PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 7, 1997)
$970,000,000
[MONEY STORE LOGO]
The Money Store Home Equity Trust 1997-B
The Money Store Home Equity Asset Backed Certificates, Series 1997-B (the
"Certificates"), will represent (continued on next page)
SEE "RISK FACTORS" ON PAGE S-__ HEREIN AND PAGE 18 OF THE PROSPECTUS FOR A
DISCUSSION OF CERTAIN RISKS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS
OF THE CERTIFICATES OFFERED HEREBY. -----------------------
THE CLASS A CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND, EXCEPT
FOR THE MBIA POLICIES DESCRIBED HEREIN, DO NOT REPRESENT INTERESTS IN OR
OBLIGATIONS OF THE MONEY STORE INC., MBIA INSURANCE CORPORATION OR ANY OF THEIR
RESPECTIVE AFFILIATES OR SUBSIDIARIES. THE LOANS ARE NOT INSURED OR GUARANTEED
BY ANY GOVERNMENTAL AGENCY, AND NO GOVERNMENTAL AGENCY HAS PASSED UPON THE
ACCURACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS.
-----------------------
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 NOR 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.
<TABLE>
<CAPTION>
===================================================================================================================================
Initial Class Pass-Through Price to Underwriting Proceeds to
Certificate Balance Rate Public (1) Discount Originators (1)(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A-1 Certificates...... $80,500,000 6.395% 100.000000% 0.1250% 99.875000%
- -----------------------------------------------------------------------------------------------------------------------------------
Class A-2 Certificates...... $84,500,000 6.420% 100.000000% 0.1700% 99.830000%
- -----------------------------------------------------------------------------------------------------------------------------------
Class A-3 Certificates...... $105,400,000 6.520% 100.000000% 0.1900% 99.810000%
- -----------------------------------------------------------------------------------------------------------------------------------
Class A-4 Certificates...... $57,500,000 6.640% 100.000000% 0.2350% 99.765000%
- -----------------------------------------------------------------------------------------------------------------------------------
Class A-5 Certificates...... $52,800,000 6.825% 100.000000% 0.2500% 99.750000%
- -----------------------------------------------------------------------------------------------------------------------------------
Class A-6 Certificates...... $49,000,000 6.930% 100.000000% 0.2750% 99.725000%
- -----------------------------------------------------------------------------------------------------------------------------------
Class A-7 Certificates...... $65,300,000 7.265% 99.984375% 0.3250% 99.659375%
- -----------------------------------------------------------------------------------------------------------------------------------
Class A-8 Certificates...... $55,000,000 6.900% 100.000000% 0.3250% 99.675000%
- -----------------------------------------------------------------------------------------------------------------------------------
Class A-9 Certificates...... $270,000,000 (3) 100.000000% 0.2250% 99.775000%
- -----------------------------------------------------------------------------------------------------------------------------------
Class A-10 Certificates..... $140,000,000 (4) 100.000000% 0.2250% 99.775000%
- -----------------------------------------------------------------------------------------------------------------------------------
Class A-11 Certificates..... $10,000,000 7.180% 100.000000% 0.2250% 99.775000%
===================================================================================================================================
Total....................... $970,000,000 $969,989,769.88 $2,182,385.00 $967,807,411.88
===================================================================================================================================
</TABLE>
(1) Plus, for each Class of Class A Certificates (other than the Class A-10
Certificates), accrued interest at the applicable Pass-Through Rate from
June 1, 1997 (or, with respect to the Class A-9 Certificates, from June 15,
1997) to but not including the Closing Date.
(2) Before deducting expenses payable by The Money Store Inc., estimated to be
$300,000.
(3) The Pass-Through Rate for the Class A-9 Certificates will adjust based on
one-month LIBOR, as described herein. See "Description of the
CertificatesCThe Distribution Amounts."
(4) The Pass-Through Rate for the Class A-10 Certificates will be determined
pursuant to the Auction Procedures described in Annex I hereto.
-----------------------
The Class A Certificates are offered by the Underwriters, when, as and if
issued to and accepted by the Underwriters, subject to approval of certain legal
matters by counsel for the Underwriters. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the Class A Certificates will be made in
book-entry form only through the Same Day Funds Settlement System of The
Depository Trust Company in the United States or Cedel Bank, societJ anonyme
("Cedel Bank") or the Euroclear System ("Euroclear") in Europe on or about June
30, 1997.
PRUDENTIAL SECURITIES INCORPORATED
SALOMON BROTHERS INC
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
JUNE 25, 1997
<PAGE>
(cover continued from previous page)
fractional undivided ownership interests in a trust fund, designated as The
Money Store Home Equity Trust 1997-B (the "Trust"). The primary assets of the
Trust will be three separate cross-supported sub-trusts, each consisting of a
pool ("Pool I," "Pool II" and "Pool III," respectively, and collectively, the
"Pools") of loans (the "Loans") having the characteristics described herein.
Pool I will consist of one- to four-family ("single family"), and certain five-
and six- family, residential first and second mortgage loans having original
terms to stated maturity of up to 40 years with fixed rates. Pool II will
consist of single family, residential first mortgage loans having original terms
to stated maturity of up to 30 years with adjustable rates. The loans in Pool I
and Pool II are collectively referred to herein as the "Home Equity Loans." Pool
III will consist of fixed rate five or more unit residential or mixed-use
residential and commercial first mortgage loans (the "Multifamily Loans") having
original terms to stated maturity of up to 30 years. The Trust will also include
funds on deposit in a separate trust account (the "Pre-Funding Account") to be
established with the Trustee (as defined herein). All of the Loans were
originated or purchased by certain wholly-owned subsidiaries (the "Originators")
of The Money Store Inc. (the "Representative"). The Money Store Inc. will act as
the servicer (in such capacity, the "Servicer") of the Loans. Except for certain
representations and warranties relating to the Loans and certain other matters,
The Money Store Inc.'s obligations with respect to the Loans are limited to its
contractual servicing obligations.
Certificate guaranty insurance policies (the "MBIA Policies") with respect
to the Class A Certificates, as defined herein, will be issued by:
MBIA INSURANCE CORPORATION
Full and complete payment to The Bank of New York, as Trustee for the
holders of the Class A Certificates, of Insured Payments (as defined herein),
consisting primarily of interest due to such holders in respect of the
Certificates on each Remittance Date and principal at the times described
herein, is unconditionally and irrevocably guaranteed pursuant to the terms of
the Certificate Guaranty Insurance Policies. See "The MBIA Policies and MBIA"
herein for a more complete description of the MBIA Policies. MBIA does not
insure any Certificateholders' Interest Carryover.
Additional loans (collectively, the "Subsequent Loans") may be purchased by
the Trust from the Originators from time to time on or before the close of
business on September 26, 1997 from funds on deposit in the Pre-Funding Account.
Any Subsequent Loan acquired by the Trust will be assigned to the appropriate
sub-trust based upon the characteristics of such Subsequent Loan. See "The Loan
PoolsCGeneral." On the Closing Date (as defined herein), a cash amount which
will not exceed $242,500,000 in the aggregate will be deposited in the
Pre-Funding Account in an amount not to exceed approximately $190,000,000, in
the case of Pool I, approximately $50,000,000, in the case of Pool II, and
approximately $1,000,000, in the case of Pool III. See "The
AgreementCPre-Funding Account" herein.
The Certificates will consist of the 11 classes of regular certificates set
forth on the front cover (collectively, the "Class A Certificates"), one class
of interest only subordinate certificates (the "Class X Certificates") and two
classes of residual certificates (collectively, the "Class R Certificates").
Only the Class A Certificates are offered hereby. The Class A-1 through Class
A-8 Certificates generally will represent the right to receive payments
distributable on or with respect to the Home Equity Loans in Pool I. The Class
A-9 and Class A-10 Certificates generally will represent the right to receive
payments distributable on or with respect to the Home Equity Loans in Pool II.
The Class A-11 Certificates generally will represent the right to receive
payments distributable on or with respect to the Multifamily Loans in Pool III.
HOWEVER, DUE TO THE CROSS-SUPPORT PROVISIONS DESCRIBED HEREIN, THE HOLDERS OF
EACH CLASS OF CLASS A CERTIFICATES MAY RECEIVE CASH AS CREDIT SUPPORT FROM ANY
LOAN IN ANY POOL. See "Description of the CertificatesCCross-Support Provisions
and Spread Amount" herein.
Distributions of principal and interest to the holders of the Class A
Certificates (the "Class A Certificateholders" or "Holders") will be made on the
15th day of each month or, if the 15th day is not a business day, the first
business day thereafter, commencing July 1997 (each such day, a "Remittance
Date"). On each Remittance Date, the owners of each Class of Class A
Certificates as of the preceding Record Date (as defined herein) will be
entitled to receive interest on the outstanding principal balances of the
respective Class at the rates or in the manner set forth on the front cover, and
distributions with respect to principal as described herein. Additionally, any
Pre-Funded Amount (as defined herein) remaining in the Pre-Funding Account at
the close of business on September 26, 1997 will be distributed as a principal
prepayment on September 29, 1997 (together with accrued interest at the
applicable Pass-Through Rates on the amount of such prepayment) to the Class A
Certificates then entitled to receive distributions of principal. The interest
due such Class A Certificates on the October 1997 Remittance Date will be
adjusted to take account of such distribution.
By purchasing a Class A-10 Certificate (the "Auction Rate Certificates"),
whether in an Auction or otherwise, each prospective purchaser will be deemed to
have agreed (i) to participate in Auctions on the terms described herein and
(ii) so long as the beneficial ownership of the Auction Rate Certificates is
maintained in book-entry form to sell, transfer or otherwise dispose of the
Auction Rate Certificates only pursuant to a Bid or a Sell Order in an Auction,
or to or through a Broker-Dealer, provided that in the case of all transfers
other than those pursuant to an Auction, the owner of the Auction Rate
Certificates so transferred, its Participant or Broker-Dealer advises the
Auction Agent of such transfer.
There is currently no secondary market for the Class A Certificates. The
Underwriters intend to make a secondary market for the Class A Certificates, but
have no obligation to do so. There can be no assurance that a secondary market
for the Class A Certificates will develop or, if one does develop, that it will
offer sufficient liquidity of investment or continue.
As described herein, two separate real estate mortgage investment conduit
("REMIC") elections will be made in connection with certain assets of the Trust
for federal income tax purposes. As described more fully herein, the Class A
Certificates will be designated as "regular interests" in a REMIC and each class
of Class R Certificates will represent the "residual interest" in the related
REMIC. See "Federal Income Tax Consequences" in the Prospectus and "Federal
Income Tax Considerations" herein.
The Class A Certificates offered by this Prospectus Supplement constitute a
separate series of Certificates being offered by the Representative and the
Originators pursuant to the Prospectus dated March 7, 1997, of which this
Prospectus Supplement is a part and which accompanies this Prospectus
Supplement. The Prospectus contains important information regarding this
offering which is not contained herein and prospective investors are urged to
read the Prospectus and this Prospectus Supplement in full.
(end of cover page)
----------------------
UNTIL 90 DAYS AFTER THE DATE HEREOF, ALL DEALERS EFFECTING TRANSACTIONS IN
THE CLASS A CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. 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.
----------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
SUMMARY OF TERMS
This following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and the accompanying Prospectus. Capitalized terms used
but not defined in this Summary of Terms have the meanings assigned to such
terms elsewhere in this Prospectus Supplement.
Securities Offered............... The Money Store Home Equity Asset Backed
Certificates, Series 1997-B, Class A-1
through Class A-11 (collectively, the "Class
A Certificates").
Each Class of Class A Certificates will be
issued in the initial Class Principal Balance
set forth for such Class on the cover page
hereof. Each Class of Class A Certificates
(other than the Class A-9 and Class A- 10
Certificates) will bear interest for each
Remittance Date at the per annum rate set
forth for such Class on the cover page
hereof.
For each Remittance Date, the Class A-9
Certificates will bear interest at a rate
equal to LIBOR (as defined herein) plus
0.10%, subject to the Net Funds Cap (as
defined herein) for the related Pool (but in
no event exceeding 14% per annum).
For the first Remittance Date, the Class A-10
Certificates will bear interest at the rate
of LIBOR minus 0% per annum. For each
Remittance Date thereafter, the Class A-10
Certificates will bear interest based upon
the Auction Procedures described in Annex I
hereto, subject to the Net Funds Cap (but in
no event exceeding 14% per annum).
The per annum rate of interest at which a
Class of Class A Certificates bears interest
is referred to herein as the "Pass-Through
Rate" for such Class.
The statistical information presented in this
Prospectus Supplement concerning the Pool I,
Pool II and Pool III Loans (each as defined
herein) is based on preliminary Pools
expected to be delivered to the Trustee on
the Closing Date. The Representative expects
that loans (including the Subsequent Loans)
that were not contained in the preliminary
Pools will be added to the final Pools. While
the statistical distribution of the
characteristics for the final Pools of Loans
will vary somewhat from the statistical
distribution of such characteristics for the
preliminary Pools of Loans presented in this
Prospectus Supplement, the Representative
does not believe that the characteristics of
the final Pools will differ materially.
References in this Prospectus Supplement to
the characteristics of the Loans as of the
Cut-off Date are deemed to include the
characteristics, as of the date of their
origination, of those Loans originated after
the Cut-off Date and up to the Closing Date.
Transaction Structure............ The primary assets of the Trust will be three
separate cross-supported sub-trusts
consisting of the Pool I, Pool II and Pool
III Loans. The Trust will issue the following
Classes of Certificates:
Pool I Certificates......... Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5, Class A-6, Class A-7 and Class A-8
Certificates.
Pool II Certificates........ Class A-9 and Class A-10 Certificates.
Pool III Certificates....... Class A-11 Certificates.
Residual Certificates....... Class R Certificates.
Interest Only Certificates.. Class X Certificates.
Other Designations............... As used herein, certain Classes of
Certificates have been assigned the following
additional designations:
Adjustable Rate Certificates. Class A-9 Certificates.
Auction Rate Certificates.... Class A-10 Certificates.
Credit Support................... As described herein, certain excess interest
received on the Loans will be available to
fund any shortfalls in amounts required to be
distributed to the Certificates of the
related Pool and for Certificates of any
other Pool of Class A Certificates. Such
excess interest will then be used to make
accelerated payments of principal on the
Certificates of the related Pool and for
Certificates of any other Pool of Class A
Certificates. Thereafter, certain excess
interest received on the Loans will be
deposited into the Spread Account.
As a result of the foregoing, the holders of
each Class of Class A Certificates may
receive cash as credit support from any Loan
in any Pool. See "Description of the
CertificatesCCross-Support Provisions and
Spread Amount." The holders of each Class of
Class A Certificates also will have the
benefit of the MBIA Policies.
Cut-Off Date..................... May 31, 1997.
Closing Date..................... June 30, 1997.
Issuer........................... The Money Store Home Equity Trust 1997-B (the
"Trust").
Representative and Servicer...... The Money Store Inc., a New Jersey
corporation (in its capacity as sponsor of
the Trust, the "Representative" and in its
capacity as the servicer of the Loans, the
"Servicer"). The principal offices of The
Money Store Inc. are located at 2840 Morris
Avenue, Union, New Jersey 07083 (telephone
number (908) 686-2000) and 3301 C Street,
Suite 100-M, Sacramento, California 95816
(telephone number (916) 446-5000). See "The
Representative and the Originators" herein
and in the Prospectus.
Trustee ......................... The Bank of New York, a New York banking
corporation, in its capacity as trustee. See
"The AgreementCThe Trustee" herein.
Auction Agent.................... Bankers Trust Company, a New York banking
corporation, will act as auction agent (in
such capacity, the "Auction Agent") with
respect to the Auction Rate Certificates. See
"The AgreementCThe Auction Agent" herein.
Originators of the Loans......... Each Loan will have been originated and
underwritten, or purchased and
re-underwritten, by certain wholly-owned
subsidiaries of the Representative (the
"Originators"). Additionally, each Subsequent
Loan to be included in the Trust will have
been originated and underwritten, or
purchased and re-underwritten, by an
Originator.
Description of the Certificates.. The Certificates will be issued pursuant to a
Pooling and Servicing Agreement (the
"Agreement"), dated as of the Cut-Off Date,
among the Representative, the Originators and
The Bank of New York, as trustee (the
"Trustee").
The Certificates will represent fractional
undivided ownership interests in the Trust,
the assets of which will consist primarily of
three separate cross- supported sub-trusts,
each consisting of a pool ("Pool I," "Pool
II" and "Pool III," respectively) of Loans
having the characteristics described herein.
Pool I and Pool II will consist of one- to
four-family ("single family") and, in the
case of Pool I, certain five- and six-family,
residential first and, in the case of Pool I,
second mortgage loans expected to have
aggregate principal balances as of the
Cut-Off Date of not less than approximately
$360,000,000 and $360,000,000, respectively,
and original terms to stated maturity of up
to 40 and 30 years, respectively. As
described herein, each of the Loans in Pool I
(the "Pool I Home Equity Loans" or the "Pool
I Loans," which terms include any Subsequent
Loans acquired by Pool I, unless the context
requires otherwise) will bear interest at a
fixed rate and each of the Loans in Pool II
(the "Pool II Home Equity Loans" or the "Pool
II Loans," which terms include any Subsequent
Loans acquired by Pool II, unless the context
requires otherwise) will bear interest at an
adjustable rate as described below. See "The
Loan PoolsCHome Equity Loans" herein.
Pool III will consist of five or more unit
residential or mixed-use residential and
commercial first mortgage loans (the
"Multifamily Loans" or the "Pool III Loans,"
which terms include any Subsequent Loans
acquired by Pool III, unless the context
requires otherwise) expected to have an
aggregate principal balance as of the Cut-Off
Date of not less than approximately
$9,000,000 and original terms to stated
maturity of up to 30 years. See "The Loan
PoolsCMultifamily Loans" herein.
Collectively, the Home Equity Loans and the
Multifamily Loans are at times referred to
herein as the "Loans."
The Class A-1 through Class A-8 Certificates
generally will be entitled to receive
payments distributable on or with respect to
the Pool I Home Equity Loans. The Class A-9
and Class A-10 Certificates generally will be
entitled to receive payments distributable on
or with respect to the Pool II Home Equity
Loans. The Class A-11 Certificates generally
will be entitled to receive payments
distributable on or with respect to the Pool
III Multifamily Loans. HOWEVER, DUE TO THE
CROSS- SUPPORT PROVISIONS DESCRIBED HEREIN,
THE HOLDERS OF EACH CLASS OF CLASS A
CERTIFICATES MAY RECEIVE CASH AS CREDIT
SUPPORT FROM ANY LOAN IN ANY POOL. See
"Description of the
Certificates-Cross-Support Provisions and
Spread Amount" herein. Also, amounts, if any,
on deposit in the Spread Account described
herein will be available to cover shortfalls
in amounts due Certificateholders, without
distinction as to Pool.
The holders of the Pool I Certificates are
also referred to herein as the "Pool I
Certificateholders." The holders of the Pool
II Certificates are also referred to herein
as the "Pool II Certificateholders." The
holders of the Pool III Certificates are also
referred to herein as the "Pool III
Certificateholders." Each holder of a Class A
Certificate is referred to herein as a
"Certificateholder."
The projected last Remittance Dates for each
Class of Class A Certificates is as set forth
herein under "Maturity, Prepayment and Yield
Considerations." It is expected that the
actual last Remittance Date for each Class of
Class A Certificates will occur significantly
earlier than its projected last Remittance
Date. See "Maturity, Prepayment and Yield
Considerations" herein.
The Class A Certificates (other than the
Auction Rate Certificates) are issuable in
book-entry form in minimum denominations of
$1,000 original principal amount and integral
multiples of $1,000 in excess thereof and the
Auction Rate Certificates are issuable in
book-entry form in minimum denominations of
$25,000 original principal amount and
integral multiples of $25,000 in excess
thereof, except that one certificate of each
Class of Class A Certificates may be issued
in a different denomination and, if so
issued, will be held in physical form.
Pre-Funding Account.............. On the Closing Date, a cash amount which will
not exceed $242,500,000 in the aggregate (the
"Pre- Funded Amount") will be deposited into
the Pre- Funding Account in an amount not to
exceed approximately $190,000,000, in the
case of Pool I, approximately $50,000,000, in
the case of Pool II, and approximately
$1,000,000, in the case of Pool III. Amounts
allocated to Pool I, Pool II and Pool III, as
the case may be, may be used only (i) to
acquire Subsequent Loans for the related Pool
and (ii) to make accelerated payments of
principal on the Certificates of the related
Pool. During the period (the "Funding
Period") from the Closing Date until the
earliest of (i) the date on which the amount
on deposit in the Pre-Funding Account is less
than $200,000, (ii) the date on which an
Event of Default occurs under the Agreement
or (iii) the close of business on September
26, 1997, amounts will, from time to time, be
withdrawn from the Pre-Funding Account to
purchase Subsequent Loans in accordance with
the Agreement. Any Pre-Funded Amount
remaining at the end of the Funding Period
will be distributed as a principal prepayment
on the next Remittance Date to the Class A
Certificates of the related Pool as set forth
herein under "CPrincipal." However, any
Pre-Funded Amount remaining at the close of
business on September 26, 1997 will be
distributed as a principal prepayment on
September 29, 1997 (the "Special Remittance
Date") to the Class A Certificates.
Capitalized Interest Account..... On the Closing Date, the Representative also
will make a cash deposit in an account (the
"Capitalized Interest Account") in the name
of the Trustee on behalf of the Trust. The
amount deposited in the Capitalized Interest
Account will be used by the Trustee on the
Remittance Dates occurring in July, August
and September 1997 to fund the excess, if
any, of (i) the amount of interest accrued
for each such Remittance Date at the weighted
average Pass-Through Rates of the Class A
Certificates on the portion of the Class A
Certificates having principal balances
exceeding the principal balances of the Loans
over (ii) the amount of any earnings on funds
in the Pre-Funding Account that are available
to pay interest on the Class A Certificates
on each such Remittance Date. Additionally,
if a principal prepayment is made on the
Special Remittance Date to any Class of Class
A Certificates, such Class A Certificates
also will receive on such date, from the
Capitalized Interest Account, accrued
interest at the applicable Pass-Through Rates
on the amount of such principal prepayment.
Any amounts remaining in the Capitalized
Interest Account on the Special Remittance
Date and not used for such purposes are
required to be paid directly to the holders
of the Class R Certificates on such Special
Remittance Date.
Remittance and Record Dates...... Distributions on the Class A Certificates
will be made by or on behalf of the Trustee
on the 15th day of each month, or if such day
is not a business day, on the first business
day thereafter, commencing July 15, 1997
(each, a "Remittance Date"), to each person
in whose name a Class A Certificate is
registered on the last day of the preceding
calendar month (the "Record Date"), except
that the final distribution on each Class of
Class A Certificates will be made only upon
presentation and surrender of such
Certificates at the office or agency
designated for that purpose. Any Pre-Funded
Amount remaining at the close of business on
September 26, 1997 (together with interest
thereon) will be distributed by or on behalf
of the Trustee on the Special Remittance Date
to the Classes of Class A Certificates of the
related Pool then entitled to receive
payments of principal in the order and
percentages as described herein under
"CPrincipal." Such distribution will be made
to each person in whose name a Class A
Certificate of any such Class is registered
on August 31, 1997.
Interest......................... To the extent funds are available therefor
from receipts on the Loans of the applicable
Pool, advances by the Servicer, payments
under the related MBIA Policy and, for the
Remittance Dates occurring in July, August
and September 1997, any amounts transferred
to the Certificate Account (as defined under
"The AgreementCPayments on the Loans" herein)
from the Pre-Funding Account or the
Capitalized Interest Account, on each
Remittance Date the holders of each Class of
Certificates will receive 30 days' interest
(or in the case of the Adjustable Rate and
Auction Rate Certificates, the actual number
of days since the last Remittance Date (or,
in the case of the first Remittance Date,
from June 15, 1997 with respect to the
Adjustable Rate Certificates and from the
Closing Date with respect to the Auction Rate
Certificates) up to but not including the
upcoming Remittance Date) at the related
Pass- Through Rate on the respective Class
Principal Balance outstanding immediately
prior to such Remittance Date.
The amount of interest each Class of
Certificates is entitled to receive on each
Remittance Date is referred to as the
"Current Interest Requirement" for such
Class.
The aggregate Current Interest Requirement
for the Class A-1 through Class A-8
Certificates is also referred to herein as
the "Pool I Current Interest Requirement."
The aggregate Current Interest Requirement
for the Class A-9 and Class A-10 Certificates
is also referred to herein as the "Pool II
Current Interest Requirement." The Current
Interest Requirement for the Class A-11
Certificates is also referred to herein as
the "Pool III Current Interest Requirement."
Notwithstanding the foregoing, if a principal
prepayment is made to a Class of Class A
Certificates on the Special Remittance Date,
each such Class also will receive on such
date accrued interest at the applicable
Pass-Through Rate on the amount of such
prepayment. Further, the Current Interest
Requirement for each such Class for the
October 1997 Remittance Date will be based on
the related Principal Balance on September
29, 1997, after giving effect to such
principal prepayment.
With respect to the Remittance Date in July
1997, the holders of the Adjustable Rate and
Auction Rate Certificates will be entitled to
receive interest on the applicable Class
Principal Balance at the related Pass-
Through Rate from June 15, 1997 or the
Closing Date, respectively, to but not
including the Remittance Date in July 1997.
As to any Remittance Date, the "Net Funds
Cap" will be a percentage equal to the
difference between (A) the weighted average
Pool II Mortgage Interest Rate and (B) the
sum of (i) the percentages used in
determining the Servicing Fee, the
Contingency Fee, the fee due the Trustee and
the premium due MBIA, (ii) commencing with
the Remittance Date in July 1998, .50% and
(iii) with respect to the Auction Rate
Certificates, the percentage used in
determining the fees due the Auction Agent
and the Broker-Dealer (as defined in the
Auction Procedures described in Annex I
hereto).
If on any Remittance Date the Pass-Through
Rate for a Class of Adjustable Rate or
Auction Rate Certificates is based upon the
Net Funds Cap, the excess of (i) the amount
of interest such Class of Certificates would
be entitled to receive on such Remittance
Date had interest been calculated based on
LIBOR plus the applicable margin or the
Auction Procedures (but in no event exceeding
14% per annum), over (ii) the amount of
interest such Class will receive on such
Remittance Date at the Net Funds Cap,
together with the unpaid portion of any such
excess from prior Remittance Dates (and
interest accrued thereon at the then
applicable Pass-Through Rate, without giving
effect to the Net Funds Cap, but in no event
exceeding 14% per annum) is referred to
herein as the "Certificateholders' Interest
Carryover." Any Certificateholders' Interest
Carryover will be paid on future Remittance
Dates as set forth herein under "The
AgreementCFlow of Funds." No
Certificateholders' Interest Carryover will
be paid to a Class of Certificates after its
Class Principal Balance is reduced to zero.
The ratings of the Class A-9 and Class A-10
Certificates do not address the likelihood of
the payment of the amount of any
Certificateholders' Interest Carryover and
the MBIA Policies do not guaranty payment of
any such amount.
For each Remittance Date, the Class A-9 Pass-
Through Rate will equal a per annum rate
equal to the sum of LIBOR plus 0.10%, subject
to the applicable Net Funds Cap for the
related Pool (but in no event exceeding 14%
per annum).
For the first Remittance Date, the Class A-10
Certificates will bear interest at a rate
equal to LIBOR minus 0%. For each Remittance
Date thereafter, the Class A-10 Certificates
will bear interest based upon the Auction
Procedures described in Annex I hereto,
subject to the Net Funds Cap (but in no event
exceeding 14% per annum).
LIBOR for the first Remittance Date with
respect to the Class A-9 and Class A-10
Certificates will not be established until
June 26, 1997, the date on which the
One-Month Index Maturity will be determined.
LIBOR for each Remittance Date thereafter
will be determined on the LIBOR Determination
Date preceding each such Remittance Date. See
"The AgreementCCalculation of LIBOR."
Interest with respect to the Class A
Certificates will accrue on the basis of a
360-day year consisting of twelve 30-day
months (or, in the case of the Adjustable
Rate and Auction Rate Certificates, on the
basis of a 360-day year consisting of the
actual number of days elapsed since interest
was last paid). See "Description of the
Certificates" herein.
Principal........................ To the extent funds are available therefor
from receipts on the Loans of the related
Pool, payments under the related MBIA Policy
and, if applicable, for the Remittance Dates
occurring in July, August and September 1997,
any amounts transferred to the Certificate
Account from the Pre-Funding Account or the
Capitalized Interest Account, and after
payment of interest as described above, on
each Remittance Date, the Class A
Certificateholders will receive an amount
(with respect to each Pool, the "Principal
Distribution Amount" for such Pool) equal to
the excess of (X) the sum, without
duplication, of (i) each payment of principal
received by the Servicer or any Sub- Servicer
(exclusive of Curtailments, Principal
Prepayments and amounts described in clause
(iii) hereof) during the related Due Period
with respect to the Loans of the related
Pool, (ii) all Curtailments and all Principal
Prepayments received by the Servicer or any
Sub-Servicer during the related Due Period
with respect to the Loans of the related
Pool, (iii) the principal portion of all
Insurance Proceeds, Released Mortgaged
Property Proceeds and Net Liquidation
Proceeds received by the Servicer or any Sub-
Servicer during the related Due Period with
respect to the Loans of the related Pool,
(iv) that portion of the purchase price for
any Loan of the related Pool repurchased
pursuant to the Agreement which represents
principal and any Substitution Adjustments,
in either case to the extent received by the
Trustee as of the related Determination Date,
(v) any proceeds representing principal
received by the Trustee in connection with
the liquidation of a Pool or termination of
the Trust, (vi) the amount of any
Subordination Deficit (as defined under
"Description of the CertificatesCCross
Support Provisions and Spread Amount" herein)
with respect to a Pool for such Remittance
Date, (vii) any moneys released from the
Pre-Funding Account on the July, August and
September 1997 Remittance Date as a
prepayment of the Certificates of the related
Pool, and (viii) the amount of any
Subordination Increase Amount (as defined
under "Description of the
CertificatesCCross-Support Provisions and
Spread Amount" herein) with respect to a Pool
for such Remittance Date, over (Y) the amount
of any Subordination Reduction Amount (as
defined under "Description of the
CertificatesCCross-Support Provisions and
Spread Amount" herein) with respect to a Pool
for such Remittance Date.
On each Remittance Date, the Principal
Distribution Amount for Pool I will be
distributed to the holders of the Pool I
Certificates in the following order of
priority: (i) first, to the holders of the
Class A-8 Certificates, an amount equal to
the Class A-8 Principal Distribution Amount
for such Remittance Date, and (ii) second, to
the holders of the Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5, Class A- 6,
Class A-7 and Class A-8 Certificates,
sequentially in that order, until the Class
Principal Balance of each such Class (in
ascending order of numerical designation) is
reduced to zero and the Certificateholders of
each such Class have received an amount equal
to the amount described in clause (iv) of the
definition of Distribution Amount that is
recovered from such Certificateholders.
The "Class A-8 Principal Distribution Amount"
for any Remittance Date will be the product
of (i) the applicable Class A-8 Principal
Percentage for such Remittance Date and (ii)
the Class A-8 Pro Rata Principal Distribution
Amount for such Remittance Date. In no event
will the Class A-8 Principal Distribution
Amount on any Remittance Date be greater than
the Principal Distribution Amount for Pool I
for such Remittance Date or the Class
Principal Balance of the Class A-8
Certificates.
The "Class A-8 Principal Percentage" for each
Remittance Date shall be as follows:
Class A-8
Principal
Remittance Dates Percentage
July 1997 - June 2000 0%
July 2000 - June 2002 45%
July 2002 - June 2003 80%
July 2003 - June 2004 100%
July 2004 and thereafter 300%
The "Class A-8 Pro Rata Principal
Distribution Amount" for each Remittance Date
will be an amount equal to the product of (x)
a fraction, the numerator of which is the
Class Principal Balance of the Class A-8
Certificates immediately prior to such
Remittance Date and the denominator of which
is the aggregate Class Principal Balance of
the Pool I Certificates immediately prior to
such Remittance Date and (y) the Principal
Distribution Amount for Pool I for such
Remittance Date.
On each Remittance Date, the Principal
Distribution Amount for Pool II will be
distributed concurrently to the holders of
the Pool II Certificates in the following
order: to the holders of the Class A-9 and
Class A-10 Certificates, sequentially in that
order, until the Class Principal Balance of
each such Class (in ascending order of
numerical designation) is reduced to zero and
the Certificateholders of each such Class
have received an amount equal to the amount
described in clause (iv) of the definition of
Distribution Amount that is recovered from
such Certificateholders.
On each Remittance Date, the Principal
Distribution Amount for Pool III will be
distributed to the holders of the Class A-11
Certificates until the Class Principal
Balance of such Certificates is reduced to
zero and such Certificateholders have
received an amount equal to the amount
described in clause (iv) of the definition of
Distribution Amount that is recovered from
such Certificateholders.
The portion of the Distribution Amount being
distributed to a Class of Class A
Certificates (other than the portion being
distributed to a Class of Auction Rate
Certificates) will be allocated among all
Certificateholders of such Class pro rata
based upon their respective Percentage
Interests. The portion of the Current
Interest requirement being distributed to a
Class of Auction Rate Certificates will be
allocated to all Certificateholders of such
Class pro rata based upon their respective
Percentage Interests. The portion of the
remainder of the Distribution Amount being
distributed to a Class of Auction Rate
Certificates will be allocated as principal
to the specific Certificates of such Class
selected no later than 5 business days prior
to the related Remittance Date by lot or such
other manner as may be determined, which
allocations will be made only in amounts
equal to $25,000 and integral multiples of
$25,000 in excess thereof.
Notwithstanding the foregoing, if on the
Special Remittance Date the amount of
principal allocated to the Auction Rate
Certificates is not equal to $25,000 or an
integral multiple of $25,000 in excess
thereof, the entire amount (if less than
$25,000) or the amount exceeding an integral
multiple of $25,000 will, instead, be
distributed to the Adjustable Rate
Certificates.
On any Remittance Date, the "Distribution
Amount" for each Pool will equal the sum of
(i) the Current Interest Requirement for such
Pool, (ii) the Principal Distribution Amount
for such Pool, (iii) the Carry-Forward Amount
for such Pool and (iv) any amount received by
the Trustee from the Servicer that
constitutes a Monthly Advance with respect to
a Loan in such Pool that is recoverable and
sought to be recovered as a voidable
preference by a trustee in bankruptcy
pursuant to the United States Bankruptcy Code
in accordance with a final, nonappealable
order of a court having competent
jurisdiction.
The "Due Period" with respect to any
Remittance Date is the calendar month
preceding the month of such Remittance Date.
The "Carry-Forward Amount" for each Pool with
respect to any Remittance Date will equal the
sum of (i) the amount, if any, by which (x)
the Distribution Amount for such Pool as of
the immediately preceding Remittance Date
exceeded (y) the amount of the actual
distribution to the holders of the
Certificates of such Pool made on such
Remittance Date (less the amount of Insured
Payments, if any, on such date) and (ii)
interest on the amount, if any, described in
clause (i) at one-twelfth the applicable
Pass-Through Rate for the related Class of
Certificates. The Carry-Forward Amount does
not include any Certificateholders' Interest
Carryover.
As described above, the Holders of the Class
A Certificates will be entitled to receive
monthly distributions of principal on each
Remittance Date that generally reflects
actual (as opposed to scheduled) collections
of principal during the related Due Period.
Recoveries for losses on Loans that were
finally liquidated during a Due Period (the
"Unrecovered Amounts") may or may not be
distributed to the holders of the Class A
Certificates on the related Remittance Date.
However, Holders of Class A Certificates are
entitled to receive ultimate recovery of any
Unrecovered Amounts relating to the
applicable Pool of Loans. See "Description of
the CertificatesCThe Distribution Amounts"
herein.
Credit Enhancement............... The credit enhancement provided for the
benefit of the Class A Certificates consists
of (i) the Spread Amount (as defined below),
the Spread Account and cross-support
features, which utilize the internal cash
flows of the Trusts as described herein and
(ii) the MBIA Policies.
Spread Amount.................... Certain provisions of the Trust are intended
to provide for limited acceleration of the
Class A Certificates relative to the
amortization of the Loans, generally in the
early months of the transaction. This limited
accelerated amortization is achieved by
applying certain excess interest collected on
the Loans to the payment of principal on the
Class A Certificates, first for the related
Pool and then for any other Pool. This
acceleration feature is intended to create,
with respect to each Pool of Loans, an amount
(the "Spread Amount"), resulting from, and
equal to, the excess of the aggregate
principal balances of the Loans of the
related Pool (plus any amounts allocated to
such Pool on deposit in the Spread Account
referred to below and the Pre-Funding
Account) over the principal balances of the
Certificates of the related Pool. The
Agreement provides that, subject to certain
floors, caps and triggers, the required level
of the Spread Amount with respect to each
Pool of Loans may increase or decrease over
time. An increase would result in a temporary
period of accelerated amortization of the
Certificates of the related Pool to increase
the actual level of the Spread Amount to its
required level; a decrease would result in a
temporary period of decelerated amortization
to reduce the actual level of the Spread
Amount to its required level. The Agreement
also provides that such excess interest,
together with certain other excess amounts,
generated by one Pool of Loans may be used to
fund shortfalls and increase the Spread
Amount in the other Pools of Loans, subject
to certain prior requirements for application
of such excess amounts. See "Description of
the CertificatesCCross-Support Provisions and
Spread Amount" herein.
Spread Account................... The Agreement will provide for an initial
cash deposit into an account (the "Spread
Account") to be maintained with the Trustee.
The Agreement also will provide that
following the Funding Period the required
level of the Spread Amount with respect to
each Pool of Loans may be increased. In such
event, cash up to the amount of such increase
may be deposited into the Spread Account.
Amounts, if any, on deposit in the Spread
Account will be available to fund any Insured
Payments (as defined below) otherwise
required to be made on a Remittance Date with
respect to the Class A Certificates, without
distinction as to the Pool, and, in certain
circumstances, to make accelerated payments
of principal on the Class A Certificates. The
Agreement also will provide that certain
excess interest otherwise payable to the
holders of the Class X Certificates and Class
R Certificates with respect to the Loans
will, instead, be deposited into the Spread
Account.
MBIA Policies.................... MBIA Insurance Corporation, a New York stock
insurance corporation ("MBIA"), will provide
separate insurance policies (collectively,
the "MBIA Policies") relating to the
Certificates of each Pool. Subject to the
requirements of the MBIA Policies described
under "The MBIA Policies and MBIA," MBIA
unconditionally and irrevocably guarantees
that the full amount of each Insured Payment
(defined herein) will be received by the
insurance paying agent (the "Insurance Paying
Agent"), which initially will be The Bank of
New York, for distribution by the Trustee.
MBIA's obligations under the MBIA Policies
will be discharged to the extent funds equal
to the amount required to be paid thereunder
are received by the Insurance Paying Agent,
whether or not such funds are properly
applied by the Trustee or the Insurance
Paying Agent. The MBIA Policies are
noncancellable for any reason.
"Insured Payment" means (i) as of any
Remittance Date, any Deficiency Amount (as
defined below under "The MBIA Policies and
MBIA") and (ii) any Preference Amount (as
defined below under "The MBIA Policies and
MBIA").
As stated above, amounts, if any, in the
Spread Account will be used to fund Insured
Payments prior to draws being made on the
MBIA Policies.
The MBIA Policies do not (i) cover The Money
Store Inc.'s obligation under the Agreement
to repurchase or substitute for Loans with
respect to which there has been a breach of
representation, (ii) cover any
Certificateholders' Interest Carryover, (iii)
guarantee any specified rate of prepayments,
or (iv) provide funds to redeem the
Certificates on any specified date.
Subject to the terms of the Agreement, MBIA
will be subrogated to the rights of the
Holders of the Class A Certificates to the
extent of any Insured Payments made under the
applicable MBIA Policy, but its right to
reimbursement will be subject to the prior
rights of the Holders of the Class A
Certificates to amounts to which such Holders
are entitled under the Agreement.
The Pools
General........................ Unless otherwise noted, all statistical
percentages in this Prospectus Supplement
concerning the Loans are measured by the
aggregate principal balances of the related
Pool of Loans described herein at the close
of business on the Cut-Off Date and all
dollar amounts are based on the principal
balances of such Loans at the close of
business on the Cut-Off Date. The Loans that
will comprise Pool I and Pool II as of the
Closing Date are referred to herein as the
"Initial Pool I Home Equity Loans" and the
"Initial Pool II Home Equity Loans,"
respectively, and collectively, as the
"Initial Home Equity Loans." The Loans that
will comprise Pool III as of the Closing Date
are referred to herein as the "Initial
Multifamily Loans" and, collectively with the
Initial Home Equity Loans, the "Initial
Loans."
Pool I and Pool II .......... The Pool I and Pool II Home Equity Loans will
consist of mortgages, deeds of trust or other
security instruments (the "Home Equity
Mortgages" or "Mortgages"), and the related
promissory notes (the "Home Equity Mortgage
Notes" or "Notes") secured by one- to
four-family residences (and, in the case of
Pool I, certain five- and six-family
residences), units in planned unit
developments ("PUDs") and units in
condominium developments (the "Home Equity
Mortgaged Properties" or "Mortgaged
Properties").
As stated above, the Agreement will provide
that Subsequent Home Equity Loans may be
purchased by the Trust from the Originators
from time to time on or before the close of
business on September 26, 1997 from funds on
deposit in the Pre-Funding Account allocated
to Pools I and II. Each Subsequent Home
Equity Loan will have been originated and
underwritten, or purchased and
re-underwritten, by one of the Originators,
substantially in accordance with the
Originators' underwriting criteria described
in the Prospectus under the caption "The
Single Family Loan Lending
ProgramCUnderwriting Criteria." The purchase
price for each Subsequent Home Equity Loan
will be no greater than its unpaid principal
balance as of the last day of the month
preceding the month in which it is purchased
by the Trust (each such date, a "Subsequent
Cut-Off Date"). The Agreement will provide
that the Pool I and Pool II Home Equity
Loans, following the conveyance of any
Subsequent Home Equity Loans to the
appropriate Pool, must, in the aggregate,
conform to certain specified characteristics.
See "The AgreementCRepresentations and
Warranties" in the Prospectus.
No more than approximately 15%, 15%, 12%,
12%, 12%, 12%, 10%, 10%, 10% and 10% of the
Pool I Home Equity Loans are secured by
Mortgaged Properties located in California,
New York, Illinois, Ohio, North Carolina,
Pennsylvania, Florida, Indiana, Washington
and New Jersey, , respectively . No more than
approximately 15%, 15%, 15%, 15%, 15%, 12%,
12%, 12% , 12% and 12% of the Pool II Home
Equity Loans will be secured by Mortgaged
Properties located in Illinois, Michigan,
California, Ohio, Washington, Pennsylvania,
Massachusetts, New York, Colorado and New
Jersey. No more than approximately 5.0% of
the Pool I Home Equity Loans and 5.0% of the
Pool II Home Equity Loans will be secured by
Home Equity Mortgaged Properties located in
any other state. Based on representations
made by the obligor on a Home Equity Mortgage
Note (the "Home Equity Mortgagor" or the
"Mortgagor"), no less than approximately 92%
of the Home Equity Loans in Pool I and 92% of
the Home Equity Loans in Pool II will be
secured by one- to four-family residences, no
more than approximately 8.0% and 8.0% of the
Pool I and Pool II Home Equity Loans,
respectively, will be secured by vacation
homes, secondary residences, or investment
properties, no more than approximately 4.0%
and 4.0% of the Pool I and Pool II Home
Equity Loans, respectively, will be secured
by individual units in low rise condominiums,
no more than approximately 10.0% and 10..0%
of the Pool I and Pool II Home Equity Loans,
respectively, will be secured by two-, three-
or four-family houses, no more than
approximately 2.0% of the Pool I Home Equity
Loans will be secured by five- or six-family
houses (which may be mixed-use buildings),
and no more than approximately 1.0% and 1.0%
of the Pool I and Pool II Home Equity Loans,
respectively, will be secured by individual
units of other types including high rise
condominiums. No Home Equity Loan will be
secured by a mobile home or a cooperative
residence.
