services of the Mortgage Loans and
any other amounts (including fees
payable to the Servicer as master
Servicer, if applicable) specified in
the Prospectus Supplement (as to each
Mortgage Loan, the "Remittance Rate").
The rate at which interest will be
passed through to holders of
Certificates entitled hereto may be a
fixed rate or a rate that is subject to
change from time to time, in each case
as specified in the Prospectus
Supplement. Any such rate may be
calculated on a loan-by-loan, weighted
average or other basis, in each case as
described in the Prospectus Supplement.
The Mortgage Pools As specified in the Prospectus
Supplement, each Mortgage Pool will
consist of Mortgage Loans which were
represented to the Seller as meeting
certain standards. Each Mortgage Pool
will contain one or more of the
following types of Mortgage Loans:(1)
20- to 30-year ("30-year") fixed-rate,
fully amortizing Mortgage Loans
providing for level monthly payments of
principal and interest;
(2) 10- to 15-year ("15-year")
fixed-rate, fully amortizing Mortgage
Loans providing for level monthly
payments of principal and interest;(3)
Adjustable-rate Mortgage Loans ("ARMs"
or "ARM Loans"), which may include
loans providing for negative
2
<PAGE>
amortization; (4) Another type of
Mortgage Loan, as described in the
applicable Prospectus Supplement. If
specified in the applicable Prospectus
Supplement, a Mortgage Pool may contain
Mortgage Loans subject to buy-down
plans ("Buy-Down Mortgage Loans"). See
"The Mortgage Pools."
Primary Mortgage
Insurance To the extent specified in the
applicable Prospectus Supplement, each
Mortgage Loan having a Loan-to-Value
Ratio above a specified level will be
covered by a Primary Mortgage Insurance
Policy insuring against default by the
Borrower with respect to all or a
specified portion of the principal
amount thereof until the principal
balance of such Mortgage Loan is reduced
below a specified percentage of the
lesser of the sales price or appraised
value of the Mortgaged Property. See
"The Mortgage Pools."
Non-Agency Certificates
and Agency Certificates If and to the extent specified in the
related Prospectus Supplement, a Trust
Fund may include certificates issued by
the Federal Home Loan Mortgage
Corporation ("FHLMC"), the Federal
National Mortgage Association ("FNMA")
or the Government National Mortgage
Association ("GNMA") (collectively,
"Agency Certificates") or mortgage pass-
through certificates issued by private
entities ("Non-Agency Certificates").
Any Non-Agency Certificates or Agency
Certificates will be described in the
related Prospectus Supplement.
Purchase of Mortgage
Loans On conditions described in the
applicable Prospectus Supplement, the
Servicer or another party specified in
such Prospectus Supplement will be
entitled to purchase from the Trust Fund
for such series all of the remaining
Mortgage Loans and related property at a
price specified in the Prospectus
Supplement. The exercise of such right
will result in the early retirement of
the Certificates of that Series. See
"The Pooling and Servicing Agreement--
Termination; Purchase of Mortgage
Loans."
Certificate Account With respect to each Trust Fund, the
Servicer will be obligated to establish
an account with the related trustee into
which it will deposit on the dates
specified in the related Prospectus
Supplement payments received in respect
of the assets in such Trust Fund. If
specified in the Prospectus Supplement,
such payments will be invested for the
benefit of Certificateholders for the
periods and in the investments specified
in the Prospectus Supplement.
Advances If specified in the Prospectus
Supplement, the Servicer, as Servicer
or master servicer of the Mortgage
Loans, will be obligated to advance
delinquent installments of principal and
interest (the latter adjusted to the applicable
Remittance Rate) on the Mortgage Loans
in a Trust Fund. Any such obligation to
make advances may be limited to amounts
due holders of certain classes of
Certificates of the related series, to
amounts deemed to be recoverable from
late payments or liquidation proceeds,
for specified periods or any
combination thereof, in each case as
specified in the related Prospectus
Supplement. Any such advance will be
recoverable by the Servicer as
specified in the related Prospectus
Supplement.
Credit Support If specified in the Prospectus
Supplement, a series of Certificates, or
certain classes within such series, may
have the benefit of one or more of the
following types of credit support. The
protection against losses afforded by
any such credit support will be limited.
3
<PAGE>
A. Purchase of
Liquidating Loans If so specified in the Prospectus
Supplement, the Servicer will have a
limited obligation to cover losses due
to defaults with respect to the Mortgage
Loans by purchasing any Mortgage Loan (a
"Liquidating Loan") as to which either
(i) liquidation proceedings have been
commenced and any equitable or statutory
right to reinstate such Mortgage Loan
has expired or (ii) the Servicer has
agreed on behalf of the Trustee to
accept a deed in lieu of foreclosure.
To the extent specified in the
Prospectus Supplement, the purchase
price for any Liquidating Loan will be
the Principal Balance thereof plus one
month's interest thereon at the
Remittance Rate.
The Servicer's maximum liability to
purchase Liquidating Loans will be
limited as specified in the Prospectus
Supplement and, unless otherwise
specified in the Prospectus Supplement,
will be reduced by all unreimbursed
payments previously made by the
Servicer with respect to Delinquent
Mortgage Loans (as defined below) and
Liquidating Loans. In the event that at
any time the Servicer's maximum liability
to purchase Liquidating Loans is exhausted
with respect to a Trust Fund and there
is no other credit support for such
series, all further losses on the
Mortgage Loans will be borne by the
holders of one or more classes of the
Certificates of the related series,
unless the amount of the Servicer's
liability is subsequently restored as a
result of recoveries in respect of
Liquidating Loans or Delinquent
Mortgage Loans previously purchased by
the Servicer.
If specified in the Prospectus
Supplement, in connection with its
obligation to purchase Liquidating
Loans, the Servicer will have the
option to purchase any Mortgage Loan as
to which the mortgagor has failed to
make unexcused payment in full of three
or more scheduled payments of principal
and interest (a "Delinquent Mortgage
Loan"). If the Servicer exercises this
option with respect to any Delinquent
Mortgage Loan, unless otherwise
specified in the Prospectus Supplement,
the Servicer will purchase such
Delinquent Mortgage Loan for a price
equal to 100% of its Principal Balance
plus interest thereon at the applicable
Remittance Rate from the date on which
interest was last paid to the first day
of the month in which such purchase
price is to be distributed to the
related Certificateholders, net of any
unreimbursed advances of principal and
interest thereon made by the Servicer.
B. Limited Guarantee If specified in the Prospectus
Supplement, certain obligations of the
Servicer under the related Agreement,
including obligations of the Servicer to
cover certain deficiencies in principal
or interest payments on the Mortgage
Loans resulting from the bankruptcy of
the related borrower, may be covered by
a financial guarantee policy, limited
guarantee or other similar instrument
(the "Limited Guarantee"), limited in
scope and amount, issued by an entity
named in the Prospectus Supplement (the
"Guarantor"). If so specified, the
Guarantor may be obligated to take one
or more of the following actions in the
event the Servicer fails to do so: make
deposits to the Certificate Account (a
"Deposit Guarantee"); make advances (an
"Advance Guarantee"); or purchase
Liquidating Loans (a "Liquidating Loan
Guarantee"). Any such Limited Guarantee
will be limited in amount and a portion
of the coverage of any such Limited
Guarantee may be separately allocated
to certain events. For example, a
portion of the aggregate amount of a
Liquidating Loan Guarantee may be
separately allocated to Liquidating
Loans due to special hazards not
covered by standard hazard insurance
policies, Liquidating Loans due to the
bankruptcy of a mortgagor, and other
Liquidating Loans. The scope, amount
and, if applicable, the allocation of
any Limited Guarantee will be described
in the related Prospectus Supplement.
4
<PAGE>
C. Subordination A series of Certificates may include one
or more classes that are subordinate in
the right to receive distributions on
such Certificates to one or more senior
classes of Certificates of the same
series, to the extent described in the
related Prospectus Supplement. If so
specified in the related Prospectus
Supplement, subordination may apply only
in the event of certain types of losses
not covered by other forms of credit
support, such as hazard losses not
covered by standard hazard insurance
policies or losses resulting from the
bankruptcy of the borrower.
If specified in the Prospectus
Supplement, a reserve fund may be
established and maintained by the
deposit therein of distributions
allocable to the holders of subordinate
Certificates until a specified level is
reached. The related Prospectus
Supplement will set forth information
concerning the amount of subordination
of a class or classes of subordinate
Certificates in a series, the
circumstances in which such
subordination will be applicable, the
manner, if any, in which the amount of
subordination will decrease over time,
the manner of funding the related
reserve fund, if any, and the
conditions under which amounts in any
such reserve fund will be used to make
distributions to holders of senior
Certificates or released from the
related Trust Fund.
D. Cross-Support If specified in the Prospectus
Supplement, the beneficial ownership of
separate groups of assets included in a
Trust Fund may be evidenced by separate
classes of the related series of
Certificates. In such case, and if so
specified, credit support may be
provided by a cross-support feature
which requires that distributions be
made with respect to Certificates
evidencing beneficial ownership of one
or more asset groups prior to
distributions to subordinate
Certificates evidencing a beneficial
ownership interest in other asset groups
within the same Trust Fund. If
specified in the Prospectus Supplement,
the coverage provided by one or more
forms of credit support may apply
concurrently to two or more separate
Trust Funds. If applicable, the
Prospectus Supplement will identify the
Trust Funds to which such credit support
relates and the manner of determining
the amount of the coverage provided
thereby and of the application of such
coverage to the identified Trust Funds.
E. Pool and Special
Hazard Insurance In order to decrease the likelihood that
Certificateholders will experience
losses in respect of the Mortgage Loans,
if specified in the Prospectus
Supplement, the Seller will obtain one
or more insurance policies to cover
(i) losses by reason of defaults by
borrowers (a "Mortgage Pool Insurance
Policy") and (ii) losses by reason of
hazards not covered under the standard
form of hazard insurance (a "Special
Hazard Insurance Policy"), in each case
up to the amounts, for the periods and
subject to the conditions specified in
the Prospectus Supplement. See "Credit
Support--Pool Insurance" and "--Special
Hazard Insurance" herein.
F. Reserve Accounts,
Other Insurance,
Guarantees and Similar
Instruments and
Agreements In order to decrease the likelihood that
Certificateholders will experience
delays in the receipt of scheduled
payments on, and losses in respect of,
the assets in a Trust Fund, if specified
in the related Prospectus Supplement,
such Trust Fund may also include reserve
accounts, other insurance, guarantees
and similar instruments and agreements
entered into with the entities, in the
amounts, for the purposes and subject to
the conditions specified in the
Prospectus Supplement.
5
<PAGE>
Certain Federal
Income Tax
Consequences The federal income tax consequences to
Certificateholders will depend on, among
other factors, whether an election is
made to treat the Trust Fund or
specified portions thereof as a "real
estate mortgage investment conduit"
("REMIC") under the provisions of the
Internal Revenue Code of 1986, as
amended (the "Code"). See "Certain
Federal Income Tax Consequences".
ERISA Considerations A fiduciary of any employee benefit plan
subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), or a plan subject to
Section 4975 of the Code should
carefully review with its own legal
advisors whether the purchase or holding
of Certificates could give rise to a
transaction prohibited or otherwise
impermissible under ERISA or the Code.
See "ERISA Considerations".
Legal Investment Matters Unless otherwise specified in the
Prospectus Supplement, Certificates of
each series offered by this Prospectus
and the related Prospectus Supplement
will constitute "mortgage related
securities" under the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA")
and, as such, will be legal investments
for certain types of institutional
investors to the extent provided in
SMMEA, subject, in any case, to any
other regulations which may govern
investments by such institutional
investors. If so specified in the
Prospectus Supplement, all or certain
classes of the Certificates of the
related series may not constitute
"mortgage related securities" under
SMMEA. See "Legal Investment Matters".
6
<PAGE>
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to
a separate pooling and servicing agreement (each, an "Agreement")
entered into among the Seller, the Servicer and a commercial bank
or trust company named in the Prospectus Supplement, as trustee
(the "Trustee") for the benefit of holders of Certificates of
that Series. The provisions of each Agreement will vary depending
upon the nature of the Certificates to be issued thereunder and
the nature of the related Trust Fund. The Agreement will be
substantially in the form filed as an exhibit to the Registration
Statement of which this Prospectus is a part, or in such similar
form as will reflect the terms of a series of Certificates
described in the Prospectus Supplement. The following summaries
describe certain provisions which may appear in each Agreement.
The Prospectus Supplement for a series of Certificates will
describe any provision of the Agreement relating to such series
that materially differs from the description thereof contained in
this Prospectus. The summaries do not purport to be complete and
are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Agreement for each series of
Certificates and the applicable Prospectus Supplement. The Seller
will provide Certificateholders, without charge, on written
request a copy of the Agreement for any series. Requests should
be addressed to HomeSide Mortgage Securities, Inc., 7901
Baymeadows Way, Jacksonville, Florida 32216, Attention: General
Counsel. The Agreement relating to a series of Certificates will
be filed with the Securities and Exchange Commission in a report
on Form 8-K within 15 days after the date of issuance of such
series of Certificates (the "Delivery Date").
The Certificates of a series will be entitled to
payment only from the assets included in the Trust Fund related
to such series and will not be entitled to payments in respect of
the assets included in any other trust fund established by the
Seller. The Certificates will not represent obligations of the
Seller, the Servicer or any of their affiliates and will not be
insured or guaranteed by any governmental agency or any other
person. Unless otherwise specified in the Prospectus Supplement,
the Seller's only obligations with respect to the Certificates
will consist of its obligations pursuant to certain
representations and warranties made by it. Unless otherwise
specified in the Prospectus Supplement, the Servicer's only
obligations with respect to the Certificates will consist of its
contractual servicing and/or master servicing obligations,
including any obligation to make advances under certain limited
circumstances specified herein of delinquent installments of
principal and interest (adjusted to the applicable Remittance
Rate), and its obligations pursuant to certain representations
and warranties made by it.
The Mortgage Loans will not be insured or guaranteed
by any governmental entity or, except as specified in the
Prospectus Supplement, by any other person. To the extent that
delinquent payments on or losses in respect of defaulted Mortgage
Loans are not advanced by the Servicer or any other entity or
paid from any applicable credit support arrangement, such
delinquencies may result in delays in the distribution of
payments to the holders of one or more classes of Certificates,
and such losses will be borne by the holders of one or more
classes of Certificates.
General
The Certificates of each series will be issued in
fully-registered form only. The minimum original Certificate
Principal Balance or Notional Principal Balance that may be
represented by a Certificate (the "denomination") will be
specified in the Prospectus Supplement. The original Certificate
Principal Balance of each Certificate will equal the aggregate
distributions allocable to principal to which such Certificate is
entitled. Distributions allocable to interest on each Certificate
that is not entitled to distributions allocable to principal will
be calculated based on the Notional Principal Balance of such
Certificate. The Notional Principal Balance of a Certificate will
not evidence an interest in or entitlement to distributions
allocable to principal but will be used solely for convenience in
expressing the calculation of interest and for certain other
purposes.
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The Certificates of a series will be transferable and
exchangeable on a Certificate Register to be maintained at the
corporate trust office of the Trustee for the related series or
such other office or agency maintained for such purposes by the
Trustee in New York City. Unless otherwise specified in the
Prospectus Supplement, under each Agreement, the Trustee will
initially be appointed as the Certificate Registrar. Unless
otherwise specified in the Prospectus Supplement, no service
charge will be made for any registration of transfer or exchange
of Certificates, but payment of a sum sufficient to cover any tax
or other governmental charge may be required.
Classes of Certificates
Each series of Certificates will be issued in a single
class or in two or more classes. The Certificates of each class
will evidence the beneficial ownership of (i) any distributions
in respect of the assets of the Trust Fund that are allocable to
principal, in the aggregate amount of the original Certificate
Principal Balance, if any, of such class of Certificates as
specified in the Prospectus Supplement and (ii) any distributions
in respect of the assets of the Trust Fund that are allocable to
interest on the Certificate Principal Balance or Notional
Principal Balance of such Certificates from time to time at the
Certificate Interest Rate, if any, applicable to such class of
Certificates as specified in the Prospectus Supplement. If
specified in the Prospectus Supplement, one or more classes of a
series of Certificates may evidence beneficial ownership
interests in separate groups of assets included in the related
Trust Fund.
If specified in the Prospectus Supplement, the
Certificates will have an aggregate original Certificate
Principal Balance equal to the aggregate unpaid principal balance
of the Mortgage Loans as of the close of business on the first
day of the month of creation of the Trust Fund (the "Cut-Off
Date") after deducting payments of principal due on or before,
and prepayments of principal received on or before, the Cut-Off
Date and in the aggregate will bear interest equal to the
weighted average of the Remittance Rates. The Remittance Rate
will equal the rate of interest payable on each Mortgage Loan
minus the Servicer's servicing fee as described herein, the
servicing fee of any third party servicer of the Mortgage Loans
and such other amounts (including fees payable to the Servicer as
master servicer, if applicable) as are specified in the
Prospectus Supplement. The Certificates may have an original
Certificate Principal Balance as determined in the manner
specified in the Prospectus Supplement.
Each class of Certificates that is entitled to
distributions allocable to interest will bear interest at a fixed
rate or a rate that is subject to change from time to time (a) in
accordance with a schedule, (b) in reference to an index, or (c)
otherwise (each, a "Certificate Interest Rate"), in each case as
specified in the Prospectus Supplement. One or more classes of
Certificates may provide for interest that accrues, but is not
currently payable ("Accrual Certificates"). With respect to any
class of Accrual Certificates, if specified in the Prospectus
Supplement, any interest that has accrued but is not paid on a
given Distribution Date (as defined below under "Distributions of
Principal and Interest") will be added to the aggregate
Certificate Principal Balance of such class of Certificates on
that Distribution Date.
A series of Certificates may include one or more
classes entitled only to distributions (i) allocable to interest,
(ii) allocable to principal (and allocable as between scheduled
payments of principal and Principal Prepayments, as defined
below) or (iii) allocable to both principal (and allocable as
between scheduled payments of principal and Principal
Prepayments) and interest. A series of Certificates may consist
of one or more classes as to which distributions will be
allocated (i) on the basis of collections from designated
portions of the assets of the Trust Fund, (ii) in accordance with
a schedule or formula, (iii) in relation to the occurrence of
events, or (iv) otherwise, in each case as specified in the
Prospectus Supplement. The timing and amounts of such
distributions may vary among classes, over time or otherwise, in
each case as specified in the Prospectus Supplement.
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The taking of action with respect to certain
matters under the Agreement, including certain amendments
thereto, will require the consent of the holders of
the Certificates. The voting rights allocated to each class of
Certificates will be specified in the Prospectus Supplement.
Votes may be allocated in different proportions among classes of
Certificates depending on whether the Certificates of a class
have a Notional Principal Balance or a Certificate Principal
Balance.
Distributions of Principal and Interest
General.
Distributions of principal and interest at the
applicable Certificate Interest Rate (if any) on the Certificates
will be made by the Trustee to the extent of funds available from
the related Trust Fund on the 25th day (or if such 25th day is
not a business day, on the business day next following such 25th
day) of each calendar month (each, a "Distribution Date"),
commencing in the month following the issuance of the related
series, or on such other date as is specified in the Prospectus
Supplement. Distributions will be made to the persons in whose
names the Certificates are registered at the close of business on
the dates specified in the Prospectus Supplement (each, a "Record
Date"). Distributions will be made by check or money order mailed
to the person entitled thereto at the address appearing in the
Certificate Register or, if specified in the Prospectus
Supplement, in the case of Certificates that are of a certain
minimum denomination as specified in the Prospectus Supplement,
upon written request by the Certificateholder, by wire transfer
or by such other means as are agreed upon with the person
entitled thereto; provided, however, that the final distribution
in retirement of the Certificates will be made only upon
presentation and surrender of the Certificates at the office or
agency of the Trustee specified in the notice to
Certificateholders of such final distribution.
Distributions allocable to principal and interest on
the Certificates will be made by the Trustee out of, and only to
the extent of, funds in a separate account established and
maintained under the Agreement for the benefit of holders of the
Certificates of the related series (the "Certificate Account"),
including any funds transferred from any Reserve Account. As
between Certificates of different classes and as between
distributions of principal (and, if applicable, between
distributions of Principal Prepayments and scheduled payments of
principal) and interest, distributions made on any Distribution
Date will be applied as specified in the Prospectus Supplement.
Distributions to any class of Certificates will be made pro rata
to all Certificateholders of that class or by the other method
described in the Prospectus Supplement. If so specified in the
Prospectus Supplement, the amounts received by the Trustee as
described below under "The Pooling and Servicing
Agreement--Payments on Mortgage Loans; Certificate Account" will
be invested in the eligible investments specified herein and in
the Prospectus Supplement and all income or other gain from such
investments will be deposited in the Certificate Account and will
be available to make payments on the Certificates on the next
succeeding Distribution Date in the manner specified in the
Prospectus Supplement.
Distributions of Interest. Interest will accrue on the
aggregate Certificate Principal Balance (or, in the case of
Certificates entitled only to distributions allocable to
interest, the aggregate Notional Principal Balance) of each class
of Certificates entitled to interest from the date, at the
Certificate Interest Rate and for the periods (each, an "Interest
Accrual Period") specified in the Prospectus Supplement. To the
extent funds are available therefor, interest accrued during each
Interest Accrual Period on each class of Certificates entitled to
interest (other than a class of Accrual Certificates) will be
distributable on the Distribution Dates specified in the
Prospectus Supplement until the aggregate Certificate Principal
Balance of the Certificates of such class has been distributed in
full or, in the case of Certificates entitled only to
distributions allocable to interest, until the aggregate Notional
Principal Balance of such Certificates is reduced to zero or for
the period of time designated in the Prospectus Supplement.
Distributions of interest on each class of Accrual Certificates
will commence only after the occurrence of the events specified
in the Prospectus Supplement. Prior to such time, the
beneficial ownership interest of such class of Accrual
Certificates in the Trust Fund, as reflected in the
aggregate Certificate Principal Balance of such class of
Accrual Certificates, will increase on each Distribution Date by
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the amount of interest that accrued on such class of Accrual
Certificates during the preceding Interest Accrual Period but
that was not required to be distributed to such class on such
Distribution Date. Any such class of Accrual Certificates will
thereafter accrue interest on its outstanding Certificate
Principal Balance as so adjusted.
Distributions of Principal. Unless otherwise specified
in the Prospectus Supplement, the aggregate Certificate Principal
Balance of any class of Certificates entitled to distributions of
principal will be the aggregate original Certificate Principal
Balance of such class of Certificates specified in the Prospectus
Supplement, reduced by all distributions reported to the holders
of such Certificates as allocable to principal, and, in the case
of Accrual Certificates, as specified in the Prospectus
Supplement, increased on each Distribution Date by all interest
accrued but not then distributable on such Accrual Certificates.
The Prospectus Supplement will specify the method by which the
amount of principal to be distributed on the Certificates on each
Distribution Date will be calculated and the manner in which such
amount will be allocated among the classes of Certificates
entitled to distributions of principal.
If so specified in the Prospectus Supplement, one or
more classes of senior Certificates will be entitled to receive
all or a disproportionate percentage of the payments or other
recoveries of principal on a Mortgage Loan which are received in
advance of their scheduled due dates and not accompanied by
amounts of interest representing scheduled interest due after the
month of such payments ("Principal Prepayments") in the
percentages and under the circumstances or for the periods
specified in the Prospectus Supplement. Any such allocation of
Principal Prepayments to such class or classes of
Certificateholders will have the effect of accelerating the
amortization of such Certificates while increasing the interests
evidenced by the remaining Certificates in the Trust Fund.
Unscheduled Distributions. If specified in the
Prospectus Supplement, the Certificates will be subject to
receipt of distributions before the next scheduled Distribution
Date under the circumstances and in the manner described below
and in the Prospectus Supplement. If applicable, the Trustee will
be required to make such unscheduled distributions on the day and
in the amount specified in the Prospectus Supplement if, due to
substantial payments of principal (including Principal
Prepayments) on the Mortgage Loans, low rates then available for
reinvestment of such payments or both, the Trustee determines,
based on the assumptions specified in the Agreement, that the
amount anticipated to be on deposit in the Certificate Account on
the next Distribution Date, together with, if applicable, any
amounts available to be withdrawn from any Reserve Account, may
be insufficient to make required distributions on the
Certificates on such Distribution Date. To the extent specified
in the Prospectus Supplement, the amount of any such unscheduled
distribution that is allocable to principal will not exceed the
amount that would otherwise have been required to be distributed
as principal on the Certificates on the next Distribution Date.
To the extent specified in the Prospectus Supplement, all
unscheduled distributions will include interest at the applicable
Certificate Interest Rate (if any) on the amount of the
unscheduled distribution allocable to principal for the period
and to the date specified in the Prospectus Supplement.
Unless otherwise specified in the Prospectus
Supplement, all distributions allocable to principal in any
unscheduled distribution will be made in the same priority and
manner as distributions of principal on the Certificates would
have been made on the next Distribution Date, and with respect to
Certificates of the same class, unscheduled distributions of
principal will be made on a pro rata basis. Notice of any
unscheduled distribution will be given by the Trustee prior to
the date of such distribution.
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THE MORTGAGE POOLS
Each mortgage pool (a "Mortgage Pool") will consist of
one- to four-family residential mortgage loans evidenced by
promissory notes (each, a "Note") secured by first mortgages or
first deeds of trust or other similar security instrument (each,
a "Mortgage") creating a first lien on properties (the "Mortgaged
Properties"). When each series of Certificates is issued, the
Seller will cause the Mortgage Loans comprising each Mortgage
Pool to be assigned to the Trustee for the benefit of the holders
of the Certificates of that series, and will receive the
Certificates in exchange therefor. Certain Certificates
evidencing interests in a Trust Fund may not form part of the
offering made pursuant to this Prospectus or the related
Prospectus Supplement.
The Mortgaged Properties in each Mortgage Pool may
consist of single-unit dwellings, two-, three- and four-unit
detached, townhouse or rowhouse dwellings, condominium and
planned-unit development ("PUD") units and such other types of
homes or units as are described in the applicable Prospectus
Supplement, and may include vacation and second homes and
investment properties. The applicable Prospectus Supplement will
contain information concerning the originators of the Mortgage
Loans and the underwriting standards employed by such
originators.
Unless otherwise specified in the applicable
Prospectus Supplement, all Mortgage Loans will (i) have
individual principal balances at origination of not more than
$1,000,000, (ii) have monthly payments due on the first of each
month, (iii) be secured by Mortgaged Properties located in one of
the states of the United States or the District of Columbia, and
(iv) be of one or more of the following types of Mortgage Loans:
(1) Fully-amortizing Mortgage Loans, each with a 20-
to 30-year ("30-Year") term at origination, interest (the
"Mortgage Interest Rate") at a fixed rate and level monthly
payments over the term of the Mortgage Loan.
(2) Fully-amortizing Mortgage Loans, each with a 10-
to 15-year ("15-Year") term at origination, a fixed Mortgage
Interest Rate and level monthly payments over the term of the
Mortgage Loan.
(3) Mortgage Loans, each with an adjustable Mortgage
Interest Rate, which may include loans providing for negative
amortization.
Mortgage Loans with certain Loan-to-Value Ratios
and/or certain principal balances may be covered wholly or
partially by primary mortgage guaranty insurance policies (each,
a "Primary Mortgage Insurance Policy"). The existence, extent and
duration of any such coverage will be described in the applicable
Prospectus Supplement. The "Loan-to-Value Ratio" is the ratio,
expressed as a percentage, of the principal amount of the
Mortgage Loan to the lesser of (i) the sales price for such
property at the time the Mortgage Loan is closed and (ii) the
appraised value at origination or, in the case of refinancings,
the value set forth in the appraisal, if any, obtained by the
loan originator in connection with such refinancing. Unless
otherwise specified in the applicable Prospectus Supplement, each
Mortgage Loan will also be covered by a Standard Hazard Insurance
Policy, as described under "Servicing of the Mortgage
Loans--Hazard Insurance" below.
In addition, other credit enhancements acceptable to
the rating agency (or agencies) rating the Certificates may be
provided for coverage of certain risks of default or losses. See
"Credit Support" herein.
If specified in the applicable Prospectus Supplement,
a Mortgage Pool may contain Mortgage Loans subject to buy-down
plans ("Buy-Down Mortgage Loans") pursuant to which the monthly
payments made by the Borrower will be less than the scheduled
monthly payments on the Buy-Down Mortgage Loan, the resulting
difference to be drawn from an amount contributed by the seller
of the Mortgaged Property or another source at the time of
origination of the Buy-Down Mortgage Loan and placed in a trust
or custodial account (the "Buy-Down Fund") (such amount hereinafter
referred to as the "Buy-Down Reserve"). The applicable
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Prospectus Supplement or Current Report (as defined below) will
contain information, with respect to any Buy-Down Mortgage Loans,
concerning limitations on the interest rate payable by the
Borrower initially, on annual increases in the interest rate, on
the length of the buy-down period, and on the Buy-Down Fund. The
repayment of a temporary Buy-Down Mortgage Loan is dependent on
the ability of the Borrower to make larger monthly payments after
the Buy-Down Reserves have been depleted and, for certain
Buy-Down Mortgage Loans, while such funds are being depleted. The
inability of the Borrower to make larger monthly payments may
lead to a default on the Buy-Down Mortgage Loan or, if the
Borrower is able to obtain refinancing on favorable terms, a
prepayment of such loan. See "Yield, Maturity and Weighted
Average Life Considerations."
The Prospectus Supplement for a series of Certificates
may specify that the related Mortgage Pool contains Mortgage
Loans that have been used for refinancing for the purpose of
removing equity from the related Mortgaged Properties ("Cash-Out
Refinance Loans").
The Prospectus Supplement for each series of
Certificates will specify the approximate aggregate principal
balance of the Mortgage Loans (within the percentage or dollar
range specified therein). The Prospectus Supplement for each
series of Certificates will contain information regarding the
Mortgage Loans which are expected to be included in the related
Mortgage Pool, including among other things, information, as of
the applicable Cut-Off Date and to the extent then specifically
known to the Seller, as to (i) the aggregate principal balance of
the Mortgage Loans, (ii) the aggregate principal balance or
percentage by aggregate principal balance of Mortgage Loans
secured by each type of property, (iii) the original terms to
maturity of the Mortgage Loans, (iv) the smallest and largest in
principal balance at origination of the Mortgage Loans, (v) the
earliest origination date and latest maturity date of the
Mortgage Loans, (vi) the aggregate principal balance or
percentage by aggregate principal balance of Mortgage Loans
having Loan-to-Value Ratios at origination exceeding 80%, (vii)
the Mortgage Interest Rate or range of Mortgage Interest Rates
borne by the Mortgage Loans and (viii) the average outstanding
principal balance of the Mortgage Loans. If specific information
with respect to the Mortgage Loans is not known at the time the
related series of Certificates is initially offered, more general
information of the nature described above will be provided in the
Prospectus Supplement, and specific information will be set forth
in a report on Form 8-K to be filed with the Securities and
Exchange Commission within fifteen days after the initial
issuance of such Certificates (the "Current Report"). A copy of
the Agreement with respect to a series of Certificates will be
attached to the related Current Report and will be available for
inspection at the corporate trust office of the Trustee specified
in the related Prospectus Supplement.
The Seller's assignment of the Mortgage Loans to the
Trustee will be without recourse. Unless otherwise specified in
the applicable Prospectus Supplement, the Seller or another party
identified in such Prospectus Supplement will make certain
representations concerning the Mortgage Loans, including that no
Mortgage Loan in a Mortgage Pool evidenced by Certificates will
be more than one month delinquent as of the date of the initial
issuance of the Certificates. For a description of other
representations that will be made by the party specified in the
applicable Prospectus Supplement concerning the Mortgage Loans,
see "The Pooling and Servicing Agreement--Assignment of Mortgage
Loans; Warranties." The Seller's obligations with respect to the
Mortgage Loans will be limited to any representations and
warranties made by it in, as well as its contractual obligations
under, the Agreement for each series of Certificates. Unless
otherwise specified in the applicable Prospectus Supplement,
these obligations consist primarily of the obligation under
certain circumstances to repurchase or replace Mortgage Loans as
to which there has been a material breach of the Seller's
representations and warranties which materially and adversely
affects the interests of the Certificateholders in a Mortgage
Loan or to cure such breach, and of the obligation, under certain
circumstances, to ensure the timely payment of premiums on
certain insurance policies and bonds. See "The Pooling and
Servicing Agreement--Assignment of Mortgage Loans; Warranties."
In addition, to the extent specified in the
applicable Prospectus Supplement, in the event of
delinquencies in payments of principal and interest on
the Mortgage Loans in any Mortgage Pool, the Servicer
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(or, if so indicated in the applicable Prospectus Supplement,
another entity) will advance cash in amounts described herein
under "The Pooling and Servicing Agreement-Advances" and
"--Payments on Mortgage Loans; Certificate Account." The
Servicer is not required to make any advance which it
determines in its good faith judgment not to be ultimately
recoverable under any applicable policy of insurance
("Insurance Proceeds") or out of the proceeds of
liquidation of a Mortgage Loan ("Liquidation Proceeds"). Each
month, the Trustee (or such other paying agent as may be
specified in the applicable Prospectus Supplement) will be
obligated to remit to Certificateholders of each series all
amounts relating to the Mortgage Loans due to the
Certificateholders to the extent such amounts have been collected
or advanced by the Servicer or such other entity and remitted to
the Trustee pursuant to the terms of the Agreement for such
series. See "Description of the Certificates--Distributions of
Principal and Interest."
There can be no assurance that real estate values will
remain at present levels in the areas in which the Mortgaged
Properties will be located. If the residential real estate market
should experience an overall decline in property values such that
the outstanding balances of the Mortgage Loans, and any secondary
financing on the Mortgaged Properties, in a particular Mortgage
Pool become equal to or greater than the value of the properties
subject to the Mortgage Loans included in such Mortgage Pool, the
actual rates of delinquencies, foreclosures and losses could be
significantly higher than those now generally experienced in the
mortgage lending industry. To the extent that such delinquencies,
foreclosures and losses are not covered by applicable credit
enhancements described in the Prospectus Supplement, the losses
resulting therefrom will be borne by holders of the Certificates
of the series evidencing interests in such Mortgage Pool. With
respect to any series as to which subordinated Certificates shall
have been issued, such losses will first be borne by the holders
of subordinated Certificates as a result and to the extent of the
subordination in right of payment of the subordinated
Certificates to the senior Certificates and as a result of first
allocating such losses to reduce the Certificate Principal
Balance of such subordinated Certificates.
Because the principal amounts of Mortgage Loans
decline monthly as principal payments, including prepayments, are
received, the fractional undivided interest in principal
evidenced by each Certificate in a series multiplied by the
aggregate principal balance of the Mortgage Loans in the related
Mortgage Pool will decline correspondingly. The principal balance
represented by a Certificate, therefore, ordinarily will decline
over time.
CREDIT SUPPORT
General
Credit support may be provided with respect to one or
more classes of a series of Certificates or with respect to the
assets in the related Trust Fund. Credit support may be in the
form of the limited obligation of the Servicer to purchase
Liquidating Loans, a limited financial guarantee policy, limited
guarantee or other similar instrument (a "Limited Guarantee")
issued by an entity named in the Prospectus Supplement (the
"Guarantor"), the subordination of one or more classes of the
Certificates of such series, the establishment of one or more
reserve accounts, the use of a pool insurance policy, bankruptcy
bond, special hazard insurance policy, repurchase bond,
guaranteed investment contract or another method of credit
support described in the related Prospectus Supplement, or any
combination of the foregoing. Unless otherwise specified in the
Prospectus Supplement, any credit support will not provide
protection against all risks of loss and will not guarantee
repayment of the entire principal balance of the Certificates and
interest thereon. If losses occur which exceed the amount covered
by credit support or which are not covered by the credit support,
Certificateholders will bear their allocable share of the
resulting deficiencies.
If the Prospectus Supplement for a series
provides that an institution other than the Servicer will
act as sole servicer or master servicer of the related
Mortgage Loans, or that the Servicer will act as master
servicer of such Mortgage Loans under an arrangement
whereby other servicers will be directly obligated to
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perform certain servicing duties, if so specified in such
Prospectus Supplement, certain of the credit support arrangements
described below may be provided by such other master servicer or
servicers in lieu of the Servicer.
In such event, all references to the Servicer as servicer under
the description of such credit support set forth below should be
read to refer to such other master servicer or servicers, as the
case may be.
Purchase of Liquidating Loans
The Servicer may be obligated, if and to the extent
described in the Prospectus Supplement, to purchase any Mortgage
Loan (a "Liquidating Loan") as to which either (i) liquidation
proceedings have been commenced and any equitable or statutory
right to reinstate such Mortgage Loan has expired or (ii) the
Servicer has agreed on behalf of the Trustee to accept a deed in
lieu of foreclosure, in each case for a price equal to 100% of
the Principal Balance of such Mortgage Loan plus, to the extent
specified in the Prospectus Supplement, one month's interest
thereon at the applicable Remittance Rate. Any such obligation of
the Servicer may be limited as specified in the Prospectus
Supplement. In particular, the aggregate losses from the purchase
of Liquidating Loans that the Servicer is obligated to bear
(measured as the difference between the aggregate payments made
by the Servicer into the Certificate Account in respect of
Liquidating Loans and the aggregate net proceeds received by the
Servicer from the disposition of such Loans) may be limited to an
amount specified in the Prospectus Supplement. After this amount
is exhausted, no further Liquidating Loans will be purchased by
the Servicer, unless such amount has been restored as described
below.
If so specified in the Prospectus Supplement, the
Servicer will have the option (but not the obligation) to
purchase any Mortgage Loan as to which the mortgagor has failed
to make unexcused payment in full of three or more scheduled
payments of principal and interest (a "Delinquent Mortgage
Loan"). To the extent specified in the Prospectus Supplement, any
such purchase will be for a price equal to 100% of the Principal
Balance of such Mortgage Loan plus interest thereon at the
applicable Remittance Rate from the date on which interest was
last paid to the first day of the month in which such purchase
price is to be distributed to the related Certificateholders, net
of any unreimbursed advances of principal and interest thereon
made by the Servicer as servicer. The purchase price for any
Delinquent Mortgage Loan will be deposited in the applicable
Certificate Account.
The purchase by the Servicer of a Delinquent Mortgage
Loan may result in the diminution of the amount of the Servicer's
obligations, as servicer, to purchase Liquidating Loans with
respect to the related series of Certificates, to the extent that
net recoveries upon the liquidation of such Delinquent Mortgage
Loan are, or are estimated by the Servicer on the date of such
purchase to be, less than the sum of the purchase price for such
Delinquent Mortgage Loan and any previous unreimbursed advances
of delinquent installments of principal and interest (adjusted to
the related Remittance Rate) made by the Servicer with respect
thereto. To the extent that actual recoveries, net of related
expenses, upon the final liquidation of such Delinquent Mortgage
Loan differ from the estimated amount thereof, the amount of the
Servicer's remaining obligation to purchase Liquidating Loans
will be adjusted up or down accordingly. If a Delinquent Mortgage
Loan becomes current after its purchase by the Servicer, any
related decrease in the amount of the Servicer's obligation to
purchase Liquidating Loans will be reversed in its entirety.
Liquidation proceeds in connection with the liquidation of any
Mortgaged Property may not be deemed for this purpose to include
the entire principal balance of any mortgage loan made by the
Servicer to facilitate such sale at a rate less than then
prevailing market rates. In estimating the net amount of proceeds
recoverable upon the liquidation of any Delinquent Mortgage Loan,
the Servicer may treat as related liquidation expenses certain
costs associated with the protection of the Mortgaged Property,
property sales expenses and foreclosure or other similar costs.
Following the purchase by the Servicer of any
Liquidating Loan or Delinquent Mortgage Loan as described above,
and the payment by the Servicer of the purchase price therefor,
the Servicer will be entitled to receive an assignment by the
Trustee of such Mortgage Loan, and the Servicer will thereafter
own such Mortgage Loan free of any further obligation to the
Trustee or the Certificateholders with respect thereto.
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Limited Guarantee of the Guarantor
If specified in the Prospectus Supplement, certain
obligations of the Servicer under the related Agreement may be
covered by a Limited Guarantee, limited in scope and amount,
issued by the Guarantor. If so specified, the Guarantor may be
obligated to take one or more of the following actions in the
event the Servicer fails to do so: make deposits to the
Certificate Account (a "Deposit Guarantee"); make advances (an
"Advance Guarantee"); or purchase Liquidating Loans (a
"Liquidating Loan Guarantee"). Any such Limited Guarantee will be
limited in amount and a portion of the coverage of any such
Limited Guarantee may be separately allocated to certain events.
For example, a portion of the aggregate amount of a Liquidating
Loan Guarantee may be separately allocated to Liquidating Loans
due to special hazards not covered by standard hazard insurance
policies, Liquidating Loans due to the bankruptcy of a mortgagor,
and other Liquidating Loans. The scope, amount and, if
applicable, the allocation of any Limited Guarantee will be
described in the related Prospectus Supplement.
Subordination
If so specified in the Prospectus Supplement,
distributions in respect of scheduled principal, Principal
Prepayments, interest or any combination thereof that otherwise
would have been payable to one or more classes of Certificates of
a series (the "subordinated Certificates") will instead be
payable to holders of one or more other classes of such series
(the "senior Certificates") under the circumstances and to the
extent specified in the Prospectus Supplement. If specified in
the Prospectus Supplement, delays in receipt of scheduled
payments on the Mortgage Loans and losses on defaulted Mortgage
Loans will be borne first by the various classes of subordinated
Certificates and thereafter by the various classes of senior
Certificates, in each case under the circumstances and subject to
the limitations specified in the Prospectus Supplement. The
aggregate distributions in respect of delinquent payments on the
Mortgage Loans over the lives of the Certificates or at any time,
the aggregate losses in respect of defaulted Mortgage Loans which
must be borne by the subordinated Certificates by virtue of
subordination and the amount of the distributions otherwise
distributable to the subordinated Certificateholders that will be
distributable to senior Certificateholders on any Distribution
Date may be limited as specified in the Prospectus Supplement. If
aggregate distributions in respect of delinquent payments on the
Mortgage Loans or aggregate losses in respect of such Mortgage
Loans were to exceed the total amounts payable and available for
distribution to holders of subordinated Certificates or, if
applicable, were to exceed the specified maximum amount, holders
of senior Certificates could experience losses on the
Certificates.
In addition to or in lieu of the foregoing, if so
specified in the Prospectus Supplement, all or any portion of
distributions otherwise payable to holders of subordinated
Certificates on any Distribution Date may instead be deposited
into one or more reserve accounts (a "Reserve Account")
established by the Trustee. If so specified in the Prospectus
Supplement, such deposits may be made on each Distribution Date,
on each Distribution Date for specified periods or until the
balance in the Reserve Account has reached a specified amount
and, following payments from the Reserve Account to holders of
senior Certificates or otherwise, thereafter to the extent
necessary to restore the balance in the Reserve Account to
required levels, in each case as specified in the Prospectus
Supplement. If so specified in the Prospectus Supplement, amounts
on deposit in the Reserve Account may be released to the Servicer
or the holders of any class of Certificates at the times and
under the circumstances specified in the Prospectus Supplement.
If specified in the Prospectus Supplement, one or more
classes of Certificates may bear the risk of certain losses on
defaulted Mortgage Loans not covered by other forms of credit
support prior to other classes of Certificates. Such
subordination might be effected by reducing the Certificate
Principal Balance of the subordinated Certificates on account of
such losses, thereby decreasing the proportionate share of
distributions allocable to such Certificates, or by another means
specified in the Prospectus Supplement.
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If specified in the Prospectus Supplement, various
classes of senior Certificates and subordinated Certificates
may themselves be subordinate in their right to receive certain
distributions to other classes of senior and subordinated
Certificates, respectively, through a cross-support mechanism
or otherwise.
As between classes of senior Certificates and as
between classes of subordinated Certificates, distributions may
be allocated among such classes (i) in the order of their
scheduled final distribution dates, (ii) in accordance with a
schedule or formula, (iii) in relation to the occurrence of
events, or (iv) otherwise, in each case as specified in the
Prospectus Supplement. As between classes of subordinated
Certificates, payments to holders of senior Certificates on
account of delinquencies or losses and payments to any Reserve
Account will be allocated as specified in the Prospectus
Supplement.
Cross-Support
If specified in the Prospectus Supplement, the
beneficial ownership of separate groups of assets included in a
Trust Fund may be evidenced by separate classes of the related
series of Certificates. In such case, credit support may be
provided by a cross-support feature which may require that
distributions be made with respect to Certificates evidencing
beneficial ownership of one or more asset groups prior to
distributions to subordinated Certificates evidencing a
beneficial ownership interest in other asset groups within the
same Trust Fund. The Prospectus Supplement for a series which
includes a cross-support feature will describe the manner and
conditions for applying such cross-support feature.
If specified in the Prospectus Supplement, the
coverage provided by one or more forms of credit support may
apply concurrently to two or more separate Trust Funds. If
applicable, the Prospectus Supplement will identify the Trust
Funds to which such credit support relates and the manner of
determining the amount of the coverage provided thereby and of
the application of such coverage to the identified Trust Funds.
Pool Insurance
In order to decrease the likelihood that
Certificateholders will experience losses in respect of the
Mortgage Loans, if specified in the Prospectus Supplement, the
Seller will obtain one or more pool insurance policies. Any such
policies may be in lieu of or in addition to any obligations of
the Seller or the Servicer in respect of the Mortgage Loans. Such
pool insurance policy will, subject to the limitations described
below and in the Prospectus Supplement, cover loss by reason of
default in payments on the Mortgage Loans up to the amounts
specified in the Prospectus Supplement or the Detailed
Description and for the periods specified in the
Prospectus Supplement. The Servicer will agree to use its best
reasonable efforts to maintain in effect any such pool insurance
policy and to present claims thereunder to the pool insurer on
behalf of itself, the Trustee and the Certificateholders. The
pool insurance policy, however, is not a blanket policy against
loss, since claims thereunder may only be made respecting
particular defaulted Mortgage Loans and only upon satisfaction of
certain conditions precedent described below. The pool insurance
policy, if any, will not cover losses due to a failure to pay or
denial of a claim under a primary mortgage insurance policy,
irrespective of the reason therefor.
The related Prospectus Supplement will describe any provisions
of a pool insurance policy that are materially different from
those described below.
Any pool insurance policy may provide that no claims
may be validly presented thereunder unless (i) any required
primary mortgage insurance policy is in effect for the defaulted
Mortgage Loan and a claim thereunder has been submitted and
settled; (ii) hazard insurance on the related Mortgaged Property
has been kept in force and real estate taxes and other protection
and preservation expenses have been paid; (iii) if there has been
physical loss or damage to the Mortgaged Property, it has been
restored to its condition (reasonable wear and tear excepted) at
the Cut-Off Date; (iv) the insured has acquired good and
merchantable title to the Mortgaged Property free and clear of
liens, except certain permitted encumbrances; and (v) the
Servicer has advanced foreclosure costs. Upon satisfaction
of these conditions, the pool insurer will have the
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option either (a) to purchase the Mortgaged Property at a price
equal to the Principal Balance thereof plus accrued and unpaid
interest at the Mortgage Rate to the date of purchase and certain
expenses incurred by the Servicer on behalf of the Trustee and
the Certificateholders, or (b) to pay the amount by which the sum
of the Principal Balance of the defaulted Mortgage Loan plus
accrued and unpaid interest at the Mortgage Rate to the date of
payment of the claim and the aforementioned expenses exceeds the
proceeds received from an approved sale of the Mortgaged
Property, in either case net of certain amounts paid or assumed
to have been paid under any related primary mortgage insurance
policy. If any property securing a defaulted Mortgage Loan is
damaged and proceeds, if any, from the related hazard insurance
policy or any applicable special hazard insurance policy are
insufficient to restore the damaged property to a condition
sufficient to permit recovery under the pool insurance policy,
the Servicer will not be required to expend its own funds to
restore the damaged property unless it determines (i) that such
restoration will increase the proceeds to Certificateholders on
liquidation of the Mortgage Loan after reimbursement of the
Servicer for its expenses, and (ii) that such expenses will be
recoverable by it through proceeds of the sale of the property or
proceeds of the pool insurance policy or any primary mortgage
insurance policy.
In general, no pool insurance policy will insure (and
many primary mortgage insurance policies may not insure) against
loss sustained by reason of a default arising from, among other
things, (i) fraud or negligence in the origination or servicing
of a Mortgage Loan, including misrepresentation by the Mortgagor
or persons involved in the origination thereof, or (ii) failure
to construct a Mortgaged Property in accordance with plans and
specifications. If so specified in the related Prospectus
Supplement, a failure of coverage attributable to one of the
foregoing events might result in a breach of a representation of
the Seller (or another party) and in such event might give rise
to an obligation on the part of the Seller (or such other party)
to purchase or replace the defaulted Mortgage Loan if the breach
materially and adversely affects the interests of
Certificateholders and cannot be cured.
As specified in the Prospectus Supplement, the
original amount of coverage under any pool insurance policy will
be reduced over the life of the related series of Certificates by
the aggregate dollar amount of claims paid less the aggregate of
the net amounts realized by the pool insurer upon disposition of
all foreclosed properties. The amount of claims paid will include
certain expenses incurred by the Servicer as well as accrued
interest on delinquent Mortgage Loans to the date of payment of
the claim. See "Certain Legal Aspects of the Mortgage Loans --
Foreclosure". Accordingly, if aggregate net claims paid under any
pool insurance policy reach the original policy limit, coverage
under that pool insurance policy will be exhausted and any
further losses will be borne by one or more classes of
Certificateholders unless assumed by the Servicer or the
Guarantor under any obligations they may have in respect of
Liquidating Loans or by some other entity, if and to the extent
specified in the Prospectus Supplement.
Since any mortgage pool insurance policy may require
that the property subject to a defaulted Mortgage Loan be
restored to its original condition prior to claiming against the
pool insurer, such policy may not provide coverage against hazard
losses. The hazard policies concerning the Mortgage Loans
typically exclude from coverage physical damage resulting from a
number of causes and, even when the damage is covered, may afford
recoveries which are significantly less than the full replacement
cost of such losses. Even if special hazard insurance is
applicable as specified in the Prospectus Supplement, no coverage
in respect of special hazard losses will cover all risks, and the
amount of any such coverage will be limited. See "Special Hazard
Insurance" below. As a result, certain hazard risks will not be
insured against and will therefore be borne by
Certificateholders, unless otherwise assumed by the Servicer or
the Guarantor under any obligations they may have in respect of
Liquidating Loans or by some other entity, as specified in the
Prospectus Supplement.
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Special Hazard Insurance
In order to decrease the likelihood that Certificateholders
will experience losses in respect of the Mortgage Loans, if specified
in the Prospectus Supplement, the Seller will obtain one or more
special hazard insurance policies with respect to the Mortgage
Loans. Such a special hazard insurance policy will, subject to
limitations described below and in the Prospectus Supplement,
protect holders of Certificates from (i) loss by reason of damage
to Mortgaged Properties caused by certain hazards (including
earthquakes and, to a limited extent, tidal waves and related
water damage) not covered by the standard form of hazard
insurance policy for the respective states in which the Mortgaged
Properties are located or under flood insurance policies, if any,
covering the Mortgaged Properties, and (ii) loss from partial
damage caused by reason of the application of the co-insurance
clause contained in hazard insurance policies. See "Servicing of
the Mortgage Loans--Hazard Insurance" below. Any special hazard
insurance policy may not cover losses occasioned by war, civil
insurrection, certain governmental actions, errors in design,
faulty workmanship or materials (except under certain
circumstances), nuclear reaction, flood (if the Mortgaged
Property is located in a federally designated flood area),
chemical contamination and certain other risks. Aggregate claims
under each special hazard insurance policy may be limited to a
specified percentage of the aggregate principal balance as of the
Cut-Off Date of the Mortgage Loans. Any special hazard insurance
policy may also provide that no claim may be paid unless hazard
and, if applicable, flood insurance on the Mortgaged Property has
been kept in force and other protection and preservation expenses
have been paid by the Servicer.
Subject to the foregoing limitations, any special
hazard insurance policy may provide that, where there has been
damage to property securing a foreclosed Mortgage Loan (title to
which has been acquired by the insured) and to the extent such
damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the mortgagor or the
Servicer, the special hazard insurer will pay the lesser of (i)
the cost of repair or replacement of such property or (ii) upon
transfer of the property to the special hazard insurer, the
unpaid principal balance of such Mortgage Loan at the time of
acquisition of such property by foreclosure or deed in lieu of
foreclosure, plus accrued interest to the date of claim
settlement and certain expenses incurred by the Servicer with
respect to such property. If the unpaid principal balance plus
accrued interest and certain expenses is paid by the insurer, the
amount of further coverage under the related special hazard
insurance policy will be reduced by such amount less any net
proceeds from the sale of the property. Any amount paid as the
cost of repair or replacement of the property will also reduce
coverage by such amount. Restoration of the property with the
proceeds described under clause (i) above will satisfy the
condition under any pool insurance policy that the property be
restored before a claim under such pool insurance policy may be
validly presented with respect to the defaulted Mortgage Loan
secured by such property. The payment described under clause (ii)
above will render unnecessary presentation of a claim in respect
of such Mortgage Loan under the related pool insurance policy.
Therefore, so long as a pool insurance policy remains in effect,
the payment by the insurer under a special hazard insurance
policy of the cost of repair or replacement or the unpaid
principal balance of the Mortgage Loan plus accrued interest and
certain expenses will not affect the total insurance proceeds
paid to Certificateholders, but will affect the relative amounts
of coverage remaining under the related special hazard insurance
policy and pool insurance policy.
Bankruptcy Bond
In the event of a bankruptcy of a borrower, the
bankruptcy court may establish the value of the Mortgaged
Property securing the related Mortgage Loan at an amount less
than the then outstanding principal balance of such Mortgage Loan
secured by such Mortgaged Property and could reduce the secured
debt to such value. In such case, 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. In addition, certain
other modifications of the terms of a Mortgage Loan can result
from a bankruptcy proceeding, including the reduction in monthly
payments required to be made by the borrower. See "Certain Legal
Aspects of the Mortgage Loans -- Enforceability of Certain Provisions".
If so provided in the related Prospectus Supplement, the Servicer
will obtain a bankruptcy bond or similar insurance contract (the
"bankruptcy bond") for proceedings with respect to borrowers
under the Bankruptcy Code. The bankruptcy bond will cover certain
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losses resulting from a reduction by a bankruptcy court of
scheduled payments of principal of and interest on a Mortgage
Loan or a reduction by such court of the principal amount of a
Mortgage Loan and will cover certain unpaid interest on the
amount of such a principal reduction from the date of the filing
of a bankruptcy petition.
The bankruptcy bond will provide coverage in the
aggregate amount specified in the related Prospectus Supplement.
Such amount will be reduced by payments made under such
bankruptcy bond in respect of the related Mortgage Loans, to the
extent specified in the related Prospectus Supplement, and will
not be restored.
In lieu of a bankruptcy bond, the Servicer may obtain
a Limited Guarantee to cover such bankruptcy-related losses.
Repurchase Bond
If so specified in the related Prospectus Supplement,
the Servicer will be obligated to purchase any Mortgage Loan up
to an aggregate dollar amount specified in the related Prospectus
Supplement) for which insurance coverage is denied due to
dishonesty, misrepresentation or fraud in connection with the
origination or sale of such Mortgage Loan. Such obligation may be
secured by a surety bond or other instrument or mechanism
guaranteeing payment of the amount to be paid by the Servicer.
Guaranteed Investment Contracts
If so specified in the Prospectus Supplement, on or
prior to the Delivery Date, the Trustee will enter into a
guaranteed investment contract (a "GIC") pursuant to which all
amounts deposited in the Certificate Account, and if so specified
the Reserve Accounts, will be invested by the Trustee and under
which the issuer of the GIC will pay to the Trustee interest at
an agreed rate per annum with respect to the amounts so invested.
Reserve Accounts
If specified in the Prospectus Supplement, cash, U.S.
Treasury securities, instruments evidencing ownership of
principal or interest payments thereon, letters of credit, demand
notes, certificates of deposit, other instruments or obligations
or a combination thereof in the aggregate amount specified in the
Prospectus Supplement will be deposited by the Servicer on the
Delivery Date in one or more Reserve Accounts established by the
Trustee. Such cash and the principal and interest payments on
such other instruments will be used to enhance the likelihood of
timely payment of principal of, and interest on, or, if so
specified in the Prospectus Supplement, to provide additional
protection against losses in respect of, the assets in the
related Trust Fund, to pay the expenses of the Trust Fund or for
such other purposes specified in the Prospectus Supplement.
Whether or not the Servicer has any obligation to make such a
deposit, certain amounts to which the subordinated
Certificateholders, if any, will otherwise be entitled may
instead be deposited into the Reserve Account from time to time
and in the amounts as specified in the Prospectus Supplement. Any
cash in the Reserve Account and the proceeds of any other
instrument upon maturity will be invested in Eligible
Investments, which, unless otherwise specified in the Prospectus
Supplement, will include obligations of the United States and
certain agencies thereof, certificates of deposit, certain
commercial paper, time deposits and bankers acceptances sold by
eligible commercial banks and certain repurchase agreements of
United States government securities with eligible commercial
banks. If a letter of credit is deposited with the Trustee, such
letter of credit will be irrevocable. Unless otherwise specified
in the Prospectus Supplement, any instrument deposited therein
will name the Trustee, in its capacity as trustee for the holders
of the related Certificates, as beneficiary and will be issued by
an entity acceptable to each rating agency that rates the
Certificates. Additional information with respect to such
instruments deposited in the Reserve Accounts will be set forth
in the Prospectus Supplement.
