<PAGE> 1
As filed with the Securities and Exchange Commission on April 9, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HOMESIDE MORTGAGE SECURITIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<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. / /
CALCULATION OF REGISTRATION FEE
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====================================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Per Unit* Aggregate Offering Price* Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pass-Through Certificates............. $750,000,000 100% $750,000,000 $221,250
====================================================================================================================================
</TABLE>
* Estimated solely for the purpose of calculating the registration fee.
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.
PURSUANT TO RULE 429 OF THE GENERAL RULES AND REGULATIONS UNDER THE
SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT ALSO SERVES AS AMENDMENT NO.
7 TO REGISTRATION STATEMENT NO. 33-34957. THE PROSPECTUS AND PROSPECTUS
SUPPLEMENT CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATE TO REGISTRATION
STATEMENT NO. 33-34957.
<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 APRIL 9, 1998
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 .
S-2
<PAGE> 4
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
S-3
<PAGE> 5
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AT ANY TIME DOES NOT IMPLY THAT
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF
ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS SUPPLEMENT IS REQUIRED BY LAW
TO BE DELIVERED, THIS PROSPECTUS SUPPLEMENT WILL BE AMENDED OR SUPPLEMENTED
ACCORDINGLY.
[IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CERTIFICATES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.]
S-4
<PAGE> 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.
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 .
S-5
<PAGE> 7
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.
S-6
<PAGE> 8
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.]
S-7
<PAGE> 9
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.]
S-8
<PAGE> 10
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.
S-9
<PAGE> 11
[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.
S-10
<PAGE> 12
[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."]
See "Federal Income Tax Consequences" herein and
"Federal Income Tax Consequences--REMIC
Certificates" in the Prospectus.]
S-11
<PAGE> 13
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.
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.
S-12
<PAGE> 14
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.
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
S-14
<PAGE> 16
and months as of the Cut-off Date.
The Mortgage Loans are expected to have the following additional
characteristics (by Scheduled Principal Balance of all the Mortgage Loans) as of
the Cut-off Date:
No more than % of such Mortgage Loans will be Mortgage Loans each
having a Scheduled Principal Balance of more than $ .
No more than % of such Mortgage Loans will have a loan-to-value ratio
at origination in excess of %, no more than % of such Mortgage Loans will have a
loan-to-value ratio at origination in excess of %, and none of such Mortgage
Loans will have a loan-to-value ratio at origination in excess of %. As of the
Cut-off Date, the weighted average loan-to-value ratio at origination of such
Mortgage Loans is expected to be between % and %.
No more than % of such Mortgage Loans had a loan-to-value ratio at
origination calculated based on an appraisal conducted more than one year before
the origination date thereof.
[The proceeds of at least % of such Mortgage Loans will have been
used to acquire the related Mortgaged Property. The proceeds of the remainder of
such Mortgage Loans will have been used to refinance an existing loan. No more
than % of such Mortgage Loans will have been "Cash-Out Refinance Loans" (as
defined in the Prospectus).]
[No more than % of such Mortgage Loans will be temporary buy-down
Mortgage Loans. The portion of the interest rate paid by the related Mortgagor
will not increase by more than one percentage point for each six month period.
No Mortgage Rate may exceed the "bought down" rate by more than percentage
points, and no buy-down period will exceed years.]
No more than % of such Mortgage Loans will be secured by Mortgaged
Properties located in any one postal zip code area.
Between % and % of such Mortgage Loans will be secured by Mortgaged
Properties located in . The majority of the Mortgage Loans will be
secured by Mortgaged Properties located 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 Principal
Range of Mortgage Rates Number of Mortgage Loans Principal Balance 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 Principal
State Number of Mortgage Loans Principal Balance 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>
TYPES OF MORTGAGED PROPERTIES
S-16
<PAGE> 18
<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] (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").
S-17
<PAGE> 19
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.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will
S-18
<PAGE> 20
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 Mortgage Loans in the
related Mortgage Pool previously allocated to such Certificate.
S-19
<PAGE> 21
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 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.]
S-20
<PAGE> 22
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.
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
S-21
<PAGE> 23
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 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
S-22
<PAGE> 24
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 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
S-23
<PAGE> 25
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 information set forth in the following table.
S-24
<PAGE> 26
<TABLE>
<CAPTION>
Class Class
---------------------------- ----------------------------
Prepayment Assumption Prepayment Assumption
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Date 0% % % % % % % % % %
- -----------------
Initial Percentage 100 100 100 100 100 100 100 100 100 100
[Annual Distribution
Dates]
Weighted Average
Life (in years)(1)
</TABLE>
<TABLE>
<CAPTION>
Class Class
---------------------------- ----------------------------
Prepayment Assumption Prepayment Assumption
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Date % % % % % % % % % %
- -----------------
Initial Percentage 100 100 100 100 100 100 100 100 100 100
[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-25
<PAGE> 27
<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
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLAR AMOUNTS IN THOUSANDS)
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-26
<PAGE> 28
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-27
<PAGE> 29
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-28
<PAGE> 30
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; --Transfers
of Residual Certificates."]
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<PAGE> 31
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
prohibited transaction exemptions, and whether the conditions of any such
exemption will be applicable to such Certificate.
S-30
<PAGE> 32
[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.
The Seller has agreed to indemnify the Underwriter against, or make
contributions to the Underwriters with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended.]
S-31
<PAGE> 33
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-32
<PAGE> 34
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> 35
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-34
<PAGE> 36
[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-35
<PAGE> 37
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-36
<PAGE> 38
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 APRIL 9, 1998
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
CONTAINED IN THIS PROSPECTUS.
Except as otherwise specifically provided in the applicable
Prospectus Supplement (which may also provide
<PAGE> 39
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> 40
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
reference herein or in such Prospectus Supplement modifies or supersedes such
statement, except to the extent that such
<PAGE> 41
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> 42
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
Correspondent Production ............................................. 20
Co-Issue Production .................................................. 20
Broker Production .................................................... 20
Direct 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
RIGHTS UPON EVENT OF DEFAULT ........................................... 31
i
<PAGE> 43
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 ............................................ 43
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
TAXATION OF CERTIFICATES IF STRIPPED BOND RULES DO NOT APPLY ........... 50
ii
<PAGE> 44
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> 45
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
1
<PAGE> 46
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> 47
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 separately allocated to certain
events. The scope, amount and, if applicable,
the allocation of any Limited Guarantee will be
described in the related Prospectus
3
<PAGE> 48
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
Support--Reserve Accounts" and "--Other
Insurance, Guarantees and Similar Instruments or
Agreements."
4
<PAGE> 49
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".
5
<PAGE> 50
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 likely to
be affected by delinquencies and losses than other Classes of Certificates.
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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 an indirect wholly-owned
subsidiary of HomeSide, Inc. and HomeSide Lending is a wholly-owned subsidiary
of HomeSide Holdings. On February 10, 1998, a wholly-owned subsidiary of
National Australia Bank Ltd. ("NAB") acquired all the outstanding shares of
common stock of HomeSide, Inc. Following the transaction described above, such
subsidiary now owns 100% of HomeSide, Inc.'s common stock and HomeSide, Inc.
became an indirect wholly-owned subsidiary of NAB. 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.
PRODUCTION
HomeSide Lending originates and purchases residential single family
mortgage loans through all major channels including correspondents, 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.
Mortgage loans that HomeSide Lending acquires or originates which
have an original principal amount
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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 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.
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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 the aggregate amount of accrued
interest that the insurer would be obligated to pay upon payment of a claim.
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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
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
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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 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
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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 required to cure such defect or to repurchase the Mortgage
Loan or to provide a substitute Mortgage Loan. See "Repurchase or Substitution"
below.
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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 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
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(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.
CERTAIN MODIFICATIONS AND REFINANCINGS
The Agreement will permit the Servicer to modify any Mortgage Loan
upon the request of the related
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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 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
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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
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
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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 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.
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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
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
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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 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
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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.
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
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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.
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.
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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 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.
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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 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
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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 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
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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 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
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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:
- "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);
- 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
- "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.
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
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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.
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
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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.
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.
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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
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
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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 (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
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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 (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
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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
disposition 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
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.
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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 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."
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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.
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.
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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:
- "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);
- "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
- 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
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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
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
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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.
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
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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 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.
