<PAGE> 1
As filed with the Securities and Exchange Commission on November 13, 1997
Registration No. 33-34957
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 6
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)
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<S> <C> <C>
Delaware 7301 Baymeadows Way 59-2957725
(State or other jurisdiction of Jacksonville, Florida 32256 (I.R.S. Employer
incorporation or organization) (904) 281-3000 Identification Number)
</TABLE>
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ROBERT J. JACOBS, ESQ.
HomeSide Mortgage Securities, Inc.
7301 Baymeadows Way
Jacksonville, Florida 32256
(904) 281-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
STEVEN J. MOLITOR, ESQ.
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE 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, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / / __________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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> 2
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.
SUBJECT TO COMPLETION NOVEMBER 13, 1997
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. ("HomeSide Mortgage Securities" 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.
PROSPECTIVE INVESTORS IN THE CERTIFICATES SHOULD CONSIDER THE FACTORS
DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE S-14 OF THIS PROSPECTUS
SUPPLEMENT AND "RISK FACTORS" BEGINNING ON PAGE 6 OF THE PROSPECTUS.
<TABLE>
<CAPTION>
CLASS CERTIFICATE [SCHEDULED FINAL
PRINCIPAL BALANCE(1) CERTIFICATE INTEREST RATE DISTRIBUTION DATE(2)]
-------------------- ------------------------- ---------------------
<S> <C> <C> <C>
[Classes of Certificates]
</TABLE>
(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> 3
[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 .
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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--Federal Income Tax Consequences" and "Federal Income Tax
Consequences" herein and "Federal Income Tax Consequences" in the Prospectus.]
THE CERTIFICATES OFFERED HEREBY CONSTITUTE A PART OF A SERIES OF
PASS-THROUGH CERTIFICATES BEING OFFERED BY HOMESIDE MORTGAGE SECURITIES 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.
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
S-3
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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> 6
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.
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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. ("HomeSide Mortgage
Securities" or the "Seller"). See "HomeSide Mortgage
Securities, Inc." in the Prospectus.
Servicer................................................... HomeSide Lending, Inc. ("HomeSide Lending" 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 .
Closing Date............................................... On or about , 199 .
</TABLE>
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<TABLE>
<S> <C>
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
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.
</TABLE>
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<TABLE>
<S> <C>
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 Certificateholders...... 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.]
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.]
</TABLE>
S-7
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<TABLE>
<S> <C>
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 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.]
</TABLE>
S-8
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<TABLE>
<S> <C>
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, 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.
</TABLE>
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<TABLE>
<S> <C>
[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 and
"The Pooling and Servicing Agreement--Termination;
Purchase of Mortgage Loans" in the Prospectus.
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 and
"The Pooling and Servicing Agreement--Termination;
Purchase of Mortgage Loans" in the Prospectus.
</TABLE>
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<TABLE>
<S> <C>
[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.]
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.
See "Description of the Certificates--Restrictions on
Transfer of the Residual Certificates."]
</TABLE>
S-11
<PAGE> 13
<TABLE>
<S> <C>
See "Federal Income Tax Consequences" herein and "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 to sell such Certificate at a price that is equal
to or greater than the price at which such investor
purchased such Certificate.
</TABLE>
S-12
<PAGE> 14
<TABLE>
<S> <C>
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............................................ Substantially all of the net proceeds from the sale of the
Certificates offered hereby will be applied by the Seller
to the purchase price of the Mortgage Loans and the
expenses connected with pooling such Mortgage Loans and
issuing the Certificates.
</TABLE>
S-13
<PAGE> 15
RISK FACTORS
[Describe risks inherent to the Certificates of the related series.]
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.]
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 expected 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.
S-14
<PAGE> 16
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 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
<TABLE>
<CAPTION>
Percentage of Cut-off Date
Range of Cut-off Date Principal Cut-off Date Scheduled Aggregate Principal
Balance Number of Mortgage Loans Principal Balance Balance
<S> <C> <C> <C>
Total............................ $ 100.0%
============= ============ ======
</TABLE>
LOAN-TO-VALUE RATIO (1)
S-15
<PAGE> 17
<TABLE>
<CAPTION>
Percentage of Cut-off Date
Range of Cut-off Date Principal Cut-off Date Scheduled Aggregate Principal
Balance Number of Mortgage Loans Principal Balance Balance
<S> <C> <C> <C>
Total............................... $ 100.0%
============= ============ ======
</TABLE>
(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).
MORTGAGE RATES
<TABLE>
<CAPTION>
Percentage of Cut-off Date
Cut-off Date Scheduled Aggregate
Range of Mortgage Rates Number of Mortgage Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Total............................... $ 100.0%
============= ============ ======
</TABLE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Percentage of Cut-off Date
Cut-off Date Scheduled Aggregate
State Number of Mortgage Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Total............................... $ 100.0%
============= ============ ======
</TABLE>
YEAR OF ORIGINATION
<TABLE>
<CAPTION>
Cut-off Date Scheduled Percentage of Cut-off Date
Year of Origination Number of Mortgage Loans Principal Balance Aggregate Principal Balance
<S> <C> <C> <C>
Total............................... $ 100.0%
============= ============ ======
</TABLE>
MONTHS REMAINING TO STATED MATURITY AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Number of Months Remaining to Cut-off Date Scheduled Percentage of Cut-off Date
Stated Maturity Number of Mortgage Loans Principal Balance Aggregate Principal Balance
<S> <C> <C> <C>
Total............................... $ 100.0%
============= ============ ======
</TABLE>
S-16
<PAGE> 18
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Cut-off Date Scheduled Percentage of Cut-off Date
Property Type Number of Mortgage Loans Principal Balance Aggregate Principal Balance
<S> <C> <C> <C>
Single family detached..............
Single-family attached..............
2-4 Units...........................
Total............................... $ 100.0%
============= ============ ======
</TABLE>
USE OF MORTGAGED PROPERTIES (1)
<TABLE>
<CAPTION>
Cut-off Date Scheduled Percentage of Cut-off Date
Property Type Number of Mortgage Loans Principal Balance Aggregate Principal Balance
<S> <C> <C> <C>
Investor............................
Second home.........................
Primary residence...................
Total............................... $ 100.0%
============= ============ ======
</TABLE>
(1) Based on information supplied by the Mortgagor in the loan application.
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"), among HomeSide
Mortgage Securities, as seller, HomeSide Lending, 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.]
BOOK-ENTRY CERTIFICATES
Each Class of the Certificates offered hereby [other than the Class
Certificates and the Residual Certificates]
S-17
<PAGE> 19
(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 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.