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Any amounts so deposited and payments on instruments
so deposited will be available for withdrawal from the Reserve
Account for distribution to the holders of Certificates for the
purposes, in the manner and at the times specified in the Prospectus
Supplement.
Other Insurance, Guarantees and Similar Instruments or Agreements
If specified in the Prospectus Supplement, the related
Trust Fund may also include insurance, guarantees, letters of
credit or similar arrangements for the purpose of (i) maintaining
timely payments or providing additional protection against losses
on the assets included in such Trust Fund, (ii) paying
administrative expenses or (iii) establishing a minimum
reinvestment rate on the payments made in respect of such assets
or principal payment rate on such assets. Such arrangements may
include agreements under which Certificateholders are entitled to
receive amounts deposited in various accounts held by the Trustee
upon the terms specified in the Prospectus Supplement. Such
arrangements may be in lieu of any obligation of the Servicer to
advance delinquent installments in respect of the Mortgage Loans.
YIELD, MATURITY AND WEIGHTED AVERAGE LIFE CONSIDERATIONS
The yields to maturity and weighted average lives of
the Certificates will be affected primarily by the rate and
timing of principal payments received on or in respect of the
Mortgage Loans, Non-Agency Certificates or Agency Certificates
included in the related Trust Fund. Such principal payments will
include scheduled payments as well as Principal Prepayments
(including refinancings) and prepayments resulting from
foreclosure, condemnation and other dispositions of the Mortgaged
Properties (including amounts paid by insurers under applicable
insurance policies), from purchase by the Seller of any Mortgage
Loan as to which there has been a material breach of warranty or
defect in documentation (or deposit of certain amounts in respect
of delivery of a substitute Mortgage Loan), purchase by the
Servicer of Mortgage Loans modified by it in lieu of refinancing
thereof, purchase by the Servicer, the Guarantor or any other
entity of any Liquidating Loan or Delinquent Mortgage Loan, if
applicable, and from the repurchase by the Seller of all of the
Certificates or all of the Mortgage Loans, Non-Agency
Certificates or Agency Certificates in certain circumstances. See
"The Pooling and Servicing Agreement--Optional Termination of
Trust Fund". The yield to maturity and weighted average lives of
the Certificates may also be affected by the amount and timing of
delinquencies and losses on the Mortgage Loans.
A number of social, economic, tax, geographic,
demographic, legal and other factors may influence prepayments,
delinquencies and losses. For a Trust Fund comprised of Mortgage
Loans, these factors may include the age of the Mortgage Loans,
the geographic distribution of the Mortgaged Properties, the
payment terms of the Mortgages, the characteristics of the
mortgagors, homeowner mobility, economic conditions generally and
in the geographic area in which the Mortgaged Properties are
located, enforceability of due-on-sale clauses, servicing
decisions, prevailing mortgage market interest rates in relation
to the interest rates on the Mortgage Loans, the availability of
mortgage funds, the use of second or "home equity" mortgage loans
by mortgagors, the availability of refinancing opportunities
(including refinancing opportunities offered by HLI to existing
borrowers or to its affiliates), the use of the properties as
second or vacation homes, the extent of the mortgagors' net
equity in the Mortgaged Properties and, where investment
properties are securing the Mortgage Loans, tax-related
considerations and the availability of other investments. The
rate of principal payment may also be subject to seasonal
variations.
The rate of principal prepayments on pools of
conventional housing loans has fluctuated significantly in recent
years. Generally, if prevailing interest rates were to fall
significantly below the interest rates on the Mortgage Loans, the
Mortgage Loans would be expected to prepay at higher rates than
if prevailing rates were to remain at or above the interest
rates on the Mortgage Loans. Conversely, if interest rates
were to rise above the interest rates on the Mortgage
Loans, the Mortgage Loans would be expected to prepay at
lower rates than if prevailing rates were to remain at or
below interest rates on the Mortgage Loans. The timing of
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changes in the rate of prepayments may significantly affect a
Certificateholder's actual yield to maturity, even if the average
rate of principal payments is consistent with a
Certificateholder's expectation. In general, the earlier a
prepayment of principal the greater the effect on a
Certificateholder's yield to maturity. As a result, the effect on
a Certificateholder's yield of principal payments occurring at a
rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of the
related series of Certificates will not be offset by a subsequent
like reduction (or increase) in the rate of principal payments.
To the extent described in the applicable Prospectus
Supplement, the effective yields to Certificateholders will be
lower than the yields produced by the interest rates on the
Certificates because, while interest will accrue on each Mortgage
Loan from the first day of each month, the distribution of such
interest to Certificateholders will be made in the month
following the month of accrual.
When a Mortgage Loan prepays in full, the borrower
will generally be required to pay interest on the amount of
prepayment only to the prepayment date. When a partial prepayment
of principal is made on a Mortgage Loan, the borrower generally
will not be required to pay interest on the amount of the partial
prepayment during the month in which such prepayment is made. In
addition, unless otherwise specified in the related Prospectus
Supplement, a full or partial prepayment will not be required to
be passed through to Certificateholders until the month following
receipt.
If and to the extent specified in the applicable
Prospectus Supplement, under the Agreement, if a full or partial
voluntary prepayment of a Mortgage Loan is made and does not
include the full amount of interest on such Mortgage Loan which
would have been due but for such prepayment to and including the
end of the month in which the prepayment takes place, the
servicer will be obligated to pay the interest thereon at the
Remittance Rate from the date of prepayment through the end of
such month (each such payment, a "Compensating Interest
Payment"), provided that the aggregate of such Compensating
Interest Payments by the Servicer with respect to any
Distribution Date will not exceed the aggregate Servicing Fee to
which the Servicer is entitled in connection with such
Distribution Date. The Servicer will not be entitled to
reimbursement for such Compensating Interest Payments.
Consequently, to the extent the Servicer is so obligated, neither
partial nor full prepayments will reduce the amount of interest
passed through to Certificateholders the following month from the
amount which would have been passed through in the absence of
such prepayments. If the Servicer is not obligated to make
Compensating Interest Payments, or if such payments are
insufficient to cover the interest shortfall, partial or full
prepayments will reduce the amount of interest passed through to
Certificateholders, as described in the applicable Prospectus
Supplement.
Factors other than those identified herein and in the
Prospectus Supplement could significantly affect principal
prepayments at any time and over the lives of the Certificates.
The relative contribution of the various factors affecting
prepayment may also vary from time to time. There can be no
assurance as to the rate of payment of principal of the Mortgage
Loans, Non-Agency Certificates or Agency Certificates at any time
or over the lives of the Certificates.
The Prospectus Supplement relating to a series of
Certificates will discuss in greater detail the effect of the
rate and timing of principal payments (including prepayments),
delinquencies and losses on the yield, weighted average lives and
maturities of such Certificates.
HOMESIDE MORTGAGE SECURITIES, INC.
HMSI was incorporated in the State of Delaware on July
29, 1989 under the name of BancBoston Mortgage Securities, Inc.
and is a wholly-owned subsidiary of HLI. HMSI has not had and is
not expected to have any business operations other than offering
Certificates and related activities. It is anticipated that HMSI
may from time to time purchase mortgage loans directly from
correspondents and affiliates.
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The principal offices of HMSI are located at
7301 Baymeadows Way, Jacksonville, Florida 32256. Its telephone
number is (904) 281-3000.
HOMESIDE LENDING, INC.
HLI, formerly known as BancBoston Mortgage Corporation
("BBMC"), the mortgage banking subsidiary of The First National
Bank of Boston, a national banking association ("BKB"), until
HLI's acquisition by HomeSide, Inc. ("HomeSide") on March 15,
1996. HLI is a [Florida] corporation incorporated in 1988. The
principal offices of HLI are located at 7301 Baymeadows Way,
Jacksonville, Florida 32256. Its telephone number is (904)
281-3000.
HLI is engaged in the business of mortgage banking,
which primarily involves originating, purchasing, selling and
servicing residential mortgage loans secured by one- to
four-family homes.
HomeSide was formed on December 11, 1995 to acquire
HLI (the "HLI Acquisition"). On March 15, 1996, HomeSide
completed the HLI Acquisition. On May 31, 1996, HomeSide acquired
Homeside Holdings, Inc. ("HHI"), formerly known as Barnett
Mortgage Company, the mortgage banking subsidiary of Barnett
Banks, Inc. ("Barnett") (the "HHI Acquisition"). Upon the HHI
Acquisition, HomeSide contributed all of the stock of HLI to HHI,
whereupon HLI became a wholly-owned subsidiary of HHI. All of
HHI's servicing portfolio was transferred to HLI, with the
exception of loans serviced by HHI for the Governmental National
Mortgage Association, which servicing rights it retained. HLI subservices
HHI's Government National Mortgage Association servicing portfolio. All of
HHI's former subsidiaries, except Honolulu Mortgage Company, Inc. were
merged with and into HLI.
Thomas H. Lee Equity Fund III, L.P. (the "Fund") and
certain affiliates of Thomas H. Lee Company and Madison Dearborn
Capital Partners, L.P. collectively own approximately 26% of HomeSide;
Bank of Boston and Siesta Holdings, Inc., an affiliate of Barnett,
collectively own approximately 53% and management of HomeSide and
other unaffiliated investors own the remainder.
Real Estate Lending
HLI originates and purchases residential single family
mortgage loans through all major channels including
correspondents (including BKB and Barnett), mortgage brokers,
co-issue partners, consumer direct telemarketing and affinity programs.
Mortgage loans made with the assistance of a correspondent may be
originated in the name of such correspondent and acquired by HLI, or
originated in the name of HLI. Each correspondent assisting HLI in the
origination of mortgage loans is required to follow HLI's loan underwriting
policies.
Correspondent Production
Through its correspondent program, HomeSide purchases
loans from approximately 500 commercial banks, savings and loan
associations, licensed mortgage lenders and other financial
intermediaries. The correspondent takes the mortgage application
and processes the loan, which is either underwritten through
contract underwriters or, in some cases, the correspondent to
whom underwriting authority has been delegated. Closing documents
are submitted to HomeSide for legal review and funding. The
participants in this program are prequalified and monitored on an
ongoing basis by HomeSide. If a correspondent subsequently fails
to meet HomeSide's requirements, HomeSide typically terminates
the relationship. Correspondents are also required to repurchase
loans in the event of fraud or misrepresentation in the
origination process and for certain other reasons. In 1996,
HomeSide's top ten correspondents accounted for approximately 20%
of the total loans originated through this channel.
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Co-Issue Production
Co-issue production, which represents the purchase of
[servicing rights] from a correspondent under contracts to
deliver specified volumes on a monthly or quarterly basis, is
another main source of HomeSide's production. The co-issue
correspondent controls the entire loan process from application
to closing.
This arrangement particularly suits large originators who have
the ability to deliver on an automated basis. Reflecting this
delegated underwriting authority, co-issue correspondents are
subject to more extensive credit and quality control reviews.
Contractually, the co-issue correspondent is obligated to make
certain representations and warranties and is required to
repurchase loans in the event of fraud or misrepresentation in
the origination process or for certain other reasons.
Broker Production
Under its broker program, HomeSide funds loans at
closing from a network of approximately 450 mortgage brokers
nationwide. The broker controls the process of application and
loan processing. A preclosing quality control review is performed
by HomeSide to verify the borrower's credit. All loans originated
through brokers are underwritten by HomeSide's approved contract
underwriters. Loans are funded by HomeSide and may be closed in
either the broker's name or HomeSide's name. Participants in this
program prequalify on the basis of creditworthiness, mortgage
lending experience and reputation. Each broker is subject to
annual and ongoing reviews by HomeSide. In 1995, HomeSide's top
ten brokers accounted for approximately 24% of the total loans
originated through this channel.
Consumer Direct
HomeSide's retail production includes the use of
telemarketing to originate loans from several sources, including
refinancings of mortgage loans in HomeSide's existing servicing
portfolio, leads generated from direct mail campaigns and other
advertising, and mortgages related to affinity group and
co-branding partnerships. HomeSide established a telemarketing
system in May 1995.
Under the terms of the HLI Acquisition, BKB has
retained all of its retail production facilities in the New
England area and entered into an exclusive five-year agreement to
sell, subject to certain limitations, all loans originated from
these branches to HomeSide on a broker or correspondent basis at
market rates. In 1996, HomeSide sold or closed most of HomeSide's
remaining retail branches.
HLI may from time to time conduct solicitations of
borrowers under any Mortgage Loans to refinance such loans with
HLI acting for its own account. See "Yield, Maturity and Weighted
Average Life Considerations."
Loan Underwriting Policies
HLI's underwriting standards are intended to evaluate
a prospective mortgagor's credit standing, repayment ability,
intention to repay, and the value and adequacy of the underlying
mortgaged property as collateral for the loan requested. Before
approving a mortgage loan, HLI must be satisfied that the value
of the property being financed supports the outstanding loan
balance with sufficient excess value to mitigate the effects of
adverse shifts in real estate values.
In originating residential mortgages, HLI follows
standard procedures established to comply with applicable federal
and state laws and regulations. Initially, a prospective
mortgagor is required to complete a detailed application designed
to provide HLI with pertinent information about the prospective
mortgagor, the property to be purchased and the type of loan
desired. As part of the description of the prospective
mortgagor's financial condition, HLI requires a current statement
describing assets and liabilities and income and expenses,
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and a credit report which summarizes the prospective mortgagor's
credit and payment history with merchants and other lenders. In
addition, except as described below, HLI obtains whenever
possible employment verification from the prospective mortgagor's
employer, whereby the employer reports the prospective
mortgagor's length of employment with that organization and
current salary. Where employment verification is not obtainable
from an employer, HLI obtains a satisfactory alternate
verification. Each prospective mortgagor who is self-employed,
except as described below, is required to submit a copy of his
federal income tax returns.
HLI's documentation standards may be varied for
particularly creditworthy prospective mortgagors. Such standards
have been modified, for example, for mortgage loans eligible for
HLI's reduced loan documentation Select Advantage program. HLI
will also utilize alternative/limited documentation procedures as
described in the applicable FNMA or FHLMC guidelines as of the
date of origination.
Upon receipt of appropriate verification, HLI makes a
determination as to whether the prospective mortgagor has
sufficient monthly income to meet the monthly payment obligations
on the proposed mortgage loan, including taxes and insurance, as
well as other financial obligations and normal monthly living
expenses. HLI's underwriting standards for such determination
generally follow the guidelines established by FNMA and FHLMC, as
in effect at the time of each mortgage loan origination. HLI may
depart from exact application of the above guidelines in light of
other considerations.
To assess the adequacy of the subject property as
collateral, an appraisal is made of each property considered for
financing by an independent qualified third party appraiser. Each
appraisal entails physical inspection of the property as well as
other means of verification that the property is in good
condition. The appraiser estimates the value of the property
based on market values of comparable homes and the cost of
replacing the property. HLI may not require an appraisal in
connection with rate and term refinancings of Mortgage Loans in
its servicing portfolio.
Generally, mortgage loans made or acquired by HLI do
not have original principal amounts in excess of 97% of the
original value of the mortgaged property. Furthermore, mortgage
loans that HLI acquires or originates which have an original
principal amount exceeding 80% of original value will usually
have primary mortgage insurance. Such insurance typically reduces
the exposure of HLI to an effective Loan-to-Value Ratio of 75%.
HomeSide requires approximately 70% of its
correspondent lenders to have their loans underwritten by third
party contract underwriters prior to purchase. These contract
underwriters are designated by HomeSide and include General
Electric Capital Corp., Mortgage Guaranty Insurance Corp., and
Private Mortgage Insurance Corp. HomeSide grants delegated
underwriting status to the remaining approximately 30%
of correspondents which enables the correspondent to submit
conventional loans to HomeSide without prior underwriting
approval. Generally, HomeSide grants delegated underwriting
status to its larger correspondents who meet financial strength,
delinquency, underwriting and quality control standards, and
which correspondents are monitored regularly.
HomeSide implemented an automated underwriting process
for its retail production operation in 1994. The automated
underwriting technology incorporates credit scoring and appraisal
evaluation systems. These systems employ rules-based and
statistical technologies to evaluate the borrower, the property
and salability of the loan to the secondary market.
SERVICING OF THE MORTGAGE LOANS
With respect to each series of Certificates, the
related Mortgage Loans will be serviced by HLI, acting alone or,
as master servicer, through one or more direct servicers. Unless
otherwise specified in the Prospectus Supplement, if HLI acts as
master servicer with respect to a series, the related Agreement will
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provide that HLI shall not be released from its obligations to
the Trustee and Certificateholders with respect to the servicing
and administration of the Mortgage Loans, that any servicing
agreement entered into between HLI and a direct servicer will be
deemed to be between HLI and the direct servicer alone and that
the Trustee and the Certificateholders will have no claims,
obligations, duties or liabilities with respect to any such
agreement.
The Prospectus Supplement for each series will specify
whether HLI will act as sole servicer or master servicer for such
series. If HLI acts as master servicer for a series, all
references herein to HLI as servicer should be read to refer to
HLI as master servicer, as appropriate.
Collection and Other Servicing Procedures
Unless otherwise specified in the Prospectus
Supplement, subject to the terms of the Agreement, the Servicer
will be obligated to service and administer the Mortgage Loans in
accordance with the specific procedures set forth in the FNMA
Seller's Guide and FNMA Servicing Guide, as amended or
supplemented from time to time, and, to the extent such
procedures are unavailable, in accordance with the mortgage
servicing practices of prudent mortgage lending institutions.
The Servicer will be responsible for using its best
reasonable efforts to collect all payments called for under the
Mortgage Loans and shall, consistent with each Agreement, follow
such collection procedures as it deems necessary and advisable
with respect to the Mortgage Loans. Consistent with the above,
the Servicer, may, in its discretion, (i) waive any late payment
charge and (ii) if a default on the related Mortgage Loan has
occurred or is reasonably foreseeable, arrange with the mortgagor
a schedule for the liquidation of a delinquency running for no
more than 125 days after the applicable due date. In the event of
any such arrangement the Servicer will be responsible for
distributing funds with respect to such Mortgage Loan during the
scheduled period in accordance with the original amortization
schedule thereof and without regard to the temporary modification
thereof.
The Servicer will be obligated to use it best
reasonable efforts to realize upon a defaulted Mortgage Loan in
such manner as will maximize the payments to Certificateholders.
In this regard, the Servicer may (directly or through a local
assignee) sell the property at a foreclosure or trustee's sale,
negotiate with the mortgagor for a deed in lieu of foreclosure
or, in the event a deficiency judgment is available against the
mortgagor or other person, foreclose against such property and
proceed for the deficiency against the appropriate person. See
"Certain Legal Aspects of the Mortgage Loans--Anti-Deficiency
Legislation and Other Limitations on Lenders" for a description
of the limited availability of deficiency judgments. The amount
of the ultimate net recovery (including the proceeds of any pool
insurance or other guarantee), after reimbursement to the
Servicer of its expenses incurred in connection with the
liquidation of any such defaulted Mortgage Loan will be
distributed to the related Certificateholders on the next
Distribution Date following the month of receipt. If specified in
the Prospectus Supplement, if such net recovery exceeds the
Principal Balance of such Mortgage Loan plus one month's interest
thereon at the Remittance Rate, the excess will be paid to the
Servicer as additional servicing compensation. The Servicer will
not be required to expend its own funds in connection with any
foreclosure or towards the restoration of any Mortgaged Property
unless it shall determine (i) that such restoration or
foreclosure will increase the Liquidation Proceeds in respect of
the related Mortgaged Loan to Certificateholders after
reimbursement to itself for such expenses and (ii) that such
expenses will be recoverable to it either through Liquidation
Proceeds or Insurance Proceeds in respect of the related Mortgage
Loan.
If a Mortgaged Property has been or is about to be
conveyed by the mortgagor, the Servicer will be obligated to
accelerate the maturity of the Mortgage Loan, unless it
reasonably believes it is unable to enforce that Mortgage Loan's
"due-on-sale" clause under applicable law or such enforcement
would adversely affect or jeopardize coverage under any related
primary mortgage insurance policy or pool insurance policy.
If it reasonably believes it may be restricted by law, for
any reason, from enforcing such a "due-on-sale" clause,
the Servicer, with the consent of the insurer under any
insurance policy implicated thereby, may enter into an
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assumption and modification agreement with the person to whom
such property has been or is about to be conveyed, pursuant to
which such person becomes liable under the Mortgage Note. Any fee
collected by the Servicer for entering into an assumption
agreement will be retained by the Servicer as additional
servicing compensation. For a description of circumstances in
which the Servicer may be unable to enforce "due-on-sale"
clauses, see "Certain Legal Aspects of the Mortgage Loans --
Enforceability of Certain Provisions". In connection with any
such assumption, the Mortgage Rate borne by the related Mortgage
Note may not be decreased.
The Servicer will maintain with one or more depository
institutions one or more accounts into which it will deposit all
payments of taxes, insurance premiums, assessments or comparable
items received for the account of the mortgagors. Withdrawals
from such account or accounts may be made only to effect payment
of taxes, insurance premiums, assessments or comparable items, to
reimburse the Servicer out of related collections for any cost
incurred in paying taxes, insurance premiums and assessments or
otherwise preserving or protecting the value of the Mortgages, to
refund to mortgagors any amounts determined to be overages and to
pay interest to mortgagors on balances in such account or
accounts to the extent required by law.
Private Mortgage Insurance
Generally, Mortgage Loans that the Servicer originates
or acquires do not have Loan-to-Value Ratios in excess of 95%.
Unless otherwise specified in the Prospectus Supplement, each
Agreement will obligate the Servicer to exercise its best
reasonable efforts to maintain and keep in full force and effect
a private mortgage insurance policy on all Mortgage Loans that
have a Loan-to-Value Ratio in excess of 80%.
A private mortgage insurance policy may provide that,
as an alternative to paying a claim thereunder, the mortgage
insurer will have the right to purchase the Mortgage Loan
following the receipt of a notice of default, at a purchase price
equal to the sum of the principal balance of the Mortgage Loan,
accrued interest thereon and the amount of certain advances made
by the Servicer with respect to the Mortgage Loan. The mortgage
insurer may have such purchase right after the borrower has
failed to make three scheduled monthly payments (or one payment
if it is the first payment due on the Mortgage Loan) or after any
foreclosure or other proceeding affecting the Mortgage Loan or
the Mortgaged Property has been commenced. The proceeds of any
such purchase will be distributed to Certificateholders on the
applicable Distribution Date. A mortgage insurer may be more
likely to exercise such purchase option when prevailing interest
rates are low relative to the interest rate borne by the
defaulted Mortgage Loan, in order to reduce the aggregate amount
of accrued interest that the insurer would be obligated to pay
upon payment of a claim.
Hazard Insurance
The Servicer will cause to be maintained for each
Mortgaged Property a standard hazard insurance policy. The
coverage of such policy is required to be in an amount at least
equal to the maximum insurable value of the improvements which
are a part of such property from time to time or the principal
balance owing on such Mortgage Loan from time to time, whichever
is less. All amounts collected by the Servicer under any hazard
policy (except for amounts to be applied to the restoration or
repair of property subject to the related Mortgage or property
acquired by foreclosure or amounts released to the related
mortgagor in accordance with the Servicer's normal servicing
procedures) will be deposited in the Certificate Account.
In general, the standard form of fire and extended
coverage policy covers physical damage to or destruction of the
improvements on the property by fire, lightning, explosion,
smoke, windstorm and hail, riot, strike and civil commotion,
subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage Loans will
be underwritten by different insurers and, therefore, will not
contain identical terms and conditions, the basic terms thereof
are dictated by state law. Such policies typically do not
cover any physical damage resulting from the following:
war, revolution, governmental actions, floods and other
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water-related causes, earth movement (including earthquakes,
landslides and mud flow), nuclear reactions, pollution, wet or
dry rot, vermin, rodents, insects or domestic animals, theft and,
in certain cases, vandalism. The foregoing list is merely
indicative of certain kinds of uninsured risks and is not
intended to be all-inclusive. If the property securing a Mortgage
Loan is located in a federally designated flood area, the
Agreement will require that flood insurance be maintained in an
amount representing coverage not less than the least of (i) the
principal balance owing on such Mortgage Loan from time to time,
(ii) the maximum insurable value of the improvements which are a
part of such property from time to time or (iii) the maximum
amount of insurance which is available under the Flood Disaster
Protection Act of 1973, as amended. The Seller may also purchase
special hazard insurance against certain of the uninsured risks
described above. See "Credit Support--Special Hazard Insurance".
Most of the properties securing the Mortgage Loans
will be covered by homeowners' insurance policies, which, in
addition to the standard form of fire and extended coverage,
provide coverage for certain other risks. These homeowners'
policies typically contain a "coinsurance" clause which in effect
requires the insured at all times to carry insurance of a
specified percentage (generally 80% to 90%) of the full
replacement value of the improvements on the property in order to
recover the full amount of any partial loss. If the insured's
coverage falls below this specified percentage, then the
insurer's liability in the event of partial loss will not exceed
the lesser of (i) the actual cash value (generally defined as
replacement cost at the time and place of loss, less physical
depreciation) of the improvements damaged or destroyed, or (ii)
such proportion of the loss as the amount of insurance carried
bears to the specified percentage of the full replacement cost of
such improvements.
Since the amount of hazard insurance the Servicer is
required to cause to be maintained on the improvements securing
the Mortgage Loans declines as the principal balances owing
thereon decrease, if the residential properties securing the
Mortgage Loans appreciate in value over time, the effect of
coinsurance in the event of partial loss may be that hazard
insurance proceeds will be insufficient to restore fully the
damaged property.
The Servicer, will cause to be maintained on any
Mortgaged Property acquired upon foreclosure, or by deed in lieu
of foreclosure, hazard insurance with extended coverage in an
amount which is at least equal to the lesser of (i) the maximum
insurable value from time to time of the improvements which are a
part of such property or (ii) the unpaid principal balance of the
related Mortgage Loan at the time of such foreclosure or deed in
lieu of foreclosure, plus accrued interest and the Servicer's
good-faith estimate of the related liquidation expenses to be
incurred in connection therewith.
The Servicer may maintain, in lieu of causing
individual hazard insurance policies to be maintained with
respect to each Mortgage Loan, one or more blanket insurance
policies covering hazard losses on the Mortgage Loans. The
Servicer will pay the premium for such policy on the basis
described therein and will pay any deductible amount with respect
to claims under such policy relating to the Mortgage Loans.
Advances
To the extent specified in the Prospectus Supplement,
in the event that any borrower fails to make any payment of
principal or interest required under the terms of a Mortgage
Loan, the Servicer will be obligated to advance the entire amount
of such payment adjusted in the case of any delinquent interest
payment to the applicable Remittance Rate. Unless otherwise
specified in the Prospectus Supplement and except as described
above under "Credit Support--Purchases of Liquidating Loans", this
obligation to advance will be limited to amounts which the
Servicer reasonably believes will be recoverable by it out of
liquidation proceeds or otherwise in respect of such Mortgage
Loan. The Servicer will be entitled to reimbursement for
any such advance from related late payments on the Mortgage
Loan as to which such advance was made. Furthermore,
unless otherwise specified in the Prospectus Supplement,
the Servicer will be entitled to reimbursement for any
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such advance (i) from Liquidation Proceeds or Insurance Proceeds
received if such Mortgage Loan is foreclosed (and is not
purchased by the Servicer pursuant to any obligation it may have
to purchase Liquidating Loans) prior to any payment to
Certificateholders in respect of the repossession or foreclosure
and (ii) from receipts or recoveries on all other Mortgage Loans
or from any other assets of the Trust Fund, for all or any
portion of such advance which the Servicer determines, in good
faith, may not be ultimately recoverable from such liquidation or
insurance proceeds (a "Nonrecoverable Advance"). Any
Nonrecoverable Advance will be reimbursable out of the assets of
the Trust Fund. The amount of any scheduled payment required to
be advanced by the Servicer will not be affected by any agreement
between the Servicer and a borrower providing for the
postponement or modification of the due date or amount of such
scheduled payment. If specified in the Prospectus Supplement, the
Trustee for the related series will make advances of delinquent
payments of principal and interest in the event of a failure by
the Servicer to perform such obligation.
Unless otherwise specified in the Prospectus
Supplement, until any obligation of the Servicer to purchase
Liquidating Loans is exhausted, the Servicer will advance
delinquent installments of principal and interest (adjusted to
the applicable Remittance Rate) on the Mortgage Loans as
described above in an aggregate amount up to the amount of its
remaining purchase obligation, irrespective of whether the
Servicer believes any such advance will be recoverable. The
Servicer's obligation to advance delinquent installments of
principal and interest (adjusted to the applicable Remittance
Rate) on the Mortgage Loans which it deems recoverable will be
unaffected by the exhaustion of any obligation of the Servicer to
purchase Liquidating Loans. In the event that the Servicer has an
obligation to purchase Liquidating Loans, any outstanding
unreimbursed advances may be charged against the amount of such
obligation, subject to reinstatement on account of net recoveries
on such Mortgage Loan.
Any such obligation to make advances may be limited to
amounts due holders of certain classes of Certificates of the
related series or may be limited to specified periods or
otherwise as specified in the Prospectus Supplement.
Servicing and Other Compensation and Payment of Expenses
Unless otherwise specified in the Prospectus
Supplement, the Servicer's primary compensation for its servicing
activities will come from the payment to it, with respect to each
interest payment on a Mortgage Loan, of all or a portion of the
difference between the Mortgage Rate for such Mortgage Loan and
the related Remittance Rate. In addition to its primary
compensation, the Servicer will retain all assumption fees, late
payment charges and other miscellaneous charges, all to the
extent collected from borrowers. In the event the Servicer is
acting as master servicer under an Agreement, it will receive
compensation with respect to the performance of its activities as
master servicer.
Unless otherwise specified in the Prospectus
Supplement, the Servicer will be responsible for paying all
expenses incurred in connection with the servicing of the
Mortgage Loans (subject to limited reimbursement as described
under "The Pooling and Servicing Agreement--Payments on Mortgage
Loans; Certificate Account"), including, without limitation,
payment of any premium for any Advance Guarantee, Liquidating
Loan Guarantee, Deposit Guarantee, bankruptcy bond, repurchase
bond or other guarantee or surety, payment of the fees and the
disbursements of the Trustee and the and independent accountants,
payment of the compensation of any direct servicers of the
Mortgage Loans, payment of all fees and expenses in connection
with the realization upon defaulted Mortgage Loans and payment of
expenses incurred in connection with distributions and reports to
Certificateholders. Unless otherwise specified in the Prospectus
Supplement, the Servicer may assign any of its primary servicing
compensation in excess of that amount customarily retained as
servicing compensation for similar assets.
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Resignation, Succession and Indemnification of the Servicer
The Agreement will provide that the Servicer may not
resign from its obligations and duties as servicer or master
servicer thereunder, except upon determination that its
performance of such duties is no longer permissible under
applicable law. No such resignation will become effective until
the Trustee or a successor has assumed the Servicer's servicing
obligations and duties under such Agreement. The Guarantor's
obligations under any Advance Guarantee, Liquidating Loan
Guarantee or Deposit Guarantee will, upon issuance thereof, be
irrevocable, subject to certain limited rights of assignment as
described in the Prospectus Supplement if applicable.
The Agreement will provide that neither the Seller nor
the Servicer nor, if applicable, the Guarantor, nor any of their
respective directors, officers, employees or agents, shall be
under any liability to the Trust Fund or the Certificateholders
of the related series for taking any action, or for refraining
from taking any action, in good faith pursuant to such Agreement,
or for errors in judgment; provided, however, that neither the
Servicer nor, if applicable, the Guarantor, nor any such person,
will be protected against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless
disregard of obligations and duties thereunder. The Agreement
will also provide that the Seller, the Servicer and, if
applicable, the Guarantor and their respective directors,
officers, employees and agents are entitled to indemnification by
the related Trust Fund and will be held harmless against any
loss, liability or expense incurred in connection with any legal
action relating to the Agreement or the Certificates, other than
any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence in the performance of
duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Agreement
will provide that neither the Seller nor the Servicer nor, if
applicable, the Guarantor is under any obligation to appear in,
prosecute or defend any legal action which is not incidental to
the Servicer's servicing responsibilities under such Agreement or
the Guarantor's payment obligations under any Limited Guarantee,
respectively, and which in its respective opinion may involve it
in any expense or liability. Each of the Seller, the Servicer
and, if applicable, the Guarantor may, however, in its respective
discretion undertake any such action which it may deem necessary
or desirable in respect of such Agreement and the rights and
duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses
and costs of such action and any liability resulting therefrom
will be expenses, costs and liabilities of the Trust Fund, and
the Seller, the Servicer and, if applicable, the Guarantor, will
be entitled to be reimbursed therefor from amounts deposited in
the Certificate Account.
Any corporation into which the Servicer may be merged
or consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Servicer is a party, or
any corporation succeeding to the business of the Servicer, which
assumes the obligations of the Servicer, will be the successor of
the Servicer under each Agreement.
THE POOLING AND SERVICING AGREEMENT
The following summaries describe certain provisions of
the Agreements. The summaries do not purport to be complete and
are subject to, and qualified in their entirety by reference to,
the provisions of the Agreement applicable to a particular series
of Certificates. Where particular provisions or terms used in the
Agreements are referred to, such provisions or terms are as
specified in the Agreements.
Assignment of Mortgage Loans; Warranties
At the time of issuance of each series of Certificates,
the Seller will cause the Mortgage Loans in the Trust Fund
represented by that series of Certificates to be assigned to the
Trustee, together with all principal and interest due on or with
respect to such Mortgage Loans, other than principal and interest
due on or before the Cut-Off Date and prepayments of principal
received on or before the Cut-Off Date. The Trustee,
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concurrently with such assignment, will execute and deliver
Certificates evidencing such Trust Fund to the Seller in exchange
for the Mortgage Loans. Each Mortgage Loan will be identified in
a schedule appearing as an exhibit to the Agreement for that
series (the "Mortgage Loan Schedule"). The Mortgage Loan Schedule
will include, as to each Mortgage Loan, information as to the
outstanding principal balance as of the close of business on the
Cut-Off Date, as well as information respecting the Mortgage
Interest Rate, the current scheduled monthly payment of principal
and interest, the maturity date of each Note and the servicing
compensation to the Servicer.
In addition, the Seller will, as to each Mortgage
Loan, deliver to the Trustee (i) the Note, endorsed to the order
of, or assigned to, the Trustee by the holder/payee thereof
without recourse; (ii) the "buy-down" agreement (if applicable);
(iii) a Mortgage and Mortgage assignment meeting the requirements
of the Agreement; (iv) all Mortgage assignments from the original
holder of the Mortgage Loan, through any subsequent transferees
to the transferee to the Trustee; (v) an officer's certificate
regarding the original Lender's Title Insurance Policy, or other
evidence of title; (vi) as to each Mortgage Loan, an original
certificate of Primary Mortgage Insurance Policy to the extent
required under the applicable requirements for the Mortgage Pool;
and (vii) such other documents as may be described in the
applicable Prospectus Supplement. Unless otherwise expressly
permitted by the Agreement, all documents so delivered are to be
original executed documents, provided, however, that in instances
where the original recorded document has been retained by the
applicable jurisdiction or has not yet been returned from
recordation, the Seller may deliver a photocopy containing a
certification of the appropriate judicial or other governmental
authority of the jurisdiction, and the Servicer shall cause the
originals of each Mortgage and Mortgage assignment which is so
unavailable to be delivered to the Trustee as soon as available.
The Trustee will hold such documents for each series
of Certificates in trust for the benefit of all
Certificateholders of such series. The Trustee is obligated to
review such documents for each Mortgage Loan within 45 days after
the conveyance of the Mortgage Loan to it. If any document is
found by the Trustee not to have been properly executed or
received or to be unrelated to the Mortgage Loan identified in
the Agreement, the Trustee will promptly notify the Seller. The
Seller, or another party specified in the applicable Prospectus
Supplement, will be required to cure such defect or to repurchase
the Mortgage Loan or to provide a substitute Mortgage Loan. See
"Repurchase or Substitution" below.
In the Agreement for each series, the Seller or
another party described in the Agreement (the "Representing
Party") will make certain representations and warranties with
respect to the Mortgage Loans. Unless otherwise specified in the
applicable Prospectus Supplement, the representations and
warranties in each Agreement will generally include that (i) the
information set forth in the Mortgage Loan Schedule is true and
correct in all material respects at the date or dates with
respect to which such information is furnished; (ii) each
Mortgage constitutes a valid and enforceable first lien on the
Mortgaged Property, including all improvements thereon (subject
only to (A) the lien of current real property taxes and
assessments, (B) covenants, conditions and restrictions, rights
of way, easements and other matters of public record as of the
date of recording of such Mortgage, such exceptions appearing of
record being acceptable to mortgage lending institutions
generally and specifically referred to in the Lender's Title
Insurance Policy delivered to the originator of the Mortgage Loan
and not adversely affecting the value of the Mortgaged Property
and (C) other matters to which like properties are commonly
subject which do not materially interfere with the benefits of
the security intended to be provided by such Mortgage); (iii)
each Primary Mortgage Insurance Policy is in full force and
effect, and each Mortgage Loan which has a Loan-to-Value Ratio
greater than 80% is subject to a Primary Mortgage Insurance
Policy; (iv) at the date of initial issuance of the Certificates,
no Mortgage Loan was more than 30 days delinquent in payment, no
Mortgage Loan had more than one delinquency during the preceding
12-month period and no such delinquency extended for more than
30 days; (v) at the time each Mortgage Loan was originated
and, to the best knowledge of the Representing Party, at
the date of initial issuance of the Certificates, there
are no delinquent taxes, assessments or other outstanding
charges affecting the Mortgaged Property; (vi) each Mortgage
Loan was originated in compliance with and complied at the
time of origination in all material respects with applicable
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laws, including usury, equal credit opportunity and disclosure
laws; (vii) each Mortgage Loan is covered by a lender's title
insurance policy insuring the priority of the lien of the
Mortgage in the original principal amount of such Mortgage Loan,
and each such policy is in full force and effect; and (viii)
immediately prior to the assignment to the Trust Fund the Seller
had good title to, and was the sole owner of, each Mortgage Loan
free and clear of any lien, claim, charge, encumbrance or
interest of any kind.
Upon the discovery or notice of a breach of any of
such representations or warranties which materially and adversely
affects the interests of the Certificateholders in a Mortgage
Loan, the Seller or the applicable party will cure the breach or
repurchase such Mortgage Loan or will provide a substitute
Mortgage Loan in the manner described under "Repurchase or
Substitution" below. Unless otherwise indicated in the applicable
Prospectus Supplement, this obligation to repurchase or
substitute constitutes the sole remedy available to the
Certificateholders or the Trustee for any such breach of
representations and warranties.
The Agreement for a Series of Certificates may provide
that the Servicer may, at its sole option, purchase from the
Trust Fund, at the price specified in the Agreement, any Mortgage
Loan as to which the related Borrower has failed to make full
payments as required under the related Note for three consecutive
months.
Payments on Mortgage Loans; Certificate Account
It is expected that the Agreement for each series of
Certificates will provide that the Servicer will establish and
maintain a special non-interest-bearing trust account or accounts
(the "Certificate Account") in the name of the Trustee for the
benefit of the Certificateholders. The amount at any time
credited to the Certificate Account will be fully-insured to the
maximum coverage possible or shall be invested in Permitted
Investments, all as described in the applicable Prospectus
Supplement. In addition, a Distribution Account may be
established for the purpose of making distributions to
Certificateholders if and as described in the applicable
Prospectus Supplement.
Unless otherwise specified in the applicable
Prospectus Supplement, the Servicer will deposit in the
Certificate Account, as described more fully in the applicable
Prospectus Supplement, amounts representing the following
collections and payments (other than in respect of principal of
or interest on the Mortgage Loans due on or before the Cut-Off
Date and prepayments of principal received on or before the
CutOff Date): (i) all installments of principal and interest on
the applicable Mortgage Loans and any principal and/or interest
required to be advanced by the Servicer that were due on the
immediately preceding Due Date, net of servicing fees due the
Servicer and other amounts, if any, specified in the applicable
Prospectus Supplement; (ii) all amounts received in respect of
such Mortgage Loans representing late payments of principal and
interest to the extent such amounts were not previously advanced
by the Servicer with respect to such Mortgage Loans, net of
servicing fees due the Servicer; (iii) all principal prepayments
(whether full or partial) on such Mortgage Loans received,
together with interest calculated at the Mortgage Interest Rate
(net of servicing fees due the Servicer) to the end of the
calendar month during which such principal prepayment shall have
been received by the Servicer, to the extent received from the
mortgagor or advanced by the Servicer, as described under
"Servicing of the Mortgage Loans--Advances" herein; and (iv) any
amounts received by the Servicer as Insurance Proceeds (to the
extent not applied to the repair or restoration of the Mortgaged
Property) or Liquidation Proceeds.
Repurchase or Substitution
The Trustee will review the documents delivered to it
with respect to the assets of the applicable Trust Fund within 45
days after execution and delivery of the related Agreement.
Unless otherwise specified in the Prospectus Supplement, if any
document required to be delivered by the Seller is not delivered
or is found to be defective in any material respect, then
within 90 days after notice of such defect (or one and one
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half years if the Trustee shall not have received a document by
virtue of the fact that such document shall not have been
returned by the appropriate recording office), the Seller will
(a) cure such defect, (b) remove the affected Mortgage Loan from
the Trust Fund and substitute one or more other mortgage loans
therefor or (c) repurchase the Mortgage Loan from the Trustee for
a price equal to 100% of its Principal Balance plus interest
thereon at the applicable Remittance Rate from the date on which
interest was last paid to the first day of the month in which
such purchase price is to be distributed to the related
Certificateholders. Unless otherwise specified in the Prospectus
Supplement, this repurchase and substitution obligation
constitutes the sole remedy available to Certificateholders or
the Trustee on behalf of Certificateholders against the Seller
for a material defect in a document relating to a Mortgage Loan.
Unless otherwise specified in the Prospectus
Supplement, the Seller will agree, within 90 days of the
discovery by the Seller or receipt by the Seller of notice from
the Trustee of any breach of any representation or warranty of
the Seller set forth in the related Agreement with respect to the
Mortgage Loans that materially and adversely affects the
interests of the Certificateholders in a Mortgage Loan (a
"Defective Mortgage Loan"), to either (a) cure such breach in all
material respects, (b) repurchase such Defective Mortgage Loan at
a price equal to 100% of its Principal Balance plus interest
thereon at the applicable Remittance Rate from the date on which
interest was last paid to the first day of the month in which
such purchase price is to be distributed or (c) remove the
affected Mortgage Loan from the Trust Fund and substitute one or
more other mortgage loans or contracts therefor. Unless otherwise
specified in the Prospectus Supplement, this repurchase or
substitution obligation will constitute the sole remedy available
to Certificateholders or the Trustee on behalf of
Certificateholders for any such breach.
If so specified in the Prospectus Supplement for a
series where the Seller has acquired the related Mortgage Loans,
in lieu of agreeing to repurchase or substitute Mortgage Loans as
described above, the Seller may obtain such an agreement from the
entity which sold such mortgage loans, which agreement will be
assigned to the Trustee for the benefit of the holders of the
Certificates of such series. In such event, unless otherwise
specified in the related Prospectus Supplement, the Seller will
have no obligation to repurchase or substitute mortgage loans if
such entity defaults in its obligation to do so.
If a mortgage loan is substituted for another Mortgage
Loan as described above, the new mortgage loan will have the
following characteristics, or such other characteristics as may
be specified in the Prospectus Supplement: (i) a Principal
Balance (together with any other new mortgage loan so
substituted), as of the first Distribution Date following the
month of substitution, after deduction of all payments due in the
month of substitution, not in excess of the Principal Balance of
the removed Mortgage Loan as of such Distribution Date (the
amount of any difference, plus one month's interest thereon at
the applicable Remittance Rate, to be deposited in the
Certificate Account on the business day prior to the applicable
Distribution Date), (ii) a Mortgage Rate not less than, and not
more than one percentage point greater than, that of the removed
Mortgage Loan, (iii) a Remittance Rate equal to that of the
removed Mortgage Loan, (iv) a remaining term to stated maturity
not later than, and not more than one year less than, the
remaining term to stated maturity of the removed Mortgage Loan,
(v) a Loan-to Value Ratio not greater than that of the removed
Mortgage Loan, and (vi) in the reasonable determination of the
Seller, be of the same type, quality and character as the removed
Mortgage Loan (as if the defect or breach giving rise to the
substitution had not occurred) and be, as of the substitution
date, in compliance with the representations and warranties
contained in the Agreement.
If a REMIC election is to be made with respect to all
or a portion of a Trust Fund, any such substitution will occur
within two years after the initial issuance of the related
Certificates. If no REMIC election is made, any substitution will
be made within 90 days after the initial issuance of the related
Certificates.
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Certain Modifications and Refinancings
The Agreement will permit the Servicer to modify any
Mortgage Loan upon the request of the related Mortgagor, and will
also permit the Servicer to solicit such requests by offering
Mortgagors the opportunity to refinance their Mortgage Loans,
provided in either case that the Servicer purchases such Mortgage
Loan from the Trust Fund immediately following such modification.
Any such modification may not be made unless the modification
includes a change in the interest rate on the related Mortgage
Loan to approximately a prevailing market rate. Any such purchase
will be for a price equal to 100% of the Principal Balance of
such Mortgage Loan, plus accrued and unpaid interest thereon to
the date of purchase at the applicable Remittance Rate, net of
any unreimbursed advances of principal and interest thereon made
by the Servicer. Such purchases may occur when prevailing
interest rates are below the interest rates on the Mortgage Loans
and Mortgagors request (and/or the Servicer offers) modifications
as an alternative to refinancings through other mortgage
originators. If a REMIC election is made with respect to all or a
portion of the related Trust Fund, the Servicer will indemnify
the REMIC against liability for any prohibited transactions taxes
and any related interest, additions or penalties imposed on the
REMIC as a result of any such modification or purchase.
The Agreement will provide that if the Servicer in its
individual capacity agrees to refinance any Mortgage Loan as
described above, such Mortgage Loan will be assigned to the
Servicer by the Trustee upon certification that the Principal
Balance of such Mortgage Loan and accrued and unpaid interest
thereon at the Remittance Rate has been deposited in the
Certificate Account.
Evidence as to Compliance
The Agreement will provide that a firm of independent
public accountants will furnish to the Trustee on or before March
31 of each year, beginning with March 31 in the year which begins
not less than three months after the date of the initial issue of
Certificates, a statement as to compliance by the Servicer with
certain standards relating to the servicing of the Mortgage
Loans.
The Agreement will also provide for delivery to the
Trustee on or before March 31 of each year, beginning with March
31 in the year which begins not less than three months after the
date of the initial issue of the Certificates, a statement signed
by an officer of the Servicer to the effect that the Servicer has
fulfilled its obligations under the Agreement throughout the
preceding year or, if there has been a default in the fulfillment
of any such obligation, describing each such default.
List of Certificateholders
Upon written request of any Certificateholder of
record of a series of Certificates for purposes of communicating
with other Certificateholders with respect to their rights under
the Agreement for such series, the Trustee will furnish or cause
to be furnished, within ten business days after the receipt of
such request, to such Certificateholders a list of the names and
addresses of the Certificateholders of that series as of the most
recent Record Date.
The Agreement will not provide for the holding of any
annual or other meetings of Certificateholders.
The Trustee
Any commercial bank or trust company serving as Trustee
may have normal banking relationships with the Seller and the Servicer.
In addition, the Seller and the Trustee acting jointly will have the
power and the responsibility for appointing co-trustees or separate
trustees of all or any part of the Trust Fund relating to a particular
series of Certificates. In the event of such appointment, all rights,
powers, duties and obligations conferred or imposed upon the
Trustee by the Agreement shall be conferred or imposed upon the
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Trustee and such separate trustee or co-trustee jointly, or, in
any jurisdiction in which the Trustee shall be incompetent or
unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who shall exercise and perform such rights,
powers, duties and obligations solely at the direction of the
Trustee.
The Trustee will make no representations as to the
validity or sufficiency of the Agreement, the Certificates (other
than the signature and countersignature of the Trustee on the
Certificates) or of any Mortgage Loan, Non-Agency Certificate,
Agency Certificate or related document, and will not be
accountable for the use or application by the Seller or Servicer
of any funds paid to the Seller or Servicer in respect of the
Certificates or the related assets, or amounts deposited into the
Certificate Account. If no Event of Default has occurred, the
Trustee will be required to perform only those duties
specifically required of it under the Agreement. However, upon
receipt of the various certificates, reports or other instruments
required to be furnished to it, the Trustee will be required to
examine them to determine whether they conform to the
requirements of the Agreement.
The Trustee may resign at any time, and the Seller may
remove the Trustee if the Trustee ceases to be eligible to
continue as such under the Agreement, if the Trustee becomes
insolvent or in such other instances, if any, as are set forth in
the Agreement. Following any resignation or removal of the
Trustee, the Seller will be obligated to appoint a successor
Trustee, any such successor to be approved by the Guarantor if so
specified in the Prospectus Supplement in the event that the
Guarantor has issued any Limited Guarantee with respect to the
Certificates. Any resignation or removal of the Trustee and
appointment of a successor Trustee does not become effective
until acceptance of the appointment by the successor Trustee.
Reports to Certificateholders
At least two Business Days before each Distribution
Date, the Servicer will furnish to the Trustee certain
information regarding the status of the Mortgage Loans and other
matters. On the related Distribution Date, the Trustee will mail
to Certificateholders a statement prepared by it and generally
setting forth, to the extent applicable to any series, among
other things:
(i) The aggregate amount of the related distribution
allocable to principal, separately identifying the
amount allocable to each class;
(ii) The amount of such distribution allocable to interest,
separately identifying the amount allocable to
each class;
(iii) The amount of servicing compensation received by
the Servicer in respect of the Mortgage Loans
during the month preceding the month of the
Distribution Date;
(iv) The aggregate Certificate Principal Balance (or
Notional Principal Balance) of each class of
Certificates after giving effect to distributions
and allocations, if any, of losses on the Mortgage
Loans on such Distribution Date;
(v) The aggregate Certificate Principal Balance of any
class of Accrual Certificates after giving effect
to any increase in such Certificate Principal
Balance that results from the accrual of interest
that is not yet distributable thereon;
(vi) If applicable, the amount of the Servicer's remaining
obligations with respect to the purchase of
Liquidating Loans, after giving effect to any
charges or adjustments thereto in respect of the
Distribution Date, expressed as a percentage of
the amount reported pursuant to clause (iv) and,
if applicable, (v) above;
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(vii) If any class of Certificates has priority in the
right to receive Principal Prepayments, the amount
of Principal Prepayments in respect of the
Mortgage Loans; and
(viii) The aggregate Principal Balance of Mortgage Loans
which were delinquent as to a total of one, two or
three or more installments of principal and
interest or were in foreclosure.
(ix) The Trustee will also furnish annually customary
information deemed necessary for
Certificateholders to prepare their tax returns.
The Servicer will provide Certificateholders which are
federally insured savings and loan associations with certain
reports and with access to information and documentation
regarding the Mortgage Loans included in the Trust Fund
sufficient to permit such associations to comply with applicable
regulations of the Office of Thrift Supervision.
Events of Default
Events of Default under the Agreement with respect to
a series of Certificates will consist of: (i) any failure by the
Servicer in the performance of any obligation under the Agreement
which causes any payment required to be made under the terms of
the Certificates or the Agreement not to be timely made, which
failure continues unremedied for a period of five days after the
date upon which written notice of such failure, requiring the
same to be remedied, shall have been given to the Servicer by the
Trustee, or to the Servicer and the Trustee by Certificateholders
representing not less than 25% of the Voting Rights of any class
of Certificates to which a payment is not timely made;
(ii) any failure on the part of the Servicer duly to observe
or perform in any material respect any other of the covenants
or agreements on the part of the Servicer in the Certificates
or in the Agreement which failure continues unremedied for a
period of 90 days after the date on which written notice of
such failure, requiring the same to be remedied, shall have
been given to the Servicer by the Trustee, or to the Servicer
and the Trustee by Certificateholders representing not less
than 25% of the Voting Rights of all classes of Certificates
affected by such failure; (iii) the entering against the
Servicer of a decree or order of a court, agency or
supervisory authority having jurisdiction in the
premises for the appointment of a conservator, receiver or
liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, provided that any such
decree or order shall have remained in force undischarged or
unstayed for a period of 60 days; (iv) the consent by the
Servicer to the appointment of a conservator, receiver,
liquidator or liquidating committee in any insolvency,
readjustment of debt, marshalling of assets and liabilities,
voluntary liquidation or similar proceedings of or relating to
the Servicer or of or relating to all or substantially all of its
property; (v) the admission by the Servicer in writing of its
inability to pay its debts generally as they become due, the
filing by the Servicer of a petition to take advantage of any
applicable insolvency or reorganization statute, the making of an
assignment for the benefit of its creditors or the voluntary
suspension of the payment of its obligations; (vi) the Servicer
ceases to be a FNMA or FHLMC approved servicer during any time
that either FNMA or FHLMC continues to exist; and (vii) notice by
the Servicer that it is unable to make an Advance required to be
made pursuant to the Agreement or the failure of the Servicer to
make any Advance required to be made pursuant to the Agreement
which failure continues unremedied for a period of three days
after the date upon which written notice of such failure,
requiring the same to be remedied, shall have been given to the
Servicer by the Trustee, or to the Servicer and the Trustee by
Certificateholders representing not less than 25% of the
aggregate Voting Rights of all classes of the Certificates
affected by such failure.
Rights Upon Event of Default
As long as an Event of Default under the
Agreement remains unremedied by the Servicer, the Trustee,
or holders of Certificates evidencing interests aggregating
not less than 25% of each affected class, may
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terminate all of the rights and obligations of the Servicer under
the Agreement, whereupon the Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under
the Agreement and will be entitled to similar compensation
arrangements, provided that if the Trustee had no obligation
under the Agreement to make advances of delinquent principal and
interest on the Mortgage Loans upon the failure of the Servicer,
to do so, if the Trustee had such obligation but is prohibited by
law or regulation from making such advances, the Trustee will not
be required to assume such obligation of the Servicer. The
Servicer shall be entitled to payment of certain amounts payable
to it under the Agreement, notwithstanding the termination of its
activities as servicer. No such termination will affect in any
manner the Guarantor's obligations under any Limited Guarantee,
except that the obligation of the Servicer to make advances of
delinquent payments of principal and interest (adjusted to the
applicable Remittance Rate) and, if applicable, to purchase any
Liquidating Loan will become the direct obligations of the
Guarantor under the Advance Guarantee and the Liquidating Loan
Guarantee, respectively, if applicable, until a new servicer is
appointed. In the event that the Trustee is unwilling or unable
so to act, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a housing and home finance
institution with a net worth of at least $15,000,000 and, if the
Guarantor has issued any Limited Guarantee with respect to the
Certificates, approved by the Guarantor, to act as successor to
the Company, as servicer, under such Agreement. In addition, if
the Guarantor has issued any Limited Guarantee with respect to
the related series of Certificates, the Guarantor will have the
right to replace any successor servicer with an institution
meeting the requirements described in the preceding sentence. The
Trustee and such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than
the compensation to the Servicer under such Agreement.
No holder of Certificates will have any right under
the Agreement to institute any proceeding with respect to the
Agreement, unless such holder previously has given to the Trustee
written notice of default and unless the holders of Certificates
of each affected class evidencing, in the aggregate, 25% or more
of the interests in such class have made written request to the
Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity
and the Trustee for 60 days after receipt of such notice, request
and offer of indemnity has neglected or refused to institute any
such proceedings. However, the Trustee is under no obligation to
exercise any of the trusts or powers vested in it by the
Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders, unless such
Certificateholders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
Amendment
The Agreement may be amended by the Seller, the
Servicer and the Trustee, and if the Guarantor has issued any
Limited Guarantee with respect to the Certificates, with the
consent of the Guarantor, but without Certificateholder consent,
to cure any ambiguity, to correct or supplement any provision
therein which may be inconsistent with any other provision
therein, to take any action necessary to maintain REMIC status of
any Trust Fund as to which a REMIC election has been made, to
avoid or minimize the risk of the imposition of any tax on the
Trust Fund pursuant to the Code or to make any other provisions
with respect to matters or questions arising under the Agreement
which are not materially inconsistent with the provisions of the
Agreement; provided that such action will not, as evidenced by an
opinion of counsel satisfactory to the Trustee, adversely affect
in any material respect the interests of any Certificateholders
of that series. The Agreement may also be amended by the Seller,
the Servicer and the Trustee with the consent of holders of
Certificates evidencing interests aggregating either not less
than 66% of all interests in the related Trust Fund or not less
than 66% of all interests of each class affected by such
amendment, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions
of such Agreement or of modifying in any manner the rights
of Certificateholders of that series; provided, however,
that no such amendment may (i) reduce in any manner the
amount of, or delay the timing of, payments received on
Mortgage Loans which are required to be distributed in
respect of any Certificate without the consent of the
holder of such Certificate, (ii) adversely affect in any
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material respect the interests of the holders of any class of
Certificates in any manner other than as described in (i),
without the consent of the holders of Certificates of such class
evidencing at least 66% of the interests of such class or (iii)
reduce the aforesaid percentage of Certificates, the holders of
which are required to consent to any such amendment, without the
consent of the holders of all Certificates of such affected class
then outstanding.