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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 ............................................. 4
Non-SMMEA Certificates ............................................. 36
OID Regulations .................................................... 40
OTS ................................................................ 35
54
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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>
<CAPTION>
<S> <C>
SEC Registration Fee.................................. $221,250
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................................................. $981,250
</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* Form of Underwriting Agreement.
4.1** Form of Pooling and Servicing Agreement for
Senior/Subordinated Securities.
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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 herewith.
** Filed previously as an exhibit to Registration Statement No. 33-34957.
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
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Jacksonville, State of Florida, on the 9th day
of April, 1998.
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
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, April 9, 1998
- ------------------------ Chief Executive Officer and
Director (Principal Executive
Officer)
/s/ Hugh H. Harris President, Chief Operating April 9, 1998
- ------------------------ Officer and Director
/s/ Kevin D. Race Vice President and April 9, 1998
- ------------------------ Chief Financial Officer
(Principal Accounting Officer
and Principal Financial Officer)
/s/ Robert J. Jacobs Vice President, Secretary and April 9, 1998
- ------------------------ Director
II-3
<PAGE> 103
EXHIBIT INDEX
EXHIBIT DESCRIPTION
1.1* Form of Underwriting Agreement.
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 herewith.
** Filed previously as an exhibit to Registration Statement No. 33-34957.
II-4
<PAGE> 1
EXHIBIT 1.1
HOMESIDE MORTGAGE SECURITIES, INC.
PASS-THROUGH CERTIFICATES
UNDERWRITING AGREEMENT
[DATE]
[Underwriter]
[Address]
Ladies and Gentlemen:
HomeSide Mortgage Securities, Inc. (the "Company"), a Delaware
corporation, has authorized the issuance and sale of Pass-Through Certificates
(the "Certificates") evidencing interests in pools of mortgage loans (the
"Mortgage Loans"). The Certificates may be issued in various series, and, within
each series, in one or more classes, and, within each class, in one or more
sub-classes, in one or more offerings on terms determined at the time of sale
(each such series, a "Series" and each such class, a "Class"). Each Series of
the Certificates will be issued under a separate Pooling and Servicing Agreement
(each, a "Pooling and Servicing Agreement") with respect to such Series among
the Company, as depositor, a servicer to be identified in the prospectus
supplement for each such Series (the "Servicer") and a trustee to be identified
in the prospectus supplement for each such Series (the "Trustee"). The
Certificates of each Series will evidence specified interests in separate pools
of Mortgage Loans (each a "Mortgage Pool"), and certain other property held in
trust with respect to such Series (each, a "Trust Fund").
The Certificates are more fully described in a Registration Statement
which the Company has furnished to you. Capitalized terms used but not defined
herein shall have the meanings given to them in the Pooling and Servicing
Agreement. The term "you" as used herein, unless the context otherwise requires,
shall mean you and such persons as are named as co-managers in the applicable
Terms Agreement (defined below).
Whenever the Company determines to make an offering of Certificates
pursuant to this Agreement through you or through an underwriting syndicate
managed by you it will enter into an agreement (the "Terms Agreement") providing
for the sale of such Certificates to, and the purchase and offering thereof by,
you and such other underwriters, if any, selected by you as have authorized you
to enter into such Terms Agreement on their behalf (the "Underwriters,"
<PAGE> 2
which term shall include you whether acting alone in the sale of Certificates or
as a member of an underwriting syndicate. The Terms Agreement relating to each
offering of Certificates shall specify, among other things, the stated balance
or balances of Certificates to be issued, the price or prices at which the
Certificates are to be purchased by the Underwriters from the Company and the
initial public offering price or prices or the method by which the price or
prices at which such Certificates are to be sold will be determined. A Terms
Agreement, which shall be substantially in the form of Exhibit A hereto, may
take the form of an exchange of any standard form of written telecommunication
between you and the Company. Each such offering of Certificates which the
Company elects to make pursuant to this Agreement will be governed by this
Agreement, as supplemented by the applicable Terms Agreement, and this Agreement
and such Terms Agreement shall inure to the benefit of and be binding upon the
Underwriters participating in the offering of such Certificates.
SECTION 1. Representations and Warranties. (a) The Company represents
and warrants to you as of the date hereof, and to the Underwriters named in the
applicable Terms Agreement, all as of the date of such Terms Agreement (in each
case, the "Representation Date"), as follows (any representations and warranties
so made to the Underwriters named in an applicable Terms Agreement respecting
the Certificates being deemed to relate only to the Certificates described
therein):
(1) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3
(No. 333-_____), relating to the offering of Certificates from time
to time in accordance with Rule 415 under the Securities Act of 1933,
as amended (the "1933 Act"), and has filed, and proposes to file,
such amendments thereto as may have been required to the date hereof
and the same has become effective under the 1933 Act and the rules of
the Commission thereunder (the "Regulations") and no stop order
suspending the effectiveness of such registration statement has been
issued and no proceedings for that purpose have been initiated or, to
the Company's knowledge, threatened, by the Commission. Such
registration statement, including incorporated documents, exhibits
and financial statements, as amended at the time when it became
effective under the 1933 Act, and the prospectus relating to the sale
of Certificates by the Company constituting a part thereof, as from
time to time each is amended or supplemented pursuant to the 1933 Act
or otherwise, are referred to herein as the "Registration Statement"
and the "Prospectus," respectively; provided, however, that a
supplement to the Prospectus contemplated by Section 3(a) hereof (a
"Prospectus Supplement") shall be deemed to have supplemented the
Prospectus only with respect to the offering or offerings of
Certificates to which it relates. Any reference herein to the
Registration Statement, a preliminary prospectus, the Prospectus or
the Prospectus Supplement shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of
Form S-3 which were filed under the Securities Exchange Act of 1934,
as amended (the "1934 Act") on or before the date on which the
Registration Statement, as amended, became effective or the issue
date of such preliminary prospectus, Prospectus, or Prospectus
Supplement, as the case may be; and
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<PAGE> 3
any reference herein to the terms "amend," "amendment" or supplement
with respect to the Registration Statement, any preliminary
prospectus, the Prospectus or the Prospectus Supplement shall be
deemed to refer to and include the filing of any document under the
1934 Act after the date on which the Registration Statement became
effective or the issue date of any preliminary prospectus, the
Prospectus or the Prospectus Supplement, as the case may be, deemed
to be incorporated therein by reference. The Registration Statement
and Prospectus, at the time the Registration Statement became
effective did, and as of the applicable Representation Date will,
conform in all material respects to the requirements of the 1933 Act
and the Regulations. The Registration Statement, at the time it
became effective did not, and as of the applicable Representation
Date and the applicable Closing Time (as defined in Section 2 hereof)
will not, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus, as
amended or supplemented as of the applicable Representation Date and
the applicable Closing Time (as defined in Section 2 hereof), will
not contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that the representations and
warranties in this subsection shall not apply to (i) statements in,
or omissions from, the Registration Statement or Prospectus made in
reliance upon and in conformity with information furnished to the
Company in writing by the Underwriters expressly for use in the
Registration Statement or Prospectus or (ii) the [Underwriter]
Information (as defined in Section 10 hereof). The conditions to the
use by the Company of a registration statement on Form S-3 under the
1933 Act, as set forth in the General Instructions to Form S-3, have
been satisfied with respect to the Registration Statement and the
Prospectus. There are no contracts or documents of the Company which
are required to be described in the Registration Statement or
Prospectus or filed as exhibits to the Registration Statement
pursuant to the 1933 Act or the Regulations which have not been so
described or filed.
(2) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware with corporate power and authority to enter into
and perform its obligations under this Agreement, the applicable
Pooling and Servicing Agreement, and with respect to a Series of
Certificates, the Certificates and the applicable Terms Agreement;
and the Company is duly qualified or registered as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which the ownership or lease of its properties or the
conduct of its business requires such qualification.
(3) The Company is not in violation of its certificate of
incorporation or by-laws or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any material contract, indenture, mortgage,
loan agreement, note, lease or other material instrument to which it
is a party or by which it or its properties may be bound, which
default might result in any material adverse
-3-
<PAGE> 4
change in the financial condition, earnings, affairs or business of
the Company or which might materially and adversely affect the
properties or assets thereof or the Company's ability to perform its
obligations under this Agreement, the applicable Terms Agreement or
the applicable Pooling and Servicing Agreement.