S-18
<PAGE> 20
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 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
S-19
<PAGE> 21
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 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 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
S-20
<PAGE> 22
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 "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 "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.
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.
S-21
<PAGE> 23
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 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
S-22
<PAGE> 24
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.
[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 and the priority sequence
of distributions of principal of such Certificates. The interaction of the
foregoing factors may have different effects on the
S-23
<PAGE> 25
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].
[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
S-24
<PAGE> 26
information set forth in the following table.
S-25
<PAGE> 27
<TABLE>
<CAPTION>
Class Class Class
Prepayment Assumption Prepayment Assumption Prepayment Assumption
<S> <C> <C> <C>
Distribution Date 0% % % % % % % % % % % % % % %
Initial Percentage 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
[Annual Distribution
Dates]
Weighted Average
Life (in years)(1)
</TABLE>
<TABLE>
<CAPTION>
Class
Prepayment Assumption
<S> <C>
Distribution Date % % % % %
Initial Percentage 100 100 100 100 100
[Annual Distribution
Dates]
Weighted Average
Life (in years)(1)
</TABLE>
- --------------
(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.
HomeSide Mortgage Securities, Inc. ("HomeSide Mortgage Securities" or
the "Seller") is a Delaware corporation and a wholly-owned subsidiary of
HomeSide Lending, Inc. The Seller has not had and is not expected to have any
business operations other than offering Certificates and related activities. The
Seller'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 Prospectus.
HOMESIDE LENDING, INC.
HomeSide Lending, Inc. ("HomeSide Lending" or the "Servicer") is a
Florida corporation and a wholly-owned subsidiary of HomeSide, Inc., a Delaware
corporation. The principal offices of the Servicer are located at 7301
Baymeadows Way, Jacksonville, Florida 32256. Its telephone number is (904)
281-3000. See "HomeSide Lending, Inc." in the 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 the
Servicer (the "Servicing Portfolio"). [The Servicing Portfolio does not include
mortgage loans that were serviced or sub-serviced by others.][Dates as of which
data are given to be updated as necessary.]
S-26
<PAGE> 28
<TABLE>
<CAPTION>
AS OF , 199_ AS OF , 199_ AS OF , 199_
------------------------------- ------------------------------ ------------------------------
BY DOLLAR BY DOLLAR BY DOLLAR
BY NO. OF AMOUNT OF BY NO. OF AMOUNT OF BY NO. OF AMOUNT OF
LOANS LOANS LOANS LOANS LOANS LOANS
------------- ------------- ------------- ------------ ------------ -------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total portfolio......... $__________ $__________ $__________
Period of delinquency(1)
30 to 59 days........ $__________ $__________ $__________
60 to 89 days........
90 days or more(2)...
Total past due.......... $__________ $__________ $__________
Percent of portfolio.... _____% _____% _____% _____% _____% _____%
</TABLE>
- ---------------
(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.
<TABLE>
<CAPTION>
At ,
-----------------------------------------------------
199 199 199
-------------- ---------------- -------------
(Dollar amounts in thousands)
<S> <C> <C> <C>
Total portfolio.................................................... $__________ $__________ $__________
Foreclosures(1)....................................................
Foreclosure ratio.................................................. _____% _____% _____%
</TABLE>
- ---------------
(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.
[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
S-27
<PAGE> 29
originations 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 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
S-28
<PAGE> 30
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.
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 Servicer on account of its Servicing Fee is generally less in
the case of Mortgage Loans master-serviced by the Servicer 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
S-29
<PAGE> 31
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.]
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.
FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the Trust Fund as a REMIC for federal
income tax purposes. In the opinion of Morgan, Lewis & Bockius LLP, counsel to
the Seller, under current law and assuming compliance by the Seller, the
Servicer and the Trustee with all of the provisions of the Agreement, the Trust
Fund will qualify as a REMIC.
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 "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 "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 "Federal Income Tax Consequences--REMIC
Certificates--Income from Residual Certificates; --Taxation of Certain Foreign
Investors; --Servicing Compensation and Other REMIC Pool Expenses;
S-30
<PAGE> 32
- --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 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
S-31
<PAGE> 33
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 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 "Federal Income Tax Consequences--Residual Certificates" herein and
"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.
S-32
<PAGE> 34
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.]
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 Morgan, Lewis & Bockius LLP, New York, New York, and for
the Underwriter by .
S-33
<PAGE> 35
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..............................................
HomeSide Holdings...................................................
HomeSide Lending....................................................
HomeSide Mortgage Securities........................................
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...................................................
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...................................................
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<PAGE> 36
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-35
<PAGE> 37
[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......................................................
Risk Factors..........................................................
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...................................
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.................................................
Risk Factors..........................................................
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..................................................
Federal Income Tax Consequences......................................
Plan of Distribution.................................................
Use of Proceeds.......................................................
Financial Information.................................................
S-36
<PAGE> 38
Legal Matters.........................................................
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
S-37
<PAGE> 39
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.
SUBJECT TO COMPLETION NOVEMBER 13, 1997
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. ("HomeSide Mortgage Securities" 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 (such as amounts
received as Monthly Payments or principal prepayments which are on deposit in
the Certificate Account from time to time, property which secured a Mortgage
Loan which has been acquired by foreclosure or proceeds of the liquidation of a
Mortgaged Property) conveyed to such Trust Fund by the Seller. As more
specifically described 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.
("HomeSide Lending" 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.
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
<PAGE> 40
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 (i) its obligation, as described herein (see
"The Pooling and Servicing Agreement--Repurchase or Substitution"), to
repurchase Mortgage Loans under certain circumstances if either documentation
with respect to one or more Mortgage Loans required to be delivered by the
Seller to the Trustee is missing or defective or a representative or warranty
with respect to one or more mortgage loans is breached and such breach
materially and adversely affects the interests of the Certificateholders in a
Mortgage Loan, and (ii) 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.
PROSPECTIVE INVESTORS IN THE CERTIFICATES SHOULD CONSIDER THE FACTORS
DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 6.
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 "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. No application will be made to list the Certificates on
any securities exchange.
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> 41
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 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
The Seller 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.
Such material can also be obtained from the web site that the Commission
maintains at http://www.sec.gov.
The Seller 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 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
<PAGE> 42
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 on each Distribution Date, reports concerning the Trust Fund
related to such Certificates. See "The Pooling and Servicing Agreement--Reports
to Certificateholders". The Trustee will file with the Commission such reports
with respect to the Trust Fund for a series of Certificates as are required
under the Exchange Act and the rules and regulations of the Commission
thereunder until the completion of the reporting period required by Rule 15d-1
under the Exchange Act.