No less than approximately 70.0% of the Pool
I Home Equity Loans and all of the Pool II
Home Equity Loans will constitute first
mortgage liens on the related Home Equity
Mortgaged Property and the remainder of the
Pool I Home Equity Loans will constitute
second mortgage liens on the related Home
Equity Mortgaged Property.
The "Combined Loan-to-Value Ratio" of a Home
Equity Loan is the ratio, expressed as a
percentage, determined by dividing (x) the
sum of the original principal balance of the
Home Equity Loan (less the amount, if any, of
the premium for credit life insurance) plus
the then-current principal balance of the
related first lien, if any, by (y) the value
of the Home Equity Mortgaged Property, based
upon the appraisal or valuation made at the
time of origination of the Home Equity Loan.
Based upon the original principal balances of
the Home Equity Loans, no more than
approximately 25% and 20% of the Pool I and
Pool II Home Equity Loans, respectively, will
have a Combined Loan-to-Value Ratio exceeding
80%. No Pool I or Pool II Home Equity Loan
will have a Combined Loan-to-Value Ratio
exceeding 100%. The weighted average Combined
Loan-to-Value Ratio, based upon appraisals or
valuations made at the times of origination
of the Pool I and Pool II Home Equity Loans,
will be no more than approximately 75% and
75%, respectively. The Home Equity Loans are
not insured or guaranteed by any governmental
entity.
The Home Equity Loans, other than Balloon
Home Equity Loans discussed below, will
provide for a schedule of payments which will
be, if timely paid, sufficient to amortize
fully the principal balance of the Home
Equity Loan on or before its maturity date.
The Home Equity Loans will be either (i)
"simple interest" loans, which means that
payments are applied as they are received
first to accrued interest, then to principal
or (ii) "actuarial" loans, which means that
payments received either earlier or later
(other than delinquent) than the scheduled
due dates of such Home Equity Loans will not
affect the amortization schedule or the
relative application of such payments to
principal and interest. The Pool I Home
Equity Loans will bear interest at fixed
rates (each, a "Pool I Mortgage Interest
Rate").
The Pool I Home Equity Loans will bear
interest at fixed rates which, as of the
Cut-Off Date, ranged from approximately 8.0%
to 21.0% per annum. The Pool II Home Equity
Loans will bear interest at adjustable rates
which, as of the Cut-Off Date, ranged from
7.50% to 15.50% per annum (each, a "Pool II
Mortgage Interest Rate"), which will adjust
on the date set forth in the related Mortgage
Note. For each Pool II Home Equity Loan, the
related Pool II Mortgage Interest Rate will
change initially after the period set forth
in the related Mortgage Note and periodically
thereafter. Each date on which a Pool II
Mortgage Interest Rate changes is referred to
as the "Change Date" for the related Pool II
Home Equity Loan. No more than approximately
28.0% of the Pool II Home Equity Loans will
have their first Change Date occurring
approximately 24 months after origination and
no more than approximately 40.0% of the Pool
II Home Equity Loans will have their first
Change Date occurring approximately 36 months
after origination. No more than 40.0% of the
Pool II Home Equity Loans will have their
first Change Date occurring approximately 48
months after origination. The remainder of
the Pool II Home Equity Loans will have their
first Change Date occurring no later than 12
months after origination.
The Pool II Mortgage Interest Rate relating
to at least 75.0% of the Pool II Home Equity
Loans will adjust on each applicable Change
Date to equal the sum of (i) the applicable
London Interbank Offered Rate for U.S. dollar
deposits (the "LIBOR Index") and (ii) the
number of basis points set forth in the
related Mortgage Note (the "Gross Margin"),
subject to rounding and to the effects of the
Periodic Rate Cap, the applicable Lifetime
Cap and the applicable Lifetime Floor. The
Pool II Mortgage Interest Rate relating to
the remainder of the Pool II Home Equity
Loans will adjust on each Change Date to
equal the sum of (i) the applicable One-Year
Constant Maturity Treasury Index ("CMT" or
the "Treasury Index") as published by the
Federal Reserve Board in the applicable
Federal Reserve Board Statistical Release No.
H.15, and (ii) the related Gross Margin,
subject to rounding and to the effects of the
Periodic Rate Cap, the applicable Lifetime
Cap and the applicable Lifetime Floor.
The Gross Margins for the Pool II Home Equity
Loans will range from approximately 4.0% to
11.0%. The weighted average Gross Margin of
the Pool II Home Equity Loans will be
approximately 5.7%. The "Periodic Rate Cap"
limits changes in the Pool II Mortgage
Interest Rate for each Pool II Home Equity
Loan on each Change Date to the Periodic Rate
Cap as set forth in the related Mortgage
Note. The Lifetime Caps of the Pool II Home
Equity Loans will range from approximately
11.0% to 21.0%. The weighted average Lifetime
Cap of the Pool II Home Equity Loans will be
approximately 16.25%. The Lifetime Floors of
the Pool II Home Equity Loans will range from
approximately 0% to 15.0%. The weighted
average Lifetime Floor of the Pool II Home
Equity Loans will be approximately 10.25%.
The weighted average Pool I Mortgage Interest
Rate of the Initial Pool I Home Equity Loans
will be no less than approximately 11.50%.
The weighted average current Pool II Mortgage
Interest Rate of the Initial Pool II Home
Equity Loans will be no less than
approximately 10.25%. The lowest principal
balances of any Initial Pool I and Initial
Pool II Home Equity Loan as of the Cut-Off
Date will be approximately $1,000 and $1,000,
respectively, and the highest will be
approximately $600,000 and $600,000,
respectively. As of the Cut-Off Date, the
average principal balances of the Initial
Pool I and Initial Pool II Home Equity Loans
will be approximately $45,000 and $80,000,
respectively. Initial Home Equity Loans not
originated by an Originator or having
original principal balances less than or
equal to $15,000 may not be covered by title
insurance policies. As of the Cut-Off Date,
the weighted average remaining terms to
stated maturity of the Initial Pool I and
Initial Pool II Home Equity Loans will be
approximately 258 months and 358 months,
respectively. The weighted average terms to
stated maturity of the Initial Pool I and
Initial Pool II Home Equity Loans at
origination will be approximately 260 months
and 360 months, respectively.
No more than approximately 15.0% of the Pool
I Home Equity Loans will provide for a stated
maturity of less than the period of time of
the corresponding amortization schedule
("Balloon Loans"). As a result, upon the
maturity of a Balloon Loan, the Home Equity
Mortgagor will be required to make a final
payment which will be substantially larger
than such Home Equity Mortgagor's previous
monthly payments. No Pool II Home Equity Loan
will be a Balloon Loan. See "Risk
FactorsCNature of the Security" in the
Prospectus.
No more than approximately 2.0% of the Pool I
Mortgage Loans were originated under the
Originators' "Back-on-Track" program,
pursuant to which the related Pool I Mortgage
Loan Interest Rate may decrease by 0.50% per
annum if the related borrower makes timely
payments for 12 consecutive months. Such
decreases may occur each year during the
first 3 years after origination. The
Representative cannot determine and no
representation is made as to the effect such
"Back-on-Track" program may have on the
Certificates.
Pool III..................... The Multifamily Loans in Pool III will
consist of mortgages, deeds of trust or other
security instruments (the "Multifamily
Mortgages"), and the related promissory notes
(the "Multifamily Mortgage Notes" or "Notes")
secured by five or more unit residential or
mixed-use residential and commercial
properties (the "Multifamily Mortgaged
Properties" or "Mortgaged Properties").
As stated above, the Agreement will provide
that Subsequent Multifamily Loans may be
purchased by the Trust from the Originators
from time to time on or before the close of
business on September 26, 1997 from funds on
deposit in the Pre-Funding Account allocated
to Pool III. Each Subsequent Multifamily Loan
will have been originated and underwritten,
or purchased and re-underwritten, by one of
the Originators, substantially in accordance
with the Originators' underwriting criteria
described under "Lending ProgramsCThe
Multifamily Lending Program" herein. The
purchase price for each Subsequent
Multifamily Loan will be no greater than its
unpaid principal balance as of the related
Subsequent Cut-Off Date. The Agreement will
provide that the Multifamily Loans, following
the conveyance of any Subsequent Multifamily
Loans to Pool III, must, in the aggregate,
conform to certain specified characteristics.
See "The AgreementCRepresentations and
Warranties" in the Prospectus.
The Initial Multifamily Loans were originated
and underwritten, or purchased and
re-underwritten, by one of the Originators,
substantially in accordance with the
Originators' underwriting criteria described
under "Lending ProgramsCThe Multifamily
Lending Program" herein.
No more than approximately 25%, 17%, 12%,
11%, 11% and 9% of the Multifamily Loans will
be secured by Mortgaged Properties located in
California, Texas, Georgia, Ohio, New York
and Arizona, respectively. No more than
approximately 5.0% of the Multifamily Loans
will be secured by Multifamily Mortgaged
Properties located in any other state. Based
on representations made by the obligor on a
Multifamily Mortgage Note (the "Multifamily
Mortgagor" or "Obligor"), all of the
Multifamily Loans will be secured by five or
more unit residential or mixed-use
residential and commercial properties.
All of the Multifamily Loans will constitute
first mortgage liens on the related
Multifamily Mortgaged Property.
No Multifamily Loan will have a Combined
Loan-to- Value Ratio exceeding approximately
70.0%. The weighted average Combined
Loan-to-Value Ratio, based upon appraisals or
valuations made at the times of origination
of the Pool III Home Equity Loans, will be no
more than approximately 58.0%. The
Multifamily Loans will not be insured or
guaranteed by any governmental entity.
The Multifamily Loans will provide for a
schedule of payments which will be, if timely
paid, sufficient to amortize fully the
principal balance of the Multifamily Loan on
or before its maturity date. The Multifamily
Loans will be "simple interest" loans. The
Multifamily Loans will bear interest at fixed
rates (each, a "Multifamily Mortgage Interest
Rate").
The Initial Multifamily Loans will bear
interest at fixed rates which range from
approximately 10.0% to 14.0% per annum. The
weighted average Multifamily Mortgage
Interest Rate of the Initial Multifamily
Loans will be approximately 11.5%. The lowest
principal balance of any Initial Multifamily
Loan as of the Cut-Off Date will be
approximately $50,000, and the highest will
be approximately $700,000. The average
principal balance of the Initial Multifamily
Loans will be approximately $205,000. All
Initial Multifamily Loans will be covered by
title insurance policies. The weighted
average remaining term to stated maturity of
the Initial Multifamily Loans will be
approximately 332 months. The weighted
average term to stated maturity of the
Initial Multifamily Loans at origination will
be approximately 334 months.
Each Multifamily Loan contains provisions
requiring the related Mortgagor to pay a
penalty in connection with certain
prepayments made within three or five years,
depending on the terms of such Multifamily
Loan, of its origination.
Servicing of the Loans .......... The Servicer will serve as master servicer
for the Loans in accordance with the
Agreement. The Servicer may act through
subservicers, including the Originators or
other affiliates of the Servicer.
Monthly Advances ................ The Servicer is required to remit to the
Trustee no later than the day of each month
which is at least three business days prior
to the Remittance Date and is in no case
earlier than the seventh business day of such
month (the "Determination Date") the amount
(a "Monthly Advance"), if any, by which, for
each Pool (a) the sum of (x) 30 days'
interest (or, with respect to the Adjustable
Rate and Auction Rate Certificates, the
actual number of days since the last
Remittance Date (or, in the case of the first
Remittance Date, from June 15, 1997 with
respect to the Adjustable Rate Certificates
and from the Closing Date with respect to the
Auction Rate Certificates) up to but not
including the upcoming Remittance Date) at
the weighted average Adjusted Mortgage Loan
Remittance Rates of such Pool on the
aggregate outstanding Class Principal
Balances of each Class of Certificates in
such Pool immediately prior to the related
Remittance Date and (y) the Monthly Excess
Spread (as defined herein under "Description
of the CertificatesCSpread Amount"), if any,
for the related Remittance Date relating to
the Loans of the related Pool exceeds (b) the
amount received by the Servicer in respect of
interest on the Loans of the related Pool as
of the related Record Date (and with respect
to the Remittance Dates in July, August and
September 1997, the sum of (i) all funds to
be transferred to the applicable Certificate
Account from the Capitalized Interest Account
for such Remittance Date and (ii) certain
investment earnings on amounts in the Pre-
Funding Account for the applicable Remittance
Date). Such advances by the Servicer are
reimbursable in the first instance from late
collections of interest including amounts
received in connection with the liquidation
of defaulted Loans ("Liquidation Proceeds"),
amounts paid by any insurer pursuant to any
insurance policy covering a Loan, Mortgaged
Property or REO Property ("Insurance
Proceeds") and proceeds received by the
Servicer in connection with condemnation,
eminent domain or a release of lien
("Released Mortgaged Property Proceeds")
collected with respect to the related Loan as
to which the advances were made, and any
other amount that otherwise would be
distributed on the Class X and Class R
Certificates. Monthly Advances will not cover
any Certificateholders' Interest Carryover.
The "Adjusted Mortgage Loan Remittance Rate,"
for a Class of Certificates will equal the
sum of the Pass-Through Rate for such Class
and a rate used to determine certain expenses
of the Trust. Certain of the Loans in each
Pool may bear interest at a rate below the
Adjusted Mortgage Loan Remittance Rate for
the related Class. Any such Loan will be sold
to the Trust at a discount so as to create,
for each such Loan, a mortgage interest rate
that, when applied to the purchase price paid
by such Trust for such Loan, will at least
equal the related Adjusted Mortgage Loan
Remittance Rate.
Compensating Interest............ Not later than each Determination Date, with
respect to each Loan to which the Servicer
received a principal payment in full in
advance of the final scheduled due date (a
"Principal Prepayment") or received a
principal payment that is in excess of five
times the scheduled monthly payment due, but
which was not intended by the Mortgagor to
satisfy the Loan in full or to cure a
delinquency (a "Curtailment") during the
related Due Period, the Servicer is required
to remit to the Trustee from amounts
otherwise payable to the Servicer as
servicing compensation (including the
Contingency Fee), an amount ("Compensating
Interest") equal to any excess of (a) 30
days' interest (or, with respect to a Pool II
Loan, the actual number of days since the
last Remittance Date (or, in the case of the
first Remittance Date, from June 15, 1997
with respect to the Adjustable Rate
Certificates and from the Closing Date with
respect to the Auction Rate Certificates) up
to but not including the upcoming Remittance
Date) on the principal balance of each such
Loan as of the beginning of the related Due
Period, at the weighted average Adjusted
Mortgage Loan Remittance Rates of the related
Pool applicable to the Remittance Date on
which the Compensating Interest will be
distributed over (b) the amount of interest
actually received on the related Loan during
such Due Period.
Servicing and Contingency Fees .. The Servicer is entitled to a servicing fee
of 0.25% per annum of the principal balance
of each Loan (the "Servicing Fee"), and a
contingency fee of 0.25% per annum of the
principal balance of each Loan (the
"Contingency Fee"), each calculated and
payable monthly from the interest portion of
scheduled monthly payments, Liquidation
Proceeds and certain other Proceeds
collected.
Rating........................... It is a condition to the issuance of the
Class A Certificates that each Class be rated
"AAA" by Standard & Poor's Ratings Services,
a division of The McGraw-Hill Companies, Inc.
("S&P") and "Aaa" by Moody's Investors
Service, Inc. ("Moody's"). The ratings
assigned by S&P and Moody's to the Class A
Certificates are based, in large part, on the
creditworthiness of MBIA and the MBIA
Policies. A security rating is not a
recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time. No person is
obligated to maintain the rating on any Class
of Class A Certificates. The ratings of the
Class A-9 and Class A-10 Certificates by S&P
and Moody's do not address the likelihood of
the payment of the amount of any
Certificateholders' Interest Carryover. See
"Rating of the Class A Certificates" herein.
Optional Termination by the
Servicer....................... On any Remittance Date from and after the
Remittance Date on which the aggregate
principal balances of the Loans are less than
10% of the sum of (i) the aggregate principal
balances of the Initial Home Equity Loans and
the Initial Multifamily Loans (collectively,
the "Initial Loans") as of the Cut-Off Date
(the "Original Pool Principal Balance") and
(ii) the original Pre-Funded Amount (such
date, the "Optional Servicer Termination
Date"), the Servicer may, at its option, and
in the absence of the exercise thereof by the
Servicer, MBIA may, at its option, purchase,
on the next succeeding Remittance Date, all
of the Loans and any related Mortgaged
Property title to which has been acquired in
foreclosure or by deed in lieu of foreclosure
(an "REO Property") at a price set forth in
the Agreement (the "Termination Price") at
least equal to the sum of (x) 100% of the
Principal Balances of the Loans, including
those evidenced by REO Properties, and (y) 30
days' interest (or, with respect to the
Adjustable Rate and Auction Rate
Certificates, the actual number of days from
the last Remittance Date to but not including
the upcoming Remittance Date) thereon at the
then applicable weighted average Pass-Through
Rates of the Class A Certificates plus an
amount equal to the interest portion of any
unreimbursed Insured Payments made by MBIA
with respect to the applicable Pool of Loans.
See "The Agreement" herein and in the
Prospectus.
Optional Termination by
MBIA.......................... On and after the date on which the Maximum
Subordinated Amount is zero (the "Cross-Over
Date"), on any Remittance Date on which Loans
with aggregate principal balances as of the
Cut-Off Date equal to or exceeding 25% or
more of the sum of (i) the Original Pool
Principal Balance and (ii) the original
Pre-Funded Amount, if any, have become
Liquidated Loans, MBIA may purchase all of
the Loans and any related REO Properties in
respect thereof at a price equal to the sum
of the Termination Prices for all Pools and
the outstanding and unpaid fees and expenses
of the Trustee and the Servicer. See "The
Agreement" herein and in the Prospectus.
REMIC Election and Tax Status ... For Federal income tax purposes, two separate
elections will be made to treat certain
assets of the Trust as real estate mortgage
investment conduits ("REMICs"). Each Class of
Class A Certificates will constitute "regular
interests" in a REMIC and each class of Class
R Certificates will constitute the sole
"residual interest" in the related REMIC. See
"Federal Income Tax Considerations" herein
and "Federal Income Tax Consequences" in the
Prospectus.
ERISA Considerations............. As described under "ERISA Considerations"
herein, the Class A Certificates may be
purchased by a pension or other employee
benefit plan subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or by individual
retirement accounts or Keogh plans covering
only a sole proprietor or partner which are
not subject to ERISA but are subject to
Section 4975 of the Code ("Plans"), pursuant
to certain exemptions from potential
prohibited transaction rules of ERISA which
prohibit a broad range of transactions
involving Plan assets and persons having
certain specified relationships to a Plan and
related excise tax provisions of Section 4975
of the Code. One such exemption is Prohibited
Transaction Exemption 90-32, 55 Fed. Reg.
23147 (June 6, 1990) (the "Exemption"), which
provides an exemption for transactions
involving the purchase, holding or transfer
of certain asset backed certificates by
Plans. See "ERISA Considerations" herein and
in the Prospectus.
Legal Investment Considerations.. Upon termination of the Funding Period, the
Class A- 9 and Class A-10 Certificates will
constitute "mortgage related securities"
under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") so long as
they are rated in one of the two highest
rating categories by at least one nationally
recognized statistical rating organization
and, as such, will be "legal investments" for
certain types of institutional investors to
the extent provided in SMMEA. Each Class of
Class A Certificates other than the Class A-9
and Class A-10 Certificates will not
constitute "mortgage related securities"
under SMMEA. Investors should consult their
own legal advisers in determining whether and
the extent to which a Class of Class A
Certificates constitutes legal investments
for such investors. See "Legal Investment
Considerations" herein.
Registration of the Certificates. The Class A Certificates will be represented
by global certificates registered in the name
of Cede & Co. ("Cede"), as the nominee of The
Depository Trust Company ("DTC") in the
United States, or Cedel Bank, sociJtJ anonyme
("Cedel Bank") or the Euroclear System
("Euroclear") in Europe. No Class A
Certificateholder will be entitled to receive
definitive certificates ("Definitive Class A
Certificates") representing such person's
interest, except in the event that Definitive
Class A Certificates are issued under the
limited circumstances described herein. All
references herein to "Certificateholders" or
"Holders" will reflect the rights of the
beneficial owners of Class A Certificates, as
such rights may be exercised through DTC and
Participants except as otherwise specified
herein. See "Risk FactorsCBook-Entry
Registration" in the Prospectus and
"Description of the CertificatesCBook-Entry
Certificates" herein.
<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, in addition to the factors
described under "Risk Factors" in the Prospectus, the following factors.
MULTIFAMILY LOANS
Multifamily lending may be viewed as exposing the lender to a greater risk
of loss than single family residential lending. Owners of multifamily
residential properties rely on monthly lease payments from tenants to pay for
maintenance and other operating expenses of such properties, to fund capital
improvements and to service any mortgage loan and any other debt that may be
secured by such properties. Various factors, many of which are beyond the
control of the owner or operator of such a property, may affect the economic
viability of that property.
Changes in payment patterns by tenants may result from a variety of social,
legal and economic factors. Economic factors including the rate of inflation,
unemployment levels and relative rates offered for various types of housing may
be reflected in changes in payment patterns including increased risks of
defaults by tenants and higher vacancy rates. Adverse economic conditions,
either local or national, may limit the amount of rent that can be charged and
may result in a reduction in timely lease payments or a reduction in occupancy
levels. Occupancy and rent levels may also be affected by construction of
additional housing units, competition and local politics, including rent
stabilization or rent control laws and policies. In addition, the level of
mortgage interest rates may encourage tenants to purchase single family housing.
The Money Store Inc. is unable to determine and has no basis to predict whether,
or to what extent, economic, legal or social factors will affect future rental
or payment patterns.
The location and construction quality of a particular building may affect
the occupancy level as well as the rents that may be charged for individual
units. The characteristics of a neighborhood may change over time or in relation
to newer developments. The effects of poor construction quality will increase
over time in the form of increased maintenance and capital improvements. Even
good construction will deteriorate over time if adequate maintenance is not
performed in a timely fashion.
Many of the foregoing conditions may not have been present or significant
on the Closing Date, and certain of those conditions may change.
NET FUNDS CAP AND CERTIFICATEHOLDERS' INTEREST CARRYOVER
The Pass-Through Rate for the Adjustable Rate Certificates is based
generally on LIBOR and the Pass- Through Rate for the Auction Rate Certificates
will be determined pursuant to the Auction Procedures described in Annex I.
Although the Mortgage Interest Rates on the Pool II Loans (which rates will be
used in determining the Net Funds Cap) are also subject to adjustment, the
Mortgage Interest Rates with respect to most of the Pool II Loans adjust less
frequently than the Pass-Through Rates on the Adjustable Rate Certificates and
Auction Rate Certificates and adjust by reference to either the London Interbank
Offered Rate, which will be calculated differently for the Pool II Loans and the
Adjustable Rate Certificates, or the Treasury Index, which may not necessarily
correspond to changes in one-month LIBOR, or the Pass-Through Rate determined
pursuant to the Auction Procedures.
If in respect of any Remittance Date there does not exist a positive spread
between (a) the Net Funds Cap applicable to the Adjustable Rate and Auction Rate
Certificates and (b) the interest accrued on each such Class at LIBOR plus the
applicable margin (in the case of the Adjustable Rate Certificates) or the
Auction Rate determined for such Remittance Date (in the case of the Auction
Rate Certificates), but in no event exceeding 14% per annum, the Pass-Through
Rate for such Class on such Remittance Date will be based upon the applicable
Net Funds Cap. Any Certificateholders' Interest Carryover arising as a result of
the applicable Pass-Through Rate being based upon the Net Funds Cap, together
with interest thereon at the then applicable Pass-Through Rate (without giving
effect to the Net Funds Cap but in no event exceeding 14% per annum), will be
paid on the following Remittance Date or on any succeeding Remittance Date to
the extent funds are allocated and available therefor after making all required
prior distributions and deposits with respect to such Remittance Date. Further,
such payments will be made to the Certificateholders of record of such Class for
such Remittance Date, regardless of whether they owned Class A Certificates when
the related Certificateholders' Interest Carryover was created. See "The
AgreementCFlow of Funds." The ratings of the Adjustable Rate and Auction Rate
Certificates do not address the likelihood of the payment of any
Certificateholders' Interest Carryover and the MBIA Policies do not guaranty
payment of any such amount.
<PAGE>
LENDING PROGRAMS
Prospective Certificateholders should consider, in addition to the
information described under "The Single Family Loan Lending Program" in the
Prospectus, the following with respect to the Multifamily Loans.
THE MULTIFAMILY LENDING PROGRAM
The Originators originate Multifamily Loans in several states. Typically,
Multifamily Loans are 25 to 30 year term fully amortizing loans consisting of 5
or more units (some of which may be non-residential units) for non- purchase
money loans. All of the Multifamily Loans are first liens with a minimum loan
amount of $50,000 and a maximum loan amount of $1,000,000, a maximum
Loan-to-Value ratio of approximately 65% and minimum debt service coverage of
approximately 1.25 to 1, although these guidelines can be varied with the
approval of senior management. All Multifamily Loans are underwritten centrally
in Sacramento, California. Appraisals, field inspections and environmental
inspections (performed by outside and certified inspectors) are required for
each Multifamily Loan. Title insurance is obtained for all Multifamily Loans.
Substantially all of the mixed used properties securing Multifamily Loans will
be properties with no less than approximately 90%, measured by square footage,
number of units and projected rent, being allocated to residential units.
THE REPRESENTATIVE AND THE ORIGINATORS
The Money Store Inc. will act as the Servicer of the Loans. Except for
certain representations and warranties relating to the Loans and certain other
matters, The Money Store Inc.'s obligations with respect to the Loans are
limited to its contractual servicing obligations.
The Money Store Inc. is a New Jersey corporation and the parent company of
the Originators and their affiliates. The Money Store Inc. is headquartered in
Sacramento, California and Union, New Jersey.
The Money Store Inc. is a financial services company engaged, through its
subsidiaries (including the Originators), in the business of originating,
purchasing, selling and servicing consumer and commercial loans of specified
types and offering related services. Loans originated by The Money Store Inc.
and its subsidiaries primarily consist of home equity loans, loans (the "SBA
Loans") guaranteed in part by the United States Small Business Administration
(the "SBA") and government guaranteed student loans ("Student Loans"). The Money
Store Inc. began providing financing for new and used vehicles (the "Auto
Loans") in early 1995.
Since 1967, The Money Store Inc. and its subsidiaries have been active in
the development of the residential home equity lending industry in the United
States. Based upon industry sources, the Representative believes that during
1996 The Money Store Inc. and its subsidiaries were among the largest
originators, by principal amount, of home equity loans in the United States. In
1979, The Money Store Inc. and its subsidiaries began to originate SBA Loans
and, based upon statistics compiled by the SBA, the Representative believes that
during each of the last 15 SBA fiscal years it originated a greater principal
amount of SBA Loans than any other originator of such loans in the United
States. In 1984, The Money Store Inc. and its subsidiaries entered into the
government guaranteed student loan origination market.
For the year ended December 31, 1996 and the three months ended March 31,
1997, The Money Store Inc. and its subsidiaries originated or purchased
approximately $5.7 billion and $1.6 billion of loans, respectively. Of those
loans, approximately 73% and 70%, respectively, by principal amount were home
equity loans, approximately 11% and 9%, respectively, by principal amount were
SBA Loans, approximately 8% and 10%, respectively, by principal amount were
Student Loans and approximately 8% and 11%, respectively, by principal amount
were Auto Loans. The business strategy of The Money Store Inc. has been to
identify and pursue niche lending opportunities which management believes have
had widespread unsatisfied demand.
At March 31, 1997, The Money Store Inc. and its subsidiaries operated out
of 227 branch locations in 50 states, the District of Columbia and the
Commonwealth of Puerto Rico.
The following table shows the originations and portfolio balances of The
Money Store Inc. and its subsidiaries for the periods indicated:
<TABLE>
<CAPTION>
ORIGINATIONS AND SERVICED LOAN PORTFOLIO BY LOAN TYPE
(Dollars in thousands)
Year Ended December 31,
------------------------------------------------------------------------------------------------------
1994 1995
----
Originations Originations
----------------------------------- --------------------------------
Number of Serviced Loan Number of Serviced Loan
Amount Loans Portfolio Amount Loans Portfolio
<S> <C> <C> <C> <C> <C> <C>
Home Equity Loans...... $2,013,027 38,644 $3,725,918 $2,885,044 67,828 $5,751,677
% of Total............. 72.4% 63.2% 75.5% 66.7%
SBA Loans.............. 420,416 1,143 1,605,645 440,728 1,461 1,907,050
% of Total............. 15.1% 27.2% 11.5% 22.1%
Student Loans.......... 345,965 136,354 566,906 369,129 139,946 845,501
% of Total............. 12.5% 9.6% 9.7% 9.8%
Auto Loans............. 128,070 13,141 117,239
% of Total............. 3.3% 1.4%
-------------- -----
Total......... $2,779,408 176,141 $5,898,469 $3,822,971 222,376 $8,621,467
========== ======= ========== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 3 months ended March 31, 1997
----------------------- -----------------------------
1996
Originations Originations
Number Serviced Loan Number Serviced Loan
Amount of Loans Portfolio Amount of Loans Portfolio
<S> <C> <C> <C> <C> <C> <C>
Home Equity Loans $4,150,992 104,519 $8,230,776 $1,140,615 29,437 $8,885,941
% of Total............... 72.9% 67.5% 69.7% 67.3%
SBA Loans................ 635,498 1,769 2,282,384 144,439 370 2,362,484
% of Total............... 11.2% 18.7% 8.8% 17.9%
Student Loans............ 458,459 168,837 1,203,739 175,540 18,264 1,352,617
% of Total............... 8.0% 9.9% 10.7% 10.2%
Auto Loans............... 448,105 45,124 475,533 176,225 17,596 604,101
% of Total............... 7.9% 3.9% 10.8% 4.6%
------ ------ ----- ----
$5,693,054 320,249 $12,192,432 $1,636,819 65,667 $13,205,145
========== ======= ===========
</TABLE>
Although the Originators have no maximum dollar amount for home equity
loans, the actual maximum amount that the Originators will lend is determined by
the applicant's ability to repay the loan, the value of the borrower's equity in
the real estate and the ratio of such equity to the home's appraised value. For
home equity loans originated in 1994, 1995, 1996 and the first three months of
1997, the average loan size was approximately $52,000, $43,000, $40,000 and
$39,000, respectively.
In July 1993, the Originators introduced a revised program of originating
home equity loans (the "Equity Advantage Loans") with Combined Loan-to-Value
Ratios exceeding 80%. Equity Advantage Loans are secured by first or second
liens, generally possess lower debt-to-income ratios and bear a higher rate of
interest than home equity loans with lower Combined Loan-to-Value Ratios.
The following table illustrates The Money Store Inc.'s delinquency and
charge-off experience with respect to home equity loans in its servicing
portfolio:
<TABLE>
<CAPTION>
HOME EQUITY LOAN DELINQUENCIES AND CHARGE-OFFS
(DOLLARS IN THOUSANDS)
AS OF AND FOR THE YEARS AS OF AND FOR THE 3 MONTHS
ENDED DECEMBER 31, ENDED MARCH 31, 1997
----------------------------------- --------------------------
1994 1995 1996
---- ---- ----
<C> <C> <C> <C> <C>
30-59 days past due...................... 1.77% 1.76% 1.31% 1.84%
60-89 days past due...................... 0.42% 0.68% 0.81% 0.82%
90+ days past due........................ 1.86% 2.42% 3.83% 3.93%
Loans charged-off, net................... $19,942 $24,205 $37,039 $12,551
Loans charged-off, net, as a percentage of
the home equity loan portfolio(1) 0.54% 0.42% 0.45% 0.57%
</TABLE>
(1) The percentage of Home Equity Loan charge-offs is calculated based upon the
dollar amount of charge-offs divided by the dollar amount of Home Equity Loans
contained in the Serviced Loan Portfolio.
While the above delinquency and charge-off experience represents the
Servicer's recent experience, there can be no assurance that the future
delinquency and charge-off experience on the Home Equity Loans included in the
Trust will be similar. The Servicer can neither quantify the impact of any
recent property value declines on the Home Equity Loans nor predict whether, to
what extent or how long such declines may continue. In a period of such decline,
the rates of delinquencies, foreclosures and losses on the Home Equity Loans
could be higher than those heretofore experienced in the mortgage lending
industry in general. In addition, adverse economic conditions (which may or may
not affect real property values) may affect the timely payment by borrowers of
scheduled payments of principal and interest on the Home Equity Loans and,
accordingly, the actual rates of delinquencies, foreclosures and losses. See
"Description of the CertificatesCThe Distribution Amounts" herein for a
discussion of the effect to Certificateholders of delinquencies in payments on
The Home Equity Loans.
The Money Store Inc. does not separately report the delinquency and
charge-off experience of its Multifamily Loans and there can be no assurance,
and no representation is made, that the delinquency and charge-off experience
with respect to the Multifamily Loans will be similar to that reflected in the
table above.
LEGAL PROCEEDINGS
Because the nature of the business of The Money Store Inc. involves the
collection of numerous accounts, the validity of liens and compliance with state
and federal lending laws, The Money Store Inc. is subject to claims and legal
actions in the ordinary course of its business. While it is impossible to
estimate with certainty the ultimate legal and financial liability with respect
to such claims and actions, The Money Store Inc. believes that the aggregate
amount of such liabilities will not result in monetary damage which would have a
material adverse effect on the financial condition of The Money Store Inc.
<PAGE>
THE LOAN POOLS
GENERAL
Certain data with respect to the Initial Loans expected to be included in
the Trust is set forth below. References in this Prospectus Supplement to the
characteristics of the Loans as of the Cut-Off Date are deemed to include the
characteristics, as of the date of their origination, of those Loans originated
after the Cut-Off Date and up to the Closing Date. A Current Report on Form 8-K
containing a detailed description (the "Detailed Description") of the Initial
Loans will be available to purchasers of the Class A Certificates upon request
and will be filed with the Securities and Exchange Commission within 15 days
after issuance of the Class A Certificates. The Detailed Description will
specify the principal balance of the Loans of each Pool as of the Cut-Off Date,
the initial principal balance of each Class of the Class A Certificates and will
also include the following information regarding such Loans of each Pool (in
each case, presented by (i) principal balance of the applicable Pool as of the
Cut-Off Date; (ii) percentage of the applicable Pool by principal balance and
(iii) number of Initial Loans for the applicable Pool): geographical
distribution of the Mortgaged Properties, Combined Loan-to-Value Ratios,
interest rates, original principal balances, number of months since origination,
months remaining to stated maturity, Gross Margins with respect to the Initial
Pool II Home Equity Loans, Lifetime Caps with respect to the Initial Pool II
Home Equity Loans, Lifetime Floors with respect to the Initial Pool II Home
Equity Loans and the months to next Change Date with respect to the Initial Pool
II Home Equity Loans.
The statistical information presented in this Prospectus Supplement
concerning the Loans is based on preliminary Pools expected to be delivered to
the Trustee on the Closing Date. The Representative expects that loans
(including the Subsequent Loans) that were not contained in the preliminary
Pools will be added to the final Pools. While the statistical distribution of
the characteristics for the final Pools of Loans will vary somewhat from the
statistical distribution of such characteristics for the preliminary Pools of
Loans presented in this Prospectus Supplement, the Representative does not
believe that the characteristics of the final Pools will differ materially.
The Agreement will provide that Subsequent Loans may be purchased by the
Trust from the Originators from time to time on or before the close of business
on September 26, 1997 from funds on deposit in the Pre-Funding Account. Any
Subsequent Pool I or Pool II Loan so acquired will have been originated and
underwritten, or purchased and re-underwritten, by one of the Originators,
substantially in accordance with the Originator's underwriting criteria
described in the Prospectus under the caption "The Home Equity Lending
ProgramCUnderwriting Criteria." Any Subsequent Pool III Loan so acquired will
have been originated and underwritten, or purchased and re-underwritten, by one
of the Originators, substantially in accordance with the Originator's
underwriting criteria described herein under the caption "Lending ProgramCThe
Multifamily Lending Program." The purchase price for each Subsequent Loan will
be no greater than its unpaid principal balance as of the related Subsequent
Cut-Off Date. The Agreement will provide that each Pool of Loans, following the
conveyance of any Subsequent Loans to the appropriate Pool, must, in the
aggregate, conform to certain specified characteristics. See "The
AgreementCRepresentations and Warranties" in the Prospectus.
HOME EQUITY LOANS
The Home Equity Loans consist of mortgages, deeds of trust or other
security instruments (the "Home Equity Mortgages" or "Mortgages"), and the
related promissory notes (the "Home Equity Mortgage Notes" or "Notes") secured
by one- to four-family residences (and, in the case of Pool I, certain five and
six family residences), units in planned unit developments and units in
condominium developments (the "Home Equity Mortgaged Properties" or "Mortgaged
Properties"). The aggregate principal balance of the Initial Pool I Home Equity
Loans as of the Cut-Off Date will be not less than approximately $360,000,000,
and the aggregate principal balance of the Initial Pool II Home Equity Loans as
of the Cut-Off Date will be not less than approximately $360,000,000. The Home
Equity Loans will be originated and underwritten, or purchased and
re-underwritten, by one of the Originators, substantially in accordance with the
underwriting criteria described in the Prospectus under the heading "The Home
Equity Lending ProgramCUnderwriting Criteria." However, with respect to up to
approximately 0.50% of the Pool I Home Equity Loans, based upon their original
principal balances, the Originators may not have independently verified the
income of the related Obligors. Certain of the Pool I and Pool II Home Equity
Loans may contain provisions requiring the related Mortgagor to pay a penalty in
connection with certain prepayments. Unless otherwise noted, all percentages in
this general discussion are measured by the expected principal balance of the
Initial Home Equity Loans described herein on the Cut-Off Date, and the
statistics are given as of the Cut-Off Date.
Each Pool II Home Equity Loan (including Subsequent Pool II Home Equity
Loans) will bear interest at an adjustable rate (each, a "Pool II Mortgage
Interest Rate") which will adjust on the date set forth in the related Mortgage
Note. For each Pool II Home Equity Loan, the related Pool II Mortgage Interest
Rate will change initially after the period set forth in the related Mortgage
Note and periodically thereafter. Each date on which a Pool II Mortgage Interest
Rate changes is referred to as the "Change Date" for the related Pool II Home
Equity Loan. No more than approximately 28.0% of the Pool II Home Equity Loans
will have their first Change Date occurring approximately 24 months after
origination and no more than approximately 8.0% of the Pool II Home Equity Loans
will have their first Change Date occurring approximately 36 months after
origination. No more than 40.0% of the Pool II Home Equity Loans will have their
first Change Date occurring approximately 48 months after origination. The
remainder of the Pool II Home Equity Loans will have their first Change Date
occurring no later than 12 months after origination. The Pool II Mortgage
Interest Rate relating to at least 75.0% of the Pool II Home Equity Loans will
adjust on each applicable Change Date to equal the sum of (i) the applicable
London Interbank Offered Rate for U.S. dollar deposits (the "LIBOR Index") and
(ii) the number of basis points set forth in the related Mortgage Note (the
"Gross Margin"), subject to rounding and to the effects of the Periodic Rate
Cap, the applicable Lifetime Cap and the applicable Lifetime Floor. The Pool II
Mortgage Interest Rate relating to the remainder of the Pool II Home Equity
Loans will adjust on each Change Date to equal the sum of (i) the applicable
One-Year Constant Maturity Treasury Index ("CMT" or the "Treasury Index") as
published by the Federal Reserve Board in the applicable Federal Reserve Board
Statistical Release No. H.15, and (ii) the related Gross Margin, subject to
rounding and to the effects of the Periodic Rate Cap, the applicable Lifetime
Cap and the applicable Lifetime Floor.
The Gross Margins for the Pool II Home Equity Loans will range from
approximately 4.0% to 11.0%. The weighted average Gross Margin of the Pool II
Home Equity Loans will be approximately 5.7%. The "Periodic Rate Cap" limits
changes in the Pool II Mortgage Interest Rate for each Pool II Home Equity Loan
on each Change Date to the Periodic Rate Cap as set forth in the related
Mortgage Note. The Lifetime Caps of the Pool II Home Equity Loans will range
from approximately 11.0% to 21.0%. The weighted average Lifetime Cap of the Pool
II Home Equity Loans will be approximately 16.25%. The Lifetime Floors of the
Pool II Home Equity Loans will range from approximately 0% to 15.0%. The
weighted average Lifetime Floor of the Pool II Home Equity Loans will be
approximately 10.25%. The Pool II Home Equity Loans do not provide for negative
amortization.
No less than approximately 70.0% of the Pool I Home Equity Loans and all of
the Pool II Home Equity Loans will be secured by first mortgage liens and the
remainder of the Pool I Home Equity Loans will be secured by second mortgage
liens. Based on representations made by the Obligors, no less than approximately
92.0% and 92% of the Pool I and Pool II Home Equity Loans, respectively, will be
secured by one-to four-family residences, no more than approximately 8.0% and
8.0% of the Pool I and Pool II Home Equity Loans, respectively, are secured by
vacation homes, secondary residences, or investment properties, no more than
approximately 4.0% and 4.0% of the Pool I, and Pool II Home Equity Loans,
respectively, will be secured by individual units in low-rise condominiums, no
more than approximately 10.0% and 10.0% of the Pool I and Pool II Home Equity
Loans, respectively, will be secured by two-, three- or four-family houses, no
more than approximately 2.0% of the Pool I Home Equity Loans will be secured by
five- or six-family houses (which may be mixed-use buildings) and no more than
approximately 1.0% of the Home Equity Loans will be secured by individual units
of other types including high-rise condominiums. No Home Equity Loan will be
secured by a mobile home or a cooperative residence.
No more than approximately 15%, 15%, 12%, 12%, 12%, 12%, 10%, 10%, 10% and
10% of the Pool I Home Equity Loans are secured by Mortgaged Properties located
in California, New York, Illinois, Ohio, North Carolina, Pennsylvania, Florida,
Indiana, Washington and New Jersey, , respectively . No more than approximately
15%, 15%, 15%, 15%, 15%, 12%, 12%, 12% , 12% and 12% of the Pool II Home Equity
Loans will be secured by Mortgaged Properties located in Illinois, Michigan,
California, Ohio, Washington, Pennsylvania, Massachusetts, New York, Colorado
and New Jersey. No more than approximately 5.0% of the Pool I Home Equity Loans
and 5.0% of the Pool II Home Equity Loans will be secured by Mortgaged
Properties located in any other state.
Improvements on Mortgaged Properties located in California may be more
susceptible to certain types of special hazards not covered by insurance (such
as earthquakes) than properties located in other parts of the country. In
addition, the economy of the State of California may be adversely affected to a
greater degree than that of other areas of the country by certain developments
affecting industries concentrated in such state. Moreover in recent periods,
California has experienced significant downturns in the market value of real
estate.
Based upon the original principal balances of the Home Equity Loans, no
more than approximately 25% and 20% of the Pool I and Pool II Home Equity Loans,
respectively, will have a Combined Loan-to-Value Ratio exceeding 80%. No Pool I
or Pool II Home Equity Loan will have a Combined Loan-to-Value Ratio exceeding
100%. The weighted average Combined Loan-to-Value Ratios of the Pool I and Pool
II Home Equity Loans will be no more than approximately 75% and 75%,
respectively. The Home Equity Loans will not be insured or guaranteed by any
governmental entity.