(4) The execution and delivery by the Company of this
Agreement, the applicable Terms Agreement and the applicable Pooling
and Servicing Agreement and the signing of the Registration Statement
by the Company are within the corporate power of the Company and have
been duly authorized by all necessary corporate action on the part of
the Company; and with respect to a Series of Certificates described
in the applicable Terms Agreement, neither the issuance and sale of
the Certificates to the Underwriters, nor the execution and delivery
by the Company of this Agreement, such Terms Agreement and the
related Pooling and Servicing Agreement, nor the consummation by the
Company of the transactions herein or therein contemplated, nor
compliance by the Company with the provisions hereof or thereof, will
conflict with or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company other than as contemplated by a
Pooling and Servicing Agreement, pursuant to any material indenture,
mortgage, contract or other material instrument to which the Company
is a party or by which it is bound or to which the property or assets
of the Company are subject, or result in the violation of the
provisions of the certificate of incorporation or by-laws of the
Company or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company
or any of its properties.
(5) This Agreement has been, and each applicable Terms
Agreement when executed and delivered as contemplated hereby and
thereby will have been, duly authorized, executed and delivered by
the Company, and each constitutes, or will constitute when so
executed and delivered, a legal, valid and binding instrument
enforceable against the Company in accordance with its terms
(assuming due authorization, execution and delivery by the other
parties thereto), subject (a) to applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting
creditors' rights generally, (b) as to enforceability to general
principles of equity (regardless of whether enforcement is sought in
a proceeding in equity or at law) and (c) as to enforceability with
respect to rights of indemnity thereunder, to limitations of public
policy under applicable securities laws.
(6) Each applicable Pooling and Servicing Agreement when
executed and delivered as contemplated hereby and thereby will have
been duly authorized, executed and delivered by the Company, and will
constitute when so executed and delivered, a legal, valid and binding
instrument enforceable against the Company in accordance with its
terms (assuming due authorization, execution and delivery by the
other parties thereto), subject (a) to applicable bankruptcy,
insolvency, reorganization, moratorium or
-4-
<PAGE> 5
other similar laws affecting creditors' rights generally and (b) as
to enforceability to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law);
and as of the Closing Date, the representations and warranties made
by the Company in the applicable Pooling and Servicing Agreement will
be true and correct as of the date made.
(7) As of the Closing Time (as defined in Section 2 hereof)
with respect to a Series of Certificates, the Certificates will have
been duly and validly authorized by the Company, and, when executed
and authenticated as specified in the related Pooling and Servicing
Agreement, will be validly issued and outstanding and will be
entitled to the benefits of the related Pooling and Servicing
Agreement, and the Classes of Certificates so designated in the
related Prospectus Supplement will be "mortgage related securities,"
as defined in Section 3(a)(41) of the 1934 Act.
(8) There are no actions, proceedings or investigations now
pending against the Company or, to the knowledge of the Company,
threatened against the Company, before any court, administrative
agency or other tribunal (i) asserting the invalidity of this
Agreement, the applicable Terms Agreement, the applicable Pooling and
Servicing Agreement or with respect to a Series of Certificates, the
Certificates, (ii) seeking to prevent the issuance of such
Certificates or the consummation of any of the transactions
contemplated by this Agreement, the applicable Terms Agreement or
such Pooling and Servicing Agreement, (iii) which would be likely to
materially and adversely affect the performance by the Company of its
obligations under, or which would if adversely determined materially
and adversely affect the validity or enforceability of, this
Agreement, the applicable Terms Agreement, such Pooling and Servicing
Agreement or such Certificates or (iv) seeking to adversely affect
the federal income tax attributes of such Certificates described in
the Prospectus and the related Prospectus Supplement.
(9) Any taxes, fees and other governmental charges that are
assessed and due in connection with the execution, delivery and
issuance of this Agreement, the applicable Terms Agreement, the
applicable Pooling and Servicing Agreement and with respect to a
Series of Certificates shall have been paid at or prior to the
Closing Time.
(10) No filing or registration with, notice to or consent,
approval, authorization, order or qualification of or with any court
or governmental agency or body is required for the issuance and sale
of the Certificates or the consummation by the Company of the
transactions contemplated by this Agreement, the applicable Pooling
and Servicing Agreement or the applicable Terms Agreement, except the
registration under the 1933 Act of the Certificates, and such
consents, approvals, authorizations, registrations or qualifications
as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Certificates by
the Underwriters.
-5-
<PAGE> 6
(11) The Company possesses all material licenses,
certificates, authorities or permits issued by the appropriate state,
federal or foreign regulatory agencies or bodies deemed by the
Company to be reasonably necessary to conduct the business now
operated by it and as described in the Prospectus and the Company has
received no notice of proceedings relating to the revocation or
modification of any such license, certificate, authority or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially and adversely affect
the conduct of the business, operations, financial condition or
income of the Company.
(12) No litigation is pending or, to the best of the
Company's knowledge, threatened, against the Company which would
prohibit the Company's entering into this Agreement or the applicable
Pooling and Servicing Agreement.
(13) As of the Closing Time, with respect to a Series of
Certificates described in the relevant Terms Agreement evidencing
interests in a Mortgage Pool, the Trustee will have either good and
marketable title, free and clear of all prior liens, charges,
pledges, mortgages, security interests and encumbrances, to or a
validly perfected first priority security interest in the Mortgage
Notes and the related Mortgages included in the Trust Fund, with
respect to (a) the Mortgage Notes, upon delivery thereof to the
Trustee and (b) the Mortgages, upon delivery to the Trustee of
instruments of assignment in recordable form assigning each Mortgage
to the Trustee and the recording of each such instrument of
assignment in the appropriate recording office in which the Mortgaged
Property is located, or if supported by an opinion of counsel,
without recording.
(14) As of the Closing Time, with respect to a Series of
Certificates as to which there is a Reserve Fund, to the extent that
the Reserve Fund does not constitute part of the Trust Fund for such
Series, the Trustee will have acquired either good and marketable
title to or a duly and validly perfected security interest in the
Reserve Fund with respect to such Series, if any, subject to no prior
lien, mortgage, security interest, pledge, charge or other
encumbrance.
(15) As of the Closing Time, with respect to a Series of
Certificates, the Mortgage Pool will have substantially the
characteristics described in the Prospectus Supplement and in the
Form 8-K of the Company prepared with respect to such Certificates,
if the Mortgage Pool is described in such Form 8-K.
(16) Neither the Company nor the Trust Fund created by the
applicable Pooling and Servicing Agreement will be subject to
registration as an "investment company" under the Investment Company
Act of 1940, as amended (the "1940 Act").
(17) The Certificates, the applicable Pooling and
Servicing Agreement, the applicable Terms Agreement and any Primary
Insurance Policies, Mortgage Pool Insurance Policies, Standard Hazard
Insurance Policies, Special Hazard Insurance
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<PAGE> 7
Policies, Mortgagor Bankruptcy Insurance and Alternate Credit
Enhancement related to the Certificates described in the relevant
Terms Agreement conform in all material respects to the descriptions
thereof contained in the Prospectus.
(18) As of the Closing Time, the Mortgage Loans will have
been duly and validly assigned and delivered by the Company to the
Trustee under the related Pooling and Servicing Agreement.
(19) As of the Closing Time, the representations and
warranties of the Company contained in the applicable Pooling and
Servicing Agreement are true and correct in all material respects.
(b) HomeSide Lending, Inc. ("HomeSide") represents and warrants to
you as of the date hereof, and to the Underwriters named in the applicable Terms
Agreement, all as of the date of such Terms Agreement (in each case, the
"Representation Date"), as follows (any representations and warranties so made
to the Underwriters named in an applicable Terms Agreement respecting the
Certificates being deemed to relate only to the Certificates described therein):
(1) HomeSide has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Florida with corporate power and authority to enter into and
perform its obligations under this Agreement, the applicable Pooling
and Servicing Agreement, and with respect to a Series of
Certificates, the applicable Terms Agreement; and HomeSide is duly
qualified or registered as a foreign corporation to transact business
and is in good standing in each jurisdiction in which the ownership
or lease of its properties or the conduct of its business requires
such qualification.