------------------
<PAGE> 43
TABLE OF CONTENTS
SUMMARY OF PROSPECTUS................................................... 1
RISK FACTORS............................................................ 6
DESCRIPTION OF THE CERTIFICATES......................................... 8
GENERAL................................................................. 8
CLASSES OF CERTIFICATES................................................. 8
DISTRIBUTIONS OF PRINCIPAL AND INTEREST................................. 9
GENERAL................................................................. 9
Distributions of Interest............................................. 10
Distributions of Principal............................................ 10
Unscheduled Distributions............................................. 10
THE MORTGAGE POOLS...................................................... 11
CREDIT SUPPORT.......................................................... 13
GENERAL................................................................. 13
LIMITED GUARANTEE OF THE GUARANTOR...................................... 13
SUBORDINATION........................................................... 13
CROSS-SUPPORT........................................................... 14
POOL INSURANCE.......................................................... 14
SPECIAL HAZARD INSURANCE................................................ 16
BANKRUPTCY BOND......................................................... 16
REPURCHASE BOND......................................................... 17
GUARANTEED INVESTMENT CONTRACTS......................................... 17
RESERVE ACCOUNTS........................................................ 17
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS....... 17
YIELD, MATURITY AND WEIGHTED AVERAGE LIFE CONSIDERATIONS................ 18
HOMESIDE MORTGAGE SECURITIES, INC....................................... 19
HOMESIDE LENDING, INC................................................... 19
PRODUCTION.............................................................. 19
WHOLESALE PRODUCTION.................................................... 20
UNDERWRITING POLICIES................................................... 20
SERVICING OF THE MORTGAGE LOANS......................................... 22
COLLECTION AND OTHER SERVICING PROCEDURES............................... 22
PRIVATE MORTGAGE INSURANCE.............................................. 23
HAZARD INSURANCE........................................................ 24
ADVANCES................................................................ 24
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES................ 25
RESIGNATION, SUCCESSION AND INDEMNIFICATION OF THE SERVICER............. 25
THE POOLING AND SERVICING AGREEMENT..................................... 26
ASSIGNMENT OF MORTGAGE LOANS; WARRANTIES................................ 26
PAYMENTS ON MORTGAGE LOANS; CERTIFICATE ACCOUNT......................... 27
REPURCHASE OR SUBSTITUTION.............................................. 28
CERTAIN MODIFICATIONS AND REFINANCINGS.................................. 28
EVIDENCE AS TO COMPLIANCE............................................... 29
LIST OF CERTIFICATEHOLDERS.............................................. 29
THE TRUSTEE............................................................. 29
REPORTS TO CERTIFICATEHOLDERS........................................... 30
EVENTS OF DEFAULT....................................................... 30
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<PAGE> 44
RIGHTS UPON EVENT OF DEFAULT............................................ 31
AMENDMENT............................................................... 32
TERMINATION; PURCHASE OF MORTGAGE LOANS................................. 32
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS............................. 32
GENERAL................................................................. 32
FORECLOSURE............................................................. 33
RIGHT OF REDEMPTION..................................................... 34
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS............ 34
ENFORCEABILITY OF CERTAIN PROVISIONS.................................... 35
APPLICABILITY OF USURY LAWS............................................. 35
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT................................. 36
ENVIRONMENTAL CONSIDERATIONS............................................ 36
TRUTH IN LENDING ACT.................................................... 36
LEGAL INVESTMENT MATTERS................................................ 37
ERISA CONSIDERATIONS.................................................... 38
FEDERAL INCOME TAX CONSEQUENCES......................................... 39
GENERAL................................................................. 39
REMIC ELECTIONS......................................................... 39
REMIC CERTIFICATES...................................................... 40
TAX OPINION............................................................. 40
STATUS OF CERTIFICATES.................................................. 40
INCOME FROM REGULAR CERTIFICATES........................................ 40
General............................................................... 40
Original Issue Discount............................................... 41
Acquisition Premium................................................... 42
Market Discount....................................................... 42
Premium............................................................... 43
Special Election to Apply OID Rules................................... 43
Retail Regular Certificates........................................... 43
Variable Rate Regular Certificates.................................... 43
Subordinated Certificates............................................. 44
INCOME FROM RESIDUAL CERTIFICATES....................................... 44
Taxation of REMIC Income.............................................. 44
Losses................................................................ 44
Excess Inclusions..................................................... 44
Distributions......................................................... 45
Prohibited Transactions; Special Taxes................................ 45
Negative Value Residual Certificates.................................. 45
SALE OR EXCHANGE OF CERTIFICATES........................................ 45
TAXATION OF CERTAIN FOREIGN INVESTORS................................... 46
Regular Certificates.................................................. 46
Residual Certificates................................................. 46
TRANSFERS OF RESIDUAL CERTIFICATES...................................... 47
Disqualified Organizations............................................ 47
Foreign Investors..................................................... 47
Noneconomic Residual Certificates..................................... 48
SERVICING COMPENSATION AND OTHER REMIC POOL EXPENSES.................... 48
REPORTING AND ADMINISTRATIVE MATTERS.................................... 48
NON-REMIC CERTIFICATES.................................................. 49
TRUST FUND AS GRANTOR TRUST............................................. 49
STATUS OF THE CERTIFICATES.............................................. 49
POSSIBLE APPLICATION OF STRIPPED BOND RULES............................. 50
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<PAGE> 45
TAXATION OF CERTIFICATES IF STRIPPED BOND RULES DO NOT APPLY............ 50
DISCOUNT................................................................ 50
Premium............................................................... 51
TAXATION OF CERTIFICATES IF STRIPPED BOND RULES APPLY................... 51
SALES OF CERTIFICATES................................................... 51
FOREIGN INVESTORS....................................................... 51
REPORTING............................................................... 52
BACKUP WITHHOLDING...................................................... 52
PLAN OF DISTRIBUTION.................................................... 52
USE OF PROCEEDS......................................................... 53
FINANCIAL INFORMATION................................................... 53
LEGAL MATTERS........................................................... 53
iii
<PAGE> 46
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.
("HomeSide Mortgage Securities" or the
"Seller"), formerly known as BancBoston
Mortgage Securities, Inc. See "HomeSide
Mortgage Securities, Inc." HomeSide Lending,
Inc. ("HomeSide Lending" or the "Servicer"),
formerly known as BancBoston Mortgage
Corporation. See "HomeSide Lending, Inc." If
specified in the Prospectus Supplement,
HomeSide Lending 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
(including, for example, (i) amounts
received as Monthly Payments or principal
prepayments which are on deposit in the
Certificate Account from time to time, (ii)
property which secured a Mortgage Loan which
has been acquired by foreclosure or (iii)
proceeds of the liquidation of a Mortgaged
Property) 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
interest only after the occurrence of events
specified in the Prospectus Supplement and
may accrue interest until such events occur,
in each case as
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<PAGE> 47
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 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. See
"Description of the Certificates."