The Initial Pool I Home Equity Loans will bear interest at fixed rates
which, as of the Cut-Off Date, ranged from approximately 8.0% to 21.0% per
annum. The Initial Pool II Home Equity Loans will bear interest at adjustable
rates which, as of the Cut-Off Date, ranged from 7.50% to 15.50% per annum. The
weighted average Pool I Mortgage Interest Rate on the Initial Pool I Home Equity
Loans will be no less than approximately 11.50% per annum. The weighted average
current Pool II Mortgage Interest Rate on the Initial Pool II Home Equity Loans
will be no less than approximately 10.25% per annum. The lowest principal
balances of any Initial Pool I and Initial Pool II Home Equity Loans will be
approximately $1,000 and $1,000, respectively, and the highest will be
approximately $600,000 and $600,000, respectively. As of the Cut-Off Date, the
average principal balances of the Initial Pool I and Initial Pool II Home Equity
Loans will be approximately $45,000 and $80,000, respectively. Home Equity Loans
not originated by an Originator or Home Equity Loans having original principal
balances less than or equal to $15,000 may not be covered by title insurance
policies. The weighted average remaining terms to stated maturity of the Initial
Pool I and Initial Pool II Home Equity Loans will be approximately 258 months
and 358 months, respectively. The weighted average terms to stated maturity of
the Initial Pool I and Initial Pool II Home Equity Loans at origination will be
approximately 260 months and 360 months, respectively. No more than
approximately 15.0% of the Pool I Home Equity Loans will be Balloon Loans. No
Pool II Home Equity Loan will be a Balloon Loan.
MULTIFAMILY LOANS
The Multifamily Loans consist of home improvement mortgages, deeds of trust
or other security instruments (the "Multifamily Mortgages" or "Mortgages"), and
the related promissory notes (the "Multifamily Mortgage Notes" or "Notes")
secured by five or more unit residential or mixed-use residential and commercial
properties (the "Multifamily Mortgaged Properties" or "Mortgaged Properties").
The Multifamily Loans will have been originated and underwritten, or purchased
and re-underwritten, by one of the Originators, substantially in accordance with
the underwriting criteria described herein under the heading "Lending
ProgramsCThe Multifamily Lending Program."
No more than approximately 25%, 17%, 12%, 11%, 11% and 9% of the
Multifamily Loans will be secured by Mortgaged Properties located in California,
Texas, Georgia, Ohio, New York and Arizona, respectively. No more than
approximately 5.0% of the Initial Multifamily Loans will be secured by Mortgaged
Properties located in any other state. All the Multifamily Loans will be secured
by first mortgage liens.
Based upon the original principal balances of the Multifamily Loans, none
of the Multifamily Loans will have a Combined Loan-to-Value Ratio exceeding
approximately 70.0%. The weighted average Combined Loan-to-Value Ratios of the
Multifamily Loans will be approximately 58.0%. The Multifamily Loans will not be
insured or guaranteed by any governmental entity.
The Initial Multifamily Loans will bear interest at fixed rates which range
from approximately 10.0% to 14.0% per annum. The weighted average Mortgage
Interest Rate on the Initial Multifamily Loans will be approximately 11.5% per
annum. The lowest principal balance of any Initial Multifamily Loans will be
approximately $50,000 and the highest will be approximately $700,000. The
average principal balance of the Initial Multifamily Loans will be approximately
$205,000. All Initial Multifamily Loans will be covered by title insurance
policies. The weighted average remaining term to stated maturity of the Initial
Multifamily Loans will be approximately 332 months. The weighted average term to
stated maturity of the Initial Multifamily Loans at origination will be
approximately 334 months.
PAYMENTS ON THE LOANS
The Initial Loans, other than Balloon Loans, will generally provide for a
schedule of payments which will be, if timely paid, sufficient to amortize fully
the principal balance of the related Initial Loan on or before its maturity
date. Interest with respect to the Initial Loans will accrue on either an
actuarial interest method or a simple interest method.
The actuarial interest method provides that interest is charged and
payments are due as of a scheduled day of each month which is fixed at the time
of origination. Scheduled monthly payments on such Loans received either earlier
or later (other than delinquent) than the scheduled due dates thereof will not
affect the amortization schedule or the relative application of such payments to
principal and interest. With respect to the Pool II Home Equity Loans, on each
Change Date, the Mortgagor's monthly payment will be adjusted prospectively to
fully amortize such Pool II Home Equity Loans at the then current Pool II
Mortgage Interest Rate over its stated remaining term to maturity.
The simple interest method provides for the amortization of the amount of
each loan over a series of equal monthly payments. However, unlike the monthly
payment under the actuarial interest method, each monthly payment consists of an
installment of interest which is calculated on the basis of the outstanding
principal balance at the stated interest rate and based upon the period elapsed
since the preceding payment of principal was made, using the method permitted by
applicable law. As payments are received under the loan, the amount received is
applied first to interest accrued to the date of payment and the balance, if
any, is applied to reduce the unpaid principal balance. Accordingly, if a
borrower pays a fixed monthly installment on such a loan before its scheduled
due date, the portion of the payment allocable to interest for the period since
the preceding payment was made will be less than it would have been had the
payment been made as scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly greater. Conversely, if a
borrower pays a fixed monthly installment on the loan after its scheduled due
date, the portion of the payment allocable to interest for the period since the
preceding payment was made will be greater than it would be had the payment been
made as scheduled, and the portion of the payment applied to reduce the unpaid
principal balance will be correspondingly reduced. In addition, a late charge
may be imposed with respect to the past due amount.
The amount of interest payable to the Class A Certificateholders on each
Remittance Date will not be affected by interest accruing on the Loans based on
the simple interest method. On each Remittance Date, the Class A
Certificateholders are entitled to receive 30 days' interest (or, with respect
to the Adjustable Rate and Auction Rate Certificates, the actual number of days
from the last Remittance Date (or, in the case of the first Remittance Date,
from June 15, 1997 with respect to the Adjustable Rate Certificates and from the
Closing Date with respect to the Auction Rate Certificates) to but not including
the upcoming Remittance Date) at the applicable Pass-Through Rate on the
outstanding principal balances of the applicable Class of Certificates. The
Servicer is required to remit to the Trustee the excess, if any, of the amount
of interest the Class A Certificateholders are entitled to receive on each
Remittance Date over the interest collected on the Loans during the related Due
Period and available to pay interest on the Class A Certificates. See "The
AgreementCMonthly Advances and Compensating Interest" herein.
Similarly, the compensation payable to the Servicer will not be affected by
interest accruing on the Loans based on the simple interest method. The Servicer
is entitled to receive a fee based on the principal balance of the Loans, not
upon the portion of a monthly payment allocable to interest. See "The
AgreementCServicing and Other Compensation and Payment of Expenses" herein.
If a payment is received on a Loan before its due date, more of such
payment will be used on the related Remittance Date to pay principal on the
Class A Certificates than if such payment was received on such due date.
Conversely, if a payment is received on a Loan after its scheduled due date,
less of such payment will be used on the related Remittance Date to pay
principal on the Class A Certificates than if such payment was received on its
due date. This will not affect the total amount of principal to be received by
the Class A Certificateholders over the life of the transaction, but it may
affect the weighted average lives of the Class A Certificates.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The effective yield on the Certificates (other than the Adjustable Rate and
Auction Rate Certificates) will be slightly lower than the yield otherwise
produced by the applicable Pass-Through Rate because, while interest will accrue
on such Certificates from the first day of each month, the distribution of such
interest will not be made until the 15th day (or if such 15th day is not a
business day, the next succeeding business day) of the month following the month
of accrual. For the Adjustable Rate and Auction Rate Certificates, interest will
accrue generally from the 15th day of each month until the 14th day of the next
month.
In general, because the Pool I and Pool III Loans will bear fixed interest
rates, when the level of prevailing interest rates for similar loans
significantly declines, the rate of prepayment of such Loans is likely to
increase, although the prepayment rate is influenced by a number of other
factors, including general economic conditions and homeowner mobility.
Similarly, when the level of interest rates for similar loans significantly
rises, the rate of prepayment of such Loans may decrease. No prediction can be
made as to the prepayment rate that the Loans will actually experience.
All of the Pool II Loans bear adjustable rates. However, the Pool II Loans
still may be subject to increased principal prepayments in a low interest rate
environment. For example, if prevailing interest rates were to fall, Mortgagors
with Pool II Loans may be inclined to refinance their Pool II Loans with a fixed
rate loan to "lock in" a lower interest rate. The existence of the Periodic Rate
Cap, Lifetime Cap and Lifetime Floor also may affect the likelihood of
prepayments resulting from refinancings. In addition, the delinquency and loss
experience on the Pool II Loans may differ from that on the Loans in the other
Pools because the amount of the monthly payments on the Pool II Loans are
subject to adjustment on each Change Date. If such different experience were to
occur, the prepayment experience on the Adjustable Rate and Auction Rate
Certificates may differ from that on the other Classes of Certificates.
Generally, junior priority mortgage loans have smaller average principal
balances than first priority mortgage loans and are not viewed by borrowers as
permanent financing. Accordingly, the Loans included in the Trust that are
secured by junior liens may experience a higher rate of prepayment than
traditional first priority mortgage loans. In addition, any future limitations
on the right of borrowers to deduct interest payments on mortgage loans for
Federal income tax purposes may result in a higher rate of prepayment of such
junior Loans. The obligation of the Servicer to enforce the "due-on-sale"
provisions of the Loans may also increase prepayments. The prepayment experience
of the Pools may be affected by a wide variety of factors, including general and
local economic conditions, mortgage market interest rates, the availability of
alternative financing and homeowner mobility. The Money Store Inc. is unaware of
any reliable studies that would project the prepayment risks associated with the
Loans based upon current interest rates and economic conditions and the
historical prepayment experience of The Money Store Inc.'s portfolio of home
equity loans.
Unscheduled payments, delinquencies, repurchases of defective Loans,
defaults on the Loans and distributions from the Pre-Funding Account will affect
the amount of funds available to make distributions on each Remittance Date. In
addition, the Servicer may, at its option, and in the absence of the exercise
thereof by the Servicer, MBIA may, at its option, on any Remittance Date on and
after the Optional Servicer Termination Date, purchase from the Trust all of the
Loans and any related REO Properties at the Termination Prices for all Pools.
MBIA may, at its option, similarly purchase all the Loans and REO Properties on
any Remittance Date, on or after the Cross-Over Date, on which the aggregate
principal balances as of the Cut-Off Date of the Loans that have been liquidated
(each, a "Liquidated Loan") is equal to or exceeds 25% of the sum of (i) the
Original Pool Principal Balance and (ii) the original Pre-Funded Amount. The
Cross-Over Date is defined in the Agreement as the date on which the Maximum
Subordinated Amount is reduced to zero. See "The MBIA Policies and MBIA" herein.
If prepayments of principal are received on the Loans at a rate greater
than that assumed by an investor (including distributions from the Pre-Funding
Account and receipt of Subordination Increase Amounts), the yield will be
increased on Class A Certificates purchased by such investor at a price less
than par (i.e., the principal balance of a Class A Certificate at the time of
its purchase). Similarly, if prepayments of principal are received on the Loans
at a rate greater than that assumed by an investor, the yield will be decreased
on Class A Certificates purchased at a price greater than par. The effect on an
investor's yield of principal prepayments on the Loans occurring at a rate that
is faster (or slower) than the rate anticipated by the investor in the period
immediately following the issuance of the applicable Class of Class A
Certificates may not be offset by a subsequent like reduction (or increase) in
the rate of principal payments. The weighted average lives of the Class A
Certificates will also be affected by the amount and timing of delinquencies and
defaults on the Loans in the related Pool and the liquidations of defaulted
Loans, respectively. Delinquencies and defaults will generally slow the rate of
payment of principal to the Class A Certificateholders since (i) neither the
Servicer nor MBIA is obligated to advance for delinquent payments of principal
and (ii) Insured Payments with respect to principal generally are not required
until the occurrence of a Subordination Deficit (as defined herein under
"Description of the CertificatesCCross-Support Provisions and Spread Amount").
However, this effect will be offset to the extent that lump sum recoveries on
defaulted Loans and foreclosed Mortgaged Properties result in principal payments
on the Loans faster than otherwise scheduled.
As described herein, certain Classes of Certificates in a Pool will be
entitled to receive payments of principal prior to other Classes of Certificates
in the related Pool. As a result, the Classes of Certificates in a Pool
receiving payments of principal first will immediately be affected by the
prepayment rate on the Loans in the related Pool. However, the timing of
commencement of principal distributions and the weighted average lives of each
Class of Class A Certificates will be affected by the prepayment rate
experienced both before and after the commencement of principal distributions on
any such Class.
If during the Funding Period the entire original Pre-Funded Amount has not
been used to purchase Subsequent Loans, on the Special Remittance Date, certain
Classes of Class A Certificates will be prepaid in part from and to the extent
of such remaining amounts. Although no assurances can be given, it is
anticipated by the Representative that the principal amount of Subsequent Loans
sold to the Trust will require the application of substantially all the amounts
on deposit in the Pre-Funding Account, and that there should be no material
principal prepaid on the Class A Certificates from such amounts.
The Loans are either (i) "simple interest" or "date-of-payment loans" or
(ii) "actuarial method" loans. If a payment is received on a Loan which is a
"simple interest" loan later than scheduled, a smaller portion of such payment
will be applied to principal and a greater portion will be applied to interest
than would have been the case had the payment been received on the scheduled due
date, resulting in such Loan having a longer weighted average life than would
have been the case had the payment been made as scheduled. Conversely, if a
payment on a Loan is received earlier than scheduled, more of such payment will
be applied to principal and less to interest than would have been the case had
the payment been received on its scheduled due date, resulting in such Loan
having a shorter weighted average life than would have been the case had the
payment been made as scheduled.
In the event that less than 30 days' interest is collected on a Loan during
a Due Period, whether due to prepayment in full or a Curtailment, the Servicer
is obligated to pay Compensating Interest with respect thereto, but only to the
extent of the aggregate Servicing Fee and Contingency Fee for the related
Remittance Date. To the extent such shortfalls exceed the amount of Compensating
Interest that the Servicer is obligated to pay, and are not otherwise covered by
Monthly Excess Spread (as defined herein under "Description of the
CertificatesCCross-Support Provisions and Spread Amount") or Insured Payments,
the yield on the Certificates of the related Pool will be adversely affected.
Any shortfall in collections of interest resulting from the early receipt of a
scheduled payment will not be covered by Compensating Interest, but will be
covered by Monthly Advances.
The Pass-Through Rate on the Adjustable Rate Certificates will be adjusted
by reference to changes in the level of one-month LIBOR and the Pass-Through
Rate on the Auction Rate Certificates will be adjusted pursuant to the Auction
Procedures attached hereto as Annex I, in each case subject to the effects of
the applicable Net Funds Cap. Although the Pool II Mortgage Interest Rates also
are subject to adjustment, the Pool II Mortgage Interest Rates with respect to
most of the Pool II Loans adjust less frequently than the Pass-Through Rate on
the Adjustable Rate and Auction Rate Certificates and adjust by reference to
either the London Interbank Offered Rate, which will be calculated differently
for the Pool II Loans and the Adjustable Rate Certificates, or the Treasury
Index, which will not necessarily correspond to changes in one-month LIBOR or
the Pass-Through Rates determined pursuant to the Auction Procedures. Changes in
one-month LIBOR or changes in the LIBOR Index or the Treasury Index may not
correlate to each other or to changes in prevailing interest rates. It is
possible that an increased level of one-month LIBOR could occur simultaneously
with a lower level of prevailing interest rates, which would be expected to
result in faster prepayments, thereby reducing the weighted average life of the
Adjustable Rate and Auction Rate Certificates.
Certain of the Pool II Loans were originated with initial Pool II Mortgage
Interest Rates that were based on competitive conditions and did not equal the
sum of the applicable Index and the related Gross Margin. As a result, the Pool
II Mortgage Interest Rates on such Pool II Loans are more likely to adjust on
their first, and possibly subsequent, Change Dates, subject to the effects of
the Periodic Rate Cap and the Lifetime Cap. Because the Pass-Through Rate on the
Adjustable Rate and Auction Rate Certificates is limited by the applicable Net
Funds Cap, on each Remittance Date, limits on changes in the Pool II Mortgage
Interest Rates of the Pool II Loans may limit changes in the Pass-Through Rate
on the Adjustable Rate and Auction Rate Certificates.
The Net Funds Cap on a Remittance Date will depend, in part, on the
weighted average of the then-current Pool II Mortgage Interest Rates. If the
Pool II Loans bearing higher Mortgage Interest Rates were to prepay, the
weighted average Mortgage Interest Rate of the Pool II Loans, and consequently
the Net Funds Cap, would be lower than otherwise would be the case.
The projected last Remittance Dates for each Class of Class A
Certificates is as follows:
Projected Last Projected Last
Class Remittance Date Class Remittance Date
- ----- --------------- ----- ---------------
A-1 March 15, 2004 A-7 July 15, 2038
A-2 November 15, 2009 A-8 July 15, 2038
A-3 July 15, 2012 A-9 August 15, 2028
A-4 January 15, 2017 A-10 August 15, 2028
A-5 July 15, 2021 A-11 July 15, 2028
A-6 September 15, 2024
The projected last Remittance Date for the Class A-7, Class A-8, Class A-10
and Class A-11 Certificates is the Remittance Date following the latest date
upon which a Loan in the related Pool matures, including Subsequent Loans, plus
12 months. The projected last Remittance Date for each other Class of Class A
Certificates is the date on which the Class Principal Balance of the respective
Class would be reduced to zero, assuming that no prepayments are received on the
Loans, that payment of principal of and interest on each of the Loans is timely
received, each Class of Class A Certificates receives payments of principal as
described herein and the Spread Amount is equal to zero. The weighted average
lives of the Class A Certificates are likely to be shorter than would be the
case if payments actually made on the Loans conformed to the foregoing
assumptions, and the final Remittance Dates with respect to each Class of Class
A Certificates could occur significantly earlier than the last projected
Remittance Dates because (i) Monthly Excess Spread will be used to make
accelerated payments of principal (i.e., Subordination Increase Amounts) and
(ii) the Servicer or MBIA may purchase all of the Loans under the limited
circumstances described herein. In addition, prepayments are likely to occur on
the Loans, which also would shorten the weighted average life of the Class A
Certificates.
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average lives of the
Class A Certificates will be influenced by the priorities established in the
Agreement, and by the rate at which principal payments on the Loans in the
related Pool are paid, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes Principal
Prepayments, Curtailments and liquidations due to default). Prepayments on
mortgage loans are commonly measured relative to a prepayment standard or model.
The following tables have been prepared assuming that each of the Pools are
comprised of loan groups having the following characteristics:
<TABLE>
<CAPTION>
POOL I
ASSUMED INITIAL ORIGINAL REMAINING REMAINING
CUT-OFF DATE MORTGAGE TERM OF TERM OF TERM TO ASSUMED
PRINCIPAL INTEREST AMORTIZATION AMORTIZATION MATURITY AMORTIZATION DELIVERY OF
BALANCE RATE (IN MONTHS) (IN MONTHS) (IN MONTHS) METHOD LOANS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$30,695,960.17 11.657% 360 355 174 Balloon Closing
$4,294,812.47 12.204% 69 68 68 Level Closing
$15.,963,600.67 12.287% 120 119 119 Level Closing
$62,698,947.45 11.869% 180 178 178 Level Closing
$18,391,464.48 11.596% 240 238 238 Level Closing
$7,921,577.98 12.264% 300 299 299 Level Closing
$86,877,110.11 10.995% 360 358 358 Level Closing
$11,711,055.62 10.927% 480 477 477 Level Closing
$23,537,918.80 11.657% 360 360 179 Balloon Closing
$3,293,298.09 12.204% 69 69 69 Level Closing
$12,241,022.40 12.287% 120 120 120 Level Closing
$48,078,076.87 11.869% 180 180 180 Level Closing
$14,102,728.66 11.596% 240 240 240 Level Closing
$6,074,332.19 12.264% 300 300 300 Level Closing
$66,618,094.04 10.995% 360 360 360 Level Closing
$18,606,197.77 11.657% 360 360 179 Balloon August 1997
$2,603,278.40 12.204% 69 69 69 Level August 1997
$9,676,254.11 12.287% 120 120 120 Level August 1997
$38,004,643.23 11.869% 180 180 180 Level August 1997
$11,147,891.22 11.596% 240 240 240 Level August 1997
$4,801,623.59 12.264% 300 300 300 Level August 1997
$52,660,111.68 10.995% 360 360 360 Level August 1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POOL II
Assumed Initial Original Remaining Remaining Gross Periodic Lifetime Lifetime Months Reset Amortiza- Assumed
Cut-off Date Mortgage Term of Term of Term to Margin Cap Cap Floor to Fre- tion Delivery
Principal Interest Amortiza- Amortiza- Maturity Reset quency Method of Loans
Balance Rate tion (in tion (in Date
months) (in months)
months)
- -----------------------------------------------------------------------------------------------------------------------------------
1-month LIBOR
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$410,612.08 8.963% 360 358 358 5.577% 2.000% 15.615% 8.615 2 1 Level Closing
6-MONTH LIBOR
$99,865,385.82 9.875% 360 358 358 5.851% 1.016% 15.876% 9.669 4 6 Level Closing
$9,034,162.26 10.334% 360 356 356 5.766% 1.109% 16.566% 9.436 16 6 Level Closing
$57,839,408.81 10.508% 360 359 359 5.942% 1.044% 16.603% 10.355 23 6 Level Closing
$12,267,028.70 10.638% 360 358 358 6.073% 1.017% 16.648% 10.638 34 6 Level Closing
$101,840,618.60 10.603% 360 359 359 6.289% 1.000% 16.603% 10.603 47 6 Level Closing
$36,716,240.77 9.875% 360 360 360 5.851% 1.016% 15.876% 9.669 6 6 Level August 97
$3,321,475.94 10.334% 360 360 360 5.766% 1.109% 16.566% 9.436 20 6 Level August 97
$21,265,082.42 10.508% 360 360 360 5.942% 1.044% 16.603% 10.355 24 6 Level August 97
$4,510,062.98 10.638% 360 360 360 6.073% 1.017% 16.648% 10.638 36 6 Level August 97
$37,442,449.58 10.603% 360 360 360 6.289% 1.000% 16.603% 10.603 48 6 Level August 97
1-YEAR LIBOR
$2,813,429.76 9.911% 360 356 356 5.666% 1.969% 15.849% 9.734 7 12 Level Closing
$1,034,378.09 9.911% 360 360 360 5.666% 1.969% 15.849% 9.734 12 12 Level August 97
1-YEAR CMT 360
$15,822,431.37 9.867% 360 354 354 5.777% 2.000% 15.956% 9.596 8 12 Level Closing
$5,817,232.82 9.867% 360 360 360 5.777% 2.000% 15.956% 9.596 12 12 Level August 97
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POOL III
Assumed Initial Original Remaining Remaining
Cut-off Date Mortgage Term of Term of Term to Assumed
Principal Interest Amortization Amortization Maturity Amortization Delivery of
Balance Rate (in months) (in months) (in months) Method Loans
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1,429,418.66 11.035% 180 178 178 Level Closing
$8,570,581.34 11.564% 360 357 357 Level Closing
</TABLE>
The following tables also have been prepared assuming (i) all distributions
with respect to the Certificates will be made at the scheduled times as
described below under "Description of the CertificatesCDistributions on the
Class A Certificates," (ii) distributions on the Class A Certificates are
received in cash on the 15th day of each month, commencing July 1997, (iii)
prepayments represent payment in full of individual Loans and are received on
the last day of each month (commencing in June 1997) and include 30 days'
interest thereon at the applicable Mortgage Interest Rate, (iv) the Servicing
Fee and Contingency Fee for each Loan will be 0.25% and 0.25% per annum,
respectively, of the principal balance thereof, (v) no delinquencies or defaults
in payments by Obligors of principal and interest on the Loans are experienced,
(vi) no right of optional termination is exercised except as noted below, (vii)
the Class A Certificates are purchased on June 30, 1997, (viii) with respect to
the Loans, one-month LIBOR, six-month LIBOR, one-year LIBOR and one-year CMT
remain constant at 5.6875%, 5.875%, 6.09375% and 5.65%, respectively, (ix) with
respect to the Class A Certificates, LIBOR remains constant at 5.6875% and (x)
the Specified Subordinated Amount (as defined herein under "Description of the
CertificatesCCross-Support Provisions and Spread Amount") with respect to each
Pool initially is set at the highest level specified by the Agreement and
thereafter decreases in accordance with the provisions of the Agreement.
For each Class of Class A Certificates, the scenarios presented below
assume that the Representative exercises its option to establish the Pre-Funding
Account and that the Pre-Funded Amount equals its maximum permitted amount. The
scenarios also assume that the entire Pre-Funded Amount is used to purchase
Subsequent Loans by July 1997.
The model used in this Prospectus Supplement is a prepayment assumption
(the "Prepayment Assumption") which represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of
mortgage loans for the life of such mortgage loans. The tables relating to the
Pool I and Pool II Certificates are priced at various Home Equity Prepayment
("HEP") assumptions. HEP assumes that a pool of loans prepays in the first month
at a constant prepayment rate ("CPR") that corresponds in CPR to one-tenth the
given HEP percentage and increases by an additional one-tenth each month
thereafter until the tenth month, where it remains at a CPR equal to the given
HEP percentage. With respect to Pool I, the "100% Prepayment Assumption" assumes
a CPR of 2.3% per annum of the then outstanding principal balance of the
respective Home Equity Loans in the first month of the life of such Home Equity
Loans and an additional 2.3% per annum in each month thereafter until the tenth
month. Beginning in the tenth month and in each month thereafter during the life
of the Home Equity Loans, the 100% Prepayment Assumption assumes a CPR of 2.3%
per annum each month. With respect to Pool II, the 100% Prepayment Assumption
assumes a CPR of 25% per annum of the then outstanding principal balance of the
adjustable rate loans in Pool II each month. With respect to Pool III, the 100%
Prepayment Assumption assumes a CPR of 2.0% per annum of the then outstanding
principal balance of the Multifamily Loans in Pool III in each month in the
first 48 months of the life of such Multifamily Loans. Beginning in the 49 month
and in each month thereafter during the life of such Multifamily Loans, 100%
Prepayment Assumption assumes a CPR of 10% per annum each month. As used in the
table below, 0% Prepayment Assumption assumes prepayment rates equal to 0% of
the Prepayment Assumption, i.e., no prepayments on the mortgage loans having the
characteristics described below. Correspondingly, 100% Prepayment Assumption
assumes prepayment rates equal to 100% of the related Prepayment Assumption,
125% Prepayment Assumption assumes 125% of each of the rates described above;
and so forth. The Prepayment Assumption does not purport to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool, including the related Loans.
Neither the Prepayment Assumption nor any other prepayment model or
assumption purports to be an historical description of prepayment experience or
a prediction of the anticipated rate of prepayment of any pool of mortgage
loans, including the Loans included in the Trust. Variations in the actual
prepayment experience and the balance of the Loans that prepay may increase or
decrease each weighted average life shown in the following tables. Such
variations may occur even if the average prepayment experience of all such Loans
equals any of the specified percentages of the Prepayment Assumption.
<TABLE>
<CAPTION>
CLASS A-1 CERTIFICATES
PERCENTAGE WEIGHTED
OF PREPAYMENT AVERAGE EXPECTED
ASSUMPTION LIFE (YEARS) MATURITY
- ------------- ------------ --------
<S> <C> <C>
0% 2.65 3/15/03
75% 0.57 7/15/98
100% (2) 0.50 5/15/98
125% 0.45 4/15/98
150% 0.41 3/15/98
CLASS A-2 CERTIFICATES
PERCENTAGE Weighted
OF PREPAYMENT Average Expected
ASSUMPTION Life (years) Maturity
- ------------- ------------ --------
0% 8.74 2/15/09
75% 1.46 6/15/99
100% (2) 1.20 1/15/99
125% 1.03 10/15/98
150% 0.92 8/15/98
CLASS A-3 CERTIFICATES
PERCENTAGE Weighted
OF PREPAYMENT Average Expected
ASSUMPTION Life (years) Maturity
- ------------- ------------ --------
0% 13.81 7/15/12
75% 2.63 12/15/00
100% (2) 2.07 2/15/00
125% 1.72 9/15/99
150% 1.48 5/15/99
CLASS A-4 CERTIFICATES
PERCENTAGE Weighted
OF PREPAYMENT Average Expected
ASSUMPTION Life (years) Maturity
- ------------- ------------ --------
0% 16.33 5/15/16
75% 3.98 2/15/02
100% (2) 3.03 12/15/00
125% 2.47 4/15/00
150% 2.08 11/15/99
CLASS A-5 CERTIFICATES
PERCENTAGE Weighted
OF PREPAYMENT Average Expected
ASSUMPTION Life (years) Maturity
- ------------- ------------ --------
0% 21.23 2/15/21
75% 5.33 9/15/03
100% (2) 4.01 2/15/02
125% 3.18 2/15/01
150% 2.64 6/15/00
CLASS A-6 CERTIFICATES
PERCENTAGE WEIGHTED
OF PREPAYMENT AVERAGE EXPECTED
ASSUMPTION LIFE (YEARS) MATURITY
- ------------- ------------ --------
0% 25.36 7/15/24
75% 7.65 12/15/06
100% (2) 5.34 10/15/03
125% 4.18 4/15/02
150% 3.39 5/15/01
CLASS A-7 CERTIFICATES
PERCENTAGE WEIGHTED Earliest
OF PREPAYMENT AVERAGE EXPECTED Retirement
ASSUMPTION LIFE (YEARS) MATURITY Date (1)
- ------------- ------------ -------- --------
<S> <C> <C> <C>
0% 29.05 10/15/34 3/15/26
75% 12.96 12/15/18 5/15/08
100% (2) 9.94 5/15/14 10/15/05
125% 7.52 10/15/11 2/15/04
150% 5.69 6/15/09 12/15/02
CLASS A-8 CERTIFICATES
PERCENTAGE WEIGHTED EARLIEST
OF PREPAYMENT AVERAGE EXPECTED RETIREMENT
ASSUMPTION LIFE (YEARS) MATURITY DATE (1)
- ------------- ------------ -------- --------
0% 11.44 5/15/34 3/15/26
75% 6.95 9/15/18 5/15/08
100% (2) 6.46 2/15/14 10/15/05
125% 6.08 8/15/11 2/15/04
150% 5.80 4/15/09 12/15/02
CLASS A-9 CERTIFICATES
PERCENTAGE Weighted
OF PREPAYMENT Average Expected
ASSUMPTION Life (years) Maturity
0% 17.72 9/15/23
75% 1.88 3/15/02
100% (2) 1.39 12/15/00
125% 1.08 3/15/00
150% 0.88 8/15/99
CLASS A-10 CERTIFICATES (3)
PERCENTAGE WEIGHTED EARLIEST
OF PREPAYMENT AVERAGE EXPECTED RETIREMENT
ASSUMPTION LIFE (YEARS) MATURITY DATE (1)
- ------------- ------------ -------- --------
0% 28.19 7/15/27 3/15/26
75% 9.10 6/15/20 5/15/08
100% (2) 6.70 2/15/15 10/15/05
125% 5.19 4/15/11 2/15/04
150% 4.15 8/15/08 12/15/02
CLASS A-11 CERTIFICATES
PERCENTAGE WEIGHTED EARLIEST
OF PREPAYMENT AVERAGE EXPECTED RETIREMENT
ASSUMPTION LIFE (YEARS) MATURITY DATE
- ------------- ------------ -------- ----
0% 13.75 3/15/27 3/15/26
75% 7.47 11/15/26 5/15/08
100% (2) 6.53 6/15/26 10/15/05
125% 5.83 9/15/25 2/15/04
150% 5.30 6/15/24 12/15/02
- ------------------------
(1) Assuming early termination of the Trust when the aggregate principal
balance of the Loans declines to a level equal to 10% of the sum of (i)
the Original Pool Principal Balance and (ii) the original Pre-Funded
Amount.
(2) Pricing Assumption.
(3) Reflects experience of the Auction Rate Certificates in the aggregate,
without taking into account random distributions of principal by lot or
distributions of principal in integral multiples of $25,000. Therefore,
it is unlikely that any individual holder of an Auction Rate
Certificate will realize the Weighted Average Life and Expected
Maturity set forth for the Percentage of Prepayment Assumptions listed
above.
</TABLE>
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Class A Certificates will be issued pursuant to the Agreement, a copy
of which will be included as an exhibit to a Current Report on Form 8-K to be
filed by the Representative on behalf of the Trust. The following summaries
describe material provisions of the Certificates and the Agreement, but 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. Terms used herein and
not otherwise defined will have the meanings set forth in the Agreement.
GENERAL
The Pool I Certificates generally will represent the right to receive
payments distributable on or with respect to the Home Equity Loans in Pool I.
The Pool II Certificates generally will represent the right to receive payments
distributable on or with respect to the Home Equity Loans in Pool II. The Pool
III Certificates generally will represent the right to receive payments
distributable on or with respect to the Multifamily Loans in Pool III. The Trust
also will issue the Class X and the Class R Certificates. Only the Class A
Certificates are offered hereby.
However, as a result of the cross-support provisions described herein, the
holders of each Class of Certificates may receive cash as credit support from
any Loan in any Pool. See "CCross Support Provisions and Spread Amount." Also,
amounts, if any, on deposit in the Spread Account will be available to cover
shortfalls in amounts otherwise distributable to Certificateholders, regardless
of Pool.
The Certificates will not represent obligations of the Representative, the
Originators or any of their respective affiliates. The Class A Certificates
(other than the Auction Rate Certificates) will be issued in book-entry form in
minimum denominations of $1,000 original principal amount and integral multiples
of $1,000 in excess thereof and the Auction Rate Certificates will be issued in
book-entry form in minimum denominations of $25,000 original principal amount
and integral multiples of $25,000 in excess thereof, except that one certificate
of each Class of Class A Certificates may be issued in a different denomination
and, if so issued, will be held in physical form.
Definitive Class A Certificates, if issued, will be transferable and
exchangeable at the corporate trust office of the Trustee or, at the election of
the Trustee, at the office of a Certificate Registrar appointed by the Trustee.
No service charge will be made for any registration of exchange or transfer, but
the Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
The assets of the Trust will consist of (a) the Home Equity Loans and
Multifamily Loans that from time to time are subject to the Agreement; (b)
amounts that from time to time are required by the Agreement to be deposited in
the Certificate Account (as defined below), the Principal and Interest Account
(as defined below), the Expense Account, the Insurance Account, the Spread
Account, the Pre-Funding Account and the Capitalized Interest Account, or to be
invested in Permitted Investments; (c) all rights under any insurance policy
covering a Loan or the related Mortgaged Property; (d) property and any proceeds
thereof acquired by foreclosure of a Loan, deed in lieu of foreclosure or a
comparable conversion; and (e) the MBIA Policies and any proceeds thereof.
DISTRIBUTIONS ON THE CLASS A CERTIFICATES
On the 15th day of each month or, if such 15th day is not a Business Day,
the first Business Day immediately following, commencing in July 1997 (each such
day being a "Remittance Date," provided, however, that in no event shall the
Remittance Date occur less than three business days following the Determination
Date), until the Class Principal Balance of each Class of Class A Certificates
has been reduced to zero, the Trustee or Paying Agent will be required to
distribute to the persons in whose name a Class A Certificate (other than the
Auction Rate Certificates) is registered at the close of business on the last
day of the month immediately preceding the month of the related Remittance Date
(the "Record Date"), such Holder's Percentage Interest multiplied by that
portion of the Distribution Amount for the applicable Pool allocable to the
respective Class of Class A Certificates for such Remittance Date. Any
Pre-Funded Amount remaining at the close of business on September 26, 1997 will
be distributed by or on behalf of the Trustee on the Special Remittance Date
(together with accrued interest) at the applicable Pass-Through Rates on the
amount of such prepayment to the Classes of Class A Certificates then entitled
to receive payments of principal as described herein under "CThe Distribution
Amounts." Such distribution will be made to each person in whose name a Class A
Certificate of any such Class is registered on August 31, 1997. For so long as
the Class A Certificates are in book-entry form with DTC, the only "Holder" of
the Class A Certificates will be Cede. See "CBook-Entry Certificates."
With respect to the Auction Rate Certificates, on each Remittance Date, the
Trustee or Paying Agent will be required to distribute to the persons in whose
name an Auction Rate Certificate is registered at the close of business on the
related Record Date, such Holder's Percentage Interest multiplied by that
portion of the Current Interest Requirement allocable to the respective Class of
Auction Rate Certificates for such Remittance Date. The remainder of the
Distribution Amount being distributed to such Class of Auction Rate Certificates
on such Remittance Date will be allocated as principal to the specific
Certificates of such Class selected no later than 5 business days prior to the
related Remittance Date by lot or such other manner as may be determined, which
allocations will be made only in amounts equal to $25,000 and integral
multiplies of $25,000 in excess thereof.
Notwithstanding the foregoing, if on the Special Remittance Date the amount
of principal allocated to the Auction Rate Certificates is not equal to $25,000
or an integral multiple of $25,000 in excess thereof, the entire amount (if less
than $25,000) or the amount exceeding an integral multiple of $25,000 will,
instead, be distributed to the Adjustable Rate Certificates.
The "Class Principal Balance" of a Class of Certificates as of any date of
determination is the original principal balance of such Class of Certificates,
less (i) the sum of all amounts (including the principal portion of any related
Insured Payments previously distributed to the Trustee as principal on the
applicable Class of Certificates, and (ii) any actual loss of principal suffered
by the related Class A Certificateholders due to the failure of MBIA to perform
its obligations under the related MBIA Policy. Any such loss with respect to a
Loan will be allocated among all then outstanding Classes of Class A
Certificates of the related Pool pro rata based upon the then outstanding Class
Principal Balances of such Classes.
A Class A Certificateholder's "Percentage Interest" is that fraction,
expressed as a percentage, the numerator of which is the original denomination
of such Class A Certificateholder's Class A Certificate and the denominator of
which is the original aggregate Class Principal Balance of the respective Class
of Class A Certificate.
A "Business Day" is any day other than (i) a Saturday or Sunday or (ii) a
day on which banking institutions in the States of New York or New Jersey are
authorized or obligated by law or executive order to be closed.
THE DISTRIBUTION AMOUNTS
On any Remittance Date, the "Distribution Amount" for each Pool will equal
the sum of (i) the Current Interest Requirement for such Pool, (ii) the
Principal Distribution Amount for such Pool, (iii) the Carry-Forward Amount for
such Pool, and (iv) any amount received by the Trustee from the Servicer that
constitutes a Monthly Advance with respect to a Loan in such Pool and that is
recoverable and sought to be recovered as a voidable preference by a trustee in
bankruptcy pursuant to the Bankruptcy Code in accordance with a final,
nonappealable order of a court having competent jurisdiction. The Distribution
Amount does not include any Certificateholders' Interest Carryover.
On any Remittance Date the Current Interest Requirement for a Class of
Certificates will equal 30 days' interest (or, in the case of the Adjustable
Rate and Auction Rate Certificates, the actual number of days since the
preceding Remittance Date, or, with respect to the first Remittance Date, since
June 15, 1997 with respect to the Adjustable Rate Certificates or since the
Closing Date with respect to the Auction Rate Certificates), at the related
Pass-Through Rate on the respective Class Principal Balance immediately prior to
the related Remittance Date (calculated on the basis of a 360-day year,
consisting of twelve 30-day months or, in the case of the Adjustable Rate and
Auction Rate Certificates, the actual number of days elapsed since interest was
last paid or, for the first Remittance Date, since June 15, 1997 with respect to
the Adjustable Rate Certificates and since the Closing Date with respect to the
Auction Rate Certificates). On any Remittance Date, (i) the "Pool I Current
Interest Requirement" will equal the sum of the Class A-1 through Class A-8
Current Interest Requirements, (ii) the "Pool II Current Interest Requirement"
will equal the Class A-9 and Class A-10 Current Interest Requirement and (iii)
the "Pool III Current Interest Requirement" will equal the Class A-11 Current
Interest Requirement. Notwithstanding the foregoing, if a principal prepayment
is made to a Class of Class A Certificates on the Special Remittance Date, each
such Class also will receive on such date accrued interest at the applicable
Pass-Through Rate on the amount of such prepayment. Further, the Current
Interest Requirement for each such Class for the October 1997 Remittance Date
will be based on the related Class Balance after giving effect to such principal
prepayment.
For each Remittance Date, the Class A-9 Pass-Through Rates will equal a per
annum rate equal to the sum of LIBOR plus 0.10%, subject to the applicable Net
Funds Cap for the related Pool (but in no event exceeding 14% per annum).
For the first Remittance Date the Class A-10 Certificates will bear
interest at the LIBOR rate minus 0% per annum. For each Remittance Date
thereafter, the Class A-10 Certificates will bear interest based upon the
Auction Procedures described in Annex I hereto, subject to the Net Funds Cap
(but in no event exceeding 14% per annum).
If on any Remittance Date the Pass-Through Rate for the Adjustable Rate or
Auction Rate Certificates is based upon the Net Funds Cap, the excess of (i) the
amount of interest such Class of Certificates would be entitled to receive on
such Remittance Date had interest been calculated based on LIBOR plus the
applicable margin or the Auction Rate, as the case may be (but in no event
exceeding 14% per annum), over (ii) the amount of interest such Class will
receive on such Remittance Date at the Net Funds Cap, together with the unpaid
portion of any such excess from prior Remittance Dates (and interest accrued
thereon at the then applicable Pass-Through Rate, without giving effect to the
Net Funds Cap but in no event exceeding 14% per annum) is referred to herein as
the "Certificateholders' Interest Carryover." Any Certificateholders' Interest
Carryover will be paid on future Remittance Dates only as set forth herein under
"The AgreementCFlow of Funds." The ratings of the Adjustable Rate or Auction
Rate Certificates do not address the likelihood of the payment of the amount of
any Certificateholder's Interest Carryover. The MBIA Policies do not insure
payment of Certificateholder's Interest Carryover.
The Carry-Forward Amount for each Pool with respect to any Remittance Date
will equal the sum of (i) the amount, if any, by which (x) the Distribution
Amount for such Pool as of the immediately preceding Remittance Date exceeded
(y) the amount of the actual distribution to the Holders of the Certificates of
such Pool made on such Remittance Date (less the amount of Insured Payments, if
any, on such date), and (ii) interest on the amount, if any, described in clause
(i) at one-twelfth the applicable Pass-Through Rate for the related Class of
Certificates.
The Carry-Forward Amounts are primarily intended to measure the amount of
money for which MBIA is entitled to reimbursement. As set forth herein, MBIA is
subrogated to the rights of Class A Certificateholders to receive payments under
the Class A Certificates to the extent of any Insured Payments made under the
applicable MBIA Policy. See "The MBIA Policies and MBIA." This right of
subrogation, however, is subordinate to the right of the Class A
Certificateholders to receive the entire Distribution Amount on each Remittance
Date.
On any Remittance Date, the Principal Distribution Amount for each Pool of
Certificates will equal the excess of:
(A) the sum, without duplication, of the following:
(i) each payment of principal received by the Servicer or any
Sub-Servicer (exclusive of Curtailments, Principal Prepayments and
amounts described in clause (iii) hereof) during the related Due Period
with respect to the Loans of the related Pool,
(ii) all Curtailments and all Principal Prepayments received
by the Servicer or any Sub-Servicer during the related Due Period with
respect to the Loans of the related Pool,
(iii) the principal portion of all Insurance Proceeds,
Released Mortgaged Property Proceeds and Liquidation Proceeds net of
certain reimbursements to the Servicer and amounts required by law to
be released to the related Mortgagor ("Net Liquidation Proceeds")
received by the Servicer or any Sub-Servicer during the related Due
Period with respect to the Loans of the related Pool,
(iv) that portion of the purchase price for any Loan of the
related Pool repurchased pursuant to the Agreement which represents
principal and any Substitution Adjustments, in either case to the
extent received by the Trustee as of the related Determination Date,
(v) any proceeds representing principal received by the
Trustee in connection with the liquidation of a Pool or the
termination of the Trust,
(vi) the amount of any Subordination Deficit (as defined below
under "CSpread Amount") with respect to a Pool for such Remittance
Date,
(vii) any moneys released from the Pre-Funding Account on the
July, August and September, 1997 Remittance Date as a prepayment of the
Certificates of the related Pool; and
(viii) the amount of any Subordination Increase Amount (as
defined below under "CCross-Support Provisions and Spread Amount") with
respect to a Pool for such Remittance Date, OVER
(B) the amount of any Subordination Reduction Amount (as defined below
under "CCross-Support Provisions and Spread Amount") with respect to a Pool for
such Remittance Date.