(2) HomeSide is not in violation of its certificate of
incorporation or by-laws or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any material contract, indenture, mortgage,
loan agreement, note, lease or other material instrument to which it
is a party or by which it or its properties may be bound, which
default might result in any material adverse change in the financial
condition, earnings, affairs or business of HomeSide or which might
materially and adversely affect the properties or assets thereof or
HomeSide's ability to perform its obligations under this Agreement,
the applicable Terms Agreement or the applicable Pooling and
Servicing Agreement.
(3) The execution and delivery by HomeSide of this
Agreement, the applicable Terms Agreement and the applicable Pooling
and Servicing Agreement are within the corporate power of HomeSide
and have been duly authorized by all necessary corporate action on
the part of HomeSide; and with respect to a Series of Certificates
described in the applicable Terms Agreement, neither the execution
and delivery by
-7-
<PAGE> 8
HomeSide of this Agreement, such Terms Agreement and the related
Pooling and Servicing Agreement, nor the consummation by HomeSide of
the transactions herein or therein contemplated, nor compliance by
HomeSide with the provisions hereof or thereof, will conflict with or
result in a breach or violation of any of the terms or provisions of,
or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of HomeSide other than as contemplated by a Pooling and
Servicing Agreement, pursuant to any material indenture, mortgage,
contract or other material instrument to which HomeSide is a party or
by which it is bound or to which the property or assets of HomeSide
are subject, or result in the violation of the provisions of the
certificate of incorporation or by-laws of HomeSide or any statute or
any order, rule or regulation of any court or governmental agency or
body having jurisdiction over HomeSide or any of its properties.
(4) This Agreement has been, and each applicable Terms
Agreement when executed and delivered as contemplated hereby and
thereby will have been, duly authorized, executed and delivered by
HomeSide, and each constitutes, or will constitute when so executed
and delivered, a legal, valid and binding instrument enforceable
against HomeSide in accordance with its terms (assuming due
authorization, execution and delivery by the other parties thereto),
subject (a) to applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting creditors' rights
generally, (b) as to enforceability to general principles of equity
(regardless of whether enforcement is sought in a proceeding in
equity or at law) and (c) as to enforceability with respect to rights
of indemnity thereunder, to limitations of public policy under
applicable securities laws.
(5) Each applicable Pooling and Servicing Agreement when
executed and delivered as contemplated hereby and thereby will have
been duly authorized, executed and delivered by HomeSide, and will
constitute when so executed and delivered, a legal, valid and binding
instrument enforceable against HomeSide in accordance with its terms
(assuming due authorization, execution and delivery by the other
parties thereto), subject (a) to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and (b) as to enforceability to general principles
of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law); and as of the Closing Date, the
representations and warranties made by HomeSide in the applicable
Pooling and Servicing Agreement will be true and correct as of the
date made.
(6) There are no actions, proceedings or investigations now
pending against HomeSide or, to the knowledge of HomeSide, threatened
against HomeSide, before any court, administrative agency or other
tribunal (i) asserting the invalidity of this Agreement, the
applicable Terms Agreement or the applicable Pooling and Servicing
Agreement, (ii) seeking to prevent the issuance of such Certificates
or the consummation of any of the transactions contemplated by this
Agreement, the applicable Terms
-8-
<PAGE> 9
Agreement or such Pooling and Servicing Agreement, (iii) which would
be likely to materially and adversely affect the performance by
HomeSide of its obligations under, or which would if adversely
determined materially and adversely affect the validity or
enforceability of, this Agreement, the applicable Terms Agreement,
such Pooling and Servicing Agreement or such Certificates or (iv)
seeking to adversely affect the federal income tax attributes of such
Certificates described in the Prospectus and the related Prospectus
Supplement.
SECTION 2. Purchase and Sale. The commitment of each Underwriter to
purchase Certificates pursuant to any Terms Agreement shall be several and not
joint and shall be deemed to have been made on the basis of the representations
and warranties herein contained and shall be subject to the terms and conditions
herein set forth.
Payment of the purchase price for, and delivery of, any Certificates
to be purchased by the Underwriters shall be made at the offices of Morgan,
Lewis & Bockius LLP, New York, New York, or at such other place as shall be
agreed upon by you and the Company, at such time or date as shall be agreed upon
by you and the Company in the Terms Agreement (each such time and date being
referred to as a "Closing Time"). Unless otherwise specified in the applicable
Terms Agreement, payment shall be made to the Company in immediately available
Federal funds wired to such bank as may be designated by the Company. Such
Certificates shall be in such denominations and registered in such names as you
may request in writing at least two business days prior to the applicable
Closing Time. Such Certificates will be made available for examination and
packaging by you no later than 12:00 noon on the first business day prior to the
applicable Closing Time.
It is understood that the Underwriters intend to offer the
Certificates for sale to the public as set forth in the Prospectus Supplement.
SECTION 3. Covenants of the Company. The Company covenants with each
of you and each Underwriter participating in an offering of Certificates
pursuant to a Terms Agreement, with respect to such Certificates and such
offering, as follows:
(a) Immediately following the execution of each Terms
Agreement, the Company will prepare a Prospectus Supplement setting
forth the principal amount of Certificates covered thereby, the price
or prices at which the Certificates are to be purchased by the
Underwriters, either the initial public offering price or prices or
the method by which the price or prices by which the Certificates are
to be sold will be determined, the selling concession(s) and
reallowance(s), if any, any delayed delivery arrangements, and such
other information as you and the Company deem appropriate in
connection with the offering of the Certificates. The Company will
furnish you a copy of the Prospectus Supplement for your review prior
to filing such Prospectus Supplement with the Commission. Thereafter,
the Company will promptly transmit copies of the Prospectus
Supplement to the Commission for filing pursuant to Rule 424 under
the 1933
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<PAGE> 10
Act and will furnish to the Underwriters as many copies of the
Prospectus and such Prospectus Supplement as you shall reasonably
request.
(b) If the delivery of a prospectus is required at any time
in connection with the offering or sale of the Certificates described
in the relevant Terms Agreement and if at such time any event shall
have occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made when such Prospectus is delivered, not misleading, or,
if for any other reason it shall be necessary during such period of
time to amend or supplement the Prospectus in order to comply with
the 1933 Act, the Company agrees to notify you promptly and upon your
request so to amend or supplement the Prospectus and to prepare and
furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably
request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such
compliance.
(c) During any period in which the delivery of a prospectus
is required at any time in connection with the offering or sale of
the Certificates described in the relevant Terms Agreement the
Company will give you reasonable notice of its intention to file any
amendment to the Registration Statement or any amendment or
supplement to the Prospectus, whether pursuant to the 1933 Act or
otherwise, and will furnish you with copies of any such amendment or
supplement or other documents proposed to be filed a reasonable time
in advance of filing.
(d) During any period in which the delivery of a prospectus
is required at any time in connection with the offering or sale of
the Certificates described in the relevant Terms Agreement the
Company will notify you promptly (i) of the effectiveness of any
amendment to the Registration Statement, (ii) of the mailing or the
delivery to the Commission for filing of any supplement to the
Prospectus or any document other than quarterly and annual reports to
be filed pursuant to the 1934 Act, (iii) of the receipt of any
comments from the Commission with respect to the Registration
Statement, the Prospectus or any Prospectus Supplement, (iv) of any
request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to the Prospectus or for
additional information, (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification of
the Certificates for sale in any jurisdiction or the threat of any
proceeding for that purpose and (vi) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that
purpose. The Company will use its best efforts to prevent the
issuance of any such stop order and, if any stop order is issued, to
obtain the lifting thereof as soon as possible.
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<PAGE> 11
(e) The Company agrees, so long as the Certificates shall
be outstanding, or until such time as you shall cease to maintain a
secondary market in the Certificates, whichever first occurs, to
deliver to you the annual statement as to compliance delivered to the
Trustee pursuant to Section 5.25 of the applicable Pooling and
Servicing Agreement and the annual statement of a firm of independent
public accountants furnished to the Trustee pursuant to Section 5.26
of the applicable Pooling and Servicing Agreement, as soon as such
statements are furnished to the Company.
(f) The Company will deliver to you as many conformed
copies of the Registration Statement (as originally filed) and of
each amendment thereto (including exhibits filed therewith or
incorporated by reference therein and documents incorporated by
reference in the Prospectus) as you may reasonably request.