Termination; Purchase of Mortgage Loans
The obligations of the parties to the Agreement for
each Series will terminate upon (i) the purchase of all the
Mortgage Loans, as described in the applicable Prospectus
Supplement, (ii) the later of (a) the distribution to
Certificateholders of that series of final payment with respect
to the last outstanding Mortgage Loan, or (b) the disposition of
all property acquired upon foreclosure or deed-in-lieu of
foreclosure with respect to the last outstanding Mortgage Loan
and the remittance to the Certificateholders of all funds due
under the Agreement; or (iii) mutual consent of the parties and
all Certificateholders. In no event, however, will the trust
created by an Agreement continue beyond the expiration of 21
years from the death of the survivor of the descendants living on
the date of the Agreement of a specific person named in such
Agreement. With respect to each series, the Trustee will give or
cause to be given written notice of termination of the Agreement
to each Certificateholder, and the final distribution under the
Agreement will be made only upon surrender and cancellation of
the related Certificates at an office or agency specified in the
notice of termination.
As described in the applicable Prospectus Supplement,
the Agreement for each series may permit, but not require, the
Seller, the Servicer or another party to purchase from the Trust
Fund for such series all remaining Mortgage Loans and all
property acquired in respect of the Mortgage Loans, at a price
described in the Prospectus Supplement, subject to the condition
that the aggregate outstanding principal balance of the Mortgage
Loans for such series at the time of purchase shall be less than
a percentage of the aggregate principal balance at the Cut-Off
Date specified in the Prospectus Supplement. The exercise of such
right will result in the early retirement of the Certificates of
that series.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain
legal aspects of mortgage loans and manufactured housing
contracts which are general in nature. Because such legal aspects
are governed primarily 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
Mortgage Loans is situated. The summaries are qualified in their
entirety by reference to the applicable federal and state laws
governing the Mortgage Loans.
General
The Mortgages will be either deeds of trust or
mortgages. A mortgage creates a lien upon the real property
encumbered by the mortgage. It is not prior to the lien for real
estate taxes and assessments. Priority between mortgages depends
on their terms and generally on the order of filing with a state
or county office. There are two parties to a mortgage: the
mortgagor, who is the borrower and homeowner or the land trustee
or the trustee of an inter vivos revocable trust (as described
below), and the mortgagee, who is the lender. Under the mortgage
instrument, the mortgagor delivers to the mortgagee a note
or bond and the mortgage. In the case of a land trust, there
are three parties because title to the property is held by
a land trustee under a land trust agreement of which the
borrower/homeowner is the beneficiary; at origination of a
mortgage loan, the borrower executes a separate undertaking to
make payments on the mortgage note. In the case of an inter vivos
revocable trust, there are three parties because title to the
property is held by the trustee under the trust instrument of
which the home occupant is the primary beneficiary; at
origination of a mortgage loan, the primary beneficiary
and the trustee execute a mortgage note and the trustee
executes a mortgage or deed of trust, with the
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primary beneficiary agreeing to be bound by its terms. Although a
deed of trust is similar to a mortgage, a deed of trust formally
has three parties, the borrower-homeowner called the trustor
(similar to a mortgagor), a lender (similar to a mortgagee)
called the beneficiary, and a third-party grantee called the
trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust and generally with a
power of sale, to the trustee to secure payment of the
obligation. The trustee's authority under a deed of trust and the
mortgagee's authority under a mortgage are governed by law, the
express provisions of the deed of trust or mortgage and, in some
cases, the directions of the beneficiary.
Foreclosure
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, the trustee must record a notice of default and send a
copy to the borrower-trustor and 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 in the real property,
including any junior lien holders. The borrower, or any other
person having a junior encumbrance on the real estate, may,
during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in
enforcing the obligation. Generally, state law controls the
amount of foreclosure expenses and costs, including attorney's
fees, which may be recovered by a lender. If the deed of trust is
not reinstated, a notice of sale must be posted in a public place
and, in most states, published for a specific period of time in
one or more newspapers. In addition, some state laws require that
a copy of the notice of sale be posted on the property and sent
to all parties having an interest in the real property.
Foreclosure of a mortgage is generally accomplished by
judicial action. The action is initiated by the service of legal
pleadings upon all parties having an interest in the real
property. Delays in completion of the foreclosure may
occasionally result from difficulties in locating necessary
parties defendant. Judicial foreclosure proceedings are often not
protested by any of the parties defendant. However, when the
mortgagee's right to foreclose is contested, the legal
proceedings necessary to resolve the issue can be time consuming.
After the completion of judicial foreclosure, the court generally
issues a judgment of foreclosure and appoints a referee or other
court officer to conduct the sale of the property.
A sale conducted in accordance with the terms of the
power of sale contained in a mortgage or deed of trust is
generally presumed to be conducted regularly and fairly, and a
conveyance of the real property by the referee confers absolute
legal title to the real property to the purchaser, free of all
junior mortgages and free of all other liens and claims
subordinate to the mortgage or deed of trust under which the sale
is made (with the exception of certain governmental liens and any
redemption rights that may be granted to borrowers pursuant to
applicable state law). The purchaser's title is, however, subject
to all senior liens, encumbrances and mortgages. Thus, if
the mortgage or deed of trust being foreclosed is a junior
mortgage or deed of trust, the referee or trustee will
convey title to the property to the purchaser, subject to the
underlying first mortgage or deed of trust and any other prior
liens and claims. A foreclosure under a junior mortgage or deed
of trust generally will have no effect on any senior mortgage or
deed of trust, with the possible exception of triggering the
right of a senior mortgagee or beneficiary to accelerate its
indebtedness under a "due-on-sale" clause or "due on further
encumbrance" clause contained in the senior mortgage.
In case of foreclosure under either a mortgage or a
deed of trust, the sale by the referee 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 referee for an amount equal to the principal amount of the
mortgage or deed of trust, accrued and unpaid interest and
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expenses of foreclosure. Thereafter, the lender will assume the
burdens of ownership, including obtaining casualty insurance and
making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender will commonly obtain
the services of a real estate broker and pay the broker's
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 any mortgage insurance
proceeds.
Some courts have been faced with the issue of whether
or not federal or state constitutional provisions reflecting due
process concerns for adequate notice require that borrowers under
deeds of trust or mortgages receive notices in addition to the
statutorily prescribed minimum. 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.
Right of Redemption
In some states, after sale pursuant to a deed of trust
or foreclosure of a mortgage, the borrower and foreclosed junior
lienors are given a statutory period in which to redeem the
property from the foreclosure sale. In some states, redemption
may occur only upon payment of the entire principal balance of
the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower pays
only a portion of the sums due. The effect of a statutory right
of redemption is to diminish the ability of the lender to sell
the foreclosed property. The rights of redemption would defeat
the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the
practical effect of the redemption right is to force the lender
to retain the property and pay the expenses of ownership until
the redemption period has run.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory prohibitions
that limit the remedies of a beneficiary under a deed of trust or
a mortgagee 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 would be a personal
judgment against the former borrower equal in most cases to the
difference between the net amount realized upon the public sale
of the real property and the amount due to the lender. Other
statutes 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. Finally, other
statutory provisions limit any deficiency judgment against the
former borrower following a judicial sale to the excess of the
outstanding debt over the fair market value of the property at
the time of the public sale. The purpose of these statutes is
generally 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 judicial sale.
In addition to laws limiting or prohibiting deficiency
judgments, numerous other 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 realize upon collateral and/or enforce a
deficiency judgment. For example, with respect to federal
bankruptcy law, 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 in respect of a
mortgage loan on a debtor's residence by paying arrearages 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,
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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
such 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 a general
unsecured creditor for the difference between the value of the
residence and the outstanding balance of the loan.
The Internal Revenue Code of 1986, as amended,
provides priority to certain tax liens over the lien of the
mortgage. In addition, substantive requirements are imposed upon
mortgage lenders in connection with the origination and the
servicing of mortgage loans by numerous federal and some state
consumer protection laws. 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, their related regulations and related statutes. These
federal laws impose specific statutory liabilities upon
lenders who originate 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.
Enforceability of Certain Provisions
Unless the Prospectus Supplement indicates otherwise,
all of the Mortgage Loans will contain due-on-sale clauses. These
clauses permit the lender to accelerate the maturity of a loan if
the borrower sells, transfers, or conveys the property. The
enforceability of these clauses was the subject of legislation or
litigation in many states, and in some cases the enforceability
of these clauses was limited or denied. However, the Garn-St
Germain Depository Institutions Act of 1982 (the "Garn-St Germain
Act") preempts state constitutional, statutory and case law
prohibiting the enforcement of due-on-sale clauses and permits
lenders to enforce these clauses in accordance with their terms,
subject to certain limited exceptions. The Garn-St Germain Act
does "encourage" lenders to permit assumption of loans at the
original rate of interest or at some other rate less than the
average of the original rate and the market rate.
Due-on-sale clauses contained in mortgage loans
originated by federal savings and loan associations or federal
savings banks are fully enforceable pursuant to regulations of
the Office of Thrift Supervision (the "OTS"), as successor to the
Federal Home Loan Bank Board, which preempt state law
restrictions on the enforcement of due-on-sale clauses.
The Garn-St Germain Act also sets forth nine specific
instances in which a mortgage lender covered by the Garn-St
Germain Act (including federal savings and loan associations and
federal savings banks) may not exercise a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have
occurred. These include intra-family transfers, certain transfers
by operation of law, leases of fewer than three years and the
creation of a junior encumbrance. Regulations promulgated under
the Garn-St Germain Act by the Federal Home Loan Bank Board as
succeeded by the OTS also prohibit the imposition of a prepayment
penalty upon the acceleration of a loan pursuant to a due-on-sale
clause. If interest rates were to rise above the interest rates
on the Mortgage Loans, then any inability of the Servicer to
enforce due-on-sale clauses may result in the Trust Fund
including a greater number of loans bearing below-market interest
rates than would otherwise be the case, since a transferee of the
property underlying a Mortgage Loan would have a greater
incentive in such circumstances to assume the transferor's
Mortgage Loan. Any inability of the Servicer to enforce
due-on-sale clauses may affect the average life of the Mortgage
Loans and the number of Mortgage Loans that may be outstanding
until maturity.
Upon foreclosure, courts have imposed general
equitable principles. These equitable principles are generally
designed to relieve the borrower from the legal effect of his
defaults under the loan documents.
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Examples of judicial remedies that have been fashioned include
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 substituted their judgment for
the lender's judgment and have required that lenders reinstate
loans or recast payment schedules in order to accommodate
borrowers who are suffering from temporary financial disability.
In other cases, courts have limited the right of the lender to
foreclose if the default under the mortgage instrument is not
monetary, such as the borrower failing to adequately maintain the
property or the borrower executing a second mortgage or deed of
trust affecting the property.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation
and Monetary Control Act of 1980, enacted in March 1980 ("Title
V"), provides that state usury limitations shall not apply to
certain types of residential first mortgage loans originated by
certain lenders after March 31, 1980. The OTS, as successor to
the Federal Home Loan Bank Board, 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. In addition, even where Title V
is not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on mortgage
loans covered by Title V.
Under the Agreement for each series of Certificates,
the Seller will represent and warrant to the Trustee that the
Mortgage Loans have been originated in compliance in all material
respects with applicable state laws, including usury laws.
Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Soldiers' and
Sailors' Civil Relief Act of 1940, as amended (the "Relief Act"),
a borrower who enters military service after the origination of
such borrower's Mortgage 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 Mortgage Loan and is later called to
active duty) may not be charged interest above an annual rate of
6% during the period of such borrower's active duty status,
unless a court orders otherwise upon application of the lender.
It is possible that such interest rate limitation could have an
effect, for an indeterminate period of time, on the ability of
the Servicer to collect full amounts of interest on certain of
the Mortgage Loans. In addition, the Relief Act imposes
limitations which would impair the ability of the Servicer to
foreclose on an affected Mortgage Loan during the borrower's
period of active duty status. Thus, in the event that such a
Mortgage Loan goes into default there may be delays and losses
occasioned by the inability to realize upon the Mortgaged
Property in a timely fashion.
Under the applicable Agreement, the Servicer will not
be required to make deposits to the Certificate Account for a
series of Certificates in respect of any Mortgage Loan as to
which the Relief Act has limited the amount of interest the
related borrower is required to pay each month, and
Certificateholders will bear such loss.
Environmental Considerations
Under the federal Comprehensive Environmental Response
Compensation and Liability Act, as amended, and under state law
in certain states, a secured party which takes a deed in lieu of
foreclosure, purchases a mortgaged property at a foreclosure sale
or operates a mortgaged property may become liable in certain
circumstances for the costs of remedial action ("Cleanup Costs")
if hazardous wastes or hazardous substances have been released or
disposed of on the property. Such Cleanup Costs may be
substantial. It is possible that such Cleanup Costs could reduce
the amounts otherwise distributable to the Certificateholders if the
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related Trust Fund were deemed to be liable for such Cleanup
Costs and if such Cleanup Costs were incurred. Moreover, under
federal law and the law of certain states, a lien may be imposed
for any Cleanup Costs incurred by federal or state authorities on
the property that is the subject of such Cleanup Costs. All
subsequent liens on such property are subordinated to such lien
and, in several states, even prior recorded liens, including
those of existing mortgages, are subordinated to such liens (a
"Superlien"). In the latter states, the security interest of the
Trustee in a property that is subject to such a Superlien could
be adversely affected.
Traditionally, residential mortgage lenders have not
taken steps to evaluate whether hazardous wastes or hazardous
substances are present with respect to any mortgaged property
prior to the origination of the mortgage loan or prior to
foreclosure or accepting a deed in lieu of foreclosure. Neither
the Seller nor the Servicer will make any representation or
warranty or assume any liability with respect to the absence or
effect of hazardous wastes or hazardous substances on any
Mortgaged Property or any casualty resulting from the presence or
effect of hazardous wastes or hazardous substances.
Truth in Lending Act
On March 21, 1994, the United States Court of Appeals
for the 11th Circuit ruled in the case of Rodash v. AIB Mortgage
Co. that the federal Truth in Lending Act requires mortgage
lenders to disclose to borrowers the collection of certain
intangible taxes and courier fees as prepaid finance charges.
Since the Rodash decision, class action lawsuits have been
brought against numerous mortgage lending institutions alleging
certain violations of the Truth in Lending Act concerning the
improper disclosure of various fees.
For Truth in Lending violations, one of the remedies
available to the borrowers under certain affected non-purchase
money mortgage loans is rescission, which would require the
borrowers to pay the principal balance of the mortgage loans,
less a credit for interest paid, closing costs and prepaid
finance charges.
Unless otherwise specified in the Prospectus
Supplement, the Seller or another Representing Party will
represent in the Agreement that all applicable laws, including
the Truth in Lending Act, were complied with in connection with
origination of the Mortgage Loans. In the event that such
representation is breached in respect of any Mortgage Loan in a
manner that materially and adversely affects Certificateholders,
the Seller or such Representing Party will be obligated to
repurchase the affected Mortgage Loan at a price equal to the
unpaid principal balance thereof plus accrued interest as
provided in the Agreement or to substitute a new mortgage loan in
place of the affected Mortgage Loan.
LEGAL INVESTMENT MATTERS
Unless otherwise specified in the Prospectus
Supplement, all of the classes of a series of Certificates
offered thereby will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"), so long as they are rated in one of the two highest
rating categories by one or more nationally recognized
statistical rating organizations, and, as such, are 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 pursuant to 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 such entities. Pursuant to
SMMEA, a number of states enacted legislation, on or before
the October 3, 1991 cut-off for such enactments, limiting
to varying extents the ability of certain 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
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SMMEA. Accordingly, the investors affected by such legislation
will be authorized to invest in the Certificates only to the extent
provided in such 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. section 24 (Seventh), subject in each case to
such regulations as the applicable federal regulatory authority
may prescribe. In this connection, federal credit unions should
review National Credit Union Administration (the "NCUA") Letter
to Credit Unions No. 96, as modified by Letter to Credit Unions
No. 108, which includes guidelines to assist federal credit
unions in making investment decisions for mortgage related
securities. The NCUA has adopted rules, effective December 2,
1991, which prohibit federal credit unions from investing in
certain mortgage related securities, possibly including certain
series or classes of Certificates, except under limited
circumstances.
If specified in the Prospectus Supplement, one or more
classes of a series of Certificates will not constitute "mortgage
related securities" for purposes of SMMEA. In such event, persons
whose investments are subject to state or federal regulation may
not be legally authorized to invest in such classes of
Certificates.
All depository institutions considering an investment
in the Certificates should review the "Supervisory Policy
Statement on Securities Activities" dated January 28, 1992 (the
"Policy Statement") of the Federal Financial Institutions
Examination Council. The Policy Statement, which has been adopted
by the Board of Governors of the Federal Reserve System, the
FDIC, the Comptroller of the Currency and the OTS, effective
February 10, 1992, and by the NCUA (with certain modifications)
effective June 26, 1992, prohibits depository institutions from
investing in certain "high-risk mortgage securities" (including
securities such as certain series and classes of the
Certificates), except under limited circumstances, and sets forth
certain 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 such
authorities before purchasing Certificates, as certain series or
classes thereof may be deemed unsuitable investments, or may
otherwise be restricted, under such rules, policies or
guidelines, in certain 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 investments in securities which
are not "interest-bearing" or "income-paying," and, with regard
to any Certificates issued in book-entry form, provisions which
may restrict or prohibit investments in securities which are
issued in book-entry form.
Investors should consult their own legal advisors in
determining whether and to what extent the Certificates
constitute legal investments for such investors.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and the Internal Revenue Code of 1986
(the "Code") impose requirements on employee benefit plans
(and on certain other retirement plans and arrangements,
including individual retirement accounts and annuities,
Keogh plans and collective investment funds and separate
accounts in which such plans, accounts or arrangements are
invested) subject to ERISA or the Code (collectively,
"Plans") and on persons who are fiduciaries with respect
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to such Plans. Among other things, ERISA requires that the assets
of a Plan subject to ERISA be held in trust and that the trustee,
or other duly authorized fiduciary, have exclusive authority and
discretion to manage and control the assets of such Plan. ERISA
also imposes certain duties on persons who are fiduciaries with
respect to a Plan. Under ERISA, any person who exercises any
authority or control respecting the management or disposition of
the assets of a Plan generally is considered to be a fiduciary of
such Plan. In addition to the imposition by ERISA of general
fiduciary standards of investment prudence and diversification,
ERISA and Section 4975 of the Code prohibit a broad range of
transactions involving Plan assets and persons ("Parties in
Interest") having certain specified relationships to a Plan and
impose additional prohibitions where Parties in Interest are
fiduciaries with respect to such Plan.
The United States Department of Labor (the "DOL") has
issued regulations concerning the definition of what constitutes
the assets of a Plan (DOL Reg. Section 2510.3-101). Under this
regulation, the underlying assets and properties of corporations,
partnerships and certain other entities in which a Plan makes an
"equity" investment could be deemed for purposes of ERISA and
Section 4975 of the Code to be assets of the investing Plan in
certain circumstances. In such a case, the fiduciary making such
an investment for the Plan could be deemed to have delegated his
or her asset management responsibility, the underlying assets and
properties could be subject to ERISA's reporting and disclosure
requirements, and transactions involving the underlying assets
and properties could be subject to the fiduciary responsibility
requirements of ERISA and Section 4975 of the Code. Certain
exceptions to the regulation may apply in the case of a Plan's
investment in the Certificates, but it cannot be predicted in
advance whether such exceptions will apply due to the factual
nature of the conditions to be met. Accordingly, because the
Mortgage Loans may be deemed Plan assets of each Plan that
purchases Certificates, an investment in the Certificates by a
Plan might give rise to a prohibited transaction under ERISA
Sections 406 or 407 and be subject to an excise tax under Code
Section 4975 unless a statutory or administrative exemption
applies.
DOL Prohibited Transaction Class Exemption 83-1 ("PTE
83-1") exempts from the prohibited transaction rules of ERISA and
Section 4975 of the Code certain transactions relating to the
operation of residential mortgage pool investment trusts and the
purchase, sale and holding of "mortgage pool pass-through
certificates" in the initial issuance of such certificates. PTE
83-1 permits, subject to certain conditions, transactions which
might otherwise be prohibited between Plans and Parties in
Interest with respect to those Plans involving the origination,
maintenance and termination of mortgage pools consisting of
mortgage loans secured by first or second mortgages or deeds of
trust on single-family residential property, and the acquisition
and holding of certain mortgage pool pass-through certificates
representing an interest in such mortgage pools by Plans.
PTE 83-1 sets forth three general conditions which
must be satisfied for any transaction to be eligible for
exemption: (i) the maintenance of a system of insurance or other
protection for the pooled mortgage loans and property securing
such loans, and for indemnifying certificateholders against
reductions in pass-through payments due to property damage or
defaults in loan payments in an amount not less than the greater
of one percent of the aggregate principal balance of all covered
pooled mortgage loans or the principal balance of the largest
covered pooled mortgage loan; (ii) the existence of a pool
trustee who is not an affiliate of the pool sponsor; and (iii) a
limitation on the amount of the payments retained by the pool
sponsor, together with other funds inuring to its benefit, to not
more than adequate consideration for selling the mortgage loans
plus reasonable compensation for services provided by the pool
sponsor to the mortgage pool.
Although the Trustee for any series of Certificates
will be unaffiliated with the Servicer, there can be no assurance
that the system of insurance or subordination will meet the
general or specific conditions referred to above. In addition,
the nature of a Trust Fund's assets or the characteristics of one
or more classes of the related series of Certificates may not be
included within the scope of PTE 83-1 or any other class
exemption under ERISA. The Prospectus Supplement will provide
additional information with respect to the application of ERISA
and the Code to the related Certificates.
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Several underwriters of mortgage-backed securities have
applied for and obtained individual prohibited transaction exemptions
which are in some respects broader than PTE 83-1. Such exemptions
only apply to mortgage-backed securities which, in addition to
satisfying other conditions, are sold in an offering with respect
to which such underwriter serves as the sole or a managing
underwriter, or as a selling or placement agent. If such an
exemption might be applicable to a series of Certificates, the
related Prospectus Supplement will refer to such possibility.
Each Plan fiduciary who is responsible for making the
investment decisions whether to purchase or commit to purchase
and to hold Certificates must make its own determination as to
whether the general and the specific conditions of PTE 83-1 have
been satisfied, or as to the availability of any other prohibited
transaction exemptions. Each Plan fiduciary should also determine
whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the 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.
Unless otherwise specified in the Prospectus
Supplement, the Agreement will provide that the Residual
Certificates of any series of Certificates with respect to which
a REMIC election has been made may not be acquired by a Plan.
Any Plan proposing to invest in Certificates should
consult with its counsel to confirm that such investment will not
result in a prohibited transaction and will satisfy the other
requirements of ERISA and the Code.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following generally describes the anticipated
material federal income tax consequences of purchasing, owning
and disposing of Certificates. It does not address special rules
which may apply to particular types of investors. The authorities
on which this discussion is based are subject to change or
differing interpretations, and any such change or interpretation
could apply retroactively. Investors should consult their own tax
advisors regarding the Certificates.
For purposes of this discussion, unless otherwise
specified, the term "Owner" will refer to the beneficial owner of
a Certificate.
REMIC Elections
Under the Internal Revenue Code of 1986 (the "Code"),
an election may be made to treat the Trust Fund related to each
Series of Certificates (or segregated pools of assets within the
Trust Fund) as a "real estate mortgage investment conduit"
("REMIC") within the meaning of Section 860D(a) of the Code. If
one or more REMIC elections are made, the Certificates of any
class will be either "regular interests" in a REMIC within the
meaning of Section 860G(a)(1) of the Code ("Regular
Certificates") or "residual interests" in a REMIC within the
meaning of Section 860G(a)(2) of the Code ("Residual
Certificates"). The Prospectus Supplement for each Series of
Certificates will indicate whether an election will be made to
treat the Trust Fund as one or more REMICs, and if so, which
Certificates will be Regular Certificates and which will be
Residual Certificates.
If a REMIC election is made, the Trust Fund, or each
portion thereof that is treated as a separate REMIC, will be
referred to as a "REMIC Pool". If the Trust Fund is comprised of
two REMIC Pools, one will be an "Upper-Tier REMIC" and one a
"Lower-Tier REMIC". The assets of the Lower-Tier REMIC
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will consist of the Mortgage Loans and related Trust Fund assets.
The assets of the Upper-Tier REMIC will consist of all of the
regular interests issued by the Lower-Tier REMIC.
The discussion below under the heading "REMIC
Certificates" considers Series for which a REMIC election will be
made. Series for which no such election will be made are
addressed under "Non-REMIC Certificates".
REMIC Certificates
The discussion in this section applies only to a
Series of Certificates for which a REMIC election is made.
Tax Opinion.
Qualification as a REMIC requires ongoing compliance
with certain conditions. Upon the issuance of each Series of
Certificates for which a REMIC election is made, Cleary,
Gottlieb, Steen & Hamilton, counsel to the Seller, will deliver
its opinion generally to the effect that, with respect to each
such Series of Certificates, under then existing law and assuming
compliance by the Seller, the Servicer and the Trustee for such
Series with all of the provisions of the related Agreement (and
such other agreements and representations as may be referred to
in such opinion), each REMIC Pool will be a REMIC, and the
Certificates of such Series will be treated as either Regular
Certificates or Residual Certificates.
Status of Certificates.
The Certificates will be:
o assets described in Code Section 7701(a)(19)(C); and
o "real estate assets" under Code Section 856(c)(5)(A),
to the extent the assets of the related REMIC Pool are
so treated. Interest on the Regular Certificates will be
"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 the income of the REMIC
Pool is so treated. If at all times 95% or more of the assets or
income of the REMIC Pool qualifies under the foregoing Code
sections, the Certificates (and income thereon) will so qualify
in their entirety.
In the event the assets of the related REMIC Pool
include buy-down Mortgage Loans, it is unclear whether the
related buy-down funds would qualify under the foregoing Code
sections.
The rules described in the two preceding paragraphs
will be applied to a Trust Fund consisting of two REMIC Pools as
if the Trust Fund were a single REMIC holding the assets of the
Lower-Tier REMIC.
Income from Regular Certificates.
General. Except as otherwise provided in this tax
discussion, Regular Certificates will be taxed as newly
originated debt instruments for federal income tax purposes.
Interest, original issue discount and market discount accrued on
a Regular Certificate will be ordinary income to the Owner. All
Owners must account for interest income under the accrual method
of accounting, which may result in the inclusion of amounts in
income that are not currently distributed in cash.
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On January 27, 1994 the Internal Revenue Service adopted
regulations applying the original issue discount rules of the
Code (the "OID Regulations"). Except as otherwise noted, the
discussion below is based on the OID Regulations.
Original Issue Discount. Certain Regular Certificates
may have "original issue discount." An Owner must include
original issue discount in income as it accrues, without regard
to the timing of payments.
The total amount of original issue discount on a
Regular Certificate is the excess of its "stated redemption price
at maturity" over its "issue price." The issue price for any
Regular Certificate is the price (including any accrued interest)
at which a substantial portion of the class of Certificates
including such Regular Certificate are first sold to the public.
In general, the stated redemption price at maturity is the sum of
all payments made on the Regular Certificate, other than payments
of interest that (i) are actually payable at least annually over
the entire life of the Certificates and (ii) are based on a
single fixed rate or variable rate (or certain combinations of
fixed and variable rates). The stated redemption price at
maturity of a Regular Certificate always includes its original
principal amount, but generally does not include distributions of
stated interest, except in the case of Accrual Certificates, and,
as discussed below, Interest Only Certificates. An "Interest Only
Certificate" is a Certificate entitled to receive distributions
of some or all of the interest on the Mortgage Loans or other
assets in a REMIC Pool and that has either a notional or nominal
principal amount. Special rules for Regular Certificates that
provide for interest based on a variable rate are discussed below
in "Income from Regular Certificates -- Variable Rate Regular
Certificates".
With respect to an Interest Only Certificate, the
stated redemption price at maturity is likely to be the sum of
all payments thereon, determined in accordance with the
Prepayment Assumption (as defined below). In that event, Interest
Only Certificates would always have original issue discount.
Alternatively, in the case of an Interest Only Certificate with
some principal amount, the stated redemption price at maturity
might be determined under the general rules described in the
preceding paragraph. If, applying those rules, the stated
redemption price at maturity were considered to equal the
principal amount of such Certificate, then the rules described
below under "Premium" would apply. The Prepayment Assumption is
the assumed rate of prepayment of the Mortgage Loans used in
pricing the Regular Certificates. The Prepayment Assumption will
be set forth in the related Supplement.
Under a de minimis rule, original issue discount on a
Regular Certificate will be considered zero if it is less than
0.25% of the Certificate's stated redemption price at maturity
multiplied by the Certificate's weighted average maturity. The
weighted average maturity of a Regular Certificate is computed
based on the number of full years (i.e., rounding down partial
years) each distribution of principal (or other amount included
in the stated redemption price at maturity) is scheduled to be
outstanding. The schedule of such distributions likely should be
determined in accordance with the Prepayment Assumption.
The Owner of a Regular Certificate generally must
include in income the original issue discount that accrues for
each day on which the Owner holds such Certificate, including the
date of purchase, but excluding the date of disposition. The
original issue discount accruing in any period equals:
PV End + Dist - PV Beg
Where:
PV End = present value of all remaining distributions to be made
as of the end of the period;
Dist = distributions made during the period includible in the
stated redemption price at maturity; and
PV Beg = present value of all remaining distributions as of the
beginning of the period.
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The present value of the remaining distributions is
calculated based on (i) the original yield to maturity of the
Regular Certificate, (ii) events (including actual prepayments)
that have occurred prior to the end of the period and (iii) the
Prepayment Assumption. For these purposes, the original yield to
maturity of a Regular Certificate will be calculated based on its
issue price, assuming that the Certificate will be prepaid in all
periods in accordance with the Prepayment Assumption, and with
compounding at the end of each accrual period used in the
formula.
Assuming the Regular Certificates have monthly
Distribution Dates, discount would be computed under the formula
generally for the one-month periods (or shorter initial period)
ending on each Distribution Date. The original issue discount
accruing during any accrual period is divided by the number of
days in the period to determine the daily portion of original
issue discount for each day.
The daily portions of original issue discount
generally will increase if prepayments on the underlying Mortgage
Loans exceed the Prepayment Assumption and decrease if
prepayments are slower than the Prepayment Assumption (changes in
the rate of prepayments having the opposite effect in the case of
an Interest Only Certificate). If the relative principal payment
priorities of the classes of Regular Certificates of a Series
change, any increase or decrease in the present value of the
remaining payments to be made on any such class will affect the
computation of original issue discount for the period in which
the change in payment priority occurs.
If original issue discount computed as described above
is negative for any period, the Owner generally will not be
allowed a current deduction for the negative amount but instead
will be entitled to offset such amount only against future
positive original issue discount from such Certificate. However,
while not free from doubt, such an Owner may be entitled to
deduct "negative original issue discount" to the extent the
Owner's adjusted basis (as defined in "Sale or Exchange of
Certificates" below) in the Certificate remaining after such
deduction is not less than the principal amount of the
Certificate.
Acquisition Premium. If an Owner of a Regular
Certificate acquires such Certificate at a price greater than its
"adjusted issue price," but less than its remaining stated
redemption price at maturity, the daily portion for any day (as
computed above) is reduced by an amount equal to the product of
(i) such daily portion and (ii) a fraction, the numerator of
which is the amount by which the price exceeds the adjusted issue
price and the denominator of which is the sum of the daily
portions for such Regular Certificate for all days on and after
the date of purchase. The adjusted issue price of a Regular
Certificate on any given day is its issue price, increased by all
original issue discount that has accrued on such Certificate and
reduced by the amount of all previous distributions on such
Certificate of amounts included in its stated redemption price at
maturity.
Market Discount. A Regular Certificate may have market
discount (as defined in the Code). Market discount equals the
excess of the adjusted issue price of a Certificate over the
Owner's adjusted basis in the Certificate. The Owner of a
Certificate with market discount must report ordinary interest
income, as the Owner receives distributions on the Certificate of
principal or other amounts included in its stated redemption
price at maturity, equal to the lesser of (a) the excess of the
amount of those distributions over the amount, if any, of accrued
original issue discount on the Certificate or (b) the portion of
the market discount that has accrued and not previously been
included in income. Also, such Owner must treat gain from the
disposition of the Certificate as ordinary income to the extent
of any accrued, but unrecognized, market discount. Alternatively,
an Owner may elect in any taxable year to include market discount
in income currently as it accrues on all market discount
instruments acquired by the Owner in that year or thereafter. An
Owner may revoke such an election only with the consent of the
Internal Revenue Service.
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In general terms, market discount on a Regular Certificate
may be treated, at the Owner's election, as accruing either (a) on the
basis of a constant yield (similar to the method described above
for accruing original issue discount) or (b) alternatively,
either (i) in the case of a Regular Certificate issued without
original issue discount, in the ratio of stated interest
distributable in the relevant period to the total stated interest
remaining to be distributed from the beginning of such period
(computed taking into account the Prepayment Assumption) or (ii)
in the case of a Regular Certificate issued with original issue
discount, in the ratio of the amount of original issue discount
accruing in the relevant period to the total remaining original
issue discount at the beginning of such period. An election to
accrue market discount on a Regular Certificate on a constant
yield basis is irrevocable with respect to that Certificate.
An Owner may be required to defer a portion of the
deduction for interest expense on any indebtedness that the Owner
incurs or maintains in order to purchase or carry a Regular
Certificate that has market discount. The deferred amount would
not exceed the market discount that has accrued but not been
taken into income. Any such deferred interest expense is, in
general, allowed as a deduction not later than the year in which
the related market discount income is recognized.
Market discount with respect to a Regular Certificate
will be considered to be zero if such market discount is de
minimis under a rule similar to that described above in the
fourth paragraph under "Original Issue Discount". Owners should
consult their own tax advisors regarding the application of the
market discount rules as well as the advisability of making any
election with respect to market discount.
Discount on a Regular Certificate that is neither
original issue discount nor market discount, as defined above,
must be allocated ratably among the principal payments on the
Certificate and included in income (as gain from the sale or
exchange of the Certificate) as the related principal payments
are made (whether as scheduled payments or prepayments).
Premium. A Regular Certificate, other than an Accrual
Certificate or, as discussed above under "Original Issue
Discount", an Interest Only Certificate, purchased at a cost (net
of accrued interest) greater than its principal amount generally
is considered to be purchased at a premium. The Owner may elect
under Code Section 171 to amortize such premium under the
constant yield method, using the Prepayment Assumption. To the
extent the amortized premium is allocable to interest income from
the Regular Certificate, it is treated as an offset to such
interest rather than as a separate deduction. An election made by
an Owner would generally apply to all its debt instruments and
may not be revoked without the consent of the Internal Revenue
Service.
Special Election to Apply OID Rules. In lieu of the
rules described above with respect to de minimis discount,
acquisition premium, market discount and premium, an Owner of a
Regular Certificate may elect to accrue such discount, or adjust
for such premium, by applying the principles of the OID rules
described above. An election made by a taxpayer with respect to
one obligation can affect other obligations it holds. Owners
should consult with their tax advisors regarding the merits of
making this election.
Retail Regular Certificates. For purposes of the
original issue and market discount rules, a repayment in full of
a Retail Certificate that is subject to payment in units or other
increments, rather than on a pro rata basis with other Retail
Certificates, will be treated in the same manner as any other
prepayment.
Variable Rate Regular Certificates. The Regular
Certificates may provide for interest that varies based on an
interest rate index. The OID Regulations provide special rules
for calculating income from certain "variable rate debt
instruments" or "VRDIs." A debt instrument must meet certain
technical requirements to qualify as a VRDI, which are outlined
in the next paragraph. Under the regulations, income on a VRDI is
calculated by (1) creating a hypothetical debt instrument that
pays fixed interest at rates equivalent to the variable interest,
(2) applying the original issue discount rules of the Code to
that fixed rate instrument, and
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(3) adjusting the income accruing in any accrual period by the
difference between the assumed fixed interest amount and the
actual amount for the period. In general, where a variable rate
on a debt instrument is based on an interest rate index (such as
LIBOR), a fixed rate equivalent to a variable rate is determined
based on the value of the index as of the issue date of the debt
instrument. In cases where rates are reset at different intervals
over the life of a VRDI, adjustments are made to ensure that the
equivalent fixed rate for each accrual period is based on the
same reset interval.
A debt instrument must meet a number of requirements
in order to qualify as a VRDI. A VRDI cannot be issued at a
premium above its principal amount that exceeds a specified
percentage of its principal amount (15%, or if less 1.5% times
its weighted average life). As a result, Interest Only
Certificates will never be VRDIs. Also, a debt instrument that
pays interest based on a multiple of an interest rate index is
not a VRDI if the multiple is less than or equal to 0.65 or
greater than 1.35, unless, in general, interest is paid based on
a single formula that lasts over the life of the instrument. A
debt instrument is not a VRDI if it is subject to caps and
floors, unless they remain the same over the life of the
instrument or are not expected to change significantly the yield
on the instrument. Variable rate Regular Certificates other than
Interest Only Certificates may or may not qualify as VRDIs
depending on their terms.
In a case where a variable rate Regular Certificate
does not qualify as a VRDI, it will be treated under the OID
Regulations as a contingent payment debt instrument. The Internal
Revenue Service has issued final regulations addressing
contingent payment debt instruments, but such regulations are not
applicable by their terms to REMIC regular interests. Until
further guidance is forthcoming, one method of calculating income
on such a Regular Certificate that appears to be reasonable would
be to apply the principles governing VRDIs outlined above.
Subordinated Certificates. Certain Series of
Certificates may contain one or more classes of subordinated
Certificates. In the event there are defaults or delinquencies on
the related Mortgage Loans, amounts that otherwise would be
distributed on a class of subordinated Certificates may instead
be distributed on other more senior classes of Certificates.
Since Owners of Regular Certificates are required to report
income under an accrual method, Owners of subordinated
Certificates will be required to report income without giving
effect to delays and reductions in distributions on such
Certificates attributable to defaults or delinquencies on the
Mortgage Loans, except to the extent that it can be established
that amounts are uncollectible. As a result, the amount of income
reported by an Owner of a subordinated Certificate in any period
could significantly exceed the amount of cash distributed to such
Owner in that period. The Owner will eventually be allowed a loss
(or be allowed to report a lesser amount of income) to the extent
that the aggregate amount of distributions on the subordinated
Certificate is reduced as a result of defaults and delinquencies
on the Mortgage Loans. Such a loss could in some circumstances be
a capital loss. Also, the timing and amount of such losses or
reductions in income are uncertain. Owners of subordinated
Certificates should consult their tax advisors on these points.
Income from Residual Certificates.
Taxation of REMIC Income. Generally, Owners of
Residual Certificates in a REMIC Pool ("Residual Owners") must
report ordinary income or loss equal to their pro rata shares
(based on the portion of all Residual Certificates they own) of
the taxable income or net loss of the REMIC. Such income must be
reported regardless of the timing or amounts of distributions on
the Residual Certificates.
The taxable income of a REMIC Pool is generally
determined under the accrual method of accounting in the same
manner as the taxable income of an individual taxpayer. Taxable
income is generally gross income, including interest and original
issue discount income, if any, on the assets of the REMIC Pool
and income from the amortization of any premium on Regular
Certificates, minus deductions. Market discount (as defined
in the Code) with respect to Mortgage Loans held by a
REMIC Pool is recognized in the same fashion as if it
were original issue discount. Deductions include interest
and original issue discount expense on the Regular
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Certificates, reasonable servicing fees attributable to the REMIC
Pool, other administrative expenses and amortization of any
premium on assets of the REMIC Pool. As previously discussed, the
timing of recognition of "negative original issue discount," if
any, on a Regular Certificate is uncertain; as a result, the
timing of recognition of the corresponding income to the REMIC
Pool is also uncertain.
If the Trust Fund consists of an Upper-Tier REMIC and
a Lower-Tier REMIC, the OID Regulations provide that the regular
interests issued by the Lower-Tier REMIC to the Upper- Tier REMIC
will be treated as a single debt instrument for purposes of the
original issue discount provisions. A determination that these
regular interests are not treated as a single debt instrument
would have a material adverse effect on the Owners of Residual
Certificates issued by the Lower-Tier REMIC.
A Residual Owner may not amortize the cost of its
Residual Certificate. Taxable income of the REMIC Pool, however,
will not include cash received by the REMIC Pool that represents
a recovery of the REMIC Pool's initial basis in its assets, and
such basis will include the issue price of the Residual
Certificates (assuming the issue price is positive). Such
recovery of basis by the REMIC Pool will have the effect of
amortization of the issue price of the Residual Certificate over
its life. The period of time over which such issue price is
effectively amortized, however, may be longer than the economic
life of the Residual Certificate. The issue price of a Residual
Certificate is the price at which a substantial portion of the
class of Certificates including the Residual Certificate are
first sold to the public (or if the Residual Certificate is not
publicly offered, the price paid by the first buyer).
A subsequent Residual Owner must report the same
amounts of taxable income or net loss attributable to the REMIC
Pool as an original Owner. No adjustments are made to reflect the
purchase price.
Losses. A Residual Owner that is allocated a net loss
of the REMIC Pool may not deduct such loss currently to the
extent it exceeds the Owner's adjusted basis (as defined in "Sale
or Exchange of Certificates" below) in its Residual Certificate.
A Residual Owner that is a U.S. person (as defined below in
"Taxation of Certain Foreign Investors"), however, may carry over
any disallowed loss to offset any taxable income generated by the
same REMIC Pool.
Excess Inclusions. A portion of the taxable income
allocated to a Residual Certificate is subject to special tax
rules. That portion, referred to as an "excess inclusion," is
calculated for each calendar quarter and equals the excess of
such taxable income for the quarter over the daily accruals for
the quarter. The daily accruals equal the product of (i) 120% of
the federal long-term rate under Code Section 1274(d) for the
month which includes the Closing Date (determined on the basis of
quarterly compounding and properly adjusted for the length of the
quarter) and (ii) the adjusted issue price of the Certificate at
the beginning of such quarter. The adjusted issue price of a
Residual Certificate at the beginning of a quarter is the issue
price of the Certificate, plus the amount of daily accruals on
the Certificate for all prior quarters, decreased (but not below
zero) by any prior distributions on the Certificate. If the
aggregate value of the Residual Certificates is not considered to
be "significant," then to the extent provided in Treasury
regulations, a Residual Owner's entire share of REMIC taxable
income will be treated as an excess inclusion. The regulations
that have been adopted under Code Sections 860A through 86OG (the
"REMIC Regulations") do not contain such a rule.
Excess inclusions generally may not be offset by
unrelated losses or loss carryforwards or carrybacks of a
Residual Owner. In addition, for all taxable years beginning
after August 20, 1996, and unless a Residual Owner elects
otherwise for all other taxable years, the alternate minimum
taxable income of a Residual Owner for a taxable year may not be
less than the Residual Owner's excess inclusions for the taxable
year and excess inclusions are disregarded when calculating a
Residual Owner's alternate minimum tax operating loss deduction.
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Excess inclusions are treated as unrelated business
taxable income for an organization subject to the tax on unrelated
business income. In addition, under Treasury regulations yet to
be issued, if a real estate investment trust, regulated investment
company or certain other pass-through entities are Residual Owners,
a portion of the distributions made by such entities may be treated
as excess inclusions.
Distributions. Distributions on a Residual Certificate
(whether at their scheduled times or as a result of prepayments)
generally will not result in any taxable income or loss to the
Residual Owner. If the amount of any distribution exceeds a
Residual Owner's adjusted basis in its Residual Certificate,
however, the Residual Owner will recognize gain (treated as gain
from the sale or exchange of its Residual Certificate) to the
extent of such excess. See "Sale or Exchange of Certificates"
below.
Prohibited Transactions; Special Taxes. Net income
recognized by a REMIC Pool from "prohibited transactions" is
subject to a 100% tax and is disregarded in calculating the REMIC
Pool's taxable income. In addition, a REMIC Pool is subject to
federal income tax at the highest corporate rate on "net income
from foreclosure property" (which has a technical definition). A
100% tax also applies to certain contributions to a REMIC Pool
made after it is formed. It is not anticipated that any REMIC
Pool will (i) engage in prohibited transactions in which it
recognizes a significant amount of net income, (ii) receive
contributions of property that are subject to tax, or (iii)
derive a significant amount of net income from foreclosure
property that is subject to tax.
Negative Value Residual Certificates. The federal
income tax treatment of any consideration paid to a transferee on
a transfer of a Residual Certificate is unclear. Such a
transferee should consult its tax advisor. The preamble to the
REMIC Regulations indicates that the Internal Revenue Service may
issue future guidance on the tax treatment of such payments.
In addition, on December 23, 1996, the Internal
Revenue Service released final regulations under Code Section 475
relating to the requirement that a dealer mark certain securities
to market. These regulations provide that a REMIC residual
interest that is acquired on or after January 4, 1995 is not a
"security" for the purposes of Section 475 of the Code, and thus
is not subject to the mark to market rules.
The method of taxation of Residual Certificates
described in this section can produce a significantly less
favorable after-tax return for a Residual Certificate than would
be the case if the Certificate were taxable as a debt instrument.
Also, a Residual Owner's return may be adversely affected by the
excess inclusions rules described above. In certain periods,
taxable income and the resulting tax liability for a Residual
Owner may exceed any distributions it receives. In addition, a
substantial tax may be imposed on certain transferors of a
Residual Certificate and certain Residual Owners that are
"pass-thru" entities. See "Transfers of Residual Certificates"
below. Investors should consult their tax advisors before
purchasing a Residual Certificate.
Sale or Exchange of Certificates.
An Owner generally will recognize gain or loss upon
sale or exchange of a Regular or Residual Certificate equal to
the difference between the amount realized and the Owner's
adjusted basis in the Certificate. The adjusted basis in a
Certificate generally will equal the cost of the Certificate,
increased by income previously recognized, and reduced
(but not below zero) by previous distributions, and by any
amortized premium in the case of a Regular Certificate, or
net losses allowed as a deduction in the case of a Residual
Certificate.
Except as described below, any gain or loss on the
sale or exchange of a Certificate held as a capital asset will be
capital gain or loss and will be long-term or short-term depending
on whether the Certificate has been held for more than one year. Such
gain or loss will be ordinary income or loss (i) for a bank or thrift
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institution, and (ii) in the case of a Regular Certificate, (a)
to the extent of any accrued, but unrecognized, market discount,
or (b) to the extent income recognized by the Owner is less than
the income that would have been recognized if the yield on such
Certificate were 110% of the applicable federal rate under Code
Section 1274(d).
A Residual Owner should be allowed a loss upon
termination of the REMIC Pool equal to the amount of the Owner's
remaining adjusted basis in its Residual Certificates. Whether
the termination will be treated as a sale or exchange (resulting
in a capital loss) is unclear.
Except as provided in Treasury regulations, the wash
sale rules of Code Section 1091 will apply to dispositions of a
Residual Certificate where the seller of the interest, during the
period beginning six months before the sale or disposition of the
interest and ending six months after such sale or disposition,
acquires (or enters into any other transaction that results in
the application of Code Section 1091) any REMIC residual
interest, or any interest in a "taxable mortgage pool" (such as a
non-REMIC owner trust) that is economically comparable to a
residual interest.
Taxation of Certain Foreign Investors.
Regular Certificates. A Regular Certificate held by an
Owner that is a non-U.S. person (as defined below), and that has
no connection with the United States other than owning the
Certificate, will not be subject to U.S. withholding or income
tax with respect to the Certificate provided such Owner (i) is
not a "10-percent shareholder" within the meaning of Code Section
871(h)(3)(B) or a controlled foreign corporation described in
Code Section 881(c)(3)(C), and (ii) provides an appropriate
statement, signed under penalties of perjury, identifying the
Owner and stating, among other things, that the Owner is a
non-U.S. person. If these conditions are not met, a 30%
withholding tax will apply to interest (including original issue
discount) unless an income tax treaty reduces or eliminates such
tax or unless the interest is effectively connected with the
conduct of a trade or business within the United States by such
Owner. In the latter case, such Owner will be subject to United
States federal income tax with respect to all income from the
Certificate at regular rates then applicable to U.S. taxpayers
(and in the case of a corporation, possibly also the branch
profits tax).
The term "non-U.S. person" means any person other than
a U.S. person. A U.S. person is 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, any 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
fiduciaries have the authority to control all substantial decisions
of the trust, or an estate that is subject to U.S. federal income
tax regardless of the source of its income.
Residual Certificates. A Residual Owner that is a
non-U.S. person, and that has no connection with the United
States other than owning a Residual Certificate, will not be
subject to U.S. withholding or income tax with respect to the
Certificate (other than with respect to excess inclusions)
provided that (i) the conditions described in the second
preceding paragraph with respect to Regular Certificates are met
and (ii) in the case of a Residual Certificate in a REMIC Pool
holding Mortgage Loans, the Mortgage Loans were originated after
July 18, 1984. Excess inclusions are subject to a 30% withholding
tax in all events (notwithstanding any contrary tax treaty
provisions) when distributed to the Residual Owner (or when the
Residual Certificate is disposed of). The Code grants the
Treasury Department authority to issue regulations requiring
excess inclusions to be taken into account earlier if necessary
to prevent avoidance of tax. The REMIC Regulations do not contain
such a rule. The preamble thereto states that the Internal
Revenue Service is considering issuing regulations concerning
withholding on distributions to foreign holders of residual
interests to satisfy accrued tax liability due to excess
inclusions.
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With respect to a Residual Certificate that has been held
at any time by a non-U.S. person, the Trustee (or its agent) will be
entitled to withhold (and to pay to the Internal Revenue Service)
any portion of any payment on such Residual Certificate that the
Trustee reasonably determines is required to be withheld. If the
Trustee (or its agent) reasonably determines that a more accurate
determination of the amount required to be withheld from a
distribution can be made within a reasonable period after the
scheduled date for such distribution, it may hold such
distribution in trust for the Residual Owner until such
determination can be made.
Special tax rules and restrictions that apply to
transfers of Residual Certificates to and from non-U.S. persons
are discussed in the next section.
Transfers of Residual Certificates.
Special tax rules and restrictions apply to transfers
of Residual Certificates to disqualified organizations or foreign
investors, and to transfers of noneconomic Residual Certificates.
Disqualified Organizations. In order to comply with
the REMIC rules of the Code, the Agreement will provide that no
legal or beneficial interest in a Residual Certificate may be
transferred to, or registered in the name of, any person unless
(i) the proposed purchaser provides to the Trustee an "affidavit"
(within the meaning of the REMIC Regulations) to the effect that,
among other items, such transferee is not a "disqualified
organization" (as defined below), is not purchasing a Residual
Certificate as an agent for a disqualified organization (i.e., as
a broker, nominee, or other middleman) and is not an entity (a
"Book-Entry Nominee") that holds REMIC residual securities as
nominee to facilitate the clearance and settlement of such
securities through electronic book-entry changes in accounts of
participating organizations and (ii) the transferor states in
writing to the Trustee that it has no actual knowledge that such
affidavit is false.
If despite these restrictions a Residual Certificate
is transferred to a disqualified organization, the transfer may
result in a tax equal to the product of (i) the present value of
the total anticipated future excess inclusions with respect to
such Certificate and (ii) the highest corporate marginal federal
income tax rate. Such a tax generally is imposed on the
transferor, except that if the transfer is through an agent for a
disqualified organization, the agent is liable for the tax. A
transferor is not liable for such tax if the transferee furnishes
to the transferor an affidavit that the transferee is not a
disqualified organization and, as of the time of the transfer,
the transferor does not have actual knowledge that the affidavit
is false.
A disqualified organization may hold an interest in a
REMIC Certificate through a "pass-thru entity" (as defined
below). In that event, the pass-thru entity is subject to tax (at
the highest corporate marginal federal income tax rate) on excess
inclusions allocable to the disqualified organization. However,
such tax will not apply to the extent the pass-thru entity
receives affidavits from record holders of interests in the
entity stating that they are not disqualified organizations and
the entity does not have actual knowledge that the affidavits are
false.
For these purposes, (i) "disqualified organization"
means the United States, any state or political subdivision
thereof, any foreign government, any international organization,
any agency or instrumentality of any of the foregoing, certain
organizations that are exempt from taxation under the Code
(including tax on excess inclusions) and certain corporations
operating on a cooperative basis, and (ii) "pass-thru entity"
means any regulated investment company, real estate investment
trust, common trust fund, partnership, trust or estate and
certain corporations operating on a cooperative basis. Except as
may be provided in Treasury regulations, any person holding an
interest in a pass-thru entity as a nominee for another will,
with respect to that interest, be treated as a pass-thru entity.
Foreign Investors. Under the REMIC Regulations,
a transfer of a Residual Certificate to a non-U.S. person
that will not hold the Certificate in connection with
a U.S. trade or business will be disregarded
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for all federal tax purposes if the Certificate has "tax
avoidance potential." A Residual Certificate has tax avoidance
potential unless, at the time of transfer, the transferor
reasonably expects that:
(i) for each excess inclusion, the REMIC will
distribute to the transferee residual interest holder an amount
that will equal at least 30 percent of the excess inclusion, and
(ii) each such amount will be distributed at or after
the time at which the excess inclusion accrues and not later than
the close of the calendar year following the calendar year of
accrual.
A transferor has such reasonable expectation if the
above test would be met assuming that the REMIC's Mortgage Loans
will prepay at each rate between 50 percent and 200 percent of
the Prepayment Assumption.
The REMIC Regulations also provide that a transfer
of a Residual Certificate from a non-U.S. person to a U.S. person
(or to a non-U.S. person that will hold the Certificate in
connection with a U.S. trade or business) is disregarded if the
transfer has "the effect of allowing the transferor to avoid tax
on accrued excess inclusions."
In light of these provisions, the Agreement provides
that a Residual Certificate may not be purchased by or
transferred to any person that is not a U.S. person, unless (i)
such person holds the Certificate in connection with the conduct
of a trade or business within the United States and furnishes the
transferor and the Trustee with an effective Internal Revenue
Service Form 4224, or (ii) the transferee delivers to both the
transferor and the Trustee an opinion of nationally recognized
tax counsel to the effect that such transfer is in accordance
with the requirements of the Code and the regulations promulgated
thereunder and that such transfer will not be disregarded for
federal income tax purposes.
Noneconomic Residual Certificates. Under the REMIC
Regulations, a transfer of a "noneconomic" Residual Certificate
will be disregarded for all federal income tax purposes if a
significant purpose of the transfer is to impede the assessment
or collection of tax. Such a purpose exists if the transferor, at
the time of the transfer, 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. A transferor is
presumed to lack such knowledge if:
(i) the transferor conducted, at the time of the
transfer, a reasonable investigation of the financial condition
of the transferee and found that the transferee had historically
paid its debts as they came due and found no significant evidence
to indicate that the transferee will not continue to pay its
debts as they become due, and
(ii) the transferee represents to the transferor that
it understands that, as the holder of the noneconomic residual
interest, it may incur tax liabilities in excess of any cash
flows generated by the interest and that it intends to pay taxes
associated with holding the residual interest as they become due.
A Residual Certificate (including a Certificate with
significant value at issuance) is noneconomic unless, at the time
of the transfer, (i) the present value of the expected future
distributions on the Certificate at least equals the product of
the present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in which
the transfer occurs, and (ii) the transferor reasonably expects
that the transferee will receive distributions on the
Certificate, at or after the time at which taxes accrue, in an
amount sufficient to pay the taxes.
The Agreement will provide that no legal or
beneficial interest in a Residual Certificate may be transferred
to, or registered in the name of, any person unless the
transferor represents to the Trustee that it has
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conducted the investigation of the transferee, and made the
findings, described in the preceding paragraph, and the proposed
transferee provides to the Trustee the transferee representations
described in the preceding paragraph, and agrees that it will not
transfer the Certificate to any person unless that person agrees
to comply with the same restrictions on future transfers.
Servicing Compensation and Other REMIC Pool Expenses.
Under Code Section 67, an individual, estate or trust
is allowed certain itemized deductions only to the extent that
such deductions, in the aggregate, exceed 2% of the Owner's
adjusted gross income, and such a person is not allowed such
deductions to any extent in computing its alternative minimum tax
liability. Under Treasury regulations, if such a person is an
Owner of a REMIC Certificate, the REMIC Pool is required to
allocate to such a person its share of the servicing fees and
administrative expenses paid by a REMIC together with an equal
amount of income. Those fees and expenses are deductible as an
offset to the additional income, but subject to the 2% floor.
In the case of a REMIC Pool that has multiple classes
of Regular Certificates with staggered maturities, fees and
expenses of the REMIC Pool would be allocated entirely to the
Owners of Residual Certificates. However, if the REMIC Pool were
a "single-class REMIC" as defined in applicable Treasury
regulations, such deductions would be allocated proportionately
among the Regular and Residual Certificates.
Reporting and Administrative Matters.
Annual reports will be made to the Internal Revenue
Service, and to Holders of record of Regular Certificates, and
Owners of Regular Certificates holding through a broker, nominee
or other middleman, that are not excepted from the reporting
requirements, of accrued interest, original issue discount,
information necessary to compute accruals of market discount,
information regarding the percentage of the REMIC Pool's assets
meeting the qualified assets tests described above under "Status
of Certificates" and, where relevant, allocated amounts of
servicing fees and other Code Section 67 expenses. Holders not
receiving such reports may obtain such information from the
related REMIC by contacting the person designated in IRS
Publication 938. Quarterly reports will be made to Residual
Holders showing their allocable shares of income or loss from the
REMIC Pool, excess inclusions, and Code Section 67 expenses.
The Trustee will sign and file federal income tax
returns for each REMIC Pool. To the extent allowable, the Trustee
will act as the tax matters person for each REMIC Pool. Each
Owner of a Residual Certificate, by the acceptance of its
Residual Certificate, agrees that the Trustee will act as the
Owner's agent in the performance of any duties required of the
Owner in the event that the Owner is the tax matters person.