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"). See "Description of the
Certificates--Distributions of Principal and
Interest."
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. See "Description of
the Certificates--Distributions of Principal
and Interest."
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 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
2
<PAGE> 48
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."
Purchase of Mortgage
Loans 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. 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. See "The
Pooling and Servicing Agreement--Payments on
Mortgage Loans; Certificate Account."
Advances If specified in the Prospectus Supplement,
the Servicer, as Servicer or master servicer
of the Mortgage Loans, will be obligated to
advance, using its own funds, 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. See "Servicing of the Mortgage
Loans--Advances."
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. See "Credit Support."
A. 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 either or
both of the following actions in the event
the Servicer fails to do so: make deposits
to the Certificate Account (a "Deposit
Guarantee"); or make advances (an "Advance
Guarantee"). Any such Limited Guarantee will
be limited in amount and a portion of the
coverage of any such Limited Guarantee may
be
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<PAGE> 49
separately allocated to certain events. The
scope, amount and, if applicable, the
allocation of any Limited Guarantee will be
described in the related Prospectus
Supplement. See "Credit Support--Limited
Guarantee of the Guarantor."
B. 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. See "Credit Support--
Subordination."
C. 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. See "Credit
Support--Cross Support."
D. 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."
E. 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. See "Credit
4
<PAGE> 50
Support--Reserve Accounts" and "--Other
Insurance, Guarantees and Similar
Instruments or Agreements."
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 "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 The Prospectus Supplement for each series of
Certificates will specify which, if any, of
the classes of Certificates offered thereby
will constitute "mortgage related
securities" under the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA").
Classes of Certificates that qualify as
"mortgage related securities" 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.
Institutions whose investment authority is
subject to legal restrictions should consult
with their own legal advisors or the
applicable authorities to determine whether
and to what extent an investment in a
particular class of Certificates (whether or
not such class constitutes a "mortgage
related security") constitutes a legal
investment for them. See "Legal Investment
Matters".
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<PAGE> 51
RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Certificates:
l. Losses on the Mortgage Pool. An investment in Certificates
evidencing interests in Mortgage Loans may be affected, among other things, by a
decline in real estate values or changes in mortgage market rates. If the
residential real estate market in the locale of properties securing the Mortgage
Loans 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 Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. To the extent that such losses are not covered by
any subordination feature, applicable insurance policies or other credit
enhancement, holders of the Certificates of a Series evidencing interests in
such Mortgage Pool will bear all risk of loss resulting from default by
mortgagors and will have to look primarily to the value of the Mortgaged
Properties for recovery of the outstanding principal and unpaid interest of the
defaulted Mortgage Loans. See "The Mortgage Pools."
2. Limited Obligations. The Certificates will not represent an interest
in or obligation of the Seller. The Certificates will not be insured or
guaranteed by any government agency or instrumentality, nor, unless expressly
provided in the related Prospectus Supplement, by HomeSide Lending, Inc.,
HomeSide Mortgage Securities, Inc. or any of their affiliates.
3. Limited Liquidity. There can be no assurance that a secondary market
will develop for the Certificates of any Series or, if it does develop, that it
will provide the holders of Certificates of such Series with liquidity of
investment or that it will remain for the term of such series of Certificates.
Although the Certificateholders of each series receive monthly statements
containing certain statistical information with respect to the related Mortgage
Pool, neither the Company nor the Servicer publishes any information relating to
the Certificates of any series or any Mortgage Pool. The limited availability of
any such published information may influence the liquidity of the Certificates.
The Certificates will not be listed on any securities exchange.
4. Prepayment Considerations. The prepayment experience on the Mortgage
Loans will affect the average life of the Certificates or each class of
Certificates. Prepayments on the Mortgage Loans may be influenced by a variety
of economic, geographic, social and other factors, including the difference
between the interest rates on the Mortgage Loans and prevailing mortgage rates
(giving consideration to the cost of refinancing). In general, if mortgage
interest rates fall below the interest rates on the Mortgage Loans, the rate of
prepayment would be expected to increase, and the yields at which an investor in
the Certificates may be able to reinvest amounts received as payments on such
investor's Certificates may be lower than the yield on such Certificates.
Conversely, if mortgage interest rates rise above the interest rates on the
Mortgage Loans, the rate of prepayment would be expected to decrease, and the
amount of payments available to a Certificateholder for reinvestment may be
relatively low. Other factors affecting prepayment of mortgage loans include
changes in housing needs, job transfers, unemployment and servicing decisions.
See "Yield, Maturity and Weighted Average Life Considerations."
5. Yield, Maturity and Weighted Average Life Considerations. The yield
of the Certificates of each series will depend in part on the rate of principal
payment on the Mortgage Loans (including prepayments, liquidations due to
defaults and mortgage loan repurchases). such yield may be adversely affected,
depending upon whether a particular Certificate is purchased at a premium or
discount price, by a higher or lower than anticipated rate of prepayments on the
related Mortgage Loans. In particular, the yield on Classes of Certificates
entitling the holders thereof primarily or exclusively to payments of interest
or primarily or exclusively to payments of principal will be extremely sensitive
to the rate of prepayments on the related Mortgage Loans. In addition, the yield
on Certain Classes of Certificates may be relatively more sensitive to the rate
of prepayment of specified Mortgage Loans than other Classes of Certificates.
Furthermore, the yield to investors may be adversely affected by interest
shortfalls which may result from the timing of the receipt of prepayments or
liquidations to the extent that such interest shortfalls are not covered by
aggregate servicing fees or other mechanisms specified in the applicable
Prospectus Supplement. The yield to investors in Classes of Certificates will be
adversely affected to the extent that losses on the Mortgage Loans in the
related Trust Fund are allocated to such Classes and may be adversely affected
to the extent of unadvanced delinquencies on the Mortgage Loans in the related
Trust Fund. Classes of Certificates identified in the applicable Prospectus
Supplement as subordinated Certificates are more
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likely to be affected by delinquencies and losses than other Classes of
Certificates. See "Yield, Maturity and Weighted Average Life Considerations."