In the event any amounts referenced in clause (iv) of the definition of
Distribution Amount or clause (A)(iv) of the definition of Principal
Distribution Amount are covered by Insured Payments or any portion thereof,
payment of such amounts will be disbursed to the trustee in bankruptcy named in
the final order of the court exercising jurisdiction and not to any Class A
Certificateholder directly unless such Class A Certificateholder has returned
principal or interest paid on a Class A Certificate to such trustee in
bankruptcy, in which case such payment will be disbursed to such Class A
Certificateholder.
The definitions of the Principal Distribution Amount for each Pool are
determined with regard to actual amounts received on the Loans and without any
regard to a schedule for the recovery of principal.
Pursuant to the MBIA Policies, MBIA has agreed to make Insured Payments on
each Remittance Date. See "The MBIA Policies and MBIA." MBIA DOES NOT INSURE
PAYMENT OF CERTIFICATEHOLDERS' INTEREST CARRYOVER.
The Agreement provides that the Trustee or Paying Agent will (i) receive as
attorney-in-fact of each Holder of the Class A Certificates any Insured Payment
from MBIA and (ii) disburse such payment pursuant to the Agreement. The
Agreement provides that to the extent MBIA makes Insured Payments, either
directly or indirectly (as by paying through the Trustee), to the Holders of the
Class A Certificates, MBIA will be subrogated to the rights of such Holders with
respect to such Insured Payments, will be deemed, to the extent of the payments
so made, to be a registered Holder of Class A Certificates and will receive
reimbursement for such Insured Payments as provided in the Agreement, but only
from the sources (other than Insured Payments) and in the manner provided in the
Agreement.
Each Holder of a Class A Certificate is required by the Agreement to notify
the Trustee promptly upon the receipt of a court order to the effect that
amounts previously received by such Class A Certificateholder and described in
clause (A)(iv) of the definition of Principal Distribution Amount or clause (iv)
of the definition of Distribution Amount constitute voidable preferences and to
provide a copy of such order with such notice.
As set forth above, clause (A)(i) of the definition of Principal
Distribution Amount for each Pool includes only payments of principal actually
received by the Servicer or any Sub-Servicer. Neither the Servicer nor MBIA is
required to advance any delinquent payments of principal. Accordingly, the
Certificateholders will not receive delinquent payments of principal until such
time as the delinquency is cured or, if such delinquency is not cured, following
the time such Loan becomes a Liquidated Loan.
CROSS-SUPPORT PROVISIONS AND SPREAD AMOUNT
As a result of the cross-support provisions described below, on each
Remittance Date the "Monthly Excess Spread" for each Pool of Loans (i.e., an
amount generally equal to the interest due on the Loans remaining after each
Class of Certificates in the related Pool has been allocated its interest for
such Remittance Date and certain expenses of the Trust have been paid) and
certain other amounts (collectively, the "Total Monthly Excess Cashflow") will
be available to fund any shortfalls in amounts required to be distributed to
Certificates of the related Pool and for Certificates of any other Pool. Any
remaining Total Monthly Excess Cashflow, net of certain amounts used to
reimburse MBIA, will be applied in the following order of priority on such
Remittance Date:
(i) first, to make accelerated payments of principal to the
Class A Certificates of the related Pool until the Subordinated Amount
(as defined below) of such Pool equals its Specified Subordinated
Amount (as defined below);
(ii) second, to make accelerated payments of principal to the
Class A Certificates of the other Pools until the Subordinated Amount
of each such Pool equals its related Specified Subordinated Amount (the
amount of Monthly Excess Spread applied from one Pool to make
accelerated payments of principal on another Pool is the "Subordination
Increase Amount" for such latter Pool);
(iii) third, to make deposits into the Spread Account until
the amount therein is at its required level; and
(iv) fourth, to reimburse the Servicer for certain amounts
owing to it, to pay the holders of the Adjustable Rate and Auction Rate
Certificates any Certificateholders' Interest Carryover owing for such
Remittance Date and all prior Remittance Dates (but only with respect
to collections relating to Pool II Home Equity Loans) and to pay any
remainder to the holders of the Class X Certificates and Class R
Certificates as specified in the Agreement.
Certain excess interest otherwise payable to the holders of the Class X
Certificates and Class R Certificates with respect to the Loans will, instead,
be deposited into the Spread Account.
The acceleration feature described above is intended to create, with
respect to each Pool of Loans, an amount (the "Spread Amount"), resulting from,
and generally equal to, the excess of the aggregate principal balances of the
Loans of the related Pool, over the principal balances of the Certificates of
the related Pool. Applying Monthly Excess Spread to payment of principal on the
Class A Certificates has the effect of accelerating the amortization of the
Class A Certificates relative to the amortization of the Loans. As a result of
the foregoing, the holders of each Class of Class A Certificates may receive
cash as credit support from any Loan in any Pool.
For any Remittance Date and for each Pool, the difference, if any, between
(x) the sum of (i) the aggregate principal balances of the Loans of the related
Pool as of the close of business on the last day of the related Due Period and
(ii) any amount on deposit in the Pre-Funding Account at such time and allocated
to the related Pool and (y) the aggregate principal balances of the Certificates
of the related Pool after making all distributions on such Remittance Date is
the "Subordinated Amount" with respect to such Pool as of such Remittance Date.
Pursuant to the Agreement and an insurance agreement relating to the
Certificates among MBIA, The Money Store Inc., the Originators and the Trustee
(the "Insurance Agreement"), Monthly Excess Spread will be applied as
accelerated payments of principal on the Class A Certificates until the
Subordinated Amount for each Pool has increased to the level required by the
Agreement. The required level of the Subordinated Amount with respect to a Pool
of Loans and Remittance Date is the "Specified Subordinated Amount" with respect
to such Pool of Loans and Remittance Date. The Agreement generally provides that
the Specified Subordinated Amount may, over time, decrease, or increase, subject
to certain floors, caps and triggers. In addition, the level of the Specified
Subordinated Amount with respect to each Pool of Loans may be increased to a
limited extent in connection with the delivery of Subsequent Loans to the
related Pool. Following the Funding Period, cash up to the amount of any such
increase may be deposited in the Spread Account.
The Agreement also provides that, except in limited circumstances, if the
aggregate amount of Monthly Excess Spread applied to payments of principal on
the Certificates exceeds the amount specified therein (such amount the "Maximum
Subordinated Amount") no further Monthly Excess Spread will be applied to
payment of principal on the Certificates and the Specified Subordinated Amount
will thereafter be zero.
If with respect to any Pool of Loans and any Remittance Date, the
Subordinated Amount exceeds the related Specified Subordinated Amount (the
amount of such excess being referred to as the "Excess Subordinated Amount" with
respect to such Pool of Loans and Remittance Date), then any amounts relating to
principal which would otherwise be distributed to the Class A Certificates of
the related Pool on such Remittance Date will instead be distributed to
Certificates of other Pools in an amount up to such Excess Subordinated Amount.
The amount of principal received on a Pool of Loans and transferred to the other
Pools pursuant to this provision is referred to as the "Subordination Reduction
Amount" with respect to the Pool from which such amounts are being transferred.
The Subordinated Amount for a Pool constitutes the first level of credit
support for the related Certificates. If any Loan becomes a Liquidated Loan, the
Net Liquidation Proceeds related thereto and allocated to principal may be less
than the principal balance of the related Loan. The amount of any such
insufficiency is an "Unrecovered Portion." The occurrence of an Unrecovered
Portion will reduce the Subordinated Amount with respect to the related Pool of
Loans. However, Certificateholders of the related Pool will be entitled to
receive Monthly Excess Spread, either from the related Pool of Loans or the
other Pools, in an amount equal to the Unrecovered Portion, subject to the
limits described above. Therefore, if sufficient Monthly Excess Spread is
available (either on the current Remittance Date or on future Remittance Dates),
Certificateholders will not realize a loss with respect to an Unrecovered
Portion.
If insufficient Monthly Excess Spread is available to pay Unrecovered
Portions, the related Pool may experience a Subordination Deficit. The Agreement
defines a "Subordination Deficit" with respect to a Pool of Loans and Remittance
Date to be the amount, if any, by which (x) the Principal Balances of the Class
A Certificates of the related Pool, after taking into account all distributions
to be made on such Remittance Date (other than amounts payable with respect to
principal under the applicable MBIA Policy) exceeds (y) the aggregate principal
balances of the related Pool of Loans as of the close of business on the last
day of the prior Due Period plus the amount, if any, on deposit in the
Pre-Funding Account on such date and allocated to such Pool of Loans. The
Trustee is required to make a claim for an Insured Payment under the related
MBIA Policy with respect to any Remittance Date as to which the Trustee has
determined that a Subordination Deficit will occur for the purpose of applying
the proceeds of such Insured Payment as a payment of principal to the
Certificateholders of the related Pool on such Remittance Date. The MBIA
Policies are thus similar to the provisions described above insofar as the MBIA
Policies guarantee ultimate, rather than current, payment of the amounts of any
Unrecovered Portions.
Investors in the Class A Certificates should realize that, under extreme
loss or delinquency scenarios applicable to the related Pool of Loans, so long
as a Subordination Deficit has not resulted, they may temporarily receive no
distributions of principal.
CREDIT ENHANCEMENT DOES NOT APPLY TO PREPAYMENT AND CERTAIN OTHER RISKS
In general, the protection afforded by the subordination provisions and by
the MBIA Policies is protection for credit risk and not for prepayment risk and
does not apply to the Certificateholders' Interest Carryover. The subordination
provisions may not be adjusted, nor may a claim be made under the MBIA Policies
to guarantee or insure that any particular rate of prepayment is experienced by
the Trust.
REPORTS TO CLASS A CERTIFICATEHOLDERS
On each Remittance Date, the Trustee will be required to forward to each
Class A Certificateholder (which will be Cede, as registered Holder of the Class
A Certificates and the nominee of DTC, unless and until Definitive Certificates
are issued), a statement which will set forth, among other things:
(a) the Distribution Amounts for each Pool on such Remittance
Date, in the aggregate and by component and listed separately for the
portions relating to each Class of Class A Certificates;
(b) the Principal Distribution Amounts for each Pool for such
Remittance Date, in the aggregate and listed separately for the portion
relating to each Class of Class A Certificates;
(c) the Current Interest Requirements for each Class of Class
A Certificates for such Remittance Date;
(d) the total amount of any Insured Payments included in the
Distribution Amount for each Pool on such Remittance Date, listed
separately for each Class of Class A Certificates;
(e) the Subordinated Amount and Specified Subordinated Amount
for such Remittance Date, listed separately for each Pool;
(f) the Principal Balances for each Class of Class A
Certificates and the Principal Factors after giving effect to the
distribution of the Principal Distribution Amounts on such Remittance
Date;
(g) the number and aggregate Principal Balances of Loans in
each Pool delinquent (i) 30 to 59 days, (ii) 60 days to 89 days and
(iii) 90 days or more as of the end of the related Due Period;
(h) the number and aggregate Principal Balances of all Loans
in each Pool in foreclosure or other similar proceedings and the number
and aggregate Principal Balance of all Loans in each Pool relating to
any REO Properties;
(i) the applicable rate of LIBOR for such Remittance Date;
(j) the Pass-Through Rate for each Class of Adjustable Rate or
Auction Rate Certificates for such Remittance Date and if such
Pass-Through Rate for any such Class was based on the Net Funds Cap,
what it would be if based on LIBOR plus the applicable margin or the
Auction Rate, as the case may be;
(k) the Net Funds Cap for such Remittance Date, stated
separately for each Class of Adjustable Rate and Auction Rate
Certificates;
(l) if the Pass-Through Rate for any Class of Adjustable Rate
or Auction Rate Certificates for such Remittance Date is based on the
Net Funds Cap and such Class is entitled to receive Certificateholders'
Interest Carryover, the amount of any Certificateholders' Interest
Carryover allocated to such Class of Certificates for such Remittance
Date; and
(m) the amount of the distribution, if any, allocable to
Certificateholders' Interest Carryover and the amount of any unpaid
Certificateholders' Interest Carryover for all prior Remittance Dates
after giving effect to such distribution for each Class of Adjustable
Rate and Auction Rate Certificates entitled to receive
Certificateholders' Interest Carryover.
As to any Remittance Date, the "Principal Factor" for a Class of
Certificates will be a fraction, expressed as a percentage, the numerator of
which is the Class Principal Balance for such Class (after giving effect to the
distribution of the Principal Distribution Amount on such Remittance Date), and
the denominator of which is the original Class Principal Balance for such Class.
In the case of information furnished pursuant to clauses (a) through (c)
above, the amounts will be expressed as a dollar amount per Certificate with a
$1,000 principal denomination.
Within 90 days after the end of each calendar year, the Trustee will be
required to mail to each person who at any time was a Class A Certificateholder
during such year, a statement containing the information set forth in clauses
(a)-(c) above aggregated for such calendar year, or, in the case of each person
who was a Class A Certificateholder for a portion of such calendar year, setting
forth such information for each month thereof.
All reports prepared by the Trustee will be based upon statements supplied
to the Trustee by the Servicer.
BOOK-ENTRY CERTIFICATES
The Class A Certificates will be book-entry Certificates (the "Book-Entry
Certificates"). Persons acquiring beneficial ownership interests in the Class A
Certificates ("Certificate Owners") will hold their Class A Certificates through
DTC in the United States, or Cedel Bank or Euroclear (in Europe) if they are
participants of such systems, or indirectly through organizations which are
participants in such systems. The Book-Entry Certificates will be issued in one
or more certificates which equal the aggregate principal balance of the Class A
Certificates and will initially be registered in the name of Cede & Co., the
nominees of DTC. Cedel Bank and Euroclear will hold omnibus positions on behalf
of their participants through customers' securities accounts in Cedel Bank's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank N.A. will act as depositary for Cedel Bank
and Morgan Guaranty Trust Company of New York, Brussels Office, will act as
depositary for Euroclear (in such capacities, individually the "Relevant
Depositary" and collectively the "European Depositaries"). Investors may hold
such beneficial interests in the Book-Entry Certificates in minimum
denominations representing original Certificate Principal Balances of $1,000 and
integral multiples of $1,000 in excess thereof (except for the Auction Rate
Certificates, which may be held in minimum denominations representing original
Certificate Principal Balances of $25,000 and integral multiplies of $25,000 in
excess thereof). 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 Class A Certificate").
Unless and until Definitive Class A Certificates are issued, it is anticipated
that the only "Certificateholder" of the Class A Certificates will be Cede &
Co., as nominee of DTC. Certificate Owners will not be Certificateholders as
that term is used in the Agreement. Certificate Owners are only permitted to
exercise their rights indirectly through Participants and DTC.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC participant and on
the records of Cedel Bank or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of, and
interest on, the Class A Certificates from the Trustee through DTC and DTC
participants. While the Class A Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Class A Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Class A Certificates.
Participants and indirect participants with whom Certificate Owners have
accounts with respect to Class A Certificates are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess certificates, the Rules provide a mechanism by which
Certificate Owners will receive distributions and will be able to transfer their
interest.
Certificate Owners will not receive or be entitled to receive certificates
representing their respective interests in the Class A Certificates, except
under the limited circumstances described below. Unless and until Definitive
Class A Certificates are issued, Certificate Owners who are not Participants may
transfer ownership of Class A Certificates only through Participants and
indirect participants by instructing such Participants and indirect participants
to transfer Class A Certificates, by book-entry transfer, through DTC for the
account of the purchasers of such Class A Certificates, which account is
maintained with their respective Participants. Under the Rules and in accordance
with DTC's normal procedures, transfers of ownership of Class A Certificates
will be executed through DTC and the accounts of the respective Participants at
DTC will be debited and credited. Similarly, the Participants and indirect
participants will make debits or credits, as the case may be, on their records
on behalf of the selling and purchasing Certificate Owners.
Because of time zone differences, credits of securities received in Cedel
Bank or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Bank Participants on such business day. Cash received in
Cedel Bank or Euroclear as a result of sales of securities by or through a Cedel
Bank Participant (as defined below) or Euroclear Participant (as defined below)
to a DTC Participant will be received with value on the DTC settlement date but
will be available in the relevant Cedel Bank or Euroclear cash account only as
of the business day following settlement in DTC. For information with respect to
tax documentation procedures relating to the Certificates, see "GLOBAL
CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURESCCertain U.S. Federal
Income Tax Documentation Requirements" in Annex III hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Bank Participants and Euroclear Participants will occur
in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel Bank
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Bank Participants and Euroclear Participants may not deliver
instructions directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the Book-Entry Certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the rules,
regulations and procedures governing DTC and DTC participants as in effect from
time to time.
Cedel Bank is incorporated under the laws of Luxembourg as a professional
depository. Cedel Bank holds securities for its participating organizations
("Cedel Bank Participants") and facilitates the clearance and settlement of
securities transactions between Cedel Bank Participants through electronic
book-entry changes in accounts of Cedel Bank Participants, thereby eliminating
the need for physical movement of certificates. Transactions may be settled in
Cedel Bank in any of 28 currencies, including United States dollars. Cedel Bank
provides to its Cedel Bank Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel Bank interfaces with
domestic markets in several countries. As a professional depository, Cedel Bank
is subject to regulation by the Luxembourg Monetary Institute. Cedel Bank
Participants are recognized financial institutions around the world, including
underwriters, securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Indirect access to Cedel Bank is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Cedel Bank
Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing such payments to the beneficial owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be responsible
for disbursing funds to the beneficial owners of the Book-Entry Certificates
that it represents.
Under a book-entry format, beneficial owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to Cede. Distributions with respect to Certificates
held through Cedel Bank or Euroclear will be credited to the cash accounts of
Cedel Bank Participants or Euroclear Participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depositary. Such distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations. Because DTC can only act
on behalf of Financial Intermediaries, the ability of a beneficial owner to
pledge Book-Entry Certificates to persons or entities that do not participate in
the 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.
Monthly and annual reports on the Trust will be provided to Cede & Co., as
nominee of DTC, and may be made available by Cede & Co. to beneficial owners
upon request, in accordance with the rules, regulations and procedures creating
and affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book- Entry Certificates of such beneficial owners are credited.
DTC has advised the Trustee that, unless and until Definitive Class A
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the Agreement only at the direction
of one or more Financial Intermediaries to whose DTC accounts the Book-Entry
Certificates are credited, to the extent that such actions are taken on behalf
of Financial Intermediaries whose holdings include such Book-Entry Certificates,
Cedel Bank or the Euroclear Operator, as the case may be, will take any other
action permitted to be taken by a Certificateholder under the Agreement on
behalf of a Cedel Bank Participant or Euroclear Participant only in accordance
with its relevant rules and procedures and subject to the ability of the
Relevant Depositary to effect such actions on its behalf through DTC. DTC may
take actions, at the direction of the related Participants, with respect to some
Class A Certificates which conflict with actions taken with respect to other
Class A Certificates.
Definitive Class A Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as nominee and
depository with respect to the Book- Entry Certificates and the Depositor or the
Trustee is unable to locate a qualified successor, (b) the Depositor, at its
sole option, with the consent of the Trustee, elects to terminate a book-entry
system through DTC or (c) after the occurrence of an Event of Servicing
Termination (as defined herein), beneficial owners having Percentage Interests
aggregating not less than 51% of the aggregate Class A Principal Balance of the
Book-Entry Certificates advise the Trustee and DTC through the Financial
Intermediaries and the DTC participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Class A Certificates. Upon surrender by DTC of the global certificate
or certificates representing the Book- Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Class A Certificates, and
thereafter the Trustee will recognize the holders of such Definitive Class A
Certificates and Certificateholders under the Agreement.
Although DTC, Cedel Bank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Class A Certificates among
participants of DTC, Cedel Bank and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
None of the Seller, the Servicer or the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
THE MBIA POLICIES AND MBIA
The following information has been furnished by MBIA for use herein.
MBIA, in consideration of the payment of the premium and subject to the
terms of the MBIA Policies, unconditionally and irrevocably guarantees to any
Owner (as described below) that an amount equal to each full and complete
Insured Payment will be received by the Trustee, or its successor, on behalf of
the Owners, for distribution by the Trustee to each Owner of each Owner's
proportionate share of the Insured Payment. MBIA's obligations under the MBIA
Policies with respect to a particular Insured Payment shall be discharged to the
extent funds equal to the applicable Insured Payment are received by the
Trustee, whether or not such funds are properly applied by the Trustee. Insured
Payments shall be made only at the time set forth in the MBIA Policies and no
accelerated Insured Payments shall be made regardless of any acceleration of the
Class A Certificates, unless such acceleration is at the sole option of MBIA.
Notwithstanding the foregoing paragraph, the MBIA Policies do not cover
shortfalls, if any, attributable to the liability of the Trust, the REMICs or
the Trustee for withholding taxes, if any (including interest and penalties in
respect of any such liability). Further, the MBIA Policies do not guaranty
payment of any Certificateholders' Interest Carryover.
MBIA will pay any Insured Payment that is a Preference Amount on the
Business Day (as described below) following receipt on a Business Day by the
Fiscal Agent (as defined below) of (i) a certified copy of the order requiring
the return of a preference payment, (ii) an opinion of counsel satisfactory to
MBIA that such order is final and not subject to appeal, (iii) an assignment in
such form as is reasonably required by MBIA, irrevocably assigning to MBIA all
rights and claims of the Owner relating to or arising under the applicable Class
of Class A Certificates against the debtor which made such preference payment or
otherwise with respect to such preference payment and (iv) appropriate
instruments to effect the appointment of MBIA as agent for such Owner in any
legal proceeding related to such preference payment, such instruments being in a
form satisfactory to MBIA, provided that if such documents are received after
12:00 noon New York City time on such Business Day, they will be deemed to be
received on the following Business Day. Such payments shall be disbursed to the
receiver or trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the Owner and not to any Owner directly
unless such Owner has returned principal or interest paid on the applicable
Class of Class A Certificate to such receiver or trustee in bankruptcy, in which
case such payment shall be disbursed to such Owner.
MBIA will pay any other amount payable under the MBIA Policies no later
than 12:00 noon New York City time on the later of the Remittance Date on which
the Distribution Amount is due or the Business Day following receipt in New
York, New York on a Business Day by State Street Bank and Trust Company, N.A.,
as Fiscal Agent for MBIA or any successor fiscal agent appointed by MBIA (the
"Fiscal Agent") of a Notice (as described below); provided that if such Notice
is received after 12:00 noon New York City time on such Business Day, it will be
deemed to be received on the following Business Day. If any such Notice received
by the Fiscal Agent is not in proper form or is otherwise insufficient for the
purpose of making claim under the MBIA Policies, such Notice shall be deemed not
to have been received by the Fiscal Agent for purposes of this paragraph, and
MBIA or the Fiscal Agent, as the case may be, shall promptly so advise the
Trustee and the Trustee may submit an amended Notice.
Insured Payments due under the MBIA Policies unless otherwise stated in the
MBIA Policies will be disbursed by the Fiscal Agent to the Trustee on behalf of
the Owners by wire transfer of immediately available funds in the amount of the
Insured Payment less, in respect of Insured Payments related to Preference
Amounts, any amount held by the Trustee for the payment of such Insured Payment
and legally available therefor.
The Fiscal Agent is the agent of MBIA only and the Fiscal Agent shall in no
event be liable to Owners for any acts of the Fiscal Agent or any failure of
MBIA to deposit, or cause to be deposited, sufficient funds to make payments due
under the MBIA Policies.
As used in the MBIA Policies, the following terms shall have the following
meanings:
"Agreement" means the Pooling and Servicing Agreement dated May 31, 1997
among The Money Store Inc., as Representative and Servicer, the Originators
listed therein and the Trustee, as trustee, without regard to any amendment or
supplement thereto.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which MBIA and banking institutions in New York City or in the city in which the
corporate trust office of the Trustee under the Agreement is located are
authorized or obligated by law or executive order to close.
"Deficiency Amount" means with respect to any Remittance Date and any Pool
of Certificates, (i) the excess, if any, of (a) the Current Interest Requirement
for such Pool over (b) the sum of the Available Remittance Amount (as defined
below) for such Pool (minus amounts withdrawn to pay required premiums to MBIA),
and the Monthly Excess Spread and the Subordination Reduction Amount applicable
to such Pool, plus (ii) the Subordination Deficit, if any, for such Pool with
respect to such Remittance Date.
"Insured Payment" means (i) as of any Remittance Date, any Deficiency
Amount and (ii) any Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly confirmed in
writing by telecopy substantially in the form of Exhibit A attached to the
related MBIA Policy, the original of which is subsequently delivered by
registered or certified mail, from the Trustee specifying the Insured Payment
which shall be due and owing on the applicable Remittance Date.
"Owner" means each Class A Certificateholder (other than the Trust) who, on
the applicable Remittance Date, is entitled under the terms of the applicable
Class of Class A Certificates to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner on
the Certificates that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction.
Capitalized terms used in the MBIA Policies and not otherwise defined
therein shall have the respective meanings set forth in the Agreement as of the
date of execution of the MBIA Policies, without giving effect to any subsequent
amendment or modification to the Agreement.
Any notice under the MBIA Policies or service of process on the Fiscal
Agent may be made at the address listed below for the Fiscal Agent or such other
address as MBIA shall specify in writing to the Trustee.
The notice address of the Fiscal Agent is 15th Floor, 61 Broadway, New
York, New York 10006, Attention: Municipal Registrar and Paying Agency, or such
other address as the Fiscal Agent shall specify to the Trustee in writing.
The MBIA Policies were issued under and pursuant to, and shall be construed
under, the laws of the State of New York, without giving effect to the conflict
of laws principles thereof.
The insurance provided by the MBIA Policies are not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The MBIA Policies are not cancelable for any reason. The premiums on the
MBIA Policies are not refundable for any reason including payment, or provision
being made for payment, prior to maturity of the Class A Certificates.
MBIA is the principal operating subsidiary of MBIA Inc., a New York Stock
Exchange listed company. MBIA Inc. is not obligated to pay the debts of or
claims against MBIA. MBIA is domiciled in the State of New York and licensed to
do business in and is subject to regulation under the laws of all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam. MBIA has two European branches, one in the Republic of France
and the other in the Kingdom of Spain. New York has laws prescribing minimum
capital requirements, limiting classes and concentrations of investments and
requiring the approval of policy rates and forms. State laws also regulate the
amount of both the aggregate and individual risks that may be insured, the
payment of dividends by MBIA, changes in control and transactions among
affiliates. Additionally, MBIA is required to maintain contingency reserves on
its liabilities in certain amounts and for certain periods of time.
The consolidated financial statements of MBIA, a wholly owned subsidiary of
MBIA Inc., and its subsidiaries as of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996, prepared in accordance
with generally accepted accounting principles, included in the Annual Report on
Form 10-K of MBIA Inc. for the year ended December 31, 1996 and the consolidated
financial statements of MBIA and its subsidiaries for the three months ended
March 31, 1997 and for the periods ending March 31, 1997 and March 31, 1996
included in the Quarterly Report on Form 10-Q of MBIA Inc. for the period ending
March 31, 1997, are hereby incorporated by reference into this Prospectus
Supplement and shall be deemed to be a part hereof. Any statement contained in a
document incorporated by reference herein shall be modified or superseded for
purposes of this Prospectus Supplement to the extent that a statement contained
herein or in any other subsequently filed document which is also incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus Supplement.
All financial statements of MBIA and its subsidiaries included in documents
filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering of the Class
A Certificates shall be deemed to be incorporated by reference into this
Prospectus Supplement and to be a part hereof from the respective dates of
filing such documents.
The table below presents selected financial information of MBIA
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP"):
SAP
DECEMBER 31, MARCH 31,
1996 1997
(AUDITED) (UNAUDITED)
(IN MILLIONS)
Admitted Assets................ $ 4,476 $4,598
Liabilities.................... 3,009 3,067
Capital and Surplus............ 1,467 1,531
GAAP
DECEMBER 31, MARCH 31,
1996 1997
(AUDITED) (UNAUDITED)
(IN MILLIONS)
Assets..................... $ 5,066 $5,110
Liabilities................ 2,262 2,262
Shareholder's Equity....... 2,804 2,848
Copies of the financial statements of MBIA incorporated by reference herein
and copies of MBIA=s 1996 year-end audited financial statements prepared in
accordance with statutory accounting practices are available, without charge,
from MBIA. The address of MBIA is 113 King Street, Armonk, New York 10504. The
telephone number of MBIA is (914) 273-4545.
MBIA does not accept any responsibility for the accuracy or completeness of
this Prospectus Supplement or the Prospectus or any information or disclosure
contained herein or therein, or omitted herefrom or therefrom, other than with
respect to the accuracy of the information regarding the MBIA Policies and MBIA
set forth under the heading "The MBIA Policies and MBIA" herein. Additionally,
MBIA makes no representation regarding the Class A Certificates or the
advisability of investing in the Class A Certificates.
Moody's rates the claims paying ability of MBIA "Aaa." S&P rates the
claims paying ability of MBIA "AAA." Fitch Investors Service, L.P. rates the
claims paying ability of MBIA "AAA." Each rating of MBIA should be evaluated
independently. The ratings reflect the respective rating agency=s current
assessment of the creditworthiness of MBIA and its ability to pay claims on its
policies of insurance. Any further explanation as to the significance of the
above ratings may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the Class A
Certificates, and such ratings may be subject to revisions or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the Class A
Certificates. MBIA does not guaranty the market price of the Class A
Certificates nor does it guaranty that the ratings on the Class A Certificates
will not be revised or withdrawn.
THE AGREEMENT
In addition to the provisions of the Agreement summarized elsewhere in this
Prospectus Supplement, set forth below is a summary of certain other provisions
thereof. Certain capitalized terms used in this section and not otherwise
defined, have the meanings set forth in the Prospectus.
PRE-FUNDING ACCOUNT
On the Closing Date, a cash amount which will not exceed $242,500,000 in
the aggregate (the "Pre-Funded Amount") will be deposited into the Pre-Funding
Account in an amount not to exceed approximately $190,000,000, in the case of
Pool I, approximately $50,000,000, in the case of Pool II, and approximately
$1,000,000, in the case of Pool III. Amounts allocated to Pool I, Pool II and
Pool III, as the case may be, may be used only (i) to acquire Subsequent Loans
for the related Pool and (ii) to make accelerated payments of principal on the
Certificates of the related Pool. During the period (the "Funding Period") from
the Closing Date until the earliest of (i) the date on which the amount on
deposit in the Pre-Funding Account is less than $200,000, (ii) the date on which
an Event of Default occurs under the Agreement or (iii) at the close of business
on September 26, 1997, amounts will, from time to time, be withdrawn from the
Pre-Funding Account to purchase Subsequent Loans in accordance with the
Agreement. Any Pre-Funded Amount remaining at the end of the Funding Period will
be distributed as a principal prepayment on the next Remittance Date to the
Class A Certificates of the related Pool. However, any Pre-Funded Amount
remaining at the close of business on September 26, 1997 will be distributed as
a principal prepayment on the Special Remittance Date to the Class A
Certificates of the related Pool. The Pre-Funding Account moneys funded from the
sale of the Certificates of a given Pool, may not be used to acquire Loans
relating to the other Pool.
All funds in the Pre-Funding Account are required to be held (i)
uninvested, up to the limits insured by the Federal Deposit Insurance
Corporation or (ii) invested in instruments designated as "Permitted
Instruments" in the Agreement. Any investment earnings on funds in the
Pre-Funding Account will be applied to payment of interest on the Certificates.
CAPITALIZED INTEREST ACCOUNT
On the Closing Date, the Representative also will make a cash deposit in an
account (the "Capitalized Interest Account") in the name of the Trustee on
behalf of the Trust. The amount deposited therein will be used by the Trustee on
the Remittance Dates occurring in July, August and September 1997 to fund the
excess, if any, of (i) the amount of interest accrued for each such Remittance
Date at the weighted average Pass-Through Rate of the Class A Certificates on
the portion of the Class A Certificates having principal balances exceeding the
principal balances of the Loans over (ii) the amount of any earnings on funds in
the Pre-Funding Account that are available to pay interest on the Class A
Certificates on each such Remittance Date. Additionally, if a principal
prepayment is made on the Special Remittance Date to the Class A Certificates,
such Class A Certificates also will receive on such date, from the Capitalized
Interest Account, accrued interest at the applicable Pass-Through Rates on the
amount of such principal prepayment. Any amounts remaining in the Capitalized
Interest Account on the Special Remittance Date and not used for such purposes
are required to be paid directly to the holders of the Class R Certificates on
such Special Remittance Date.
All funds in the Capitalized Interest Account are required to be held (i)
uninvested, up to the limits insured by the Federal Deposit Insurance
Corporation or (ii) invested in Permitted Instruments. Any investment earnings
on funds in the Capitalized Interest Account will be applied to payment of
interest on the Class A Certificates.
PAYMENTS ON THE LOANS
The Agreement requires the Servicer to establish and maintain one or more
principal and interest accounts (each, a "Principal and Interest Account") at
one or more institutions designated as a "Designated Depository Institution" in
the Agreement.
All funds in the Principal and Interest Accounts are required to be held
(i) uninvested, up to the limits insured by the Federal Deposit Insurance
Corporation or (ii) invested in Permitted Instruments. Any investment earnings
on funds held in the Principal and Interest Accounts are for the account of the
Servicer.
The Servicer is required to deposit in the related Principal and Interest
Account (within 24 hours of receipt) all payments received after the Cut-Off
Date on account of principal and interest on the related Loans (but net of the
Servicing Fee and the Contingency Fee with respect to each Loan, other servicing
compensation payable to the Servicer as permitted by the Agreement and any
amounts required to be deposited into the Servicing Accounts referred to below).
Not later than the day of each month which is the later of (i) the third
Business Day prior to the 15th day of such month and (ii) the seventh Business
Day of such month (each such day a "Determination Date"), the Servicer is
required to wire transfer to the Trustee the Available Remittance Amounts for
each Pool for deposit in the segregated trust accounts maintained with the
Trustee for such purpose (each a "Certificate Account").
The "Available Remittance Amount" for each Pool is defined in the Agreement
to include, with respect to any Remittance Date, without duplication:
(i) the sum of all amounts received by the Servicer or any
Sub-Servicer on the Loans of such Pool (including amounts paid by the
Servicer and the Representative and excluding (a) any Excess Spread and
Subordination Reduction Amounts included in such amounts, (b) amounts
paid as reimbursement to the Servicer of advances, (c) amounts
deposited into the Servicing Accounts and (d) amounts recovered as
voidable preferences), during the immediately preceding calendar month
(the "Due Period"), plus
(ii) the amount of any Monthly Advances and Compensating
Interest payments with respect to the Loans of such Pool remitted by
the Servicer for such Remittance Date, plus
(iii) amounts to be transferred to the applicable Certificate
Account from the Pre-Funding Account and the Capitalized Interest
Account.
The term Available Remittance Amount does not include Insured Payments.
The Agreement also will require the Servicer to establish and maintain, in
addition to the Principal and Interest Accounts one or more accounts (each a
"Servicing Account") in a depository institution the deposits of which are
insured by the Federal Deposit Insurance Corporation to the maximum extent
permitted by law. The Servicer will deposit and retain therein all collections
from the Obligors for the payment of taxes, assessments, insurance premiums, or
comparable items as agent of the Obligors and in trust as provided in the
Agreement. Amounts in any Servicing Account may relate to mortgage loans in more
than one mortgage pool or to mortgage loans not yet included in a mortgage pool.
All funds in the Servicing Accounts are required to be held (i) uninvested, up
to the limits insured by the Federal Deposit Insurance Corporation or (ii)
invested in Permitted Instruments. Any investment earnings on funds held in the
Servicing Accounts are for the account of the Servicer. Withdrawals of amounts
from the Servicing Accounts may be made only to effect timely payment of taxes,
assessments, insurance premiums, or comparable items, to reimburse the Servicer
for any advances made with respect to such items, to refund to any Obligors any
sums as may be determined to be overages, to pay interest, if required, to
Obligors on balances in the Servicing Accounts, to pay earnings not required to
be paid to Obligors to the Servicer or to clear and terminate the Servicing
Accounts at or at any time after the termination of the Agreement.
MONTHLY ADVANCES AND COMPENSATING INTEREST
Not later than the close of business on each Determination Date, the
Servicer is required to remit to the Trustee for deposit in the applicable
Certificate Account an amount equal to the amount, if any, by which, for each
Pool (a) the sum of (x) 30 days' interest (or, with respect to the Auction Rate
and Adjustable Rate Certificates, the actual number of days from the last
Remittance Date (or, in the case of the first Remittance Date, from June 15,
1997 with respect to the Adjustable Rate Certificates and from the Closing Date
with respect to the Auction Rate Certificates) up to but not including the
upcoming Remittance Date) at the weighted average Adjusted Mortgage Loan
Remittance Rates of such Pool on the aggregate outstanding Class Principal
Balances of each Class of Certificates in such Pool immediately prior to the
related Remittance Date and (y) the Monthly Excess Spread, if any, for the
related Remittance Date relating to the Loans of the related Pool exceeds (b)
the amount received by the Servicer in respect of interest on the Loans of the
related Pool as of the related Record Date (and, with respect to the Remittance
Dates in July, August and September 1997, the sum of (i) all funds to be
transferred to the applicable Certificate Account from the Capitalized Interest
Account for such Remittance Date and (ii) certain investment earnings on amounts
in the Pre-Funding Account for the applicable Remittance Date). Such excess is
defined as the "Monthly Advance." Monthly Advances will not cover any
Certificateholders' Interest Carryover.
Not later than the close of business on each Determination Date, with
respect to each Loan for which a Principal Prepayment in full or Curtailment was
received during the related Due Period, the Servicer is required to remit to the
Trustee for deposit in the applicable Certificate Account from amounts otherwise
payable to it as servicing compensation, an amount equal to the excess of (a) 30
days' interest (or, with respect to a Pool II Loan, the actual number of days
since the last Remittance Date (or, in the case of the first Remittance Date,
from June 15, 1997) with respect to the Adjustable Rate Certificates and from
the Closing Date with respect to the Auction Rate Certificates up to but not
including the upcoming Remittance Date) on the principal balance of each such
Loan as of the beginning of the related Due Period at the weighted average
Adjusted Mortgage Loan Remittance Rates of the related Pool applicable to the
Remittance Date on which such amount will be distributed, over (b) the amount of
interest actually received on the related Loan for such Due Period (such
difference, "Compensating Interest").
FLOW OF FUNDS
The Agreement requires the Servicer to withdraw on each Determination Date
that portion of the Available Remittance Amount for each Pool in the applicable
Principal and Interest Account and to remit such amounts together with any
Excess Spread, Subordination Reduction Amounts, Monthly Advances and
Compensating Interest for the related Remittance Date to the Trustee for deposit
in the applicable Certificate Account. Upon receipt on each Determination Date
of such amounts, the Trustee is required to deposit such amounts into the
applicable Certificate Account.
The Agreement provides that on each Remittance Date the Trustee is required
to withdraw from the Certificate Accounts the sum of (i) the Available
Remittance Amounts for each Pool (minus the amounts withdrawn from the
Certificate Accounts to deposit amounts related to required premiums in the
Insurance Account), (ii) any amounts of Total Monthly Excess Cashflow to be
applied to the Certificates and (iii) amounts transferred from the Spread
Account, if any, and Insured Payments, if any, made by MBIA (such sums, the
"Available Amount" for the related Pool) and make distributions thereof in the
following order of priority:
(i) to the Certificateholders of each Pool, the lesser of the
Available Amount for such Pool and the Distribution Amount for such
Pool;
(ii) then to an expense account, an amount equal to
one-twelfth of the estimated annual fees and expenses of the Trustee
and the Trust;
(iii) then to the Servicer and/or The Money Store Inc., an
amount equal to certain unreimbursed amounts with respect to the
applicable Pool;
(iv) then to the Class A-9 Certificates and the Auction Rate
Certificates, any Certificateholders' Interest Carryover (but only with
respect to distributions relating to the Pool II Loans) pro rata in
accordance with amounts due each Class; and
(v) then to the Class X Certificateholders and Class R
Certificateholders, amounts then remaining with respect to the
applicable Pool as specified in the Agreement.
On each Remittance Date, the amount to be distributed to the Pool I
Certificates pursuant to clause (i) above will be allocated in the following
order of priority:
(A) first, concurrently to the Certificateholders of each Class of Pool I
Certificates, the applicable Current Interest Requirements for such Remittance
Date, pro rata in accordance with such amounts;
(B) second, to the Class A-8 Certificateholders, an amount equal to the
Class A-8 Principal Distribution Amount; and
(C) third, to the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5,
Class A-6, Class A-7 and Class A-8 Certificateholders, sequentially in that
order, the excess, if any, of the amount to be distributed to the Pool I
Certificates on such Remittance Date over the amount distributed pursuant to (A)
and (B) above, until the Class Principal Balance of each such Class (in
ascending order of numerical designation) is reduced to zero and the
Certificateholders of each such Class have received an amount equal to the
amount described in clause (iv) of the definition of Distribution Amount that is
recovered from such Certificateholders.
On each Remittance Date, the amount to be distributed to the Pool II
Certificates pursuant to clause (i) above will be allocated in the following
order of priority:
(A) first, concurrently to the Certificateholders of each Class of Pool II
Certificates, the applicable Current Interest Requirements for such Remittance
Date, pro rata in accordance with such amounts; and
(B) second, to the Class A-9 and Class A-10 Certificateholders,
sequentially in that order until the Class Principal Balance of each such Class
(in ascending order of numerical designation) is reduced to zero and the
Certificateholders of each such Class have received an amount equal to the
amount described in Clause (iv) of the definition of Distribution Amount that is
recovered from such Certificateholders.
On each Remittance Date, the amount to be distributed to the Pool III
Certificates pursuant to clause (i) above will be allocated in the following
order of priority:
(A) first, to the Class A-11 Certificateholders, the applicable Current
Interest Requirement for such Remittance Date; and
(B) second, to the Class A-11 Certificateholders, the excess, if any, of
the amount to be distributed to the Pool III Certificates on such Remittance
Date over the amount distributed pursuant to (A) above, until the Class
Principal Balance of such Class is reduced to zero and such Certificateholders
have received an amount equal to the amount described in clause (iv) of the
definition of Distribution Amount that is recovered from such
Certificateholders.
Notwithstanding the foregoing, principal payments will be made to each
Class of Auction Rate Certificates only in amounts equal to $25,000 and integral
multiples in excess thereof. If the amount in the applicable Certificate Account
otherwise required to be applied as a payment of principal either (i) is less
than $25,000 or (ii) exceeds an even multiple of $25,000, then, in the case of
(i), such entire amount or, in the case of (ii), such excess amount, will not be
paid as principal on the upcoming Remittance Date but will be retained in the
applicable Certificate Account until the amount therein available for payment of
principal equals $25,000 or an integral multiple thereof.
The Trustee will have the right, on behalf of Class A Certificateholders,
to sue MBIA in the event any required Insured Payment is not made in accordance
with the terms of the applicable MBIA Policy.
CALCULATION OF LIBOR
The Trustee will determine the London interbank offered rate for deposits
in U.S. dollars having a maturity of one month ("LIBOR") commencing on the LIBOR
Determination Date preceding each Remittance Date (the "One- Month Index
Maturity") which appears on Telerate Page 3750 as of 11:00 a.m., London time, on
such LIBOR Determination Date. If such rate does not appear on Telerate Page
3750, the rate for that day will be determined on the basis of the rates at
which deposits in U.S. dollars, having the One Month Index Maturity and in a
principal amount of not less than U.S. $1,000,000, are offered at approximately
11:00 a.m., London time, on such LIBOR Determination Date to prime banks in the
London interbank market by the Reference Banks. The Trustee will request the
principal London office of each of such Reference Banks to provide a quotation
of its rate. If at least two such quotations are provided, the rate for that day
will be the arithmetic mean of the quotations. If fewer than two quotations are
provided, the rate for that day will be the arithmetic mean of the rates quoted
by major banks in New York City, selected by the Trustee, at approximately 11:00
a.m., New York City time, on such LIBOR Determination Date for loans in U.S.
dollars to leading European banks having the One Month Index Maturity and in a
principal amount equal to an amount of not less than U.S. $1,000,000; provided
that if the banks selected as aforesaid are not quoting as mentioned in this
sentence, LIBOR in effect for the applicable Interest Period will be LIBOR in
effect for the previous Interest Period.