An Owner of a Residual Certificate is required to
treat items on its federal income tax return consistently with
the treatment of the items on the REMIC Pool's return, unless the
Owner owns 100% of the Residual Certificate for the entire
calendar year or the Owner either files a statement identifying
the inconsistency or establishes that the inconsistency resulted
from incorrect information received from the REMIC Pool. The
Internal Revenue Service may assess a deficiency resulting from a
failure to comply with the consistency requirement without
instituting an administrative proceeding at the REMIC level. Any
person that holds a Residual Certificate as a nominee for another
person may be required to furnish the REMIC Pool, in a manner to
be provided in Treasury regulations, the name and address of such
other person and other information.
Non-REMIC Certificates
The discussion in this Section applies only to a
Series of Certificates for which no REMIC election is made.
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<PAGE>
Trust Fund as Grantor Trust.
Upon issuance of each series of Certificates, Cleary,
Gottlieb, Steen & Hamilton, counsel to the Seller, will deliver
its opinion to the effect that, under then current law, assuming
compliance by the Seller, the Servicer and the Trustee with all
the provisions of the Agreement (and such other agreements and
representations as may be referred to in the opinion), the Trust
Fund will be classified for federal income tax purposes as a
grantor trust and not as an association taxable as a corporation.
Under the grantor trust rules of the Code, each Owner
of a Certificate will be treated for federal income tax purposes
as the owner of an undivided interest in the Mortgage Loans (and
any related assets) included in the Trust Fund. The Owner will
include in its gross income, gross income from the portion of the
Mortgage Loans allocable to the Certificate, and may deduct its
share of the expenses paid by the Trust Fund that are allocable
to the Certificate, at the same time and to the same extent as if
it had directly purchased and held such interest in the Mortgage
Loans and had directly received payments thereon and paid such
expenses. If an Owner is an individual, trust or estate, the
Owner will be allowed deductions for its share of Trust Fund
expenses (including reasonable servicing fees) only to the extent
that the sum of those expenses and the Owner's other
miscellaneous itemized deductions exceeds 2% of adjusted gross
income, and will not be allowed to deduct such expenses for
purposes of the alternative minimum tax. Distributions on a
Certificate will not be taxable to the Owner, and the timing or
amount of distributions will not affect the timing or amount of
income or deductions relating to a Certificate.
Status of the Certificates.
The Certificates, other than Interest Only Certificates,
will be:
o "real estate assets" under Code Section 856(c)(5)(A);
and
o assets described in Section 7701(a)(19)(C) of the
Code,
to the extent the assets of the Trust Fund are so treated.
Interest income from such Certificates will be "interest on
obligations secured by mortgages on real property" under Code
Section 856(c)(3)(B) to the extent the income of the Trust Fund
qualifies under that section. An "Interest Only Certificate" is a
Certificate which is entitled to receive distributions of some or
all of the interest on the Mortgage Loans or other assets in a
REMIC Pool and that has either a notional or nominal principal
amount. Although not certain, Certificates that are Interest Only
Certificates should qualify under the foregoing Code sections to
the same extent as other Certificates.
Possible Application of Stripped Bond Rules.
The federal income tax treatment of Certificates will
depend on whether they are subject to the "stripped bond" rules
of Code Section 1286. In general, Certificates will be subject to
those rules in the hands of an Owner if (i) the Seller (or anyone
else) retains rights to receive more than 100 basis points of
interest on any Mortgage Loans assigned to the Trust Fund
(disregarding rights to reasonable servicing compensation, but
including rights to fees in excess of reasonable compensation),
or (ii) Certificates are issued in two or more classes
representing rights to non-pro rata shares of interest and
principal payments on the Mortgage Loans.
Notwithstanding the foregoing, a Certificate will not
be subject to the stripped bond rules in the hands of an Owner
unless, viewing the Certificate as a debt instrument issued by
the Trust Fund, it would have original issue discount. In
general, a Certificate will not have original issue discount if
it pays interest at a fixed rate, or a single variable rate,
monthly over its entire life, is issued within one month of the
first Distribution Date, and is issued with no more than a de
minimis amount of discount below its principal amount. Discount
is de minimis if the Certificate has an issue price (generally
the initial offering price at which a substantial amount
57
<PAGE>
of Certificates are sold) that is not less than its principal
amount by more than .25% times the weighted average life of the
Certificate (calculated by rounding down the number of years to
each principal payment to the next lowest number). For a more
detailed discussion of the definition of original issue discount,
see "REMIC Certificates -- Income from Regular Certificates --
Original Issue Discount" above.
Taxation of Certificates if Stripped Bond Rules Do Not Apply.
If the stripped bond rules do not apply to a
Certificate, then the Owner will be required to include in income
its share of the interest payments on the Mortgage Loans held by
the Trust Fund in accordance with its tax accounting method. The
Owner must also account for discount or premium on the Mortgage
Loans if it is considered to have purchased its interest in the
Mortgage Loans at a discount or premium. An Owner will be
considered to have purchased an interest in each Mortgage Loan at
a price determined by allocating its purchase price for the
Certificate among the Mortgage Loans in proportion to their fair
market values at the time of purchase. It is likely that discount
would be considered to accrue and premium would be amortized, as
described below, based on an assumption that there will be no
future prepayments of the Mortgage Loans, and not based on a
reasonable prepayment assumption.
Discount. The treatment of any discount relating to a
Mortgage Loan will depend on whether the discount is original
issue discount or market discount. Discount at which a Mortgage
Loan is purchased will be original issue discount only if the
Mortgage Loan itself has original issue discount; the issuance of
Certificates is not considered a new issuance of a debt
instrument that can give rise to original issue discount. A
Mortgage Loan generally will be considered to have original issue
discount if the greater of the amount of points charged to the
borrower, or the amount of any interest foregone during any
initial teaser period, exceeds .167% of the principal amount of
the Mortgage Loan times the number of full years to maturity
(i.e., 5% of the principal amount for a 30 year loan), or if
interest is not paid at a fixed rate or a single variable rate
(disregarding any initial teaser rate) over the life of the
Mortgage Loan. It is not anticipated that the amount of original
issue discount, if any, accruing on the Mortgage Loans in each
month will be significant relative to the interest paid currently
on the Mortgage Loans, but there can be no assurance that this
will be the case.
In the case of a Mortgage Loan that is considered to
have been purchased with market discount that exceeds a de
minimis amount (generally, .167% of the principal amount times
the number of whole years to maturity remaining at the time of
purchase), the Owner will be required to include in income in
each month the amount of such discount that has accrued through
such month and not previously been included in income, but
limited to the amount of principal on the Mortgage Loan that is
received by the Trust Fund in that month. Because the Mortgage
Loans will provide for monthly principal payments, such discount
may be required to be included in income at a rate that is not
significantly slower than the rate at which such discount
accrues. Any market discount that has not previously been
included in income will be recognized as ordinary income if and
when the Mortgage Loan is prepaid in full. For a more detailed
discussion of the market discount rules of the Code, see "REMIC
Certificates -- Income from Regular Certificates -- Market
Discount" above.
In the case of market discount that does not exceed a
de minimis amount, the Owner generally will be required to
allocate ratably the portion of such discount that is allocable
to a Mortgage Loan among the principal payments on the Mortgage
Loan and to include the discount in ordinary income as the
related principal payments are made (whether as scheduled
payments or prepayments).
Premium. In the event that a Mortgage Loan is
purchased at a premium, the Owner may elect under Section 171 of
the Code to amortize such premium under a constant yield method
based on the yield of the Mortgage Loan to such Owner, provided
that such Mortgage Loan was originated after September 27, 1985.
Premium allocable to a Mortgage Loan originated on or before that
date should be allocated among the principal payments on the
Mortgage Loan and allowed as an ordinary deduction as principal
payments are made (whether as scheduled payments or prepayments).
58
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Taxation of Certificates if Stripped Bond Rules Apply.
If the stripped bond rules apply to a Certificate,
income on the Certificate will be treated as original issue
discount and will be included in income as it accrues under a
constant yield method. More specifically, for purposes of
applying the original issue discount rules of the Code, the Owner
will likely be taxed as if it had purchased a newly issued,
single debt instrument providing for payments equal to the
payments on the interests in the Mortgage Loans allocable to the
Certificate, and having original issue discount equal to the
excess of the sum of such payments over the Owner's purchase
price for the Certificate (which would be treated as the issue
price). The amount of original issue discount income accruing in
any taxable year will be computed generally as described above
under "REMIC Certificates -- Income from Regular Certificates --
Original Issue Discount". It is possible, however, that the
calculation must be made using as the Prepayment Assumption an
assumption of zero prepayments. If the calculation is made
assuming no future prepayments, then the Owner should be allowed
to deduct currently any negative amount of original issue
discount produced by the accrual formula.
Different approaches could be applied in calculating
income under the stripped bond rules. For example, a Certificate
could be viewed as a collection of separate debt instruments (one
for each payment allocable to the Certificate) rather than a
single debt instrument. Also, in the case of an Interest-Only
Certificate, it could be argued that certain proposed regulations
governing contingent payment debt obligations apply. Owners
should consult their own tax advisors regarding the calculation
of income under the stripped bond rules.
Sales of Certificates.
A Certificateholder that sells a Certificate will
recognize gain or loss equal to the difference between the amount
realized in the sale and its adjusted tax basis in the
Certificate. In general, such adjusted basis will equal the
Certificateholder's cost for the Certificate, increased by the
amount of any income previously reported with respect to the
Certificate and decreased (but not below zero) by the amount of
any distributions received thereon, the amount of any losses
previously allowable to such Owner with respect to such
Certificate and any premium amortization thereon. Any such gain
or loss would be capital gain or loss if the Certificate was held
as a capital asset, subject to the potential treatment of gain as
ordinary income to the extent of any accrued but unrecognized
market discount under the market discount rules of the Code, if
applicable.
Foreign Investors.
Except as described in the following paragraph, an
Owner that is not a U.S. person (as defined under "REMIC
Certificates -- Taxation of Foreign Investors" above) and that is
not subject to federal income tax as a result of any direct or
indirect connection to the United States in addition to its
ownership of a Certificate will not be subject to United States
income or withholding tax in respect of a Certificate (assuming
the underlying Mortgage Loans were originated after July 18,
1984), if the Owner provides an appropriate statement, signed
under penalties of perjury, identifying the Owner and stating,
among other things, that the Owner is not a U.S. person. If these
conditions are not met, a 30% withholding tax will apply to
interest (including original issue discount) unless an income tax
treaty reduces or eliminates such tax or unless the interest is
effectively connected with the conduct of a trade or business
within the United States by such Owner. Income effectively
connected with a U.S. trade or business will be subject to United
States federal income tax at regular rates then applicable to
U.S. taxpayers (and in the case of a corporation, possibly also
the branch profits tax).
In the event the Trust Fund acquires ownership of real
property located in the United States in connection with a default
on a Mortgage Loan, then any rental income from such property
allocable to an Owner that is not a U.S. person generally will be
subject to a 30% withholding tax. In addition, any gain from the
59
<PAGE>
disposition of such real property allocable to an Owner that is
not a U.S. person may be treated as income that is effectively
connected with a U.S. trade or business under special rules
governing United States real property interests. The Trust Fund
may be required to withhold tax on gain realized upon a
disposition of such real property by the Trust Fund at a 35%
rate.
Reporting.
Tax information will be reported annually to the
Internal Revenue Service and to Holders of Certificates that are
not excluded from the reporting requirements.
Backup Withholding
Distributions made on a Certificate and proceeds from
the sale of a Certificate to or through certain brokers may be
subject to a "backup" withholding tax of 31% unless, in general,
the Owner of the Certificate complies with certain procedures or
is a corporation or other person exempt from such withholding.
Any amounts so withheld from distributions on the Certificates
would be refunded by the Internal Revenue Service or allowed as a
credit against the Owner's federal income tax.
PLAN OF DISTRIBUTION
The Seller may sell Certificates of each series to or
through underwriters (the "Underwriters") by a negotiated firm
commitment underwriting and public reoffering by the
Underwriters, and also may sell and place Certificates directly
to other purchasers or through agents. The Seller intends that
Certificates will be offered through such various methods from
time to time and that offerings may be made concurrently through
more than one of these methods or that an offering of a
particular series of Certificates may be made through a
combination of such methods.
The distribution of the Certificates may be effected
from time to time in one or more transactions at a fixed price or
prices, which may be changed, or at market prices prevailing at
the time of sale, at prices related to such prevailing market
prices or at negotiated prices.
If so specified in the Prospectus Supplement relating
to a series of Certificates, the Seller or any affiliate thereof
may purchase some or all of one or more classes of Certificates
of such series from the Underwriter or Underwriters at a price
specified in such Prospectus Supplement. Such purchaser may
thereafter from time to time offer and sell, pursuant to this
Prospectus, some or all of such Certificates so purchased
directly, through one or more underwriters to be designated at
the time of the offering of such Certificates or through
broker-dealers acting as agent and/or principal. Such offering
may be restricted in the manner specified in such Prospectus
Supplement and may be effected from time to time in one or more
transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices.
In connection with the sale of the Certificates,
Underwriters may receive compensation from the Seller or from the
purchasers of Certificates for whom they may act as agents in the
form of discounts, concessions or commissions. Underwriters may
sell the Certificates of a series to or through dealers and such
dealers may receive compensation in the form of discounts,
concessions or commissions from the Underwriters and/or
commissions from the purchasers for whom they may act as agents.
Underwriters, dealers and agents that participate in the
distribution of the Certificates of a series may be deemed to be
Underwriters and any discounts or commissions received by them
from the Seller and any profit on the resale of the Certificates
by them may be deemed to be underwriting discounts and
commissions, under the Securities Act of 1933, as amended (the
"Act"). Any such Underwriters or agents will be identified, and
any such compensation received from the Seller will be described,
in the applicable Prospectus Supplement.
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<PAGE>
It is anticipated that the underwriting agreement
pertaining to the sale of any series or class of Certificates will
provide that the obligations of the underwriters will be subject
to certain conditions precedent and that the underwriters will
be obligated to purchase all such Certificates if any are
purchased.
Under agreements which may be entered into by the
Seller, Underwriters and agents who participate in the
distribution of the Certificates may be entitled to
indemnification by the Seller against certain liabilities,
including liabilities under the Act.
If so indicated in the Prospectus Supplement, the
Seller will authorize Underwriters or other persons acting as the
Seller's agents to solicit offers by certain institutions to
purchase the Certificates from the Seller pursuant to contracts
providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment
companies, educational charitable institutions and others, but in
all cases such institutions must be approved by the Seller. The
obligation of any purchaser under any such contract will be
subject to the condition that the purchaser of the offered
Certificates shall not at the time of delivery be prohibited
under the laws of the jurisdiction to which such purchaser is
subject from purchasing such Certificates. The Underwriters and
such other agents will not have responsibility in respect of the
validity or performance of such contracts.
The Underwriters may, from time to time, buy and sell
Certificates, but there can be no assurance that an active
secondary market will develop and there is no assurance that any
market, if established, will continue.
USE OF PROCEEDS
The net proceeds from the sale of each series of
Certificates will be added to the Seller's general funds and will
be available for general corporate purposes, including
acquisition of new mortgage loans and the repayment of borrowings
incurred to finance the acquisition of Mortgage Loans underlying
the Certificates of such Series.
FINANCIAL INFORMATION
The Seller has determined that its financial
statements are not material to the offering made hereby. However,
any prospective investor who desires to review financial
information concerning the Seller will be provided, upon request,
with a copy of the most recent financial statements of the
Seller. Such request should be directed to: HomeSide Mortgage
Securities, Inc., 7301 Baymeadows Way, Jacksonville, Florida
32256, Attention: Office of the Secretary.
LEGAL MATTERS
Certain legal matters in connection with the
Certificates offered hereby will be passed upon for the Seller by
Cleary, Gottlieb, Steen & Hamilton, New York, New York.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The expenses expected to be incurred in connection with the
issuance and distribution of the securities being registered,
other than underwriting compensation, are as set forth below. All
such expenses, except for the filing fee, are estimated.
SEC Registration Fee ............. $125,000
Legal Fees and Expenses .......... 350,000
Accounting Fees and Expenses ..... 100,000
Trustee's Fees and Expenses ...... 30,000
Printing and Engraving Fees ...... 30,000
Rating Agency Fees ............... 240,000
Miscellaneous .................... 10,000
Total ............................ $885,000
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of
Delaware (the "DGCL") empowers a Delaware corporation to
indemnify any persons who are, or are threatened to be made,
parties to any threatened, pending or completed legal action,
suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an
officer or director of such corporation, or is or was serving at
the request of such corporation as a director, officer, employee
or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or
proceeding, provided that such officer or director acted in good
faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests, and, for criminal
proceedings, had no reasonable cause to believe his conduct was
illegal. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation
under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is
adjudged to be liable to the corporation in the performance of
his duty. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses
which such officer or director actually and reasonably incurred.
Article Eighth of the Registrant's Certificate of
Incorporation provides that the Registrant must indemnify all
persons whom it may indemnify pursuant to Section 145 of the
Delaware General Corporation Law to the full extent provided
therein.
Article VII of the Registrant's By-Laws provides that the Regis-
trant shall indemnify to the full extent permitted by law and hold
harmless each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative
II-1
<PAGE>
or investigative and whether or not by or in the right of the
Registrant, by reason of the fact that he is or was a director or
officer of the Registrant, or by reason of the fact that he is or
was serving at the request of the Registrant as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, of any type or kind,
domestic or foreign, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement, actually and
reasonably incurred as a result of such action, suit or
proceeding.
Item 16. Exhibits.
1.1 Underwriting Agreement (to be filed as an exhibit
to a Current Report on Form 8-K subsequent to the
effectiveness of this Registration Statement).
4.1* Form of Pooling and Servicing Agreement for Senior/
Subordinated Securities.
5.1* Opinion of Cleary, Gottlieb, Steen & Hamilton regarding
the legality of the securities being registered.
8.1* Opinion of Cleary, Gottlieb, Steen & Hamilton regarding
certain federal income tax matters with respect to the
securities being registered.
23.1* Consent of Cleary, Gottlieb, Steen & Hamilton (incorporated
in Exhibits 5.1 and 8.1).
24.1* Powers of Attorney (incorporated in Signatures).
- -------------------
* Filed herewith
Item 17. Undertakings.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement to include any material information with respect to
the plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(4) That, for purposes of determining any liability
under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934
II-2
<PAGE>
that is incorporated by reference in the Registration Statement
shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
S-3, that it reasonably believes that the security rating
requirement set forth in Transaction Requirement B.5 will be met
by the time of sale of the registered securities and has duly
caused this Amendment No. 4 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida, on the
28th day of February, 1997.
HOMESIDE MORTGAGE SECURITIES, INC.
By: /s/ Joe K. Pickett
---------------------------------
Joe K. Pickett
Director, Chairman of the Board
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Joe K. Pickett
and Kevin D. Race, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution
and resubstitution, for and in his name, place and stead,
in any and all capacities to sign any or all amendments
(including post-effective amendments) to this Registration
Statement and any or all other documents in connection
therewith, and to file the same, with all exhibits thereto,
with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could
be done in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement has been signed by
the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Joe K. Pickett Director, Chairman of the Board February 28, 1997
- --------------------- and Chief Executive Officer
Joe K. Pickett (Principal Executive Officer)
/s/ Hugh H. Harris Director, President and February 28, 1997
- --------------------- Chief Operating Officer
Hugh H. Harris
/s/ Kevin D. Race Senior Vice President and February 28, 1997
- --------------------- Chief Financial Officer
Kevin D. Race (Principal Accounting Officer
and Principal Financial Officer)
/s/ Robert J. Jacobs Director, Executive Vice February 28, 1997
- --------------------- President and General Counsel
Robert J. Jacobs
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
1.1 Underwriting Agreement (to be filed as an exhibit
to a Current Report on Form 8-K subsequent to the
effectiveness of this Registration Statement).
4.1* Form of Pooling and Servicing Agreement for Senior/
Subordinated Securities.
5.1* Opinion of Cleary, Gottlieb, Steen & Hamilton regarding
the legality of the securities being registered.
8.1* Opinion of Cleary, Gottlieb, Steen & Hamilton regarding
certain federal income tax matters with respect to the
securities being registered.
23.1* Consent of Cleary, Gottlieb, Steen & Hamilton (incorporated
in Exhibits 5.1 and 8.1).
24.1* Powers of Attorney (incorporated in Signatures).
- -------------------
* Filed herewith
<PAGE>
Exhibit 4.1
DRAFT OF MARCH 31, 1997
[FORM OF POOLING AND SERVICING AGREEMENT
FOR SENIOR/SUBORDINATED SECURITIES]
HOMESIDE MORTGAGE SECURITIES, INC.
Seller,
HOMESIDE LENDING, INC.
Servicer
and
----------------------------------,
Trustee
------------------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of ________ 1, 199_
------------------------------------------
[REMIC] Multi-Class Pass-Through Certificates, Series 199_-_
<PAGE>
Page
Part I Part II
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section 1.01.Definitions..............................................
ARTICLE II
CONVEYANCE OF TRUST FUND;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.01. Conveyance of Trust Fund.................................
Section 2.02. Acceptance by Trustee ...................................
Section 2.03. Representations and ....................................
Warranties of the Seller
Section 2.04. Representations
and Warranties of the Servicer...........................
Section 2.05. Authentication
and Delivery of Certificates
Section 2.06. The REMICs...............................................
Section 2.07. Designations under the REMIC
Provisions when Trust Fund Consists
of a Single REMIC........................................
Section 2.08. Designations under the REMIC Provisions
when Trust Fund Consists of Two REMICs...................
Section 2.09. Trustee to Act as Agent in REMIC Matters.................
ARTICLE III
ADMINISTRATION AND SERVICING
OF MORTGAGE LOANS
Section 3.01. The Servicer............................................
Section 3.02. Collection of Mortgage Loan Payments;
Modification of Mortgage Loans;
Certificate Account ....................................
Section 3.03. Collection of Taxes, Assessments and
Other Items; Escrow Account.............................
Section 3.04. Certain Permitted Withdrawals from
the Certificate Account.................................
Section 3.05. Maintenance of Primary Mortgage Insurance Policies
Section 3.06. Maintenance of Standard Hazard
Insurance Policies......................................
Section 3.07. Enforcement of Due-on-Sale Clauses
Assumption Agreements...................................
Section 3.08. Realization Upon Defaulted Mortgage Loans..............
<PAGE>
Page
Part I Part II
Section 3.09. Trustee to Cooperate; Release of
Mortgage Document Files..................................
Section 3.10. Servicing Compensation; Payment of
Certain Expenses by the Servicer
Section 3.11. Reports to the Trustee...................................
Section 3.12. Annual Statement as to Compliance........................
Section 3.13. Annual Independent Public
Accountants' Servicing Report ...........................
ARTICLE IV
PAYMENTS AND STATEMENTS
Section 4.01. Distributions............................................
Section 4.02. Method of Distribution...................................
Section 4.03. Allocation of Losses.....................................
Section 4.04. Advances.................................................
Section 4.05. Information Provided to the Trustee
by the Servicer; Statements to
Certificateholders.......................................
Section 4.06. Adjustment of Servicing Fees;
Compensating Interest....................................
Section 4.07. Reports of Foreclosure and
Abandonments of Mortgaged Property.......................
Section 4.08. Tax and Information Returns..............................
Section 4.09. Imposition of Tax on the Trust Fund......................
ARTICLE V
THE CERTIFICATES
Section 5.01. The Certificates........................................
Section 5.02. Registration of Transfer and
Exchange of Certificates................................
Section 5.03. Mutilated, Destroyed, Lost or
Stolen Certificates......................................
Section 5.04. Persons Deemed Owners....................................
Section 5.05. Access to Certificateholders'
Names and Addresses......................................
Section 5.06. Determination of COFI....................................
Section 5.07. Determination of LIBOR...................................
<PAGE>
Page
Part I Part II
ARTICLE VI
THE SELLER AND THE SERVICER
Section 6.01. Respective Liabilities of the Servicer....................
Section 6.02. Merger or Consolidation of the
Servicer..................................................
Section 6.03. Limitation on Liability of the
Seller, the Servicer and Others............................
Section 6.04. Servicer Not to Resign.....................................
Section 6.05. Appointment of Office or Agency............................
Section 6.06. Errors and Omitions Insurance; Fidelity
Bonds......................................................
ARTICLE VII
DEFAULT
Section 7.01. Events of Default.........................................
Section 7.02. Other Remedies of Trustee.................................
Section 7.03. Directions by Certificateholders and
Duties of Trustee During Event of
Default...................................................
Section 7.04. Action upon Certain Failures of Servicer
and upon Event of Default.................................
Section 7.05. Trustee to Act; Appointment of
Successor.................................................
Section 7.06. Notification of Certificateholders........................
ARTICLE VIII
THE TRUSTEE
Section 8.01. Duties of the Trustee.....................................
Section 8.02. Certain Matters Affecting the Trustee.....................
Section 8.03. Trustee Not Liable for Certificates
or Mortgage Loans.........................................
Section 8.04. Trustee May Own Certificates..............................
Section 8.05. Servicer to Pay Trustee's Fees
and Expenses..............................................
Section 8.06. Eligibility Requirements for Trustee......................
Section 8.07. Insurance.................................................
Section 8.08. Resignation or Removal of Trustee.........................
Section 8.09. Successor Trustee.........................................
Section 8.10. Merger or Consolidation of Trustee........................
<PAGE>
Page
Part I Part II
Section 8.11. Appointment of Co-Trustee or Separate
Trustee....................................................
ARTICLE IX
TERMINATION
Section 9.01. Purchase by the Servicer.....................................
Section 9.02. Termination of the Agreement.................................
Section 9.03. Termination of the Trust Fund................................
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01. Employment of Agents by Servicer.............................
Section 10.02. All Funds and Records to be Held in
Trust........................................................
Section 10.03. Controlling Law..............................................
Section 10.04. Intent of this Agreement.....................................
Section 10.05. Indulgences Not Waivers......................................
Section 10.06. Titles Not to Affect Interpretation..........................
Section 10.07. Attorneys' Fees..............................................
Section 10.08. Electronic Reporting.........................................
Section 10.09. Provisions Severable.........................................
Section 10.10. Notices......................................................
Section 10.11. Counterparts.................................................
Section 10.12. Amendment....................................................
Section 10.13. Notices to Rating Agencies...................................
Section 10.14. Inapplicable or Modified Provisions of
Part II......................................................
<PAGE>
<PAGE>
Page
Part I Part II
Exhibits
EXHIBIT A Forms of Certificates
EXHIBIT B Mortgage Loans
EXHIBIT C Form of Servicer's Certificate
EXHIBIT D Form of Transfer Certificate as to ERISA Matters
For ERISA-Restricted Certificates
EXHIBIT E Form of Residual Certificate Transferee
Affidavit
EXHIBIT F Form of Residual Certificate Transferor Letter
EXHIBIT G Form of Investment Letter for Restricted
Certificates
EXHIBIT H [Principal Balance Schedules]
<PAGE>
PART I
<PAGE>
R E C I T A L S
This is a Pooling and Servicing Agreement (this
"Agreement"), dated and effective as of ________, 1, 199_, among
HomeSide Mortgage Securities, Inc., a corporation organized and
existing under the laws of the State of Florida, as seller,
HomeSide Lending, Inc., a corporation organized and existing
under the laws of the State of Florida, as servicer, and
_____________________, a _________________, as Trustee. This
Agreement is entered into in connection with the REMIC
Multi-Class Pass-Through Certificates, Series 199_- (the "Series
199 - Certificates") being issued, hereunder. This Agreement is
separated for convenience into two parts, each of which is
separately paginated but the Articles and Sections of which are
continuously numbered. Part I contains those provisions of this
Agreement that are uniquely applicable to the particular series
of certificates to which this Agreement relates; Part II contains
the provisions of this Agreement that have been and are expected
to be common to each Agreement that has been or will be executed
by the parties hereto. This Agreement is executed at the end of
Part I, and Part II is attached to Part I as an integral part of
this Agreement. Nothing in this Part I shall be deemed to modify
or amend any provisions of Part II as Part II applies to any
series of certificates other than the Series 199 - Certificates.
The Table of Contents indicates whether a particular
Article, Section or portion of a Section may be found in Part I
or in Part II. When a Section or paragraph is found in Part I as
well as in Part II, the provisions in Part I either supplement or
override the provisions in Part II. If a conflict exists between
the provisions of Part I and those of Part II, the provisions of
Part I shall be controlling.
W I T N E S S E T H T H A T :
Section 1.01. Definitions. Capitalized terms used
herein that are defined in Part II shall have the meanings given
such terms in Part II. The capitalized terms used herein shall
have the meanings given them below. All such meanings shall be
equally applicable to the singular and the plural forms of such
terms, as the context may require.
["Adjustment Date": With respect to each adjustable
rate Mortgage Loan, the first day of the month following the
month in which the first monthly payment is due (the "First
Adjustment Date") and each anniversary of the First
Adjustment Date.]
"Anniversary Determination Date": The Determination
Date occurring in ________ of each year that the
Certificates are outstanding commencing in ------------.
"Book-Entry Certificate": Any Certificate registered in
the name of the Depository or its nominee, ownership of
which is reflected on the books of the Depository or on the
books of a person maintaining an account with such
Depository (directly or as an indirect participant in
accordance with the rules of such Depository).
<PAGE>
As of the Closing Date, each Class of Certificates,
other than the Residual Certificates [and the Class ___,
Class ___ and Class ___ Certificates] constitutes a Class of
Book- Entry Certificates.
"Class B Certificate": [Any Class ___, Class ___, Class
___, Class ___ or Class ___ Certificate.] [None.]
"Closing Date": __________ __, 199_.
"COFI Certificates": [The Class __ Certificates.]
[None.]
"Compensating Interest Payment": [None.] [With respect
to any Distribution Date, an amount equal to the aggregate
of the Interest Shortfalls described in clauses (a) and (b)
of the definition thereof with respect to such Distribution
Date; provided, however, that such amount shall not exceed
the aggregate amount of the Servicing Fees otherwise
subject to retention by the Servicer or withdrawable by the
Servicer from the Certificate Account on such Distribution
Date.]
"Component": [Any of the Class __ Components.] [None.]
"Component Certificates": [The Class __ Certificates.] [None.]
"Cut-Off Date": __________ 1, 199_.
"ERISA-Restricted Certificate": [Any Class ___ or Class
___ Certificate.] [None.]
"Index": [On each Adjustment Date, a rate per annum
equal to] the most recent weekly average yield on U.S.
Treasury securities adjusted to a constant maturity of
_______________, as made available by the Board of Governors
of the Federal Reserve System,] as of the date __ days prior
to the Adjustment Date.] [None.]
["Initial Bankruptcy Loss Amount": $ .]
["Initial COFI Rate": %.]
["Initial Fraud Loss Amount": $ .]
["Initial LIBOR Rate": %.]
["Initial Special Hazard Loss Amount": $ .]
2
<PAGE>
"Interest Accrual Period": With respect to any
Distribution Date and any Class of Certificates [other than
the LIBOR Certificates], the one-month period ending on the
last day of the month preceding the month in which such
Distribution Date occurs. [With respect to any Distribution
Date and the LIBOR Certificates, the one-month period
commencing on the 25th day of the preceding month and ending
on the 24th day of the month of such Distribution Date.]
["Junior Certificates": Any Class , Class or Class
Certificate.]
"Latest Possible Maturity Date": _________ 25, 20__.
"LIBOR Certificates": [The Class __ Certificates.] [None.]
["Lower-Tier Interest": Any one of the Classes of
regular interests in the Lower-Tier REMIC described as such
in Section 2.06(e)
"Notional Certificate": [A Class __, Class __ or Class
__ Certificate.] [None.] ---------------------
"PAC Certificates": [The Class __, Class __, and Class
__ Certificates.] [None.]
["PAC Component": Any of the Class __, Class __, and Class __
components.] [None.]
"Pass-Through Rate": [____%.] [As of any Distribution
Date, the average of the Net Mortgage Rates of the Mortgage
Loans that were Outstanding Mortgage Loans on the Due Date
in the month preceding the month of such Distribution Date
(or, in the case of the first Distribution Date, the
Cut-Off Date), weighted in accordance with their respective
principal balances as of such Due Date or the Cut-Off Date,
as the case may be.]
"Prepayment Assumption Multiple": ____% of the
Prepayment Assumption.
"Principal Balance Schedules": [The principal balance
schedules attached hereto as Exhibit H which set forth the
[PAC][TAC] Balances of the [PAC][TAC] Certificates.] [None.]
"Purchaser": .
"Rating Agency A Formula Amendment": [to be specified]
"Rating Agency B Formula Amendment": [to be specified,
if applicable]
3
<PAGE>
"Rating Agencies": The nationally recognized rating
agencies rating the Certificates pursuant to a request
therefor from the Seller. As of the date of the initial
issuance of the Certificates, the Rating Agencies are [ ].
"Residual Certificates": Any of the Class R [and Class
RL] Certificates.
"Restricted Certificate": [Any Class __ Certificate.]
[None.]
["Senior Certificate": Any Class __, Class __ or Class
__ Certificate.] ------------------
"TAC Certificates": [The Class ____, Class ___, and
Class ___ Certificates.] [None.]
"TAC Components": [Any of the Class ___, Class ___ or
Class ___ -------------- Components.] [None.]
["Upper-Tier REMIC": One of the two separate REMICs
comprising the Trust Fund, the assets of which consist of
the Lower-Tier Interests.]
"Variable Rate Certificates": [The Class __ and Class
__ Certificates.] [None.] --------------------------
"Voting Rights": The portion of the voting rights of
all the Certificates that is allocated to any Certificate
for purposes of the voting provisions of this Agreement. [At
all times during the term of this Agreement, all Voting
Rights shall be allocated among the Classes of Certificates
(and among the Certificates within each Class) in proportion
to their Class Certificate Principal Balances (or
Certificate Principal Balances), as the case may be.] [___%
of all Voting Rights shall be allocated to the Certificates
other than the Notional Certificates and ___% of all Voting
Rights shall be allocated to the Class ___ Certificates.
Voting Rights allocated to the Class ___ Certificates shall
be allocated among such Certificates in proportion to their
Notional Principal Balances, and Voting Rights allocated to
the other Classes of Certificates shall be allocated among
such Classes (and among the Certificates within each such
Class) in proportion to their Class Certificate Principal
Balances (or Certificate Principal Balances), as the case
may be.]
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.06. [intentionally omitted] [The REMICs. (a)
For federal income tax purposes, the Trust Fund shall consist of
two REMICs, the Lower-Tier REMIC and the Upper-Tier REMIC. The
Certificates, other than the Class RL Certificate, shall be
issued by the Upper-Tier REMIC, and the Class RL Certificate
shall be issued by the Lower-Tier REMIC. The Lower-Tier REMIC
shall be evidenced by the Class RL Certificate and the regular
interests having the characteristics and terms set forth in the
following table, which interests (other than the Class RL
Certificate) shall be issued by the Lower-Tier REMIC to the
Trustee. Principal of and interest on the Lower-Tier Interests
shall be allocated to the Corresponding Classes of Certificates
in the manner set forth in the following table.
Class of Corresponding
Certificates(1)
Lower-Tier Allocation Allocation
Lower-Tier Initial Lower- Interest of of
Interest Tier Balance Rate Principal Interest
- --------------------------
(1) Unless otherwise indicated, the amount of interest and
principal allocable from a Lower-Tier Interest to its
Corresponding Class or Classes of Certificates on any
Distribution Date shall be 100%.
(b) The Lower-Tier Interests shall be issued as
non-certificated interests. The Class RL Certificate shall be
issued in fully registered certificated form and shall be
executed and countersigned as provided in Section 5.01 hereof.
(c) For purposes of further identifying the terms of
the Lower-Tier Interests, distributions of principal and interest
on each Class of Lower-Tier Interests shall be considered to
correspond, in timing and aggregate amount, to the distributions
of principal and interest, respectively, made under Section 4.01
on the Corresponding Classes of Certificates.
(d) On each Distribution Date, in addition to amounts otherwise
distributable thereon pursuant to Section 4.01, the Trustee shall
distribute to the holder of the Class RL Certificate any amounts
remaining in the Lower-Tier REMIC after all amounts required to
be applied pursuant to Section 2.05(c) have been so applied. Any
distributions pursuant to this clause (d) shall not reduce the
Certificate Principal Balance of the Class RL Certificate.]
4
<PAGE>
ARTICLE IV
PAYMENTS AND STATEMENTS
Section 4.01. Distributions.
(b) On each Distribution Date, the Trustee shall
withdraw the Available Funds from the Certificate Account and
shall make distributions to Holders of the Certificates as of the
preceding Record Date in the following order of priority, to the
extent of the remaining Available Funds:
[(i) to each Class of [Senior] Certificates, the
Accrued Certificate Interest thereon for such Distribution
Date, any shortfall in available amounts being allocated
among such Classes in proportion to the amount of Accrued
Certificate Interest otherwise distributable thereon;
(ii) to each Class of [Senior] Certificates, any
related Unpaid Class Interest Shortfall for such
Distribution Date, any shortfall in available amounts being
allocated among such Classes in proportion to the Unpaid
Class Interest Shortfall for each such Class on such
Distribution Date;
(iii) to the Classes of [Senior] Certificates, in
reduction of the Class Certificate Principal Balances
thereof, the [Senior] Optimal Principal Amount on such
Distribution Date, in the following order of priority:
[allocations to be specified]; and
(iv) to the [Junior] Certificates, in the following order:
[allocations of Accrued Certificate Interest, Unpaid Class
Interest Shortfall and Allocable Shares of [Junior] Optimal
Principal Amount in reduction of Class Certificate Principal
Balances of Classes of [Junior] Certificates to be
specified].]
(c) On each Distribution Date, the Trustee shall
distribute to the holder of the Class R Certificate any remaining
amounts in the [Upper-Tier] REMIC for such Distribution Date
after application of all amounts described in clause (b) of this
Section 4.01. Any distributions pursuant to this clause (c) shall
not reduce the Class Certificate Principal Balance of the Class R
Certificate.
(d) If on any Distribution Date the Class Certificate
Principal Balances of the [Junior] Certificates have each been
reduced to zero, the [Senior] Optimal Principal Amount for such
Distribution Date and each succeeding Distribution Date shall be
allocated among the Classes of Senior Certificates, pro rata, on
the basis of their respective Class Certificate Principal
Balances immediately prior to such Distribution Date, regardless
of the priorities and amounts set forth in Section 4.01(b)(iii).
5
<PAGE>
[(e) If on any Distribution Date (i) the Class
Certificate Principal Balance of the Class M Certificates or any
Class of Class B Certificates for which the related Prepayment
Distribution Trigger was satisfied on such Distribution Date is
reduced to zero and (ii) amounts distributable pursuant to
clauses (ii), (iv) and (v) of the Junior Optimal Principal Amount
remain undistributed on such Distribution Date after all amounts
otherwise distributable on such date pursuant to clauses (iv)
through (ix) of Section 4.01(b) have been distributed, such
amounts shall be distributed on such Distribution Date to the
remaining Classes of Junior Certificates in order of priority,
such that no such distribution shall be made to any class of
Junior Certificates while a prior such Class is outstanding.]
[Section 4.03. Allocation of Losses.
(h) Any allocation of a Realized Loss to a Class of
Certificates, or of any Junior Certificate Writedown Amount to a
Class of Junior Certificates, pursuant to this Section 4.03 shall
effect a corresponding allocation thereof to the corresponding
Class of Lower-Tier Interests and, in the case of the principal
portion of such Realized Losses and any Junior Certificate
Writedown Amount, a corresponding reduction in the related
Lower-Tier Balance thereof.]
ARTICLE V
THE CERTIFICATES
Section 5.01. The Certificates.
(b) The Certificates shall be issued in an aggregate
Initial Certificate Principal Balance of $__________. [The Class
___ and Class ___ Certificates shall be issued in aggregate
Initial Notional Principal Balances of $__________ and
$_________, respectively.] Such aggregate Initial Certificate
Principal Balance [(and Initial Notional Principal Balances)]
shall be divided among the Classes having the designations, Class
Certificate Principal Balances [(or Notional Principal Balances)]
and Certificate Interest Rates (if any) as follows:
[ Initial [Initial
Class Class
Certificate Notional
Minimum Principal Principal] Certificate
Designation Denomination Balance Balance Interest Rate
Class $ $ $ [___%]
Class [Pass-
Class Through
Class Rate]
- ------------------
6
<PAGE>
(e) During the first Interest Accrual Period therefor,
the Certificate Interest Rate of the Class __ Certificates shall
be ____% per annum. For each subsequent Interest Accrual Period,
the Certificate Interest Rate of the Class ____ Certificates
shall be a per annum rate, determined by the Trustee on each Rate
Determination Date, equal to [formula for determining rate on
Variable Rate Certificates to be specified, whether determined by
reference to LIBOR, COFI or another index].
[Section 5.02. Registration of Transfer and Exchange of
Certificates.
(b) As a condition to any transfer of a Restricted
Certificate to any person other than a QIB (as certified by the
proposed transferee in the Form of Assignment attached to the
related Certificate), either (x) the Trustee shall require the
transferee to execute an investment letter substantially in the
form of Exhibit G hererto or in such other form as may be
acceptable to the Trustee, certifying as to the facts surrounding
such transfer, or (y) in lieu of such investment letter, the
Trustee may accept a written Opinion of Counsel (in form and
substance acceptable to the Trustee) that such proposed transfer
may be made pursuant to an exemption from the Act. As an
additional condition to any transfer of a Restricted Certificate,
either (i) the transferor and the transferee shall complete the
Form of Assignment attached to the Certificate proposed to be
transferred, or (ii) the Trustee shall have received the above-
referenced opinion of counsel. The holder of any Restricted
Certificate desiring to effect the transfer thereof to a person
other than a QIB shall, and hereby agrees to, comply with the
conditions set forth in the preceding two sentences and indemnify
the Trustee and the Servicer against any liability that may
result if the transfer thereof is not so exempt or is not made in
accordance with such federal and state laws. Such agreement to so
indemnify the Trustee and the Servicer shall survive the
termination of this Agreement. Notwithstanding the foregoing, no
Opinion of Counsel or investment letter shall be required upon
the original issuance of the Restricted Certificates in a
transaction exempt from the registration requirements of the Act.
Any opinion or letter required pursuant to this paragraph shall
not be at the expense of the Trust Fund or the Trustee.
(c) (iii) Notwithstanding the provisions of Section
5.02(b), no Opinion of Counsel or investment letter shall be
required upon the original issuance of the Restricted
Certificates.]
[ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.14 Inapplicable or Modified Provisions of Part II.
(a) The following provision[s] of Part II of this
Agreement shall be inapplicable to the Series 199 - Certificates:
[to be specified].
7
<PAGE>
(b) The following provisions of Part II of this
Agreement shall be modified as set forth below for purposes of
the Series 199 - Certificates: [to be specified].]
* * * * * * * * *
8
<PAGE>
9
<PAGE>
IN WITNESS WHEREOF, the Seller, the Servicer and the
Trustee have caused this Agreement to be duly executed by their
respective officers and their respective seals, duly attested, to
be hereunto affixed, all as of the day and year first above
written.
HOMESIDE LENDING, INC.
By__________________________
Name:
Title:
[SEAL]
Attest:
By____________________
Name:
Title:
HOMESIDE MORTGAGE SECURITIES, INC.
By__________________________
Name:
Title:
[SEAL]
Attest:
By____________________
Name:
Title:
--------------------------------
as Trustee
By______________________________
Name:
Title:
[SEAL]
Attest:
By____________________
Name:
Title:
10
<PAGE>
PART II
ARTICLE I
Definitions
Section 1.01 Definitions. The capitalized terms used herein
shall have the meanings given them below and such meanings shall
be equally applicable to the singular and the plural forms of
such terms, as the context may require.
"Accepted Servicing Practices": To the extent that there
are specific servicing procedures set forth in the FNMA
Guidelines from time to time in effect, those procedures shall
constitute Accepted Servicing Practices; provided, however, that
in no event shall the Servicer be required to obtain a deficiency
judgment against a Borrower. In all other cases, the mortgage
servicing practices of prudent mortgage lending institutions that
service mortgage loans of the same type as the Mortgage Loans in
the jurisdictions in which the related Mortgaged Properties are
located, regardless of the origination date of the related
Mortgage Loan, shall constitute Accepted Servicing Practices.
"Accrued Certificate Interest: As to any Distribution Date
and any Class of Certificates, interest accrued during the
related Interest Accrual Period at the applicable Certificate
Interest Rate on the Class Certificate Principal Balance (or, in
the case of the Notional Certificates, the aggregate Notional
Principal Balance) thereof immediately prior to such Distribution
Date, calculated on the basis of a 360-day year consisting of
twelve 30-day months. Accrued Certificate Interest on each Class
of Certificates shall be reduced by such Class's share of the
amount of any Net Interest Shortfall and Interest Losses for such
Distribution Date. Any Net Interest Shortfall for a Mortgage Loan
shall be allocated among the Classes of Certificates (other than
the Notional Certificates) in proportion to the respective
amounts of Accrued Certificate Interest that would have resulted
absent such shortfall. Interest Losses will be allocated in
accordance with Section 4.03(e).
"Adjustment Date Gross Cap": With respect to each
adjustable rate Mortgage Loan, the maximum amount that the
Mortgage Interest Rate can adjust upward or downward on any
Adjustment Date, determined in accordance with the related Note.
"Adjustment Date Pass-Through Cap": With respect to each
adjustable rate Mortgage Loan, the maximum amount that the Net
Mortgage Rate can adjust upwards or downwards on any Adjustment
Date, determined in the same manner as the related Adjustment
Date Gross Cap.
"Advance": As defined in Section 4.04.
"Advance Date": As defined in Section 4.04.
<PAGE>
"Affiliate": As to any Person, any other Person
Controlling, Controlled by or under common Control with such
Person.
"Agreement": This Pooling and Servicing Agreement and
all amendments hereof and supplements hereto.
["Allocable Share": (a) As to any Distribution Date and
amounts distributable pursuant to clauses (i) and (iii) of the
Junior Optimal Principal Amount, and as to each Class of Junior
Certificates, the fraction, expressed as a percentage, the
numerator of which is the Class Certificate Principal Balance of
each such Class and the denominator of which is the aggregate
Class Certificate Principal Balances of all of the Junior
Certificates.
(b) As to any Distribution Date and amounts distributable
pursuant to clauses (ii), (iv) and (v) of the Junior Optimal
Principal Amount, and as to the Class M Certificates and each
Class of Class B Certificates for which the related Prepayment
Distribution Trigger has been satisfied on such Distribution
Date, the fraction, expressed as a percentage, the numerator of
which is the Class Certificate Principal Balance of such Class
and the denominator of which is the aggregate Class Certificate
Principal Balance of all such Classes. As to any Distribution
Date and each Class of Class B Certificates for which the related
Prepayment Distribution Trigger has not been satisfied on such
Distribution Date, 0%.]
"Assumed Monthly Payment Reduction": As of any Anniversary
Determination Date and as to any Non-Primary Residence Loan
remaining in the Mortgage Pool whose original principal balance
was 80% or greater of the Original Value thereof, the excess of
(i) the Monthly Payment thereof calculated on the assumption that
the Mortgage Rate thereon was equal to the weighted average (by
principal balance) of the net Mortgage Rates of all Outstanding
Mortgage Loans (the "Weighted Average Rate") as of such
Anniversary Determination Date over (ii) the Monthly Payment
thereof calculated on the assumption that the Net Mortgage Rate
thereon was equal to the Weighted Average Rate less 1.25% per
annum.
"Available Funds": As of any Distribution Date, the Pool
Distribution plus the amount, if any, of any Advance made in the
same month.
"Bankruptcy Coverage Termination Date": The Distribution
Date upon which the Bankruptcy Loss Amount has been reduced to
zero or a negative number (or the Cross-Over Date, if earlier).
"Bankruptcy Loss Amount: As of any Determination Date prior
to the first Anniversary Determination Date, the Bankruptcy Loss
Amount shall equal the Initial Bankruptcy Loss Amount, as reduced
by the aggregate amount of Deficient Valuations and Debt Service
Reductions since the Cut-Off Date. As of any Determination Date
after the first
2
<PAGE>
Anniversary Determination Date, other than an Anniversary
Determination Date, the Bankruptcy Loss Amount shall equal the
Bankruptcy Loss Amount on the immediately preceding Anniversary
Determination Date as reduced by the aggregate amount of
Deficient Valuations and Debt Service Reductions since such
preceding Anniversary Determination Date. As of any Anniversary
Determination Date, the Bankruptcy Loss Amount shall equal the
lesser of (x) the Bankruptcy Loss Amount as of the preceding
Determination Date as reduced by any Deficient Valuations and
Debt Service Reductions for the preceding Distribution Date, and
(y) the greater of (i) the Rating Agency A Formula Amount for
such Anniversary Determination Date and (ii) the Rating Agency B
Formula Amount for such Anniversary Determination Date.
The Bankruptcy Loss Amount may be further reduced by the
Servicer (including accelerating the manner in which such
coverage is reduced) provided that prior to any such reduction,
the Servicer shall obtain written confirmation from each Rating
Agency that such reduction shall not adversely affect the
then-current rating assigned to the related Classes of
Certificates by such Rating Agency and shall provide a copy of
such written confirmation to the Trustee.
"Book-Entry Nominee": As defined in Section 5.02(b).
"Borrower": Any obligor on a Note or any Person that has
acquired a Mortgaged Property and assumed the obligations of the
obligor under the Note and the Mortgage or a Person that has
acquired title to any Mortgaged Property "subject to" the lien of
the Mortgage.
"Business Day": A day other than a Saturday, Sunday, or a
day on which banking institutions in the State of Florida or the
state in which the Corporate Trust Office is located are
authorized or obligated by law to be closed.
"Certificate": Any one of the certificates signed and
countersigned by the Trustee in substantially the forms attached
hereto as Exhibit A.
"Certificate Account": A separate corporate trust account
or accounts established by the Trustee pursuant to Section 3.02,
and which must be an Eligible Account.
"Certificateholder": The Person whose name appears as
the Holder of a Certificate on the Certificate Register.
"Certificate Interest Rate": With respect to any Class of
Certificates, other than the Variable Rate Certificates, the
fixed per annum rate specified in Section 5.01(b), or, if so
specified in Section 5.01(b), the Pass-Through Rate. With respect
to the Variable Rate Certificates, the per annum variable rate at
any time at which interest accrues on such Certificates, as
determined pursuant to Section 5.01(e).
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"Certificate Owner": With respect to any Book-Entry
Certificate, the person who is the beneficial owner thereof.
"Certificate Principal Balance": As to any Certificate
other than a Notional Certificate, and as of any Distribution
Date, the Initial Certificate Principal Balance of such
Certificate less the sum of (i) all amounts distributed with
respect to such Certificate in reduction of the Certificate
Principal Balance thereof on previous Distribution Dates pursuant
to Section 4.01, (ii) any Realized Losses allocated to such
Certificate on previous Distribution Dates pursuant to Section
4.03(b) and (c), and (iii) in the case of a Subordinate
Certificate, such Certificate's Percentage Interest of the
Subordinate Certificate Writedown Amount allocated to such
Certificate on previous Distribution Dates. The Notional
Certificates are issued without Certificate Principal Balances.
"Certificate Register": A register of the Certificateholders
kept by the Trustee.
"Class": All Certificates bearing the same class
designation.
"Class Certificate Principal Balance": As to any Class of
Certificates, other than the Notional Certificates, and any date
of determination, the aggregate of the Certificate Principal
Balances of all Certificates of such Class. The Class Certificate
Principal Balance of each such Class of Certificates as of the
Closing Date is specified in Section 5.01(b).
"Class Interest Shortfall": As to any Distribution Date and
any Class of Certificates, any amount by which the amount
distributed to Holders of such Class of Certificates on such
Distribution Date is less than the Accrued Certificate Interest
thereon for such Distribution Date.
"Code": The Internal Revenue Code of 1986, as it may be
amended from time to time.
"COFI": The monthly weighted average cost of funds for
savings institutions the home offices of which are located in
Arizona, California or Nevada that are member institutions of the
Eleventh Federal Home Loan Bank District, as computed from
statistics tabulated and published by the Federal Home Loan Bank
of San Francisco in its monthly Information Bulletin.
"COFI Determination Date": As to each Interest Accrual
Period for any COFI Certificates, the last Business Day of the
calendar month preceding such Interest Accrual Period.
"Compensating Interest Payment": With respect to any
Distribution Date, an amount equal to the aggregate of the
Interest Shortfalls described in clauses (a) and (b) of the
definition thereof with respect to such Distribution Date;
provided, however, that such amount
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shall not exceed the aggregate of the Servicing Fees that the
Servicer would be entitled to retain on such Distribution Date
(less any portion thereof paid as servicing compensation to any
Primary Servicer) without giving effect to any Compensating
Interest Payment.
"Component Principal Balance": As of any Distribution Date,
and with respect to any Component, the initial Component
Principal Balance thereof (as set forth in Section 5.01(b)) less
the sum of (x) all amounts distributed in reduction thereof on
previous Distribution Dates pursuant to Section 4.01 and (y) the
amount of all Realized Losses allocated thereto pursuant to
Section 4.03(d).
"Control": The power to direct the management and policies
of a Person, directly or indirectly, whether through ownership of
voting securities, by contract or otherwise. "Controlled" and
"Controlling" have meanings correlative to the foregoing.
"Corporate Trust Office": The principal office of the
Trustee at which at any particular time its corporate trust
business shall be administered, which office at the date of the
execution of this instrument is located at [ ].
"Cross-Over Date": The first Distribution Date on which the
aggregate Class Certificate Principal Balances of the Junior
Certificates have been reduced to zero.
"Cut-Off Date Principal Balance": The aggregate of the
principal balances of the Mortgage Loans originally included in
the Trust Fund remaining to be paid at the close of business on
the Cut-Off Date (after deduction of all principal payments due
on or before the Cut-Off Date, whether or not paid, and all
principal prepayments received on or before the Cut-Off Date).
"Debt Service Reduction": As to any Mortgage Loan and any
Determination Date, the excess of (a) the then current Monthly
Payment for such Mortgage Loan over (b) the amount of the monthly
payment of principal and interest required to be paid by the
Mortgagor as established by a court of competent jurisdiction as
a result of a proceeding initiated by or against the related
Mortgagor under the United States Bankruptcy Code, as amended
from time to time.
"Defaulted Mortgage Loan": With respect to any
Determination Date, any Mortgage Loan as to which the related
Borrower has failed to make full payments as required under the
related Note for three consecutive months.
"Deficient Valuation": As to any Mortgage Loan and any
Determination Date, the excess of (a) the then outstanding
indebtedness under such Mortgage Loan over (b) the valuation by a
court of competent jurisdiction of the related Mortgaged Property
as a result of a proceeding initiated by or against the related
Mortgagor under the United States Bankruptcy
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Code, as amended from time to time, pursuant to which such
Mortgagor retained such Mortgaged Property.
"Definitive Certificates": As defined in Section 5.02(f).
"Depository": The initial Depository shall be [The
Depository Trust Company, the nominee of which is CEDE & Co.] The
Depository shall at all times be a "clearing corporation" as
defined in Section 8-102(3) of the Uniform Commercial Code of the
State of New York, as amended, or any successor provisions
thereto.
"Depository Participant": A broker, dealer, bank or other
financial institution or other Person for which, from time to
time, the Depository effects book-entry transfers and pledges of
securities deposited with such Depository.
"Determination Date": With respect to any Distribution Date,
the fifth Business Day prior thereto.
"Designated Depository Institution": A depository
institution (commercial bank, mutual savings bank or savings and
loan association) or trust company the deposits of which are
fully insured by the FDIC to the extent permitted by law.
"Disqualified Organization": Any of the following: (i) the
United States, any State or political subdivision thereof, or any
agency or instrumentality of any of the foregoing; (ii) a foreign
government, International Organization or any agency or
instrumentality of either of the foregoing; (iii) an organization
(except certain farmers' cooperatives described in Code section
521) which is exempt from tax imposed by Chapter 1 of the Code
(including the tax imposed by section 511 of the Code on
unrelated business taxable income); and (iv) a rural electric and
telephone cooperative described in Code section 1381(a)(2)(C).
The terms "United States," "State" and "International
Organization" shall have the meanings set forth in Code section
7701 or successor provisions. A corporation will not be treated
as an instrumentality of the United States or of any State or
political subdivision thereof for these purposes if all of its
activities are subject to tax and a majority of its board of
directors is not selected by such governmental unit.
"Distribution Date": The 25th of each month after the month
of the initial issuance of the Certificates, or, if the 25th is
not a Business Day, the next succeeding Business Day.
"Due Date": The first day of the month of the related
Distribution Date.
"Eligible Account": One or more trust accounts that are
maintained with a depository institution or trust company
incorporated under the laws of the United States or of any state
thereof or the District of Columbia and in which the amounts
deposited therein are at all times in the form of Permitted
Investments.
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"Escrow Account": The meaning assigned to such term in Section 3.03.
"Event of Default": As defined in Section 7.01.
"Excess Bankruptcy Loss": Any Deficient Valuation or Debt
Service Reduction, or portion thereof, occurring after the
Bankruptcy Coverage Termination Date.
"Excess Fraud Loss": Any Fraud Loss, or portion thereof,
occurring after the Fraud Coverage Termination Date.
"Excess Special Hazard Loss": Any Special Hazard Loss, or
portion thereof, occurring after the Special Hazard Termination
Date.