(g) The Company will endeavor, in cooperation with you, to
qualify the Certificates for offering and sale under the applicable
securities laws of such states and other jurisdictions of the United
States as you may designate, and will maintain or cause to be
maintained such qualifications in effect for as long as may be
required for the distribution of the Certificates, provided that in
connection therewith the Company shall not be required to qualify as
a foreign corporation or to file a general consent to service of
process in any jurisdiction. The Company will file or cause the
filing of such statements and reports as may be required by the laws
of each jurisdiction in which the Certificates have been qualified as
above provided.
SECTION 4. Conditions of Underwriters' Obligations. The obligations
of the Underwriters to purchase Certificates pursuant to any Terms Agreement
shall be subject to the accuracy of the representations and warranties on the
part of the Company herein contained, to the accuracy of the statements of the
Company's officers made pursuant hereto, to the performance by the Company of
all of its obligations hereunder and to the following additional conditions
precedent:
(a) At the applicable Closing Time (i) no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
initiated or threatened by the Commission and the Prospectus
Supplement shall have been filed or transmitted for filing by means
reasonably calculated to result in filing with the Commission not
later than the time required by Rule 424(b) under the 1933 Act, (ii)
the Certificates shall have received the rating or ratings specified
in the applicable Terms Agreement, and (iii) there shall not have
come to your attention any facts that would cause you to believe that
the Prospectus, together with the applicable Prospectus Supplement at
the time it was required to be delivered to a purchaser of the
Certificates, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances existing at such
time, not misleading. No challenge by the Commission shall have been
made to the accuracy or adequacy of the Registration
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<PAGE> 12
Statement and any request of the Commission for inclusion of
additional information in the Registration Statement or the
Prospectus or the Prospectus Supplement shall have been complied with
and the Company shall not have filed with the Commission any
amendment or supplement to the Registration Statement, the Prospectus
or the Prospectus Supplement without the consent of the Underwriters.
(b) At the applicable Closing Time you shall have received:
(1) The opinion, dated as of the applicable
Closing Time, of Morgan, Lewis & Bockius LLP, counsel for the
Company, in form and substance satisfactory to such of you as may be
named in the applicable Terms Agreement, to the effect that:
(i) The Company is validly existing as a
corporation in good standing under the laws of the State of
Delaware.
(ii) This Agreement and the applicable Terms
Agreement have been duly authorized, executed and delivered
by the Company, and each is a valid and binding obligation
of the Company enforceable against the Company in
accordance with its terms, except that (A) such enforcement
may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally, (B) the remedy of
specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and
to the discretion of the court before which any proceeding
therefor may be brought, and (C) the enforceability as to
rights to indemnity thereunder may be subject to
limitations of public policy under applicable securities
laws.
(iii) The applicable Pooling and Servicing
Agreement has been duly authorized, executed and delivered
by the Company, and is a legal, valid and binding
obligation of the Company enforceable against the Company
in accordance with its terms, except that (A) such
enforceability thereof may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors'
rights generally and (B) the remedy of specific performance
and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.
(iv) The execution and delivery by the Company of
this Agreement, the applicable Terms Agreement and
applicable Pooling and Servicing Agreement and the signing
of the Registration Statement by the Company are within the
corporate power of the Company and have been duly
authorized by all necessary corporate action on the part of
the Company; and neither the issue and sale of the
Certificates nor the consummation of the transactions
contemplated herein or
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<PAGE> 13
therein nor the fulfillment of the terms hereof or thereof
will, conflict with or constitute a breach or violation of
any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the
Company pursuant to, any contract, indenture, mortgage, or
other instrument to which the Company is a party or by
which it may be bound of which such counsel is aware, other
than the lien or liens created by the applicable Pooling
and Servicing Agreement, nor will such action result in any
violation of the provisions of the certificate of
incorporation or by-laws of the Company or, any statute,
rule or regulation to which the Company is subject or by
which it is bound or any writ, injunction or decree of any
court, governmental authority or regulatory body to which
it is subject or by which it is bound of which such counsel
is aware.
(v) The Certificates have been duly authorized
and, when executed and authenticated as specified in the
related Pooling and Servicing Agreement and delivered and
paid for, will be validly issued, fully paid, nonassessable
and entitled to the benefits of the related Pooling and
Servicing Agreement.
(vi) Assuming strict compliance by the
Underwriters with the provisions of this Agreement, no
filing or registration with or notice to or consent,
approval, authorization, order or qualification of or with
any court or governmental agency or body is required for
the issuance and sale of the Certificates or the
consummation by the Company of the transactions
contemplated by this Agreement, the applicable Pooling and
Servicing Agreement or the applicable Terms Agreement,
except the registration under the 1933 Act of the
Certificates, and such consents, approvals, authorizations,
registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the
purchase and distribution of the Certificates by the
Underwriters.
(vii) Other than as may be set forth or
contemplated in the Prospectus, there is no action, suit or
proceeding of which such counsel is aware before or by any
court or governmental agency or body, domestic or foreign,
now pending or, to the best of such counsel's knowledge,
threatened against the Company which might result in any
material adverse change in the financial condition,
earnings, affairs or business of the Company, or which
might materially and adversely affect the properties or
assets thereof or might materially and adversely affect the
performance by the Company of its obligations under, or the
validity or enforceability of, the Certificates, this
Agreement or the Pooling and Servicing Agreement, or which
is required to be disclosed in the Registration Statement.
(viii) The Registration Statement is effective
under the 1933 Act and, to the best of such counsel's
knowledge, no stop order suspending the effectiveness
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<PAGE> 14
of the Registration Statement has been issued under the
1933 Act or proceedings therefor initiated or threatened by
the Commission.
(ix) The applicable Pooling and Servicing
Agreement is not required to be qualified under the Trust
Indenture Act of 1939, as amended.
(x) The Registration Statement and the Prospectus
(other than the financial statements and other financial
and statistical information included therein, as to which
no opinion need be rendered) as of their respective
effective or issue dates, complied as to form in all
material respects with the requirements of the 1933 Act and
the Regulations thereunder.
(xi) (A) The statements in the Prospectus under
the headings "ERISA Considerations" and "Federal Income Tax
Consequences" and the statements in the applicable
Prospectus Supplement under the headings "Federal Income
Tax Considerations" and "ERISA Considerations", to the
extent that they describe matters of United States federal
income tax law or ERISA or legal conclusions with respect
thereto, have been prepared or reviewed by such counsel and
are accurate in all material respects and (B) the
statements in the Prospectus under the heading "Certain
Legal Aspects of the Mortgage Loans," to the extent they
constitute matters of United States federal law or legal
conclusions with respect thereto, while not purporting to
discuss all possible consequences of investment in the
Certificates, are accurate in all material respects with
respect to those consequences or matters discussed therein.
(xii) The statements in the Prospectus and the
applicable Prospectus Supplement under the caption
"Description of the Certificates", insofar as they purport
to summarize certain terms of the Certificates and the
applicable Pooling and Servicing Agreement, constitute a
fair summary of the provisions purported to be summarized.
(xiii) The Trust Fund created by the applicable
Pooling and Servicing Agreement is not, and will not as a
result of the offer and sale of the Certificates as
contemplated in the Prospectus and in this Agreement
become, an "investment company" required to be registered
under the 1940 Act.
(xiv) The Classes of Certificates so designated
in the Prospectus Supplement will be "mortgage related
securities", as defined in Section 3(a)(41) of the 1934
Act, so long as the Certificates are rated in one of the
two highest grades by at least one nationally recognized
statistical rating organization.
(xv) If a REMIC election is to be made with
respect to the Trust Fund, assuming (a) ongoing compliance
with all of the provisions of the Pooling and
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<PAGE> 15
Servicing Agreement and (b) the filing of an election, in
accordance with the Pooling and Servicing Agreement, to be
treated as a "real estate mortgage investment conduit" (a
"REMIC") pursuant to Section 860D of the Internal Revenue
Code of 1986, as amended (the "Code") for Federal income
tax purposes, the Trust Fund will qualify as a REMIC as of
the Closing Date and will continue to qualify as a REMIC
for so long as it complies with amendments after the date
hereof to any applicable provisions of the Code and
applicable Treasury Regulations.
(xvi) Assuming that the Trust Fund is treated as
a REMIC for Federal income tax purposes, it will not be
subject as an entity to any tax imposed on income,
franchises or capital stock by Chapter 60 of the
Consolidated Laws of New York.