"LIBOR Determination Date" means the date which is both a Business Day and
a London Banking Day prior to the commencement of each related Interest Period.
"Business Day" means any day other than (i) a Saturday or Sunday or (ii) a
day on which banking institutions in the States of New York or New Jersey are
authorized or obligated by law or executive order to be closed.
"London Banking Day" means any Business Day on which dealings in deposits
in United States dollars are transacted in the London interbank market.
"Interest Period" means, with respect to the Adjustable Rate Certificates,
(i) initially, the period commencing on June 15, 1997 and ending on the day
immediately preceding the Remittance Date in July 1997 and (ii) thereafter, the
period commencing on a Remittance Date and ending on the day immediately
preceding the next Remittance Date.
"Reference Banks" means leading banks selected by the Trustee and engaged
in transactions in Eurodollar deposits in the international Eurocurrency market.
"Telerate Page 3750" means the display page currently so designated on the
Dow Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices) and "Reference
Banks" means leading banks selected by the Trustee and engaged in transactions
in Eurodollar deposits in the international Eurocurrency market.
The establishment of LIBOR on each Libor Determination Date by the Trustee
and the Trustee's calculation of the rate of interest applicable to the
Adjustable Rate Certificates for the related Remittance Date shall (in the
absence of manifest error) be final and binding. Each such rate of interest may
be obtained by telephoning the Trustee at (212) 815-2793.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicer is entitled to a servicing fee of 0.25% per annum of the
principal balance of each Loan (the "Servicing Fee") and a contingency fee of
0.25% per annum of the principal balance of each Loan (the "Contingency Fee").
The Contingency Fee is meant to provide additional servicing compensation to a
successor servicer if The Money Store Inc. is replaced as Servicer under the
Agreement. However, as long as The Money Store Inc. acts as Servicer, it is
entitled to receive the Contingency Fee, although such amount is not deemed
servicing compensation. The Servicing Fee and Contingency Fee are each
calculated and payable monthly from the interest portion of scheduled monthly
payments, liquidation proceeds and certain other collected proceeds. In
addition, the Servicer is entitled under the Agreement to retain additional
servicing compensation in the form of assumption and other administrative fees,
prepayment penalties and premiums, late payment charges, interest paid on funds
in the Principal and Interest Accounts, interest paid on earnings realized on
Permitted Instruments, and certain other excess amounts.
TERMINATION; PURCHASE OF LOANS
The Trust will terminate upon distribution to the Certificateholders of
amounts due them following the earlier to occur of (i) the final payment or
other liquidation of the last Loan remaining in the Trust or the disposition of
all REO Property, (ii) the optional purchase of the assets of the Trust by the
Servicer or MBIA, as described below or (iii) the occurrence of a "qualified
liquidation" of the Trust, as permitted by the REMIC provisions of the Code as
described below; provided, however, that in no event will the Trust terminate
later than twenty-one years after the death of the last survivor of the person
named in the Agreement.
As set forth under "The MBIA Policies and MBIA" no accelerated Insured
Payments will be made regardless of any acceleration of the Class A
Certificates, unless such acceleration is at the sole option of MBIA. This will
not affect the Class A Certificateholders since, as described below, as a
condition to any optional termination of the Trust the Certificateholders will
receive an amount equal to the outstanding Class Principal Balance of the
related Class, plus accrued interest.
Subject to provisions in the Agreement concerning adopting a plan of
complete liquidation, on any date on which the aggregate principal balances of
the Loans are less than 10% of the sum of (i) the Original Pool Principal
Balance and (ii) the original Pre-Funded Amount the Servicer may, at its option,
and in the absence of the exercise thereof by the Servicer, MBIA may, at its
option, purchase, on the next succeeding Remittance Date, all of the Loans and
any related REO Properties at a price equal to the Termination Price relating to
the Trust.
On any Remittance Date on or after the Cross-Over Date on which Loans with
aggregate principal balances as of the Cut-Off Date that equal or exceed 25% of
the sum of (i) the Original Pool Principal Balance and (ii) the original
Pre-Funded Amount have become Liquidated Loans, MBIA may determine to purchase
and may cause the purchase from the Trust of all Loans and REO Properties in the
Pools at a price equal to the sum of the Termination Price for each Pool and the
outstanding and unpaid fees and expenses of the Trustee and the Servicer.
Following a final determination by the Internal Revenue Service (the "IRS")
or by a court of competent jurisdiction, in either case from which no appeal is
taken within the permitted time for such appeal, or if any appeal is taken,
following a final determination of such appeal from which no further appeal can
be taken, to the effect that either REMIC does not and will no longer qualify as
a REMIC pursuant to Section 860D of the Code (the "Final Determination"), at any
time on or after the date which is 30 calendar days following such Final
Determination (i) the Holders of greater than 50 percent in Percentage Interest
of the Class A Certificates (the "Applicable Majority Certificateholders") may
direct the Trustee on behalf of the Trust to adopt a "plan of complete
liquidation" (within the meaning of Section 860F(a)(4)(B)(i) of the Code) with
respect to the related REMIC and (ii) MBIA may notify the Trustee of MBIA's
determination to purchase from the Trust all Loans and all property theretofore
acquired by foreclosure, deed in lieu of foreclosure, or otherwise in respect of
any Loan then remaining in such REMIC at a price equal to the aggregate
Termination Price. Upon receipt of such direction by the Applicable Majority
Certificateholders or of such notice from MBIA, the Trustee will notify the
holders of the Class R Certificates of such election to liquidate or such
determination to purchase, as the case may be (the "Termination Notice"). The
Holders of a majority of the percentage interest of the Class R Certificates
then outstanding may, within 60 days from the date of receipt of the Termination
Notice (the "Purchase Option Period"), at their option, purchase from the Trust
all the Loans and all property theretofore acquired by foreclosure, deed in lieu
of foreclosure, or otherwise in respect of any Loan then remaining in the REMIC
at a purchase price equal to the Termination Price of the Trust.
If, during a Purchase Option Period, the holders of the Class R
Certificates have not exercised the option described in the immediately
preceding paragraph, then upon the expiration of the Purchase Option Period (i)
in the event that the Applicable Majority Certificateholders have given the
Trustee the direction described in clause (i) above, the Trustee is required to
sell the Loans and such other property in the related REMIC and distribute the
proceeds of the liquidation of such REMIC, each in accordance with the plan of
complete liquidation, such that, if so directed, the liquidation of such REMIC
and the distribution of the proceeds of the liquidation occur no later than the
close of the 60th day, or such later day as the Applicable Majority
Certificateholders shall permit or direct in writing, after the expiration of
the Purchase Option Period and (ii) in the event that MBIA has given the Trustee
notice of MBIA's determination to purchase the assets described in clause (ii)
preceding, MBIA shall so purchase such assets within 60 days after the
expiration of the Purchase Option Period.
Following a Final Determination, the holders of a majority of the
percentage interest of the Class R Certificates then outstanding may, at their
option and upon delivery to the Trustee and MBIA of an opinion of nationally
recognized tax counsel selected by the Holders of such Class R Certificates,
which opinion shall be reasonably satisfactory in form and substance to the
Applicable Majority Certificateholders and MBIA, that the effect of the Final
Determination is to increase substantially the probability that the gross income
of the related REMIC will be subject to federal taxation, purchase from the
Trust all Loans and all property theretofore acquired by foreclosure, deed in
lieu of foreclosure, or otherwise in respect of any Loan then remaining in the
related REMIC at a purchase price equal to the Termination Price of the Trust.
The foregoing opinion shall be deemed satisfactory unless the Applicable
Majority Certificateholders or MBIA give the holders of a majority of percentage
interests in the Class R Certificates notice that such opinion is not
satisfactory within thirty days after receipt of such opinion.
If the Trust were to lose its qualification as a REMIC, it might be taxable
as a grantor trust, a partnership, or an association taxable as a corporation.
If the Trust is treated as a grantor trust or a partnership, such Trust would
not be subject to a separate entity level tax, and it is not expected that the
tax treatment of the investors would be materially different from the tax
treatment if the REMIC election of such Trust had not been revoked. However, if
the Trust were treated as an association taxable as a corporation it would be
subject to Federal income taxes at corporate rates on its net income. Moreover,
distributions on the Class A Certificates would probably not be deductible in
computing such Trust's taxable income, and all or part of the distributions to
the holders of such Class A Certificates would probably be treated as dividend
income to the holders. Such an entity level tax could result in reduced
distributions to the Class A Certificateholders and such Class A
Certificateholders could also be liable for a share of such a tax. Any such
corporate level tax would be borne first by the holders of the Class R
Certificates from amounts otherwise distributable to such holders. Any remaining
corporate level tax would be borne by holders of all Classes of Class A
Certificates pro rata in proportion to the outstanding principal balances of
such Classes.
THE TRUSTEE
The Bank of New York will be the Trustee under the Agreement. The Agreement
will provide that the Trustee may resign at any time, in which event the
Representative will be obligated to appoint a successor Trustee. The
Representative may also remove the Trustee if the Trustee ceases to be eligible
to continue as such under the Agreement or if the Trustee becomes insolvent. Any
resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee.
THE AUCTION AGENT
Bankers Trust Company, a New York banking corporation, will act as Auction
Agent with respect to the Auction Rate Certificates pursuant to an Auction Agent
Agreement to be entered into between the Representative, the Trustee and the
Auction Agent.
FEDERAL INCOME TAX CONSIDERATIONS
For federal income tax purposes, two separate elections will be made to
treat certain assets of the Trust as REMICs. Each Class of Class A Certificates
will constitute "regular interests" in a REMIC and each class of Class R
Certificates will constitute the sole "residual interest" in the related REMIC.
See "Federal Income Tax Consequences" in the Prospectus.
Because the Class A Certificates will be considered REMIC regular
interests, they generally will be taxable as debt obligations under the Code,
and interest paid or accrued on such Class A Certificates, including original
issue discount with respect to any such Class A Certificates issued with
original issue discount, will be taxable to Certificateholders in accordance
with the accrual method of accounting. See "Federal Income Tax
ConsequencesCREMIC Regular CertificatesCCurrent Income on REMIC Regular
Certificates" in the Prospectus.
The prepayment assumption that will be used in determining the rate of
accrual of original issue discount with respect to the Class A Certificates is
100% Prepayment Assumption, as 100% Prepayment Assumption is defined herein with
respect to each Pool of Class A Certificates. See "Maturity, Prepayment and
Yield Considerations" herein. However, no representation is made as to the rate
at which prepayments actually will occur.
ERISA CONSIDERATIONS
ERISA imposes certain requirements on employee benefit plans and collective
investment funds and separate accounts in which such plans or arrangements are
invested to which it applies and on those persons who are fiduciaries with
respect to such benefit plans. Certain employee benefit plans, such as
governmental plans (as defined in Section 3(32) of ERISA) and certain church
plans (as defined in Section 3(33) of ERISA), are not subject to ERISA. In
accordance with ERISA's general fiduciary standards, before investing in a Class
A Certificate a benefit plan fiduciary should determine whether such an
investment is permitted under the governing benefit plan instruments and is
appropriate for the benefit plan in view of its overall investment policy and
the composition and diversification of its portfolio.
In addition, benefit plans subject to ERISA and individual retirement
accounts or certain types of Keogh plans not subject to ERISA but subject to
Section 4975 of the Code (each a "Plan") are prohibited from engaging in a broad
range of transactions involving Plan assets and persons having certain specified
relationships to a Plan ("parties in interest" and "disqualified persons"). Such
transactions are treated as "prohibited transactions" under Sections 406 and 407
of ERISA and excise taxes are imposed upon such persons by Section 4975 of the
Code. The Representative, the Originators, MBIA, the Underwriter and the Trustee
and certain of their affiliates might be considered "parties in interest" or
"disqualified persons" with respect to a Plan. If so, the acquisition or holding
or transfer of Class A Certificates by or on behalf of such Plan could be
considered to give rise to a "prohibited transaction" within the meaning of
ERISA and the Code unless an exemption is available. Furthermore, if an
investing Plan's assets were deemed to include an interest in the Loans and any
other assets of the Trust and not merely an interest in the related Class A
Certificates, transactions occurring in the servicing of the Loans might
constitute prohibited transactions unless an administrative exemption applies.
One exemption which may be applicable to the acquisition and holding of the
Class A Certificates or to the servicing of the Loans is noted below.
The Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) concerning the definition of what constitutes the assets of a Plan
(the "Plan Asset Regulations"), which provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an "equity" investment will be
deemed for purposes of ERISA to be assets of the investing Plan unless certain
exceptions apply. Thus, a Plan fiduciary considering an investment in Class A
Certificates should also consider whether such an investment might constitute or
give rise to a prohibited transaction under ERISA or the Code.
DOL has granted to Prudential Securities Incorporated an administrative
exemption (Prohibited Transaction Exemption 90-32; 55 Fed. Reg. 23147 (June 6,
1990) (the "Exemption")) from certain of the prohibited transaction rules of
ERISA with respect to the initial purchase, the holding and the subsequent
resale in the secondary market by Plans of pass-through certificates
representing a beneficial undivided ownership interest in the assets of a trust
that consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption which may be applicable to the
Class A Certificates if Prudential Securities Incorporated or any of its
affiliates is either the sole underwriter or the manager or co-manager of the
underwriting syndicate, or a selling or placement agent. The conditions which
must be satisfied for the Exemption to apply to the purchase, holding and
transfer of the Class A Certificates are the following:
(i) The acquisition of the Class A Certificates by a Plan is
on terms (including the price for the Class A Certificates) that are at
least as favorable to the Plan as they would be in an arm's length
transaction with an unrelated party.
(ii) The rights and interest evidenced by a Class of Class A
Certificates acquired by the Plan are not subordinated to the rights
and interest evidenced by any other Certificates of the Trust.
(iii) The Class A Certificates acquired by the Plan have
received a rating at the time of such acquisition that is in one of the
three highest generic rating categories from any of Moody's, Duff &
Phelps Credit Rating Co., S&P or Fitch Investors Service, L.P.
("Authorized Rating Agencies") and the investment pool consists only of
assets of the type enumerated in the Exemption, and which have been
included in other investment pools; certificates evidencing interest in
such other investment pools have been rated in one of the three highest
generic rating categories by an Authorized Rating Agency for at least
one year prior to a Plan's acquisition of certificates; and
certificates evidencing interest in such other investment pools have
been purchased by investors other than Plans for at least one year
prior to a plan's acquisition of the Class A Certificates.
(iv) The sum of all payments made to the Underwriters in
connection with the distribution of the Class A Certificates represents
not more than reasonable compensation for distributing the Class A
Certificates. The sum of all payments made to and retained by the
Representative and the Originators pursuant to the sale of the Loans to
the Trust represents not more than the fair market value of such Loans.
The sum of all payments made to and retained by the Servicer or any
other servicer represents not more than reasonable compensation for
such services under the Agreement and reimbursement of the servicer's
reasonable expenses in connection therewith.
(v) The Trustee must not be an affiliate of any member of the
Restricted Group as defined below.
In addition, it is a condition that the Plan investing in the Class A
Certificates is an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D under the Securities Act. Any Plan purchasing Class A Certificates
will be deemed to have represented, by virtue of such purchase, that it is an
accredited investor.
The Exemption does not apply to Plans sponsored by the Originators, the
Representative, MBIA, the Underwriters, the Trustee, the Servicer, any other
servicers or any obligor with respect to Loans included in the Trust
constituting more than 5% of the aggregate unamortized principal balance of the
assets in such Trust or any affiliate of such parties (the "Restricted Group").
No exemption is provided from the restrictions of ERISA for the acquisition or
holding of a Class A Certificate on behalf of an "Excluded Plan" by any person
who is a fiduciary with respect to the assets of such Excluded Plan. For
purposes of the Class A Certificates, an Excluded Plan is a Plan sponsored by
any member of the Restricted Group. In addition, the Exemption provides relief
from certain self-dealing/conflict of interest prohibited transactions that may
occur when a Plan fiduciary causes a Plan to acquire Class A Certificates and
the fiduciary (or its affiliate) is an obligor on any Loan held in the Trust
provided that, among other requirements, (i) such fiduciary (or its affiliate)
is an obligor with respect to 5% or less of the fair market value of the Loans
contained in the Trust, (ii) the Plan's investment in any Class of Class A
Certificates does not exceed 25% of all of the Certificates of such Class
outstanding at the time of the Plan's acquisition and after the Plan's
acquisition of such Class of Class A Certificates, no more than 25% of the
assets over which the fiduciary has investment authority are invested in
securities of a trust containing assets which are sold or serviced by the same
entity, and (iii) in the case of initial issuance (but not secondary market
transactions), at least 50% of each Class of Class A Certificates, and at least
50% of the aggregate interest in the Trust, are acquired by persons independent
of the Restricted Group.
On May 23, 1997, the DOL published in the Federal Register a proposed
amendment to the Exemption which will extend exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre- funding
accounts for trusts issuing pass-through certificates. With respect to the
Certificates, the amendment will generally allow a portion of the Loans
supporting payments to Certificateholders and having a value equal to no more
than 25% of the total principal amount of the Offered Certificates to be
transferred to the Trust within a 90- day or three-month period following the
Closing Date instead of requiring that all such Loans be either identified or
transferred on or before the Closing Date. The relief, when granted as a final
exemption, will be effective for transactions occurring on or after May 23,
1997, provided that the following conditions are met:
(1) The ratio of the amount allocated to the Pre-Funding
Account to the total principal amount of the Certificates ("Pre-Funding Limit")
must not exceed (25%).
(2) All Subsequent Loans must meet the same terms and
conditions for eligibility as the original Loans used to create the Trust, which
terms and conditions have been approved by the Rating Agencies.
(3) The transfer of the Subsequent Loans to the Trust during
the Funding Period must not result in the Certificates receiving a lower credit
rating from the Rating Agencies upon termination of the Funding Period than the
rating that was obtained at the time of the initial issuance of the Certificates
by the Trust.
(4) Solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "average interest rate") for all of
the Loans in the Trust at the end of the Funding Period must be more than 100
basis points lower than the average interest rate for the Loans which were
transferred to the Trust on the Closing Date.
(5) Either: (i) the characteristics of the Subsequent Loans
must be monitored by an insurer or other credit support provider which is
independent of the Originator; or (ii) an independent accountant retained by the
Originator must provide the Originator with a letter (with copies provided to
each of the Rating Agencies, the Underwriters and the Trustee) stating whether
or not the characteristics of the Subsequent Loans conform to the
characteristics described in the Prospectus Supplement and/or Agreement. In
preparing such letter, the independent accountant must use the same type of
procedures as were applicable to the Loans which were transferred as of the
Closing Date.
(6) The Funding Period must end no later than three months or
90 days after the Closing Date or earlier, in certain circumstances, if the
amount on deposit in the Pre-Funding Account is reduced below the minimum level
specified in the Agreement or an event of default occurs under the Agreement.
(7) Amounts transferred to any Pre-Funding Account and/or
Capitalized Interest Account used in connection with the pre-funding may be
invested only in Permitted Instruments which are permitted by the Rating
Agencies and (i) are direct obligations of, or obligations fully guaranteed as
to timely payment of principal and interest by, the United States or any agency
or instrumentality thereof (provided that such obligations are backed by the
full faith and credit of the United States); or (ii) have been rated (or the
obligor has been rated) in one of the three highest generic rating categories by
one of the Rating Agencies ("Permitted Investments").
(8) The Prospectus or Prospectus Supplement must describe: (i)
any Pre-Funding Account and/or Capitalized Interest Account used in connection
with a Pre-Funding Account; (ii) the duration of the Funding Period; (iii) the
percentage and/or dollar amount of the Pre-Funding Limit for the Trust; and (iv)
that the amounts remaining in the Pre-Funding Account at the end of the Funding
Period will be remitted to Certificateholders as repayments of principal.
(9) The Agreement must describe the Permitted Investments for
the Pre-Funding Account and Capitalized Interest Account and, if not disclosed
in the Prospectus Supplement, the terms and conditions for eligibility of the
Subsequent Loans.
The Underwriters believe that all of the conditions for exemptive relief
under the proposed amendment to the Exemption with respect to pre-funding will
be satisfied. Therefore, if the relief granted under the final amendment
conforms to that proposed by the DOL, such relief would be applicable
retroactively to the Closing Date. Although there can be no assurance that the
final amendment will be adopted, or if adopted, that it will be identical to
that proposed, it is not anticipated that any changes will be made which would
adversely affect the applicability of the Exemption to the purchase, transfer or
holding of the Certificates by or on behalf of a Plan on account of the use of
pre-funding. However, any Plan investor who proposes to acquire Certificates in
reliance upon the Exemption should consult with its counsel and make its own
determination as to the applicability of the Exemption and the advisability of
investing in Certificates in reliance upon the proposed pre-funding amendment.
Before purchasing a Class A Certificate in reliance on the Exemption or any
other exemption, a fiduciary of a Plan should confirm that all applicable
requirements would be satisfied. Any Plan fiduciary considering the purchase of
a Class A Certificate should consult with its counsel with respect to the
potential applicability of ERISA and the Code to such investment. Moreover, each
Plan fiduciary should determine whether, under the general fiduciary standards
of investment prudence and diversification, an investment in the Class A
Certificates is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio. Special caution ought to be exercised before a Plan purchases a Class
A Certificate in such circumstances. See "ERISA Considerations" in the
Prospectus.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, each Class of Class A
Certificates will be rated in the highest rating category by each Rating Agency,
the Class A Certificates (other than the Class A-9 and Class A-10 Certificates)
will not constitute "mortgage related securities" for purposes of SMMEA.
Accordingly, many institutions with legal authority to invest in comparably
rated securities based on first mortgage loans or deeds of trust may not be
legally authorized to invest in such Classes of Class A Certificates. Upon
termination of the Funding Period, the Class A-9 and Class A-10 Certificates
will constitute "mortgage related securities" under the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA") so long as they are rated in one of the
two highest rating categories by at least one nationally recognized statistical
rating organization and, as such, will be "legal investments" for certain types
of institutional investors to the extent provided in SMMEA. Each Class of Class
A Certificates other than the Class A-9 and Class A-10 Certificates will not
constitute "mortgage related securities" under SMMEA. Investors should consult
their own legal advisers in determining whether and the extent to which a Class
of Class A Certificates constitutes legal investments for such investors. No
representation is made herein as to whether the Class A Certificates constitute
legal investments for any entity under any applicable statute, law, rule,
regulation or order. Prospective purchasers are urged to consult with their
counsel concerning the status of the Class A Certificates as legal investments
for such purchasers prior to investing in any Class of Class A Certificates.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated June__, 1997 (the "Underwriting Agreement"), the Representative, on behalf
of the Originators, has agreed to sell and each Underwriter has agreed to
purchase the principal amount of each Class of Class A Certificates set forth
below it name.
<TABLE>
<CAPTION>
Prudential
Securities Salomon Brothers Lehman Brothers Merrill Lynch & Bear, Stearns &
Incorporated Inc. Inc. Co. Co. Inc. Total
<S> <C> <C> <C> <C> <C> <C>
Class A-1 $50,500,000 $0 $0 $20,000,000 $10,000,000 $80,500,000
Class A-2 $54,250,000 $0 $0 $20,000,000 $10,250,000 $84,500,000
Class A-3 $65,400,000 $0 $0 $27,000,000 $13,000,000 $105,400,000
Class A-4 $35,500,000 $0 $0 $14,500,000 $ 7,500,000 $57,500,000
Class A-5 $32,800,000 $0 $0 $13,500,000 $ 6,500,000 $52,800,000
Class A-6 $30,900,000 $0 $0 $12,000,000 $6,000,000 $48,900,000
Class A-7 $40,400,000 $0 $0 $16,500,000 $ 8,500,000 $65,400,000
Class A-8 $34,000,000 $0 $0 $14,000,000 $ 7,000,000 $55,000,000
Class A-9 $0 $270,000,000 $0 $0 $0 $270,000,000
Class A-10 $0 $0 $140,000,000 $0 $0 $140,000,000
Class A-11 $10,000,000 $0 $0 $0 $0 $10,000,000
-------------- --------------- ---------------- --------------- -------------- ------------
Total $353,750,000 $270,000,000 $140,000,000 $137,500,000 $68,750,000 $ 970,000,000
============ ============ ============ ============ =========== =============
</TABLE>
The Representative has been advised by the Underwriters that the
Underwriters propose initially to offer the Class A Certificates at the
respective public offering prices set forth on the cover page of this Prospectus
Supplement and to certain dealers at such price less a concession not in excess
of the respective amounts set forth in the table below (expressed as a
percentage of the respective Class Principal Balance). The Underwriters may
allow and such dealers may reallow a discount not in excess of the respective
amounts set forth in the table below to certain other dealers.
<TABLE>
<CAPTION>
Selling Reallowance
Class Concessions Discount
----- ----------- --------
<S> <C> <C>
A-1 0.0750% 0.0375%
A-2 0.1000% 0.0500%
A-3 0.1200% 0.0600%
A-4 0.1400% 0.0700%
A-5 0.1500% 0.0750%
A-6 0.1750% 0.0875%
A-7 0.2000% 0.1000%
A-8 0.2000% 0.1000%
A-9 0.1500% 0.0750%
A-10 0.1500% 0.0750%
A-11 0.1500% 0.0750%
</TABLE>
The Representative has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Each of the Underwriters may provide investment banking services for the
Representative for which it will receive additional compensation.
EXPERTS
The consolidated financial statements of MBIA Insurance Corporation and
Subsidiaries as of December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996 incorporated by reference into this
Prospectus Supplement have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their report thereon incorporated by reference
herein in reliance upon the authority of such firm as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Certificates will be passed upon for the Representative by Eric R. Elwin, Esq.,
Corporate Counsel of the Representative. Certain legal matters relating to the
validity of the issuance of the Certificates will be passed upon for the
Underwriters by Stroock & Stroock & Lavan LLP, New York, New York. Certain legal
matters will be passed upon for MBIA by Kutak Rock, Omaha, Nebraska. Stroock &
Stroock & Lavan LLP has performed legal services for the Representative and it
is expected that it will continue to perform such services in the future.
RATING OF THE CLASS A CERTIFICATES
It is a condition to the issuance of the Class A Certificates that each
Class be rated "AAA" by S&P and "Aaa" by Moody's (collectively, the "Rating
Agencies"). Such ratings are the highest long-term ratings that such Rating
Agencies assign to securities. The ratings given to the Class A Certificates
will be based, among other things, upon the ratings assigned to the claims
paying ability of MBIA. Any reduction in such rating of MBIA would most likely
result in a reduction in the ratings given to the Class A Certificates. 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.
No person is obligated to maintain the rating on any Class of Class A
Certificates. The ratings of the Adjustable Rate and Auction Rate Certificates
by S&P and Moody's do not reflect the likelihood of payment of the
Certificateholder's Interest Carryover since MBIA does not insure payment of
such amounts.
FINANCIAL INFORMATION
The Representative has determined that its financial statements are not
material to the offering made hereby.
The Trust has been formed to own the Loans and to issue the Certificates.
The Trust had no assets or obligations prior to the issuance of the Certificates
and will not engage in any activities other than those described herein.
Accordingly, no financial statements with respect to the Trust are included in
this Prospectus Supplement.
<PAGE>
INDEX OF PRINCIPAL TERMS
Page
Actuarial...................................... S-21
Adjustable Rate Certificates................... S-5
Adjusted Mortgage Loan Remittance Rate......... S-27
Agreement...................................... S-6
Applicable Majority Certificateholders......... S-70
Auction Rate Certificates...................... S-3
Authorized Rating Agencies..................... S-73
Auto Loans..................................... S-33
Available Amount............................... S-67
Available Remittance Amount.................... S-66
Balloon Loans.................................. S-23
Book-Entry Certificates........................ S-57
Business Day................................... S-51
Capitalized Interest Account................... S-9
Carry-Forward Amount........................... S-16
Cede........................................... S-30
Cedel Bank..................................... S-30
Cedel Bank Participants........................ S-59
Certificate Account............................ S-65
Certificate Owners............................. S-57
Certificateholder.............................. S-8
Certificateholders' Interest Carryover......... S-12
Change Date.................................... S-22
Class A Certificateholders..................... S-2
Class A Certificates........................... S-2
Class A-9 Principal Distribution Amount........ S-14
Class A-9 Principal Percentage................. S-14
Class R Certificates........................... S-2
Class X Certificates........................... S-2
Closing Date................................... S-6
Combined Loan-to-Value Ratio................... S-21
Compensating Interest.......................... S-27
Contingency Fee................................ S-28
Cooperative.................................... S-59
CPR............................................ S-45
Credit Enhancement............................. S-16
Cross-Over Date................................ S-29
Current Interest Requirement................... S-10
Curtailment.................................... S-27
Cut-Off Date................................... S-6
Deficiency Amount.............................. S-62
Definitive Class A Certificates................ S-30
Designated Depository Institution.............. S-65
Detailed Description........................... S-36
Determination Date............................. S-26
Distribution Amount............................ S-15
DOL............................................ S-72
DTC............................................ S-30
Due Period..................................... S-16
Equity Advantage Loans......................... S-35
ERISA.......................................... S-29
ERISA Considerations........................... S-29
Euroclear...................................... S-30
Euroclear Operator............................. S-59
Euroclear Participants......................... S-59
European Depositaries.......................... S-57
Excess Subordinated Amount..................... S-55
Excluded Plan.................................. S-73
Exemption...................................... S-30
Final Determination............................ S-70
Financial Intermediary......................... S-58
Fiscal Agent................................... S-61
Funding Period................................. S-9
GAAP........................................... S-64
Gross Margin................................... S-22
HEP............................................ S-45
Holders........................................ S-2
Home Equity Mortgage Notes..................... S-19
Home Equity Mortgaged Properties............... S-19
Home Equity Mortgages.......................... S-19
Home Equity Mortgagor.......................... S-20
Initial Home Equity Loans...................... S-19
Initial Loans.................................. S-19
Initial Multifamily Loans...................... S-19
Initial Pool I Home Equity Loans............... S-19
Initial Pool II Home Equity Loans.............. S-19
Insurance Agreement............................ S-55
Insurance Paying Agent......................... S-18
Insurance Proceeds............................. S-27
Insured Payment................................ S-18
Interest Period................................ S-69
IRS............................................ S-70
LIBOR.......................................... S-68
LIBOR Determination Date....................... S-69
LIBOR Index.................................... S-22
Liquidated Loan................................ S-41
Liquidation Proceeds........................... S-26
Loans.......................................... S-7
London Banking Day............................. S-69
Maximum Subordinated Amount.................... S-55
MBIA........................................... S-18
MBIA Policies.................................. S-2
Monthly Advance................................ S-26
Monthly Excess Spread.......................... S-54
Moody's........................................ S-28
Mortgaged Properties........................... S-24
Mortgages...................................... S-19
Mortgagor...................................... S-20
Multifamily Loans.............................. S-2
Multifamily Mortgage Interest Rate............. S-25
Multifamily Mortgaged Properties............... S-24
Multifamily Mortgages.......................... S-24
Multifamily Mortgagor.......................... S-25
Net Funds Cap.................................. S-11
Notes.......................................... S-19
Obligor........................................ S-25
One-Month Index Maturity....................... S-68
Optional Servicer.............................. S-28
Original Pool Principal Balance................ S-28
Originators.................................... S-2
Pass-Through Rate.............................. S-4
Percentage Interest............................ S-51
Periodic Rate Cap.............................. S-22
Plan Asset Regulations......................... S-72
Plans.......................................... S-29
Pool I......................................... S-6
Pool I Certificateholders...................... S-8
Pool I Current Interest Requirement............ S-10
Pool I Home Equity Loans....................... S-7
Pool I Loans................................... S-7
Pool I Mortgage Interest Rate.................. S-21
Pool II........................................ S-7
Pool II Certificateholders..................... S-8
Pool II Current Interest Requirement........... S-11
Pool II Home Equity Loans...................... S-7
Pool II Loans.................................. S-7
Pool II Mortgage Interest Rate................. S-22
Pool III....................................... S-7
Pool III Certificateholders.................... S-8
Pool III Current Interest Requirement.......... S-11
Pool III Loans................................. S-7
Pre-Funded Amount.............................. S-8
Principal Distribution Amount.................. S-13
Principal Prepayment........................... S-27
PUDs........................................... S-19
Purchase Option Period......................... S-70
Rating Agencies................................ S-77
Record Date.................................... S-10
Reference Banks................................ S-69
Released Mortgaged Property Proceeds........... S-27
REMICs......................................... S-29
Remittance Date................................ S-10
REO Property................................... S-28
Representative................................. S-2
Restricted Group............................... S-73
S&P............................................ S-28
Servicer....................................... S-6
Servicing Fee.................................. S-28
Simple interest................................ S-21
Single family.................................. S-7
Special Remittance Date........................ S-9
Specified Subordinated Amount.................. S-55
Spread Account................................. S-17
Spread Amount.................................. S-17
Subordinated Amount............................ S-55
Subsequent Cut-Off Date........................ S-19
Subsequent Loans............................... S-2
Telerate Page 3750............................. S-69
Termination Notice............................. S-70
Termination Price.............................. S-28
Terms and Conditions........................... S-59
Treasury Index................................. S-22
Trust.......................................... S-6
Trustee........................................ S-6
U.S. Person.................................... S-4
Underwriting Agreement......................... S-76
Unrecovered Amounts............................ S-16
<PAGE>
ANNEX I
AUCTION PROCEDURES
The following description of the Auction Procedures applies to each Class
of Auction Rate Certificates. The term "Certificate," as used in this Annex,
refers to each Class of Auction Rate Certificates, and the term
"Certificateholder" refers to Certificateholders holding Auction Rate
Certificates.
DEFINITIONS
Capitalized terms used herein and not otherwise defined have the meanings
ascribed in the accompanying Prospectus and Prospectus Supplement. Additionally,
the following terms have the meanings ascribed to them:
"Agreement" means the Pooling and Servicing Agreement dated as of May 31,
1997 among The Bank of New York, as Trustee, The Money Store Inc., as
Representative and Servicer and the Originators listed therein, including the
Auction Procedures set forth therein as Schedule II.
"All Hold Rate" means ninety percent (90%) of One-Month LIBOR.
"Auction" means the implementation of the Auction Procedures on an Auction
Date.
"Auction Agent" means the initial auction agent under the initial Auction
Agent Agreement unless and until a substitute Auction Agent Agreement becomes
effective, after which "Auction Agent" shall mean the substitute auction agent.
"Auction Agent Agreement" means the initial Auction Agent Agreement unless
and until a substitute Auction Agent Agreement is entered into, after which
"Auction Agent Agreement" shall mean such substitute Auction Agent Agreement.
"Auction Agent Fee" has the meaning set forth in the Auction Agent
Agreement.
"Auction Agent Fee Rate" has the meaning set forth in the Auction Agent
Agreement.
"Auction Date" means, with respect to the Initial Period for each Class of
Certificates, July 14, 1997 and thereafter, the Business Day immediately
preceding the first day of each Auction Period for each Certificate, other than:
(A) each Auction Period commencing after the ownership of the
Certificates is no longer maintained in Book-Entry Form by the
Depository;
(B) each Auction Period commencing after and during the continuance
of a Certificate Insurer Default; or
(C) each Auction Period commencing less than two Business Days
after the cure or waiver of a Certificate Insurer Default.
Notwithstanding the foregoing, the Auction Date for one or more Auction Periods
may be changed pursuant to the Agreement, as described herein.
"Auction Period" means, with respect to each Certificate, the Interest
Period applicable to such Certificate during which time the applicable
Certificate Interest Rate is determined, which Auction Period (after the Initial
Period for such Certificate) shall commence on each Remittance Date and shall
continue through the day immediately preceding the next Remittance Date for such
Certificate, as the same may be adjusted pursuant to the Agreement.
"Auction Procedures" means the procedures set forth in the Agreement, and
described herein by which the Auction Rate applicable to a Certificate is
determined.
"Auction Rate" means, with respect to any Certificate, the rate of interest
per annum that results from the implementation of the Auction Procedures and is
determined as described in the Agreement and this Annex I.
"Authorized Denominations" means, with respect to any Certificate, $25,000
and any integral multiple in excess thereof.
"Broker-Dealer" means Lehman Brothers Inc. or any other broker or dealer
(each as defined in the Securities Exchange Act of 1934, as amended), commercial
bank or other entity permitted by law to perform the functions required of a
Broker-Dealer set forth in the Auction Procedures that (a) is a Participant (or
an affiliate of a Participant), (b) has been appointed as such by the
Representative and (c) has entered into a Broker-Dealer Agreement that is in
effect on the date of reference.
"Broker-Dealer Agreement" means each agreement between the Auction Agent
and a Broker-Dealer pursuant to which the Broker-Dealer agrees to participate in
Auctions as set forth in the Auction Procedures, as from time to time amended or
supplemented.
"Broker-Dealer Fee" has the meaning set forth in the Auction Agent
Agreement.
"Broker-Dealer Fee Rate" has the meaning set forth in the Auction Agent
Agreement.
"Business Day" means any day other than (i) a Saturday or Sunday or (ii) a
day on which banking institutions in the States of New York or New Jersey are
authorized or obligated by law or executive order to be closed.
"Certificate Initial Rate" means one month LIBOR minus 0% per annum.
"Certificate Initial Rate Adjustment Date" means July 15, 1997.
"Certificate Insurer Default" means a default by MBIA under the MBIA Policy
relating to the Auction Rate Certificates.
"Certificate Interest Rate" means, with respect to any Class of Auction
Rate Certificate, initially the Certificate Initial Rate until the first Auction
Date for such Class of Auction Rate Certificates, at which time the related
Certificate Interest Rate will be reset pursuant to the Auction Procedures.
"Existing Certificateholder" means (i) with respect to and for the purpose
of dealing with the Auction Agent in connection with an Auction, a Person who is
a Broker-Dealer listed in the Existing Certificateholder Registry at the close
of business on the Business Day immediately preceding such Auction and (ii) with
respect to and for the purpose of dealing with the Broker-Dealer in connection
with an Auction, a Person who is a beneficial owner of any Certificate.
"Existing Certificateholder Registry" means the registry of Persons who are
owners of the Securities, maintained by the Auction Agent as provided in the
Auction Agent Agreement.
"Initial Period" means, as to any Certificate, the period commencing on the
Closing Date and continuing through the day immediately preceding the
Certificate Initial Rate Adjustment Date for such Certificate.
"Interest Period" means, with respect to a Certificate, the Initial Period
for such Certificate and each period commencing on the Rate Adjustment Date for
such Certificate and ending on the day before (i) the next Rate Adjustment Date
for such Certificate or (ii) the Final Maturity Date of such Certificate, as
applicable.
"LIBOR Determination Date" means the date which is both a Business Day and
a London Banking Day prior to the commencement of each related Interest Period.
"London Banking Day" means any Business Day on which dealings in deposits
in United States dollars are transacted in the London interbank market.
"Market Agent" means Lehman Brothers Inc., in such capacity under the
Agreement, or any successor to it in such capacity thereunder.
"Maximum Auction Rate" means, either (A) One-Month LIBOR plus 0.60% (if
both ratings assigned by the Rating Agencies to the Auction Rate Certificates
are "Aa3" or "A-" or better) or (B) One-Month LIBOR plus 1.0% (if any one of the
ratings assigned by the Rating Agencies to the Auction Rate Certificates is less
than "Aa3" or "AA-"). For purposes of the Auction Agent and the Auction
Procedures, the ratings referred to in this definition shall be the last ratings
of which the Auction Agent has been given notice pursuant to the Auction Agent
Agreement.
"Non-Payment Rate" means One-Month LIBOR plus 0.60%.
"One-Month LIBOR" means the London interbank offered rate for deposits in
U.S. dollars having a maturity of one month commencing on the related LIBOR
Determination Date (the "One-Month Index Maturity") which appears on Telerate
Page 3750 as of 11:00 a.m., London time, on such LIBOR Determination Date. If
such rate does not appear on Telerate Page 3750, the rate for that day will be
determined on the basis of the rates at which deposits in U.S. dollars, having
the One Month Index Maturity and in a principal amount of not less than U.S.
$1,000,000, are offered at approximately 11:00 a.m., London time, on such LIBOR
Determination Date to prime banks in the London interbank market by the
Reference Banks. The Auction Agent will request the principal London office of
each of such Reference Banks to provide a quotation of its rate. If at least two
such quotations are provided, the rate for that day will be the arithmetic mean
of the quotations. If fewer than two quotations are provided, the rate for that
day will be the arithmetic mean of the rates quoted by major banks in New York
City, selected by the Auction Agent, at approximately 11:00 a.m., New York City
time, on such LIBOR Determination Date for loans in U.S. dollars to leading
European banks having the One Month Index Maturity and in a principal amount
equal to an amount of not less than U.S. $1,000,000; provided that if the banks
selected as aforesaid are not quoting as mentioned in this sentence, One-Month
LIBOR in effect for the applicable Interest Period will be One-Month LIBOR in
effect for the previous Interest Period.
"Person" means any individual, corporation, estate, partnership, limited
liability company, joint venture, association, joint stock company, trust
(including any beneficiary thereof), unincorporated organization or government
or any agency or political subdivision thereof.
"Potential Certificateholder" means any Person (including an Existing
Certificateholder that is (i) a Broker- Dealer when dealing with the Auction
Agent and (ii) a potential beneficial owner when dealing with a Broker-Dealer)
who may be interested in acquiring Certificates (or, in the case of an Existing
Certificateholder thereof, an additional principal amount of Certificates).
"Rate Adjustment Date" means, with respect to each Certificate, the date on
which the applicable Certificate Interest Rate is effective and means, with
respect to each such Certificate, the date of commencement of each Auction
Period.
"Rate Determination Date" means, with respect to any Certificate, the
Auction Date, or if no Auction Date is applicable to such Certificate, the
Business Day immediately preceding the date of commencement of an Auction
Period.
"Reference Banks" means leading banks selected by the Auction Agent and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market.
EXISTING CERTIFICATEHOLDERS AND POTENTIAL CERTIFICATEHOLDERS
Participants in each Auction will include: (i) "Existing
Certificateholders," which shall mean any Certificateholder according to the
records of the Auction Agent at the close of business on the Business Day
preceding each Auction Date; and (ii) "Potential Certificateholders," which
shall mean any person, including any Existing Certificateholder or a
Broker/Dealer, who may be interested in acquiring Certificates (or, in the case
of an Existing Certificateholder, an additional principal amount of the
Certificate such Certificateholder then holds). See"CBroker-Dealer."
By purchasing a Certificate, whether in an Auction or otherwise, each
prospective purchaser of Certificates or its Broker-Dealer must agree and will
be deemed to have agreed: (i) to participate in Auctions on the terms described
herein; (ii) so long as the beneficial ownership of the Certificates is
maintained in Book-Entry Form to sell, transfer or otherwise dispose of the
Certificates only pursuant to a Bid (as defined below) or a Sell Order (as
defined below) in an Auction, or to or through a Broker-Dealer, provided that in
the case of all transfers other than those pursuant to an Auction, the Existing
Certificateholder of the Certificates so transferred, its Participant or
Broker-Dealer advises the Auction Agent of such transfer; (iii) to have its
beneficial ownership of Certificates maintained at all times in Book-Entry Form
for the account of its Participant, which in turn will maintain records of such
beneficial ownership, and to authorize such Participant to disclose to the
Auction Agent such information with respect to such beneficial ownership as the
Auction Agent may request; (iv) that a Sell Order placed by an Existing
Certificateholder will constitute an irrevocable offer to sell the principal
amount of the Certificate specified in such Sell Order; (v) that a Bid placed by
an Existing Certificateholder will constitute an irrevocable offer to sell the
principal amount of the Certificate specified in such Bid if the rate specified
in such Bid is greater than, or in some cases equal to, the Auction Rate of such
Certificate, determined as described herein; and (vi) that a Bid placed by a
Potential Certificateholder will constitute an irrevocable offer to purchase the
amount, or a lesser principal amount, of the Certificate specified in such Bid
if the rate specified in such Bid is, respectively, less than or equal to the
Certificate Interest Rate of the specified Certificate, determined as described
herein.