6. Subordination. With respect to Certificates of a series having one
or more classes of subordinated Certificates, while the subordination feature is
intended to enhance the likelihood of timely payment of principal and interest
to senior Certificateholders, such subordination will be limited as specified in
the Prospectus Supplement, any reserve fund could be depleted under certain
circumstances, and payments applied to the senior Certificates which are
otherwise due to the subordinated Certificates may be less than losses.
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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 the material 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., 7301 Baymeadows Way, Jacksonville, Florida 32256, 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.
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
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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.
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.
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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
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
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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.
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
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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 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 (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
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"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 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.
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 either or both of the following actions in
the event the Servicer fails to do so: make deposits to the Certificate Account
(a "Deposit Guarantee"); or make advances (an "Advance 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. 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
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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.
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
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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 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 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
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
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
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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 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, certain repurchase
agreements of United States government securities with eligible commercial banks
and certain other Eligible Investments described in the Agreement. 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.
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.
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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 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 and from the repurchase by
the Seller of all of the Mortgage Loans in certain circumstances. See "The
Pooling and Servicing Agreement--Termination; Purchase of Mortgage Loans." 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 HomeSide Lending 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 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
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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 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.
HomeSide Mortgage Securities, Inc. ("HomeSide Mortgage Securities" or
the "Seller") 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 HomeSide Lending, Inc. The Seller has not had and is not expected
to have any business operations other than offering Certificates and related
activities. It is anticipated that the Seller may from time to time purchase
mortgage loans directly from correspondents and affiliates.
The principal offices of the Seller are located at 7301 Baymeadows Way,
Jacksonville, Florida 32256. Its telephone number is (904) 281-3000.
HOMESIDE LENDING, INC.
HomeSide Lending, Inc. ("HomeSide Lending" or the "Servicer"), the
successor to BancBoston Mortgage Corporation ("BBMC"), which was the mortgage
banking subsidiary of BankBoston, N.A., formerly known as The First National
BankBoston ("BankBoston"), was acquired by HomeSide, Inc. on March 15, 1996 (the
"BBMC Acquisition"). Barnett Mortgage Corporation ("BMC"), formerly the mortgage
banking subsidiary of Barnett Banks, Inc. ("Barnett"), was acquired by HomeSide,
Inc. on May 31, 1996. Upon the acquisition of BMC, now known as HomeSide
Holdings, Inc. ("HomeSide Holdings"), by HomeSide, Inc., all of the assets and
liabilities of BMC, with the exception of certain GNMA servicing rights, were
transferred to HomeSide Lending. HomeSide Holdings is a wholly-owned subsidiary
of HomeSide, Inc. and HomeSide Lending is a wholly-owned subsidiary of HomeSide
Holdings. HomeSide Lending was incorporated in Florida on September 18, 1986.
HomeSide Lending's executive offices are located at 7301 Baymeadows Way,
Jacksonville, Florida 32256, telephone number (904) 281-3000.
HomeSide Lending 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.
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%; BankBoston and Siesta Holdings, Inc., an
affiliate of Barnett, collectively own approximately 53% and management of
HomeSide, Inc. and other unaffiliated investors own the remainder of the
outstanding common stock of HomeSide, Inc. In October 1997 HomeSide, Inc. and
National Australia Bank Limited executed an Agreement and Plan of Merger,
pursuant to which HomeSide, Inc. will become a wholly-owned subsidiary of
National Australia Bank Limited. Subject to regulatory approvals, HomeSide, Inc.
anticipates that this transaction will be completed during the first quarter of
1998.
PRODUCTION
HomeSide Lending originates and purchases residential single family
mortgage loans through all major channels including correspondents (including
BankBoston and Barnett), mortgage brokers, co-issue partners, consumer direct
telemarketing and affinity programs. Each correspondent assisting HomeSide
Lending in the origination of mortgage loans is required to follow HomeSide
Lending's loan underwriting policies.
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WHOLESALE PRODUCTION
CORRESPONDENT PRODUCTION
Through its correspondent program, HomeSide Lending 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 Lending for legal review and funding. The participants in this program
are prequalified and monitored on an ongoing basis by HomeSide Lending. If a
correspondent subsequently fails to meet HomeSide Lending's requirements,
HomeSide Lending 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.
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 Lending'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 Lending 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 Lending to verify the borrower's credit. All
loans originated through brokers are underwritten by HomeSide Lending's approved
contract underwriters. Loans are funded by HomeSide Lending and may be closed in
either the broker's name or HomeSide Lending'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
Lending.
DIRECT PRODUCTION
HomeSide Lending's direct production includes the use of telemarketing
to originate loans from several sources, including refinancings of mortgage
loans in HomeSide Lending's existing servicing portfolio, leads generated from
direct mail campaigns and other advertising, and mortgages related to affinity
group and co-branding partnerships.
BankBoston retained all of its retail production facilities in the New
England area and entered into exclusive five-year agreements to sell, subject to
certain limitations, all loans originated from these sources to HomeSide Lending
on a broker or correspondent basis at market prices. In 1996, HomeSide Lending
sold or closed most of HomeSide Lending's remaining retail branches.
HomeSide Lending may from time to time conduct solicitations of
borrowers under any Mortgage Loans to refinance such loans with HomeSide Lending
acting for its own account. See "Yield, Maturity and Weighted Average Life
Considerations."
UNDERWRITING POLICIES
The Mortgage Loans will be originated or acquired by HomeSide Lending
based on its credit, appraisal, and underwriting guidelines as published and
amended from time to time. The Mortgage Loans may be underwritten by HomeSide
Lending or by designated third parties. HomeSide Lending may purchase Mortgage
Loans which do not conform to the underwriting standards set forth in HomeSide
Lending's published guide. Such Mortgage Loans may be purchased in negotiated
transactions from sellers who will represent that the Mortgage Loans have been
originated in accordance with credit, appraisal and underwriting standards
agreed to by HomeSide Lending. In such event, the applicable Prospectus
Supplement will describe the underwriting standards used in originating such
Mortgage Loans.
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All Mortgage Loans will be originated using an application approved by HomeSide
Lending.
In originating or purchasing residential mortgages, HomeSide Lending
follows standard procedures established to comply with applicable federal and
state laws and regulations. HomeSide Lending's underwriting standards generally
follow guidelines acceptable to Fannie Mae and FHLMC.
To determine the adequacy of the underlying property to be financed,
HomeSide Lending requires an appraisal by an independent third party. The
appraiser inspects the property and estimates its market value on the basis of
comparable properties and the cost of replacing the property. If the property is
new construction, the appraiser will inspect the property to verify that
construction has been completed. Generally, the maximum amount allowed to be
financed on a property is based upon the lower of purchase price or appraised
value.