Such counsel shall deliver to you such additional opinions addressing
the transfer by the Company to the Trustee of its right, title and interest in
and to the Mortgage Loans and other property included in the Trust Fund at the
Closing Time as may be required by each Rating Agency rating the Certificates.
Such counsel shall state that it has participated in conferences with
officers and other representatives of the Company, your counsel, representatives
of the independent accountants for the Company and you at which the contents of
the Registration Statement and the Prospectus and related matters were discussed
and, although such counsel is not passing upon and does not assume
responsibility for, the factual accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus (except as
stated in paragraphs (xi) and (xii) above) and has made no independent check or
verification thereof for the purpose of rendering its opinion, on the basis of
the foregoing, nothing has come to their attention that leads such counsel to
believe that either the Registration Statement, at the time it became effective
and at the applicable Closing Time, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or that the Prospectus
contained or contains as of the date thereof and at the applicable Closing Time
any untrue statement of a material fact or omitted or omits to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that such counsel need
express no view with respect to the financial statements, schedules and other
financial and statistical data included in or incorporated by reference into the
Registration Statement, the Prospectus or the Prospectus Supplement.
Such counsel may state that their opinions relate only to laws of the
State of New York, the Federal laws of the United States and the General
Corporation Law of the State of Delaware.
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<PAGE> 16
In rendering such opinions, such counsel may rely, as to matters of
fact, to the extent deemed proper and stated therein, on certificates of
responsible officers of the Company, the Trustee or public officials.
(2) The favorable opinion of counsel to the
Trustee, dated as of the applicable Closing Time, addressed
to you and in form and scope satisfactory to your counsel,
to the effect that:
(i) The Trustee is a __________, duly
organized and validly existing in good standing under the
laws of the __________, and has all requisite power and
authority to enter into the Pooling and Servicing Agreement
and to perform its obligations thereunder.
(ii) To the knowledge of such counsel, there
is no action, suit, proceeding or investigation pending or
threatened against the Trustee that could materially
adversely affect the ability of the Trustee to perform its
obligations under the Pooling and Servicing Agreement.
(iii) The Trustee has duly authorized,
executed and delivered the applicable Pooling and
Servicing Agreement and such Pooling and Servicing
Agreement will constitute the legal, valid and binding
obligation of the Trustee.
(iv) The Trustee has full power and authority
to execute and deliver the applicable Pooling and
Servicing Agreement and to perform its obligations
thereunder.
(v) No consent, approval or authorization of,
or registration, declaration or filing with, any court or
governmental agency or body of the jurisdiction of its
organization is required for the execution, delivery or
performance by the Trustee of the Pooling and Servicing
Agreement.
(vi) The Certificates have been duly and
validly executed, authenticated and delivered by the
Trustee in accordance with the Pooling and Servicing
Agreement.
(vii) The performance by the Trustee of its
duties pursuant to the Pooling and Servicing Agreement
does not conflict with or result in a breach or violation
of any term or provision of, or constitute a default
under, any statute or regulation currently governing the
Trustee.
In rendering such opinion, such counsel may rely, as to
matters of fact, to the extent deemed proper and stated therein, on certificates
of responsible officers of the Trustee or public officials.
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<PAGE> 17
(3) The favorable opinion of counsel to the Servicer,
dated as of the applicable Closing Time, addressed to you and in form
and scope satisfactory to your counsel, to the effect that:
(i) The Servicer is validly existing as a corporation
in good standing under the laws of the jurisdiction of its
incorporation.
(ii) The execution and delivery by the Servicer of
this Agreement and the applicable Pooling and Servicing Agreement is
within the corporate power of the Servicer and has been duly
authorized by all necessary corporate action on the part of the
Servicer; and to the knowledge of such counsel, neither the execution
and delivery of either such instrument, nor the consummation of the
transactions provided for therein, nor compliance with the provisions
thereof, will conflict with or constitute a breach of, or default
under, any contract, indenture, mortgage, loan agreement, note,
lease, deed of trust, or other instrument to which the Servicer is a
party or by which it may be bound, nor will such action result in any
violation of the provisions of the charter or by-laws of the Servicer
or to the knowledge of such counsel, any law, administrative
regulation or administrative or court decree.
(iii) This Agreement and the applicable Pooling and
Servicing Agreement have been duly executed and delivered by the
Servicer and each constitutes a legal, valid and binding obligation
of the Servicer enforceable against the Servicer in accordance with
its terms, except that such enforceability thereof may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and subject,
as to enforceability, to general principles of equity (regardless
whether enforcement is sought in a proceeding in equity or at law).
(iv) To the knowledge of such counsel, the execution,
delivery and performance by the Servicer of this Agreement and the
applicable Pooling and Servicing Agreement do not require the consent
or approval of, the giving of notice to, the registration with, or
the taking of any other action in respect of any federal, state or
other governmental agency or authority which has not previously been
effected.
(v) To the knowledge of such counsel, there is no
action, suit or proceeding of which such counsel is aware before or
by any court or governmental agency or body, domestic or foreign, now
pending or threatened against the Servicer which might materially and
adversely affect the performance by the Servicer under, or the
validity or enforceability of, this Agreement or the applicable
Pooling and Servicing Agreement.
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<PAGE> 18
(vi) The description of the Servicer in the applicable
Prospectus Supplement is true and correct in all material respects.
(4) The favorable opinion or opinions, dated as of the
applicable Closing Time, of counsel for the Underwriters, acceptable
to the Underwriters.
(c) At the applicable Closing Time you shall have received a
certificate of the President or a Vice President and the Treasurer or the
Secretary of each of the Company and HomeSide, dated as of such Closing
Time, to the effect that the representations and warranties of the Company
or HomeSide, as the case may be, contained in Section 1 are true and
correct with the same force and effect as though such Closing Time were a
Representation Date and that the Company or HomeSide, as the case may be,
has complied with all agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the Closing Time.
(d) You shall have received from Arthur Andersen, KPMG Peat Marwick,
or other independent certified public accountants acceptable to you,
letters, dated as of the date of the applicable Terms Agreement and as of
the applicable Closing Time, delivered at such times, in the form and
substance reasonably satisfactory to you.
(e) At the applicable Closing Time, with respect to a Series of
Certificates, each of the representations and warranties of the Servicer
set forth in the related Pooling and Servicing Agreement will be true and
correct and you shall have received a Certificate of an Executive Vice
President, Senior Vice President or Vice President of the Servicer, dated
as of such Closing Time, to such effect.
(f) At the applicable Closing Time, with respect to a Series of
Certificates, the Certificates shall have received the certificate rating
or ratings specified in the related Terms Agreement.
(g) At the applicable Closing Time, counsel for the Underwriters
shall have been furnished with such other documents and opinions as they
may reasonably require for the purpose of enabling them to pass upon the
issuance and sale of the Certificates as herein contemplated and related
proceedings or in order to evidence the accuracy and completeness of any of
the representations and warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Certificates as herein
contemplated shall be reasonably satisfactory in form and substance to you
and counsel for the Underwriters.
If any condition specified in this Section shall not have been fulfilled
when and as required to be fulfilled or, if any of the opinions and certificates
required hereby shall not be in all material respects reasonably satisfactory to
you and your counsel, the applicable Terms Agreement may be terminated by you by
notice to the Company at any time at or prior to the
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<PAGE> 19
applicable Closing Time, and such termination shall be without liability of any
party to any other party except as provided in Section 5.
SECTION 5. Payment of Expenses. [Describe arrangement for the
payment of expenses.]
SECTION 6. Indemnification.
(a) The Company and HomeSide, jointly and severally, will
indemnify and hold harmless the Underwriters and each person, if any,
who controls the Underwriters within the meaning of the 1933 Act,
against any losses, claims, damages, expenses or liabilities, joint or
several, to which such Underwriter or such controlling person may
become subject, under the 1933 Act or otherwise, insofar as such
losses, claims, damages, expenses or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto), or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading
in each case in respect of the relevant Certificates, and will
reimburse each such indemnified party for any legal or other expenses
reasonably incurred by it in connection with investigating or defending
any such action or claim; provided, however, that the Company shall not
be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in any
such document in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the
Underwriters expressly for use therein. This indemnity agreement will
be in addition to any liability which the Company may otherwise have.