"FDIC": The Federal Deposit Insurance Corporation, or any
successor thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation, or any
successor thereto.
"FHLMC Guidelines": The guidelines, rules and regulations
adopted by FHLMC that establish loan underwriting and servicing
requirements for one- to four-family, first-lien, conventional
residential mortgage loans purchased by FHLMC, as amended or
supplemented from time to time.
"Fixed Retained Yield": With respect to each Mortgage Loan,
that portion of each payment of interest on such Mortgage Loan
representing interest on such Mortgage Loan at a rate equal to
the Mortgage Interest Rate minus the sum of the Pass-Through Rate
and the Servicing Fee Rate, but not less than zero.
"FNMA": The Federal National Mortgage Association, or any
successor thereto.
"FNMA Guidelines": The guidelines contained in the FNMA
Seller's Guide and in the FNMA Servicing Guide pertaining to one-
to four-family, first-lien, conventional residential mortgage
loans, and such other rules, regulations and guidelines adopted
by FNMA that establish loan servicing requirements for such
mortgage loans purchased by FNMA, as amended or supplemented from
time to time.
"Fraud Coverage Termination Date": The Distribution Date
upon which the related Fraud Loss Amount has been reduced to zero
or a negative number (or the Cross-Over Date, if earlier).
"Fraud Loss Amount": As of any Distribution Date after the
Cut-Off Date, (x) prior to the first anniversary of the Cut-Off
Date, an amount equal to the Initial Fraud Loss Amount minus the
aggregate amount of Fraud Losses that would have been allocated
to the Junior
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Certificates in accordance with Section 4.03 in the absence of
the Loss Allocation Limitation since the Cut-Off Date, and (y)
from the first through the fifth anniversary of the Cut-Off Date,
an amount equal to (1) the lesser of (a) the Fraud Loss Amount as
of the most recent anniversary of the Cut-Off Date and (b) 1.00%
of the aggregate outstanding principal balance of all of the
Mortgage Loans as of the most recent anniversary of the Cut-Off
Date minus (2) the Fraud Losses that would have been allocated to
the Junior Certificates in accordance with Section 4.03 in the
absence of the Loss Allocation Limitation since the most recent
anniversary of the Cut-Off Date. After the fifth anniversary of
the Cut-Off Date the Fraud Loss Amount shall be zero.
"Fraud Losses": Any Realized Loss attributable to fraud in
the origination of the related Mortgage Loan.
"Holder": A Certificateholder.
"Impairment Policy": As defined in Section 3.06.
"Initial Certificate Principal Balance": With respect to
any Certificate, other than a Notional Certificate, the
Certificate Principal Balance of such Certificate or any
predecessor Certificate on the Closing Date.
"Initial Notional Principal Balance": With respect to any
Notional Certificate, the Notional Principal Balance of such
Certificate or any predecessor Certificate on the Closing Date.
"Insurance Expenses": Expenses incurred by the Servicer in
connection with collecting on any Insurance Policy, including,
without limitation, legal fees and expenses incurred by the
Servicer in the prosecution of actions to collect on any such
Insurance Policy.
"Insurance Policy": Any insurance policy maintained
pursuant to Section 3.05 or 3.06, including all riders and
endorsements thereto.
"Insurance Proceeds": Any amounts paid upon settlement of
claims filed under an Insurance Policy, and the proceeds of any
other insurance policy, bond or similar instrument providing
coverage for a Mortgage Loan or a Mortgaged Property, including,
without limitation, those referred to in Section 3.05 or 3.06,
net of amounts to be applied to the restoration, preservation or
repair of the related Mortgaged Property or released to the
related Borrower in accordance with the Servicer's normal
servicing procedures.
"Interest Losses": As defined in Section 4.03(e).
"Interest Shortfall": With respect to any Distribution Date
and each Mortgage Loan that during the related Prepayment Period
was the subject of a partial Principal Prepayment or
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Principal Prepayment in full, or constitutes a Relief Act
Mortgage Loan, an amount determined as follows:
(a) partial Principal Prepayments: [one month's interest at
the applicable Net Mortgage Rate on the amount of such
prepayment];
(b) Principal Prepayments in full (including the
Purchase Price of any Modified Mortgage Loan purchased pursuant
to Section 3.02): the difference between (i) one month's interest
at the applicable Net Mortgage Rate on the Scheduled Principal
Balance of such Mortgage Loan immediately prior to such
prepayment and (ii) the amount of interest for the calendar month
of such prepayment (adjusted to the applicable Net Mortgage Rate)
received at the time of such prepayment; and
(c) Relief Act Mortgage Loans: As to any Relief Act
Mortgage Loan, the excess of (i) 30 days' interest (or, in the
case of a Principal Prepayment in full, interest to the date of
prepayment) on the Scheduled Principal Balance thereof (or, in
the case of a Principal Prepayment in part, on the amount so
prepaid) at the related Net Mortgage Rate over (ii) 30 days'
interest (or, in the case of a Principal Prepayment in full,
interest to the date of prepayment) on such Scheduled Principal
Balance (or, in the case of a Principal Prepayment in part, on
the amount so prepaid) at the Net Mortgage Rate required to be
paid by the Mortgagor as limited by application of the Relief
Act.
"Junior Certificate Writedown Amount": As to any
Distribution Date, the amount by which (i) the sum of the Class
Certificate Principal Balances of all the Certificates (after
giving effect to the distribution of principal and the
application of Realized Losses in reduction of the Certificate
Principal Balances of the related Certificates on such
Distribution Date) exceeds (ii) the Pool Scheduled Principal
Balance on the first day of the month of such Distribution Date.
"Junior Optimal Principal Amount": As to any Distribution
Date, an amount equal to the sum of the following (but in no
event greater than the aggregate Certificate Principal Balances
of the Junior Certificates immediately prior to such Distribution
Date):
(i) the Junior Percentage of the principal portion of each
Monthly Payment due on the related Due Date on each Outstanding
Mortgage Loan as of such Due Date as specified in the
amortization schedule at the time applicable thereto (after
adjustment for previous Principal Prepayments and Debt Service
Reductions subsequent to the Bankruptcy Coverage Termination Date
but before any adjustment to such amortization schedule by reason
of any bankruptcy (other than as aforesaid) or similar proceeding
or any moratorium or similar waiver or grace period);
(ii) the Junior Prepayment Percentage of all Voluntary
Principal Prepayments in part received during the related
Prepayment Period, and 100% of any Senior Optimal Principal
Amount not distributed to the Senior Certificates on such
Distribution Date, together with the
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Junior Prepayment Percentage of the Scheduled Principal Balance
of each Mortgage Loan that was the subject of a Voluntary
Principal Prepayment in full received from the related Mortgagors
during such Prepayment Period;
(iii) the excess, if any, of (x) the sum of (A) all Net
Liquidation Proceeds allocable to principal received during the
related Prepayment Period (other than in respect of Mortgage
Loans described in clause (B)) and (B) the principal balance of
each Mortgage Loan that was purchased by an insurer from the
Trustee during the related Prepayment Period pursuant to the
related Primary Insurance Policy, over (y) the amount
distributable pursuant to clause (iii) of the Senior Optimal
Principal Amount on such Distribution Date;
(iv) the Junior Prepayment Percentage of the Scheduled
Principal Balance of each Mortgage Loan that was purchased on
such Distribution Date pursuant to Sections 2.02, 2.03, 2.04,
3.02, 3.08 or 9.01; and
(v) the Junior Prepayment Percentage of the Substitution
Amount for any Mortgage Loan substituted during the month of such
Distribution Date.
After the Class Certificate Principal Balances of the Junior
Certificates have been reduced to zero, the Junior Optimal
Principal Amount shall be zero.
"Junior Percentage": As to any Distribution Date, the excess
of 100% over the Senior Percentage for such Distribution Date.
"Junior Prepayment Percentage": As to any Distribution
Date, the excess of 100% over the Senior Prepayment Percentage
for such Distribution Date. After the aggregate Certificate
Principal Balances of the Senior Certificates have been reduced
to zero, the Junior Prepayment Percentage shall be 100%. After
the Cross-Over Date, the Junior Prepayment Percentage shall be
zero.
"Laws": All statutes, rules, regulations, ordinances,
orders, or decrees of any federal or state government or
political subdivision, agency or public official thereof that
apply to or affect a Mortgage Loan or Mortgaged Property or the
services and obligations of the Seller, the Servicer or the
Trustee under this Agreement.
"Lender's Title Insurance Policy": An ALTA or CLTA
(extended coverage) lender's title insurance policy, 1970 form,
issued by a Qualified Insurer, including all riders or
endorsements thereto, together with such additional endorsements
as are required by FHLMC Guidelines with respect to conventional
Mortgage Loans, including without limitation negative
amortization riders if applicable to the related Mortgage Loan in
an amount not less than the original principal balance of the
Mortgage Loan, insuring the mortgagee and its successors and
assigns that the Mortgage constitutes a valid first lien on the
Mortgaged Property, subject only to (a) liens for real estate
taxes and governmental improvement assessments not delinquent;
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(b) easements and restrictions that do not adversely affect the
marketability of title to the Mortgaged Property or prohibit or
interfere with the use of the Mortgaged Property as a
single-family residential dwelling; or (c) such other exceptions
as are acceptable under FHLMC Guidelines and practices or are
acceptable to mortgage lending institutions generally.
"LIBOR": London interbank offered rate quotations for
one-month Eurodollar deposits, as such quotations may appear on
the display designated as page "LIBO" on the Reuters Monitor
Money Rates Service (or such other page as may replace the LIBO
page on the Reuters Monitor Money Rates Service for the purpose
of displaying London interbank offered quotations of major
banks), as determined pursuant to Section 5.08.
"LIBOR Determination Date": The second London Business Day
immediately preceding the commencement of each Interest Accrual
Period for any LIBOR Certificates.
"Lifetime Gross Cap": With respect to each adjustable rate
Mortgage Loan, the maximum Mortgage Interest Rate payable on it
at any time, as set forth in the Note.
"Lifetime Gross Minimum": With respect to each adjustable
rate Mortgage Loan, the minimum Mortgage Interest Rate, if any,
payable on it at any time, as set forth in the Note.
"Lifetime Pass-Through Cap": With respect to each
adjustable rate Mortgage Loan, the maximum Net Mortgage Rate
payable on it at any time, as set forth in the Mortgage Loan
Schedule.
"Lifetime Pass-Through Minimum": With respect to each
adjustable rate Mortgage Loan, the minimum Net Mortgage Rate, if
any, payable on it at any time, as set forth in the Mortgage Loan
Schedule.
"Liquidated Loan": 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.
"Liquidation Expenses": Expenses incurred by the Servicer
in connection with the liquidation of any defaulted Mortgage Loan
or property acquired in respect thereof, including, without
limitation, legal fees and expenses, any unreimbursed amount
expended by the Servicer pursuant to Section 3.06 with respect to
the related Mortgage Loan and any unreimbursed expenditures for
real property taxes or for property restoration or preservation
relating to the Mortgaged Property that secured such Mortgage
Loan.
"Liquidation Proceeds": All funds (i) received by the
Servicer in final repayment of a Mortgage Loan, whether upon
Principal Prepayment in full by the Borrower or REO Disposition,
sale by deed-in-lieu of foreclosure, proceeds of foreclosure of
the Mortgaged Property, a judgment, writ of attachment or order
of levy against the Borrower or his assets,
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Insurance Proceeds, or otherwise, net of amounts required to be
paid to the Borrower pursuant to applicable laws or the terms of
the Note, or (ii) constituting proceeds of the repurchase
pursuant to Section 2.02, 2.03, 2.04, 3.02, 3.08 or 9.01 by the
Seller or the Servicer, as the case may be, of a Mortgage Loan or
related Mortgaged Property owned by the Trustee.
"London Business Day": Any day on which banks are open for
dealing in foreign currency and exchange in London, England and
New York City.
"Loss Allocation Limitation": As defined in Section 4.03(b).
"LTV": The ratio obtained by dividing the principal balance
of a Mortgage Loan by the Original Value thereof.
"Margin": With respect to each adjustable rate Mortgage
Loan, the fixed rate set forth in the Note which, when added on
any Adjustment Date for such Mortgage Loan to the Index with
respect to such Adjustment Date, the sum being rounded up
pursuant to the Note (if so provided therein), shall equal the
current Mortgage Interest Rate for such Mortgage Loan, subject to
the Adjustment Date Gross Cap, the Lifetime Gross Minimum and the
Lifetime Gross Cap for such Mortgage Loan.
"Material Defect": The meaning assigned to such term in Section 2.02.
"Modified Mortgage Loan": Any Mortgage Loan which the
Servicer has modified pursuant to Section 3.02.
"Monthly Payment": The scheduled monthly payment on a
Mortgage Loan for any month. Monthly Payments shall be deemed to
include payments or Advances made in respect of any Mortgage Loan
as to which the Mortgaged Property securing such Mortgage Loan
has been acquired by the Trustee and that portion of Net
Liquidation Proceeds equal to delinquent Monthly Payments at the
time of the related liquidation, Principal Prepayment or
repurchase.
"Mortgage": A mortgage, deed of trust or other instrument
given as security for a Note, together with any rider, addendum
or amendment thereto, as amended from time to time.
"Mortgage Assignment": An instrument duly executed and in
recordable form assigning a Mortgage (or several Mortgages)
legally sufficient for the jurisdiction in which the applicable
Mortgaged Property is located.
"Mortgage Document File": As to each Mortgage Loan, the
documents described in Section 2.01(b)(i)-(viii), and any
additional documents required to be added to the Mortgage
Document File pursuant to this Agreement.
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"Mortgage Interest Rate": The annual rate at which interest
accrues on any Mortgage Loan pursuant to the Note, equal to the
"Mortgage Interest Rate" set forth with respect thereto on the
Mortgage Loan Schedule and, in the case of adjustable rate
Mortgage Loans, as adjusted from time to time on each Adjustment
Date for such Mortgage Loan to equal the Index related to such
Adjustment Date plus the Margin for such Mortgage Loan, the sum
of which is rounded up pursuant to the Note (if so provided
therein) subject to the Adjustment Date Gross Cap, the Lifetime
Gross Cap and the Lifetime Gross Minimum for such Mortgage Loan.
"Mortgage Loan": A mortgage loan transferred and assigned
to the Trustee pursuant to Section 2.01 and from time to time
held as a part of the Trust Fund (including, from and after the
date of substitution, any Substitute Mortgage Loan), the Mortgage
Loans originally so held being identified in the Mortgage Loan
Schedule.
"Mortgage Loan Schedule": The schedule, attached hereto as
Exhibit B, which identifies each Mortgage Loan by loan number,
address of Mortgaged Property and name of the Borrower, principal
balance as of the Cut-Off Date, Mortgage Interest Rate as of the
Cut-Off Date, Servicing Fee Rate, first payment date and maturity
date of the Mortgage Loan and, to the extent applicable, the
following: the First Adjustment Date, the Lifetime Gross Cap, the
Lifetime Gross Minimum, the Lifetime Pass-Through Cap and the
Lifetime Pass-Through Minimum.
"Mortgaged Property": The property securing a Note.
"Net Insurance Proceeds": Insurance Proceeds net of Insurance Expenses.
"Net Interest Shortfall": With respect to any Distribution
Date, the excess, if any, of the aggregate Interest Shortfalls
for such Distribution Date over any Compensating Interest Payment
for such Distribution Date.
"Net Liquidation Proceeds": Liquidation Proceeds net of
Liquidation Expenses.
"Net Mortgage Rate": With respect to any fixed rate
Mortgage Loan, the related Mortgage Interest Rate less the
Servicing Fee Rate. With respect to any adjustable rate Mortgage
Loan: (i) prior to the related First Adjustment Date, the
Mortgage Interest Rate less the Servicing Fee Rate; and (ii) from
and after the First Adjustment Date, the Index applicable to the
related Mortgage Interest Rate plus the Margin, the sum being
rounded up pursuant to the Note (if so provided therein), less
the Servicing Fee Rate, subject to the Adjustment Date
Pass-Through Cap, the Lifetime Pass-Through Cap and the Lifetime
Pass-Through Minimum.
"Non-Book-Entry Certificate": Any Certificate other than a
Book-Entry Certificate.
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"Non-Primary Residence Loan": Any Mortgage Loan secured by
a Mortgaged Property that is (on the basis of representations
made by the Mortgagors at origination) a second home or
investor-owned property.
"Non-Recoverable Advance": Any Advance or portion thereof
as to which the Servicer has not been fully reimbursed following
the earlier to occur of (a) final liquidation of the related
Mortgage Loan or Mortgaged Property, or (b) a determination by
the Servicer that such Advance will not be recoverable, whether
from Net Liquidation Proceeds, Net Insurance Proceeds or
otherwise. No amount shall be deemed a Non-Recoverable Advance
hereunder until the Servicer shall have delivered to the Trustee
an Officer's Certificate identifying the related Mortgage Loan,
describing the circumstances and certifying that such amount is a
Non-Recoverable Advance.
"Non-U.S. Person": As defined in Section 4.02(c).
"Note": Any promissory note, together with any rider,
addendum or amendment thereto, that evidences a Mortgage Loan, as
amended from time to time.
"Notional Principal Balance": As to any Distribution Date
and any Notional Certificate, such Certificate's Percentage
Interest of the aggregate Notional Principal Balance of all
Certificates of the same Class for such Distribution Date.
"Officer's Certificate": A certificate signed by an officer
(authorized to sign an Officer's Certificate and, in the case of
the Servicer, whose name and specimen signature appear on a list
of authorized officers furnished by the Servicer to the Trustee)
of the Person required to provide such certificate or, if no such
Person is identified, the Servicer. The text of any particular
Officer's Certificate may be stamped upon a document constituting
a portion of a Mortgage Document File so long as such stamped
text is signed by an officer authorized to sign an Officer's
Certificate.
"Opinion of Counsel": A written opinion of counsel, which
counsel shall be acceptable to the Seller and the Trustee.
"Original Value": In the case of a refinanced Mortgage
Loan, the appraised value of the related Mortgaged Property
established by an appraisal satisfactory to the Servicer, whether
or not delivered at the time of the origination of the Mortgage
Loan; otherwise, the lesser of (a) the purchase price of the
Mortgaged Property actually paid by the Borrower at the time of
the origination of the Mortgage Loan or (b) the appraised value
of the Mortgaged Property established in an appraisal
satisfactory to the Servicer which was delivered at the time of
origination of the Mortgage Loan.
"Other Originator": An originator of a Mortgage Loan, other
than the Seller.
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"OTS": The Office of Thrift Supervision of the Department
of Treasury of the United States, or any successor thereto.
"Outstanding Mortgage Loan": As to any Due Date, a Mortgage
Loan which was not the subject of a Principal Prepayment in full
prior to such Due Date, which did not become a Liquidated
Mortgage Loan prior to such Due Date and which was not
repurchased prior to such Due Date pursuant to Section 2.02,
2.03, 2.04, 3.02, 3.08 or 9.01.
"Ownership Interest": As to any Residual Certificate, any
record or beneficial interest in such Certificate.
"PAC Balance": As to any Distribution Date and any Class of
PAC Certificates, the Balance designated as such for such
Distribution Date and such Class as set forth in the Principal
Balance Schedules.
"Percentage Interest": With respect to any Certificate, the
percentage interest in the undivided beneficial ownership
interest in the Trust Fund evidenced by Certificates of the same
Class as such Certificate. With respect to any Certificate, the
Percentage Interest evidenced thereby shall equal the Initial
Certificate Principal Balance (or, in the case of a Notional
Certificate, the initial Notional Principal Balance) thereof
divided by the aggregate Initial Certificate Principal Balance
(or, in the case of a Notional Certificate, the aggregate initial
Notional Principal Balance) of all Certificates of the same
Class.
"Permitted Investments": One or more of the following:
(i) obligations of the United States or any agency
thereof, provided such obligations are backed by the full faith
and credit of the United States;
(ii) general obligations of or obligations guaranteed
by any state of the United States or the District of Columbia
receiving the highest long-term debt ratings of each Rating
Agency, or such lower rating as will not, as evidenced by a
letter from each Rating Agency, result in the downgrading or
withdrawal of the rating then assigned to the Certificates by
either Rating Agency;
(iii) commercial or finance company paper which has
the highest rating available from each Rating Agency, or such
lower rating as will not, as evidenced by a letter from each
Rating Agency, result in the downgrading or withdrawal of the
rating then assigned to the Certificates by either Rating Agency;
(iv) certificates of deposit, demand or time deposits
or bankers' acceptances issued by any depository institution or
trust company incorporated under the laws of the United States or
of any state thereof and subject to supervision and examination
by federal and/or state banking authorities, provided that the
commercial paper or long-term unsecured
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debt obligations of such depository institution or trust company
(or, in the case of the principal depository institution in a
holding company system, the commercial paper or long-term
unsecured debt obligations of such holding company), in the case
of commercial paper, has received a rating in one of the two
highest rating categories available for such securities by each
Rating Agency (provided that, if such rating is not in the
highest rating category available, such investment shall have a
maturity not exceeding 30 days) and, in the case of long-term
unsecured debt obligations, have received a rating in the highest
rating category available for such securities by each Rating
Agency, or such lower rating as will not, as evidenced by a
letter from each Rating Agency, result in the downgrading or
withdrawal of the rating then assigned to the Certificates by
either Rating Agency;
(v) demand or time deposits or certificates of deposit
issued by any bank or trust company, savings and loan association
or savings bank and fully insured by the FDIC;
(vi) guaranteed reinvestment agreements issued by any
bank, insurance company or other corporation rated in the highest
rating category available to such issuers by each Rating Agency
throughout the duration of such agreements;
(vii) repurchase obligations with respect to any
security described in (i) above, or any other security issued or
guaranteed by an agency or instrumentality of the United States,
in either case entered into with a depository institution or
trust company (acting as principal) described in (iv) above or
with another entity the commercial paper of which has the highest
rating available from each Rating Agency;
(viii) securities (other than stripped bonds, stripped
coupons or securities providing for payment of both principal and
interest derived from obligations underlying such instrument if
the principal and interest payments with respect to such
instrument provide a yield to maturity in excess of 120% of the
yield to maturity at par of such underlying obligations) bearing
interest or sold at a discount issued by any corporation
incorporated under the laws of the United States or any state
thereof which, at the time of such investment, have then received
the highest rating available from each Rating Agency, or such
lower rating as will not, as evidenced by a letter from each
Rating Agency, result in the downgrading or withdrawal of the
rating then assigned to the Certificates by either Rating Agency;
(ix) units of taxable money market funds which are
regulated investment companies, seek to maintain a constant net
asset value per share, invest solely in obligations backed by the
full faith and credit of the United States, and have the highest
rating available from each Rating Agency that assigns ratings to
such funds; and
(x) such other investments bearing interest or sold at
a discount the investment in which will not, as evidenced by a
letter from each Rating Agency, result in the downgrading or
withdrawal of the rating then assigned to the Certificates by
either Rating Agency.
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"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision
thereof.
"Plan": Any Person which is an employee benefit plan
subject to ERISA or a plan subject to section 4975 of the Code.
"Pool Distribution": On any Distribution Date, an amount
equal to all previously undistributed Pool Receipts received by
the Servicer on or before the related Determination Date except:
(i) amounts received on particular Mortgage Loans as
late payments or other recoveries of principal or interest
(including Net Liquidation Proceeds and Net Insurance Proceeds)
with respect to which the Servicer previously made an
unreimbursed Advance, and in an amount not in excess of such
Advance;
(ii) amounts representing reimbursement for
Non-Recoverable Advances and amounts representing reimbursement
for certain losses and expenses incurred by the Servicer and
described herein;
(iii) that portion of each Borrower's payment of
interest on a particular Mortgage Loan equal to the Servicing
Fee, adjusted, if applicable, as provided in Section 4.06 with
respect to Principal Prepayments;
(iv) amounts representing all or part of a Monthly Payment
due on any Mortgage Loan after the immediately preceding Due
Date;
(v) all Principal Prepayments and Liquidation Proceeds
received after the related Prepayment Period and all related
payments of interest representing interest for any period of time
after the last day of the related Prepayment Period; and
(vi) any other amounts not included in the Pool
Distribution in accordance with this Agreement.
"Pool Receipts": All payments or other receipts actually
received on account of principal and interest on the Mortgage
Loans or property acquired in respect thereof due after the
Cut-Off Date, including Principal Prepayments, Liquidation
Proceeds, amounts received pursuant to Section 4.05 and proceeds
of the repurchase of Mortgage Loans, if any, pursuant to Section
2.02, 2.03, 2.04, 3.02, 3.08 or 9.01, and the Substitution
Amount, if any, with respect to any Substitute Mortgage Loan, but
excluding the Fixed Retained Yield and any Advances.
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"Pool Scheduled Principal Balance": As to any Distribution
Date, the aggregate of the Scheduled Principal Balances of all
the Mortgage Loans that were Outstanding Mortgage Loans on the
Due Date in the month preceding the month of such Distribution
Date (or, in the case of the first Distribution Date, the Cut-Off
Date).
"Prepayment Assumption": The assumed fixed schedule of
prepayments on a pool of new mortgage loans with such schedule
given as a monthly sequence of prepayment rates, expressed as
annualized percent values. These values start at 0.2% per year in
the first month, increase by 0.2% per year in each succeeding
month until month 30, ending at 6.0% per year. At such time, the
rate remains constant at 6.0% per year for the balance of the
remaining term. Multiples of the Prepayment Assumption are
calculated from this prepayment rate series.
"Prepayment Distribution Trigger": As of any Distribution
Date and as to each Class of Class B Certificates, the related
Prepayment Distribution Trigger is satisfied if (x) the fraction,
expressed as a percentage, the numerator of which is the
aggregate Class Certificate Principal Balances of such Class and
each Class subordinate thereto, if any, on such Distribution
Date, and the denominator of which is the Pool Scheduled
Principal Balance for such Distribution Date, equals or exceeds
(y) such percentage calculated as of the Closing Date.
"Prepayment Period": With respect to any Distribution Date,
the period beginning on the first day of the month preceding the
month in which such Distribution Date occurs through the last day
of such preceding month.
"Primary Mortgage Insurance Policy": A mortgage guaranty
insurance policy issued by a Qualified Insurer, in form and
substance satisfactory to the Seller, insuring, to the extent set
forth therein, against loss sustained by reason of a default by a
Borrower in the payment of principal and interest on a Mortgage
Loan, together with all riders and endorsements thereto, or any
replacement policy therefor.
"Primary Servicer": Any servicer with which the Servicer
has entered into a servicing agreement, as described in Section
3.01.
"Principal Prepayment": Any payment or other recovery of
principal on a Mortgage Loan which is received in advance of its
scheduled Due Date and is not accompanied by an amount as to
interest representing scheduled interest due on any date or dates
in any month or months subsequent to the month of receipt.
"Prohibited Transaction": Any transaction so classified in
Section 860F(a)(2) of the Code or in the REMIC Provisions.
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"Property Protection Expenses": With respect to any
Mortgage Loan, any expenses paid or incurred by or for the
account of the Servicer in accordance with the related Mortgage
for (a) real estate property taxes and property repair,
restoration, replacement, protection and preservation expenses,
(b) premiums for maintenance of any Standard Hazard Insurance
Policy, (c) premiums for maintenance of any Primary Mortgage
Insurance Policy, (d) maintenance charges, common area charges
and assessments, and (e) similar expenses reasonably paid or
incurred to preserve or protect the value of the related
Mortgage.
"Purchase Price": An amount equal to the principal balance
of a Mortgage Loan repurchased pursuant to Section 2.02, 2.03,
2.04, 3.02, 3.08 or 9.01 plus all accrued and uncollected
interest at the Pass-Through Rate on the Scheduled Principal
Balance of such Mortgage Loan to and including the last day of
the month during which such repurchase occurs; provided that, if
a Mortgage Loan is repurchased as a result of an inaccuracy in
the Mortgage Loan Schedule as to the Scheduled Principal Balance
of such Mortgage Loan as of the Cut-Off Date, the principal
balance of such Mortgage Loan shall be deemed, for purposes of
calculating the Purchase Price, to be the Scheduled Principal
Balance as stated as of the Cut-Off Date in the Mortgage Loan
Schedule, less any subsequent payments of principal on such
Mortgage Loan.
"Qualified Insurer": An insurance company or surety or
bonding company the claims paying ability of which is rated in
one of the two highest ratings categories by each Rating Agency
or at a level that will not cause any Rating Agency to downgrade
the Certificates.
"Real Property": Land or improvements thereon such as
buildings or other inherently permanent structures thereon
(including items that are structural components of the buildings
or structures), in each such case as such terms are used in the
REMIC Provisions.
"Realized Loss": Any (i) Deficient Valuation or (ii) as to
any Liquidated Mortgage Loan, (x) the unpaid principal balance of
such Liquidated Mortgage Loan plus accrued and unpaid interest
thereon at the Net Mortgage Rate through the last day of the
month of such liquidation less (y) the related Liquidation
Proceeds and Insurance Proceeds (as reduced by the related
Liquidation Expenses and Insurance Expenses).
"Record Date": The last Business Day of the month
immediately preceding the month of the related Distribution Date.
"Reference Banks": As defined in Section 5.08.
"REMIC": A "real estate mortgage investment conduit," as
such term is defined in the Code.
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"REMIC Provisions": The provisions of the federal income
tax law relating to REMICs, which appear at Sections 860A through
860G of the Code, and related provisions and regulations
promulgated thereunder, as the foregoing may be in effect from
time to time.
"REO Account": An account established by the Servicer in
which it holds all funds collected and received in connection
with the operation of any REO Property separate and apart from
its own funds and general assets and in trust for the Trustee for
the benefit of the Certificateholders.
"REO Disposition": The final sale by the Servicer of a
Mortgaged Property acquired by the Servicer in foreclosure or by
a deed-in-lieu of foreclosure.
"REO Mortgage Loan": A Mortgage Loan associated with an REO Property.
"REO Property": A Mortgaged Property acquired by the
Servicer through foreclosure or deed-in-lieu of foreclosure in
connection with a defaulted Mortgage Loan, as described in
Section 3.08.
"Scheduled Principal Balance": As to any Mortgage Loan and
any Distribution Date, the principal balance of such Mortgage
Loan as of the Due Date in the month next preceding such
Distribution Date as specified in the then applicable
amortization schedule relating to such Mortgage Loan (before any
adjustment to such amortization schedule by reason of any
bankruptcy or similar proceeding or any moratorium or similar
waiver or grace period or Debt Service Reduction) after giving
effect to (i) any Principal Prepayment received prior to such Due
Date, and (ii) the payment of any principal due on such Due Date,
irrespective of any delinquency in payment by the related
Borrower.
"Seller": HomeSide Mortgage Services, Inc., and its
permitted successors and assigns.
"Senior Certificate Principal Balance": As of any
Distribution Date, the sum of the Certificate Principal Balances
of the Senior Certificates.
"Senior Optimal Principal Amount": As to any Distribution
Date, an amount equal to the sum of:
(i) the Senior Percentage of the principal portion of each
Monthly Payment due on the related Due Date on each Outstanding
Mortgage Loan as of such Due Date as specified in the
amortization schedule at the time applicable thereto (after
adjustments for previous Principal Prepayments and Debt Service
Reductions subsequent to the Bankruptcy Coverage Termination Date
but before any adjustment to such amortization schedule by reason
of any bankruptcy (except as aforesaid) or similar proceeding or
any moratorium or similar waiver or grace period);
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(ii) the Senior Prepayment Percentage of all Voluntary
Principal Prepayments in part received during the related
Prepayment Period, together with the Senior Prepayment Percentage
of the Scheduled Principal Balance of each Mortgage Loan which
was the subject of a Voluntary Principal Prepayment in full
received from the related Mortgagor during such Prepayment
Period;
(iii) the lesser of (x) the Senior Percentage of the sum
of (A) the Scheduled Principal Balance of each Mortgage Loan that
became a Liquidated Loan (other than in respect of Mortgage Loans
described in clause (B)) during the related Prepayment Period and
(B) the Scheduled Principal Balance of each Mortgage Loan that
was purchased by an insurer from the Trustee during the related
Prepayment Period pursuant to the related Primary Insurance
Policy, as reduced in each case by the Senior Percentage of the
principal portion of any Excess Bankruptcy Losses (other than
those attributable to Debt Service Reductions), Excess Fraud
Losses and Excess Special Hazard Losses, and (y) the Senior
Prepayment Percentage of the sum of (A) all Net Liquidation
Proceeds allocable to principal received in respect of each such
Liquidated Loan (other than Mortgage Loans described in clause
(B)) and (B) the principal balance of each such Mortgage Loan
purchased by an insurer from the Trustee pursuant to the related
Primary Insurance Policy, in each case during the related
Prepayment Period;
(iv) the Senior Prepayment Percentage of the Scheduled
Principal Balance of each Mortgage Loan that was purchased on
such Distribution Date pursuant to Sections 2.02, 2.03, 2.04,
3.02, 3.08 or 9.01; and
(v) the Senior Prepayment Percentage of the Substitution
Amount for any Mortgage Loan substituted during the month of such
Distribution Date.
"Senior Percentage": As to any Distribution Date, the
lesser of (i) 100% and (ii) the percentage (carried to six places
rounded up) obtained by dividing the Senior Certificate Principal
Balance immediately prior to such Distribution Date by the sum of
the Certificate Principal Balances of all the Certificates
immediately prior to such Distribution Date.
"Senior Prepayment Percentage": For any Distribution Date
occurring prior to the fifth anniversary of the first
Distribution Date, 100%. Thereafter:
(i) for any Distribution Date on or after the fifth
anniversary of the first Distribution Date, to and including the
Distribution Date immediately prior to the sixth anniversary of
the first Distribution Date, the Senior Percentage for such
Distribution Date plus 70% of the Junior Percentage for such
Distribution Date;
(ii) for any Distribution Date on or after the sixth
anniversary of the first Distribution Date, to and including the
Distribution Date immediately prior to the seventh anniversary of
the first Distribution Date, the Senior Percentage for such
Distribution Date plus 60% of the Junior Percentage for such
Distribution Date;
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(iii) for any Distribution Date on or after the seventh
anniversary of the first Distribution Date, to and including the
Distribution Date immediately prior to the eighth anniversary of
the first Distribution Date, the Senior Percentage for such
Distribution Date plus 40% of the Junior Percentage for such
Distribution Date;
(iv) for any Distribution Date on or after the eighth
anniversary of the first Distribution Date, to and including the
Distribution Date immediately prior to the ninth anniversary of
the first Distribution Date, the Senior Percentage for such
Distribution Date plus 20% of the Junior Percentage for such
Distribution Date; and
(v) for any Distribution Date thereafter, the Senior
Percentage for such Distribution Date.
Notwithstanding the foregoing, if on any Distribution Date the
Senior Percentage exceeds the Senior Percentage as of the Cut-Off
Date, the Senior Prepayment Percentage for such Distribution Date
will equal 100%.
In addition, notwithstanding the foregoing, no reduction of the
Senior Prepayment Percentage shall occur on any Distribution Date
unless at least one of the following two tests is satisfied:
Test I: If, as of the last day of the month preceding such
Distribution Date, (1) not more than an average of 2% of the
dollar amount of all Monthly Payments on the Mortgage Loans due
in each of the preceding six months were delinquent 60 days or
more (including for this purpose any Mortgage Loans in
foreclosure and Mortgage Loans with respect to which the related
Mortgaged Property has been acquired by the Trust Fund), and (2)
cumulative Realized Losses with respect to the Mortgage Loans do
not exceed (a) 30% of the aggregate Class Certificate Principal
Balances of the Junior Certificates as of the Cut-Off Date (the
"Original Subordinate Principal Balance") if such Distribution
Date occurs during the period described in subparagraph (i) of
this definition, (b) 35% of the Original Subordinate Principal
Balance if such Distribution Date occurs during the period
described in subparagraph (ii) of this definition, (c) 40% of the
Original Subordinate Principal Balance if such Distribution Date
occurs during the period described in subparagraph (iii) of this
definition, (d) 45% of the Original Subordinate Principal Balance
if such Distribution Date occurs during the period described in
subparagraph (iv) of this definition, and (e) 50% of the Original
Subordinate Principal Balance if such Distribution Date occurs
thereafter; or
Test II: If, as of the last day of the month preceding such
Distribution Date, (1) not more than an average of 4% of the
dollar amount of all Monthly Payments on the Mortgage Loans due
in each of the preceding three months were delinquent 60 days or
more (including for this purpose any Mortgage Loans in
foreclosure and Mortgage Loans with respect to which the related
Mortgaged Property has been acquired by the Trust Fund), and (2)
cumulative Realized Losses with respect to the Mortgage Loans do
not exceed (a) 10% of the
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Original Subordinate Principal Balance if such Distribution Date
occurs during the period described in subparagraph (i) of this
definition, (b) 15% of the Original Subordinate Principal Balance
if such Distribution Date occurs during the period described in
subparagraph (ii) of this definition, (c) 20% of the Original
Subordinate Principal Balance if such Distribution Date occurs
during the period described in subparagraph (iii) of this
definition, (d) 25% of the Original Subordinate Principal Balance
if such Distribution Date occurs during the period described in
subparagraph (iv) of this definition, and (e) 30% of the Original
Subordinate Principal Balance if such Distribution Date occurs
thereafter.
"Servicer": HomeSide Lending, Inc. and its permitted
successors and assigns.
"Servicing Fee": With respect to any Mortgage Loan and any
month, the monthly fee payable to the Servicer pursuant to
Section 3.10 for the servicing of such Mortgage Loan, such fee
being an amount paid out of each full payment of interest
received on such Mortgage Loan, calculated on a Mortgage Loan by
Mortgage Loan basis and equal to the principal balance of such
Mortgage Loan on which interest accrued in the related month
multiplied by one-twelfth of the Servicing Fee Rate.
"Servicing Fee Rate": As to any Mortgage Loan, the per
annum rate identified as such for such Mortgage Loan and set
forth in the Mortgage Loan Schedule.
"Servicing Officer": Any individual involved in, or
responsible for, the administration and servicing of the Mortgage
Loans whose name and specimen signature appear on a list of
servicing officers furnished to the Trustee by the Servicer in
the form of an Officer's Certificate, as such list may from time
to time be amended.
"Single Certificate": A hypothetical Certificate with a Denomination of
$1,000.
"Special Hazard Loss": (i) A Realized Loss suffered by a
Mortgaged Property on account of direct physical loss, exclusive
of (a) any loss covered by a hazard policy or a flood insurance
policy maintained in respect of such Mortgaged Property and (b)
any loss caused by or resulting from:
(1) normal wear and tear;
(2) conversion or other dishonest act on the part of the
Trustee, the Servicer or any of their agents or employees; or
(3) errors in design, faulty workmanship or faulty
materials, unless the collapse of the property or a part thereof
ensues;
or (ii) any Realized Loss suffered by the Trust Fund arising from
or related to the presence or suspected presence of hazardous
wastes or hazardous substances on a Mortgaged Property
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unless such loss to a Mortgaged Property is covered by a hazard
policy or a flood insurance policy maintained in respect of such
Mortgaged Property.
"Special Hazard Loss Amount": As of any Distribution Date,
an amount equal to the Initial Special Hazard Loss Amount minus
the sum of (i) the aggregate amount of Special Hazard Losses that
would have been allocated to the Junior Certificates in
accordance with Section 4.03 in the absence of the Loss
Allocation Limitation and (ii) the Adjustment Amount (as defined
below) as most recently calculated. On each anniversary of the
Cut-Off Date, the "Adjustment Amount" shall be equal to the
amount, if any, by which the amount calculated in accordance with
the preceding sentence (without giving effect to the deduction of
the Adjustment Amount for such anniversary) exceeds the lesser of
(x) the greater of (A) the product of the Special Hazard
Percentage for such anniversary multiplied by the outstanding
principal balance of all the Mortgage Loans on the Distribution
Date immediately preceding such anniversary and (B) twice the
outstanding principal balance of the Mortgage Loan which has the
largest outstanding principal balance on the Distribution Date
immediately preceding such anniversary, and (y) an amount
calculated by the Servicer and approved by each Rating Agency,
which amount shall not be less than $500,000.
"Special Hazard Percentage": As of each anniversary of the
Cut-Off Date, the greater of (i) 1.00% and (ii) the largest
percentage obtained by dividing (x) the aggregate outstanding
principal balance (as of the immediately preceding Distribution
Date) of the Mortgage Loans secured by Mortgaged Properties
located in a single, five-digit zip code area in the State of
California by (y) the outstanding principal balance of all the
Mortgage Loans as of the immediately preceding Distribution Date.
"Special Hazard Termination Date": The Distribution Date
upon which the Special Hazard Loss Amount has been reduced to
zero or a negative number (or the Cross-Over Date, if earlier).
"Standard Hazard Insurance Policy": The policy of standard
hazard insurance or any replacement policy maintained by the
Servicer pursuant to Section 3.06 and issued by a Qualified
Insurer.
"Substitute Mortgage Loan": As defined in Section 2.02.
"Substitution Amount": With respect to any Substitute
Mortgage Loan, the excess of the Scheduled Principal Balance of
the Mortgage Loan which is being replaced over the Scheduled
Principal Balance of the Substitute Mortgage Loan.
"TAC Balance": As to any Distribution Date and any Class of
TAC Certificates and any TAC Component, the balance designated as
such for such Distribution Date and such Class or Component as
set forth in the Principal Balance Schedules.
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"Transferee": Any Person who acquires or is acquiring by
Transfer any Ownership Interest in a Residual Certificate.
"Trustee": , as trustee, and any other Person that shall
succeed to its duties as trustee of the Trust Fund.
"Trust Fund": The corpus of the trust established hereby,
the ownership interests in which are represented by the
Certificates. The Trust Fund shall consist of:
(a) the Mortgage Loans conveyed by the Seller to the
Trustee hereunder and not repurchased as provided in this
Agreement;
(b) all payments on or collections in respect of the
Mortgage Loans due after the Cut-Off Date, but not including
earnings on amounts in the Certificate Account or on Permitted
Investments of the funds therein, or the Fixed Retained Yield;
(c) all property acquired by foreclosure or deed-in-lieu of
foreclosure with respect to the Mortgage Loans; and
(d) all rights of the Trustee or the Servicer under all
Insurance Policies required to be maintained with respect to the
Mortgage Loans.
"Uninsured Cause": Any cause of damage to property subject
to a Mortgage such that the complete restoration of the property
is not fully reimbursable by the hazard insurance policies
maintained pursuant to Section 3.06.
"Unpaid Class Interest Shortfall": As to any Distribution
Date and any Class of Certificates, the amount, if any, by which
the aggregate of the Class Interest Shortfalls for such Class for
prior Distribution Dates is in excess of the aggregate amounts
distributed on prior Distribution Dates to Holders of such Class
of Certificates in respect of interest pursuant to any applicable
provisions of Section 4.01(b).
"Voluntary Principal Prepayment": With respect to any
Distribution Date, any prepayment of principal received from the
related Mortgagor on a Mortgage Loan (including the Purchase
Price of any Modified Mortgage Loan purchased pursuant to Section
3.02).
ARTICLE II
Conveyance of Trust Fund
Original Issuance of Certificates
Section 2.01 Conveyance of Trust Fund.
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(a) The Seller hereby irrevocably assigns to the Trustee,
in trust for the benefit of the Certificateholders, without
recourse, all of the Seller's right, title and interest in and to
the Mortgage Loans (including all scheduled payments of principal
and interest due thereon after the Cut-Off Date, but received by
the Seller on or before the Cut-Off Date, but not including the
Fixed Retained Yield, payments of principal and interest due
thereon on or before the Cut-Off Date or principal prepayments
received on or before the Cut-Off Date, together with all its
right, title and interest in and to the proceeds of the Insurance
Policies), to be held by the Trustee in the Trust Fund.
(b) The Seller herewith delivers to the Trustee the
following documents pertaining to each of the Mortgage Loans
identified in the Mortgage Loan Schedule:
(i) the original Note, endorsed by the Seller without
recourse to the Trustee;
(ii) the original recorded Mortgage Assignment to the
Trustee or, if such Mortgage Assignment has not been returned
from the applicable public recording office, a copy of such
Mortgage Assignment certified by the Seller to be a true and
complete copy of the original Mortgage Assignment submitted for
recording; provided, however, that in states where, as evidenced
by an Opinion of Counsel from counsel other than Seller's
in-house counsel, such recording is not required to protect the
Trustee's interest in the Mortgage Loan against the claim of any
other transferee or any successor to or creditor of the Seller or
the originator of such Mortgage Loan, which opinion shall also be
provided to the Trustee, any such unrecorded Mortgage Assignment
shall be in recordable form;
(iii) the original Mortgage, as recorded, with evidence of
recording indicated thereon or, if the original Mortgage has not
been returned from the applicable recording office, a copy of the
Mortgage certified by the Seller to be a true and complete copy
of the original Mortgage submitted for recording;
(iv) originals of any assumption, modification,
consolidation, extension or substitution agreements;
(v) if the Seller is not the originator of the
Mortgage Loan, the original recorded Mortgage Assignments of the
Mortgage showing a complete chain of assignment from the Other
Originator to the Seller or, if such Mortgage Assignments have
not been returned from the applicable public recording office, a
copy of each such Mortgage Assignment certified by the Seller to
be a true and complete copy of the original Mortgage Assignment
submitted for recording;
(vi) an Officer's Certificate to the effect that a
Lender's Title Insurance Policy was issued on the date of the
origination of the Mortgage Loan and that such policy is valid
and remains in full force and effect;
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(vii) an Officer's Certificate to the effect that any
insurance policies covering the Mortgaged Property, including the
Primary Mortgage Insurance Policy and the Standard Hazard
Insurance Policy or the Impairment Policy, remain in full force
and effect; and
(viii) an Officer's Certificate to the effect that an
appraisal for each Mortgage Loan is held by the Servicer.
Any Officer's Certificate delivered under this Section 2.01
may refer to specific Mortgage Loans or may describe generally
the Mortgage Loans to which it refers. In the case of Mortgage
Loans that have been prepaid in full after the Cut-Off Date and
prior to the Closing Date, the Seller shall, in lieu of
delivering the above documents to the Trustee, simultaneously
with the execution and delivery of this Agreement deposit in the
Certificate Account the amount of such payment that is required
to be deposited in the Certificate Account pursuant to Section
3.02 and deliver to the Trustee a certification of a Servicing
Officer of the nature set forth in Section 3.09.
Although the parties intend that the conveyance of the
Seller's right, title and interest in and to the Mortgage Loans
pursuant to this Agreement shall constitute a purchase and sale
and not a loan, in the event that such conveyance is deemed to be
a loan, the parties intend that the Seller shall be deemed to
have granted to the Trustee a first priority security interest in
all of the Seller's right, title and interest in, to and under
the Mortgage Loans, all payments of principal of or interest on
the Mortgage Loans, all other payments made in respect of the
Mortgage Loans (except to the extent specified in Section
2.01(a)), and all proceeds of any thereof, and that this
Agreement shall constitute a security agreement under applicable
law.
Section 2.02 Acceptance by Trustee. If the Seller cannot
deliver the original recorded documents described in Section
2.01(b)(ii), (iii) or (v) on the Closing Date, the Seller shall,
promptly upon receipt thereof and in any case not later than 45
days from the Closing Date, deliver such original recorded
documents to the Trustee (unless the Seller is delayed in making
such delivery by reason of the fact that such documents shall not
have been returned by the appropriate recording office). The
original documents described in the Officers' Certificates to be
delivered pursuant to Section 2.01(b)(vi)-(viii) shall be held by
the Servicer in trust for the benefit of the Trustee and shall be
available for inspection by the Trustee. Notwithstanding anything
to the contrary contained in Section 2.01 or this Section 2.02,
in those instances where the public recording office retains the
original Mortgage or Mortgage Assignment after it has been
recorded, the Seller shall be deemed to have satisfied its
obligations hereunder upon delivery to the Trustee of a copy of
the recorded original of such document, certified by the public
recording office to be a true and complete copy of such recorded
document. The Seller shall, at its expense, promptly cause the
Servicer to record in the appropriate public office for real
property records each Mortgage Assignment, except in states
where, as evidenced by an Opinion of Counsel, such recording is
not required to protect the Trustee's interest in the Mortgage
Loan against the claim of any other transferee or any successor
to or creditor of the Seller.
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By its execution and delivery of this Agreement, the
Trustee acknowledges the assignment to it of the Mortgage Loans
and receipt of the original Notes and, subject to the provisions
of Section 2.01 and the review provided in this Section 2.02, of
the documents referred to in Section 2.01(b)(i)-(iii) and
(v)-(viii) and, to the extent included, any documents referred to
in Section 2.01(b)(iv), and declares that it holds and will hold
such documents in trust in the Trust Fund, upon the conditions
herein set forth, for the use and benefit of all
Certificateholders.
The Trustee agrees, for the benefit of the
Certificateholders, to review each Mortgage Document File within
45 days after execution and delivery of this Agreement to
ascertain that all documents referred to in Section
2.01(b)(i)-(iii) and (v)-(viii), and any documents referred to in
Section 2.01(b)(iv) which were included in the delivery of a
Mortgage Document File, have been received, executed and not
torn, mutilated or otherwise defaced, and relate to the Mortgage
Loans identified in the Mortgage Loan Schedule. In so doing, the
Trustee may rely on the purported due execution and genuineness
of any such document and on the purported genuineness of any
signature thereon. If, during the course of such review, the
Trustee discovers any document or documents constituting a part
of a Mortgage Document File not to have been executed or
received, to be unrelated to the Mortgage Loans identified in the
Mortgage Loan Schedule or to have been torn, mutilated or
otherwise defaced, the Trustee shall give immediate written
notice (which notice shall specify the date of discovery of such
defect) to the Seller. The Seller shall have a period of 90 days
from the date such notice is given to the Seller within which to
correct or cure any such defect, provided, however, that if the
Trustee shall not have received a document by reason of the fact
that such document shall not have been returned by the
appropriate recording office then the Seller shall have until a
date one and one half years from the Cut-Off Date to correct or
cure such defect. If any defect which materially and adversely
affects the interests of the Certificateholders (a "Material
Defect") in any Mortgage Loan (a "Defective Mortgage Loan")
cannot be corrected or cured, the Seller will, not later than
three months after the Trustee's notice with respect to such
Material Defect, either (i) repurchase the Defective Mortgage
Loan from the Trustee at the Purchase Price or (ii) substitute
for the Defective Mortgage Loan a new mortgage loan (a
"Substitute Mortgage Loan"); provided, however, that no such
substitution shall (A) be made after the two-year period
beginning on the Closing Date, (B) result in the downgrading or
withdrawal of the rating of the Certificates by either Rating
Agency, as evidenced by a letter from each Rating Agency or (C)
be made under circumstances that would cause any portion of the
proceeds to be subject to the 100% tax on Prohibited Transactions
imposed by Section 860F(a)(1) of the Code, would cause any
Substitute Mortgage Loan not to constitute a "qualified
replacement mortgage" within the meaning of Section 860G(a)(4) of
the Code or would cause a loss of REMIC status, as evidenced by
an Opinion of Counsel provided to the Trustee. Any Substitute
Mortgage Loan shall (a) have a Scheduled Principal Balance
(together with that of any other Mortgage Loan substituted for
the same Defective Mortgage Loan) as of the first Distribution
Date following the month of substitution not in excess of the
Scheduled Principal Balance of the Defective Mortgage Loan as of
such date (the amount of any
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difference, plus one month's interest thereon at the respective
Net Mortgage Rate, to be deposited by the Servicer in the
Certificate Account pursuant to Section 3.02), (b) have a
Mortgage Rate not less than, and not more than one percentage
point greater than, the Mortgage Rate of the Defective Mortgage
Loan, (c) have the same Net Mortgage Rate as the Defective
Mortgage Loan, (d) have a remaining term to stated maturity not
later than, and not more than one year less than, the remaining
term to stated maturity of the Defective Mortgage Loan, (e) be,
in the reasonable determination of the Servicer, of the same
type, quality and character as the Defective Mortgage Loan as if
the defect or breach had not occurred, (f) have a ratio of its
current principal amount to its Original Value not greater than
that of the removed Mortgage Loan and (g) be, in the reasonable
determination of the Servicer, in compliance with the
representations and warranties contained in Section 2.03(b) as of
the date of substitution. The Trustee may rely on an Opinion of
Counsel with respect to the determination of a Material Defect.
In the case of a repurchase of a Mortgage Loan, the Purchase
Price shall be deposited by the Seller in the Certificate
Account. In the case of a Substitute Mortgage Loan, the Mortgage
Document File relating thereto shall be delivered to the Trustee
and the Substitution Amount, if any, shall be deposited by the
Seller in the Certificate Account. Upon deposit in the
Certificate Account of the Purchase Price or upon the Trustee's
receipt of a Mortgage Document File relating to any Substitute
Mortgage Loan and the deposit in the Certificate Account of any
additional funds required to be delivered therewith, and a
written certification signed by a Servicing Officer certifying as
to the delivery thereof, the Trustee shall release to the Seller
the related Mortgage Document File and shall execute and deliver
such instruments of transfer or assignment, in each case without
recourse, as shall be necessary to vest in the Seller the
Trustee's and the Trust Fund's legal and beneficial ownership of
the Mortgage Loan replaced or repurchased. It is understood and
agreed that the obligation of the Seller to repurchase or replace
any Mortgage Loan as to which such a Material Defect in a
constituent document exists shall constitute the sole remedy with
respect to such defect available to the Certificateholders or the
Trustee on behalf of the Certificateholders. In connection with
any repurchase or substitution of a Mortgage Loan, the Seller
shall deliver to the Trustee an Officer's Certificate confirming
that such repurchase or substitution was made in conformance with
the requirements of this Agreement.
The Trustee shall hold that portion of the Trust Fund
delivered to the Trustee consisting of "instruments" (as such
term is defined in Section 9-105(i) of the Uniform Commercial
Code as in effect in the State of on the date hereof) in the
State of , and except as otherwise specifically provided in this
Agreement shall not remove such instruments from the State of ,
unless it receives an Opinion of Counsel that in the event the
transfer of the Mortgage Loans to the Trustee is deemed not to be
a sale, after such removal, the Trustee will possess a first
perfected security interest in such instruments.
Section 2.03 Representations and Warranties of the Seller.
(a) The Seller hereby represents and warrants to the Trustee that
as of the Closing Date or as of such date specifically provided
herein that:
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(i) The Seller is duly organized, validly existing and
in good standing as a Delaware corporation and is conducting its
business so as to comply in all material respects with all
applicable rules and regulations of the jurisdictions in which it
is conducting business.
(ii) The Seller has the full power and authority to
enter into and consummate all transactions contemplated by this
Agreement, has duly authorized the execution, delivery and
performance of this Agreement, has duly executed and delivered
this Agreement, and assuming due authorization, execution and
delivery by the Servicer and the Trustee, this Agreement
constitutes a valid and binding obligation of the Seller,
enforceable against it in accordance with its terms, except that
the enforceability hereof may be subject to (A) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally
and (B) general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law);
(iii) The Seller is not in default with respect to any
order or decree of any court or any order, regulation or demand
of any federal, state, municipal or governmental agency, which
default might have consequences that would materially and
adversely affect its performance hereunder;
(iv) There is no litigation pending or, to the
Seller's knowledge, threatened, which, if determined adversely to
the Seller, would adversely affect the execution, delivery or
enforceability of this Agreement or have a material adverse
effect on the performance of the Seller hereunder; and
(v) The Seller is not a party to or bound by any
agreement or instrument or subject to any articles of
association, bylaws or any other corporate restriction or any
judgment, order, writ, injunction, decree, law or regulation
which now or in the future may materially and adversely affect
the ability of the Seller to perform its obligations under this
Agreement or which require the consent of any third Person to the
execution of this Agreement or the performance by the Seller of
its obligations under this Agreement.