Initially, a prospective mortgagor is required to complete a detailed
application designed to provide HomeSide Lending with pertinent information
about the prospective mortgagor, the property to be financed and the type of
loan desired. As part of the description of the prospective mortgagor's
financial condition, HomeSide Lending requires a current statement describing
assets and liabilities and income and expenses, and a credit report which
summarizes the prospective mortgagor's credit and payment history with merchants
and other lenders.
HomeSide Lending may, in order to assess the creditworthiness of a
prospective mortgagor and as part of the normal course of its underwriting
process, use a statistically derived credit or mortgage score. The score is
provided by a third party and may be used to determine eligibility for certain
loan programs. HomeSide Lending, when making an underwriting decision, will use
the score in conjunction with other mortgage loan characteristics.
Under HomeSide Lending's Full Documentation underwriting program,
HomeSide Lending requires verification of the prospective Mortgagor's employment
and income from the prospective mortgagor's employer, where the employer reports
the prospective mortgagor's length of employment with that organization and
current salary. Each prospective mortgagor who is self-employed is required to
submit a copy of his or her federal income tax returns. HomeSide Lending may
originate or purchase loans under its Alternative Documentation underwriting
program, which is the same as the corresponding Fannie Mae and FHLMC programs,
as in effect at the time of each mortgage loan origination. Under this program,
the prospective mortgagor's employment and income are verified through
alternative sources such as pay stubs, W-2 forms and/or federal income tax
returns.
HomeSide Lending's documentation standards may vary from those
described above for certain prospective mortgagors. The degree to which the
documentation required varies will be dependent on the financial ability of the
prospective mortgagor to make a larger cash down payment on a purchase
transaction or to finance a lower percentage of the appraised value of the
property securing the related mortgage loan. Such standards have been modified,
for example, for mortgage loans eligible for HomeSide Lending's "limited" or "no
ratio" documentation programs. To be eligible for either of these programs, the
prospective mortgagor is required to have a higher level of verified assets
and/or liquid reserves. In addition, greater reliance is placed on the
prospective mortgagor's credit or mortgage score. The maximum Loan-to-Value
ratio of any mortgage loan originated under these programs is 80%.
Under the Limited Documentation Program, HomeSide Lending may not
require that a prospective borrower's income be verified prior to closing, but
the prospective borrower must agree to allow HomeSide Lending to audit the
prospective mortgagor's income at a later date.
Under the No Ratio Documentation Program, income is not used as a means
of qualifying for the loan. The prospective mortgagor is required to provide
evidence of his or her job stability to be verified in writing by an independent
third party. HomeSide Lending may require two full appraisals or may place
certain other restrictions on eligibility for this program.
Upon receipt of the appropriate verification, HomeSide Lending 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. HomeSide Lending's underwriting standards for such
determination generally follow the guidelines established by Fannie Mae and
FHLMC, as in effect at the time of each mortgage loan origination.
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Mortgage loans that HomeSide Lending 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
HomeSide Lending to an effective Loan-to-Value Ratio of 75%.
HomeSide Lending grants delegated underwriting status to its larger
correspondents who meet certain financial strength, delinquency, underwriting
and quality control standards. The granting of delegated status by HomeSide
Lending enables a correspondent to submit conventional loans to HomeSide Lending
without prior underwriting approval. Correspondent lenders who have not been
granted delegated underwriting status are required by HomeSide Lending to have
their mortgage loans underwritten by third party contract underwriters prior to
purchase by HomeSide Lending. In all cases, correspondents are required to use
underwriting standards established by HomeSide Lending.
HomeSide Lending 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.
From time to time, exceptions to HomeSide Lending's underwriting
guidelines may be made. Such exceptions may be made only if specifically
approved on a loan-by-loan basis by certain personnel of HomeSide Lending who
have the authority to make such exceptions. Exceptions may be made only after
careful consideration of certain mitigating factors such as borrower capacity,
liquidity, employment and residential stability and local economic conditions.
With respect to any Mortgage Pool which contains Mortgage Loans
acquired by HomeSide Lending in a bulk purchase, the related Prospectus
Supplement will describe the extent, if any, to which such Mortgage Loans were
reunderwritten by HomeSide Lending. To the extent that any Mortgage Pool
contains Mortgage Loans as to which HomeSide Lending is unable to establish the
underwriting standards used in originating such Mortgage Loans, the related
Prospectus Supplement will describe any resulting risks.
SERVICING OF THE MORTGAGE LOANS
With respect to each series of Certificates, the related Mortgage Loans
will be serviced by HomeSide Lending, acting alone or, as master servicer,
through one or more direct servicers. Unless otherwise specified in the
Prospectus Supplement, if HomeSide Lending acts as master servicer with respect
to a series, the related Agreement will provide that HomeSide Lending 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 HomeSide Lending and a direct servicer
will be deemed to be between HomeSide Lending 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 HomeSide
Lending will act as sole servicer or master servicer for such series. If
HomeSide Lending acts as master servicer for a series, all references herein to
HomeSide Lending as servicer should be read to refer to HomeSide Lending as
master servicer, as appropriate.
COLLECTION AND OTHER SERVICING PROCEDURES
Subject to the terms of the Agreement, the Servicer generally will be
obligated to service and administer the Mortgage Loans in accordance with the
specific procedures set forth in the Fannie Mae Seller's Guide and Fannie Mae
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
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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 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
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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 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
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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. 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, the Servicer will be entitled to reimbursement for any such advance
(i) from Liquidation Proceeds or Insurance Proceeds received if such Mortgage
Loan is foreclosed 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.
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, 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.
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 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
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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, 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. Except as
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
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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
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.
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 Cut-Off 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
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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 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 May 31 of each year,
beginning with May 31 in the fiscal 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 May 31 of each fiscal year, beginning with May 31 in the fiscal 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 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 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
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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) The aggregate amount of any advances made by the Servicer
included in the amounts distributed to Certificateholders on
such Distribution Date;
(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
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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
Fannie Mae or FHLMC approved servicer during any time that either Fannie Mae 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 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) will become the direct obligations of the Guarantor under the
Advance Guarantee 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
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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 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 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
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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 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
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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 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, 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.
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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. 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.
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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 b e 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 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
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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
The Prospectus Supplement for each series of Certificates will specify,
which, if any, of the classes of Certificates offered thereby will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Marketing
Enhancement Act of 1984 ("SMMEA"). The appropriate characterization of those
Certificates not qualifying as "mortgage related securities" ("Non-SMMEA
Certificates") under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase such Certificates, may be
subject to interpretive uncertainties. Accordingly, investors whose investment
authority is subject to legal restrictions should consult their own legal
advisors to determine whether and to what extent the Non-SMMEA Certificates
constitute legal investments for them.