The principal amount of the Certificates purchased or sold may be subject
to proration procedures on the Auction Date. Each purchase or sale of
Certificates on the Auction Date will be made for settlement on the first day of
the Interest Period immediately following such Auction Date at a price equal to
100% of the principal amount thereof, plus accrued but unpaid interest thereon.
The Auction Agent is entitled to rely upon the terms of any Order submitted to
it by a Broker-Dealer.
Auction Agent
Bankers Trust Company will be appointed as Auction Agent to serve as agent
for the Trust in connection with Auctions. The Trustee will enter into the
Auction Agreement with Bankers Trust Company, as the Auction Agent. Any
Substitute Auction Agent will be (i) a bank, national banking association or
trust company duly organized under the laws of the United States of America or
any state or territory thereof having its principal place of business in the
Borough of Manhattan, New York, or such other location as approved by the
Trustee and the Market Agent in writing and having a combined capital stock or
surplus of at least $50,000,000, or (ii) a member of the National Association of
Certificates Dealers, Inc. having a capitalization of at least $50,000,000, and,
in either case, authorized by law to perform all the duties imposed upon it
under the Agreement and under the Auction Agent Agreement and approved by MBIA
in writing. The Auction Agent may at any time resign and be discharged of the
duties and obligations created by the Agreement by giving at least 90 days
notice to the Trustee and the Market Agent. The Auction Agent may be removed at
any time by the Trustee upon the written direction of MBIA, or, with the consent
of MBIA, the Certificateholders of 66-2/3% of the aggregate principal amount of
the Certificates then outstanding, by an instrument signed by the MBIA or such
Certificateholders or their attorneys and filed with the Auction Agent, the
Trustee and the Market Agent upon at least 90 days' notice. Neither resignation
nor removal of the Auction Agent pursuant to the preceding two sentences will be
effective until and unless a Substitute Auction Agent has been appointed, has
been approved in writing by MBIA and has accepted such appointment. If required
by MBIA, the Certificateholders of 66- 2/3% of the aggregate principal amount of
the Certificates then outstanding or by the Market Agent, a Substitute Auction
Agent Agreement shall be entered into with a Substitute Auction Agent.
Notwithstanding the foregoing, the Auction Agent may terminate the Auction Agent
Agreement if, within 25 days after notifying the Trustee, MBIA and the Market
Agent in writing that it has not received payment of any Auction Agent Fee due
it in accordance with the terms of the Auction Agent Agreement, the Auction
Agent does not receive such payment.
If the Auction Agent should resign or be removed or be dissolved, or if the
property or affairs of the Auction Agent shall be taken under the control of any
state or federal court or administrative body because of bankruptcy or
insolvency, or for any other reason, the Trustee, at the direction of the
Representative and MBIA (after receipt of a certificate from the Market Agent
confirming that any proposed Substitute Auction Agent meets the requirements
described in the immediately preceding paragraph above), shall use its best
efforts to appoint a Substitute Auction Agent.
The Auction Agent is acting as agent for the Trust in connection with
Auctions. In the absence of bad, faith, negligent failure to act or negligence
on its part, the Auction Agent will not be liable for any action taken, suffered
or omitted or any error of judgment made by it in the performance of its duties
under the Auction Agent Agreement and will not be liable for any error of
judgment made in good faith unless the Auction Agent will have been negligent in
ascertaining (or failing to ascertain) the pertinent facts.
The Trustee will pay the Auction Agent the Auction Agent Fee on each
Remittance Date and will reimburse the Auction Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Auction
Agent in accordance with any provision of the Auction Agent Agreement or the
Broker-Dealer Agreements (including the reasonable compensation and the expenses
and disbursements of its agents and counsel). The Trust will indemnify and hold
harmless the Auction Agent for and against any loss, liability or expense
incurred without negligence or bad faith on the Auction Agent's part, arising
out of or in connection with the acceptance or administration of its agency
under the Auction Agent Agreement and the Broker-Dealer Agreements including the
reasonable costs and expenses (including the reasonable fees and expenses of its
counsel) of defending itself against any such claim or liability in connection
with its exercise or performance of any of its respective duties thereunder and
of enforcing this indemnification provision; provided that the Trust will not
indemnify the Auction Agent as described in this paragraph for any fees and
expenses incurred by the Auction Agent in the normal course of performing its
duties under the Auction Agent Agreement and under the Broker-Dealer Agreements,
such fees and expenses being payable as described above.
Broker-Dealer
Existing Certificateholders and Potential Certificateholders may
participate in Auctions only by submitting orders (in the manner described
below) through a "Broker-Dealer," including Lehman Brothers Inc. as the sole
Broker-Dealer or any other broker or dealer (each as defined in the Certificates
Exchange Act of 1934, as amended), commercial bank or other entity permitted by
law to perform the functions required of a Broker-Dealer set forth below which
(i) is a Participant or an affiliate of a Participant, (ii) has been selected by
the Trustee and (iii) has entered into a Broker-Dealer Agreement with the
Auction Agent that remains effective, in which the Broker-Dealer agrees to
participate in Auctions as described in the Auction Procedures, as from time to
time amended or supplemented.
The Broker-Dealers are entitled to a Broker-Dealer Fee on each Remittance
Date, which is payable by the Auction Agent from monies received from the
Trustee.
Market Agent
The "Market Agent," will act solely as agent of the Trust and will not
assume any obligation or relationship of agency or trust for or with any of the
Certificateholders.
AUCTION PROCEDURES
General
Pursuant to the Agreement, Auctions to establish the Auction Rate for each
Certificate issued by the Trust will be held on each applicable Auction Date,
except as described below, by application of the Auction Procedures described
herein. Such procedures are to be applicable separately to each Class of
Certificates.
The Auction Agent will calculate the Maximum Auction Rate, the All Hold
Rate and One-Month LIBOR on each Auction Date. The Servicer will calculate and,
no later than the Business Day preceding each Auction Date, will report to the
Auction Agent in writing, the Net Funds Cap applicable to the Certificates. If
the ownership of a Certificate is no longer maintained in Book-Entry Form, the
Trustee will calculate the Maximum Auction Rate, and the Servicer will report to
the Trustee in writing the Net Funds Cap, on the Business Day immediately
preceding the first day of each Interest Period commencing after delivery of
such Certificate. If a Certificate Insurer Default has occurred, the Trustee
will calculate the Non-Payment Rate on the Rate Determination Date for (i) each
Interest Period commencing after the occurrence and during the continuance of
such Certificate Insurer Default and (ii) any Interest Period commencing less
than two Business Days after the cure of any Certificate Insurer Default. The
Auction Agent will determine One-Month LIBOR for each Interest Period other than
the Initial Period for a Certificate; provided, that if the ownership of the
Certificates is no longer maintained in Book-Entry Form, or if a Certificate
Insurer Default has occurred, then the Trustee will determine One-Month LIBOR
for each such Interest Period. The determination by the Trustee or the Auction
Agent, as the case may be, of One-Month LIBOR will (in the absence of manifest
error) be final and binding upon the Certificateholders and all other parties.
If calculated or determined by the Auction Agent, the Auction Agent will
promptly advise the Trustee of One-Month LIBOR.
Submission of Orders
So long as the ownership of the Certificates is maintained in Book-Entry
Form, an Existing Certificateholder may sell, transfer or otherwise dispose of
Certificates only pursuant to a Bid or Sell Order (as hereinafter defined)
placed in an Auction or through a Broker-Dealer, provided that, in the case of
all transfers other than pursuant to Auctions, such Existing Certificateholder,
its Broker-Dealer or its Participant advises the Auction Agent of such transfer.
Auctions for each Class of Certificates will be conducted on each applicable
Auction Date, if there is an Auction Agent on such Auction Date, in the
following manner (such procedures to be applicable separately to each Class of
Certificates).
Prior to the Submission Deadline (defined as 1:00 p.m., eastern time, on
any Auction Date or such other time on any Auction Date by which Broker-Dealers
are required to submit Orders to the Auction Agent as specified by the Auction
Agent from time to time) on each Auction Date relating to a Certificate:
(a) each Existing Certificateholder of the applicable Certificate may
submit to a Broker-Dealer by telephone or otherwise information as to: (i) the
principal amount and class of outstanding Certificates, if any, held by such
Existing Certificateholder which such Existing Certificateholder desires to
continue to hold without regard to the Certificate Interest Rate for such
Certificates for the next succeeding Auction Period (a "Hold Order"); (ii) the
principal amount and class of outstanding Certificates, if any, which such
Existing Certificateholder offers to sell if the Certificate Interest Rate for
such Certificates for the next succeeding Auction Period will be less than the
rate per annum specified by such Existing Certificateholder (a "Bid"); and/or
(iii) the principal amount and class of outstanding Certificates, if any, held
by such Existing Certificateholder which such Existing Certificateholder offers
to sell without regard to the Certificate Interest Rate for such Certificates
for the next succeeding Auction Period (a "Sell Order"); and
(b) one or more Broker-Dealers may contact Potential Certificateholders to
determine the principal amount and class of Certificates which each such
Potential Certificateholder offers to purchase, if the Certificate Interest Rate
for such Certificates for the next succeeding Auction Period will not be less
than the rate per annum specified by such Potential Certificateholder (also a
"Bid").
Each Hold Order, Bid and Sell Order will be an "Order." Each Existing
Certificateholder and each Potential Certificateholder placing an Order is
referred to as a "Bidder."
Subject to the provisions described below under "Validity of Orders," a Bid
by an Existing Certificateholder will constitute an irrevocable offer to sell:
(i) the principal amount and class of the outstanding Certificates specified in
such Bid if the Certificate Interest Rate for such Certificates will be less
than the rate specified in such Bid, (ii) such principal amount or a lesser
principal amount and class of the outstanding Certificates to be determined as
described below in "Acceptance and Rejection of Orders," if the Certificate
Interest Rate for such Certificates will be equal to the rate specified in such
Bid or (iii) such principal amount or a lesser principal amount of the then
outstanding Certificates to be determined as described below under "Acceptance
and Rejection of Orders," if the rate specified therein will be higher than the
Certificate Interest Rate for such Certificates and Sufficient Bids (as defined
below) have not been made.
Subject to the provisions described below under "Validity of Orders," a
Sell Order by an Existing Certificateholder will constitute an irrevocable offer
to sell: (i) the principal amount of the Certificate specified in such Sell
Order or (ii) such principal amount or a lesser principal amount of outstanding
Certificates of the specified Certificate as described below under "Acceptance
and Rejection of Orders," if Sufficient Bids have not been made.
Subject to the provisions described below under "Validity of Orders," a Bid
by a Potential Certificateholder will constitute an irrevocable offer to
purchase: (i) the principal amount of the Certificate specified in such Bid if
the Auction Rate for such Certificates will be higher than the rate specified in
such Bid or (ii) such principal amount or a lesser principal amount of such
Certificates as described below in "Acceptance and Rejection of Orders," if the
Certificate Interest Rate is equal to the rate specified in such Bid.
Each Broker-Dealer will submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer and will specify with respect to each such Order: (i) the name of
the Bidder placing such Order; (ii) the aggregate principal amount and class of
Certificate that are the subject of such Order; (iii) to the extent that such
Bidder is an Existing Certificateholder: (a) the principal amount and class of
Certificates, if any, subject to any Hold Order placed by such Existing
Certificateholder; (b) the principal amount, and class of Certificates, if any,
subject to any Bid placed by such Existing Certificateholder and the rate
specified in such Bid; and (c) the principal amount, and class of Certificates,
if any, subject to any Sell Order placed by such Existing Certificateholder, and
(iv) to the extent such Bidder is a Potential Certificateholder, the rate
specified in such Potential Certificateholder's Bid.
If any rate specified in any Bid contains more than three figures to the
right of the decimal point, the Auction Agent will round such rate up to the
next highest one-thousandth (.001) of one percent.
If an Order or Orders covering all Certificates of the applicable class
held by any Existing Certificateholder are not submitted to the Auction Agent
prior to the Submission Deadline, the Auction Agent will deem a Hold Order to
have been submitted on behalf of such Existing Certificateholder covering the
principal amount of Certificates held by such Existing Certificateholder and not
subject to an Order submitted to the Auction Agent.
Neither the Representative, the Trustee nor the Auction Agent will be
responsible for any failure of a Broker-Dealer to submit an Order to the Auction
Agent on behalf of any Existing Certificateholder or Potential
Certificateholder.
An Existing Certificateholder may submit multiple Orders, of different
types and specifying different rates, in an Auction with respect to Certificates
then held by such Existing Certificateholder. An Existing Certificateholder that
offers to purchase additional Certificates is, for purposes of such offer,
treated as a Potential Certificateholder.
Any Bid specifying a rate higher than the Maximum Auction Rate will (i) be
treated as a Sell Order if submitted by a Existing Certificateholder and (ii)
not be accepted if submitted by a Potential Certificateholder.
Validity of Orders
If any Existing Certificateholder submits through a Broker-Dealer to the
Auction Agent one or more Orders covering in the aggregate more than the
principal amount of the class of Certificates held by such Existing
Certificateholder, such Orders will be considered valid as follows and in the
order of priority described below.
Hold Orders. All Hold Orders will be considered valid, but only up to the
aggregate principal amount of the class of Certificates held by such Existing
Certificateholder, and if the aggregate principal amount of the class of
Certificates subject to such Hold Orders exceeds the aggregate principal amount
of the class of Certificates held by such Existing Certificateholder, the
aggregate principal amount of the class of Certificates subject to each such
Hold Order will be reduced pro rata so that the aggregate principal amount of
the class of Certificates subject to all such Hold Orders equals the aggregate
principal amount of the class of Certificates held by such Existing
Certificateholder.
Bids. Any Bid will be considered valid up to an amount equal to the excess
of the principal amount of the class of Certificates held by such Existing
Certificateholder over the aggregate principal amount of such Certificate,
subject to any Hold Orders referred to above. Subject to the preceding sentence,
if multiple Bids with the same rate are submitted on behalf of such Existing
Certificateholder and the aggregate principal amount of Certificates subject to
such Bids is greater than such excess, such Bids will be considered valid up to
an amount equal to such excess. Subject to the two preceding sentences, if more
than one Bid with different rates are submitted on behalf of such Existing
Certificateholder, such Bids will be considered valid first in the ascending
order of their respective rates until the highest rate is reached at which such
excess exists and then at such rate up to the amount of such excess. In any
event, the aggregate principal amount of Certificates, if any, subject to Bids
not valid under the provisions described above will be treated as the subject of
a Bid by a Potential Certificateholder at the rate therein specified.
Sell Orders. All Sell Orders will be considered valid up to an amount equal
to the excess of the principal amount of Certificates of the class held by such
Existing Certificateholder over the aggregate principal amount of Certificates
subject to valid Hold Orders and valid Bids as referred to above.
If more than one Bid for a class of Certificate is submitted on behalf of
any Potential Certificateholder, each Bid submitted will be a separate Bid with
the rate and principal amount therein specified. Any Bid or Sell Order submitted
by an Existing Certificateholder covering an aggregate principal amount of
Certificates not equal to an Authorized Denomination or an integral multiple
thereof will be rejected and will be deemed a Hold Order. Any Bid submitted by a
Potential Certificateholder covering an aggregate principal amount of
Certificates not equal to an Authorized Denomination or an integral multiple
thereof will be rejected. Any Order submitted in an Auction by a Broker-Dealer
to the Auction Agent prior to the Submission Deadline on any Auction Date will
be irrevocable.
A Hold Order, a Bid or a Sell Order that has been determined valid pursuant
to the procedures described above is referred to as a "Submitted Hold Order," a
"Submitted Bid" and a "Submitted Sell Order," respectively (collectively,
"Submitted Orders").
Determination of Sufficient Bid and Bid Auction Rate
Not earlier than the Submission Deadline on each Auction Date, the Auction
Agent will assemble all valid Submitted Orders and will determine:
(a) for the applicable Certificate, the excess of the total principal
amount of such Certificates over the sum of the aggregate principal amount of
such Certificates subject to Submitted Hold Orders (such excess being
hereinafter referred to as the "Available Certificates"); and
(b) from such Submitted Orders whether the aggregate principal amount of
Certificates of such class subject to Submitted Bids by Potential
Certificateholders specifying one or more rates equal to or lower than the
Maximum Auction Rate exceeds or is equal to the sum of (i) the aggregate
principal amount of Certificates of such class subject to Submitted Bids by
Existing Certificateholders specifying one or more rates higher than the Maximum
Auction Rate and (ii) the aggregate principal amount of Certificates of such
class subject to Submitted Sell Orders (in the event such excess or such
equality exists other than because all of the Certificates are subject to
Submitted Hold Orders, such Submitted Bids by Potential Certificateholders above
will be hereinafter referred to collectively as "Sufficient Bids"); and
(c) if Sufficient Bids exist, the "Bid Auction Rate," which will be the
lowest rate specified in such Submitted Bids such that if:
(i) each such Submitted Bid from Existing
Certificateholders of such Certificate specifying such lowest
rate and all other Submitted Bids from Existing
Certificateholders of such Certificate specifying lower rates
were rejected (thus entitling such Existing Certificateholders
to continue to hold the principal amount of Certificates
subject to such Submitted Bids); and
(ii) each such Submitted Bid from Potential
Certificateholders of such Certificate specifying such lowest
rate and all other Submitted Bids from Potential
Certificateholders specifying lower rates, were accepted, the
result would be that such Existing Certificateholders described
in subparagraph (c)(i) above would continue to hold an
aggregate principal amount of Certificates which, when added to
the aggregate principal amount of Certificates to be purchased
by such Potential Certificateholders described in this
subparagraph (ii) would equal not less than the Available
Certificates.
Determination of Auction Rate and Certificate Interest Rate, Notice
Promptly after the Auction Agent has made the determinations described
above, the Auction Agent is to advise the Trustee of the applicable Net Funds
Cap, the Maximum Auction Rate, the All Hold Rate and the components thereof on
the Auction Date, and based on such determinations, the Auction Rate for the
next succeeding Interest Period for the applicable Certificate as follows:
(a) if Sufficient Bids exist, that the Auction Rate for
the next succeeding Interest Period will be
equal to the Bid Auction Rate so determined;
(b) if Sufficient Bids do not exist (other than because all of
the Certificates of the applicable Certificate are subject to Submitted Hold
Orders), that the Auction Rate for the next succeeding Interest Period will be
equal to the Maximum Auction Rate; or
(c) if all Certificates of the applicable Certificate are
subject to Submitted Hold Orders, that the Auction Rate for the next succeeding
Interest Period will be equal to the All Hold Rate.
Promptly after the Auction Agent has determined the Auction Rate, the
Auction Agent will determine and advise the Trustee of the Certificate Interest
Rate for each applicable Certificate, which rate will be the lesser of (a) the
Auction Rate for each such Certificate and (b) the applicable Net Funds Cap. In
no event shall a Certificate Interest Rate exceed the rate (the "Certificate
Interest Rate Limitation") set forth in the Prospectus Supplement.
Acceptance and Rejection of Orders
Existing Certificateholders will continue to hold the principal amount of
Certificates of such class that are subject to Submitted Hold Orders. If, with
respect to a Certificate, the Net Funds Cap is equal to or greater than the Bid
Auction Rate and if Sufficient Bids, as described above under "Determination of
Sufficient Bids and Bid Auction Rate," have been received by the Auction Agent,
the Bid Auction Rate will be the Certificate Interest Rate, and Submitted Bids
and Submitted Sell Orders will be accepted or rejected and the Auction Agent
will take such other action as provided in the Agreement and described below
under "Sufficient Bids."
If the applicable Net Funds Cap is less than the Auction Rate, the
Certificate Interest Rate will be the applicable Net Funds Cap. If the Auction
Rate and the Net Funds Cap are both greater than the Certificate Interest Rate
Limitation, the Certificate Interest Rate for each series shall be equal to the
Certificate Interest Rate Limitation. If the Auction Agent has not received
Sufficient Bids as described above under "Determination of Sufficient Bids and
Bid Auction Rate" (other than because all of the Certificates are subject to
Submitted Holds Orders), the Certificate Interest Rate will be the lesser of the
Maximum Auction Rate or the Net Funds Cap. In any of the cases described above
in this paragraph, Submitted Orders will be accepted or rejected and the Auction
Agent will take such other action as described below under "Insufficient Bids."
Sufficient Bids. If Sufficient Bids have been made with a respect to a
Certificate and the applicable Net Funds Cap is equal to or greater than the Bid
Auction Rate (in which case the Certificate Interest Rate shall be the Bid
Auction Rate), all Submitted Sell Orders will be accepted and, subject to the
denomination requirements described below, Submitted Bids will be accepted or
rejected as follows in the following order of priority and all other Submitted
Bids will be rejected:
(a) Existing Certificateholders' Submitted Bids specifying any rate that is
higher than the Certificate Interest Rate will be accepted, thus requiring each
such Existing Certificateholder to sell the aggregate principal amount of
Certificates subject to such Submitted Bids;
(b) Existing Certificateholders' Submitted Bids specifying any rate that is
lower than the Certificate Interest Rate will be rejected, thus entitling each
such Existing Certificateholder to continue to hold the aggregate principal
amount of Certificates subject to such Submitted Bids;
(c) Potential Certificateholders' Submitted Bids specifying any rate that
is lower than the Certificate Interest Rate will be accepted;
(d) Each Existing Certificateholder's Submitted Bid specifying a rate that
is equal to the Certificate Interest Rate will be rejected, thus entitling such
Existing Certificateholder to continue to hold the aggregate principal amount of
Certificates subject to such Submitted Bid, unless the aggregate principal
amount of Certificates subject to such Submitted Bids will be greater than the
principal amount of Certificates (the "remaining principal amount") equal to the
excess of the Available Certificates over the aggregate principal amount of
Certificates subject to Submitted Bids described in subparagraphs (b) and (c)
above, in which event such Submitted Bid of such Existing Certificateholder will
be rejected in part and such Existing Certificateholder will be entitled to
continue to hold the principal amount of Certificates subject to such Submitted
Bid, but only in an amount equal to the aggregate principal amount of
Certificates obtained by multiplying the remaining principal amount by a
fraction, the numerator of which will be the principal amount of Certificates
held by such Existing Certificateholder subject to such Submitted Bid and the
denominator of which will be the sum of the principal amount of Certificates
subject to such Submitted Bids made by all such Existing Certificateholders that
specified a rate equal to the Certificate Interest Rate; and
(e) Each Potential Certificateholder's Submitted Bid specifying a rate that
is equal to the Certificate Interest Rate will be accepted, but only in an
amount equal to the principal amount of Certificates obtained by multiplying the
excess of the aggregate principal amount of Available Certificates over the
aggregate principal amount of Certificates subject to Submitted Bids described
in subparagraphs (b), (c) and (d) above by a fraction, the numerator of which
will be the aggregate principal amount of Certificates subject to such Submitted
Bid and the denominator of which will be the sum of the principal amount of
Certificates subject to Submitted Bids made by all such Potential
Certificateholders that specified a rate equal to the Certificate Interest Rate.
Insufficient Bids. If Sufficient Bids have not been made with respect to a
Certificate (other than because all of the Certificates of such class are
subject to Submitted Hold Orders) or if the applicable Net Funds Cap is less
than the Bid Auction Rate (in which case the Certificate Interest Rate shall be
the Net Funds Cap) or if the Certificate Interest Rate Limitation applies,
subject to the denomination requirements described below, Submitted Orders will
be accepted or rejected as follows in the following order of priority and all
other Submitted Bids will be rejected:
(a) Existing Certificateholders' Submitted Bids specifying any rate that is
equal to or lower than the Certificate Interest Rate will be rejected, thus
entitling such Existing Certificateholders to continue to hold the aggregate
principal amount of Certificates subject to such Submitted Bids;
(b) Potential Certificateholders' Submitted Bids specifying any rate that
is equal to or lower than the Certificate Interest Rate will be accepted, and
specifying any rate that is higher than the Certificate Interest Rate will be
rejected; and
(c) each Existing Certificateholder's Submitted Bid specifying any rate
that is higher than the Certificate Interest Rate and the Submitted Sell Order
of each Existing Certificateholder will be accepted, thus entitling each
Existing Certificateholder that submitted any such Submitted Bid or Submitted
Sell Order to sell the Certificates subject to such Submitted Bid or Submitted
Sell Order, but in both cases only in an amount equal to the aggregate principal
amount of Certificates obtained by multiplying the aggregate principal amount of
Certificates subject to Submitted Bids described in subparagraph (b) above by a
fraction, the numerator of which will be the aggregate principal amount of
Certificates held by such Existing Certificateholder subject to such Submitted
Bid or Submitted Sell Order and the denominator of which will be the aggregate
principal amount of Certificates subject to all such Submitted Bids and
Submitted Sell Orders.
All Hold Orders. If all Certificates of a class are subject to Submitted
Hold Orders, all Submitted Bids will be rejected.
Authorized Denominations Requirement. If, as a result of the procedures
described above regarding Sufficient Bids and Insufficient Bids, any Existing
Certificateholder would be entitled or required to sell, or any Potential
Certificateholder would be entitled or required to purchase, a principal amount
of Certificates that is not equal to an Authorized Denomination or an integral
multiple thereof, the Auction Agent will, in such manner as in its sole
discretion it will determine, round up or down the principal amount of
Certificates to be purchased or sold by any Existing Certificateholder or
Potential Certificateholder so that the principal amount of Certificates
purchased or sold by each Existing Certificateholder or Potential
Certificateholder will be equal to an Authorized Denomination or an integral
multiple in excess thereof. If, as a result of the procedures described above
regarding Insufficient Bids, any Potential Certificateholder would be entitled
or required to purchase less than a principal amount of Certificates equal to an
Authorized Denomination or any integral multiple thereof, the Auction Agent
will, in such manner as in its sole discretion it will determine, allocate
Certificates for purchase among Potential Certificateholders so that only
Certificates in an Authorized Denomination or any integral multiples in excess
thereof are purchased by any Potential Certificateholder, even if such
allocation results in one or more of such Potential Certificateholders not
purchasing any Certificates.
Based on the results of each Auction, the Auction Agent is to determine the
aggregate principal amount of Certificates of each class to be purchased and the
aggregate principal amount of Certificates of each class to be sold by Potential
Certificateholders and Existing Certificateholders on whose behalf each
Broker-Dealer submitted Bids or Sell Orders and, with respect to each
Broker-Dealer, to the extent that such aggregate principal amount of
Certificates to be sold differs from such aggregate principal amount of
Certificates to be purchased, determine to which other Broker-Dealer or
Broker-Dealers acting for one or more purchasers such Broker-Dealer will
deliver, or from which Broker-Dealers acting for one or more sellers such
Broker-Dealer will receive, as the case may be, Certificates.
Any calculation by the Auction Agent (or the Trustee, if applicable) of the
Certificate Interest Rate, One- Month LIBOR, the Maximum Auction Rate, the All
Hold Rate, the Net Funds Cap and the Non-Payment Rate will, in the absence of
manifest error, be binding on all other parties.
Notwithstanding anything in the Agreement to the contrary, no Auction is to
be held on any Auction Date on which there are insufficient moneys held by the
Trustee under the Agreement and available to pay the principal of and interest
due on the applicable Certificate on the Remittance Date immediately following
such Auction Date.
Settlement Procedures
The Auction Agent is required to advise each Broker-Dealer that submitted
an Order in an Auction of the Certificate Interest Rate for a Certificate for
the next Interest Period and, if such Order was a Bid or Sell Order, whether
such Bid or Sell Order was accepted or rejected, in whole or in part, by
telephone not later than 3:00 pm., eastern time, on the Auction Date if the
Interest Rate is the Auction Rate and not later than 4:00 pm. eastern time on
the Auction Date if the Interest Rate is the Net Funds Cap. Each Broker-Dealer
that submitted an Order on behalf of a Bidder is required to then advise such
Bidder of the applicable Certificate Interest Rate for the next Interest Period
and, if such Order was a Bid or a Sell Order, whether such Bid or Sell Order was
accepted or rejected, in whole or in part, confirm purchases and sales with each
Bidder purchasing or selling Certificates as a result of the Auction and advise
each Bidder purchasing or selling Certificates as a result of the Auction to
give instructions to its Participant to pay the purchase price against delivery
of such Certificates or to deliver such Certificates against payment therefor,
as appropriate. Pursuant to the Auction Agent Agreement, the Auction Agent is to
record each transfer of Certificates on the Existing Certificateholders Registry
to be maintained by the Auction Agent.
In accordance with DTC's normal procedures, on the Business Day after the
Auction Date, the transactions described above will be executed through DTC, so
long as DTC is the Depository, and the accounts of the respective Participants
at DTC will be debited and credited and Certificates delivered as necessary to
effect the purchases and sales of Certificates as determined in the Auction.
Purchasers are required to make payment through their Participants in same-day
funds to DTC against delivery through their Participants. DTC will make payment
in accordance with its normal procedures, which now provide for payment against
delivery by its Participants in immediately available funds.
If any Existing Certificateholder selling Certificates in an Auction fails
to deliver such Certificates, the Broker-Dealer of any person that was to have
purchased Certificates in such Auction may deliver to such person a principal
amount of Certificates that is less than the principal amount of Certificates
that otherwise was to be purchased by such person but in any event equal to an
Authorized Denomination or any integral multiple thereof. In such event, the
principal amount of Certificates to be delivered will be determined by such
Broker-Dealer. Delivery of such lesser principal amount of Certificates will
constitute good delivery. Neither the Trustee nor the Auction Agent will have
any responsibility or liability with respect to the failure of a Potential
Certificateholder, Existing Certificateholder or their respective Broker-Dealer
or Participant to deliver the principal amount of Certificates or to pay for the
Certificates purchased or sold pursuant to an Auction or otherwise. For a
further description of the settlement procedures, see "SETTLEMENT PROCEDURES"
attached hereto as Annex II.
TRUSTEE NOT RESPONSIBLE FOR AUCTION AGENT, MARKET AGENT AND BROKER-DEALERS
The Trustee shall not be liable or responsible for the actions of or
failure to act by the Auction Agent, Market Agent or any Broker-Dealer under the
Agreement or under the Auction Agent Agreement, the Market Agent Agreement or
any Broker-Dealer Agreement. The Trustee may conclusively rely upon any
information required to be furnished by the Auction Agent, the Market Agent or
any Broker-Dealer without undertaking any independent review or investigation of
the truth or accuracy of such information.
CHANGES IN THE AUCTION DATE
The Market Agent, at the consent of the Representative and MBIA, may
specify an earlier Auction Date (but in no event more than five Business Days
earlier) than the Auction Date that would otherwise be determined in accordance
with the definition of "Auction Date" with respect to one or more specified
Auction Periods in order to conform with then current market practice with
respect to similar securities or to accommodate economic and financial factors
that may affect or be relevant to the day of the week constituting an Auction
Date and the interest rate borne on the Certificates. The Representative will
not consent to such change in the Auction Date unless the Representative will
have received from the Market Agent not less than three days nor more than 20
days prior to the effective date of such change a written request for consent
together with a certificate demonstrating the need for change in reliance on
such factors. The Market Agent will provide notice of its determination to
specify an earlier Auction Date for one or more Auction Periods by means of a
written notice delivered at least 10 days prior to the proposed changed Auction
Date to the Trustee, the Auction Agent, the Representative, MBIA, the Rating
Agencies and the Depository.
The changes in Auction terms described above may be made with respect to
any class of Certificates. In connection with any change in Auction terms
described above, the Auction Agent is to provide such further notice to such
parties as is specified in the Auction Agent Agreement.
SETTLEMENT PROCEDURES
(a) Not later than (i) 3:00 p.m. if the Certificate Interest Rate is the
Auction Rate or (2) 4:00 p.m. if the Certificate Interest Rate is the Net Funds
Cap, the Auction Agent is to notify by telephone each Broker-Dealer that
participated in the Auction held on such Auction Date and submitted an Order on
behalf of an Existing Certificateholder or Potential Certificateholder of:
(i) the Certificate Interest Rate fixed for the next Interest
Period;
(ii) whether there were Sufficient Bids in such Auction;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer")
submitted Bids or Sell Orders on behalf of an Existing
Certificateholder, whether such Bid or Sell Order was accepted or
rejected, in whole or in part, and the principal amount of
Certificates, if any, to be sold by such Existing Certificateholder;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer")
submitted a Bid on behalf of a Potential Certificateholder, whether
such Bid was accepted or rejected, in whole or in part, and the
principal amount of Certificates, if any, to be purchased by such
Potential Certificateholder;
(v) if the aggregate amount of Certificates to be sold by all
Existing Certificateholders on whose behalf such Seller's
Broker-Dealer submitted Bids or Sell Orders exceeds the aggregate
principal amount of Certificates to be purchased by all Potential
Certificateholders on whose behalf such Buyer's Broker-Dealer
submitted a Bid, the name or names of one or more Buyer's
Broker-Dealers and the name of the Participant, if any, of each such
Buyer's Broker-Dealer (a "Participant") acting for one or more
purchasers of such excess principal amount of Certificates and the
principal amount of Certificates to be purchased from one or more
Existing Certificateholders on whose behalf such Seller's
Broker-Dealer acted by one or more Potential Certificateholders on
whose behalf each of such Buyer's Broker-Dealers acted;
(vi) if the principal amount of Certificates to be purchased by
all Potential Certificateholders on whose behalf such Buyer's
Broker-Dealer submitted a Bid exceeds the amount of Certificates to be
sold by all Existing Certificateholders on whose behalf such Seller's
Broker-Dealer submitted a Bid or a Sell Order, the name or names of
one or more Seller's Broker-Dealers (and the name of the Participant,
if any, of each such Seller's Broker-Dealer) acting for one or more
sellers of such excess principal amount of Certificates and the
principal amount of Certificates to be sold to one or more Potential
Certificateholders on whose behalf such Buyer's Broker-Dealer acted by
one or more Existing Certificateholder on whose behalf each of such
Seller's Broker-Dealers acted; and
(vii) the Auction Date for the next succeeding Auction.
(b) On each Auction Date, each Broker-Dealer that submitted an Order on
behalf of any Existing Certificateholder or Potential Certificateholder is to:
(i) advise each Existing Certificateholder and Potential
Certificateholder on whose behalf such Broker-Dealer submitted a Bid
or Sell Order in the Auction on such Auction Date whether such Bid or
Sell Order was accepted or rejected, in whole or in part;
(ii) in the case of a Broker-Dealer that is a Buyer's
Broker-Dealer, advise each Potential Certificateholder on whose behalf
such Buyer's Broker-Dealer submitted a Bid that was accepted, in whole
or in part, to instruct such Potential Certificateholder's Participant
to pay to such Buyer's Broker-Dealer (or its Participant) through the
Depository the amount necessary to purchase the principal amount of
the Certificates to be purchased pursuant to such Bid against receipt
of such Certificates together with accrued interest;
(iii) in the case of a Broker-Dealer that is a Seller's
Broker-Dealer, instruct each Existing Certificateholder on whose
behalf such Seller's Broker-Dealer submitted a Sell Order that was
accepted, in whole or in part, or a Bid that was accepted, in whole or
in part, to instruct such Existing Certificateholder's Participant to
deliver to such Seller's Broker-Dealer (or its Participant) through
the Depository the principal amount of the Certificates to be sold
pursuant to such Order against payment therefor;
(iv) advise each Existing Certificateholder on whose behalf
such Broker-Dealer submitted an Order and each Potential
Certificateholder on whose behalf such Broker-Dealer submitted a Bid
of the Certificate Interest Rate for the next Interest Period;
(v) advise each Existing Certificateholder on whose behalf
such Broker-Dealer submitted an Order of the next Auction Date; and
(vi) advise each Potential Certificateholder on whose behalf
such Broker-Dealer submitted a Bid that was accepted, in whole or in
part, of the next Auction Date.
(c) On the basis of the information provided to it pursuant to paragraph
(a) above, each Broker-Dealer that submitted a Bid or Sell Order in an Auction
is required to allocate any funds received by it in connection with such Auction
pursuant to paragraph (b)(ii) above, and any Certificates received by it in
connection with such Auction pursuant to paragraph (b)(iii) above, among the
Potential Certificateholders, if any, on whose behalf such Broker- Dealer
submitted Bids, the Existing Certificateholder, if any, on whose behalf such
Broker-Dealer submitted Bids or Sell Orders in such Auction, and any
Broker-Dealers identified to it by the Auction Agent following such Auction
pursuant to paragraph (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Certificateholder and Existing
Certificateholder with an Order in the Auction on such Auction Date
will instruct its Participant as provided in (b)(ii) or (b)(iii)
above, as the case may be:
(ii) each Seller's Broker-Dealer that is not a Participant of
the Depository will instruct its Participant to deliver such
Certificates through the Depository to a Buyer's Broker-Dealer (or its
Participant) identified to such Seller's Broker-Dealer pursuant to
(a)(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer that is not a Participant in
the Depository will instruct its Participant to pay through the
Depository to Seller's Broker-Dealer (or its Participant) identified
following such Auction pursuant to (a)(vi) above the amount necessary
to purchase the Certificates to be purchased pursuant to (b)(ii) above
against receipt of such Certificates.
(e) On the Business Day following each Auction Date;
(i) each Participant for a Bidder in the Auction on such
Auction Date referred to in (d)(i) above will instruct the Depository
to execute the transactions described under (b)(ii) or (b)(iii) above
for such Auction, and the Depository will execute such transactions;
(ii) each Seller's Broker-Dealer or its Participant will
instruct the Depository to execute the transactions described in
(d)(ii) above for such Auction, and the Depository will execute such
transactions; and
(iii) each Buyer's Broker-Dealer or its Participant will
instruct the Depository to execute the transactions described in
(d)(iii) above for such Auction, and the Depository will execute such
transactions.
(f) If an Existing Certificateholder selling Certificates in an Auction
fails to deliver such Certificates (by authorized book-entry), a Broker-Dealer
may deliver to the Potential Certificateholder on behalf of which it submitted a
Bid that was accepted a principal amount of Certificates that is less than the
principal amount of Certificates that otherwise was to be purchased by such
Potential Certificateholder. In such event, the principal amount of Certificates
to be so delivered will be determined solely by such Broker-Dealer (but only in
Authorized Denominations). Delivery of such lesser principal amount of
Certificates will constitute good delivery. Notwithstanding the foregoing terms
of this paragraph (f), any delivery or nondelivery of Certificates which will
represent any departure from the results of an Auction, as determined by the
Auction Agent, will be of no effect unless and until the Auction Agent will have
been notified of such delivery or nondelivery in accordance with the provisions
of the Auction Agent Agreement and the Broker-Dealer Agreements. Neither the
Trustee nor the Auction Agent will have any responsibility or liability with
respect to the failure of a Potential Certificateholder, Existing
Certificateholder or their Respective Broker-Dealer or Participant to take
delivery of or deliver, as the case may be, the principal amount of the
Certificates purchased or sold pursuant to an Auction or otherwise.
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Class A
Certificates (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities through
any of The Depository Trust Company, Cedel Bank or Euroclear. The Global
Securities will be tradeable as home market instruments in both the European and
U.S. domestic markets. Initial settlement and all secondary trades will settle
in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel Bank and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional Eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior Asset Backed Certificates issues.
Secondary cross-market trading between Cedel Bank or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel Bank and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel Bank and Euroclear will
hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior Asset-Backed Certificates issues.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel Bank or
Euroclear accounts will follow the settlement procedures applicable to
conventional Eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior Home
Equity Loan Asset-Backed Certificates issues in same-day funds.
Trading between Cedel Bank and/or Euroclear Participants. Secondary market
trading between Cedel Bank Participants or Euroclear Participants will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
Trading between DTC Seller and Cedel Bank or Euroclear Purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Bank Participant or a Euroclear Participant, the
purchaser will send instructions to Cedel Bank or Euroclear through a Cedel Bank
Participant or Euroclear Participant at least one business day prior to
settlement. Cedel Bank or Euroclear will instruct the respective Depositary, as
the case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date, on the basis of the
actual number of days in such accrual period and a year assumed to consist of
360 days or a 360-day year of twelve 30-day months, as applicable. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. Payment will then
be made by the respective Depositary of the DTC Participant's account against
delivery of the Global Securities. After settlement has been completed, the
Global Securities will be credited to the respective clearing system and by the
clearing system, in accordance with its usual procedures, to the Cedel Bank
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York.) If
settlement is not completed on the intended value date (i.e., the trade fails),
the Cedel Bank, or Euroclear cash debt will be valued instead as of the actual
settlement date.
Cedel Bank Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel Bank or Euroclear. Under
this approach, they may take on credit exposure to Cedel Bank or Euroclear until
the Global Securities are credited to their accounts one day later.
As an alternative, if Cedel Bank or Euroclear has extended a line of credit
to them, Cedel Bank Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Cedel Bank Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment income on
the Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will depend
on each Cedel Bank Participant's or Euroclear Participant's particular cost of
funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of Cedel Bank Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between Cedel Bank or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Cedel Bank Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel Bank or Euroclear through a Cedel Bank Participant or
Euroclear Participant at least one business day prior to settlement. In these
cases Cedel Bank or Euroclear will instruct the respective Depositary, as
appropriate, to deliver the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment to and excluding the settlement date
on the basis of the actual number of days in such accrual period and a year
assumed to consist of 360 days or a 360-day year of twelve 30-day months, as
applicable. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the account of the Cedel Bank Participant
or Euroclear Participant the following day, and receipt of the cash proceeds in
the Cedel Bank Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Cedel Bank Participant or Euroclear
Participant have a line of credit with its respective clearing system and elect
to be in debt in anticipation of receipt of the sale proceeds in its account,
the back-valuation will extinguish any overdraft incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the Cedel Bank Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Cedel Bank or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Bank Participants
or Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel Bank or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel Bank or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global Securities
sufficient time to be reflected in their Cedel Bank or Euroclear account in
order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the Cedel Bank Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of holding securities through Cedel Bank, or Euroclear
(or through DTC if the holder has an address outside the U.S.) will be subject
to the 30% U.S. withholding tax that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S. Persons,
unless (i) each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business in the
chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate.
Exception for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries. (Form 1001). Non-U.S. Persons that are Certificateholders residing in
a country that has a tax treaty with the United States can obtain an exemption
or reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only
for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the
Certificateholders or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificateholder of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is includible in gross income for United States tax purposes,
regardless of its source or (iv) a trust other than a "Foreign Trust," as
defined in Section 7701(a)(31) of the Code. This summary does not deal with all
aspects of U.S. Federal income tax withholding that may be relevant to foreign
holders of the Global Securities. Investors are advised to consult their own tax
advisors for specific tax advice concerning the holding and disposing of their
Global Securities.
<PAGE>
PROSPECTUS
THE MONEY STORE INC.
(REPRESENTATIVE)
THE MONEY STORE ASSET BACKED CERTIFICATES
(ISSUABLE IN SERIES)
This Prospectus relates to The Money Store Asset Backed Certificates (the
"Certificates"), issuable in Series, which may be sold from time to time on
terms determined at the time of sale and described in the related Prospectus
Supplement, evidencing specified interests in one or more trust funds (each, a
"Trust"), the primary assets of which will consist of pools (each, a "Pool") of
certain mortgage loans and certain other mortgage-related or other similar
assets more particularly described herein (the "Mortgage Assets"). The Mortgage
Assets and other assets of any Trust will be described in the Prospectus
Supplement for the related Series of Certificates. Certain of the Mortgage
Assets may have been originated by wholly-owned subsidiaries (the "Originators")
of The Money Store Inc. ("The Money Store" or the "Representative"). Certain
other of the Mortgage Assets may have been acquired by The Money Store, an
Originator or an affiliate thereof from other lenders or government agencies, or
may consist of mortgage pass-through or mortgage-backed securities issued by
government agencies or private lenders. In addition, if so specified in the
related Prospectus Supplement, the Trust will include monies on deposit in one
or more trust accounts to be established with a Trustee (as defined herein),
which may include a Pre-Funding Account (as defined herein) which would be used
to purchase additional Mortgage Assets for the related Trust from time to time
during the Funding Period (as defined herein) specified in the related
Prospectus Supplement. If specified in the related Prospectus Supplement,
certain Certificates may evidence a fractional undivided ownership interest in a
Trust which will hold a beneficial ownership interest in another trust fund
which will contain the Mortgage Assets. Certificates may also be entitled to the
benefits of insurance policies, cash accounts, letters of credit, financial
guaranty insurance policies, third party guarantees, guaranties of The Money
Store, supplemental interest payments or other forms of credit enhancement or
maturity protection, to the extent described in the related Prospectus
Supplement. The Prospectus Supplement for each Series of Certificates will name
the entities (which will include The Money Store or one of its affiliates and
may include other entities) which will act, directly or through one or more
sub-servicers, as master servicers (each, in such capacity, the "Master
Servicer") of such Mortgage Assets.