(b) The Seller hereby represents and warrants to the
Trustee as to the Mortgage Loans assigned to the Trustee by it
that as of the Closing Date (and as to any Substitute Mortgage
Loan as of the date of substitution) or as of such date
specifically provided herein that:
(i) The information set forth in the Mortgage Loan
Schedule was true and correct in all material respects at the
date or dates with respect to which such information is
furnished;
(ii) Each Mortgage constitutes a valid and enforceable
first lien on the Mortgaged Property, including all improvements
thereon, subject only to (A) the lien of
current real property taxes and assessments not yet due and
payable; (B) covenants, conditions and restrictions, rights of
way, easements and other matters of public record as of the date
of
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recording of such Mortgage, such exceptions appearing of record
being acceptable to mortgage lending institutions generally and
specifically referred to in the Lender's Title Insurance Policy
delivered to the originator of the Mortgage Loan and not
adversely affecting the value of the Mortgaged Property; and (C)
other matters to which like properties are commonly subject which
do not materially interfere with the benefits of the security
intended to be provided by such Mortgage;
(iii) Each Primary Mortgage Insurance Policy has been
issued by a mortgage insurance company licensed to do business in
the state where the related Mortgaged Property is located,
approved by FHLMC or FNMA and having claims-paying ability
acceptable to each Rating Agency for mortgage pass-through
certificates rated in one of the two highest long term rating
categories by such Rating Agency. The provisions of such Primary
Mortgage Insurance Policy have been and are being complied with,
such policy is in full force and effect, and all premiums due
thereunder have been paid. Each Mortgage Loan which has an LTV
greater than 80% is subject to a Primary Mortgage Insurance
Policy insuring, at a minimum, that portion of the principal
amount of the Mortgage Loan in excess of 75% of the original
value, and obligating the Borrower thereunder to maintain such
insurance and to pay all premiums and charges in connection
therewith;
(iv) As of the Closing Date, no Mortgage Loan was more
than 30 days delinquent in payment, no Mortgage Loan had more
than one delinquency during the preceding 12-month period and no
such delinquency extended for more than 30 days;
(v) At the time each Mortgage Loan was originated and,
to the best knowledge of the Seller, as of the Closing Date,
there are no delinquent taxes, assessments or other outstanding
charges affecting the Mortgaged Property which would permit a
taxing authority to initiate foreclosure proceedings against the
Mortgaged Property;
(vi) As of the Closing Date, there is no offset,
defense or counterclaim to any Note or Mortgage, including the
obligation of the Borrower to pay the unpaid principal of or
interest on such Note, except that no representation or warranty
is made with respect to the effect of the Soldiers' and Sailors'
Civil Relief Act of 1940, as amended, on any Note or Mortgage;
(vii) At the time each Mortgage Loan was originated
and, to the best knowledge of the Seller, as of the Closing Date,
there are no mechanics' liens or claims for work, labor or
material affecting the premises subject to any Mortgage which are
or may be a lien prior to, or of equal priority with, the lien of
such Mortgage, except those which are insured against by the
Lender's Title Insurance Policy referred to in (x) below;
(viii) To the best knowledge of the Seller, as of the
Closing Date, the physical property subject to any Mortgage is
free of material damage and is in good repair;
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(ix) Each Mortgage Loan was originated in compliance
with and complied at the time of origination in all material
respects with applicable Laws, including usury, equal credit
opportunity and disclosure laws, and was originated by a Person
legally authorized to do so in the jurisdiction in which the
Mortgaged Property is located;
(x) Each Mortgage Loan is covered by a Lender's Title
Insurance Policy (or other generally acceptable form of lender's
title insurance policy acceptable to FNMA or
FHLMC) insuring the priority of the lien of the Mortgage in the
original principal amount of such Mortgage Loan, subject to the
exceptions set forth in Section 2.03(b)(ii), and each such policy
is in full force and effect. No claims have been made under such
Lender's Title Insurance Policy, and no prior holder of the
related Mortgage, including the Seller, has, by act or omission,
done anything which would impair the coverage of such Lender's
Title Insurance Policy;
(xi) To the best knowledge of the Seller, on the
Closing Date, the property subject to each Mortgage will be
lawfully occupied under applicable law;
(xii) Each Note is payable in monthly installments of
principal and interest, with interest payable in arrears on a
monthly basis over an original term of not more than 30 years;
(xiii) Each Mortgage Loan is secured by an interest in
Real Property having a fair market value (i) at least equal to 80
percent of the principal balance of the Mortgage Loan at the time
the Mortgage Loan was originated or (ii) at least equal to 80
percent of the principal balance of the Mortgage Loan at the
Closing Date, provided that, for purposes of this Section
2.03(b)(xiii), the fair market value of the Real Property
interest must first be reduced by the amount of any lien on the
Real Property interest that is senior to the Mortgage Loan, and
must further be reduced by a proportionate amount of any lien
that is in parity with the Mortgage Loan;
(xiv) All buildings upon the Mortgaged Properties are
either insured by Standard Hazard Insurance Policies against loss
by fire, hazards of extended coverage and such other hazards as
are customary in the area where the Mortgaged Properties are
located, or substantially similar coverage is available pursuant
to an Impairment Policy. All such Standard Hazard Insurance
Policies or any Impairment Policy are in effect and on the date
of origination the Standard Hazard Insurance Policies contained a
standard mortgagee clause naming the Seller or Other Originators
as mortgagee, and, to the best of the Seller's knowledge, such
clause is still in effect and all premiums thereon have been
paid. If any Mortgaged Property is located in an area identified
by the Secretary of Housing and Urban Development as having
special flood hazards, such Mortgaged Property is covered by
flood insurance or an Impairment Policy. The Mortgage obligates
the Borrower thereunder to maintain the Standard Hazard Insurance
Policy at the Borrower's cost and expense, and on the
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Borrower's failure to do so authorizes the holder to obtain and
maintain such insurance at the Borrower's cost and expense and to
seek reimbursement thereof from the Borrower;
(xv) Immediately prior to the assignment to the Trust
Fund the Seller had good title to, and was the sole owner of,
each Mortgage Loan free and clear of any lien, claim, charge,
encumbrance or interest of any kind and had full right and
authority, subject to no interest (including any security
interest), lien or participation of, or agreement with, any other
party, to transfer, sell and assign the same;
(xvi) With respect to each Mortgage Loan secured by a
unit in a planned unit development (except de minimis planned
unit developments) or by a townhouse, the Seller has applied
project approval guidelines which substantially conform to the
project approval guidelines of FNMA or FHLMC;
(xvii) All appraisals are on forms acceptable to
either FNMA or FHLMC, including information regarding three
comparable properties;
(xviii) In the case of each Mortgage Loan secured by a
condominium unit, such condominium unit is owner-occupied as a
primary residence and is located in a condominium project either
approvable or warrantable under FHLMC Guidelines or FNMA
Guidelines;
(xix) To the best of the Seller's knowledge, neither
the Seller nor any prior holder of the Mortgage Loan has modified
the related Mortgage or Note in any material respect, satisfied,
canceled or subordinated such Mortgage or Note in whole or in
part, released all or any material portion of the Mortgaged
Property from the lien of the Mortgage, or executed any
instrument of release, cancellation or satisfaction;
(xx) To the best of the Seller's knowledge, neither
the Seller nor any prior holder of the Mortgage Loan has advanced
funds or received any advance of funds by a party other than the
Borrower, directly or indirectly, for the payment of any amount
required by the related Note or the related Mortgage, except for
(i) funds deposited in the buy-down reserve for each buy-down
mortgage loan and (ii) interest accruing from the date of the
Note or date of disbursement of the Mortgage Loan proceeds,
whichever is later, to the date which precedes by 30 days the
first due date under the related Note;
(xxi) Each of the Mortgage Loans is secured by property
held in fee simple;
(xxii) No selection procedures, other than those
necessary to comply with the representations and warranties set
forth herein or the description of the Mortgage Loans made in any
disclosure document delivered to prospective investors in the
Certificates, which would be adverse to the interests of the
Certificateholders have been utilized in selecting the Mortgage
Loans from the Seller's portfolio;
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(xxiii) Any unrecorded Mortgage Assignment provided to
the Trustee has been executed by a duly authorized officer of the
Seller and is in recordable form; and
(xxiv) As of the Cut-Off Date, each Mortgage Loan is a
"qualified mortgage" as defined in Section 860G(a)(3) of the
Code.
It is understood and agreed that the representations and
warranties set forth in this Section 2.03 shall survive delivery
of the respective Mortgage Document Files to the Trustee until
the termination of this Agreement, and shall inure to the benefit
of the Trustee. Upon discovery by the Seller or the Trustee (or
upon notice thereof from any Certificateholder) of a material
breach of any of the foregoing representations and warranties
which materially and adversely affects the interests of the
Certificateholders in the related Mortgage Loan, or if the
Trustee or the Servicer discovers that a Mortgage Loan is a
"defective obligation" within the meaning of the REMIC Provisions
and the defect is one that, had it been discovered before the
Closing Date, would have prevented the Mortgage Loan from being a
"qualified mortgage" within the meaning of the REMIC Provisions,
the party discovering such breach (or receiving notice thereof
from any Certificateholder) shall give immediate written notice
(which notice shall specify the date of discovery of such breach)
to the other parties hereto. Within 90 days of such discovery,
the Seller shall cure such breach in all material respects or
shall either (i) repurchase such Mortgage Loan from the Trustee
at the Purchase Price and in the manner set forth in Section
2.02(i) or (ii) substitute for such Mortgage Loan a Substitute
Mortgage Loan in the manner described in Section 2.02(ii);
provided, however, that no such substitution shall (A) result in
the downgrading or withdrawal of the rating of the Certificates
by either Rating Agency, as evidenced by a letter from each
Rating Agency, or (B) be made under circumstances that would
cause any portion of the proceeds to be subject to the 100% tax
on Prohibited Transactions, would cause any Substitute Mortgage
Loan not to constitute a "qualified replacement mortgage" within
the meaning of Section 860G(a)(4) of the Code or would cause a
loss of REMIC status, as evidenced, in the case of a Substitute
Mortgage Loan, by an Opinion of Counsel provided to the Trustee.
In the case of a repurchase of a Mortgage Loan, the Purchase
Price shall be deposited by the Seller in the Certificate
Account. In the case of a Substitute Mortgage Loan, the Mortgage
Document File relating thereto shall be delivered to the Trustee
and the Substitution Amount, if any, shall be deposited by the
Seller in the Certificate Account. Upon deposit in the
Certificate Account of the Purchase Price or upon receipt by the
Trustee of a Mortgage Document File relating to any Substitute
Mortgage Loan and the deposit in the Certificate Account of any
additional funds required to be delivered therewith, and a
written certification signed by a Servicing Officer certifying as
to the delivery thereof, the Trustee shall release to the Seller
the related Mortgage Document File, and shall execute and deliver
such instruments of transfer or assignment, in each case without
recourse, as shall be necessary to vest in the Seller or its
designee title to any Mortgage Loan repurchased or replaced
pursuant hereto. It is understood and agreed that the obligation
of the Seller to repurchase or replace any Mortgage Loan as to
which a breach occurred and is continuing shall constitute the
sole remedy with respect to such breach available to
Certificateholders or the Trustee on behalf of the
Certificateholders.
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Section 2.04 Representations and Warranties of the
Servicer. The Servicer hereby represents and warrants to the
Trustee that as of the Closing:
(i) The Servicer is duly organized, validly existing
and in good standing as a Florida corporation and has all
licenses necessary to carry on its business as now being
conducted and is licensed and qualified to transact business in
and is in good standing under the laws of each state in which any
Mortgaged Property is located if the laws of such state require
licensing or qualification in order to service the Mortgage
Loans, and in any event the Servicer was, is and will be in
compliance in all material respects with the laws of any such
state to the extent necessary to ensure the enforceability of
each Mortgage Loan and the servicing of each Mortgage Loan in
accordance with the terms of this Agreement; the Servicer is an
approved Seller/Servicer for FNMA and FHLMC in good standing and
a mortgagee approved by the Secretary of Housing and Urban
Development pursuant to Section 203 of the National Housing Act;
(ii) The Servicer has the full power and authority to
enter into and consummate all transactions contemplated by this
Agreement, has duly authorized the execution, delivery and
performance of this Agreement, has duly executed and delivered
this Agreement, and, assuming due authorization, execution and
delivery by the Seller and the Trustee, this Agreement
constitutes a valid and binding obligation of the Servicer,
enforceable against it in accordance with its terms;
(iii) The Servicer is not in default with respect to
any order or decree of any court or any order, regulation or
demand of any federal, state, municipal or governmental agency,
which default might have consequences that would materially and
adversely affect the condition (financial or other) or operations
of the Servicer or its properties or might have consequences that
would affect its performance hereunder;
(iv) There is no litigation pending or, to the
Servicer's knowledge, threatened, which, if determined adversely
to the Servicer, would adversely affect the execution, delivery
or enforceability of this Agreement or have a material adverse
effect on the financial condition of the Servicer; and
(v) The Servicer is not a party to or bound by any
agreement or instrument or subject to any articles of
incorporation, bylaws or any other corporate restriction or any
judgment, order, writ, injunction, decree, law or regulation
which now or in the future may materially and adversely affect
the ability of the Servicer to perform its obligations under this
Agreement or which requires the consent of any third Person to
the execution of this Agreement or the performance by the
Servicer of its obligations under this Agreement.
It is understood and agreed that the representations and
warranties set forth in this Section 2.04 shall survive delivery
of the respective Mortgage Document Files to the Trustee
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until the termination of this Agreement, and shall inure to the
benefit of the Trustee. Upon discovery by the Seller, the
Servicer, the Trustee or any Certificateholder of a breach of any
of the foregoing representations and warranties that materially
and adversely affects the interests of the Certificateholders,
the party discovering such breach shall give prompt written
notice to the other parties and to each Rating Agency. Within 90
days of its discovery or its receipt of notice of breach, the
Servicer shall cure such breach in all material respects;
provided, however, that if the Servicer breaches its
representation and warranty set forth in subsection (i) above
concerning compliance with state licensing or qualification
requirements, and the Servicer is diligently attempting to cure
such breach and is unable to do so within 90 days for reasons
beyond its control, the 90-day period shall be extended for so
long as the Servicer is diligently attempting to cure such breach
in accordance with the provisions of this Section 2.04. In the
event of any such extension, on or before the expiration of the
initial 90-day period the Servicer shall provide, and the Trustee
shall request and upon such request the Servicer shall provide
every 90 days thereafter an Officer's Certificate to the Trustee
setting forth the efforts being taken to cure such breach. It is
understood and agreed that the obligation of the Servicer to cure
any breach of a representation or warranty pursuant to this
Section 2.04 shall constitute the sole remedy with respect to the
related breach of representation and warranty in this Section
2.04 available to the Certificateholders, the Seller or the
Trustee on behalf of the Certificateholders, subject to Section
7.01(ii).
Section 2.05 Authentication and Delivery of Certificates.
By its execution and delivery of this Agreement, the Trustee
acknowledges the assignment to it of the Trust Fund and,
concurrently with such assignment, will cause to be authenticated
and delivered to or upon the order of the Seller, in exchange for
the Trust Fund, Certificates in authorized denominations
evidencing the entire ownership of the Trust Fund receipt of
which is acknowledged by the Seller's execution and delivery of
this Agreement.
Section 2.07. Designations under the REMIC Provisions When
Trust Fund Consists of a Single REMIC. Subject to the provisions
of Section 2.08, the following designations under the REMIC
Provisions shall apply:
(a) The Servicer and the Trustee hereby designate the
Classes of Certificates identified in Section 5.01(b), other than
the Class R Certificate, as "regular interests," and the Class R
Certificate as the single class of "residual interests," in the
REMIC established hereunder for purposes of the REMIC Provisions.
(b) The Closing Date will be the "Startup Day" for the
REMIC established hereunder for purposes of the REMIC Provisions.
(c) The "tax matters person" with respect to the REMIC
established hereunder for purposes of the REMIC Provisions shall
be the beneficial owner of the Class R Certificate having the
largest Percentage Interest of such Class; provided, however,
that such largest beneficial owner and, to the extent relevant,
each other holder of a Class R Certificate,
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by its acceptance thereof, irrevocably appoints the Trustee as
its agent and attorney-in-fact to act as "tax matters person"
with respect to the REMIC established hereunder for purposes of
the REMIC Provisions.
(d) The "latest possible maturity date" of the regular
interests in the REMIC established hereunder is the Latest
Possible Maturity Date for purposes of section 860G(a)(1) of the
Code.
Section 2.08. Designations under the REMIC Provisions When
Trust Fund Consists of Two REMICs. If Section 2.06 provides that,
for federal income tax purposes, the Trust Fund shall consist of
two REMICs, the Lower-Tier REMIC and the Upper-Tier REMIC, then
the provisions of Section 2.07 above shall be of no effect and
the following designations under the REMIC Provisions shall
apply:
(a) The Servicer and the Trustee hereby designate the
Lower-Tier Interests identified in Section 2.06(a) above as
"regular interests," and the Class RL Certificate as the single
class of "residual interests," in the Lower-Tier REMIC for
purposes of the REMIC Provisions.
The Servicer and the Trustee hereby designate the Classes
of Certificates identified in Section 5.01(b), other than the
Class R Certificate, as "regular interests," and the Class R
Certificate as the single class of "residual interests," in the
Upper-Tier REMIC for purposes of the REMIC Provisions.
(b) The Closing Date will be the "Startup Day" for
each of the Upper-Tier REMIC and Lower-Tier REMIC established
hereunder for purposes of the REMIC Provisions.
(c) The "tax matters person" with respect to the
Upper-Tier REMIC established hereunder for purposes of the REMIC
Provisions shall be the beneficial owner of the Class R
Certificate having the largest Percentage Interest of such Class;
provided, however, that such largest beneficial owner and, to the
extent relevant, each other holder of a Class R Certificate, by
its acceptance thereof, irrevocably appoints the Trustee as its
agent and attorney-in-fact to act as "tax matters person" with
respect to the Upper-Tier REMIC established hereunder for
purposes of the REMIC Provisions.
The "tax matters person" with respect to the Lower-Tier
REMIC for purposes of the REMIC Provisions shall be the
beneficial owner of the Class RL Certificate having the largest
Percentage Interest of such Class; provided, however, that such
largest beneficial owner and, to the extent relevant, each other
holder of a Class RL Certificate, by its acceptance thereof,
irrevocably appoints the Trustee as its agent and
attorney-in-fact to act as "tax matters person" with respect to
the Lower-Tier REMIC established hereunder for purposes of the
REMIC Provisions.
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(d) The "latest possible maturity date" of the regular
interests in the Upper- Tier REMIC and Lower-Tier REMIC
established hereunder is the Latest Possible Maturity Date for
purposes of section 860G(a)(1) of the Code.
Section 2.09. Trustee to Act as Agent in REMIC Matters. (a)
It is intended that the REMIC (or each of the Upper-Tier REMIC
and the Lower-Tier REMIC, as the case may be) formed hereunder
shall constitute, and that the affairs of the Trust Fund shall be
conducted so as to qualify the Trust Fund (or each of the
Upper-Tier REMIC and the Lower-Tier REMIC, as the case may be)
as, a "real estate mortgage investment conduit" as defined in and
in accordance with the REMIC Provisions. In furtherance of such
intention, the Trustee covenants and agrees that it shall act as
agent (and the Trustee is hereby appointed to act as agent) on
behalf of the Trust Fund and the respective Holders of the
Residual Certificates and that in such capacity it shall:
(i) prepare and file, or cause to be prepared and
filed, in a timely manner, a U.S. Real Estate Mortgage Investment
Conduit Income Tax Return (Form 1066) and prepare and file or
cause to be prepared and filed with the Internal Revenue Service
and applicable state or local tax authorities income tax or
information returns for each taxable year with respect to the
REMIC (or each of the Upper-Tier REMIC and the Lower-Tier REMIC,
as the case may be) established hereunder, using the calendar
year as the taxable year and the accrual method of accounting,
containing such information and at the times and in the manner as
may be required by the Code or state or local tax laws,
regulations, or rules, and shall furnish or cause to be furnished
to Certificateholders the schedules, statements or information at
such times and in such manner as may be required thereby;
(ii) within thirty days of the Closing Date, shall
furnish or cause to be furnished to the Internal Revenue Service,
on Form 8811 or as otherwise may be required by the Code, the
name, title, address, and telephone number of the person that the
holders of the Certificates may contact for tax information
relating thereto (and the Trustee shall act as the representative
of the REMIC (or each of the Upper-Tier REMIC and the Lower-Tier
REMIC, as the case may be) established hereunder for this
purpose), together with such additional information as may be
required by such Form, and shall update such information at the
time or times in the manner required by the Code;
(iii) make or cause to be made an election, on behalf
of the REMIC (or each of the Upper-Tier REMIC and the Lower-Tier
REMIC, as the case may be) established hereunder, to be treated
as a REMIC, and make the appropriate designations, if applicable,
in accordance with Section 2.06 hereof on the federal tax return
of the Trust Fund for its first taxable year (and, if necessary,
under applicable state law);
(iv) prepare and forward, or cause to be prepared and
forwarded, to the Certificateholders and to the Internal Revenue
Service and, if necessary, state tax authorities, all information
returns or reports, or furnish or cause to be furnished by
telephone, mail,
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publication or other appropriate method such information, as and
when required to be provided to them in accordance with the REMIC
Provisions, including without limitation, the calculation of any
original issue discount using the Prepayment Assumption Multiple;
(v) provide information necessary for the computation
of tax imposed on the transfer of a Residual Certificate to a
Disqualified Organization, or an agent (including a broker,
nominee or other middleman) of a Disqualified Organization, or a
pass-through entity in which a Disqualified Organization is the
record holder of an interest (the reasonable cost of computing
and furnishing such information may be charged to the Person
liable for such tax);
(vi) ensure that federal, state or local income tax or
information returns shall be signed by the Trustee or such other
person as may be required to sign such returns by the Code or
state or local laws, regulations or rules; and
(vii) maintain such records relating to the REMIC (or
each of the Upper-Tier REMIC and the Lower-Tier REMIC, as the
case may be) established hereunder, including but not limited to
the income, expenses, individual Mortgage Loans (including
Mortgaged Property), other assets and liabilities thereof, and
the fair market value and adjusted basis of the property of each
determined at such intervals as may be required by the Code, as
may be necessary to prepare the foregoing returns, schedules,
statements or information.
(b) Also in furtherance of the intention described in
paragraph (a) above, the Servicer hereby covenants and agrees
that it shall:
(i) use its best reasonable efforts to conduct the
affairs of the REMIC (or each of the Upper-Tier REMIC and the
Lower-Tier REMIC, as the case may be) established hereunder at
all times that any Certificates are outstanding so as to maintain
the status thereof as a REMIC under the REMIC Provisions;
(ii) not knowingly or intentionally take any action or
omit to take any action that would cause the termination of the
REMIC status of the REMIC (or either the Upper-Tier REMIC or the
Lower-Tier REMIC, as the case may be) established hereunder or
that would subject the Trust Fund to tax, except for taxes for
which the Servicer is required to indemnify the REMIC (or the
Lower-Tier REMIC, as the case may be) pursuant to Section 3.02;
(iii) exercise reasonable care not to allow the
creation of any "interests" in the REMIC within the meaning of
section 860D(a)(2) of the Code other than the interests
represented by the Classes of Certificates identified in Section
5.01(b), or exercise reasonable care not to allow the creation of
any "interests" (A) in the Upper-Tier REMIC within the meaning of
section 860D(a)(2) of the Code in addition to the interests
represented by the Classes of Certificates identified in Section
5.01(b), other than the Class RL Certificate, and (B) in the
Lower-Tier REMIC within the meaning of Section 860D(a)(2) of the
Code other
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than the interests represented by the Lower-Tier Interests
identified in Section 2.05(a) and the Class RL Certificate, as
the case may be;
(iv) exercise reasonable care not to allow the
occurrence of any "prohibited transactions" within the meaning of
section 860F of the Code, unless (1) the Servicer shall have
provided an Opinion of Counsel to the Trustee that such
occurrence would not (a) result in a taxable gain, (b) otherwise
subject the Trust Fund to tax, or (c) cause the REMIC (or either
the Upper-Tier REMIC or the Lower-Tier REMIC, as the case may be)
established hereunder to fail to qualify as a REMIC or (2) such
"prohibited transactions" arise from the modification, holding or
purchase of a Modified Mortgage Loan pursuant to Section 3.02;
(v) exercise reasonable care not to allow the Trust
Fund to receive income from the performance of services or from
assets not permitted under the REMIC Provisions to be held by a
REMIC, except such as may arise from the modification, holding or
purchase of a Modified Mortgage Loan pursuant to Section 3.02;
and
(vi) pay the amount of any federal or state tax,
including prohibited transaction taxes, taxes on certain
contributions to the REMIC (or either the Upper-Tier REMIC or the
Lower-Tier REMIC, as the case may be) after the Startup Day, and
taxes on net income from foreclosure property, imposed on the
Trust Fund when and as the same shall be due and payable (but
such obligation shall not prevent the Seller, the Servicer, the
Trustee or any other appropriate Person from contesting any such
tax in appropriate proceedings and shall not prevent the Trustee
from withholding payment of such tax, if permitted by law,
pending the outcome of such proceedings).
The Servicer shall be entitled to be reimbursed pursuant to
Section 3.04 for any federal income taxes paid by it pursuant to
clause (v) of the preceding sentence, except to the extent that
such taxes are imposed as a result of the bad faith, misfeasance
or negligence of the Trustee in the performance of its
obligations hereunder.
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01 The Servicer. The Servicer shall service and
administer the Mortgage Loans in accordance with Accepted
Servicing Practices and the provisions of this Agreement and
shall have the power and authority, acting alone or through one
or more Primary Servicers, to do any and all things in connection
with such servicing and administration which it may deem
necessary or desirable. To the extent that any provisions of this
Agreement are inconsistent with Accepted Servicing Practices, the
provisions of this Agreement shall control. The Servicer shall
continue, and is hereby authorized and empowered by the Trustee,
to execute and deliver, on behalf of itself, the
Certificateholders and the Trustee or any of them,
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any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge, and all other comparable
instruments with respect to the Mortgage Loans and with respect
to the Mortgaged Properties. The Trustee shall furnish the
Servicer with any powers of attorney and other documents that the
Servicer determines are necessary or appropriate to enable the
Servicer to carry out its servicing and administrative duties
hereunder.
Costs incurred by the Servicer with respect to Property
Protection Expenses may be added by the Servicer to the amount
owing under the related Note where the terms of such Note so
permit; provided, however, that the addition of any such cost
shall not be taken into account for purposes of calculating the
distributions to be made to Certificateholders or the Servicing
Fee. Such costs shall be recoverable by the Servicer pursuant to
Section 3.04.
The relationship of the Servicer (and of any successor to
the Servicer as servicer under this Agreement) to the Trustee
under this Agreement is intended by the parties to be that of an
independent contractor and not that of a joint venturer, partner
or agent.
If the Servicer enters into a servicing agreement with any
servicer (a "Primary Servicer") pursuant to which such Primary
Servicer shall directly service certain Mortgage Loans and the
Servicer shall perform master servicing with respect thereto, the
Servicer shall not be released from its obligations to the
Trustee and Certificateholders with respect to the servicing and
administration of the Mortgage Loans in accordance with the
provisions of Article III hereof and such obligations shall not
be diminished by virtue of any such servicing agreement or
arrangement and the Servicer shall be obligated to the same
extent and under the same terms and conditions as if the Servicer
alone were servicing and administering the Mortgage Loans. Any
amounts received by a Primary Servicer in respect of a Mortgage
Loan shall be deemed to have been received by the Servicer
whether or not actually received by it. Any servicing agreement
that may be entered into and any transactions or services
relating to the Mortgage Loans involving a Primary Servicer in
its capacity as such shall be deemed to be between the Servicer
and the Primary Servicer alone, and the Trustee and the
Certificateholders shall have no claims, obligations, duties or
liabilities with respect thereto. Notwithstanding the foregoing,
in the event the Servicer has been removed as the servicer
hereunder pursuant to Section 6.04 or Section 7.01, the Trustee
or any successor servicer appointed pursuant to Section 7.02
shall succeed to all of the Servicer's rights and interests (but
not to any obligations or liabilities of the Servicer arising
prior to the date of succession) under any servicing agreement
with any Primary Servicer in respect of the Mortgage Loans,
subject to the limitation on the Trustee's responsibilities under
Section 7.02.
In the case of any adjustable rate Mortgage Loans, the
Servicer shall make periodic Mortgage Interest Rate and payment
adjustments in compliance with applicable regulatory requirements
and the Notes, and which reflect changes in the Index. The
Servicer shall establish procedures to monitor the Index in order
to assure that it uses the appropriate value for the Index in
determining an interest rate change, and it will comply with
those procedures. In the event the Index is no longer available,
the Servicer will choose a new comparable index
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not under the control of the Servicer or its Affiliates and
provide the Borrower with notice of the new index sufficient
under law and the Mortgage Document File documents. The Servicer
shall execute and deliver all appropriate notices required by
applicable laws and regulations and the Mortgage Document File
documents regarding such Mortgage Interest Rate adjustments and
payment adjustments. Each adjustment in the Mortgage Interest
Rate paid by the Borrower shall result in an adjustment to the
related Monthly Payment. If the Servicer fails to make a timely
adjustment in the Mortgage Interest Rate or Monthly Payment
pursuant to a Note, the Servicer shall use its own funds to
satisfy any shortage in the Borrower's remittance attributable to
such failure so long as such shortage shall continue.
Section 3.02 Collection of Mortgage Loan Payments;
Modification of Mortgage Loans; Certificate Account. The
Servicer, acting alone or through one or more Primary Servicers,
shall use its best reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans
and shall, to the extent such procedures shall be consistent with
this Agreement and the terms and conditions of any Insurance
Policies, follow such normal collection procedures as it deems
necessary and advisable. The Servicer shall not agree to any
modification of the material terms of any Mortgage Loan except as
provided herein. The Servicer shall not release any portion of
any Mortgaged Property from the lien of the related Mortgage
unless the related Mortgage Loan would be a "qualified mortgage"
within the meaning of the REMIC Provisions following such
release.
The Servicer may in its discretion (a) at the time of any
prepayment, late payment or assumption, waive any late payment
charge or any prepayment charge or penalty interest in connection
with the prepayment of a Mortgage Loan or any assumption fees or
other fees which may be collected in the ordinary course of
servicing such Mortgage Loan and (b) if a default on the Mortgage
Loan has occurred or is reasonably foreseeable, and to the extent
that it determines that coverage under any applicable Insurance
Policy will not be adversely affected, arrange with a Borrower a
schedule for the payment of principal and interest due and
unpaid; provided, however, that (i) such schedule shall provide
that principal and interest be brought current within 25 days
after the applicable Due Date and (ii) during that time the
Servicer shall be required to make Advances in respect of such
Mortgage Loan until such time as such Advances are deemed
Non-Recoverable Advances.
The Servicer may agree to a modification of any Mortgage
Loan (the "Relevant Mortgage Loan") upon the request of the
related Mortgagor, provided that (i) the modification is in lieu
of a refinancing and the Mortgage Rate on the Relevant Mortgage
Loan, as modified, is approximately a prevailing market rate of
newly-originated mortgage loans having similar terms, (ii) the
aggregate of the adjusted bases of all Modified Mortgage Loans
(including the Relevant Mortgage Loans) plus the aggregate
adjusted bases of any assets that are not qualified mortgages or
Permitted Investments under Code Section 860GA that are assets of
the REMIC established hereunder at all times on any day is less
than one percent of the aggregate of the adjusted bases of all
assets of the REMIC (including such Modified Mortgage Loans) on
such day, and (iii) the Servicer purchases the Relevant Mortgage
Loan from the Trust Fund as
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described below. Effective immediately after such modification,
and, in any event, on the same Business Day on which the
modification occurs, all right, title and interest of the Trustee
in and to the Modified Mortgage Loan shall automatically be
deemed transferred and assigned to the Servicer and all benefits
and burdens of ownership thereof, including without limitation
the right to accrued interest thereon from and including the date
of modification and the risk of default thereon, shall pass to
the Servicer. To confirm such transfer and assignment, the
Servicer, as servicer hereunder, as soon as practicable shall
execute an instrument of assignment of the Modified Mortgage Loan
without recourse in customary form to the Servicer in its
individual capacity. The Servicer shall deposit the Purchase
Price for any Modified Mortgage Loan in the Certificate Account
pursuant to this Section 3.02. Upon receipt by the Trustee of
written notification of any such deposit signed by a Servicing
Officer, the Trustee shall release to the Servicer the related
Mortgage File and shall execute and deliver such instruments of
transfer or assignment, in each case without recourse, as shall
be necessary more fully to vest in the Servicer any Modified
Mortgage Loan previously transferred and assigned pursuant
hereto.
The Servicer covenants and agrees to indemnify the Trust
Fund against any and all liability for any prohibited transaction
taxes and any related interest, additions and penalties imposed
on the REMIC established hereunder as a result of any
modification of a Mortgage Loan effected pursuant to this
subsection (c), any holding of a Modified Mortgage Loan by the
REMIC or any purchase of a Modified Mortgage Loan by the Servicer
(but such obligation shall not prevent the Servicer or any other
appropriate Person from contesting any such tax in appropriate
proceedings and shall not prevent the Servicer from withholding
payment of such tax, if permitted by law, pending the outcome of
such proceedings). The Servicer shall have no right of
indemnification for the payment of such taxes, interest,
additions and penalties, except to the extent that the amount of
any tax, interest, additions and penalties, together with
interest thereon, is refunded to the Trust Fund or the Servicer.
The Trustee shall establish and maintain the Certificate
Account, into which the Servicer shall deposit any amounts
representing scheduled payments of principal and interest due
after the Cut-Off Date but received by the Servicer on or before
the Cut-Off Date and, on a daily basis, the following payments
and collections received or made by it (other than in respect of
principal of and interest on the Mortgage Loans due on or before
the Cut-Off Date and not including any payment or collection
allocable to the Servicing Fee, the Fixed Retained Yield or
principal prepayments received on or before the Cut-Off Date):
(i) All payments on account of principal, including
Principal Prepayments, on the Mortgage Loans;
(ii) All payments on account of interest on the
Mortgage Loans, net of any Fixed Retained Yield and] servicing
compensation retained by it pursuant to Sections 3.10 and 4.06;
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(iii) All Liquidation Proceeds with respect to the
Mortgage Loans, net of any Fixed Retained Yield and servicing
compensation retained by it pursuant to Section 3.10;
(iv) All proceeds received by the Servicer under any
Insurance Policy covering any Mortgage Loan, other than proceeds
to be applied to the restoration or repair of the property
subject to the related Mortgage or released to the related
Borrower as required by the related Mortgage or otherwise in
accordance with Accepted Servicing Practices, which proceeds
shall be retained by the Servicer and deposited in an Escrow
Account;
(v) All Advances made by the Servicer pursuant to Section 4.04;
(vi) All proceeds of any Mortgage Loans or property
acquired in respect thereof repurchased pursuant to Sections
2.02, 2.03, 2.04, 3.02, 3.08 or 9.01; and
(vii) Any amount required to be deposited by the
Servicer pursuant to this Section 3.02 in connection with any
losses realized on Permitted Investments.
Certain of the Mortgage Loans may provide for payment by
the Borrower of amounts to be used for payment of taxes,
assessments, Primary Mortgage Insurance Policy premiums, Standard
Hazard Insurance Policy premiums or comparable items for the
account of the Borrower. The Servicer shall deal with these
amounts in accordance with Section 3.03.
The Certificate Account shall constitute a segregated trust
account held in trust, and the Certificate Account and the funds
deposited therein shall not be subject to any claims, liens, and
encumbrances of any creditors or depositors of the Trustee, the
Seller or the Servicer (whether made directly, or indirectly
through a liquidator or receiver of the Trustee, the Seller or
the Servicer). The amount at any time credited to the Certificate
Account shall be invested by the Trustee in Permitted Investments
at the direction of the Servicer through the Business Day prior
to the next Distribution Date (provided, however, that
dispositions thereof will not be made if they would cause (x) any
part of the proceeds to be subject to the tax on "prohibited
transactions" under the REMIC Provisions or (y) a loss of REMIC
status of the Trust Fund), and the Trustee shall have no
liability to the Seller or the Certificateholders for any loss or
liability incurred by the Seller or the Certificateholders
arising from such investments. The income earned from investments
so made shall be for the benefit of the Servicer and shall be
subject to its withdrawal or order from time to time. The risk of
loss of monies required to be distributed to the
Certificateholders resulting from such investments shall be borne
by and be the risk of the Servicer. The amount of any such loss
shall be remitted by the Servicer to the Trustee for deposit in
the Certificate Account within two Business Days of receipt of
notification of such loss, but not later than the Business Day
next preceding the Distribution Date on which the monies so
invested are required to be distributed to the
Certificateholders.
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The foregoing requirements for deposit in the Certificate
Account shall be exclusive, it being understood and agreed that,
without limiting the generality of the foregoing, payments in the
nature of those described in Section 3.03 and payments in the
nature of late payment charges or assumption fees need not be
deposited by the Servicer in the Certificate Account. If the
Servicer deposits in the Certificate Account any amount not
required to be deposited therein, it may at any time withdraw
such amount from the Certificate Account, any provision herein to
the contrary notwithstanding. All funds deposited by the Servicer
in the Certificate Account shall be held in trust for the
Certificateholders until disbursed in accordance with Section
4.01 or withdrawn in accordance with Section 3.04.
Section 3.03 Collection of Taxes, Assessments and Other
Items; Escrow Account. The Servicer shall establish and maintain
one or more custodial accounts (each, an "Escrow Account") and
shall deposit therein all collections of amounts received with
respect to amounts due for taxes, assessments, Primary Mortgage
Insurance Policy premiums, Standard Hazard Insurance Policy
premiums or comparable items for the account of each Borrower if
required by the terms of the related Mortgage to be paid to the
Servicer. Each Escrow Account shall be an Eligible Account.
Withdrawals from the Escrow Accounts may be made only to effect
payment of taxes, assessments, Primary Mortgage Insurance Policy
and Standard Hazard Insurance Policy premiums or comparable
items, to reimburse the Servicer out of related collections for
any payments made pursuant to Section 3.01 with regard to
Property Protection Expenses, Section 3.05 with regard to
premiums on Primary Mortgage Insurance Policies or Section 3.06
with regard to premiums on Standard Hazard Insurance Policies, to
refund to any Borrowers any sums determined to be overages, to
remove amounts deposited therein in error or to pay interest owed
to Borrowers on the Escrow Accounts to the extent required by
law. The Servicer shall be entitled to all investment income on
the Escrow Accounts not required to be paid to Borrowers pursuant
to the preceding sentence. The Servicer will be responsible for
the administration of the Escrow Accounts and will be obligated
to make advances to the Escrow Accounts when and as necessary to
avoid the imposition of tax liens or the lapse of insurance
coverage on the Mortgaged Properties. With respect to any
Mortgage Loan under which amounts due for real estate taxes are
not required to be paid to the Servicer, the Servicer will be
obligated to advance payments of such real estate taxes when and
as necessary to avoid the imposition of tax liens on the related
Mortgaged Property. Any advance under this Section 3.03 not
recovered from the Borrower shall be recoverable by the Servicer
pursuant to Section 3.04.
Section 3.04 Certain Permitted Withdrawals from the
Certificate Account. The Servicer may, from time to time, make
withdrawals from the Certificate Account for the following
purposes:
(i) To reimburse itself for Advances made by it
pursuant to Section 4.04, the Servicer's right to reimbursement
pursuant to this subclause (i) being limited to amounts received
on or in respect of particular Mortgage Loans (including, for
this purpose,
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Liquidation Proceeds and Insurance Proceeds) which represent late
recoveries of payments of principal and/or interest with respect
to which any such Advance was made;
(ii) To reimburse itself for any Non-Recoverable Advances;
(iii) To reimburse itself from Liquidation Proceeds
for Liquidation Expenses and for amounts expended by it in good
faith in connection with the restoration of damaged property and,
to the extent that Liquidation Proceeds after such reimbursement
are in excess of the principal balance of the related Mortgage
Loan together with accrued and unpaid interest thereon at the
Pass-Through Rate to the Due Date next succeeding the date of its
receipt of such Liquidation Proceeds, to pay to itself out of
such excess the amount of any unpaid servicing compensation (as
adjusted pursuant to Section 4.06) and any assumption fees, late
payment charges or other Borrower charges on the related Mortgage
Loan;
(iv) In the event it has elected not to retain its
servicing compensation out of any Borrower payment on account of
interest or other recovery with respect to a particular Mortgage
Loan prior to the deposit of such Borrower payment or recovery in
the Certificate Account, to pay to itself the related Servicing
Fee, as adjusted pursuant to Section 4.06, from all such Borrower
payments on account of interest actually received;
(v) In the event the Seller has elected not to retain
the Fixed Retained Yield out of any Borrower payment, to pay to
the Seller the Fixed Retained Yield;
(vi) To reimburse itself for certain other expenses
incurred by and recoverable by or reimbursable to it pursuant to
Sections 3.01, 3.03, 3.05, 3.06, 3.10 or 6.03;
(vii) To pay to itself with respect to each Mortgage
Loan that has been repurchased pursuant to Section 2.02, 2.03,
2.04, 3.02, 3.08 or 9.01 all amounts received thereon
representing recoveries of principal that reduce the principal
balance of the related Mortgage Loan below the principal balance
used in calculating the related Purchase Price or representing
interest included in the calculation of the related Purchase
Price or accrued after the end of the month during which such
repurchase occurs;
(viii) To withdraw any amounts that were not required to be
deposited in the Certificate Account;
(ix) To pay the Servicer investment earnings due to the
Servicer pursuant to Section 3.02; and
(x) To clear and terminate the Certificate Account pursuant
to Article IX.
Since the Servicer's entitlement to withdrawals pursuant to
subclauses (i), (iii), (iv), (v), (vi) and (vii) is limited to
collections or other recoveries on the related Mortgage Loan,
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the Servicer shall keep and maintain separate accounting records
for each Mortgage Loan for the purpose of justifying any
withdrawal from the Certificate Account pursuant to such
subclauses (i), (iii), (iv), (v), (vi) and (vii). Such records
shall be retained by the Servicer for its five most recent fiscal
years.
Section 3.05 Maintenance of Primary Mortgage Insurance
Policies. With respect to each Mortgage Loan, the Servicer will
exercise its best reasonable efforts to maintain and keep in full
force and effect a Primary Mortgage Insurance Policy in
accordance with the standard set forth in Section 2.03(b)(iii).
The Servicer agrees to effect the timely payment of the premium
on each Primary Mortgage Insurance Policy, and such costs as are
not otherwise recoverable shall be recoverable by the Servicer
pursuant to Section 3.04. The Servicer agrees not to take any
action that would result in non-coverage under any applicable
Primary Mortgage Insurance Policy of any loss which, but for the
actions of the Servicer, would have been covered thereunder. In
connection with its activities as administrator and servicer of
the Mortgage Loans, the Servicer agrees to present, on behalf of
itself, the Trustee and Certificateholders, claims to the insurer
under each Primary Mortgage Insurance Policy with respect to a
defaulted Mortgage Loan. The Servicer may, but shall not be
obligated to, prosecute any such claims not paid by the insurer
through appropriate legal action, and all costs and expenses
incurred in connection with such claims may be reimbursed from
amounts collected on account of such claims, to the extent
thereof, and any excess of such costs and expenses not so
reimbursed may be withdrawn from the Certificate Account pursuant
to Section 3.04. Pursuant to Section 3.02, any amounts collected by
the Servicer under any Primary Mortgage Insurance Policy shall be
deposited in the Certificate Account subject to withdrawal
pursuant to Section 3.04. The Servicer shall have power to
substitute for any Primary Mortgage Insurance Policy another
substantially equivalent policy issued by another Qualified
Insurer; provided, however, that no such substitution shall be
made unless the claims paying ability of the Qualified Insurer
issuing such substitute Primary Mortgage Insurance Policy is
rated at least equal to the rating on the Senior Certificates and
such substitution will not, as evidenced by a letter from each
Rating Agency, result in the downgrading or withdrawal of the
rating, if any, then assigned to the Certificates by either
Rating Agency.
Section 3.06 Maintenance of Standard Hazard Insurance
Policies. With respect to each Mortgage Loan, the Servicer shall
cause to be maintained a Standard Hazard Insurance Policy with
extended coverage in an amount which is at least equal to the
maximum insurable value of the improvements which are a part of
that property from time to time or the principal balance owing on
such Mortgage Loan from time to time, whichever is less. The
Servicer shall also maintain on property acquired upon
foreclosure, or by deed-in-lieu of foreclosure, a Standard Hazard
Insurance Policy with extended coverage in an amount which is at
least equal to the lesser of (a) the maximum insurable value from
time to time of the improvements which are a part of that
property which has been foreclosed upon or acquired by
deed-in-lieu of foreclosure and (b) the outstanding principal
balance of such Mortgage Loan at the time of such foreclosure or
grant of deed-in-lieu of foreclosure plus accrued interest at the
Mortgage
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Interest Rate and the Servicer's good faith estimate of
Liquidation Expenses to be incurred in connection therewith.
If upon origination of the Mortgage Loan the related
Mortgaged Property was located in an area identified in the
Federal Register by the Federal Emergency Management Agency as
having special flood hazards (and such flood insurance has been
made available), the Servicer shall cause to be maintained a
flood insurance policy meeting the requirements of the current
guidelines of the Federal Insurance Administration with a
Qualified Insurer, in an amount representing coverage not less
than the least of (i) the outstanding principal balance of the
Mortgage Loan, (ii) the full insurable value of the improvements
and (iii) the maximum amount of insurance which is available
under the Flood Disaster Protection Act of 1973, as amended. It
is understood and agreed that such insurance shall be with a
Qualified Insurer and that no earthquake or additional insurance
is to be required of any Borrower, other than pursuant to such
applicable Laws as shall at any time be in force and as shall
require such additional insurance.
If a Mortgage is secured by a unit in a condominium
project, the Servicer shall verify that the coverage required of
the owner's association, including hazard, flood, liability and
fidelity coverage, is being maintained in accordance with
applicable FNMA Guidelines or FHLMC Guidelines, and secure from
the owner's association its agreement to notify the Servicer
promptly of any change in the insurance coverage or of any
condemnation or casualty loss that may have a material effect on
the value of the Mortgaged Property as security.
All policies required hereunder shall name the Seller and
its successors and assigns as loss payee and shall be endorsed
with standard or union mortgage clauses, without contribution,
which shall provide for at least 30 days' prior written notice of
any cancellation, reduction in amount or material change in
coverage.
The Servicer agrees to present, on behalf of itself, the
Trustee and Certificateholders, claims to the related insurer for
damage to or destruction of property insured under this Section
3.06, to the extent permitted under the related Mortgage, and to
settle, adjust and compromise such claims. The Servicer may, but
shall not be obligated to, prosecute any such claims not paid by
such insurer through appropriate legal action. All costs and
expenses incurred in connection with such claims may be
reimbursed from amounts collected on account of such claims to
the extent thereof, and any excess of such costs and expenses not
so reimbursed may be withdrawn by the Servicer from the
Certificate Account pursuant to Section 3.04. Pursuant to Section
3.02, any amounts collected by the Servicer under any Standard
Hazard Insurance Policy, net of the Servicer's costs and expenses
in making and prosecuting such claims, shall be applied first to
the restoration or repair of the Mortgaged Property or released
to the related Borrower as required by such Mortgage or otherwise
in accordance with Accepted Servicing Practices, and any excess
shall be deposited in the Certificate Account, subject to
withdrawal pursuant to Section 3.04.
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Notwithstanding any contrary or inconsistent provision
hereof, in any case in which a Mortgaged Property shall have
suffered damage from an Uninsured Cause, the Servicer shall not
be required to expend its own funds in connection with any
foreclosure or towards the restoration of such Mortgaged Property
unless the Servicer shall determine in its discretion (a) that
such restoration and/or foreclosure will increase the Liquidation
Proceeds of the related Mortgage Loan to Certificateholders after
reimbursement to itself for such expenses, and (b) that such
expenses will be recoverable by the Servicer through Liquidation
Proceeds from the related property, as contemplated in Section
3.04. The Servicer shall be responsible for all other costs and
expenses incurred by it in any such proceedings; provided,
however, that it shall be entitled to reimbursement thereof from
Liquidation Proceeds with respect to the related Mortgaged
Property, as contemplated in Section 3.04.
To the extent provided in Section 3.02(iv), amounts
collected by the Servicer under any Insurance Policies shall be
deposited in the Certificate Account. No costs incurred by the
Servicer in maintaining any such insurance shall, for the purpose
of calculating monthly distributions to Certificateholders, be
added to the principal amount owing under the related Mortgage
Loan, notwithstanding that the terms of the Mortgage Loan may so
permit. Such costs shall be recoverable by the Servicer pursuant
to Section 3.04. If the Servicer shall obtain and maintain a
blanket policy insuring against hazard losses on all of the
Mortgage Loans issued by an insurer that has a Best's rating of
_____ or higher, it shall conclusively be deemed to have
satisfied its obligations as set forth in the first sentence of
this Section 3.06, it being understood and agreed that such
policy may contain a deductible clause, in which case the
Servicer shall, in the event that there shall not have been
maintained on the related Mortgaged Property a policy complying
with the first sentence of this Section 3.06, and there shall
have been a loss which would have been covered by such policy,
deposit in the Certificate Account the amount not otherwise
payable under the blanket policy because of such deductible
clause.
If the Seller or the Servicer shall obtain and maintain a
policy of insurance issued by a Qualified Insurer insuring
against hazard losses occurring during the first 60 days after
the Seller or the Servicer receives notice of a lapse of coverage
under the applicable Standard Hazard Insurance Policies or flood
insurance policies (an "Impairment Policy"), it shall
conclusively be deemed to have satisfied its obligations as set
forth in this Section 3.06 with respect to each Mortgage Loan as
to which neither the Seller nor the Servicer has received notice
of such lapse, and the Servicer shall not be deemed to be in
breach of its obligations as set forth in this Section 3.06 if,
within 60 days of its receipt of notice thereof, the Servicer
obtains a replacement Standard Hazard Insurance Policy or flood
insurance policy for any Mortgage Loan as to which the Standard
Hazard Insurance Policy or flood insurance policy has lapsed. It
is understood and agreed that such Impairment Policy may contain
a deductible clause, in which case the Servicer shall, in the
event that there shall not have been maintained on the related
Mortgaged Property a Standard Hazard Insurance Policy or flood
insurance policy complying with this Section 3.06, and there
shall have been a loss which would have
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been covered by such policy, deposit in the Certificate Account
the amount not otherwise payable under the Impairment Policy
because of such deductible clause.
Section 3.07 Enforcement of Due-on-Sale Clauses; Assumption
Agreements. In any case in which a Mortgaged Property is conveyed
by the Borrower, the Servicer shall enforce any due-on-sale
clause contained in the related Note or Mortgage to the extent
permitted by such Note or Mortgage and applicable law and
governmental regulations, but only to the extent that in the
reasonable determination of the Servicer, such enforcement will
not adversely affect or jeopardize coverage under any related
Insurance Policy or result in legal action by the Borrower. With
the prior consent of the insurer under the Primary Mortgage
Insurance Policy, if applicable, the Servicer is also authorized
to take or enter into an assumption agreement from or with the
Person to whom such property has been or is about to be conveyed,
or to release the original Borrower from liability upon the
Mortgage Loan and substitute the new Borrower as obligor thereon.
To the extent permitted by law, the Servicer shall enter into an
assumption agreement only if the credit status of the prospective
new borrower is in compliance with the Servicer's regular
mortgage origination standards and criteria. The Servicer shall
notify the Trustee that any such assumption or substitution
agreement has been completed by forwarding to the Trustee the
original copy of such agreement, which copy shall be added by the
Trustee to the related Mortgage Document File and shall, for all
purposes, be considered a part of such Mortgage Document File to
the same extent as all other documents and instruments
constituting a part thereof. In connection with any such
assumption or substitution agreement, no material term of the
related Note or Mortgage shall be changed other than the identity
of the Borrower. Any fee collected by the Servicer for entering
into an assumption or substitution agreement will be retained by
the Servicer as servicing compensation.
Notwithstanding the foregoing paragraph of this Section
3.07 or any other provision of this Agreement, the Servicer shall
not be deemed to be in default, breach or any other violation of
its obligations hereunder by reason of permitting any assumption
of a Mortgage Loan, or transfer of the property subject to a
Mortgage without the assumption thereof, by operation of law or
by reason of any assumption or transfer which the Servicer
reasonably believes it may be restricted by law from preventing,
for any reason whatsoever.
Section 3.08 Realization upon Defaulted Mortgage Loans. (a)
The Servicer shall use its best reasonable efforts consistent
with Accepted Servicing Practices to foreclose upon or otherwise
comparably convert the ownership of Mortgaged Properties as come
into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments
pursuant to Section 3.02. Consistent with the foregoing, the
Servicer shall use its best reasonable efforts to realize upon
defaulted Mortgage Loans in such manner as will maximize the
payments to Certificateholders, taking into account, among other
things, the timing of foreclosure proceedings and the effect
thereof on payments under any Insurance Policy. The foregoing is
subject to the proviso that the Servicer shall not be required to
expend its own funds in connection with any foreclosure or to
restore any damaged property
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unless the Servicer shall determine (i) that such foreclosure
and/or restoration will increase the Liquidation Proceeds to the
Certificateholders after reimbursement to itself for such
expenses and (ii) that such expenses will be recoverable to it
through Liquidation Proceeds (with respect to which it shall have
priority for purposes of withdrawal from the Certificate Account
pursuant to Section 3.04). Notwithstanding the foregoing, the
Servicer shall not be entitled to recover legal expenses incurred
in connection with foreclosure proceedings where the Mortgage
Loan is reinstated and such foreclosure proceedings are
terminated prior to completion, other than sums received from the
Mortgagor for such expenses. The Servicer, at its sole option,
may purchase from the Trust Fund at a price equal to the Purchase
Price any Defaulted Mortgage Loan.
(b) In the event that title to any Mortgaged Property is
acquired in foreclosure or by deed in lieu of foreclosure, the
deed or certificate of sale shall be issued to the Trustee, or to
its nominee on behalf of the Trust Fund. Notwithstanding any such
acquisition of title and cancellation of the related Mortgage
Loan, such Mortgage Loan shall (except for purposes of Section
9.01) be considered to be an Outstanding Mortgage Loan until such
time as the Mortgaged Property shall be sold and such Mortgage
Loan becomes a Liquidated Mortgage Loan. Consistent with the
foregoing for purposes of all calculations hereunder so long as
such Mortgage Loan shall be considered to be an Outstanding
Mortgage Loan, it shall be assumed that the related Mortgage Note
and its amortization schedule in effect on and after such
acquisition of title (after giving effect to any previous
Principal Prepayments, Deficient Valuations and adjustments by
reason of the Relief Act and before any adjustment thereto by
reason of any bankruptcy or any similar proceeding or any
moratorium or similar waiver or grace period) remain in effect
(notwithstanding that the indebtedness evidenced by such Mortgage
Note shall have been discharged), subject to adjustment to
reflect the application of funds received in respect of REO
Properties in any month.
The Servicer shall segregate and hold all funds collected
and received in connection with the operation of any REO Property
separate and apart from its own funds and general assets and
shall establish and maintain with respect to each REO Property an
REO Account, which shall be an Eligible Account.
The Servicer shall deposit, or cause to be deposited, in
each REO Account all revenues received with respect to the
related REO Property and shall withdraw therefrom funds necessary
for the proper operation, management and maintenance of the REO
Property. If in any calendar month the Servicer acquires title to
any REO Property, it shall provide the Trustee with monthly
reports as to all revenues received with respect to such REO
Property and all expenses relating thereto.
Within 30 days after any REO Disposition, the Servicer
shall provide to the Trustee a statement of accounting for the
related REO Property and REO Account, including without
limitation (i) each category of deposit to, withdrawal from and
investment earnings with respect to such REO Account, (ii) the
loan number of the related Mortgage Loan, (iii) the date
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such Mortgage Loan was acquired in foreclosure or by deed-in-lieu
of foreclosure, (iv) the date of such REO Disposition, (v) the
gross sales price and related selling and other expenses, (vi)
accrued interest, calculated from the date of acquisition to the
disposition date, and (vii) such other information as the Trustee
may reasonably request.
(c) In the event that the Trust Fund acquired any
Mortgaged Property as aforesaid or otherwise in connection with a
default or imminent default on a Mortgage Loan, the Servicer
shall dispose of such Mortgaged Property prior to two years after
its acquisition by the Trust Fund unless (a) the Trustee shall
have been supplied with an Opinion of Counsel to the effect that
the holding by the Trust Fund of such Mortgaged Property
subsequent to such two-year period (and specifying the period
beyond such two-year period for which the Mortgaged Property may
be held) will not result in the imposition of taxes on
"prohibited transactions" of the Trust Fund as defined in section
860F of the Code, or cause the REMIC established hereunder to
fail to qualify as a REMIC at any time that any Certificates are
outstanding, in which case the Trust Fund may continue to hold
such Mortgaged Property (subject to any conditions contained n
such Opinion of Counsel), or (b) the Trustee (at the Servicer's
expense) or the Servicer shall have applied for, prior to the
expiration of such two-year period, an extension of such two-year
period in the manner contemplated by section 856(e)(3) of the
Code, in which case the two-year period shall be extended by the
applicable period. Notwithstanding any other provision of this
Agreement, no Mortgaged Property acquired by the Trust Fund shall
be rented (or allowed to continue to be rented) or otherwise used
for the production of income by or on behalf of the Trust Fund or
sold in such a manner or pursuant to any terms that would (i)
cause such Mortgaged Property to fail to qualify at any time as
"foreclosure property" within the meaning of section 860G(a)(8)
of the code, (ii) subject the Trust Fund to the imposition of any
federal or state income taxes on "net income from foreclosure
property" with respect to such Mortgaged Property within the
meaning of section 860G(c) of the Code, or (iii) cause the sale
of such Mortgaged Property to result in the receipt by the Trust
Fund of any income from non-permitted assets as described in
section 860F(a)(2)(B) of the Code, unless the Servicer has agreed
to indemnify and hold harmless the Trust Fund with respect to the
imposition of any such taxes.
Section 3.09 Trustee to Cooperate; Release of Mortgage
Document Files. From time to time, upon the payment in full of
any Mortgage Loan, the Servicer will notify the Trustee thereof
by a certification of a Servicing Officer, and shall request
delivery to it of the Mortgage Document File or the portion
thereof held by the Trustee. Upon receipt of such certification
and request, the Trustee shall promptly release the related
Mortgage Document File to the Servicer. Upon any such payment in
full, the Servicer is authorized to execute, pursuant to the
authorization contained in Section 3.01, an instrument of
satisfaction regarding such Mortgage, which instrument of
satisfaction shall be recorded by the Servicer if required by
applicable law and be delivered to the Person entitled thereto,
it being understood and agreed that no expenses incurred in
connection with such instrument of satisfaction shall be an
expense of the Certificate Account. From time to time and as
appropriate for the servicing or foreclosure of any Mortgage Loan
and in accordance with Accepted Servicing Practices, the
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Trustee shall, upon request of the Servicer and delivery to the
Trustee of a receipt signed by a Servicing Officer, release the
related Mortgage Document File to the Servicer and execute such
documents delivered by the Servicer as shall be necessary to the
prosecution of any such proceedings. Such receipt shall obligate
the Servicer to return the Mortgage Document File to the Trustee
when the need therefor by the Servicer no longer exists, unless
the Mortgage Loan shall have been prepaid or liquidated in the
interim, in which case, upon receipt of a certificate of a
Servicing Officer similar to that hereinabove specified to such
effect, the Trustee shall release such receipt to the Servicer.