(b) The Underwriters, severally and not jointly, will
indemnify and hold harmless the Company, each of its officers who
signed the Registration Statement, its directors, and any person
controlling the Company within the meaning of the 1933 Act against any
losses, claims, damages, expenses or liabilities to which the Company
or any such officer, director or controlling person may become subject,
under the 1933 Act or otherwise, insofar as such losses, claims,
damages, expenses or liabilities (or actions in respect thereof) arise
out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement
(or any amendment thereto) or the Prospectus (or any amendment or
supplement thereto), or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written
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<PAGE> 20
information furnished to the Company by or on behalf of the
Underwriters expressly for use therein and will reimburse the Company
or any such director, officer or controlling person for any legal or
other expenses reasonably incurred by the Company, any such officer,
director or controlling person in connection with investigating or
defending any such action or claim. This indemnity agreement is in
addition to any liability which the Underwriters may otherwise have.
The Company acknowledges that, unless otherwise set forth in the
applicable Terms Agreement, the statements set forth in the last
paragraph of the cover page, the first and second sentences of the
third paragraph under the caption "Underwriting" and in the first
paragraph on page S-4 relating to [Underwriter's] intention to create a
secondary market, each as included in the applicable Prospectus
Supplement relating to a Series of Certificates, together with the
[Underwriter] Information (as defined in Section 10 hereof) relating to
a Series of Certificates constitute the only information furnished in
writing by or on behalf of the Underwriters expressly for use in the
Registration Statement relating to such Series of Certificates as
originally filed or in any amendment thereof, any related preliminary
prospectus or the Prospectus or in any amendment thereof or supplement
thereto, as the case may be.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against an
indemnifying party under this Section, notify such indemnifying party
in writing of the commencement thereof; but the omission so to notify
the indemnifying party shall not relieve it from any liability which it
may have to any indemnified party otherwise than under this Section. In
case any such action shall be brought against any indemnified party and
it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying
party); and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under
this Section for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party,
in connection with the defense thereof other than reasonable costs of
investigation. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any
such case and the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel
shall have been authorized in writing by the indemnifying party in
connection with the defense of such action, (ii) the indemnifying party
shall not have employed counsel to have charge of the defense of such
action within a reasonable time after notice of commencement of the
action, or (iii) the indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them and/or
other indemnified parties which are different from or additional to
those available to the indemnifying party (in which case the
indemnifying party shall not have the right to
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direct the defense of such action on behalf of the indemnified party).
Anything in this subsection to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim
or action effected without its written consent; provided, however, that
such consent was not unreasonably withheld.
(d) If the indemnification provided for in this Section 6 is
unavailable to or insufficient to hold harmless an indemnified party
under subsection (a) or (b) above in respect of any losses, claims,
damages, expenses or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of
such losses, claims, damages, expenses or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Certificates to
which such loss, claim, damage, expense or liability (or actions in
respect thereof) relates. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then
each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of
the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total
net proceeds from such offering (before deducting expenses) received by
the Company bear to the total underwriting discounts and commissions
(or in the case of a public offering in negotiated transactions, the
difference between the proceeds to the Company and the aggregate price
received from the public) received by such Underwriters. The relative
fault of the Company on the one hand and the Underwriters on the other
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or such Underwriters on the
other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. Notwithstanding anything to the contrary in this Section
6(d), if the losses, claims, damages or liabilities (or actions in
respect thereof) referred to in this Section 6(d) arise out of an
untrue statement or alleged untrue statement of a material fact
contained in any [Underwriter] 8-K (as such term is defined in Section
10 hereof) then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the
Company on the one hand and the Underwriters on the other (determined
in accordance with the preceding sentence) in connection with the
statements or omissions in such [Underwriter] 8-K which resulted in
such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other equitable considerations. The Company
and the
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<PAGE> 22
Underwriters agree that it would not be just and equitable if
contribution pursuant to this subsection (d) were determined by pro
rata allocation even if the Underwriters were treated as one entity for
such purpose or by any other method of allocation which does not take
account of the equitable considerations referred to in this subsection
(d). The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigation or defending any
such action or claim. Notwithstanding the provisions of this subsection
(d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Certificates
underwritten by it and distributed to the public were sold to the
public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The obligations of the
Underwriters to contribute pursuant to this subsection (d) are several
in proportion to their respective underwriting obligations with respect
to such Certificates and not joint.
SECTION 7. Representations, Warranties, and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Company submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any termination of this Agreement, or the applicable Terms Agreement or any
investigation made by or on behalf of the Underwriters or any controlling person
thereof, or by or on behalf of the Company, its officers or directors and shall
survive delivery of any Certificates to the Underwriters.
SECTION 8. Termination of Agreement. This Agreement may be terminated
for any reason at any time by either the Company or you upon the giving of
thirty days' notice of such termination to the other party hereto; provided,
however, that if a Terms Agreement has been entered into with respect to a
particular transaction, this Agreement and the Terms Agreement may not be
terminated in the manner set forth in this sentence with respect to such
particular transaction. You, as Representative of the Underwriters named in any
Terms Agreement may also terminate such Terms Agreement, immediately upon notice
to the Company, at any time at or prior to the applicable Closing Time (i) if
there has been, since the date of such Terms Agreement or since the respective
dates as of which information is given in the Registration Statement or
Prospectus, any change, or any development involving a prospective change, in or
affecting the condition, financial or otherwise, earnings, affairs or business
of the Company or HomeSide, whether or not arising in the ordinary course of
business, which in your judgment would materially impair the market for, or the
investment quality of, the Certificates, or (ii) if there has occurred any
material outbreak or escalation of hostilities or other calamity or crisis the
effect of which on the financial markets of the United States is such as to make
it, in your reasonable judgment, impracticable to market the Certificates or
enforce contracts for the sale of
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<PAGE> 23
the Certificates, or (iii) if trading in securities generally on either the New
York Stock Exchange or the American Stock Exchange has been suspended or
materially limited or any setting of minimum prices shall have been established,
(iv) if a general moratorium of commercial banking activities has been declared
by either Federal or New York State authorities or (v) there shall have occurred
any outbreak or escalation of hostilities or other calamity or crisis the effect
of which on the financial markets is such as to make it, in your reasonable
judgment, impracticable to market the Certificates on the terms specified in
this Agreement and the Terms Agreement. In the event of any such termination,
(A) the covenants set forth in Section 3 with respect to any offering of
Certificates shall remain in effect so long as the Underwriters own any such
Certificates purchased from the Company pursuant to the applicable Terms
Agreement and (B) the covenant set forth in Section 3(c), the provisions of
Section 5, the indemnity agreement and contribution provisions set forth in
Section 6, and the provisions of Sections 7 and 12 shall remain in effect.
SECTION 9. Default by One or More of the Underwriters.
(a) If one or more of the Underwriters participating in an
offering of Certificates shall fail at the applicable Closing Time to
purchase the Certificates which it or they are obligated to purchase
hereunder and under the applicable Terms Agreement (the "Defaulted
Certificates"), then such of you as are named therein may in your
discretion arrange for you or another party or other parties to
purchase the Defaulted Certificates upon the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do
not arrange for the purchase of such Defaulted Certificates, then the
Company shall be entitled to a further period of thirty-six hours
within which to procure another party or other parties satisfactory to
you to purchase such Defaulted Certificates on the terms contained
herein. In the event that, within the respective prescribed periods,
you notify the Company that you have so arranged for the purchase of
such Defaulted Certificates, or the Company notifies you that it has so
arranged for the purchase of such Defaulted Certificates, you or the
Company shall have the right to postpone the Closing Time for a period
of not more than seven days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The
term "Underwriter" as used in this Agreement shall include any person
substituted under this Section with like effect as if such person had
originally been party to this Agreement with respect to the
Certificate.