Each Series of Certificates will be issued in one or more classes (each, a
"Class"). Each Class of Certificates will evidence a fractional undivided
ownership interest of a specified percentage or portion of future interest
payments and a specified percentage or portion of future principal payments on
the Mortgage Assets in the related Trust. A Series of Certificates may include
one or more Classes that receive certain preferential treatment with respect to
one or more other Classes. One or more Classes of Certificates may be entitled
to receive distributions of principal, interest or any combination thereof prior
to one or more other Classes of Certificates or after the occurrence of
specified events, or may be required to absorb one or more types of losses prior
to one or more other Classes of Certificates, in each case as specified in the
related Prospectus Supplement.
SEE RISK FACTORS ON PAGE 18 HEREIN FOR A DISCUSSION OF CERTAIN RISK FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CERTIFICATES OFFERED
HEREBY.
The date of this Prospectus is March 7, 1997
<PAGE>
Distributions to holders of Certificates ("Certificateholders" or
"Holders") will be made on certain dates specified in the related Prospectus
Supplement (each, a "Remittance Date"), which may be monthly, quarterly,
semi-annually or at such other intervals as are specified therein. The rate (the
"Pass-Through Rate") at which Certificateholders will receive distributions of
interest on any Class of Certificates or the method of calculating such
Pass-Through Rate, which may be fixed or variable, will be set forth in the
related Prospectus Supplement. Distributions on the Certificates of a Series
will be made only from the assets of the related Trust.
The Certificates will not represent an obligation of or interest in the
Representative, the Originators, or any affiliate thereof and, except to the
extent described herein or specified in the related Prospectus Supplement, will
not be insured or guaranteed by any governmental agency or instrumentality or
(except as otherwise specified in the related Prospectus Supplement) by any
other person. Unless otherwise specified in the related Prospectus Supplement,
the only obligations of the Representative or the Originators with respect to a
Series of Certificates will be pursuant to certain limited representations and
warranties. Except for certain representations and warranties relating to the
Mortgage Assets and certain other exceptions, the Master Servicer's obligations
with respect to the related Series of Certificates will be limited to its
contractual servicing obligations. If the amount available for distribution to
Certificateholders on any Remittance Date is less than the amount due to them,
the Master Servicer, to the extent provided in the related Prospectus
Supplement, may be obligated, under certain terms and conditions, to advance
cash to such Certificateholders, to the extent such deficiency is attributable
to delinquent payments of principal and interest during the immediately
preceding Due Period (as defined herein). See "Description of the
Certificates--Monthly Advances and Compensating Interest."
The yield to Certificateholders on each Class of Certificates of a Series
may be affected by the rate of payment of principal (including prepayments) of
the Mortgage Assets in the related Trust and the timing of receipt of such
payments as described herein and in the related Prospectus Supplement. A Trust
may be subject to early termination under the circumstances described herein and
in the related Prospectus Supplement.
If specified in a Prospectus Supplement, an election may be made to treat
each Trust as a "real estate mortgage investment conduit" ("REMIC") for federal
income tax purposes. 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
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS
NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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. The
intention of any underwriter to make a secondary market in the Certificates will
be set forth in the related Prospectus Supplement. There can be no assurance
that a secondary market for the Certificates will develop, or if it does
develop, that it will continue. This Prospectus may not be used to consummate
sales of a Series of Certificates unless accompanied by a Prospectus Supplement.
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the securities 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 and Prospectus Supplement when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Certificates to be
offered hereunder, among other things, will set forth with respect to such
Series of Certificates: (i) the aggregate principal amount, Pass-Through Rate or
Rates or other applicable annual rate or rates of interest (or the manner of
determining such rate or rates) and authorized denominations of each Class of
such Certificates; (ii) certain information concerning the Mortgage Assets and
insurance policies, cash accounts, letters of credit, financial guaranty
insurance policies, third party guarantees, guaranties of The Money Store,
supplemental interest payments or other forms of credit enhancement or maturity
protection, if any, relating to the Pools or all or part of the related
Certificates; (iii) the specified interest of each Class of Certificates in, and
manner and priority of, the distributions on the Mortgage Assets; (iv)
information as to the nature and extent of subordination with respect to such
Series of Certificates, if any; (v) the Remittance Dates; (vi) information as to
the Master Servicer; (vii) the circumstances, if any, under which each Trust may
be subject to early termination; (viii) whether the Representative intends to
elect to cause the Trust to be treated as a REMIC; and (ix) additional
information with respect to the plan of sale of such Certificates.
AVAILABLE INFORMATION
The Representative has filed a Registration Statement under the Securities
Act of 1933, as amended (the "1933 Act"), with the Securities and Exchange
Commission (the "Commission") with respect to the Certificates. The Registration
Statement and amendments thereof and to the exhibits thereto, as well as such
reports and other information, are available for inspection without charge at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549; 7 World Trade Center, 13th Floor, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of the Registration Statement
and amendments thereof and exhibits thereto may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov.
No person has been authorized to give any information or to make any
representation 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. 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 of the Certificates to any person in any
state or other jurisdiction in which such offer would be unlawful. The delivery
of this Prospectus at any time does not imply that information herein is correct
as of any time subsequent to its date.
REPORTS TO CERTIFICATEHOLDERS
Periodic and annual reports concerning any Certificates and the related
Trust will be provided to the Certificateholders as described in the related
Prospectus Supplement. If specified in the related Prospectus Supplement, a
Series of Certificates may be issuable in book-entry form. In such event, the
related Certificates will be registered in the name of Cede, the nominee of The
Depository Trust Company. All reports will be provided to Cede, which in turn
will provide such reports to its Participants and Indirect Participants (as
defined herein). Such Participants and Indirect Participants will then forward
such reports to the beneficial owners of Certificates. See "Description of the
Certificates--Book-Entry Registration."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by or on behalf of the Trust referred to in the
accompanying Prospectus Supplement with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Prospectus and prior to the
termination of the offering of the Certificates issued by such Trust shall be
deemed to be incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of the filing of such documents. With respect to
any Class of Certificates that is supported by a Guaranty of The Money Store,
The Money Store's Annual Report on Form 10-K for the year ended December 31,
1995, and Quarterly Reports on Form 10-Q for the periods ended March 31, June 30
and September 30, 1996, which have been filed with the Commission, are hereby
incorporated by reference in this Prospectus and the related Prospectus
Supplement. With respect to any Class of Certificates that is supported by a
Guaranty of The Money Store, all documents filed by The Money Store pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, subsequent to the date of this Prospectus and prior to the termination
of the offering of the Certificates shall be deemed to be incorporated by
reference into this Prospectus and the related Prospectus Supplement and to be a
part hereof from the respective dates of filing such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein (or in the
accompanying Prospectus Supplement) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute part of this
Prospectus. The Representative will provide without charge to each person to
whom a copy of the Prospectus is delivered, on the written or oral request of
any such person, a copy of any or 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). Requests for such
copies should be directed to The Money Store Inc., 3301 C Street, Suite 100-M,
Sacramento, California 95816, Attention: Investor Relations, Telephone: (916)
446-5000.
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement. Capitalized terms used but not defined in this Prospectus shall have
the meanings assigned to such terms elsewhere in this Prospectus.
Securities
Offered........................... The Money Store Asset Backed Certificates
(the "Certificates"), evidencing interests in
certain Pools of Mortgage Loans and certain
other Mortgage Assets (each, as defined
below), may be issued from time to time in
Series pursuant to separate Pooling and
Servicing Agreements (each, an "Agreement")
among The Money Store Inc., as Representative
(the "Representative") of certain Trusts,
Originators, a Master Servicer, and a
Trustee, each as defined herein and as
specified in the related Prospectus
Supplement for such Series of Certificates.
Issuers........................... Certain trust funds (each, a "Trust")
represented by The Money Store, the primary
assets of which will be a Pool of Mortgage
Loans and certain other Mortgage Assets.
Representative
and Master
Servicer.......................... The Money Store Inc. ("The Money Store"), a
New Jersey corporation. The Prospectus
Supplement relating to any Series of
Certificates will name the entities (which
may include The Money Store or one of its
affiliates and may additionally include other
unrelated entities) which will act, directly
or through one or more Sub-Servicers (as
defined herein), as master servicers (each,
in such capacity, the "Master Servicer"). The
principal offices of The Money Store are
located in Sacramento, California and Union,
New Jersey. See "The Representative and the
Originators."
The Mortgage
Assets............................ The Certificates will evidence fractional
undivided ownership interests in certain
Trusts further described herein. The primary
assets of each Trust may consist of one or
more pools (each, a "Pool") of Mortgage Loans
and certain other mortgage-related assets
("Mortgage Assets") specified in the related
Prospectus Supplements, which may include (i)
first, second and more junior lien mortgage
loans, deeds of trust or participations
therein secured by one- to four-family
residential properties, including low-rise
condominiums, single family detached homes,
single-family attached homes, planned unit
developments and mixed use properties
(collectively, "Single Family Loans," which
Single Family Loans may be "Conventional
Loans" (i.e., loans that are ---- not insured
or guaranteed by any governmental agency) or
loans that are insured by the Federal Housing
Authority ("FHA") or partially guaranteed by
the Veterans' Administration ("VA") as
specified in the related Prospectus
Supplement), (ii) loans or participations
therein secured by security interests or
similar liens on shares in private,
non-profit cooperative housing corporations
("Cooperatives") and on the related
proprietary leases or occupancy agreements
granting exclusive rights to occupy specific
dwelling units in such Cooperatives'
buildings ("Cooperative Loans"), (iii) first,
second and more junior lien mortgage loans,
deeds of trust or participations therein
secured by multifamily residential or
mixed-use properties, such as rental
apartment buildings (including buildings
owned by Cooperatives) or projects containing
five or more residential units ("Multifamily
Loans"), (iv) conditional sales
contracts and installment sales or loan
agreements or participations therein secured
by manufactured housing ("Contracts"), (v)
mortgage-backed securities issued or
guaranteed by the Government National
Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation
("FHLMC") (the "Agency Securities"), (vi)
privately issued mortgage-backed securities
("Private Mortgage-Backed Securities" or
"PMBS"), (vii) first, second and more junior
home improvement mortgage loans that are
either conventional loans ("Secured
Conventional Home Improvement Loans") or
loans originated under the Title I credit
insurance program created under the National
Housing Act of 1934 by the Federal Housing
Administration ("FHA Loans"), and (viii)
unsecured home improvement loans consisting
of conventional unsecured home improvement
loans and FHA insured home improvement loans
(the "Unsecured Home Improvement Loans"). The
Single Family Loans, Cooperative Loans,
Multifamily Loans, Secured Conventional Home
Improvement Loans, FHA Loans and Unsecured
Home Improvement Loans are sometimes referred
to herein collectively as the "Mortgage
Loans."
A. Mortgage
Loans........................ The payment terms of the Mortgage Loans to be
included in any Pool will be described in the
related Prospectus Supplement and may include
any of the following features, combinations
thereof or other features described in the
related Prospectus Supplement:
(a) Interest may be payable at a fixed rate
(a "Fixed Rate") or may be payable at a
rate that is adjustable from time to
time in relation to an index, that may
be fixed for a period of time or under
certain circumstances and is followed by
an adjustable rate, a rate that
other-wise varies from time to time, or
a rate that is convertible from an
adjustable rate to a fixed rate (each,
an "Adjustable Rate"). The specified
rate of interest on a Mortgage Loan is
its "Mortgage Interest Rate." Changes to
an Adjustable Rate may be subject to
periodic limitations, maximum rates,
minimum rates or a combination of such
limitations. Accrued interest may be
deferred and added to the principal of a
Mortgage Loan for such periods and under
such circumstances as may be specified
in the related Prospectus Supplement.
Mortgage Loans may permit the payment of
interest at a rate lower than the
Mortgage Interest Rate for a period of
time or for the life of the Mortgage
Loan, and the amount of any difference
may be contributed from funds supplied
by the seller of the properties securing
the related Mortgage Loan (the
"Mortgaged Properties") or another
source or may be treated as accrued
interest and added to the principal of
the Mortgage Loan.
(b) Principal may be payable on a level
basis to fully amortize the Mortgage
Loan over its term, may be calculated on
the basis of an assumed amortization
schedule that is significantly longer
than the original term to maturity or on
an interest rate that is different from
the Mortgage Interest Rate, or may not
be amortized during all or a portion of
the original term. Payment of all or a
substantial portion of the principal may
be due on maturity (a "balloon"
payment). From time to time, principal
may include interest that has been
deferred and added to the principal
balance of the Mortgage Loan.
(c) Monthly payments of principal and
interest may be fixed for the life of
the Mortgage Loan, may increase over a
specified period of time ("graduated
payments"), or may change from period to
period. Mortgage Loans may include
limits on periodic increases or
decreases in the amount of monthly
payments and may include maximum or
minimum amounts of monthly payments.
(d) Prepayments of principal may be subject
to a prepayment fee, which may be fixed
for the life of the Mortgage Loan or may
adjust or decline over time, and may be
prohibited for the life of the Mortgage
Loan or for certain periods ("Lockout
Periods"). Certain Mortgage Loans may
permit prepayments after expiration of
the applicable Lockout Period and may
require the payment of a prepayment fee
in connection with any such subsequent
prepayment. Other Mortgage Loans may
permit prepayments without payment of a
fee unless the prepayment occurs during
specified time periods. The Mortgage
Loans may include due-on-sale clauses
which permit the mortgagee to demand
payment of the entire Mortgage Loan in
connection with the sale or certain
other transfers of the related Mortgaged
Properties. Other Mortgage Loans may be
assumable by persons meeting the then
applicable underwriting standards of the
originator.
The Mortgaged Properties relating to Mortgage
Loans may be located in any one of the fifty
states, the District of Columbia, the
Commonwealth of Puerto Rico or any other
commonwealth , territory or possession of the
United States . The Mortgaged Properties
generally will be covered by standard hazard
insurance policies ("Standard Hazard
Insurance Policies") insuring against losses
due to fire and various other causes. The
Mortgage Loans will be covered by Primary
Mortgage Insurance Policies to the extent
provided in the related Prospectus
Supplement. As set forth in the related
Prospectus Supplement, certain of the
Mortgage Loans underlying a given Series of
Certificates may have been originated by the
Representative, the Originators or affiliates
thereof and certain Mortgage Loans may have
been purchased by the Representative, an
Originator or an affiliate thereof in the
open market or in privately negotiated
transactions, including transactions with
entities affiliated with the Representative.
Certain of the Mortgage Loans may be
partially insured by the FHA, an agency of
the United States Department of Housing and
Urban Development ("HUD"), pursuant to the
Title I credit insurance program (the "Title
I Loan Program") of the National Housing Act
of 1934. Several types of loans may be made
under the Title I Loan Program, including (1)
property improvement loans; (2) manufactured
home purchase loans, (3) manufactured home
lot loans; and (4) combination loans (to
purchase a manufactured home and a lot). The
Title I Loan Program is a coinsurance
program. The lender initially is at risk for
10% of the principal balance of each loan.
The FHA will insure the remaining 90% of the
principal balance of each loan, subject to
certain limits. Such FHA insurance is
accorded the full faith and credit of the
United States of America.
The Prospectus Supplement for each Series of
Certificates will specify with respect to all
Mortgage Loans expected to be included in the
related Pool as of the related closing date,
among other things, (i) the expected
aggregate outstanding principal balance and
the expected average outstanding principal
balance of the Mortgage Loans in such Pool as
of the date specified in the Prospectus
Supplement, (ii) the largest expected
principal balance and the smallest expected
principal balance of any of the Mortgage
Loans, (iii) the types of Mortgaged
Properties and/or other assets securing the
Mortgage Loans and the percentage, if any, of
Unsecured Home Improvement Loans expected to
be included in the related Pool, (iv) the
original terms to maturity of the Mortgage
Loans, (v) the expected weighted average term
to maturity of the Mortgage Loans as of the
date specified in the Prospectus Supplement
and the expected range of the terms to
maturity, (vi) the earliest origination date
and latest maturity date of any of the
Mortgage Loans, (vii) the expected aggregate
principal balance of Mortgage Loans having
Combined Loan-to-Value Ratios at origination
exceeding 80%, (viii) the expected weighted
average Mortgage Rate or APR and ranges of
Mortgage Rates or APRs borne by the Mortgage
Loans or Contracts (as the case may be), (ix)
in the case of Mortgage Loans having
Adjustable Rates, the expected weighted
average of the Adjustable Rates as of the
date set forth in the Prospectus Supplement
and maximum permitted Adjustable Rates, if
any, (x) the expected aggregate outstanding
principal balance, if any, of "buydown"
mortgage loans (as hereinafter described) and
Mortgage Loans having graduated payment
provisions, as of the date set forth in the
Prospectus Supplement, (xi) the amount of any
Certificate Guaranty Insurance Policy,
Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy or Bankruptcy Bond
(each as defined herein) to be maintained
with respect to such Pool, (xii) the amount
of any Primary Mortgage Insurance and
Standard Hazard Insurance (as hereinafter
described) required to be maintained with
respect to each Mortgage Loan, (xiii) the
amount, if any, and terms of any other credit
enhancement to be provided with respect to
all or any Mortgage Loans or the Pool and
(xiv) the expected geographic location of the
Mortgaged Properties, if any.
B. Contracts..................... Contracts will consist of conditional sales
and installment sales or loan agreements
secured by new or used Manufactured Homes (as
defined herein). To the extent provided in
the related Prospectus Supplement, each
Contract will be fully amortizing and will
bear interest at a fixed annual percentage
rate ("APR").
C. Agency
Securities................... The Agency Securities will consist of (i)
fully modified pass-through mortgage-backed
certificates guaranteed as to timely payment
of principal and interest by the Government
National Mortgage Association ("GNMA
Certificates"), (ii) guaranteed mortgage
pass-through certificates issued and
guaranteed as to timely payment of principal
and interest by the Federal National Mortgage
Association ("FNMA Certificates"), (iii)
Mortgage Participation Certificates issued
and guaranteed as to timely payment of
interest and, unless otherwise specified in
the related Prospectus Supplement, ultimate
payment of principal by the Federal Home Loan
Mortgage Corporation ("FHLMC Certificates"),
(iv) stripped mortgage-backed securities
representing an undivided interest in all or
a part of either the principal distributions
(but not the interest distributions) or the
interest distributions (but not the principal
distributions) or in some specified portion
of the principal and interest distributions
(but not all of such distributions) on
certain GNMA, FNMA, FHLMC or other government
agency or government-sponsored agency
Certificates and, unless otherwise specified
in the Prospectus Supplement, guaranteed to
the same extent as the underlying securities,
(v) another type of guaranteed pass-through
certificate issued or guaranteed by GNMA,
FNMA, FHLMC or another government agency or
government-sponsored agency and
described in the related Prospectus
Supplement, or (vi) a combination of such
Agency Securities. All GNMA Certificates will
be backed by the full faith and credit of the
United States. No FNMA or FHLMC Certificates
will be backed, directly or indirectly, by
the full faith and credit of the United
States. The Agency Securities may consist of
pass-through securities issued under the GNMA
I Program, the GNMA II Program, FHLMC's Cash
or Guarantor Program or another program
specified in the Prospectus Supplement. The
payment characteristics of the Mortgage Loans
underlying the Agency Securities will be
described in the related Prospectus
Supplement. See "The Trusts--Agency
Securities."
D. Private Mortgage-
Backed
Securities................... Private Mortgage-Backed Securities may
include (i) mortgage participations or
pass-through certificates representing
beneficial interests in certain mortgage
loans or (ii) Collateralized Mortgage
Obligations ("CMOs") secured by such mortgage
loans. Although individual mortgage loans
underlying a Private Mortgage-Backed Security
may be insured or guaranteed by the United
States or an agency or instrumentality
thereof, they need not be, and the Private
Mortgage-Backed Securities themselves will
not be, so insured or guaranteed. See "The
Trusts--Private Mortgage-Backed Securities."
Unless otherwise specified in the Prospectus
Supplement relating to a Series of
Certificates, payments on the Private
Mortgage-Backed Securities will be
distributed directly to the Trustee as
registered owner of such Private
Mortgage-Backed Securities. See "The
Trusts--Private Mortgage-Backed Securities."
The Prospectus Supplement for each Series of
Certificates will specify, with respect to
any Private Mortgage-Backed Securities owned
by the related Trust: (i) the aggregate
approximate principal amount and type of
Private Mortgage- Backed Securities; (ii)
certain characteristics of the mortgage loans
underlying the Private Mortgage-Backed
Securities, including (A) the payment
features of such mortgage loans, (B) the
approximate aggregate principal amount, if
known, of the underlying mortgage loans which
are insured or guaranteed by a governmental
entity, (C) the servicing fee or range of
servicing fees with respect to such mortgage
loans, and (D) the minimum and maximum stated
maturities of the mortgage loans at
origination; (iii) the maximum original
term-to-stated maturity of the Private
Mortgage-Backed Securities; (iv) the weighted
average term-to-stated maturity of the
Private Mortgage-Backed Securities; (v) the
pass-through or certificate rate or ranges
thereof for the Private Mortgage-Backed
Securities; (vi) the weighted average
pass-through or certificate rate of the
Private Mortgage-Backed Securities; (vii) the
issuer of the Private Mortgage-Backed
Securities (the "PMBS Issuer"), the servicer
of the Private Mortgage-Backed Securities
(the "PMBS Servicer") and the trustee of the
Private Mortgage-Backed Securities (the "PMBS
Trustee"); (viii) certain characteristics of
credit support, if any, such as reserve
funds, insurance policies, letters of credit,
financial guaranty insurance policies or
third party guarantees, relating to the
mortgage loans underlying the Private
Mortgage-Backed Securities, or to such
Private Mortgage-Backed Securities
themselves; (ix) the terms on which
underlying mortgage loans for such Private
Mortgage-Backed Securities may, or are
required to, be repurchased prior to stated
maturity; and (x) the terms on which
substitute mortgage loans may be delivered to
replace those initially deposited with the
PMBS Trustee. See "The Trusts."
Pre-Funding
Account........................... If provided in the related Prospectus
Supplement, the original principal amount of
a Series of Certificates may exceed the
principal balance of the Mortgage Assets
initially being delivered to the Trustee.
Cash in an amount equal to such difference
(such amount, the "Pre-Funded Amount") will
be deposited into a separate trust account
(the "Pre-Funding Account") maintained with
the Trustee for the benefit of the Holders.
During the period set forth in the related
Prospectus Supplement (the "Funding Period"),
the Pre-Funded Amount in the Pre-Funding
Account may be used to purchase additional
Mortgage Assets for the related Trust subject
to the satisfaction of certain conditions
specified under the Agreements.
For a Trust that elects to be characterized
as either a REMIC or a grantor trust under
federal income tax laws, the maximum length
of the related Funding Period will not exceed
three calendar months or 90 days,
respectively, from the date of issuance of
the Certificates and otherwise the maximum
length of the Funding Period will not exceed
the period set forth in the related
Prospectus Supplement. The amount of the
initial Pre-Funded Amount is intended not to
exceed the aggregate principal balance of
additional Mortgage Assets that the
Representative anticipates will be acquired
and conveyed to the Trust during the
applicable Funding Period.
Prior to the conveyance of any additional
Mortgage Assets to the Trust, the
Representative will be required to give
notice of the additional Mortgage Assets to
be conveyed to the Trust to the Trustee(s)
and any third-party credit enhancement
provider. Upon the satisfaction of the
conditions set forth in the Agreement,
including the receipt by the Trustee of an
executed assignment, an Officer's Certificate
and a legal opinion, the Trustee will release
from the Pre- Funding Account the necessary
funds to purchase the additional Mortgage
Assets to be conveyed to the Trust on such
date. If any Pre-Funded Amount remains on
deposit in the Pre-Funding Account at the end
of the Funding Period, such amount, in the
amounts and in the manner specified in the
related Prospectus Supplement, will be used
to prepay some or all Classes of the related
Series of Certificates.
Description of the
Certificates...................... Each Certificate will represent a fractional
undivided ownership interest in the Trust
created pursuant to the related Agreement.
The primary assets of such Trust will be a
Pool of Mortgage Loans and certain other
Mortgage Assets. The Certificates of any
Series may be issued in one or more Classes,
as specified in the related Prospectus
Supplement. A Series of Certificates may
include one or more Classes of senior
Certificates (collectively, "Senior
Certificates") which receive certain
preferential treatment specified in the
related Prospectus Supplement with respect to
one or more Classes of subordinate
Certificates (collectively, the "Subordinated
Certificates"). Certain Series or Classes of
Certificates may be covered by a Certificate
Guaranty Insurance Policy, Mortgage Pool
Insurance Policy, Special Hazard Insurance
Policy, Bankruptcy Bond or other insurance
policies, cash accounts, letters of credit,
financial guaranty insurance policies, third
party guarantees, supplemental interest
payments or other forms of credit enhancement
or maturity protection, as described herein
and in the related Prospectus Supplement.
Each Class of Certificates within a Series
will evidence the interests specified in the
related Prospectus Supplement, which may (i)
include the right to receive distributions
allocable only to principal, only to interest
or to any combination thereof; (ii) include
the right to receive distributions only of
prepayments of principal throughout the lives
of the Certificates or during specified
periods; (iii) be subordinated in its 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 or may be subordinated with respect
to certain losses or delinquencies; (iv)
include the right to receive such
distributions only after the occurrence of
events specified in the Prospectus
Supplement; (v) include the right to receive
distributions in accordance with a schedule
or formula or on the basis of collections
from designated portions of the assets in the
related Trust; (vi) include, as to
Certificates entitled to distributions
allocable to interest, the right to receive
interest at a Fixed Rate or an Adjustable
Rate; and (vii) include, as to Certificates
entitled to distributions allocable to
interest, the right to distributions
allocable to interest only after the
occurrence of events specified in the related
Prospectus Supplement, and in each case, may
accrue interest until such events occur, as
specified in such 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 issuable in fully
registered form, in minimum denominations of
$1,000 and integral multiples of $1,000 in
excess thereof (or such other amounts as may
be set forth in a Prospectus Supplement),
except that one Certificate of each Class may
be issued in a different denomination. See
"Description of Certificates."
Credit
Enhancement ...................... The Mortgage Assets in a Trust or the
Certificates of one or more Classes in the
related Series may have the benefit of one or
more types of credit enhancement, as
described in the related Prospectus
Supplement. The protection against losses
afforded by any such credit support may be
limited. Such credit enhancement may include
one or more of the following types:
A. Subordination
and Reserve
Accounts..................... The rights of the holders of Subordinated
Certificates of a Series to receive
distributions with respect to the Mortgage
Assets and other assets in the related Trust
will be subordinated to the rights of the
holders of the Senior Certificates of the
same Series to receive distributions to the
extent described in the related Prospectus
Supplement. This subordination is intended to
enhance the likelihood of regular receipt by
holders of Senior Certificates of the full
amount of payments which such holders would
be entitled to receive if there had been no
losses or delinquencies. The protection
afforded to the holders of Senior
Certificates through subordination may be
accomplished by the preferential right of
such holders to receive, prior to any
distribution being made in respect of the
related Subordinated Certificates, the
amounts of principal and interest due to them
on each Remittance Date out of the funds
available for distribution on such date in
the related Certificate Account (as defined
herein) to the extent described in the
related Prospectus Supplement. The protection
afforded to the holders of Senior
Certificates through subordination also may
be accomplished by allocating certain types
of losses or delinquencies to the related
Subordinated Certificates to the extent
described in the related Prospectus
Supplement.
If so specified in the related Prospectus
Supplement, the same Class of Certificates
may constitute Senior Certificates with
respect to certain types of payments or
certain losses or delinquencies and
Subordinated Certificates with respect to
other types of payments or losses or
delinquencies. 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
due to the bankruptcy of a Mortgagor not
covered by a Bankruptcy Bond. If further
specified in the related Prospectus
Supplement, one or more reserve accounts
(each, a "Reserve Account") may be
established and maintained, in whole or in
part, by the deposit therein of distributions
allocable to the holders of Subordinated
Certificates for a specified time or 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
Subordinated 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 any
Reserve Account, and the conditions under
which amounts in any such Reserve Account
will be used to make distributions to Senior
Certificateholders or released to
Subordinated Certificateholders from the
related Trust.
B. Certificate
Guaranty
Insurance
Policy....................... A certificate guaranty insurance policy or
policies ("Certificate Guaranty Insurance
Policy") may be obtained and maintained for
each Class or Series of Certificates.
Certificate Guaranty Insurance Policies
generally unconditionally and irrevocably
guarantee that the full amount of the
distributions of principal and interest, as
well as any other amounts specified in the
related Prospectus Supplement, will be
received by an agent of the Trustee, for
distribution by the Trustee to
Certificateholders. Certificate Guaranty
Insurance Policies may have certain
limitations set forth in the related
Prospectus Supplement, including (but not
limited to) limitations on the insurer's
obligation to guarantee the Master Servicer's
obligation to repurchase or substitute for
any Mortgage Loans, to guarantee any
specified rate of prepayments or to provide
funds to redeem Certificates on any specified
date.
C. Spread
Amount....................... If so specified in the related Prospectus
Supplement, certain Classes of Certificates
may be entitled to receive limited
acceleration of principal relative to the
amortization of the related Mortgage Assets.
The accelerated amortization will be achieved
by applying certain excess interest collected
on the Mortgage Assets to the payment of
principal on such Classes of Certificates.
This acceleration feature is intended to
create an amount (the "Spread Amount"),
resulting from, and generally equal to, the
excess of the aggregate principal balances of
the applicable Mortgage Assets over the
principal balances of the applicable Classes
of Certificates. Once the required Spread
Amount is reached, and subject to the
provisions described in the next sentence and
in the related Prospectus Supplement, the
acceleration feature will cease, unless
necessary to maintain the required level of
the Spread Amount. The applicable Agreement
will provide that, subject to certain floors,
caps and triggers, the required level of the
Spread Amount may increase or decrease over
time. An increase would result in a temporary
period of accelerated amortization of the
applicable Classes of Certificates to
increase the actual level of the Spread
Amount to its required level; a decrease
would result in a temporary period of
decelerated amortization to reduce the actual
level of the Spread Amount to its required
level. An Agreement also may provide that
after one or more Classes of Certificates
have been paid to the required level of the
Spread Amount, excess interest, together with
certain other excess amounts, may be applied
to make-up shortfalls in, or accelerate the
amortization of, other Classes of
Certificates.
D. Mortgage Pool
Insurance
Policy....................... A mortgage pool insurance policy or policies
("Mortgage Pool Insurance Policy") may be
obtained and maintained for each Series
pertaining to Mortgage Loans and Contracts,
limited in scope, covering defaults on the
related Mortgage Loans or Contracts in an
initial amount equal to a specified
percentage of the aggregate principal balance
of all Mortgage Loans or Contracts included
in the Pool as of the Cut-off Date or such
other date as is specified in the related
Prospectus Supplement.
E. Special Hazard
Insurance
Policy....................... In the case of Mortgage Loans or Contracts,
certain physical risks that are not otherwise
insured against by Standard Hazard Insurance
Policies may be covered by a special hazard
insurance policy or policies (a "Special
Hazard Insurance Policy"). The level of
coverage of each Special Hazard Insurance
Policy will be specified in the related
Prospectus Supplement.
F. Bankruptcy
Bonds........................ A mortgagor bankruptcy bond or bonds
("Bankruptcy Bond") may be obtained to cover
certain losses resulting from a reduction by
a bankruptcy court of scheduled payments of
principal or interest on a Mortgage Loan or
Contract or a reduction by such court of the
principal amount of a Mortgage Loan or
Contract, and will cover certain unpaid
interest on the amount of such a principal
reduction. The level of coverage of each
Bankruptcy Bond will be specified in the
related Prospectus Supplement.
G. Cross
Support...................... If so specified in the Prospectus Supplement,
the ownership interests of separate Trusts or
separate groups of assets 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 requires that distributions be made
with respect to certain Certificates
evidencing interests in one or more Trusts or
asset groups prior to distributions to other
Certificates evidencing interests in other
asset groups or Trusts. If specified in the
related Prospectus Supplement, the coverage
provided by one or more forms of credit
support may apply concurrently to two or more
separate Trusts, without priority among such
Trusts, until the credit support is
exhausted. If applicable, the Prospectus
Supplement will identify the Trusts or asset
groups 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 Trusts or asset groups.
H. Supplemental
Interest
Payments..................... If so specified in the Prospectus Supplement,
one or more Classes of Certificates may be
entitled to receive supplemental interest
payments under specified circumstances.
Supplemental interest payments will be
available to fund some or all of the
difference, if any, between the interest owed
to a Class of Certificates on a Remittance
Date and the interest that would be available
to pay such interest assuming no defaults or
delinquencies on the Mortgage Assets. Such
differences may result if the interest rates
on the applicable Classes of Certificates are
based upon an index that differs from the
index used in determining the interest rates
on the Mortgage Assets. Except as otherwise
provided in a Prospectus Supplement,
supplemental interest payments will not be
available to fund shortfalls resulting from
delinquencies or defaults on the Mortgage
Assets.
I. Maturity
Protection.................... If so specified in the Prospectus Supplement,
one or more Classes of Certificates may be
entitled to third-party payments to help
provide that the holders of such Certificates
receive their unpaid principal on or prior to
a specified date.
J. The Guaranty................... If so specified in the Prospectus Supplement,
and in order to provide additional credit
enhancement, The Money Store may provide a
guaranty of amounts due on certain Classes of
Certificates. The amount and formula for
calculating such guaranty shall be as set
forth in the Prospectus Supplement.
K. Other Credit
Enhancement................... Other credit enhancement arrangements, as
described in the related Prospectus
Supplement, including (but not limited to)
one or more reserve funds, letters of credit,
financial guaranty insurance policies, a
guaranty of The Money Store or third party
guarantees, may be used to provide coverage
for certain risks of defaults or losses.
These arrangements may be in addition to or
in substitution for any forms of credit
support described in the Prospectus. Any such
arrangement must be acceptable to each
nationally recognized rating agency that
provides a rating for the related Series of
Certificates (the "Rating Agency").
Additionally, to the extent a significant
portion of the Mortgage Loans underlying a
given Series of Certificates consists of FHA
Loans, the related Prospectus Supplement will
describe the features of any related credit
support including, but not limited to, that
provided by the FHA, if any.
Monthly Advances.................. If so specified in the related Prospectus
Supplement, the Master Servicer will be
required under each Agreement to remit to the
Trustee no later than the day of each month
which is at least three business days prior
to the Remittance Date and is in no case
earlier than the seventh business day of such
month (the "Determination Date") the amount
(a "Monthly Advance"), if any, by which (a)
the sum of (x) 30 days' interest at the
weighted average Adjusted Mortgage Loan
Remittance Rate (as defined herein under
"Description of the Certificates- -Monthly
Advances and Compensating Interest") on the
then outstanding principal balance of the
related Series of Certificates and (y) the
amount, if any, required to be deposited into
the related Reserve Account (as specified in
the related Prospectus Supplement) for the
related Remittance Date exceeds (b) the
amount received by the Master Servicer in
respect of interest on the Mortgage Loans as
of the related Record Date. Such advances by
the Master Servicer are reimbursable in the
first instance from late collections of
interest, including amounts received in
connection with the liquidation of defaulted
Mortgage Loans ("Liquidation Proceeds"),
amounts paid by any insurer pursuant to any
insurance policy covering a Mortgage Loan,
Mortgaged Property or REO Property
("Insurance Proceeds"), and proceeds received
by the Master Servicer in connection with
condemnation, eminent domain or a release of
lien ("Released Mortgaged Property Proceeds")
collected with respect to the related
Mortgage Loans as to which the advances were
made, and any other amount that would
otherwise be distributed on the Class R
Certificates. See "Description of the
Certificates--Monthly Advances and
Compensating Interest."
Compensating
Interest.......................... If so specified in the related Prospectus
Supplement, with respect to each Mortgage
Loan as to which the Master Servicer receives
a principal payment in full in advance of the
final scheduled due date (a "Principal
Prepayment") or receives a principal payment
that exceeds the scheduled payment by a
specified multiple, but which was not
intended by the Mortgagor to satisfy the
Mortgage Loan in full or to cure a
delinquency (a "Curtailment"), the Master
Servicer will be required to remit to the
Trustee, from amounts otherwise payable to
the Master Servicer as servicing
compensation, an amount ("Compensating
Interest") equal to any excess of (a) 30
days' interest on the principal balance of
each such Mortgage Loan as of the beginning
of the related Due Period at the applicable
weighted average Adjusted Mortgage Loan
Remittance Rate over (b) the amount of
interest actually received on the related
Mortgage Loan during such Due Period.
Optional
Termination....................... The Master Servicer, certain insurers, the
holders of REMIC Residual Certificates (as
defined herein), or certain other entities
specified in the related Prospectus
Supplement may have the option to effect
early retirement of a Series of Certificates
through the purchase of the related Mortgage
Assets and other assets in the related Trust
under the circumstances and in the manner
described in "The Agreement--Termination;
Purchase of Mortgage Loans."
Mandatory
Termination....................... The Trustee, the Master Servicer or certain
other entities specified in the related
Prospectus Supplement may be required to
effect early retirement of a Series of
Certificates under the circumstances and in
the manner specified in the related
Prospectus Supplement and herein under "The
Agreement--Termination; Purchase of Mortgage
Loans."
Trustee .......................... The trustee or trustees under any Agreement
relating to a Series of Certificates (each, a
"Trustee") will be specified in the related
Prospectus Supplement.
Federal Income Tax
Consequences...................... The federal income tax consequences of the
purchase, ownership and disposition of the
Certificates of each series will depend on
whether an election is made to treat the
corresponding Trust (or certain assets of the
Trust) as a "real estate mortgage investment
conduit" ("REMIC") under the Internal Revenue
Code of 1986, as amended (the "Code").
REMIC. If an election is to be made to treat
the Trust (or certain assets of the Trust)
for a Series of Certificates as a REMIC for
federal income tax purposes, the related
Prospectus Supplement will specify which
Class or Classes thereof will be designated
as regular interests in the REMIC ("REMIC
Regular Certificates") and which class of
Certificates will be designated as the
residual interest in the REMIC ("REMIC
Residual Certificates"). To the extent
provided herein and in the related Prospectus
Supplement, in the opinion of Stroock &
Stroock & Lavan, special Federal tax counsel
("Federal Tax Counsel"), Certificates
representing an interest in the REMIC
generally will be considered "real estate
assets" for purposes of Section 856(c)(5)(A)
of the Code and assets described in Section
7701(a)(19)(C) of the Code, but generally
will not be considered "residential loans"
for purposes of Section 593(g)(4)(B) of the
Code.
In the opinion of Federal Tax Counsel, for
federal income tax purposes, REMIC Regular
Certificates generally will be treated as
debt obligations of the Trust with payment
terms equivalent to the terms of such
Certificates. Holders of REMIC Regular
Certificates will be required to report
income with respect to such Certificates
under an accrual method, regardless of their
normal tax accounting method. Original issue
discount, if any, on REMIC Regular
Certificates will be includible in the income
of the Holders thereof as it accrues, in
advance of receipt of the cash attributable
thereto, which rate of accrual will be
determined based on a reasonable assumed
prepayment rate. The REMIC Residual
Certificates generally will not be treated as
evidences of indebtedness for federal income
tax purposes, but instead, as representing
rights to the taxable income or net loss of
the REMIC.
Each holder of a REMIC Residual Certificate
will be required to take into account
separately its pro rata portion of the
REMIC's taxable income or loss. Certain
income of a REMIC (referred to as "excess
inclusions") generally may not be offset by
such a holder's net operating loss carryovers
or other deductions, and in the case of a
tax-exempt holder of a REMIC Residual
Certificate will be treated as "unrelated
business taxable income." In certain
situations, particularly in the early years
of a REMIC, holders of a REMIC Residual
Certificate may have taxable income, and
possibly tax liabilities with respect to such
income, in excess of cash distributed to
them. "DISQUALIFIED ORGANIZATIONS," AS
DEFINED IN "FEDERAL INCOME TAX CONSEQUENCES--
REMIC RESIDUAL CERTIFICATES--TAX ON
DISPOSITION OF REMIC RESIDUAL CERTIFICATES;
RESTRICTION ON TRANSFER; HOLDING BY
PASS-THROUGH ENTITIES," ARE PROHIBITED FROM
ACQUIRING OR HOLDING ANY BENEFICIAL INTEREST
IN THE REMIC RESIDUAL CERTIFICATES.
GRANTOR TRUST. If no election is to be made
to treat the Trust for a series of
Certificates ("Non-REMIC Certificates") as a
REMIC, the Trust will be classified as a
grantor trust for federal income tax purposes
and not as an association taxable as a
corporation. In the opinion of Federal Tax
Counsel, holders of Non-REMIC Certificates
will be treated for such purposes, subject to
the possible application of the stripped bond
rules, as owners of undivided interests in
the related Mortgage Assets generally will be
required to report as income their pro rata
share of the entire gross income (including
amounts paid as reasonable servicing
compensation) from the Mortgage Assets and
will be entitled, subject to certain
limitations, to deduct their pro rata share
of expenses of the Trust.
To the extent provided herein, Non-REMIC
Certificates generally will represent
interests in "real estate assets" for
purposes of Section 856(c)(5)(A) of the Code
and "Loans . . . principally secured by an
interest in real property" within the meaning
of Section 7701(a)(19)(C)(v) of the Code but
should not be considered "residential loans"
for purposes of Section 593(g)(4)(B) of the
Code.
Investors are advised to consult their tax
advisors and to review "Federal Income Tax
Consequences" herein and, if applicable, in
the related Prospectus Supplement.
ERISA
Considerations.................... Fiduciaries of employee benefit plans or
other retirement plans or arrangements,
including individual retirement accounts,
certain Keogh plans, and collective
investment funds, separate accounts and
insurance company general accounts in which
such plans, accounts or arrangements are
invested, that are subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or the Code should
carefully review with their legal advisors
whether an investment in Certificates will
cause the assets of the related Trust to be
considered plan assets under the Department
of Labor ("DOL") regulations set forth in 29
C.F.R. Section 2510.3-101 (the "Plan Asset
Regulations"), thereby subjecting the Trustee
and the Master Servicer to the fiduciary
investment standards of ERISA, and whether
the purchase, holding or transfer of
Certificates gives rise to a transaction that
is prohibited under ERISA or subject to the
excise tax provisions of Section 4975 of the
Code, unless a DOL administrative exemption
applies. See "ERISA Considerations."
Legal
Investment........................ Each Prospectus Supplement will describe the
extent, if any, to which the Classes of
Certificates offered thereby will constitute
"mortgage-related securities" for purposes of
the Secondary Mortgage Market Enhancement Act
of 1984 ("SMMEA") and whether they will be
legal investments for certain types of
institutional investors under SMMEA. See
"Legal Investment" herein.
Registration of
Certificates...................... Certificates may be represented by global
certificates registered in the name of Cede &
Co. ("Cede"), as nominee of The Depository
Trust Company ("DTC"), or another nominee. In
such case, Certificateholders will not be
entitled to receive definitive certificates
representing such Holders' interests, except
in certain circumstances described in the
related Prospectus Supplement. See
"Description of the Certificates--Book-Entry
Registration" herein.
<PAGE>
RISK FACTORS
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates will
develop or, if a secondary market does develop, that it will provide Holders of
the Certificates with liquidity of investment or that it will continue for the
lives of the Certificates.
BOOK-ENTRY REGISTRATION
Issuance of the Certificates in book-entry form may reduce the liquidity of
such Certificates in the secondary trading market since investors may be
unwilling to purchase Certificates for which they cannot obtain physical
certificates.
Since transactions in Certificates will, in most cases, be able to be
effected only through DTC, Direct or Indirect Participants and certain banks,
the ability of a Certificateholder to pledge a Certificate to persons or
entities that do not participate in the DTC system, or otherwise to take actions
in respect of such Certificates, may be limited due to lack of a physical
certificate representing the Certificates.