Section 3.10 Servicing Compensation; Payment of Certain
Expenses by the Servicer. (a) As compensation for its activities
hereunder, but subject to Section 4.06, the Servicer shall be
entitled to withhold, or if not withheld, to withdraw from the
Certificate Account, its Servicing Fee. In addition, the Servicer
shall be entitled to payment of the Servicing Fee with respect to
a delinquent Mortgage Loan out of Liquidation Proceeds with
respect to such Mortgage Loan, to the extent permitted by Section
3.04. Prepayment charges, assumption fees, late payment fees or
other similar charges shall be retained by the Servicer as
additional servicing compensation. The Servicer shall be required
to pay all expenses incurred by it in connection with its
activities hereunder (including payment of any premiums for the
Insurance Policies, the Trustee or independent accountants and
all other fees and expenses not expressly stated hereunder to be
payable from the Certificate Account) and shall not be entitled
to reimbursement therefor, except as specifically provided in
this Agreement.
(b) The Servicer may, as a condition to granting any
request by a Mortgagor for any consent, modification, waiver or
amendment or any other matter or thing, the granting of which is
in the Servicer's discretion pursuant to the terms of the
instruments evidencing or securing the related Mortgage Loan and
is permitted by other sections of this Agreement, require (to the
extent permitted by applicable law) that such Mortgagor pay to it
a reasonable or customary fee for the additional services
performed in connection with such request, together with any
related costs and expenses incurred by it. Such fees shall be
additional servicing compensation to the Servicer.
Section 3.11 Reports to the Trustee. Not later than each
Determination Date, the Servicer shall forward to the Trustee a
statement, certified by a Servicing Officer, of the aggregate
amount of deposits in and withdrawals from the Certificate
Account for each category of deposit specified in Section 3.02
and each category of withdrawal specified in Section 3.04 for the
immediately preceding Prepayment Period or any prior Prepayment
Periods reasonably specified by the Trustee.
The Trustee may at any time during normal business hours
reasonably inspect and copy, at the Servicer's expense, the
books, records and accounts of the Servicer with respect to the
Mortgage Loans.
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Section 3.12 Annual Statement as to Compliance. The
Servicer will deliver to the Trustee on or before March 31 of
each year, beginning in the year immediately following the
initial issuance of the Certificates, an Officer's Certificate
stating that (a) a review of the activities of the Servicer
during the preceding calendar year and of its performance under
this Agreement has been made under such officer's supervision and
(b) to the best of such officer's knowledge, based on such
review, the Servicer has fulfilled all its obligations under this
Agreement throughout such year, or, if there has been a default
in the fulfillment of any such obligations, specifying each such
default known to such officer and the nature and status thereof.
Section 3.13 Annual Independent Public Accountants'
Servicing Report. On or before March 31 of each year, beginning
in the year immediately following the initial issuance of the
Certificates, the Servicer at its expense shall cause a firm of
independent public accountants (who may also render other
services to the Servicer or the Seller) to furnish a report to
the Trustee to the effect that such firm has examined certain
documents and records relating to the servicing of mortgage loans
under pooling and servicing agreements (including this Agreement)
substantially similar to this Agreement (which agreements shall
be described in a schedule to such statement), and that such
examination, which has been conducted substantially in compliance
with the audit guide for audits of non-supervised mortgagees
approved by the Department of Housing and Urban Development for
use by independent public accountants (to the extent that the
procedures in such audit guide are applicable to the servicing
obligations set forth in such agreements), has disclosed no items
of noncompliance with the provisions of this Agreement which, in
the opinion of such firm, are material, except for such items of
noncompliance as shall be set forth in such report. For purposes
of such report, such firm may conclusively presume that any
pooling and servicing agreement which governs certificates
offered under a common registration statement under the
Securities Act of 1933 with the Certificates is similar to this
Agreement, unless such other pooling and servicing agreement
expressly states otherwise. In rendering such report, such firm
may rely, as to matters relating to direct servicing of Mortgage
Loans by any Primary Servicer, upon comparable reports of
independent public accountants with respect to such Primary
Servicer.
ARTICLE IV
Payments to Certificateholders
Section 4.01 Distributions.
(a) On or before each Determination Date, the Servicer
shall deliver a computer readable magnetic tape to the Trustee
containing (or shall provide by such other means as the Servicer
and the Trustee may agree from time to time) a report setting
forth remittances on the Mortgage Loans during the related
Prepayment Period and any other amounts on deposit in the
Certificate Account as of such Determination Date, the
information specified in Section 4.05(a), and such other
information as the Trustee shall require in order to calculate
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distributions. The Trustee shall be under no duty to
recalculate, verify or recompute the information provided to it
in such report.
Section 4.02. Method of Distribution. (a) All distributions
with respect to each Class of Certificates on each Distribution
Date shall be made pro rata among the outstanding Certificates of
such Class, based on the Percentage Interest in such Class
represented by each Certificate. Payments to the
Certificateholders on each Distribution Date will be made by the
Trustee to the Certificateholders of record on the related Record
Date (other than as provided in Section 9.01 respecting the final
distribution) by check or money order mailed to a
Certificateholder at the address appearing in the Certificate
Register, or upon written request by such Certificateholder to
the Trustee made not later than the applicable Record Date, by
wire transfer to a U.S. depository institution acceptable to the
Trustee, or by such other means of payment as such
Certificateholder and the Trustee shall agree.
(b) Each distribution with respect to a Book-Entry
Certificate shall be paid to the Depository, which shall credit
the amount of such distribution to the accounts of its Depository
Participants in accordance with its normal procedures. Each
Depository Participant shall be responsible for disbursing such
distribution to the Certificate Owners that it represents and to
each indirect participating brokerage firm (a "brokerage firm" or
"indirect participating firm") for which it acts as agent. Each
brokerage firm shall be responsible for disbursing funds to the
Certificate Owners that it represents. All such credits and
disbursements with respect to a Book-Entry Certificate are to be
made by the Depository and the Depository Participants in
accordance with the provisions of the applicable Certificates.
Neither the Trustee nor the Servicer shall have any
responsibility therefor except as otherwise provided by
applicable law.
(c) The Trustee shall withhold or cause to be withheld such
amounts as it reasonably determines are required by the Code
(giving full effect to any exemptions from withholding and
related certifications required to be furnished by
Certificateholders or Certificate Owners and any reductions to
withholding by virtue of any bilateral tax treaties and any
applicable certification required to be furnished by
Certificateholders or Certificate Owners with respect thereto)
from distributions to be made to Non-U.S. Persons. If the Trustee
reasonably determines that a more accurate determination of the
amount required to be withheld for a distribution can be made
within a reasonable period after the scheduled date for such
distribution, it may hold such distribution in trust for a holder
of a Residual Certificate until such determination can be made.
For the purposes of this paragraph, a "Non-U.S. Person" is an
individual, corporation, partnership or other person other than 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,
or an estate or trust that is subject to U.S. federal income tax
regardless of the source of its income.
Section 4.03. Allocation of Losses. (a) On or prior to each
Determination Date, the Servicer shall determine the total amount
of Realized Losses, if any, in respect of the Mortgage Loans that
occurred during the related Prepayment Period.
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(b) With respect to any Distribution Date, the principal
portion of Realized Losses [(other than Excess Special Hazard
Losses, Excess Fraud Losses and Excess Bankruptcy Losses)] shall
be allocated
first, in reduction of the Class Certificate Principal
Balances of the Junior Certificates, in inverse order of priority
among such Classes, until the Class Certificate Principal Balance
of each such Class has been reduced to zero, such that no
reduction of the Class Certificate Principal Balance of any Class
of Junior Certificates pursuant to this Section 4.03(b) shall be
effected while a more junior Class is outstanding; and
second, to the Classes of Senior Certificates, pro
rata, in accordance with their Class Certificate Principal
Balances.
Notwithstanding the foregoing, no such allocation of Realized
Losses shall be made on a Distribution Date to a Class of
Certificates to the extent that such allocation would result in
the reduction of the aggregate Certificate Principal Balances of
all the Certificates as of such Distribution Date, after giving
effect to all distributions and prior allocations of Realized
Losses on such date, to an amount less than the aggregate
Scheduled Principal Balance of the Mortgage Loans as of the first
day of the month of such Distribution Date (such limitation, the
"Loss Allocation Limitation").
(c) With respect to any Distribution Date the principal
portion of any Excess Special Hazard Losses, Excess Fraud Losses
and Excess Bankruptcy Losses (other than those attributable to
Debt Service Reductions) shall be allocated among all Classes of
Certificates, pro rata, based on the respective Class Certificate
Principal Balances thereof.
(d) Any Realized Losses allocated to a Class of
Certificates pursuant to Section 4.03(b) or (c) shall be
allocated among the Certificates of such Class in proportion to
their respective Certificate Principal Balances. In addition, any
Realized Loss allocated to any Class of Component Certificates on
a Distribution Date shall be allocated in reduction of the
Component Principal Balances of the related Components in
proportion to their respective Component Principal Balances
immediately prior to such Distribution Date. Any allocation of
Realized Losses pursuant to this paragraph (d) shall be
accomplished by reducing the Certificate Principal Balance (or,
in the case of any Component, the Component Principal Balance) of
the related Certificates (or Components) on the related
Distribution Date in accordance with Section 4.03(f).
(e) The interest portion of (i) any Excess Special Hazard
Losses, Excess Fraud Losses and Excess Bankruptcy Losses and (ii)
after the Cross-Over Date, any Realized Losses and Debt Service
Reductions (together with amounts referred to in clause (i)
above, "Interest Losses") for a Mortgage Loan shall be allocated
among the Classes of Certificates, pro rata,
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based on the Accrued Certificate Interest (calculated before
giving effect to Interest Losses) for each such Class on the
related Distribution Date. Any such allocation of Interest Losses
shall be accomplished by reducing the Accrued Certificate
Interest for such Class on such Distribution Date.
(f) Realized Losses allocated in accordance with this
Section 4.03 shall be allocated on the Distribution Date in the
month following the month in which such loss was incurred and, in
the case of the principal portion thereof, after giving effect to
distributions made on such Distribution Date.
(g) On each Distribution Date, the Servicer shall determine
the Junior Certificate Writedown Amount, if any. Any such Junior
Certificate Writedown Amount shall effect a corresponding
reduction in the Certificate Principal Balance of the Junior
Certificates. Such reduction (x) shall be effected by reducing
the Class Certificate Principal Balances of the Junior
Certificates, in inverse order of priority among such Classes,
until the Class Certificate Principal Balance of each such Class
has been reduced to zero, such that no reduction of the Class
Certificate Principal Balance of any Class of Junior Certificates
on account of the Junior Certificate Writedown Amount shall be
effected while a more junior Class is outstanding, and (y) shall
occur on such Distribution Date after giving effect to
distributions made on such Distribution Date.
Section 4.04 Advances. (a) The Servicer shall determine on
or prior to the __ day of each month (each, an "Advance Date")
whether it is required to make an Advance in accordance with this
Section 4.04. If prior to any Advance Date any Monthly Payment
due on or before the immediately preceding Due Date has not been
received and transferred to the Certificate Account and no
unreimbursed advance with respect thereto is outstanding, the
Servicer shall, to the extent permitted by applicable law and
regulations and to the extent it determines in its sole
discretion that such amounts will not be a Non-Recoverable
Advance, make an advance (an "Advance") on or prior to such
Advance Date in an amount equal to the amount of such delinquent
Monthly Payment, after adjustment of any delinquent interest
payment by deduction of the Fixed Retained Yield and the
applicable Servicing Fee to the extent such Servicing Fee would
be entitled to be retained as provided in Section 3.10 from a
full payment of interest. For purposes of this Section 4.04, the
delinquent Monthly Payment referred to in the preceding sentence
shall be deemed to include an amount equal to the Monthly Payment
that would have been due on a Mortgage Loan which has been
foreclosed or otherwise terminated and in connection with which
the Trustee acquired and continues to own the related Mortgaged
Property on behalf of the Certificateholders. If the Servicer
determines on or prior to any Advance Date that it is required to
make an Advance in respect of all or part of any delinquent
Monthly Payment, it shall on or prior to such Advance Date
furnish a statement to the Trustee (the information in such
statement to be made available to Certificateholders upon
request) setting forth the amount of such Advance, and shall (i)
on or prior to such Advance Date either (a) deposit in the
Certificate Account an amount equal to the Advance, (b) cause an
appropriate entry to be made in the records of the Certificate
Account
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indicating that funds in such account representing funds being
held for future distributions to Certificateholders on
Distribution Dates falling subsequent to the Distribution Date
immediately succeeding the Advance Date, in accordance with
clauses (iii), (iv) and (v) of the definition of Pool
Distribution, have been used by the Servicer to make an Advance
or (c) make advances in the form of any combination of (a) and
(b) aggregating the amount of the Advance, or (ii) in the event
that the Servicer is unable to make such Advance, so notify the
Trustee in writing at least two Business Days prior to such
Advance Date in order to enable the Trustee to exercise its
remedies hereunder, including but not limited to Section 7.01.
Any funds being held for future distribution to
Certificateholders and so used shall be replaced by the Servicer
by deposit in the Certificate Account on or before any future
Distribution Date to the extent of the amount of the funds so
used for such Advance and up to the amount that funds in the
Certificate Account on such Distribution Date shall be less than
payments to Certificateholders required to be made on such date.
Any Advances shall be included with the distribution to the
Certificateholders on the related Distribution Date. If the
Servicer determines that it is not required to make an Advance in
respect of all or part of any delinquent Monthly Payment, it
shall on or prior to such Advance Date furnish to the Trustee
notice (including in the case of a Non-Recoverable Advance the
Officer's Certificate required by the definition of such term) of
such determination, identifying the Mortgage Loan and the amount
of the delinquency with respect to which an Advance will not be
made. The Servicer shall be entitled to be reimbursed from the
Certificate Account for all Advances and Non-Recoverable Advances
as and to the extent provided in Section 3.04.
Section 4.05 Information Provided to the Trustee by the
Servicer; Statements to Certificateholders.
(a) On or before each Determination Date, the Servicer
shall deliver a computer readable magnetic tape to the Trustee
containing (or shall provide by such other means as the Servicer
and the Trustee may agree from time to time) the information set
forth in items (vi), (vii), (ix) and (x) of Section 4.05(b) and
the following information regarding the status of the Mortgage
Loans: the amounts of any Insurance Proceeds received on the
Mortgage Loans since the previous Determination Date, the amounts
of any Liquidation Proceeds received on the Mortgage Loans since
the previous Determination Date, the Scheduled Principal Balance
of each Mortgage Loan which has become a Liquidated Loan since
the previous Determination Date, the Scheduled Principal Balance
of each Mortgage Loan which was repurchased since the previous
Determination Date, the book value of any real estate acquired
through foreclosure since the previous Determination Date, the
amount of unrecovered losses relating to each Mortgage Loan which
has become a Liquidated Loan since the previous Determination
Date, the loan number on each Mortgage Loan, the Mortgage
Interest Rate relating to each Mortgage Loan, the actual
principal balance with respect to each Mortgage Loan, the
Scheduled Principal Balance with respect to each Mortgage Loan,
scheduled interest due with respect to each Mortgage Loan,
scheduled principal due with respect to each Mortgage Loan,
actual principal and interest received with respect to each
Mortgage Loan, the amounts of all partial Principal Prepayments
which have occurred since the previous Determination Date, the
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amounts of all Principal Prepayments in full which have occurred
since the previous Determination Date, whether each Mortgage Loan
is delinquent, the amounts of accumulated delinquent payments
with respect to any delinquent Mortgage Loan, and such other
information as the Trustee may reasonably request. On the first
Determination Date, the Servicer shall provide the above
information, where applicable, for the period from the Cut-Off
Date. The Trustee shall be under no duty to recalculate, verify,
or recompute the information provided to it by the Servicer.
(b) The Trustee shall mail on the related Distribution Date
to each Certificateholder, with copies to the Servicer, each
Rating Agency and the Seller, a statement setting forth to the
extent applicable:
(i) the beginning principal balance of each Class of
Certificates, representing the ending balance from the prior
statement;
(ii) the amount of the distribution on such
Distribution Date allocable to principal on each Class of
Certificates, separately identifying the aggregate amount of any
Principal Prepayments included therein (including, for this
purpose, the Scheduled Principal Balances of all Mortgage Loans
purchased pursuant to Section 2.02, 2.03, 3.02 or 3.08,
respectively, and any amounts deposited in connection with the
substitution of any Mortgage Loans pursuant to Section 2.02 or
2.03, the proceeds of which purchases or substitutions are being
distributed on such Distribution Date);
(iii) the total amount of interest accrued on each Class of
Certificates at the applicable Pass-Through Rate;
(iv) in the case of any Variable Rate Certificates,
the Pass-Through Rates applicable to the then current and
immediately preceding Interest Accrual Periods;
(v) any Unpaid Class Interest Shortfall included in
the distribution on such Distribution Date, and any remaining
Unpaid Class Interest Shortfall after giving effect to such
distribution;
(vi) the aggregate amount of any Advances included in the
amounts distributed on such Distribution Date;
(vii) the amount of the Servicing Fees retained or
directed to be withdrawn from the Certificate Account and the
amount of additional servicing compensation received by the
Servicer attributable to penalties, fees, excess Liquidation
Proceeds and other items;
(viii) the number of Outstanding Mortgage Loans and the Pool
Scheduled Principal Balance for the following Distribution Date;
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(ix) the number and aggregate principal balance of
Outstanding Mortgage Loans previously foreclosed or in
foreclosure and the number and aggregate principal balance of
Mortgage Loans delinquent with respect to (a) one Monthly
Payment, (b) two Monthly Payments, and (c) three or more Monthly
Payments, as of the close of business on the last day of the
month prior to the immediately preceding Due Date;
(x) the book value of any real estate acquired through
foreclosure or grant of a deed-in-lieu of foreclosure in respect
of any Mortgage Loan as of the close of business on the last day
of business of the month prior to the immediately preceding Due
Date;
(xi) the Senior Percentage and Junior Percentage for the
following Distribution Date;
(xii) the Senior Prepayment Percentage and Junior
Prepayment Percentage expected for the following Distribution
Date; and
(xiii) the remaining principal amount of each Class of
Certificates after application of the amounts set forth in (ii)
above.
Each amount set forth pursuant to subclauses (ii) and (iii)
above will be expressed as a dollar amount per Single
Certificate.
(c) To the extent permitted by applicable law, the Servicer
shall provide to the Trustee, Certificateholders which are
regulated insurance entities and the applicable insurance
regulatory agencies thereof, Certificateholders which are
federally insured savings and loan associations, the Office of
Thrift Supervision, the FDIC and the supervisory agents and
examiners thereof access to the documentation regarding the
Mortgage Loans required by applicable regulations of the Office
of Thrift Supervision or of such insurance regulatory agencies,
as the case may be, such access being afforded without charge but
only upon reasonable request and during normal business hours at
the offices of the Servicer. Nothing in this Section 4.05(c)
shall derogate from the obligation of the Servicer to observe any
applicable law prohibiting disclosure of information regarding
the Mortgagors and the failure of the Servicer to provide access
as provided in this Section 4.05(c) as a result of such
obligation shall not constitute a breach of this Section 4.05(c).
(d) On or before March 15 of each year, beginning in the
year following the initial issuance of the Certificates, the
Trustee shall mail to each Person who at any time during the
preceding calendar year was a Certificateholder, to the Seller
and to the Servicer, a statement containing information required
to be provided pursuant to the Code.
(e) In connection with any proposed transfer of a
Certificate that is purported to be made in reliance on Rule 144A
under the Securities Act, the Seller shall be responsible for
furnishing such information as may be required thereunder to a
proposed transferee. In
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furtherance of the Seller's obligations hereunder, the Seller
hereby instructs the Trustee, at the Seller's expense and on its
behalf, and the Trustee agrees, to promptly make available to the
proposed transferee, upon request of the holder, (i) all
statements furnished to Certificateholders pursuant to this
Section 4.05(e) on previous Distribution Dates, (ii) all
certificates furnished to the Trustee pursuant to Section ____
Certificates in prior months, (iii) Officer's Certificates
furnished to the Trustee pursuant to Section 3.12 for the two
years preceding such request, (iv) reports of independent
accountants furnished to the Trustee pursuant to Section 3.13 for
the two years preceding such request and (v) a copy of any
private placement memorandum or offering circular relating to
such Certificate, together with any amendments or supplements
thereto issued by the Seller (which copy shall be furnished to
the Trustee by the Seller); provided, however, that the Trustee
shall in no event be required to make available such statements
or certificates pursuant to clauses (i) and (ii) above relating
to Distribution Dates occurring more than twenty-four months
preceding the month in which such request was received; provided,
further, however, that notwithstanding the Trustee's agreement as
aforesaid to provide such materials to a proposed transferee, the
Trustee does not assume, and shall not thereby be deemed to have
assumed, any responsibility for compliance by the Seller with
Rule 144A (subject to the Trustee's agreement set forth in the
second sentence of this paragraph) and shall be entitled to
include a notice with such statements or certificates to the
effect that such materials have not been prepared or assembled by
the Trustee and that the Trustee assumes no responsibility for
the adequacy, sufficiency or contents thereof. In connection with
any such proposed transfer, the Seller shall make available to
the proposed holder, at the request of the related transferor,
such additional information, if any, as may be required to be
delivered pursuant to Rule 144A(d)(4).
Section 4.06 Adjustment of Servicing Fees; Compensating
Interest. The aggregate amount of the Servicing Fees subject to
retention from deposit into or withdrawal from the Certificate
Account by the Servicer with respect to any Distribution Date
shall be decreased by an amount equal to the Compensating
Interest Payment for such Distribution Date. The Servicer shall
deposit, to the extent not previously deposited, the amount of
any such Compensating Interest Payment in the Certificate Account
prior to the related Distribution Date.
Section 4.07 Reports of Foreclosures and Abandonments of
Mortgaged Property. Each year, beginning in the year following
the initial issuance of the Certificates, the Trustee shall
prepare and file the reports of foreclosures and abandonments of
any Mortgaged Property required by Section 6050J of the Code. In
order to facilitate this reporting process, the Servicer, on or
before January 15th of each year, shall provide to the Trustee
reports relating to each instance occurring during the previous
calendar year in which the Servicer (i) on behalf of the Trustee
acquires an interest in a Mortgaged Property through foreclosure
or other comparable conversion in full or partial satisfaction of
a Mortgage Loan, or (ii) knows or has reason to know that a
Mortgaged Property has been abandoned. Reports from the Servicer
shall be in form and substance sufficient to meet the reporting
requirements imposed by Section 6050J of the Code.
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ARTICLE V
The Certificates
Section 5.01 The Certificates. (a) The Certificates shall
be substantially in the forms set forth in Exhibit A hereto.
(c) The Certificates shall be issuable in registered form
only. The Book-Entry Certificates will be evidenced by one or
more certificates, beneficial ownership of which will be held in
the minimum dollar denominations in Certificate Principal Balance
or Notional Principal Balance, as applicable, specified in
Section 5.01(b), and any amounts in excess thereof acceptable to
the Depository. The Non-Book-Entry Certificates shall each be
issued in the minimum dollar denominations in Certificate
Principal Balance or Notional Principal Balance, as applicable,
specified in Section 5.01(b), and integral multiples of $1,000 in
excess thereof (and, if necessary, in the amount of the remaining
Class Certificate Principal Balance or Notional Principal Balance
of each Class, in the case of one Certificate of such Class).
Each Class of Residual Certificates shall be issued as a single
certificate evidencing the entire Class Certificate Principal
Balance of such class and having a Percentage Interest of 100%.
If necessary, one Certificate of each Class of Book-Entry
Certificates may evidence an additional amount equal to the
remainder of the Class Certificate Principal Balance (or Notional
Principal Balance) of such Class.
(d) Each Certificate may be printed or in typewritten or
similar form, and each Certificate shall, upon original issue, be
executed and delivered by the Trustee to or at the order of the
Seller. All Certificates shall be executed by manual or facsimile
signature on behalf of the Trustee by an authorized officer,
whose signature shall be attested to by its Secretary or one of
its Assistant Secretaries. Certificates bearing the signatures of
individuals who were at any time the proper officers of the
Trustee shall bind the Trustee, notwithstanding that such
individuals or any of them have ceased to hold such offices prior
to the delivery of such Certificates or did not hold such offices
at the date of such Certificates. No Certificate shall be
entitled to any benefit under this Agreement, or be valid for any
purpose, unless there appears on such Certificate a certificate
of authentication in the form set forth in Exhibit A executed by
the Trustee by manual signature, and such certificate upon any
Certificate shall be conclusive evidence, and the only evidence,
that such Certificate has been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their
authentication.
If temporary Certificates are issued, the Seller shall
cause definitive Certificates to be prepared within 10 Business
Days of the Closing Date. After the preparation of definitive
Certificates, the temporary Certificates shall be exchangeable
for definitive Certificates upon surrender of the temporary
Certificates at the office or agency of the Trustee without
charge to the Certificateholder. Any tax or governmental charge
that may be imposed in connection
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with any such exchange shall be borne by the Seller. Upon
surrender for cancellation of any one or more temporary
Certificates, the Trustee shall execute, authenticate and deliver
in exchange therefor a like principal amount of definitive
Certificates of authorized denominations. Until so exchanged, the
temporary Certificates shall in all respects be entitled to the
same benefits under this Agreement as definitive Certificates.
Section 5.02 Registration of Transfer and Exchange of Certificates.
(a) The Trustee shall cause to be kept at an office or
agency in the city in which the Corporate Trust Office of the
Trustee is located or in the City of New York a Certificate
Register in which, subject to such reasonable regulations as it
may prescribe, the Trustee shall provide for the registration of
Certificates and of transfers and exchanges of Certificates as
herein provided. The Trustee shall initially serve as Certificate
Registrar for the purpose of registering Certificates and
transfers and exchanges of Certificates as herein provided.
Subject to Sections 5.02(b) and 5.02(c), upon surrender for
registration of transfer of any Certificate at the Corporate
Trust Office, the Trustee shall execute, authenticate and
deliver, in the name of the designated transferee or transferees,
one or more new Certificates of the same Class in authorized
denominations of a like Percentage Interest.
At the option of a Certificateholder, Certificates may be
exchanged for other Certificates of authorized denominations of a
like Class and Percentage Interest, upon surrender of the
Certificates to be exchanged at any such office or agency.
Whenever any Certificates are so surrendered for exchange the
Trustee shall execute, countersign and deliver the Certificates
which the Certificateholder making the exchange is entitled to
receive. Every Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a
written instrument of transfer in form satisfactory to the
Trustee and the Certificate Registrar duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange of Certificates, but the Trustee may require
payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer or
exchange of Certificates.
All Certificates surrendered for registration of transfer
and exchange shall be canceled and subsequently destroyed by the
Trustee and a certificate of destruction shall be delivered by
the Trustee to the Servicer.
(b) No legal or beneficial interest in all or any portion
of the Residual Certificates may be transferred directly or
indirectly to (i) a Disqualified Organization or an agent of a
Disqualified Organization (including a broker, nominee, or
middleman), (ii) an entity that holds REMIC residual securities
as nominee to facilitate the clearance and settlement of such
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securities through electronic book-entry changes in accounts of
participating organizations (a "Book-Entry Nominee"), or (iii) an
individual, corporation, partnership or other person unless such
transferee (A) is not a Non-U.S. Person or (B) is a Non-U.S.
Person that holds a Residual Certificate in connection with the
conduct of a trade or business within the United States and has
furnished the transferor and the Trustee with an effective
Internal Revenue Service Form 4224 or (C) is a Non-U.S. Person
that has delivered to both the transferor and the Trustee an
opinion of a nationally recognized tax counsel to the effect that
the transfer of a Residual Certificate to it is in accordance
with the requirements of the Code and the regulations promulgated
thereunder and that such transfer of a Residual Certificate will
not be disregarded for federal income tax purposes (any such
person who is not covered by clause (A), (B) or (C) above being
referred to herein as a "Non-permitted Foreign Holder"), and any
such purported transfer shall be void and have no effect. The
Trustee shall not execute, and shall not authenticate and
deliver, a Residual Certificate in connection with any transfer
thereof unless the transferor shall have provided to the Trustee
an affidavit, substantially in the form attached as Exhibit E
hereto, signed by the transferee, to the effect that the
transferee is not such a Disqualified Organization, an agent
(including a broker, nominee, or middleman) for any entity as to
which the transferee has not received a substantially similar
affidavit, a Book-Entry Nominee or a Non-permitted Foreign
Holder, which affidavit shall contain the consent of the
transferee to any such amendments of this Agreement as may be
required to further effectuate the foregoing restrictions on
transfer of the Residual Certificates to Disqualified
Organizations, Book-Entry Nominees or Non-permitted Foreign
Holders, and an agreement by the Transferee that it will not
transfer a Residual Certificate without providing to the Trustee
an affidavit substantially in the form attached as Exhibit E
hereto and a letter substantially in the form attached as Exhibit
F hereto. Such affidavit shall also contain the statement of the
transferee that (i) it does not have the intention to impede the
assessment or collection of any federal, state or local taxes
legally required to be paid with respect to the Residual
Certificates and (ii) it understands that it may incur tax
liabilities in excess of cash flows generated by a Residual
Certificate and that it intends to pay taxes associated with
holding a Residual Certificate as they become due.
The affidavit described in the preceding paragraph, if not
executed in connection with the initial issuance of the Residual
Certificates, shall be accompanied by a written statement in the
form attached as Exhibit F hereto, signed by the transferor, to
the effect that as of the time of the transfer, the transferor
has (i) no actual knowledge that the transferee is a Disqualified
Organization, Book-Entry Nominee or Non-permitted Foreign Holder,
(ii) no reason to believe that the transferee has the intention
to impede the assessment or collection of any federal, state or
local taxes legally required to be paid with respect to a
Residual Certificate, and (iii) conducted a reasonable
investigation and found that the transferee had historically paid
its debts as they came due and found no significant evidence to
indicate that the transferee will not continue to pay its debts
as they become due. The Residual Certificates shall bear a legend
referring to the foregoing restrictions contained in this
paragraph and the preceding paragraph.
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Upon notice to the Trustee that any legal or beneficial
interest in any portion of the Residual Certificates has been
transferred, directly or indirectly, to a Disqualified
Organization or agent thereof (including a broker, nominee, or
middleman) in contravention of the foregoing restrictions, (i)
such transferee shall be deemed to hold the Residual Certificate
in constructive trust for the last transferor who was not a
Disqualified Organization or agent thereof, and such transferor
shall be restored as the owner of such Residual Certificate as
completely as if such transfer had never occurred, provided that
the Trustee may, but is not required to, recover any
distributions made to such transferee with respect to the
Residual Certificate and return such recovery to the transferor,
and (ii) the Trustee agrees to furnish to the Internal Revenue
Service and to any transferor of the Residual Certificate or such
agent (within 60 days of the request therefor by the transferor
or agent) such information necessary to the application of
section 860E(e) of the Code as may be required by the Code,
including but not limited to the present value of the total
anticipated excess inclusions with respect to the Residual
Certificate (or portion thereof) for periods after such transfer.
At the election of the Trustee, the cost to the Trustee of
computing and furnishing such information may be charged to the
transferor or such agent referred to above; however, the Trustee
shall in no event be excused from furnishing such information.
The restrictions on transfers of the Residual Certificates
set forth in the preceding three paragraphs shall cease to apply
to transfers (and the applicable portions of the legend to the
Residual Certificates may be deleted) after delivery to the
Trustee of an Opinion of Counsel to the effect that the
elimination of such restrictions will not cause the REMIC (or
either the Upper Tier REMIC or the Lower Tier REMIC, as the case
may be) established hereunder to fail to qualify as a REMIC at
any time that the Certificates are outstanding.
No transfer of a Restricted Certificate shall be made
unless such transfer is exempt from the registration requirements
of the Securities Act of 1933, as amended (the "Act"), and any
applicable state securities laws, or is made in accordance with
such Act and laws.
(c) (i) No transfer of an ERISA-Restricted Certificate in
the form of a Definitive Certificate shall be made to any Person
unless the Trustee has received (A) a certificate (substantially
in the form of Exhibit D) from such transferee to the effect that
such transferee is not a Plan or a Person that is using the
assets of a Plan to acquire such ERISA-Restricted Certificate or
(B) an opinion of counsel satisfactory to the Trustee and the
Servicer to the effect that the purchase and holding of such a
Certificate will not constitute or result in the assets of the
Trust Fund being deemed to be "plan assets" subject to the
prohibited transactions provisions of ERISA or Section 4975 of
the Code and will not subject the Trustee or the Servicer to any
obligation in addition to those undertaken in the Agreement;
provided, however, that the Trustee will not require such
certificate or opinion in the event that, as a result of a change
of law or otherwise, counsel satisfactory to the Trustee has
rendered an opinion to the effect that the purchase and holding
of an ERISA-Restricted Certificate by a Plan or a Person that is
purchasing or holding such a Certificate with the assets of a
Plan will not constitute or result in a prohibited transaction
under ERISA or Section 4975 of the Code.
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The preparation and delivery of the certificate and opinions
referred to above shall not be an expense of the Trust Fund, the
Trustee or the Servicer. Notwithstanding the foregoing, if so
specified in Section 5.02(c)(iii), no opinion or certificate
shall be required for the initial issuance of the
ERISA-Restricted Certificates.
(ii) No transfer of a Residual Certificate shall be
made to any Person unless the Trustee has received a
certification (substantially in the form of paragraph 4 of
Exhibit E) from such transferee to the effect that, among other
things, such transferee is not a Plan or a Person that is using
the assets of a Plan to acquire any such Certificate. The
preparation and delivery of such certificate shall not be an
expense of the Trust Fund, the Trustee or the Service.
(d) Subject to Section 8.01(i) hereof, the Trustee may
conclusively rely upon any certificate, affidavit or opinion
delivered pursuant to Section 5.02(b) or (c).
(e) Except as to any additional Certificate of any Class of
Book-Entry Certificates held in physical certificated form
pursuant to Section 5.02(g), the Book-Entry Certificates shall,
subject to Section 5.02(f), at all times remain registered in the
name of the Depository or its nominee and at all times: (i)
registration thereof may not be transferred by the Trustee except
to another Depository; (ii) the Depository shall maintain
book-entry records with respect to the Certificate Owners and
with respect to ownership and transfers of such Certificates;
(iii) ownership and transfers of registration of the Certificates
issued in book-entry form on the books of the Depository shall be
governed by applicable rules established by the Depository and
the rights of Certificate Owners with respect to Book-Entry
Certificates shall be governed by applicable law and agreements
between such Certificate Owners and the Depository, Depository
Participants, and indirect participating firms; (iv) the
Depository may collect its usual and customary fees, charges and
expenses from its Depository Participants; (v) the Trustee shall
deal with the Depository, Depository Participants and indirect
participating firms as authorized representatives of the
Certificate Owners of the Certificates issued in book-entry form
for all purposes including the making of payments due on the
Book-Entry Certificates and exercising the rights of Holders
under this Agreement, and requests and directions for and votes
of such representatives shall not be deemed to be inconsistent if
they are made with respect to different Certificate Owners; (vi)
the Trustee may rely and shall be fully protected in relying upon
information furnished by the Depository with respect to its
Depository Participants and furnished by the Depository
Participants with respect to indirect participating firms and
persons shown on the books of such indirect participating firms
as direct or indirect Certificate Owners; (vii) Certificate
Owners shall not be entitled to certificates for the Book- Entry
Certificates and (viii) the Trustee may establish a reasonable
record date in connection with solicitations of consents from or
voting by Certificateholders and give notice to the Depository of
such record date.
All transfers by Certificate Owners of Book-Entry
Certificates shall be made in accordance with the procedures
established by the Depository Participant or brokerage firm
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representing such Certificate Owner. Each Depository Participant
shall only transfer Book- Entry Certificates of Certificate
Owners it represents or of brokerage firms for which it acts as
agent in accordance with the Depository's normal procedures.
(f) If (x)(i) the Servicer or the Depository advises the
Trustee in writing that the Depository is no longer willing,
qualified or able to properly discharge its responsibilities as
Depository, and (ii) the Trustee or the Servicer is unable to
locate a qualified successor, (y) the Servicer at its option
advises the Trustee in writing that it elects to terminate the
book-entry system through the Depository or (z) after the
occurrence of an Event of Default, Certificate Owners
representing not less than 51% of the aggregate Voting Rights
allocated to the Book-Entry Certificates together advise the
Trustee and the Depository through the Depository Participants in
writing that the continuation of a book-entry system through the
Depository is no longer in the best interests of the Certificate
Owners, the Trustee shall notify all Certificate Owners, through
the Depository, of the occurrence of any such event and of the
availability of definitive, fully registered Certificates
("Definitive Certificates") to Certificate Owners requesting the
same. Upon surrender to the Trustee of such Certificates by the
Depository, accompanied by registration instructions from the
Depository for registration, the Trustee shall issue the
Definitive Certificates. Neither the Servicer nor the Trustee
shall be liable for any delay in delivery of such instructions
and may conclusively rely on, and shall be protected in relying
on, such instructions. Upon the issuance of Definitive
Certificates all references herein to obligations imposed upon or
to be performed by the Depository shall be deemed to be imposed
upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Certificates and the Trustee shall
recognize the Holders of the Definitive Certificates as
Certificateholders hereunder.
(g) On or prior to the Closing Date, there shall be
delivered to the Depository one certificate for each Class of
Book-Entry Certificates registered in the name of the
Depository's nominee, [Cede & Co]. The face amount of each such
Certificate shall represent 100% of the initial Class Certificate
Principal Balance thereof, except for such amount that does not
constitute an acceptable denomination to the Depository. An
additional Certificate of each Class of Book-Entry Certificates
may be issued evidencing such remainder and, if so issued, will
be held in physical certificated form by the Holders thereof.
Each Certificate issued in book-entry form shall bear the
following legend:
["Unless this Certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation ("DTC"), to Issuer or its agent for registration of
transfer, exchange, or payment, and any certificate issued is
registered in the name of Cede & Co. or in such other name as
requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or to such other entity as is requested by
an authorized representative of DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has
an interest herein."]
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Section 5.03 Mutilated, Destroyed, Lost or Stolen Certificates. If
(i) any mutilated Certificate is surrendered to the
Trustee, or the Trustee receives evidence to its satisfaction of
the destruction, loss or theft of any Certificate,
(ii) there is delivered to the Trustee such security or
indemnity as may be required by it to save it harmless, and
(iii) the Trustee has not received actual notice that
such Certificate has been acquired in good faith by a third
Person,
the Trustee shall execute, authenticate and deliver, in exchange
for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like tenor and Percentage
Interest. Upon the issuance of any new Certificate pursuant to
this Section 5.03, the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental charge that may
be imposed in relation thereto and any other expenses connected
therewith. Any replacement Certificate issued pursuant to this
Section 5.03 shall constitute complete and indefeasible evidence
of ownership of the same Percentage Interest, as if originally
issued, whether or not the mutilated, destroyed, lost or stolen
Certificate shall be found at any time, and such mutilated,
destroyed, lost or stolen Certificate shall not be valid for any
purpose.
Section 5.04 Persons Deemed Owners. Prior to due
presentation of a Certificate for registration of transfer, the
Seller, the Servicer, the Trustee and any agent of any of them,
may treat the Person in whose name any Certificate is registered
as the owner of such Certificate for the purpose of receiving
distributions pursuant to Section 4.01 and for all other purposes
whatsoever. The Seller, the Servicer, the Trustee and any agent
of any of them, shall not be affected by notice to the contrary.
Section 5.05 Access to Certificateholders' Names and
Addresses.
(a) If any Certificateholder (hereinafter referred to as
"Applicant") applies in writing to the Trustee, and such
application states that the Applicant desires to communicate with
other Certificateholders with respect to their rights under this
Agreement or under the Certificates and is accompanied by a copy
of the communication which such Applicant proposes to transmit,
then the Trustee shall, within ten Business Days after the
receipt of such application, furnish or cause to be furnished to
such Applicant a list of the names and addresses of the
Certificateholders as of the most recent Record Date.
(b) Every Certificateholder, by receiving and holding a
Certificate, agrees with the Trustee that the Trustee shall not
be held accountable by reason of the disclosure of any
information as to the names and addresses of the
Certificateholders hereunder, regardless of the source from which
such information was derived.
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Section 5.06. Determination of COFI. (a) If the outstanding
Certificates include any COFI Certificates, then on each COFI
Determination Date, the Trustee shall determine the value of COFI
on the basis of the most recently available Information Bulletin
referred to in the definition of "COFI". The establishment of
COFI by the Trustee and the Trustee's subsequent calculation of
the rates of interest applicable to the COFI Certificates for
each Interest Accrual Period shall (in the absence of manifest
error) be final and binding. During each Interest Accrual Period
the Certificate Interest Rate for the COFI Certificates for the
current and immediately preceding Interest Accrual Period shall
be made available by the Trustee to Certificate Owners and
Certificateholders at the following telephone number:
.
(b) The failure by the Federal Home Loan Bank of San
Francisco to publish COFI for a period of 65 calendar days will
constitute an "Alternative Rate Event" for purposes hereof. Upon
the occurrence of an Alternative Rate Event, the Servicer will
calculate the Certificate Interest Rates for the COFI
Certificates for the subsequent Interest Accrual Periods by
using, in place of COFI, (i) the replacement index, if any,
published or designated by the Federal Home Loan Bank of San
Francisco or (ii) if no replacement index is so published or
designated, an alternative index to be selected by the Servicer
that has performed, or that the Servicer expects to perform, in a
manner substantially similar to COFI. At the time an alternative
index is first selected by the Servicer, the Servicer shall
determine the average number of basis points, if any, by which
the alternative index differed from COFI for such period as the
Servicer, in its sole discretion, reasonably determines to
reflect fairly the long-term difference between COFI and the
alternative index, and shall adjust the alternative index by such
average. The Servicer shall select a particular index as an
alternative only if it receives an Opinion of Counsel to the
effect that the selection of such index will not cause any REMIC
established hereunder to fail to qualify as a REMIC for federal
income tax purposes. In the absence of manifest error, the
selection of any alternative index as provided by this Section
5.07(b) shall be final and binding for each subsequent Interest
Accrual Period. Upon the occurrence of an Alternative Rate Event,
the Trustee shall have no responsibility for the determination of
any alternative index or the calculation of the Certificate
Interest Rates for the COFI Certificates.
(c) If at any time after the occurrence of an Alternative
Rate Event the Federal Home Loan Bank of San Francisco resumes
publication of COFI, the Certificate Interest Rates for the COFI
Certificates for each Interest Accrual Period commencing
thereafter will be calculated by reference to COFI.
Section 5.07. Determination of LIBOR. (a) If the
outstanding Certificates include any LIBOR Certificates, then on
each LIBOR Determination Date, the Trustee will determine LIBOR
on the basis of the offered LIBOR quotations of the Reference
Banks as of 11:00 a.m.
London time on such LIBOR Determination Date as follows:
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(i) If on any LIBOR Determination Date two or more of
the Reference Banks provide such offered quotations, LIBOR for
the next Interest Accrual Period will be the arithmetic mean of
such offered quotations (rounding such arithmetic mean upwards if
necessary to the nearest whole multiple of 1/16%);
(ii) If on any LIBOR Determination Date only one or
none of the Reference Banks provides such offered quotations,
LIBOR for the next Interest Accrual Period will be whichever is
the higher of (x) LIBOR as determined on the previous LIBOR
Determination Date or (y) the Reserve Interest Rate. The "Reserve
Interest Rate" will be the rate per annum which the Trustee
determines to be either (A) the arithmetic mean (rounding such
arithmetic mean upwards if necessary to the nearest whole
multiple of 1/16%) of the one-month Eurodollar lending rates that
New York City banks selected by the Trustee are quoting, on the
relevant LIBOR Determination Date, to the principal London
offices of leading banks in the London interbank market or (B) in
the event that the Trustee can determine no such arithmetic mean,
the lowest one-month Eurodollar lending rate that the New York
City banks selected by the Trustee are quoting on such LIBOR
Determination Date to leading European banks; and
(iii) If on any LIBOR Determination Date the Trustee
is required but is unable to determine the Reserve Interest Rate
in the manner provided in paragraph (ii) above, LIBOR for the
next Interest Accrual Period will be LIBOR as determined on the
previous LIBOR Determination Date, or, in the case of the first
LIBOR Determination Date, the Initial LIBOR Rate.
(b) The establishment of LIBOR by the Trustee and the
Trustee's subsequent calculation of the Certificate Interest
Rates applicable to the LIBOR Certificates for the relevant
Interest Accrual Period, in the absence of manifest error, will
be final and binding. In all cases, the Trustee may conclusively
rely on quotations of LIBOR for the Reference Banks as such
quotations appear on the display designated "LIBO" on the Reuters
Monitor Money Rates Service.
(c) Within five Business Days of the Trustee's calculation
of the Certificate Interest Rates of the LIBOR Certificates the
Trustee shall furnish to the Servicer by telecopy (or by such
other means as the Trustee and the Servicer may agree from time
to time) such Certificate Interest Rates.
(d) The Trustee shall provide to Certificateholders who
inquire of it by telephone the Certificate Interest Rates of the
LIBOR Certificates for the current and immediately preceding
Interest Accrual Period.
(e) As used herein, "Reference Banks" shall mean no more
than four leading banks engaged in transactions in Eurodollar
deposits in the international Eurocurrency market (i) with an
established place of business in London, England, (ii) whose
quotations appear on the "Reuters Screen LIBO Page" (as described
in the definition of LIBOR herein) on the
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applicable LIBOR Determination Date and (iii) which have been
designated as such by the Trustee and are able and willing to
provide such quotations to the Trustee on each LIBOR
Determination Date. The Reference Banks initially shall be: . If
any of the initial Reference Banks should be removed from the
Reuters Screen LIBO Page or in any other way fail to meet the
qualifications of a Reference Bank, the Trustee, after
consultation with the Servicer, shall use its best efforts to
designate alternate Reference Banks.
ARTICLE VI
The Seller and the Servicer
Section 6.01 Respective Liabilities of the Seller and the
Servicer. The Seller and the Servicer shall each be liable in
accordance herewith only to the extent of the obligations
specifically and respectively imposed upon and undertaken by the
Seller and the Servicer herein. By way of illustration and not
limitation, the Seller is not liable for the servicing and
administration of the Mortgage Loans, is not obligated to assume
any obligations of the Servicer or any successor Servicer or to
appoint a designee to assume such obligations, and is not liable
for any other obligation hereunder that it may, but is not
obligated to, assume unless it elects to assume such obligation
in accordance herewith.
Section 6.02 Merger or Consolidation of the Servicer. Any
Person into which the Servicer may be merged or consolidated, any
corporation resulting from any merger or consolidation to which
the Servicer shall be a party, or any Person succeeding to the
business of the Servicer, shall be the successor of the Servicer
hereunder, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding; provided, however, that
any successor or surviving Person to the Servicer shall be
qualified to sell mortgage loans to and to service mortgage loans
on behalf of FNMA and FHLMC.
Section 6.03 Limitation on Liability of the Seller, the
Servicer and Others.
(a) Neither the Seller nor the Servicer (acting other than
in its capacity as Servicer) nor any of the directors, officers,
employees or agents of the Seller or the Servicer (acting other
than in its capacity as servicer) shall be under any liability to
the Trust Fund or the Certificateholders for any action taken or
for refraining from the taking of any action in good faith
pursuant to this Agreement, or for errors in judgment; provided,
however, that this provision shall not protect the Seller, the
Servicer (acting other than in its capacity as servicer) or any
such person against any breach of representations or warranties
made herein or any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or gross negligence in
the performance of duties or by reason of reckless disregard of
obligations and duties hereunder.
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(b) Neither the Servicer nor any of the directors,
officers, employees or agents of the Servicer shall be under any
liability to the Trust Fund or the Certificateholders for any
action taken or for refraining from the taking of any action in
good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the
Servicer or any such person against any breach of representations
or warranties made herein or any liability which would otherwise
be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless
disregard of obligations and duties hereunder; and further
provided, however, that notwithstanding any limitation on
liability set forth in this Agreement, the Servicer shall be
liable to the Trust Fund and the Certificateholders for any loss,
including any loss of interest earnings by the
Certificateholders, resulting from any inaccuracy or delay in the
provision by the Servicer to the Trustee of the information
required by the Trustee in order to make distributions to the
Certificateholders in accordance with the provisions of this
Agreement.
(c) The Seller, the Servicer and any director, officer,
employee or agent of the Seller or the Servicer may rely in good
faith on any document of any kind prima facie properly executed
and submitted by any Person with respect to any matters arising
hereunder.
(d) The Seller, the Servicer (acting other than in its
capacity as Servicer) and any director, officer, employee or
agent of the Seller or the Servicer shall be indemnified by the
Trust Fund and held harmless against any loss, liability or
expense incurred in connection with any legal action relating to
this Agreement or the Certificates, other than any loss,
liability or expense incurred by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties hereunder.
The Servicer and any director, officer, employee or agent of the
Servicer shall be indemnified by the Trust Fund and held harmless
against any loss, liability or expense incurred in connection
with any legal action relating to this Agreement or the
Certificates, other than any loss, liability or expense incurred
by reason of willful misfeasance, bad faith or gross negligence
in the performance of duties or by reason of reckless disregard
of obligations and duties hereunder. Notwithstanding anything to
the contrary in this Agreement, the Trust Fund shall not
indemnify the Seller or the Servicer or any director, officer,
employee or agent of the Seller or the Servicer for any loss,
liability or expense incurred in connection with any violation or
alleged violation of the Securities Act of 1933 or the Securities
Exchange Act of 1934. Neither the Seller nor the Servicer shall
be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its duties under this
Agreement and which in its opinion may involve it in any expense
or liability; provided, however, that the Seller or the Servicer
may in its discretion undertake any of the foregoing actions as
it may deem necessary or desirable in respect of this Agreement,
the rights and duties of the parties hereto and the interests of
the Certificateholders hereunder. In such event, the legal
expenses and costs of such action and any liability resulting
therefrom shall be expenses, costs and liabilities of the Trust
Fund, and the Seller and the Servicer shall be entitled to be
reimbursed therefor out of the Certificate Account as provided by
Section 3.04.
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Section 6.04 Servicer Not to Resign. The Servicer shall not
resign from the obligations and duties hereby imposed on it
except upon determination that its duties hereunder are no longer
permissible under applicable law. Any such determination
permitting the resignation of the Servicer shall be evidenced by
an Opinion of Counsel to such effect delivered to the Trustee. No
such resignation by the Servicer shall become effective until the
Trustee or a successor servicer shall have assumed the Servicer's
responsibilities and obligations in accordance with Section 7.05.
Section 6.05 Appointment of Office or Agency. The Seller
shall maintain an office at the address stated in Section 10.10
where notices and demands to or upon the Seller in respect of the
Certificates and this Agreement may be served. The Seller shall
give prompt written notice to the Trustee of any change in the
location of such office. If the Seller shall fail to provide such
notice to the Trustee, such notices and demands may be made at
the address of the Seller stated in Section 10.10.
Section 6.06 Errors and Omissions Insurance; Fidelity
Bonds. The Servicer shall, for so long as it acts as servicer
under this Agreement, maintain in force (a) a policy or policies
of insurance covering errors and omissions in the performance of
its obligations as servicer hereunder, and (b) a fidelity bond in
respect of its officers, employees and agents. Each such policy
or policies and bond shall, together, comply with the
requirements from time to time of, or otherwise be acceptable to,
FNMA or FHLMC for Persons performing servicing for mortgage loans
purchased by FNMA or FHLMC, respectively. The obligation of the
Servicer to maintain in force the policy and bond described in
this Section 6.06 shall be deemed to be fulfilled if a
substantially similar policy and bond is maintained in force by
an affiliate of the Servicer and such policy and bond cover the
Servicer as provided herein.
ARTICLE VII
Default
Section 7.01 Events of Default. Any one of the following
shall constitute an "Event of Default":
(i) Any failure by the Servicer in the performance of
any obligation hereunder which causes any payment required to be
made under the terms of the Certificates or this Agreement not to
be timely made, which failure continues unremedied for a period
of five days after the date upon which written notice of such
failure, requiring the same to be remedied, shall have been given
to the Servicer by the Trustee, or to the Servicer and the
Trustee by the Holders of Certificates representing not less than
25% of the Voting Rights of any Class of Certificates to which a
payment is not timely made;
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(ii) Any failure on the part of the Servicer duly to
observe or perform in any material respect any other of the
covenants or agreements on the part of the Servicer in the
Certificates or in this Agreement which failure continues
unremedied for a period of 90 days after the date on which
written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee,
or to the Servicer and the Trustee by the Holders of Certificates
representing not less than 25% of the Voting Rights of all
Classes of Certificates affected by such failure;
(iii) The entering against the Servicer of a decree or
order of a court, agency or supervisory authority having
jurisdiction in the premises for the appointment of a
conservator, receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of its
affairs, provided that any such decree or order shall have
remained in force undischarged or unstayed for a period of 60
days;
(iv) The consent by the Servicer to the appointment of
a conservator, receiver, liquidator or liquidating committee in
any insolvency, readjustment of debt, marshalling of assets and
liabilities, voluntary liquidation or similar proceedings of or
relating to the Servicer or of or relating to all or
substantially all of its property;
(v) The admission by the Servicer in writing of its
inability to pay its debts generally as they become due, the
filing by the Servicer of a petition to take advantage of any
applicable insolvency or reorganization statute, the making of an
assignment for the benefit of its creditors or the voluntary
suspension of the payment of its obligations;
(vi) The Servicer ceases to be a FNMA or FHLMC
approved servicer during any time that either FNMA or FHLMC
continues to exist; and
(vii) Notice by the Servicer in accordance with
Section 4.04 that the Servicer is unable to make an Advance
required to be made pursuant to Section 4.04 or the failure of
the Servicer to make any Advance required to be made pursuant to
Section 4.04 which failure continues unremedied for a period of
three days after the date upon which written notice of such
failure, requiring the same to be remedied, shall have been given
to the Servicer by the Trustee, or to the Servicer and the
Trustee by the Holders of Certificates representing not less than
25% of the aggregate Voting Rights of all Classes of the
Certificates affected by such failure.
If an Event of Default described in clauses (i) to (vi)
hereof shall occur and be continuing, then, and in each and every
such case, subject to applicable law, so long as such Event of
Default shall not have been remedied, either the Trustee or the
Holders of Certificates representing not less than 25% of the
Voting Rights of all Classes of the Certificates affected by such
Event of Default, or, in the case of the Event of Default
described in clause (i), Holders of Certificates representing not
less than 25% of the Voting
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Rights of any Class of Certificates to which a payment is not
timely made, by notice in writing to the Servicer (and to the
Trustee if given by the Certificateholders) may terminate all of
the rights and obligations of the Servicer as servicer of the
Mortgage Loans under this Agreement, but without prejudice to any
rights it may have to reimbursement of expenses to the extent
permitted by this Agreement, Advances pursuant to Section 4.04
and other advances of its own funds as servicer to the extent
permitted by this Agreement. If an Event of Default described in
clause (vii) hereof shall occur, the Trustee shall, by notice in
writing to the Servicer, terminate all of the rights and
obligations of the Servicer as servicer of the Mortgage Loans
under this Agreement, but without prejudice to any rights it may
have to reimbursement of expenses to the extent permitted by this
Agreement, Advances pursuant to Section 4.04 and other advances
of its own funds as servicer to the extent provided by this
Agreement, and shall, as successor Servicer pursuant and subject
to Section 7.05, make the Advance which the Servicer failed to
make. On or after the receipt by the Servicer of such written
notice, all authority and power of the Servicer under this
Agreement, whether with respect to the Certificates or the
Mortgage Loans or otherwise, shall pass to and be vested in the
Trustee as successor Servicer pursuant to and under this Section
7.01, subject to the provisions of Section 7.05, and, without
limitation, the Trustee is hereby authorized and empowered to
execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement or
assignment of the Mortgage Loans and related documents or
otherwise. The Servicer agrees to cooperate with the Trustee in
effecting the termination of the Servicer's responsibilities and
rights hereunder, shall promptly provide the Trustee all
documents and records reasonably requested by the Trustee to
enable it to assume the Servicer's functions hereunder, and shall
promptly transfer to the Trustee all amounts which then have been
or should have been transferred for deposit in the Certificate
Account by the Servicer or which are thereafter received with
respect to the Mortgage Loans.
Section 7.02 Other Remedies of Trustee. During the
continuance of any Event of Default, so long as such Event of
Default shall not have been remedied, the Trustee, in addition to
the rights specified in Section 7.01, shall have the right, in
its own name as trustee of an express trust, to take all actions
now or hereafter existing at law, in equity or by statute to
enforce its rights and remedies and to protect the interests, and
enforce the rights and remedies, of the Certificateholders
(including the institution and prosecution of all judicial,
administrative and other proceedings and the filing of proofs of
claim and debt in connection therewith). Except as otherwise
expressly provided in this Agreement, no remedy provided for by
this Agreement shall be exclusive of any other remedy, each and
every remedy shall be cumulative and in addition to any other
remedy, and no delay or omission to exercise any right or remedy
shall impair any such right or remedy or shall be deemed to be a
waiver of any Event of Default. In the event of the appointment
of a receiver for the Seller, of which event the Seller shall
deliver notice to the Trustee, the Trustee shall file a proof of
claim regarding the transactions contemplated hereby within the
time period specified by applicable law or regulation.