(b) If, after giving effect to any arrangements for the
purchase of Defaulted Certificates of a defaulting Underwriter or
Underwriters by you and the Company as provided in subsection (a)
above, the aggregate principal amount of such Defaulted Certificates
which remains unpurchased does not exceed 10% of the aggregate
principal amount of the Certificates to be purchased pursuant to the
applicable Terms Agreement, then the Company shall have the right to
require each non-defaulting Underwriter to
-23-
<PAGE> 24
purchase the principal amount of Certificates which such Underwriter
agreed to purchase hereunder and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the
principal amount of Certificates which such Underwriter agreed to
purchase pursuant to the applicable Terms Agreement) of the Defaulted
Certificates of the defaulting Underwriter or Underwriters for which
such arrangements have not been made; but nothing herein shall relieve
a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the
purchase of the Defaulted Certificates of the defaulting Underwriter or
Underwriters by you and the Company as provided in subsection (a)
above, the aggregate principal amount of such Defaulted Certificates
which remains unpurchased exceeds 10% of the aggregate principal amount
of the Certificates to be purchased pursuant to the applicable Terms
Agreement, or if the Company shall not exercise the right described in
subsection (b) above to require non-defaulting Underwriters to purchase
Defaulted Certificates of a defaulting Underwriter or Underwriters,
then this Agreement shall thereupon terminate, without liability on the
part of any non-defaulting Underwriter or the Company, except for the
expenses to be borne by the Company and the Underwriters as provided in
Section 5 hereof and the indemnity agreement and contribution
provisions in Section 6 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
SECTION 10. Computational Materials and ABS Term Sheets.
[Describe arrangement regarding Computational Materials and ABS Term
Sheets]
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed,
delivered, telexed, or telegraphed and confirmed or transmitted by any standard
form of telecommunication. Notices to the Underwriters shall be directed to you
at the address set forth on the first page hereof, to the attention of
______________. Notices to the Company shall be directed to HomeSide Mortgage
Securities, Inc., 7301 Baymeadows Way, Jacksonville, Florida 32256, Attention:
Robert J. Jacobs.
SECTION 12. Parties. This Agreement shall be binding upon and inure
solely to the benefit of you and the Company and to the extent provided in
Section 6 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter and their respective heirs, executors,
administrators, successors and assigns and any Terms Agreement shall be binding
upon and inure solely to the benefit of the Company and any Underwriter who
becomes a party to a Terms Agreement and to the extent provided in Section 6
hereof, the officers and directors of the Company and each person who controls
the Company or any Underwriter and their respective heirs, executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement or a Terms Agreement is intended or shall be construed to give any
person, firm or corporation, other than the parties hereto or thereto and
-24-
<PAGE> 25
their respective successors and the controlling person and officers and
directors referred to in Section 6 hereof and their heirs any legal or equitable
right, remedy or claim under or with respect to this Agreement or a Terms
Agreement or any provision herein or therein contained.
SECTION 13. Governing Law and Time. This Agreement and each Terms
Agreement shall be governed by and construed in accordance with the laws of the
State of New York. Specified times of day refer to New York City time.
SECTION 14. Counterparts. This Agreement and any Terms Agreement may be
executed in any number of counterparts (which execution may take the form of an
exchange of any standard form of written telecommunication between you and the
Company), each of which shall constitute an original of any party whose
signature appears on it, and all of which shall together constitute a single
instrument.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
you and the Company in accordance with its terms.
Very truly yours,
HOMESIDE MORTGAGE SECURITIES, INC.
By:
---------------------------------
Name:
Title:
HOMESIDE LENDING, INC.
By:
---------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED, as of
the date first above written:
[UNDERWRITER]
By:
---------------------------------
Name:
Title:
<PAGE> 26
EXHIBIT A
PASS-THROUGH CERTIFICATES
HOMESIDE MORTGAGE SECURITIES, INC., DEPOSITOR
TERMS AGREEMENT
Dated: _________, 19__
To: HomeSide Mortgage Securities, Inc.
Re: Underwriting Agreement, dated as of January __, 1998
(the "Underwriting Agreement")
Ladies and Gentlemen:
The undersigned (being herein called the "Underwriters"), understand
that HomeSide Mortgage Securities, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell $_________ original principal amount of Pass-Through
Certificates described below (the "Certificates"). The Certificates will be
issued under a Pooling and Servicing Agreement dated as of _______________ among
the Company, as depositor, _______________, as servicer and _____________ as
trustee. The terms of the Certificates are summarized below and are more fully
described in the Company's Prospectus supplement prepared with respect to the
Certificates.
All the provisions (including defined terms) contained in the
Underwriting Agreement are incorporated by reference herein in their entirety
and shall be deemed to be part of this Terms Agreement to the same extent as if
such provisions had been set forth in full herein. The Closing Time referred to
in Section 2 of the Underwriting Agreement shall be _______ a.m., New York City
time, on _____________. Subject to the terms and conditions set forth or
incorporated by reference herein, the Company hereby agrees to sell and the
Underwriters agree to purchase [, severally and not jointly,] the [respective]
original principal amount[ s] of Certificates set forth opposite [its] [their]
name[s] in Exhibit I hereto at the purchase price set forth below.
The Underwriters will offer the Certificates for sale upon the terms
and conditions set forth in the Prospectus.
Subject to the terms and conditions set forth or incorporated by
reference herein, the Underwriters will pay for the Certificates at the time and
place and in the manner set forth in the Underwriting Agreement.
Series Designation: ____________
-1-
<PAGE> 27
Terms of the Certificates and Underwriting Compensation:
<TABLE>
<CAPTION>
Original
Principal Remittance Price to
Classes Amount* Rate Public
<S> <C> <C> <C>
**
</TABLE>
* Approximate. Subject to permitted variance in each case of plus or
minus 5%.
** The [Class A] Certificates are being offered by the
Underwriter from time to time in negotiated transactions or
otherwise at varying prices to be determined, in each case,
at the time of sale.
Certificate Rating:
_____ by [Rating Agency]
_____ by [Rating Agency]
REMIC Election:
The Company [does not] intend[s] to cause the Mortgage Pool to be
treated as a REMIC.
Credit Enhancement:
Cut-off Date:
The Cut-off Date is ___________, 19__.
Remittance Date:
The ____ day of each month (or, if such ____ day is not a business day,
the business day immediately following) commencing __________, 19__.
-2-
<PAGE> 28
Purchase Price:
The purchase price payable by the Underwriter for the [Class A]
Certificates is ___% of the aggregate principal balance of the [Class A]
Certificates as of the Closing Date plus accrued interest at the per annum rate
of ___% from __________, 19__ up to but not including the Closing Date.
Underwriting Commission:
Notwithstanding anything to the contrary in the Underwriting Agreement,
no additional underwriting commission shall be payable by the Company to the
Underwriter in connection with the purchase of the Certificates.
Information Provided by Underwriter:
Closing Date and Location:
__________ 19__ at the offices of Morgan, Lewis & Bockius LLP.
-3-
<PAGE> 29
Please confirm your agreement by having an authorized Officer sign a
copy of this Agreement in the space set forth below and returning a signed copy
to us.
[UNDERWRITER]
By:
-----------------------------------
Name:
Title:
ACCEPTED:
HOMESIDE MORTGAGE SECURITIES, INC.
By:
-------------------------------
Name:
Title:
HOMESIDE LENDING, INC.
By:
-------------------------------
Name:
Title:
-4-
<PAGE> 30
Exhibit I
<TABLE>
<CAPTION>
Original
Principal
Amount of
Name Certificates
<S> <C> <C>
Total ==============
</TABLE>
-5-
<PAGE> 1
EXHIBIT 5.1
April 9, 1998
HomeSide Mortgage Securities, Inc.
7301 Baymeadows Way
Jacksonville, Florida 32256
Ladies and Gentlemen:
We have acted as your counsel in connection with the Registration Statement on
Form S-3 (the "Registration Statement") filed on April 9, 1998 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.
April 9, 1998
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, fully paid and nonassessable,
and the holders of such Certificates will be entitled to the benefits of such
Pooling and Servicing Agreement.
The form of Pooling and Servicing Agreement indicates that it is governed by the
laws of the State of New York. We express no opinion as to the law of any
jurisdiction other than the law of the State of New York and the federal law of
the United States of America.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm in the Registration
Statement and the related prospectus under the heading "Legal Matters", without
admitting that we are "experts" within the meaning of the Act or the rules and
regulations of the Securities and Exchange Commission issued thereunder with
respect to any part of the Registration Statement including this Exhibit.
Very truly yours,
MORGAN, LEWIS & BOCKIUS LLP
<PAGE> 1
EXHIBIT 8.1
April 9, 1998
HomeSide Mortgage Securities, Inc.
7301 Baymeadows Way
Jacksonville, Florida 32256
Ladies and Gentlemen:
We have acted as your counsel in connection with the Registration Statement on
Form S-3 (the "Registration Statement") filed with the Securities and Exchange
Commission on April 9, 1998, 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.
April 9, 1998
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