Generally, only classes of Certificates that (i) are rated in one of
the two highest rating categories by one or more nationally recognized
statistical rating organizations and (ii) are part of a series evidencing
interests in a Trust Fund consisting of loans secured by, among other things, a
single parcel of real estate upon which is located a dwelling or mixed
residential and commercial structure, such as certain multifamily loans,
originated by certain types of obligations as specified in SMMEA, will be
"mortgage related securities" for purposes of SMMEA. As "mortgage related
securities", such classes will constitute legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including but not limited to, state-chartered savings banks, commercial banks,
savings and loan associations and insurance companies, as well as trustees and
state government employee retirement systems) created 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 cutoff 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 SMMEA. Accordingly, the
investors affected by such legislation will be authorized to invest in
Certificates qualifying as "mortgage related securities" 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 in
mortgage related securities without limitation as to the percentage of their
assets represented thereby, federal credit unions may invest in such securities,
and national banks may purchase such 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 the National Credit Union
Administration ("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, codified as 12 C.F.R. Sections 703.5(f)-(k) which prohibit
federal credit unions from investing in certain mortgage related securities
(including securities such as certain Series or Classes of Certificates), except
under limited circumstances.
All depositary institutions considering an investment in the
Certificates (whether or not the class of certificates under consideration for
purchase constitutes a "mortgage related security") should review the Federal
Financial Institutions Examination Council's "Supervisory Policy Statement on
Securities Activities" (to the extent adopted by their respective regulators)
(the "Policy Statement"). The Policy Statement, which has been adopted by the
Board of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Comptroller of the Currency and the Office of Thrift
Supervision, and by the NCUA (with certain modifications), prohibits depository
institutions from investing in certain "high risk mortgage securities"
(including securities such as certain series or classes of the Certificates),
except under limited circumstances, and sets forth certain investment practices
deemed to be unsuitable for regulated institutions. Under the Policy Statement,
it is the responsibility of each depository institution to determine, prior to
purchase (and at stated intervals thereafter), whether a particular mortgage
derivative product is a "high-risk
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mortgage security", and whether the purchase (or retention) of such a product
would be consistent with the Policy Statement.
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 any
Certificates, as certain series or classes may be deemed to be 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 investment 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.
Except as to the status of certain Certificates as "mortgage related
securities," no representation is made as to the proper characterization of the
Certificates for legal investment purposes, financial institutions regulatory
purposes, or other purposes, or as to the ability of particular investors to
purchase Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial regulatory characteristics of the
Certificates) may adversely affect the liquidity of the Certificates. 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 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
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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.
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.
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
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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 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, Morgan, Lewis & Bockius LLP, counsel to the Seller, will
deliver its opinion, dated as of the date of such issuance, 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 "qualifying real property loans" under Code Section 593(d)(1)
(relating to the determination of reserves for losses on loans with respect to
certain domestic building and loan associations, mutual savings banks, and
cooperative banks);
o assets described in Code Section 7701(a)(19)(C) (relating to the
qualification of certain corporations, trusts, or associations as real estate
investment trusts); and
o "real estate assets" under Code Section 856(c)(5)(A) (relating to the
classification of certain types of savings or loan associations as domestic
building and loan associations),
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.
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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.
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.
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.
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.
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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 (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
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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 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
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(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.
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
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(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, mid-term or short-term depending on whether the Certificate has
been held for more than eighteen months, more than one year but less than
eighteen months, or one year or less. Such gain or loss will be ordinary income
or loss (i) for a bank or thrift 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 (relating to the disallowance of losses on the sale or dispostion
of certain stock or securities) 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", related to the issuer, within the meaning
of Code Section 871(h)(3)(B) or a controlled foreign corporation, related to the
issuer, 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.
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
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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 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
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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 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.
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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.
TRUST FUND AS GRANTOR TRUST.
Upon issuance of each series of Certificates, Morgan, Lewis & Bockius
LLP, counsel to the Seller, will deliver its opinion, dated as of the date of
such issuance, 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), and assuming the Trust Fund does not constitute a "taxable
mortgage pool" as defined in Section 7701(i) of the Code (relating to the
classification of certain types of entities as taxable mortgage pools), 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 "qualifying real property loans" under Code Section 593(d)(1)
(relating to the determination of reserves for losses on loans with respect to
certain domestic building and loan associations, mutual savings banks,
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<PAGE> 95
and cooperative banks);
o "real estate assets" under Code Section 856(c)(5)(A) (relating to the
qualification of certain corporations, trusts, or associations as real estate
investment trusts); and
o assets described in Section 7701(a)(19)(C) of the Code (relating to
the classification of certain types of savings or loan associations as domestic
building and loan associations),
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.
In general, the provisions of Section 1286 of the Code (the "stripped
bond rules") apply to all or a portion of those Certificates where there has
been a separation of the ownership of the rights to receive some or all of the
principal payments on a Mortgage Loan from the right to receive some or all of
the related interest payments. Certain Non-REMIC Certificates may be subject to
these rules either because they represent specifically the right to receive
designated portions of the interest or principal paid on the Mortgage Loans, or
because the Servicing Fee is determined to be excessive (each, a "Stripped
Certificate").
Each Stripped Certificate will be considered to have been issued with
original issue discount for federal income tax purposes. Original issue discount
with respect to a Stripped Certificate must be included in ordinary income as it
accrues, which may be prior to the receipt of the cash attributable to such
income. For these purposes, under original issue discount regulations, each
Stripped Certificate should be treated as a single installment obligation for
purposes of calculating original issue discount and gain or loss on disposition.
The Internal Revenue Service has indicated that with respect to certain mortgage
loans, original issue discount would be considered zero either if (i) the
original issue discount did not exceed and amount that would be eligible for the
de minimis rule described above under "REMIC Certificates - Income From Regular
Certificates - Original Issue Discount", or (ii) the annual stated rate of
interest on the mortgage loan was not more than 100 basis points lower than on
the loan prior to its being stripped. In either such case the rules described
above under "REMIC Certificates--Income From Regular Certificates--Market
Discount" (including the applicable de minimis rule) would apply with respect to
the mortgage loan.
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. Legislative
proposals which are currently pending would, however, generally require 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 .25% of the stated redemption price at
maturity times the number of full years to maturity, 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
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<PAGE> 96
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, .25%
of the stated redemption price at maturity 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).
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.
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<PAGE> 97
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 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
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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.