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Section 7.03 Directions by Certificateholders and Duties of
Trustee During Event of Default. During the continuance of any
Event of Default, Holders of Certificates representing more than
50% of the Voting Rights of the Certificates not held by
Affiliates of the Servicer 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 the
Trustee under this Agreement; provided, however, that the Trustee
shall be under no obligation to pursue any such remedy, or to
exercise any of the trusts or powers vested in it by this
Agreement (including, without limitation, (i) the conducting or
defending of any administrative action or litigation hereunder or
in relation hereto and (ii) the termination of the Servicer or
any successor servicer from its rights and duties as servicer
hereunder) at the request, order or direction of any of the
Certificateholders, unless such Certificateholders shall have
offered to the Trustee reasonable security or indemnity against
the costs, expenses and liabilities which may be incurred therein
or thereby; and further provided, however, that, subject to the
provisions of Section 8.01, the Trustee shall have the right to
decline to follow any such direction if the Trustee, in
accordance with an Opinion of Counsel, determines that the action
or proceeding so directed may not lawfully be taken or if the
Trustee in good faith determines that the action or proceeding so
directed would involve it in personal liability or be unjustly
prejudicial to the non-assenting Certificateholders.
Section 7.04 Action upon Certain Failures of Servicer and
upon Event of Default. In the event that the Trustee shall have
knowledge of any failure of the Servicer specified in Section
7.01(i) or (ii) which would become an Event of Default upon the
Servicer's failure to remedy the same after notice, the Trustee
may, but need not if the Trustee deems it not in the
Certificateholders' best interest, give notice thereof to the
Servicer. In the event that the Trustee shall have knowledge of
an Event of Default, the Trustee shall give prompt written notice
thereof to the Certificateholders. For all purposes of this
Agreement, in the absence of actual knowledge by a corporate
trust officer of the Trustee, the Trustee shall not be deemed to
have knowledge of any failure of the Servicer as specified in
Section 7.01(i) and (ii) or of any Event of Default unless
notified thereof in writing by the Servicer or by a
Certificateholder.
Section 7.05 Trustee to Act; Appointment of Successor. When
the Servicer receives a notice of termination pursuant to Section
7.01 or the Trustee receives the resignation of the Servicer
evidenced by an Opinion of Counsel pursuant to Section 6.04, the
Trustee shall be the successor in all respects to the Servicer in
its capacity as servicer under this Agreement and with respect to
the transactions set forth or provided for herein, shall have all
the rights and powers and be subject to all the responsibilities,
duties and liabilities arising thereafter relating thereto placed
on the Servicer by the terms and provisions hereof (except (i)
those contained in Section 2.02, 2.03 and 2.04, (ii) any
obligation to deposit amounts in the Certificate Account as a
result of losses in Permitted Investments directed by a
predecessor servicer to the extent accrued prior to the Trustee's
succession as Servicer, (iii) the entitlement to income and gain
realized prior to the date of succession from the investment of
funds in the Certificate Account
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pursuant to Section 3.02, and (iv) if the Trustee is prohibited
by law or regulation from obligating itself to make Advances, the
responsibility to make Advances pursuant to Section 4.04), and in
its capacity as such successor shall have the same limitation of
liability herein granted to the Servicer, including any such
limitation set forth with respect to the Servicer in Section
6.03. The Trustee shall not be liable for any representation or
warranty of the Servicer hereunder. As compensation therefor, the
Trustee shall be entitled to receive monthly the Servicing Fees
and additional servicing compensation specified in Section 3.10.
In the event that the Trustee succeeds to the duties of the
Servicer, the Servicer agrees to indemnify the Trustee from, and
hold the Trustee harmless against, any and all losses,
liabilities, damages, claims or expenses arising from any actions
or omissions of the Servicer under this Agreement.
Notwithstanding the above, the Trustee may, if it shall be
unwilling so to act, or shall, if it is unable so to act or to
obtain a qualifying bid, appoint, or petition a court of
competent jurisdiction to appoint, any established housing and
home finance institution, bank or mortgage servicing institution
having a net worth of not less than $15,000,000 and meeting such
other standards for a successor servicer as are set forth in this
Agreement, including but not limited to Section 6.02, as the
successor to the Servicer hereunder in the assumption of all or
any part of the responsibilities, duties or liabilities of the
Servicer hereunder; provided, however, that until such
appointment and assumption, the Trustee shall continue to perform
the servicing obligations pursuant to this Agreement. The
compensation of any successor servicer so appointed shall not
exceed the Servicing Fees specified in Section 3.10. The Trustee
shall solicit any bids for a successor servicer by public
announcement from housing and home finance institutions, banks
and mortgage servicing institutions meeting the qualifications
set forth above. Such public announcement shall specify that the
successor servicer shall be entitled to the full amount of the
Servicing Fees specified in Section 3.10 as servicing
compensation. Within 60 days after any such public announcement,
the Trustee shall negotiate and effect the sale, transfer and
assignment of the servicing rights and responsibilities hereunder
to the qualified party submitting the highest satisfactory bid.
The Trustee shall deduct all costs and expenses of any public
announcement and of any sale, transfer and assignment of the
servicing rights (including its fees and expenses for receipt and
transfer of the servicing function) and responsibilities
hereunder from any sum received by the Trustee from the successor
to the Servicer in respect of such sale, transfer and assignment.
After such deductions, the remainder of such sum shall be paid by
the Trustee to the Servicer. The Trustee and such successor
servicer shall take such action, consistent with this Agreement,
as shall be necessary to effectuate any such succession. The
Servicer agrees to cooperate with the Trustee and any successor
servicer in effecting the termination of the Servicer's servicing
responsibilities and rights hereunder, shall promptly provide the
Trustee or such successor servicer, as applicable, all documents
and records reasonably requested by it to enable it to assume the
Servicer's functions hereunder, and shall promptly transfer to
the Trustee or such successor servicer, as applicable, all
amounts which then have been or should have been transferred for
deposit in the Certificate Account by the Servicer or which are
thereafter received with respect to the Mortgage Loans. Neither
the Trustee nor any other successor servicer shall be deemed to
be in default hereunder by reason of any failure to make,
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or any delay in making, any distribution hereunder or any portion
thereof caused by the failure of the Servicer to deliver, or any
delay in delivering, cash, documents or records to it.
Section 7.06 Notification of Certificateholders. Upon any
termination of the Servicer or appointment of a successor to the
Servicer, in each case as provided herein, the Trustee shall as
soon as practicable give written notice thereof to the
Certificateholders at their respective addresses appearing in the
Certificate Register.
ARTICLE VIII
The Trustee
Section 8.01 Duties of the Trustee.
(a) The Trustee, prior to the occurrence of an Event of
Default and after the curing of all Events of Default which may
have occurred, undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement. If an
Event of Default has occurred and not been cured, the Trustee
shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs. Any
permissive right of the Trustee enumerated in this Agreement
shall not be construed as a duty.
(b) The Trustee, upon receipt of all resolutions,
certificates, statements, opinions, reports, documents, orders or
other instruments furnished to the Trustee which are specifically
required to be furnished pursuant to any provision of this
Agreement, shall examine them to determine whether they conform
to the requirements of this Agreement.
(c) No provision of this Agreement shall be construed to
relieve the Trustee from liability for its own negligent action,
its own negligent failure to act or its own misconduct; provided,
however, that:
(i) Prior to the occurrence of an Event of Default,
and after the curing of all Events of Default which may have
occurred, the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Agreement,
the Trustee shall not be liable except for the performance of
such duties and obligations as are specifically set forth in this
Agreement, no implied covenants or obligations shall be read into
this Agreement against the Trustee and, in the absence of bad
faith on the part of the Trustee, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon any certificates or opinions
furnished to the Trustee and conforming to the requirements of
this Agreement;
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(ii) The Trustee shall not be liable for an error of
judgment made in good faith by the Trustee, unless it shall be
proved that the Trustee was negligent in ascertaining the
pertinent facts;
(iii) The Trustee shall not be liable with respect to
any action taken, suffered or omitted to be taken by it in good
faith in accordance with the direction of the Holders of
Certificates representing not less than 25% of the Voting Rights
of the Certificates relating to the time, method and place of
conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the
Trustee, under this Agreement; and
(iv) Except as provided in Section 7.04, the Trustee
shall not be charged with knowledge of any failure by the
Servicer to comply with its obligations hereunder, unless an
officer at its corporate trust office obtains actual knowledge of
such failure or the Trustee receives written notice of such
failure from the Seller or the Holders of Certificates
representing not less than 25% of the Voting Rights of the
Certificates.
(d) The Trustee shall not be required to expend or risk its
own funds or otherwise incur financial liability in the
performance of any of its duties hereunder, or in the exercise of
any of its rights or powers, if in the Trustee's opinion the
repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it, and none of the
provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of
performance of, any of the obligations of the Servicer under this
Agreement, except during such time, if any, as the Trustee shall
be the successor to, and be vested with the rights, duties,
powers and privileges of, the Servicer in accordance with the
terms of this Agreement.
Section 8.02 Certain Matters Affecting the Trustee. Except
as otherwise provided in Section 8.01:
(i) The Trustee may request and rely upon and shall be
protected in acting or refraining from acting in reliance upon
any resolution, Officer's Certificate, certificate of auditors or
any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond or other paper
or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(ii) The Trustee may consult with counsel and any
Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted
by it hereunder in good faith and in accordance with such Opinion
of Counsel;
(iii) The Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Agreement, or to institute, conduct or defend any litigation
hereunder or in relation hereto, at the request, order or
direction of any of the
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Certificateholders, pursuant to the provisions of this Agreement,
unless such Certificateholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby; provided,
however, that nothing contained herein shall relieve the Trustee
of the obligations, upon the occurrence of an Event of Default
which has not been cured, to exercise such of the rights and
powers vested in it by this Agreement, and to use the same degree
of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of his own
affairs;
(iv) The Trustee shall not be liable for any action
taken, suffered or omitted by it in good faith and believed by it
to be authorized or within the discretion or rights or powers
conferred upon it by this Agreement;
(v) Prior to the occurrence of an Event of Default or
after the curing of all Events of Default which may have
occurred, the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, bond or other paper or
documents, unless requested in writing so to do by Holders of
Certificates representing not less than 25% of the Voting Rights
of the Certificates; provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the
terms of this Agreement, the Trustee may require reasonable
indemnity against such cost, expense or liability as a condition
to such proceeding. The reasonable expense of every such
examination shall be paid by the Servicer if an Event of Default
shall have occurred and be continuing, and otherwise by the
Certificateholders requesting the investigation. Nothing in this
clause (v) shall derogate from the obligation of the Servicer to
observe any applicable law prohibiting disclosure of information
regarding the Borrowers; and
(vi) The Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly
or by or through agents or attorneys; provided, however, that no
agent of the Trustee with respect to the Trustee's obligations
with regard to possession of the Mortgage Document Files shall be
Affiliated with the Seller or the Servicer.
Section 8.03 Trustee Not Liable for Certificates or
Mortgage Loans. The recitals contained herein and in the
Certificates (other than the signature of the Trustee on the
Certificates) shall be taken as the statements of the Seller and
the Servicer, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representations or
warranties as to the validity or sufficiency of this Agreement or
of the Certificates (other than the signature of the Trustee on
the Certificates) or of any Mortgage Loan or related document,
except as expressly provided in this Agreement. The Trustee shall
not be accountable for the use or application by the Seller or
the Servicer of any of the Certificates or of the proceeds of
such Certificates.
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Section 8.04 Trustee May Own Certificates. The Trustee in
its individual or any other capacity may become the owner or
pledgee of Certificates with the same rights as it would have if
it were not Trustee.
Section 8.05 Servicer to Pay Trustee's Fees and Expenses.
(a) The Servicer agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, such compensation as
the Servicer and the Trustee may agree upon by separate agreement
(which shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust) for all
services rendered by it in the execution of the trust hereby
created and in the exercise and performance of any of the powers
and duties hereunder of the Trustee, and the Servicer will pay or
reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the
Trustee in accordance with any of the provisions of this
Agreement (including the reasonable compensation and the expenses
and disbursements of its counsel and of all persons not regularly
in its employ), except any such expense, disbursement or advance
as may arise from its negligence, bad faith or intentional
misconduct or which is the responsibility of Certificateholders
hereunder.
(b) The Servicer agrees to indemnify the Trustee from, and
hold it harmless against, any and all losses, liabilities,
damages, claims or expenses arising in respect of this Agreement
or the Certificates, other than those resulting from the
negligence, bad faith or intentional misconduct of the Trustee.
(c) This Section 8.05 shall survive the termination or
maturity of this Agreement or the resignation or removal of the
Trustee as regards rights accrued prior to such resignation or
removal.
Section 8.06 Eligibility Requirements for Trustee. The
Trustee hereunder shall at all times be a corporation or national
banking association organized and doing business under the laws
of any State or the United States of America, authorized under
such laws to exercise corporate trust powers and to accept the
trust conferred under this Agreement, having a combined capital
and surplus of at least $50,000,000, subject to supervision or
examination by federal or state authority, and shall not be an
Affiliate of the Seller or the Servicer (except, in the case of
the Servicer, during any period when the Trustee has assumed the
duties of the Servicer pursuant to Section 7.05). If such
corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then, for the purposes of
this Section 8.06, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section 8.06, the
Trustee shall resign immediately in the manner and with the
effect specified in Section 8.08.
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Section 8.07 Insurance. The Trustee, at its own expense,
shall at all times maintain and keep in full force and effect
such insurance relating to itself and its officers and employees,
in such amounts, with standard coverage and subject to
deductibles, as is customary for insurance typically maintained
by banks similar to the Trustee which exercise trust powers.
Section 8.08 Resignation or Removal of Trustee.
(a) The Trustee may at any time resign and be discharged
from the trust hereby created by giving written notice thereof to
the Seller and the Servicer. Upon receiving such notice of
resignation, the Seller shall promptly appoint a successor
Trustee by written instrument, in triplicate, one copy of which
instrument shall be delivered to the resigning Trustee, one copy
to the successor Trustee, and one copy to the Servicer. Any such
successor Trustee shall be approved in writing by the Servicer.
If no successor Trustee shall have been so appointed and have
accepted appointment within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a
successor Trustee.
(b) If at any time the Trustee shall cease to be eligible
in accordance with the provisions of Section 8.06 or if any
Rating Agency shall reduce the rating of the Trustee such that
its rating of the Certificates is adversely affected and the
Trustee shall fail to resign after written request therefor by
the Seller, or if at any time the Trustee shall be legally unable
to act, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee or of
its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Seller may remove the
Trustee. If it removes the Trustee under the authority of the
immediately preceding sentence, the Seller shall promptly appoint
a successor Trustee by written instrument, in triplicate, one
copy of which instrument shall be delivered to the Trustee so
removed, one copy to the successor Trustee, and one copy to the
Servicer.
(c) The Holders of Certificates representing more than 50%
of the Voting Rights of the Certificates may at any time remove
the Trustee and appoint a successor Trustee by written instrument
or instruments, signed by such Holders or their attorneys-in-fact
duly authorized, one complete set of which instruments shall be
delivered to the Seller, one complete set to the Trustee so
removed, one complete set to the successor so appointed, and one
complete set to the Servicer.
(d) Any resignation or removal of the Trustee and
appointment of a successor Trustee pursuant to this Section 8.08
shall not become effective until acceptance of appointment by the
successor Trustee as provided in Section 8.09.
(e) The obligations of the Servicer under Section 8.05
shall survive any resignation of the Trustee hereunder.
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Section 8.09 Successor Trustee.
(a) Any successor Trustee appointed as provided in Section
8.08 shall execute, acknowledge and deliver to the Seller and the
Servicer and to its predecessor Trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or
removal of the predecessor Trustee shall become effective and
such successor Trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with
like effect as if originally named as Trustee. The predecessor
Trustee shall deliver to the successor Trustee all Mortgage
Document Files and related documents and statements held by it
hereunder and the Seller, the Servicer and the predecessor
Trustee shall execute and deliver such instruments and do such
other things as may reasonably be required in order fully and
certainly to vest and confirm in the successor Trustee all such
rights, powers, duties and obligations.
(b) No successor Trustee shall accept appointment as
provided in this Section 8.09 unless at the time of such
acceptance such successor Trustee shall be eligible under the
provisions of Section 8.06.
(c) Upon acceptance of appointment by a successor Trustee
as provided in this Section 8.09, the Seller shall mail notice of
the succession of such Trustee hereunder to all
Certificateholders at their addresses as shown in the Certificate
Register. If the Seller fails to mail such notice within ten days
after acceptance of appointment by the successor Trustee, the
successor Trustee shall cause such notice to be mailed at the
expense of the Seller.
Section 8.10 Merger or Consolidation of Trustee. Any Person
into which the Trustee may be merged or converted or with which
it may be consolidated, any Person resulting from any merger,
conversion or consolidation to which the Trustee shall be a
party, or any Person succeeding to the business of the Trustee,
shall be the successor of the Trustee hereunder, provided that
such Person shall be eligible under the provisions of Section
8.06, without the execution or filing of any paper or any further
act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding.
Section 8.11 Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Agreement,
at any time, for the purpose of meeting the legal requirements of
any jurisdiction in which any part of the Trust Fund or any
Mortgaged Property may at the time be located, the Seller and the
Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved
by the Trustee to act as co-trustee or co-trustees, jointly with
the Trustee, or separate trustee or separate trustees, of all or
any part of the Trust Fund, and to vest in such Person or
Persons, in such capacity and for the benefit of the
Certificateholders, such title to the Trust Fund, or any part
thereof, and, subject to the other provisions of this
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Section 8.11, such powers, duties, obligations, rights and trusts
as the Seller and the Trustee consider necessary or desirable. If
the Seller shall not have joined in such appointment within
fifteen days after the receipt by it of a request so to do, the
Trustee alone shall have the power to make such appointment. No
co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor Trustee under
Section 8.06, and no notice to Certificateholders of the
appointment of any co-trustee or separate Trustee shall be
required under Section 8.09.
(b) Every separate trustee and co-trustee shall, to the
extent permitted by law, be appointed and act subject to the
following provisions and conditions:
(i) All rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or
imposed upon and exercised or performed by the Trustee and such
separate trustee or co-trustee jointly (it being understood that
such separate trustee or co-trustee is not authorized to act
separately without the Trustee joining in such act), except to
the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed (whether as Trustee
hereunder or as successor to the Servicer hereunder), the Trustee
shall be incompetent or unqualified to perform such act or acts,
in which event such rights, powers, duties and obligations
(including the holding of title to the Trust Fund or any portion
thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but
solely at the direction of the Trustee;
(ii) No trustee hereunder shall be held liable by reason of
any act or omission of any other trustee hereunder; and
(iii) The Seller and the Trustee acting jointly may at
any time accept the resignation of or remove any separate trustee
or co-trustee.
(c) Any notice, request or other writing given to the
Trustee shall be deemed to have been given to each of the then
separate trustees and co-trustees as effectively as if given to
each of them. Every instrument appointing any separate trustee or
co-trustee shall refer to this Agreement and the conditions of
this Article VIII. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the
estates or property specified in its instrument of appointment,
either jointly with the Trustee or separately, as may be provided
therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating
to the conduct of, affecting the liability of or affording
protection to, the Trustee. Every such instrument shall be filed
with the Trustee and a copy thereof given to the Seller.
(d) Any separate trustee or co-trustee may, at any time,
constitute the Trustee its agent or attorney-in-fact, with full
power and authority, to the extent not prohibited by law, to do
any lawful act under or in respect of this Agreement on its
behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all
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of its estates, properties, rights, remedies and trusts shall
vest in and be exercised by the Trustee, to the extent permitted
by law, without the appointment of a new or successor trustee.
ARTICLE IX
Termination
Section 9.01 Purchase by the Servicer.
(a) The Servicer shall have the right to purchase all the
Mortgage Loans and all property acquired in respect of any
Mortgage Loan remaining in the Trust Fund at a price equal to the
sum of (x) 100% of the unpaid principal balance of each Mortgage
Loan (other than any REO Mortgage Loan described in the following
clause) plus accrued and unpaid interest thereon at the
applicable Net Mortgage Rate (less any amounts constituting
previously unreimbursed Advances) and (y) the appraised value of
any REO Mortgage Loan (less the good faith estimate of the
Servicer of Liquidation Expenses to be incurred in connection
with its disposal thereof), such appraisal to be conducted by an
appraiser mutually agreed upon by the Servicer and the Trustee.
(b) The Servicer's right to purchase pursuant to Section
9.01(a) shall be conditioned upon the aggregate principal balance
of the Mortgage Loans at the time of any such repurchase being
less than 10% of the Cut-Off Date Principal Balance. If such
right is exercised, the Servicer shall deposit the repurchase
price in the Certificate Account and the Trustee shall promptly
release to the Servicer or its designee the Mortgage Document
Files pertaining to the Mortgage Loans being repurchased and such
instruments of transfer or assignment as shall be necessary to
vest in the Servicer or its designee all of the Trustee's right,
title and interest in such Mortgage Loans; provided, however,
that, with respect to each Mortgage Loan repurchased, no amount
of principal in excess of the principal balance thereof shall be
paid unless the Trustee shall first have received an opinion of
independent counsel to the effect that such payment will not
cause the termination of the REMIC status of the REMIC (or either
the Upper-Tier REMIC or the Lower-Tier REMIC, as the case may be)
established hereunder.
Section 9.02 Termination of the Agreement. This Agreement
shall terminate upon:
(i) the purchase of all of the Mortgage Loans by the
Servicer in accordance with Section 9.01 and the remittance to
Certificateholders of all funds due hereunder; or
(ii) the later of
(x) the distribution to Certificateholders of the final
payment or other liquidation with respect to the last Mortgage
Loan; and
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(y) the disposition of all property acquired upon
foreclosure or deed-in-lieu of foreclosure with respect to the
last Mortgage Loan and the remittance to the Certificateholders
of all funds due hereunder; or
(iii) mutual written consent of the parties hereto and all
the Certificateholders;
provided, however, that in no event shall the trust created
hereby or any successor trust continue beyond the expiration of
21 years from the death of the last survivor of the descendants
of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St.
James's, living on the date hereof.
Section 9.03 Termination of the Trust Fund.
(a) Unless the Trustee has received and complies with any
conditions of an opinion of independent counsel to the effect
that the failure of the Trust Fund to comply with the
requirements of this Section 9.03 will not (i) result in the
imposition of taxes on Prohibited Transactions of the Trust Fund,
or (ii) cause the REMIC (or either the Upper-Tier REMIC or the
Lower-Tier REMIC, as the case may be) established hereunder to
fail to qualify as a REMIC at any time that any Certificates are
outstanding, or unless the Servicer has exercised its right to
repurchase all Mortgage Loans pursuant to Section 9.01(a)(i), the
Trust Fund shall be terminated as follows:
(i) Within 90 days prior to the time of making of the
final payment on the Certificates, the Seller shall prepare and
shall cause the Trustee to sign a plan of complete liquidation
with respect to the Trust Fund which, as evidenced by an Opinion
of Counsel delivered to the Trustee, constitutes a "qualified
liquidation" within the meaning of the Code;
(ii) At or after the time of adoption by the Trustee
of the plan of complete liquidation of the Trust Fund and at or
prior to the time of making of the final payment on the
Certificates, the Trustee shall sell all of the assets of the
Trust Fund for cash; provided, however, that in the event that a
calendar quarter ends after the time of adoption by the Trustee
of the plan of complete liquidation of the Trust Fund but prior
to the time of making of the final payment on the Certificates,
the Trustee shall not sell any of the assets of the Trust Fund
prior to the close of that calendar quarter; and
(iii) At the time of making of the final payment on
the Certificates, the Trustee shall distribute or credit all cash
on hand (other than cash retained to meet claims) in the REMIC
(or the Upper-Tier REMIC and the Lower-Tier REMIC, respectively,
as the case may be) to the Holders of the Class R Certificates
(or the Holders of the Class R and Class RL Certificates,
respectively, as the case may be) and the Trust Fund shall
terminate at that time.
(b) The Servicer shall not exercise its right to repurchase
all Mortgage Loans pursuant to Subsection 9.01(a)(i) unless the
Trustee shall have previously (i) adopted a plan of complete
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liquidation of the Trust Fund, and (ii) received an opinion of
independent counsel to the effect that the procedures (described
in such opinion) to be followed in connection with such
transaction will not cause the REMIC (or either the Upper-Tier
REMIC or the Lower-Tier REMIC, as the case may be) established
hereunder to fail to qualify as a REMIC at any time that any
Certificates are outstanding.
(c) Following the issuance of the Certificates, the Trustee
shall not accept any contribution of assets to the Trust Fund,
unless it shall have received an opinion of independent counsel
to the effect that the inclusion of such assets in the Trust Fund
will not cause the Trust Fund to fail to qualify as a REMIC at
any time that any Certificates are outstanding.
ARTICLE X
Miscellaneous Provisions
Section 10.01 Employment of Agents by Servicer. In
performing and carrying out its duties, responsibilities and
obligations under this Agreement, the Servicer, at its expense,
may without the prior written consent of the Trustee hire, retain
or subcontract with:
(i) Professional collection agencies to perform such
duties and functions for the collection of delinquent amounts due
on any Mortgage Loan and such other duties and functions as are
consistent with those customarily performed and carried out by
such agencies in the locality where the Borrower's principal
place of residence is located, to the extent such duties and
functions are permitted by Laws;
(ii) Title insurance companies, escrow companies and
trust companies to issue or provide reports reflecting the
condition of title to any Mortgaged Property and such other
services as are incidental to the foreclosure of any Mortgaged
Property or the acquisition thereof in lieu of foreclosure, or
the sale or disposition of any Mortgaged Property;
(iii) Attorneys licensed to practice in the state
where a Mortgaged Property is located to perform customary legal
services in connection with the foreclosure or acquisition of
such Mortgaged Property or the sale or disposition of such
Mortgaged Property at or in lieu of foreclosure, or for the
collection of delinquent sums owed on the related Mortgage Loan;
(iv) Professional property inspection companies to
conduct routine inspections of, and provide written inspection
reports on, Mortgaged Properties as required by this Agreement;
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(v) Title companies, escrow companies and real estate
tax service companies to provide periodic reports as to the
amount of real estate taxes due on any Mortgaged Property and the
due date or dates of each installment;
(vi) Credit bureaus or credit reporting companies to
provide routine credit reports on Borrowers or Persons who have
applied to the Servicer to assume Mortgage Loans;
(vii) Construction companies, contractors and laborers
to provide labor, materials and supplies necessary to protect,
preserve and repair Mortgaged Properties as provided by this
Agreement; and
(viii) Primary Servicers pursuant to Section 3.01.
The Servicer shall not, as a result of the hiring,
retention or subcontracting with any of the foregoing, be
released from any of its responsibilities under this Agreement,
and shall ensure that each Person that is retained to provide any
of the foregoing services is fully licensed and holds all
required governmental franchises, certificates and permits
necessary to conduct the business in which it is engaged and that
such Person is reputable, knowledgeable, skilled and experienced
and has the necessary personnel, facilities and equipment
required to provide the services for which such Person is
retained. Any such Person shall be retained solely for the
Servicer's account and at the Servicer's sole expense and shall
not be deemed to be an agent or representative of the Seller, the
Trustee or the Certificateholders. Moreover, the Servicer agrees
to indemnify, defend and hold the Seller, the Trustee and the
Certificateholders harmless from and against any and all claims,
damages, loss, liability, cost or expense arising out of, either
directly or indirectly, any acts or omissions of such Person,
including but not limited to, attorneys' fees and court costs.
Section 10.02 All Funds and Records to be Held in Trust.
All Mortgage servicing files, Mortgage Document Files or any
portion thereof in the possession of the Servicer, and all funds
collected or held by the Servicer for the benefit of the Trustee
in respect of any Mortgage Loans, whether from the collection of
principal and interest payments from Borrowers or from
Liquidation Proceeds or Insurance Proceeds, shall be held by the
Servicer for and on behalf of the Trustee and the
Certificateholders, and shall be and remain the sole and
exclusive property of such parties, subject, however, to the
Servicer's right to direct to be withdrawn from the Certificate
Account any Servicing Fees, late charges, assumption fees or
other amounts to which the Servicer is entitled from time to time
under this Agreement. The Servicer also agrees that it shall not
create, incur or subject any Mortgage servicing file, Mortgage
Document File or any portion thereof in its possession, funds
that are to be transferred for deposit in any Certificate
Account, or any funds which otherwise are or may become due or
payable to the Trustee, to any claim, lien, security interest,
judgment, levy, writ of attachment or other encumbrance, nor
assert by legal action any claim or right of set-off against any
Mortgage Loan servicing file, Mortgage Document File or any
portion
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thereof in the possession of the Servicer, or any funds collected
on, or in connection with, a Mortgage Loan, except as expressly
permitted by this Agreement.
Section 10.03 Controlling Law. This Agreement and all
questions relating to its validity, interpretation, performance
and enforcement shall be governed by and construed, interpreted
and enforced in accordance with the laws of the State of New York
without giving effect to principles of conflicts of laws.
Section 10.04 Intent of this Agreement. This Agreement
shall be construed so as to carry out the intention that the
Trust Fund (or the Upper-Tier REMIC and the Lower-Tier REMIC,
respectively, as the case may be) created under this Agreement
qualify as a REMIC and be treated as a REMIC at all times that
any Certificates are outstanding. The Seller and the Servicer
agree that they shall not take any actions that would jeopardize
the treatment of the Trust Fund (or the Upper-Tier REMIC and the
Lower-Tier REMIC, respectively) as a REMIC. This Agreement shall
be construed so as to carry out the intention that the interests
in the REMIC (or the Upper-Tier REMIC and the Lower-Tier REMIC,
respectively) evidenced by the Certificates other than the
Residual Certificates will qualify as "regular interests," and
the interests in the REMIC (or the Upper-Tier REMIC and the
Lower-Tier REMIC, respectively) evidenced by the Class R
Certificates (or the Class RL and Class R Certificates,
respectively) will qualify as "residual interests," in the REMIC
(or the Upper- Tier REMIC and the Lower-Tier REMIC,
respectively).
Section 10.05 Indulgences Not Waivers. Neither the failure
nor any delay on the part of a party to exercise any right,
remedy, power or privilege under this Agreement shall operate as
a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or
privilege with respect to any occurrence, or be construed as a
waiver of such right, remedy, power or privilege with respect to
any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted
such waiver.
Section 10.06 Titles Not to Affect Interpretation. The
titles contained in this Agreement are for convenience only, and
they neither form a part of this Agreement nor are they to be
used in the construction or interpretation hereof.
Section 10.07 Attorneys' Fees. If any party shall bring
suit against any other such party as a result of any alleged
breach or failure by such other party to fulfill or perform any
covenants or obligations under this Agreement or in any deed,
instrument or other document delivered hereunder, or to seek
declaratory relief as to the rights or obligations of any party
hereto, then the prevailing party in such action shall, in
addition to any other relief granted or awarded by the court, be
entitled to judgment for reasonable attorneys' fees incurred by
reason of such action and all costs of suit and those incurred in
preparation thereof, at both trial and appellate levels.
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Section 10.08 Electronic Reporting. With the express
written consent of the Trustee, reports to be made by the
Servicer may be transmitted electronically in lieu of written
reporting in accordance with this Agreement. Regardless of the
method of submission, reporting shall be complete, accurate and
timely.
Section 10.09 Provisions Severable. The provisions of this
Agreement are independent and severable of each other, and to the
extent permitted by law no provision shall be affected or
rendered invalid or unenforceable by virtue of the fact that for
any reason other provisions hereof may be invalid or
unenforceable in whole or in part.
Section 10.10 Notices. All demands, directions, notices and
communications hereunder shall be in writing and shall be deemed
to have been given when delivered (except that notices to
Certificateholders shall be deemed to have been given upon being
sent by first class mail, postage prepaid) as follows:
(i) If to the Trustee, to:
(ii) If to the Seller, to:
HomeSide Mortgage Securities, Inc.
7301 Baymeadows Way
Jacksonville, Florida 32256
Telecopy Number: (904) 281-3705
Attention: Secretary
(iii) If to the Servicer, to:
HomeSide Lending, Inc.
7301 Baymeadows Way
Jacksonville, Florida 32256
Telecopy Number: (904) 281-3705
Attention: Secretary
(iv) If to any Certificateholder, to the address set forth
in the Certificate Register;
or, in the case of the parties to this Agreement, to such other
address as such party shall specify by notice to the other
parties hereto and to each Certificateholder.
Section 10.11 Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such
counterparts shall constitute but one and the same instrument.
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Section 10.12 Amendment. This Agreement may be amended from
time to time by the Seller, the Servicer and the Trustee, without
the consent of any of the Certificateholders, to cure any
ambiguity, to correct or supplement any provisions herein that
may be inconsistent with any other provisions herein, to maintain
the rating assigned to the Certificates by any Rating Agency, or
to make any other provisions with respect to matters or questions
arising under this Agreement which shall not be inconsistent with
the provisions of this Agreement; provided, however, that such
action shall not, as evidenced by an Opinion of Counsel,
adversely affect in any material respect the interests of any
Certificateholder.
This Agreement may also be amended from time to time by the
Seller, the Servicer and the Trustee with the consent of the
Holders of Certificates representing (i) not less than 66% of the
Voting Rights of all the Certificates or (ii) Percentage
Interests aggregating not less than 66% of each Class affected by
the amendment for the purpose of adding any provisions to this
Agreement, changing in any manner or eliminating any of the
provisions of this Agreement, or modifying in any manner the
rights of the Certificateholders; provided, however, that no such
amendment shall
(i) reduce in any manner the amount of, or delay the
timing of, payments received on the Mortgage Loans which are
required to be distributed on any Certificate, without the
consent of the related Certificateholder, or
(ii) reduce the aforesaid percentage of Certificates
the Holders of which are required to consent to any such
amendment, without the consent of the Holders of all Certificates
then outstanding.
Further, the Seller, the Servicer and the Trustee, at any
time and from time to time, without the consent of the
Certificateholders, may amend this Agreement to modify, eliminate
or add to any of its provisions to such extent as shall be
necessary to maintain the qualification of the Trust Fund (or of
the Upper-Tier REMIC and the Lower-Tier REMIC, respectively, as
the case may be) as a REMIC, at all times that any Certificates
are outstanding; provided, however, that such action, as
evidenced by an Opinion of Counsel, is necessary or helpful to
maintain such qualification and would not adversely affect in any
material respect the interest of any Certificateholder.
Promptly after the execution of any amendment, the Trustee
shall furnish written notification of the substance of such
amendment to each Certificateholder.
It shall not be necessary for the consent of
Certificateholders under this Section 10.12 to approve the
particular form of any proposed amendment; instead, it shall be
sufficient if such consent shall approve the substance thereof.
The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders
shall be subject to such reasonable regulations as the Trustee
may prescribe.
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Notwithstanding any contrary provision of this Agreement,
no amendment shall be made to this Agreement unless the Servicer
and the Trustee shall have received an Opinion of Counsel to the
effect that such amendment will not cause the Trust Fund (or the
Upper-Tier REMIC and the Lower-Tier REMIC, respectively, as the
case may be) to fail to qualify as a REMIC at any time that any
Certificates are outstanding, or cause a tax to be imposed on the
Trust Fund (or either the Upper-Tier REMIC or the Lower-Tier
REMIC, as the case may be) under the REMIC Provisions.
Section 10.13 Special Notices to Rating Agencies.
(a) The Servicer shall provide to each Rating Agency copies
of the annual statement of compliance described in Section 3.12
and the annual independent public accountants' servicing report
described in Section 3.13, and the Trustee shall give prompt
notice to each Rating Agency of the occurrence of any of the
following events of which it has notice:
(i) Any amendment to this Agreement pursuant to Section 10.12;
(ii) Any assignment by the Servicer of its rights and
delegation of its duties pursuant to Section 10.01;
(iii) Any resignation of the Servicer pursuant to Section 6.04;
(iv) The occurrence of any Event of Default described in
Section 7.01; or
(v) The making of a final payment pursuant to Section 9.02.
(b) The Servicer shall give prompt notice to each Rating
Agency of the occurrence of any of the following events:
(i) The substitution or repurchase of any Mortgage Loan
pursuant to Section 2.02, 2.03, 2.04, 3.02, 3.08 or 9.01;
(ii) The resignation or removal of the Trustee pursuant to
Section 8.08; or
(iii) The appointment of a successor trustee pursuant to
Section 8.09.
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EXHIBIT A
FORMS OF CERTIFICATES
93
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EXHIBIT B
MORTGAGE LOANS
[Each Mortgage Loan shall be identified by loan
number, address of the Mortgaged Property and name of the
Mortgagor. The following details shall be set forth as to each
Mortgage Loan: (i) the principal balance at the time of its
origination, (ii) the Scheduled Principal Balance as of the
Cut-Off Date, (iii) the interest rate borne by the Mortgage Note,
(iv) the scheduled monthly level payment of principal and
interest, (v) the loan-to-value ratio, (vi) the maturity date of
the Mortgage Note and (vii) the Servicing Fee Rate for such
Mortgage Loan.]
EXHIBIT C
FORM OF SERVICER'S CERTIFICATE
----------------, -----
(month) (year)
HOMESIDE MORTGAGE SECURITIES, INC.
REMIC Multi-Class Pass-Through Certificates,
Series 199_-__
Pursuant to the Pooling and Servicing Agreement dated
as of _____ 1, 199__ (the "Agreement") between HomeSide Lending,
Inc. (the "Servicer"), and ______________________ (the
"Trustee"), governing the Certificates referred to above, the
Servicer hereby certifies to the Trustee:
With respect to the Agreement and as of the
Determination Date for this month:
A. Mortgage Loan Information:
(1) Aggregate Scheduled Monthly
Payments:
(a) Principal $________
(b) Interest $________
(c) Total $________
(2) Aggregate Monthly Payments
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Received and Monthly Advances
made this Month:
(a) Principal $________
(b) Interest $________
(c) Total $________
(3) Aggregate Principal
Prepayments Received and
applied in prior month: $________
(4) Aggregate Mortgagor Payments
in full in prior month:
(a) Principal $________
(b) Interest $________
(c) Total $________
(5) Aggregate Insurance Proceeds
for prior month:
(a) Principal $________
(b) Interest $________
(c) Total $________
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<PAGE>
(6) Aggregate Deficient Valuations with respect to
the Mortgage Loans during the prior month and
loan numbers:
$--------]
(7) Aggregate Debt Service Reductions with respect
to the Mortgage Loans during the prior month and
loan numbers:
$--------]
(8) Aggregate Liquidation
Proceeds for prior month:
(a) Principal $________
(b) Interest $________
(c) Total $________
(9) Aggregate Purchase Prices for
Defaulted Mortgage Loans:
(a) Principal $________
(b) Interest $________
(c) Total $________
(10) Aggregate Purchase Prices
(and substitution adjustments)
for Defective Mortgage Loans:
(a) Principal $________
(b) Interest $________
(c) Total $________
[(11) Aggregate Purchase Prices for
Designated Mortgage Loans:
(a) Principal $________
(b) Interest $________
(c) Total $________]
(12) Aggregate Purchase Price for
Modified Mortgage Loans:
(a) Principal $________
(b) Interest $________
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(c) Total $________
(13) Pool Scheduled Principal
Balance: $________
(14) Available Funds: $________
(15) Accrued Certificate Interest,
unpaid Accrued Certificate
Interest and Pay-out Rate:
Class A-1 $__________ $__________ ____%
Class A-2 $__________ $__________ ____%
Class B $__________ $__________ ____%
Class S $__________ $__________ ____%
(16) Principal Distribution
Amount: $_____________
Class A-1 $__________
Class A-2 $__________
Class B $__________
Class S $__________
(17) Additional distributions to
the Class R Certificate
pursuant to Section 4.01(b): $_____________
(18) Certificate Interest Rate of
the Class S Certificates:
(19) The Accrual Amount for such
Distribution Date:
B. Other Amounts:
[1. Amount of coverage under
each Pool Policy: $_____________
[2. Amount of coverage under
the Special Hazard Insurance
Policy: $_____________]
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[3. Current Bankruptcy Amount: $_____________]
[4. The amount to be deposited
to the Certificate Account
pursuant to Section 3.17(a): $_____________]
5. Senior Percentage: _____________%
6. Senior Prepayment Percentage: _____________%
7. Junior Percentage: _____________%
8. Junior Prepayment Percentage: _____________%
Capitalized terms used in this Certificate shall have the same
meanings as in the Agreement.
HOMESIDE LENDING, INC.
By
Title:
98
<PAGE>
EXHIBIT D
Form of Transfer Certificate as to ERISA Matters
For ERISA-Restricted Certificates
[Trustee]
[NAME OF OFFICER] hereby certifies that:
1. That he is [Title of Officer] of [Name of Investor] (the
"Investor"), a [savings institution] [corporation] duly organized
and existing under the laws of [the State of ____________] [the
United States], on behalf of which he makes this affidavit.
2. The Investor is not, and on ________________ [insert
date of transfer of ERISA- Restricted Certificate to Investor]
will not be, and on such date will not be investing the funds of,
an employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or a plan
subject to Section 4975 of the Code.
3. The Investor hereby acknowledges that under the terms of
the Pooling and Servicing Agreement (the "Agreement") between
___________________________________, as Trustee and HomeSide
Mortgage Securities, Inc., dated as of _____ 1, 199__, no
transfer of any ERISA-Restricted Certificates shall be permitted
to be made to any person unless the Trustee has received (i) a
certificate from such transferee to the effect that such
transferee is not an employee benefit plan subject to ERISA or a
plan subject to Section 4975 of the Code (a "Plan") and is not
using the assets of any such employee benefit or other plan to
acquire any such Certificate or (ii) an opinion of counsel
satisfactory to the Trustee to the effect that the purchase and
holding of any such Certificate will not constitute or result in
the assets of the Trust Fund created by the Agreement being
deemed to be "plan assets" and subject to the prohibited
transaction provisions of ERISA or Section 4975 of the Code and
will not subject the Trustee or the Seller to any obligation in
addition to those undertaken in the Agreement (provided, however,
that the Trustee will not require such certificate or opinion in
the event that, as a result of change of law or otherwise,
counsel satisfactory to the Trustee has rendered an opinion to
the effect that the purchase and holding of any such Certificate
by a Plan or a Person that is purchasing or holding any such
Certificate with the assets of a Plan will not constitute or
result in a prohibited transaction under ERISA or Section 4975 of
the Code).
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<PAGE>
IN WITNESS WHEREOF, the Investor has caused this instrument
to be executed on its behalf, pursuant to authority of its Board
of Directors, by its [Title of Officer] and its corporate seal to
be hereunder attached, attested by its [Assistant] Secretary,
this ____ day of _________, 199[_].
[NAME OF INVESTOR]
By:
[Corporate Seal]
Attest:
[Assistant] Secretary
100
<PAGE>
EXHIBIT E
Form of Residual Certificate Transferee Affidavit
STATE OF )
) ss.:
COUNTY OF )
[NAME OF OFFICER], being first duly sworn, deposes and says:
1. That he is [Title of Officer] of [Name of
Purchaser] (the "Purchaser"), a [description of type of entity]
duly organized and existing under the laws of the [State of
__________] [United States], on behalf of which he makes this
affidavit.
2. That the Purchaser's Taxpayer Identification Number is [
].
3. That the Purchaser is not a "disqualified
organization" within the meaning of Section 860E(e)(5) of the
Internal Revenue Code of 1986, as amended (the "Code") and will
not be a "disqualified organization" as of [date of transfer],
and that the Purchaser is not acquiring a Residual Certificate
(as defined below) for the account of, or as agent (including a
broker, nominee, or other middleman) for, any person or entity
from which it has not received an affidavit substantially in the
form of this affidavit. For these purposes, a "disqualified
organization" means the United States, any state or political
subdivision thereof, any foreign government, any international
organization, any agency or instrumentality of any of the
foregoing (other than an instrumentality if all of its activities
are subject to tax and a majority of its board of directors is
not selected by such governmental entity), any cooperative
organization furnishing electric energy or providing telephone
service to persons in rural areas as described in Code Section
1381(a)(2)(C), or any organization (other than a farmers'
cooperative described in Code Section 521) that is exempt from
federal income tax unless such organization is subject to the tax
on unrelated business income imposed by Code Section 511. As used
herein, "Residual Certificate" means any Certificate designated
as a "Class R Certificate" of HomeSide Mortgage Securities,
Inc.'s REMIC Multi-Class Pass-Through Certificates, Series
199_-__.
4. That the Purchaser is not, and on __________
[insert date of transfer of Residual Certificate to Purchaser]
will not be, and is not and on such date will not be investing
the assets of, an employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or
a plan subject to Code Section 4975 or a person or entity that is
using the assets of any employee benefit plan or other plan to
acquire the Residual Certificates.
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5. That the Purchaser hereby acknowledges that under
the terms of the Pooling and Servicing Agreement (the
"Agreement") between _____________________________, as Trustee,
and HomeSide Mortgage Securities, Inc. dated as of _____ 1, 199_,
no transfer of the Residual Certificates shall be permitted to be
made to any person unless the Trustee has received a certificate
from such transferee to the effect that such transferee is not an
employee benefit plan subject to ERISA or a plan subject to
Section 4975 of the Code and is not using the assets of any
employee benefit plan or other plan to acquire Residual
Certificates.
6. That the Purchaser does not hold REMIC residual
securities as nominee to facilitate the clearance and settlement
of such securities through electronic book-entry changes in
accounts of participating organizations (such entity, a
"Book-Entry Nominee").
7. That the Purchaser does not have the intention to
impede the assessment or collection of any federal, state or
local taxes legally required to be paid with respect to such
Residual Certificate.
8. That the Purchaser will not transfer the Residual
Certificate to any person or entity (i) as to which the Purchaser
has actual knowledge that the requirements set forth in paragraph
3, paragraph 6 or paragraph 10 hereof are not satisfied or that
the Purchaser has reason to believe does not satisfy the
requirements set forth in paragraph 7 hereof, and (ii) without
obtaining from the Purchaser an affidavit substantially in this
form and providing to the Trustee a written statement
substantially in the form of Exhibit G to the Agreement.
9. That the Purchaser understands that, as the holder
of the Residual Certificate, the Purchaser may incur tax
liabilities in excess of any cash flows generated by the interest
and that it intends to pay taxes associated with holding the
Residual Certificate as they become due.
10. That the Purchaser (i) is not a Non-U.S. Person or
(ii) is a Non-U.S. Person that holds the Residual Certificate in
connection with the conduct of a trade or business within the
United States and has furnished the transferor and the Trustee
with an effective Internal Revenue Service Form 4224 or successor
form at the time and in the manner required by the Code or (iii)
is a Non-U.S. Person that has delivered to both the transferor
and the Trustee an opinion of a nationally recognized tax counsel
to the effect that the transfer of such Residual Certificate to
it is in accordance with the requirements of the Code and the
regulations promulgated thereunder and that such transfer of the
Residual Certificate will not be disregarded for federal income
tax purposes. "Non-U.S. Person" means an individual, corporation,
partnership or other person other than 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
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States or any political subdivision thereof, or an estate or
trust that is subject to U.S. federal income tax regardless of
the source of its income.
11. That the Purchaser agrees to such amendments of
the Pooling and Servicing Agreement as may be required to further
effectuate the restrictions on transfer of any Residual
Certificate to such a "disqualified organization," an agent
thereof, a Book-Entry Nominee, or a person that does not satisfy
the requirements of paragraph 7 and paragraph 10 hereof.
12. That the Purchaser consents to the designation of
the Trustee as its agent to act as "tax matters person" of the
Trust Fund pursuant to Section 2.09 of the Pooling and Servicing
Agreement.
IN WITNESS WHEREOF, the Purchaser has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of
Directors, by its [Title of Officer] this _____ day of
__________, 19__.
[NAME OF PURCHASER]
By:______________________________
[Name of Officer]
[Title of Officer]
Personally appeared before me the above-named [Name of
Officer], known or proved to me to be the same person who
executed the foregoing instrument and to be the [Title of
Officer], of the Purchaser, and acknowledged to me that he [she]
executed the same as his [her] free act and deed and the free act
and deed of the Purchaser.
Subscribed and sworn before me this _____ day of
__________, 19__.
NOTARY PUBLIC
- ------------------------------
103
<PAGE>
COUNTY OF_____________________
STATE OF______________________
My commission expires the _____ day of __________, 19__.
104
<PAGE>
EXHIBIT F
[Form of Residual Certificate Transferor Letter]
[Date]
[Trustee]
Re: HomeSide Mortgage Securities, Inc.
REMIC Multi-Class Pass-Through Certificates, Series 199 -__
Ladies and Gentlemen:
[Transferor] has reviewed the attached affidavit of
[Transferee], and has no actual knowledge that such affidavit is
not true and has no reason to believe that the information
contained in paragraph 7 thereof is not true, and has no reason
to believe that the transferee has the intention to impede the
assessment or collection of any federal, state or local taxes
legally required to be paid with respect to a Residual
Certificate. In addition, the [Transferor] has conducted a
reasonable investigation at the time of the transfer and found
that the transferee had historically paid its debts as they came
due and found no significant evidence to indicate that the
transferee will not continue to pay its debts as they become due.
Very truly yours,
[Transferor]
-------------------------------
105
<PAGE>
EXHIBIT G
[Form of Investment Letter for Restricted Certificates]
[Date]
[Trustee]
Re: HomeSide Mortgage Securities, Inc.
REMIC Multi-Class Pass Through
Certificates, Series 199 -__
Ladies and Gentlemen:
The undersigned, a [Title of Officer] of [Name of Investor]
(the "Investor"), a [corporation] duly organized and existing
under the laws of the [the State of __________________] [the
United States], hereby certifies as follows:
The Investor hereby acknowledges that under the terms of
the Pooling and Servicing Agreement between
_________________________________, as Trustee, and HomeSide
Mortgage Securities, Inc. (the "Seller"), dated as of _____ 1,
199__ (the "Agreement"), no transfer of a Restricted Certificate
(the "Restricted Certificates") may be made unless such transfer
is exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and any
applicable state securities laws, or is made in accordance with
the Securities Act and such laws.
The Investor understands that (a) the Restricted
Certificates have not been and will not be registered or
qualified under the Securities Act, or the securities laws of any
state, (b) neither the Seller nor the Trustee is required, and
neither intends, to so register or qualify the Restricted
Certificates, (c) the Restricted Certificates cannot be resold
unless (i) they are registered and qualified under the Securities
Act and the applicable state securities laws or (ii) an exemption
from registration and qualification is available, (d) the
Agreement contains
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<PAGE>
restrictions regarding the transfer of the Restricted
Certificates and (e) the Restricted Certificates will bear a
legend to the foregoing effect.
The Investor is acquiring the Restricted Certificates for
its own account for investment only and not with a view to or for
sale or other transfer in connection with any distribution of the
Restricted Certificates in any manner that would violate the
Securities Act or any applicable state securities laws.
The Investor (a) is a substantial, sophisticated
institutional investor having such knowledge and experience in
financial and business matters, and in particular in such matters
related to securities similar to the Restricted Certificates,
such that it is capable of evaluating the merits and risks of
investment in the Restricted Certificates, (b) is able to bear
the economic risks of such an investment and (c) is either an
"accredited investor" within the meaning of Rule 501(a)
promulgated pursuant to the Securities Act or other sophisticated
institutional investor.
The Investor will not authorize nor has it authorized any
person to (a) offer, pledge, sell, dispose of or otherwise
transfer any Restricted Certificate, any interest in any
Restricted Certificate or any other similar security to any
person in any manner, (b) solicit any offer to buy or to accept a
pledge, disposition or other transfer of any Restricted
Certificate, any interest in any Restricted Certificate or any
other similar security from any person in any manner, (c)
otherwise approach or negotiate with respect to any Restricted
Certificate, any interest in any Restricted Certificate or any
other similar security with any person in any manner, (d) make
any general solicitation by means of general advertising or in
any other manner, or (e) take any other action that would
constitute a distribution of any Restricted Certificate under the
Securities Act, that would render the disposition of any
Restricted Certificate a violation of Section 5 of the Securities
Act or any state securities law, or that could require
registration or qualification pursuant thereto. Neither the
Investor nor anyone acting on its behalf has offered the
Restricted Certificates for sale or made any general solicitation
by means of general advertising or in any other manner with
respect to the Restricted Certificates. The Investor will not
sell or otherwise transfer any of the Restricted Certificates,
except in compliance with the provisions of the Agreement.
If the Investor sells or otherwise transfers any of the
Restricted Certificates, the Investor will obtain from any
subsequent purchaser (a) the same certifications,
representations, warranties and covenants contained in the
foregoing paragraphs and in this paragraph and (b) an opinion of
counsel that the Trustee shall require pursuant to the Agreement.
The Investor hereby indemnifies the Trustee, the Seller and
the Servicer against any liability that may result if the
Investor's transfer of a Restricted Certificate (or any portion
thereof) is not exempt from the registration requirements of the
Securities Act and any applicable state securities laws or is not
made in accordance with such federal and state laws.
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Such indemnification of the Trustee, the Seller and the Servicer
shall survive the termination of the Agreement.
IN WITNESS WHEREOF, the Investor has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of
Directors, by its [Title of Officer] this _____ day of
__________, 19__.
[NAME OF INVESTOR]
By:______________________________
[Name of Officer]
[Title of Officer]
108
<PAGE>
Exhibit 5.1
[Letterhead of Cleary, Gottlieb, Steen & Hamilton]
Writer's Direct Dial: (212) 225-2890
March 31, 1997
HomeSide Mortgage Securities, Inc.
7301 Baymeadows Way
Jacksonville, Florida 32256
Ladies and Gentlemen:
We have acted as your counsel in connection with the
Registration Statement on Form S-3 (the "Registration Statement")
filed on May 22, 1990 with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Act") in
respect of Mortgage Pass-Through Certificates ("Certificates")
which you plan to offer in series, each series to be issued under
a separate pooling and servicing agreement (a "Pooling and
Servicing Agreement"), in all material respects relevant hereto
substantially in the form of Exhibit 4.1 to the Registration
Statement, among HomeSide Mortgage Securities, Inc. (the
"Company"), HomeSide Lending, Inc. or another servicer to be
identified in the prospectus supplement for such series of
Certificates (the "Servicer" for such series), and a bank, trust
company or other entity with trust powers, to be identified in
the prospectus supplement for such series of Certificates, as
trustee (the "Trustee" for such series).
We have examined originals or copies certified or
otherwise identified to our satisfaction of such documents and
records of the Company, and such public documents and records, as
we have deemed necessary as a basis for the opinions hereinafter
expressed.
Based on the foregoing and having regard for such
legal considerations as we have deemed relevant, we are of the
opinion that:
<PAGE>
HomeSide Mortgage Securities, Inc., p. 2
1. When, in respect of a series of Certificates,
a Pooling and Servicing Agreement has been duly
authorized by all necessary action and duly executed and
delivered by the Company, the Servicer and the Trustee for
such series, such Pooling and Servicing Agreement will be a
legal and valid obligation of the Company; and
2. When a Pooling and Servicing Agreement for a series
of Certificates has been duly authorized by all necessary
action and duly executed and delivered by the Company, the
Servicer and the Trustee for such series, and when the
certificates of such series of Certificates have been duly
executed, countersigned, issued and sold as contemplated in
the Registration Statement and the prospectus delivered
pursuant to Section 5 of the Act in connection therewith,
such Certificates will be legally and validly issued, and
the holders of such Certificates will be entitled to the
benefits of such Pooling and Servicing Agreement.
The form of Pooling and Servicing Agreement indicates
that it is governed by the laws of the State of New York. We
express no opinion as to the law of any jurisdiction other than
the law of the State of New York and the federal law of the
United States of America.
We hereby consent to the filing of this opinion as an
Exhibit to the Registration Statement and to the reference to
this firm in the Registration Statement and the related
prospectus under the heading "Legal Matters", without admitting
that we are "experts" within the meaning of the Act or the rules
and regulations of the Securities and Exchange Commission issued
thereunder with respect to any part of the Registration Statement
including this Exhibit.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By /s/ David L. Sugerman
--------------------------------
David L. Sugerman, a Partner
<PAGE>
Exhibit 8.1
[Letterhead of Cleary, Gottlieb, Steen & Hamilton]
Writer's Direct Dial: (212) 225-2890
March 31, 1997
HomeSide Mortgage Securities, Inc.
7301 Baymeadows Way
Jacksonville, Florida 32256
Ladies and Gentlemen:
We have acted as your counsel in connection with the
Registration Statement on Form S-3 (the "Registration Statement")
filed with the Securities and Exchange Commission on May 22,
1990, pursuant to the Securities Act of 1933, as amended (the
"Act") in respect of Mortgage Pass-Through Certificates
("Certificates") that you plan to offer in series. Our advice
formed the basis for the discussion of federal income tax
consequences appearing in the Registration Statement under the
heading "Certain Federal Income Tax Consequences." Such
discussion does not purport to deal with all possible federal
income tax consequences of an investment in Certificates, but
with respect to those tax consequences which are discussed, in
our opinion, the discussion is a fair and accurate summary of the
matters addressed therein under existing law and the assumptions
stated therein.
We hereby consent to the filing of this letter as an
Exhibit to the Registration Statement and to the reference to
this firm in the Registration Statement under the heading
<PAGE>
HomeSide Mortgage Securities, Inc., p. 2
"Certain Federal Income Tax Consequences", without admitting that
we are "experts" within the meaning of the Act or the rules and
regulations of the Securities and Exchange Commission issued
thereunder.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By /s/ David L. Sugerman
---------------------------------
David L. Sugerman, a Partner
<PAGE>