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
Substantially all of the net proceeds from the sale of each series of
Certificates will be applied by the Seller to the purchase price of the 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, including certain federal income tax matters, will be passed upon for
the Seller by Morgan, Lewis & Bockius LLP, New York, New York.
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INDEX OF CERTAIN PROSPECTUS DEFINITIONS
Defined Term Page
Accrual Certificates..........................................................8
Act..........................................................................52
Advance Guarantee.............................................................3
Agreement.....................................................................1
ARM Loans.....................................................................2
ARMS..........................................................................2
BankBoston...................................................................18
Bankruptcy Bond..............................................................16
Barnett......................................................................18
BBMC Acquisition.............................................................18
BBMC.........................................................................18
BMC..........................................................................18
Book-Entry Nominee...........................................................47
Buy-Down Fund................................................................11
Buy-Down Mortgage Loans.......................................................2
Buy-Down Reserve.............................................................11
Cash-Out Refinance Loans.....................................................11
Certificate Account...........................................................9
Certificate Interest Rate.....................................................8
Cleanup Costs................................................................36
Code..........................................................................5
Commission................................................................Cover
Compensating Interest Payment................................................18
Current Report...............................................................11
Cut-Off Date..................................................................8
Defective Mortgage Loan......................................................27
Delivery Date.................................................................7
Denomination..................................................................7
Deposit Guarantee.............................................................3
Distribution Date.............................................................8
DOL..........................................................................38
ERISA.........................................................................5
Exchange Act..............................................................Cover
Fund.........................................................................19
Garn-St. Germain Act.........................................................34
GIC..........................................................................16
Guarantor.....................................................................3
HomeSide Holdings............................................................18
HomeSide Lending..........................................................Cover
HomeSide Mortgage Securities..............................................Cover
Insurance Proceeds...........................................................12
Interest Accrual Period.......................................................9
Limited Guarantee.............................................................3
Liquidation Proceeds.........................................................12
Mortgage Loan Schedule.......................................................26
Mortgage Loans............................................................Cover
Mortgage Pool.................................................................1
Mortgage Pool Insurance Policy................................................4
NCUA.........................................................................37
Nonrecoverable Advance.......................................................24
Non-SMMEA Certificates.......................................................36
OID Regulations..............................................................40
OTS..........................................................................35
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Parties In Interest..........................................................38
Plans........................................................................38
Policy Statement.............................................................37
Principal Prepayments.........................................................9
PTE 83-1.....................................................................38
Record Date...................................................................8
Regular Certificates.........................................................39
Relief Act...................................................................35
REMIC.....................................................................Cover
REMIC Regulations............................................................44
Remittance Rate...............................................................2
Representing Party...........................................................26
Reserve Account..............................................................13
Residual Certificates........................................................39
Residual Owners..............................................................44
Seller....................................................................Cover
Senior Certificates..........................................................13
Servicer..................................................................Cover
SMMEA.........................................................................5
Special Hazard Insurance Policy...............................................4
Stripped Bond Rules..........................................................49
Stripped Certificate.........................................................50
Subordinated Certificates....................................................13
Superlien....................................................................36
Title V......................................................................35
Trustee.......................................................................7
Trust Fund................................................................Cover
Underwriters.................................................................52
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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.
<TABLE>
<S> <C>
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
</TABLE>
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 Registrant
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 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).
II-1
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4.1* Form of Pooling and Servicing Agreement for
Senior/Subordinated Securities.
5.1** Opinion of Morgan, Lewis & Bockius LLP regarding the legality
of the securities being registered.
8.1** Opinion of Morgan, Lewis & Bockius LLP regarding certain
federal income tax matters with respect to the securities
being registered.
23.1** Consent of Morgan, Lewis & Bockius LLP (incorporated in
Exhibits 5.1 and 8.1).
24.1** Powers of Attorney (incorporated in Signatures).
- ---------------
* Filed previously
** 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 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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3, 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. 6 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 12th day of November, 1997.
HOMESIDE MORTGAGE SECURITIES, INC.
By: /s/ Joe K. Pickett
----------------------
Joe K. Pickett
Chairman of the Board,
Chief Executive Officer and Director
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 Chairman of the Board, November 12, 1997
- -------------------------- Chief Executive Officer and
Director (Principal Executive
Officer)
/s/ Hugh H. Harris President, Chief Operating November 12, 1997
- -------------------------- Officer and Director
/s/ Kevin D. Race Vice President and November 12, 1997
- -------------------------- Chief Financial Officer
(Principal Accounting Officer
and Principal Financial Officer)
/s/ Robert J. Jacobs Vice President, Secretary and November 12, 1997
- -------------------------- Director
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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 Morgan, Lewis & Bockius LLP regarding the legality of the
securities being registered.
8.1** Opinion of Morgan, Lewis & Bockius LLP regarding certain federal income
tax matters with respect to the securities being registered.
23.1** Consent of Morgan, Lewis & Bockius LLP (incorporated in Exhibits 5.1
and 8.1).
24.1** Powers of Attorney (incorporated in Signatures).
- ---------------
* Filed previously
** Filed herewith
II-4
<PAGE> 1
EXHIBIT 5.1
November 13, 1997
HomeSide Mortgage Securities, Inc.
7301 Baymeadows Way
Jacksonville, Florida 32256
Ladies and Gentlemen:
We have acted as your counsel in connection with Amendment No. 6 to the
Registration Statement on Form S-3 (the "Registration Statement") filed on
November 13, 1997 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:
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
<PAGE> 2
HomeSide Mortgage Securities, Inc.
November 13, 1997
Page 2
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 Sate 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,
MORGAN, LEWIS & BOCKIUS LLP
<PAGE> 1
EXHIBIT 8.1
November 13, 1997
HomeSide Mortgage Securities, Inc.
7301 Batmeadows Way
Jacksonville, Florida 32256
Ladies and Gentlemen:
We have acted as your counsel in connection with Amendment No. 6 to the
Registration Statement on Form S-3 (the "Registration Statement") filed with
the Securities and Exchange Commission on November 13, 1997, 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 "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.
Our opinion is based upon existing federal income tax laws, regulations,
administrative pronouncements and judicial decisions. All such authorities are
subject to change, either prospectively or retroactively. No assurance can be
provided as to the effect of any such change upon our opinion.
The opinion set forth herein has no binding effect. No assurance can be given
that, if the matter were contested, a court would agree with the opinion set
forth herein.
In giving the foregoing opinion, we express no opinion other than as to the
federal income tax law.
<PAGE> 2
HomeSide Mortgage Securities, Inc.
November 13, 1997
Page 2
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 "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,
MORGAN, LEWIS & BOCKIUS LLP