Certificateholders may experience some delay in their receipt of
distributions of interest on and principal of the Certificates since
distributions may be required to be forwarded by the Trustee to DTC and, in such
a case, DTC will be required to credit such distributions to the accounts of its
Participants which thereafter will be required to credit them to the accounts of
the applicable Class of Certificateholders either directly or indirectly through
Indirect Participants. See "Description of the Certificates--Book-Entry
Registration."
NATURE OF SECURITY
Certain of the Mortgage Loans will be loans secured by junior liens
subordinate to the rights of the mortgagee under each related senior mortgage.
As a result, the proceeds from any liquidation, insurance or condemnation
proceedings will be available to satisfy the principal balance of a junior
mortgage loan only to the extent that the claims, if any, of each such senior
mortgagee are satisfied in full, including any related foreclosure costs. In
addition, a mortgagee may not foreclose on the mortgaged property unless it
forecloses subject to any related senior mortgage or mortgages, in which case it
must either pay the entire amount of each senior mortgage to the applicable
mortgagee at or prior to the foreclosure sale or undertake the obligation to
make payments on each senior mortgage in the event of default thereunder. In
servicing mortgage loans in their portfolios, it has been the Originators'
practice to satisfy each such senior mortgage at or prior to the foreclosure
sale only to the extent that they determine any amounts so paid will be
recoverable from future payments and collections on the mortgage loans or
otherwise. The Trusts will not have any source of funds to satisfy any such
senior mortgage or make payments due to any senior mortgagee. See "Certain Legal
Aspects of the Mortgage Loans--Foreclosure/Repossession."
An overall decline in the market value of residential real estate, the
general condition of a Mortgaged Property, or other factors, could adversely
affect the values of the Mortgaged Properties such that the outstanding balances
of the Mortgage Loans which are junior mortgage loans, together with any senior
liens on the Mortgaged Properties, equal or exceed the value of the Mortgaged
Properties. Such a decline could extinguish the interest of the related Trust in
the Mortgaged Property before having any effect on the interest of the related
senior mortgagee. Certain of the Mortgage Loans may be secured by Mortgaged
Properties located in California and Texas. Certain areas of the country,
including California and Texas, have experienced declines in real estate values
over the last few years. Economic conditions in California are often volatile
and from time to time have been adversely affected by natural disasters,
contractions in the defense industry and declining real estate values. The
President of the United States has endorsed a list of military bases to be
closed within the next two to six years, which list includes significant bases
in California. These closures, which have been approved by Congress, along with
the recent general decline in defense spending, could have an adverse affect on
economic conditions in California. The Representative will not be able to
quantify the impact of any property value declines on the Mortgage Loans or
predict whether, to what extent or how long such declines may continue. In
periods of such declines, the actual rates of delinquencies, foreclosures and
losses on the Mortgage Loans could be higher than those historically experienced
in the mortgage lending industry in general. See "The Single Family Lending
Program--Servicing and Collections."
Certain of the Mortgage Loans may constitute "Balloon Loans." Balloon Loans
are originated with a stated maturity of less than the period of time of the
corresponding amortization schedule. As a result, upon the maturity of a Balloon
Loan, the Mortgagor will be required to make a "balloon" payment which will be
significantly larger than such Mortgagor's previous monthly payments. The
ability of such a Mortgagor to repay a Balloon Loan at maturity frequently will
depend on such borrower's ability to refinance the Mortgage Loan. The ability of
a Mortgagor to refinance such a Mortgage Loan will be affected by a number of
factors, including the level of available mortgage rates at the time, the value
of the related Mortgaged Property, the Mortgagor's equity in the related
Mortgaged Property, the financial condition of the Mortgagor and the tax laws
and general economic conditions at the time.
Although a low interest rate environment may facilitate the refinancing of
a balloon payment, the receipt and reinvestment by Certificateholders of the
proceeds in such an environment may produce a lower return than that previously
received in respect of the related Mortgage Loan. Conversely, a high interest
rate environment may make it more difficult for the Mortgagor to accomplish a
refinancing and may result in delinquencies or defaults. None of the
Representative, the Originators, the Master Servicer or the Trustee will be
obligated to provide funds to refinance any Mortgage Loan.
General economic conditions have an impact on the ability of borrowers to
repay mortgage loans. Loss of earnings, illness and other similar factors may
lead to an increase in delinquencies and bankruptcy filings by borrowers. In the
event of bankruptcy of a Mortgagor, it is possible that a Trust could experience
a loss with respect to such Mortgagor's Mortgage Loan. In conjunction with a
Mortgagor's bankruptcy, a bankruptcy court may suspend or reduce the payments of
principal and interest to be paid with respect to such Mortgage Loan or
permanently reduce the principal balance of such Mortgage Loan, thus either
delaying or permanently limiting the amount received by the Trust with respect
to such Mortgage Loan. Moreover, in the event a bankruptcy court prevents the
transfer of the related Mortgaged Property to a Trust, any remaining balance on
such Mortgage Loan may not be recoverable.
Even assuming that the Mortgaged Properties provide adequate security for
the Mortgage Loans, substantial delays could be encountered in connection with
the liquidation of defaulted Mortgage Loans and corresponding delays in the
receipt of related proceeds by the Certificateholders could occur. An action to
foreclose on a Mortgaged Property securing a Mortgage Loan is regulated by state
statutes and rules and is subject to many of the delays and expenses of other
lawsuits if defenses or counterclaims are interposed, sometimes requiring
several years to complete. Furthermore, in some states an action to obtain a
deficiency judgment is not permitted following a nonjudicial sale of a Mortgaged
Property. In the event of a default by a Mortgagor, these restrictions, among
other things, may impede the ability of the Master Servicer to foreclose on or
sell the Mortgaged Property or to obtain Liquidation Proceeds (net of expenses)
sufficient to repay all amounts due on the related Mortgage Loan. The Master
Servicer will be entitled to deduct from Liquidation Proceeds all expenses
reasonably incurred in attempting to recover amounts due on the related
liquidated Mortgage Loan and not yet repaid, including payments to prior
lienholders, legal fees and costs of legal action, real estate taxes, and
maintenance and preservation expenses. In the event that any Mortgaged
Properties fail to provide adequate security for the related Mortgage Loans and
insufficient funds are available from applicable Credit Enhancement,
Certificateholders could experience a loss on their investment.
Liquidation expenses with respect to defaulted mortgage loans do not vary
directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer took the same steps in realizing
upon a defaulted mortgage loan having a small remaining principal balance as it
would in the case of a defaulted mortgage loan having a larger principal
balance, the amount realized after expenses of liquidation would be smaller as a
percentage of the outstanding principal balance of the smaller mortgage loan
than would be the case with a larger loan. Because the average outstanding
principal balances of the Mortgage Loans which are junior mortgage loans are
small relative to the size of the loans in a typical pool composed entirely of
first mortgages, realizations net of liquidation expenses on defaulted Mortgage
Loans which are junior mortgage loans may also be smaller as a percentage of the
principal amount of such junior mortgage loans than would be the case with a
typical pool of first mortgage loans.
Under environmental legislation and case law applicable in various states,
including California, a secured party that takes a deed in lieu of foreclosure,
acquires a mortgaged property at a foreclosure sale or which, prior to
foreclosure, has been involved in decisions or actions which may lead to
contamination of a property, may be liable for the costs of cleaning up a
contaminated site. Although such costs could be substantial, it is unclear
whether they would be imposed on a holder of a mortgage note (such as a Trust)
which, under the terms of the Agreement, is not required to take an active role
in operating the Mortgaged Properties. See "Certain Legal Aspects of the
Mortgage Loans--Environmental Considerations."
Certain of the Mortgaged Properties relating to Mortgage Loans may not be
owner occupied. It is possible that the rate of delinquencies, foreclosures and
losses on Mortgage Loans secured by non-owner occupied properties could be
higher than for loans secured by the primary residence of the borrower.
UNSECURED HOME IMPROVEMENT LOANS
The obligations of the borrower under any Unsecured Home Improvement Loan
included in a Pool will not be secured by an interest in the related real estate
or otherwise, and the related Trust Fund, as the owner of such Unsecured Home
Improvement Loan, will be a general unsecured creditor as to such obligations.
As a consequence, in the event of a default under an Unsecured Home Improvement
Loan, the related Trust Fund will have recourse only against the borrower's
assets generally, along with all other general unsecured creditors of the
borrower. In a bankruptcy or insolvency proceeding relating to a borrower on an
Unsecured Home Improvement Loan, the obligations of the borrower under such
Unsecured Home Improvement Loan may be discharged in their entirety,
notwithstanding the fact that the portion of such borrower's assets made
available to the related Trust Fund as a general unsecured creditor to pay
amounts due and owing thereunder are insufficient to pay all such amounts. A
borrower on an Unsecured Home Improvement Loan may not demonstrate the same
degree of concern over performance of the borrower's obligations under such Home
Improvement Loan as if such obligations were secured by the real estate or other
assets owned by such borrower.
LEGAL CONSIDERATIONS
Applicable state laws generally regulate interest rates and other charges,
require certain disclosures, and require licensing of the Originators and the
Master Servicer. In addition, most states have other laws, public policy and
general principles of equity relating to the protection of consumers, unfair and
deceptive practices and practices which may apply to the origination, servicing
and collection of the Mortgage Loans. Depending on the provisions of the
applicable law and the specific facts and circumstances involved, violations of
these laws, policies and principles may limit the ability of the Master Servicer
to collect all or part of the principal of or interest on the Mortgage Loans,
may entitle the borrower to a refund of amounts previously paid and, in
addition, could subject the Master Servicer to damages and administrative
sanctions. See "Certain Legal Aspects of the Mortgage Loans."
The Mortgage Loans may also be subject to federal laws, including: (i) the
Federal Truth in Lending Act and Regulation Z promulgated thereunder, which
require certain disclosures to the borrowers regarding the terms of the Mortgage
Loans; (ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color, sex,
religion, marital status, national origin, receipt of public assistance or the
exercise of any right under the Consumer Credit Protection Act, in the extension
of credit; (iii) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience; and (iv)
the NHA Act (as defined herein) with respect to FHA Loans.
The Mortgage Loans may be subject to the Home Ownership and Equity
Protection Act of 1994 (the "Home Ownership Act") which amended the Federal
Truth in Lending Act as it applies to mortgages subject to the Home Ownership
Act. The Home Ownership Act requires certain additional disclosures, specifies
the timing of such disclosures and limits or prohibits the inclusion of certain
provisions in mortgages subject to the Home Ownership Act. The Home Ownership
Act also provides that any purchaser or assignee of a mortgage covered by the
Home Ownership Act is subject to all of the claims and defenses which the
borrower could assert against the original lender. The maximum damages that may
be recovered in an action under the Home Ownership Act from an assignee is the
remaining amount of indebtedness plus the total amount paid by the borrower in
connection with the mortgage loan. Any Trust for which the Mortgage Assets
include Mortgage Loans subject to the Home Ownership Act would be subject to all
of the claims and defenses which the borrower could assert against the original
lender. Any violation of the Home Ownership Act which would result in such
liability would be a breach of the applicable Originator's representations and
warranties, and the Representative would be obligated to cure, repurchase or, if
permitted by the related Agreement, substitute for the Mortgage Loan in
question.
PREPAYMENT CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans may be prepaid in full or in part at any time; however, a
prepayment penalty or premium may still be imposed in connection therewith. The
rate of prepayments of the Mortgage Loans cannot be predicted and may be
affected by a wide variety of economic, social, and other factors, including
prevailing interest rates, the availability of alternative financing and
homeowner mobility. Therefore, no assurance can be given as to the level of
prepayments that a Trust will experience.
A number of factors suggest that the prepayment behavior of a pool
including junior mortgage loans may be significantly different from that of a
pool composed entirely of first mortgage loans with equivalent interest rates
and maturities. One such factor is the smaller average principal balance of a
pool of junior mortgage loans which may result in a higher prepayment rate than
that of a pool of first mortgage loans with a larger average balance, regardless
of the interest rate environment. A small principal balance, however, also may
make refinancing a junior mortgage loan at a lower interest rate less attractive
to the borrower relative to refinancing a larger balance first mortgage loan, as
the perceived impact to the borrower of lower interest rates on the size of the
monthly payment for a junior mortgage loan may be less than for a first mortgage
loan with a larger balance. Other factors that might be expected to affect the
prepayment rate of a pool of junior mortgage loans include the amounts of, and
interest rates on, the underlying senior mortgage loans, and the use of first
mortgage loans as long-term financing for home purchase and junior mortgage
loans as shorter-term financing for a variety of purposes, including home
improvement, education expenses and purchases of consumer durables such as
automobiles. Accordingly, the Mortgage Loans which are junior mortgage loans may
experience a higher rate of prepayment than traditional fixed-rate mortgage
loans. In addition, any future limitations on the right of borrowers to deduct
interest payments on home equity mortgage loans for federal income tax purposes
may further increase the rate of prepayments of such junior mortgage loans. See
"Maturity, Prepayment and Yield Considerations."
Prepayments may result from voluntary early payments by borrowers
(including payments in connection with refinancings of the related senior
mortgage loan or loans), sales of Mortgaged Properties subject to "due-on-sale"
provisions and liquidations due to default, as well as the receipt of proceeds
from physical damage, credit life and disability insurance policies and, if so
specified in the related Prospectus Supplement, amounts on deposit in the Pre-
Funding Account at the end of the Funding Period being applied to the payment of
principal of the Certificates. In addition, repurchases or purchases from a
Trust of Mortgage Loans required to be made by the Representative under the
Agreement will have the same effect on the Certificateholders as a prepayment of
such Mortgage Loans. Unless otherwise specified in the related Prospectus
Supplement, all of the secured Mortgage Loans contain "due-on-sale" provisions,
and the Master Servicer will be required to enforce such provisions unless (i)
such enforcement would materially increase the risk of default or delinquency
on, or materially decrease the security for, such Mortgage Loan or (ii) such
enforcement is not permitted by applicable law, in which case the Master
Servicer is authorized to permit the purchaser of the related Mortgaged Property
to assume the Mortgage Loan. See "The Agreement" in the related Prospectus
Supplement.
Collections on the Mortgage Loans may vary due to the level of incidence of
delinquent payments and of prepayments. Collections on the Mortgage Loans may
also vary due to seasonal purchasing and payment habits of borrowers.
Certain of the Mortgage Loans may be "simple interest" or "date-of-payment
loans." If a payment is received on such a Mortgage Loan later than scheduled, a
smaller portion of such payment will be applied to principal and a greater
portion will be applied to interest than would have been the case had the
payment been received on the scheduled due date, resulting in such Mortgage Loan
having a longer average life than would have been the case had the payment been
made as scheduled. Conversely, if a payment on such a Mortgage Loan is received
earlier than scheduled, more of such payment will be applied to principal and
less to interest than would have been the case had the payment been received on
its scheduled due date, resulting in such Mortgage Loan having a shorter average
life than would have been the case had the payment been made as scheduled.
THE STATUS OF THE MORTGAGE LOANS IN THE EVENT OF
BANKRUPTCY OF THE REPRESENTATIVE OR AN ORIGINATOR
In the event of the bankruptcy of the Representative or an Originator at a
time when it or any affiliate thereof holds a Class R Certificate, a trustee in
bankruptcy of the Representative or its creditors could attempt to
recharacterize the sale of the Mortgage Loans to the related Trust as a
borrowing by the Representative, the Originator or such affiliate with the
result, if such recharacterization is upheld, that the Certificateholders would
be deemed to be creditors of the Representative, the Originator or such
affiliate, secured by a pledge of the Mortgage Loans. If such an attempt were
successful, a trustee in bankruptcy could elect to accelerate payment of the
Certificates and liquidate the Mortgage Loans, with the Certificateholders
entitled to the then outstanding principal amount thereof together with accrued
interest. Thus, the Certificateholders could lose the right to future payments
of interest, and might suffer reinvestment loss in a lower interest rate
environment.
LIMITATIONS ON INTEREST PAYMENTS AND FORECLOSURES
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), or similar state legislation, a
Mortgagor who enters military service after the origination of the related
Mortgage Loan (including a Mortgagor who is a member of the National Guard or is
in reserve status at the time of the origination of the Mortgage Loan and is
later called to active duty) may not be charged interest (including fees and
charges) above an annual rate of 6% during the period of such Mortgagor's active
duty status, unless a court orders otherwise upon application of the lender. It
is possible that such action could have an effect, for an indeterminate period
of time, on the ability of the Master 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 Master Servicer to foreclose
on an affected Mortgage Loan during the Mortgagor'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.
CERTIFICATE RATING
The rating of the Certificates will depend primarily on the
creditworthiness of any third party provider of credit enhancement, if any, as
set forth in the related Prospectus Supplement. Any reduction in the rating
assigned to the claims-paying ability of such provider below the rating
initially given to a Series of Certificates would likely result in a reduction
in the rating of such Series of Certificates. See "Rating."
OTHER
To the extent a significant portion of the Mortgage Loans underlying a
given series of Certificates consists of FHA Loans and/or Secured Conventional
Home Improvement Loans, the related Prospectus Supplement will describe any
additional Risk Factors related to such Mortgage Loans.
<PAGE>
THE TRUSTS
A Trust for any Series of Certificates will include the Mortgage Assets
consisting of (A) a Pool* comprised of (i) Single Family Loans, (ii) Cooperative
Loans, (iii) Multifamily Loans, (iv) Contracts, (v) FHA Loans, (vi) Secured
Conventional Home Improvement Loans, (vii) Unsecured Home Improvement Loans, or
(B) Agency Securities or Private Mortgage-Backed Securities, in each case, as
specified in the related Prospectus Supplement, together with payments in
respect of such Mortgage Assets and certain other accounts, obligations or
agreements, in each case as specified in the related Prospectus Supplement.
- --------
* Whenever the terms "Pool" and "Certificates" are used in this
Prospectus, such terms will be deemed to apply, unless the context
indicates otherwise, to one specific Pool and the Certificates
representing certain undivided fractional interests, as described
below, in a single Trust consisting primarily of the Mortgage Loans in
such Pool. Similarly, the term "Pass-Through Rate" will refer to the
Pass-Through Rate borne by the Certificates of one specific Series and
the term "Trust" will refer to one specific Trust.
The Certificates will be entitled to payment only from the assets of the
related Trust and, to the extent specified in a Prospectus Supplement, payments
in respect of the assets of other trusts established by the Representative, the
Originators or any of their affiliates. If specified in the related Prospectus
Supplement, certain Certificates will evidence the entire fractional undivided
ownership interest in a Trust which will contain a beneficial ownership interest
in another Trust which will contain all or some of the Mortgage Assets.
Certain of the Mortgage Assets may have been originated by the Originators.
Other Mortgage Assets may have been acquired by the Representative, an
Originator or an affiliate thereof in the open market or in privately negotiated
transactions, including transactions with entities affiliated with the
Representative. See "Mortgage Loan Program--Underwriting Criteria."
The following is a brief description of the Mortgage Assets expected to be
included in the Trusts. If specific information respecting the Mortgage Assets
is not known at the time the related Series of Certificates initially is
offered, more general information of the nature described below 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 Commission within fifteen days after the
initial issuance of such Certificates (the "Detailed Description"). A copy of
the Agreement with respect to each Series of Certificates will be attached to
the Form 8-K and will be available for inspection at the corporate trust office
of the Trustee specified in the related Prospectus Supplement. A schedule of the
Mortgage Assets relating to such Series (the "Mortgage Asset Schedule") will be
attached to the Agreement delivered to the Trustee upon delivery of the
Certificates.
THE MORTGAGE LOANS--GENERAL
The real property and Manufactured Homes, as the case may be, which secure
repayment of the Mortgage Loans and Contracts (the "Mortgaged Properties") may
be located in any one of the fifty states, the District of Columbia, the
Commonwealth of Puerto Rico or any other commonwealth, territory or possession
of the United States. It is expected that the Mortgage Loans or Contracts will
be Conventional Loans (i.e., loans that are not insured or guaranteed by any
governmental agency). However, if specified in the related Prospectus
Supplement, certain of the Single Family Loans may be insured by the FHA or
partially guaranteed by the VA. Mortgage Loans with Combined Loan-to-Value
Ratios and/or certain principal balances may be covered wholly or partially by
Primary Mortgage Insurance Policies. The Mortgage Loans may be covered by
Standard Hazard Insurance Policies.
All of the Mortgage Loans in a Pool will provide for payments to be made
monthly ("monthly pay"), bi-weekly or on such other terms as may be described in
a Prospectus Supplement. The payment terms of the Mortgage Loans to be included
in a Trust will be described in the related Prospectus Supplement and may
include any of the following features or combinations thereof or other features
described in the related Prospectus Supplement:
(a) Interest may be payable at a Fixed Rate, or an Adjustable
Rate (i.e., a rate that is adjustable from time to time in relation to
an index, a rate that is fixed for a period of time or under certain
circumstances and is followed by an adjustable rate, a rate that
otherwise varies from time to time, or a rate that is convertible from
an adjustable rate to a fixed rate). The specified rate of interest on
a Mortgage Loan is its Mortgage Interest Rate. Changes to an Adjustable
Rate may be subject to periodic limitations, maximum rates, minimum
rates or a combination of such limitations. Accrued interest may be
deferred and added to the principal of a Mortgage Loan for such periods
and under such circumstances as may be specified in the related
Prospectus Supplement. Mortgage Loans may provide for the payment of
interest at a rate lower than the Mortgage Interest Rate for a period
of time or for the life of the Mortgage Loan, and the amount of any
difference may be contributed from funds supplied by the seller of the
Mortgaged Property securing the related Mortgage Loan or another source
or may be treated as accrued interest added to the principal of the
Mortgage Loan.
(b) Principal may be payable on a level basis to fully
amortize the Mortgage Loan over its term, may be calculated on the
basis of an assumed amortization schedule that is significantly longer
than the original term to maturity or on an interest rate that is
different from the Mortgage Interest Rate, or may not be amortized
during all or a portion of the original term. Payment of all or a
substantial portion of the principal may be due on maturity ("balloon"
payments). Principal may include interest that has been deferred and
added to the principal balance of the Mortgage Loan.
(c) Monthly payments of principal and interest may be fixed
for the life of the Mortgage Loan, may increase over a specified period
of time ("graduated payments") or may change from period to period.
Mortgage Loans may include limits on periodic increases or decreases in
the amount of monthly payments and may include maximum or minimum
amounts of monthly payments. Mortgage Loans having graduated payment
provisions may require the monthly payments of principal and interest
to increase for a specified period, provide for deferred payment of a
portion of the interest due monthly during such period, and recoup the
deferred interest through negative amortization whereby the difference
between the scheduled payment of interest and the amount of interest
actually accrued is added monthly to the outstanding principal balance.
Other Mortgage Loans sometimes referred to as "growing equity" mortgage
loans may provide for periodic scheduled payment increases for a
specified period with the full amount of such increases being applied
to principal.
(d) Prepayments of principal may be subject to a prepayment
fee, which may be fixed for the life of the Mortgage Loan or may
decline over time, and may be prohibited for the life of the Mortgage
Loan or for certain periods ("lockout periods"). Certain Mortgage Loans
may permit prepayments after expiration of the applicable lockout
period and may require the payment of a prepayment fee in connection
with any such subsequent prepayment. Other Mortgage Loans may permit
prepayments without payment of a fee unless the prepayment occurs
during specified time periods. The Mortgage Loans may include
due-on-sale clauses which permit the mortgagee to demand payment of the
entire Mortgage Loan in connection with the sale or certain transfers
of the related Mortgaged Property. Other Mortgage Loans may be
assumable by persons meeting the then applicable underwriting standards
of the Originator.
To the extent a significant portion of the Mortgage Loans underlying a
given Series of Certificates consist of FHA Loans and/or Secured Conventional
Home Improvement Loans, the related Prospectus Supplement will describe the
material provisions of such Mortgage Loans and the programs under which they
were originated. The Prospectus Supplement for each Series of Certificates will
contain information with respect to all the Mortgage Loans expected to be
included in the related Pools as of the related closing date, including (i) the
expected aggregate outstanding principal balance and the expected average
outstanding principal balance of the Mortgage Loans as of the date set forth in
the Prospectus Supplement, (ii) the largest expected principal balance and the
smallest expected, principal balance of any of the Mortgage Loans, (iii) the
types of Mortgaged Properties and/or other assets securing the Mortgage Loans
(e.g., one- to four-family houses, vacation and second homes, Manufactured
Homes, multifamily apartments or other real property) and the percentage, if
any, of Unsecured Home Improvement Loans expected to be included in the related
Pool, (iv) the original terms to maturity of the Mortgage Loans, (v) the
expected weighted average term to maturity of the Mortgage Loans as of the date
set forth in the Prospectus Supplement and the expected range of the terms to
maturity, (vi) the earliest origination date and latest maturity date of any of
the Mortgage Loans, (vii) the expected aggregate principal balance of Mortgage
Loans having Combined Loan-to-Value Ratios at origination exceeding 80%, (viii)
the expected Mortgage Interest Rate or APR and ranges of Mortgage Interest Rates
or APRs borne by the Mortgage Loans, (ix) in the case of Mortgage Loans having
Adjustable Rates, the expected weighted average of the Adjustable Rates, if any,
(x) the expected aggregate outstanding principal balance, if any, of Buy-Down
Loans and Mortgage Loans having graduated payment provisions as of the date set
forth in the Prospectus Supplement, (xi) the amount of any Mortgage Pool
Insurance Policy, Special Hazard Insurance Policy or Bankruptcy Bond to be
maintained with respect to such Pool, (xii) to the extent different from the
amounts described herein, the amount of any Standard Hazard Insurance Policy
required to be maintained with respect to each Mortgage Loan; (xiii) the amount,
if any, and terms of any other credit enhancement to be provided with respect to
all or a material portion of the Mortgage Loans or the Pool and (xiv) the
expected geographic location of the Mortgaged Properties. If specific
information respecting the Mortgage Loans is not known to the Representative at
the time the related Certificates are 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 the Detailed
Description.
The Combined "Loan-to-Value Ratio" of a Single Family Loan at any given
time is the ratio, expressed as a percentage, determined by dividing (x) the sum
of the original principal balance of the Single Family Loan (less the amount, if
any, of the premium for credit life insurance) plus the then-current principal
balance of the related first lien, if any, by (y) the value of the related
Mortgaged Property, based upon the appraisal or valuation made at the time of
origination of the Single Family Loan. To the extent a significant portion of
the Mortgage Loans underlying a given Series of Certificates consists of FHA
loans and/or Secured Conventional Home Improvement Loans, the related Prospectus
Supplement may describe the method for calculating the Combined Loan-to-Value
Ratio, if deemed relevant by the Representative. In the case of Refinance Loans,
the value of the related Mortgaged Property generally will be based on an
appraisal or valuation obtained at the time of refinancing. For purposes of
calculating the Combined Loan-to-Value Ratio of a Contract relating to a new
Manufactured Home, the value of such Manufactured Home generally will be no
greater than the sum of a fixed percentage of the list price of the unit
actually billed by the manufacturer to the dealer (exclusive of freight to the
dealer site) including "accessories" identified in the invoice (the
"Manufacturer's Invoice Price"), plus the actual cost of any accessories
purchased from the dealer, a delivery and set-up allowance, depending on the
size of the unit, and the cost of state and local taxes, filing fees and up to
three years prepaid hazard insurance premiums. The value of a used Manufactured
Home generally will be the least of the sales price, appraised value, and
National Automobile Dealer's Association book value plus prepaid taxes and
hazard insurance premiums. The appraised value of a Manufactured Home will be
based upon the age and condition of the manufactured housing unit and the
quality and condition of the mobile home park in which it is situated, if
applicable.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the real estate market should experience an overall
decline in property values such that the outstanding principal balances of the
Mortgage Loans (plus any additional financing by other lenders on the same
Mortgaged Properties), in a particular Pool become equal to or greater than the
value of such Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. An overall decline in the market value of real
estate, the general condition of a Mortgaged Property, or other factors, could
adversely affect the values of the Mortgaged Properties such that the
outstanding balances of the Mortgage Loans, together with any additional liens
on the Mortgaged Properties, equal or exceed the value of the Mortgaged
Properties. Under such circumstances, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry.
Certain of the residential mortgage loans to be included in a Trust are
expected to be residential mortgage loans secured by second, third or fourth
liens ("Home Equity Loans") subordinate to the rights of the mortgagee under
each related senior mortgage. The proceeds from any liquidation, insurance or
condemnation of Mortgaged Properties relating to Home Equity Loans in a Pool
will be available to satisfy the principal balance of such Home Equity Loans
only to the extent that the claims, if any, of the related senior mortgagee,
including any related foreclosure costs, are satisfied in full. In addition, the
Master Servicer may not foreclose on a Mortgaged Property relating to a Home
Equity Loan unless it forecloses subject to the related senior mortgage or
mortgages, in which case it must either pay the entire amount of each senior
mortgage to the applicable mortgagee at or prior to the foreclosure sale or
undertake the obligation to make payments on each senior mortgage in the event
of default thereunder. Generally, in servicing Home Equity Loans in their loan
portfolios, it has been the Originators' practice to satisfy each senior
mortgage at or prior to a foreclosure sale only to the extent that they
determine any amounts so paid will be recoverable from future payments and
collections on the Home Equity Loans or otherwise. The Trusts will not have any
source of funds to satisfy any such senior mortgage or make payments due to any
senior mortgagee. See "Certain Legal Aspects of the Mortgage Loans--
Foreclosure/Repossession."
In addition, general economic conditions and other factors (which may or
may not effect real property values) have an impact on the ability of mortgagors
to repay mortgage loans. Loss of earnings, illness and other similar factors may
lead to an increase in delinquencies and bankruptcy filings by mortgagors. In
the event of bankruptcy of a mortgagor, it is possible that a Trust could
experience a loss with respect to the related Mortgage Loan. In conjunction with
a mortgagor's bankruptcy, a bankruptcy court may suspend or reduce the payments
of principal and interest to be paid with respect to such Mortgage Loan or
permanently reduce the principal balance of such Mortgage Loan, thus either
delaying or permanently limiting the amount received by such Trust with respect
thereto. Moreover, in the event a bankruptcy court prevents the transfer of the
related Mortgaged Property to the Trust, any remaining balance on such Mortgage
Loan may not be recoverable.
Other factors affecting mortgagors' ability to repay Mortgage Loans include
excessive building resulting in an oversupply of housing stock or a decrease in
employment reducing the demand for units in an area; federal, state or local
regulations and controls affecting rents; prices of goods and energy;
environmental restrictions; increasing labor and material costs; and the
relative attractiveness of the Mortgaged Properties. To the extent that such
losses are not covered by credit enhancements, such losses will be borne, at
least in part, by the Certificateholders of the related Series.
The Representative will cause the Mortgage Loans comprising each Pool to be
assigned to the Trustee named in the related Prospectus Supplement for the
benefit of the holders of the Certificates of the related Series. One or more
Master Servicers named in the related Prospectus Supplement will service the
Mortgage Loans, either directly or through Sub-Servicers, pursuant to the
Agreement and will receive a fee for such services. See "Mortgage Loan Program"
and "The Agreement." With respect to Mortgage Loans serviced through a
Sub-Servicer, the Master Servicer will remain liable for its servicing
obligations under the related Agreement as if the Master Servicer alone were
servicing such Mortgage Loans.
The only obligations of the Representative or the Originators with respect
to a Series of Certificates will be to provide (or, where the Representative or
an Originator acquired a Mortgage Loan from another originator, obtain from such
originator) certain representations and warranties concerning the Mortgage Loans
and to assign to the Trustee for such Series of Certificates the
Representative's or Originator's rights with respect to such representations and
warranties. See "The Agreements--Sale of Mortgage Loans." The obligations of the
Master Servicer with respect to the Mortgage Loans will consist principally of
its contractual servicing obligations under the related Agreement and its
obligation to make certain cash advances in the event of delinquencies in
payments on or with respect to the Mortgage Loans in the amounts described
herein under "Description of the Certificates--Advances." The obligations of a
Master Servicer to make advances may be subject to limitations, to the extent
provided herein and in the related Prospectus Supplement.
If provided in the related Prospectus Supplement, the original principal
amount of a Series of Certificates may exceed the principal balance of the
Mortgage Assets initially being delivered to the Trustee. Cash in an amount
equal to such difference (the "Pre-Funded Amount") will be deposited into a
separate trust account (the "Pre-Funding Account") maintained with the Trustee.
During the period set forth in the related Prospectus Supplement (the "Funding
Period"), amounts on deposit in the Pre-Funding Account may be used to purchase
additional Mortgage Assets for the related Trust subject to the satisfaction of
certain conditions specified under the Agreements. Any amounts remaining in the
Pre-Funding Account at the end of such period will be distributed as a principal
prepayment to the holders of the related Series of Certificates at the time and
in the manner set forth in the related Prospectus Supplement.
SINGLE FAMILY AND COOPERATIVE LOANS
Single Family Loans will consist of mortgage loans, deeds of trust or
participation or other beneficial interests therein, secured by first, second or
more junior liens on one- to four-family residential properties. If so specified
in a Prospectus Supplement, the Single Family Loans may include loans or
participations therein secured by mortgages or deeds of trust on condominium
units in low-rise condominium buildings together with such condominium units'
appurtenant interests in the common elements of the condominium buildings.
Cooperative Loans generally will be secured by security interests in or similar
liens on stock, shares or membership certificates issued by Cooperatives and in
the related proprietary leases or occupancy agreements granting exclusive rights
to occupy specific dwelling units in such Cooperatives' buildings.
The Mortgaged Properties relating to Single Family Loans will consist of
detached or semi-detached one-family dwelling units, two- to four-family
dwelling units, townhouses, rowhouses, individual condominium units in low-rise
condominium buildings, individual units in planned unit developments, and
certain mixed use and other dwelling units. Such Mortgaged Properties may
include vacation and second homes or investment properties. A portion of a
dwelling unit may contain a commercial enterprise.
MULTIFAMILY LOANS
"Multifamily Loans" will consist of mortgage loans, deeds of trust or
participation or other beneficial interests therein, secured by first, second or
more junior liens on rental apartment buildings, mixed-use properties or
projects containing five or more residential units.
Mortgaged Properties which secure Multifamily Loans may include high-rise,
mid-rise and garden apartments. Certain of the Multifamily Loans may be secured
by apartment buildings owned by Cooperatives. In such cases, the Cooperative
owns all the apartment units in the building and all common areas. The
Cooperative is owned by tenant-stockholders who, through ownership of stock,
shares or membership certificates in the corporation, receive proprietary leases
or occupancy agreements which confer exclusive rights to occupy specific
apartments or units. Generally, a tenant-stockholder of a Cooperative must make
a monthly payment to the Cooperative representing such tenant-stockholder's pro
rata share of the Cooperative's payments for its mortgage loans, real property
taxes, maintenance expenses and other capital or ordinary expenses. Those
payments are in addition to any payments of principal and interest the
tenant-stockholder must make on any loans to the tenant-stockholder secured by
its shares in the Cooperative. The Cooperative will be directly responsible for
building management and, in most cases, payment of real estate taxes and hazard
and liability insurance. A Cooperative's ability to meet debt service
obligations on a Multifamily Loan, as well as all other operating expenses, will
be dependent in large part on the receipt of maintenance payments from the
tenant-stockholders, as well as any rental income from units or commercial areas
the Cooperative might control. Unanticipated expenditures may in some cases have
to be paid by special assessments on the tenant-stockholders.
Substantially all of the Multifamily Loans will be secured by mixed-use
properties, with no less than approximately 90% of such properties, measured by
square footage, number of units and projected rent, being allocated to
residential units.
CONTRACTS
Contracts will consist of manufactured housing conditional sales contracts
and installment sales or loan agreements each secured by a Manufactured Home.
Contracts may be conventional, insured by the Federal Housing Administration
("FHA") or partially guaranteed by the Veterans Administration ("VA"), as
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, each Contract will be fully amortizing and
will bear interest at its APR.
The "Manufactured Homes" securing the Contracts will consist of
manufactured homes within the meaning of 42 United States Code, Section 5402(6),
which defines a "manufactured home" as "a structure, transportable in one or
more sections, which, in the traveling mode, is eight body feet or more in width
or forty body feet or more in length, or, when erected on site, is three hundred
twenty or more square feet, and which is built on a permanent chassis and
designed to be used as a dwelling with or without a permanent foundation when
connected to the required utilities, and includes the plumbing, heating, air
conditioning, and electrical systems contained therein; except that such term
shall include any structure which meets all the requirements of [this] paragraph
except the size requirements and with respect to which the manufacturer
voluntarily files a certification required by the Secretary of Housing and Urban
Development and complies with the standards established under [this] chapter."
The related Prospectus Supplement will specify for the Contracts contained
in the related Trust, among other things, the date of origination of the
Contracts; the APRs on the Contracts; the Contract loan-to-value ratios; the
minimum and maximum outstanding principal balances as of the Cut-off Date and
the average outstanding principal balance; the outstanding principal balances of
the Contracts included in the related Trust; and the original maturities of the
Contracts and the last maturity date of any Contract.
FHA LOANS
The FHA Loans will consist of home improvement loans originated under Title
I (the "Title I Loan Program") of the National Housing Act of 1934 (the "NHA
Act"). Under the NHA Act, the Federal Housing Administration (the "FHA"), an
agency of the United States Department of Housing and Urban Development ("HUD"),
is authorized and empowered to insure qualified lending institutions against
losses on eligible loans. Several types of loans may be made under the Title I
Loan Program, including (1) property improvement loans; (2) manufactured home
purchase loans; (3) manufactured home lot loans; and (4) combination loans (to
purchase a manufactured home and a lot). Property improvement loans (the "Title
I Property Improvement Loans") may be made by approved lenders to finance
alterations, repair or improvement of existing single family, multifamily,
manufactured housing and nonresidential structures.
Title I Property Improvement Loans, in addition to improvements to protect
the livability or utility of single family, multifamily or manufactured housing
or nonresidential property, also include loans for the renovation or
preservation of historic residential structures and loans to finance the
installation of fire safety equipment in existing health care facilities. Loan
processing and credit determinations are done by an approved financial
institution. Each lender is required to use prudent lending standards in
underwriting individual loans.
Under the Title I Loan Program, the FHA does not review individual loans at
the time of approval (as is typically the case with some other federal loan
programs), except when the amount of a Title I Property Improvement Loan would
result in any borrower having a total unpaid principal obligation on such loans
in excess of certain specified amounts, in which case HUD approval must be
obtained.
The Title I Loan Program is a coinsurance program. The lender initially is
at risk for 10% of the principal balance of each loan. The FHA will insure the
remaining 90% of the principal balance of each loan, subject to the limits of
the reserve amount discussed below. Such FHA insurance is accorded the full
faith and credit of the United States of America. Thus, a lender under the
program risks the loss of up to 10% of the principal balance on every loan
submitted to the FHA for an insurance claim (or a greater amount if the lender's
reserve amount is diminished or exhausted), plus a portion of the interest on
such loans.
At the time the FHA receives a new loan origination or transfer of note
report from an approved lender, the FHA adds to the balance in the reserve
amount established by the FHA for the lender originating or purchasing such loan
an amount equal to 10% of the amount disbursed, advanced or expended by the
lender in originating or purchasing the loan. The balance in the reserve amount
limits the amount of claims the FHA is required to pay.
The reserve amount established by the FHA for each lender will be reduced
by the amount of all insurance claims approved for payment in conjunction with
losses on such loans. The lender's reserve amount will be increased based upon
additions made pursuant to the origination or purchase of eligible loans
registered for insurance.
The FHA charges a fee of 0.50% per annum of the original balance for each
loan it insures, on a non- declining basis. The FHA bills the lender annually
(on the anniversary date of origination) for the insurance premium, unless the
loan has a maturity of 25 months or less, in which case the insurance charge is
payable in one lump sum. If a loan is prepaid during the year, the FHA will not
rebate the insurance premium nor reduce the balance in the lender's insurance
coverage reserve account. The unused insurance charge will, however, be rebated
when a Title I loan is refinanced.
SECURED CONVENTIONAL HOME IMPROVEMENT LOANS
The Secured Conventional Home Improvement Loans will consist of secured
conventional loans, the proceeds of which generally will be used for purposes
similar to those described under the heading "--FHA Loans." To the extent set
forth in the related Prospectus Supplement, the Secured Conventional Home
Improvement Loans will be fully amortizing and will bear interest at a fixed or
variable annual percentage rate.
UNSECURED HOME IMPROVEMENT LOANS
The Unsecured Home Improvement Loans will consist of conventional unsecured
home improvement loans and FHA insured home improvement loans. To the extent set
forth in the related Prospectus Supplement, the Unsecured Home Improvement Loans
will be fully amortizing and will bear interest at a fixed or variable annual
percentage rate.
AGENCY SECURITIES
Government National Mortgage Association. GNMA is a wholly-owned corporate
instrumentality of the United States within the United Stated Department of
Housing and Urban Development HUD. Section 306(g) of Title II of the National
Housing Act of 1934, as amended (the "Housing Act"), authorizes GNMA to, among
other things, guarantee the timely payment of the principal of and interest on
certificates which represent an interest in a pool of mortgage loans insured by
FHA under the Housing Act, or Title V of the Housing Act of 1949 ("FHA Loans"),
or partially guaranteed by the VA under the Servicemen's Readjustment Act of
1944, as amended, or chapter 37 of Title 38, United States Code ("VA Loans").
Section 306(g) of the Housing Act provides that "the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guarantee under this subsection." In order to meet
its obligations under any such guarantee, GNMA may, under Section 306(d) of the
Housing Act, borrow from the United States Treasury in an amount which is at any
time sufficient to enable GNMA, with no limitations as to amount, to perform its
obligations under its guarantee.
GNMA Certificates. Each GNMA Certificate held in a Trust Fund (which may be
a GNMA I Certificate or a GNMA II Certificate) will be a "fully modified
pass-through" mortgaged-backed certificate issued and serviced by a mortgage
banking company or other financial concern ("GNMA Issuer") approved by GNMA or
approved by FNMA as a seller-servicer of FHA Loans and/or VA Loans. The mortgage
loans underlying the GNMA Certificates held in a Trust Fund will consist of FHA
Loans and/or VA Loans. Each such mortgage loan is secured by a one- to
four-family residential property or a manufactured home. GNMA will approve the
issuance of each such GNMA Certificate in accordance with a guaranty agreement
(a "Guaranty Agreement") between GNMA and the GNMA Issuer. Pursuant to its
Guaranty Agreement, a GNMA Issuer will be required to advance its own funds in
order to make timely payments of all amounts due on each such GNMA Certificate,
even if the payments received by the GNMA Issuer on the FHA Loans or VA Loans
underlying each such GNMA Certificate are less than the amounts due on each such
GNMA Certificate.
The full and timely payment of principal of and interest on each GNMA
Certificate will be guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States. Each such GNMA Certificate will have an
original maturity of not more than 40 years (but may have original maturities of
substantially less than 40 years). Each such GNMA Certificate will provide for
the payment by or on behalf of the GNMA Issuer to the registered holder of such
GNMA Certificate of scheduled monthly payments of principal and interest equal
to the registered holder's proportionate interest in the aggregate amount of the
monthly principal and interest payment on each FHA Loan or VA Loan underlying
such GNMA Certificate, less the applicable servicing and guarantee fee which
together equal the difference between the interest on the FHA Loans or VA Loans
and the pass-through rate on the GNMA Certificate. In addition, each payment
will include proportionate pass-through payments of any prepayments of principal
on the FHA Loans or VA Loans underlying such GNMA Certificate and liquidation
proceeds in the event of a foreclosure or other disposition of any such FHA
Loans or VA Loans.
If a GNMA Issuer is unable to make the payments on a GNMA Certificate as it
becomes due, it must promptly notify GNMA and request GNMA to make such payment.
Upon notification and request, GNMA will make such payments directly to the
registered holder of such GNMA Certificate. In the event no payment is made by a
GNMA Issuer and the GNMA Issuer fails to notify and request GNMA to make such
payment, the holder of such GNMA Certificate will have recourse only against
GNMA to obtain such payment. The Trustee or its nominee, as registered holder of
the GNMA Certificates held in a Trust Fund, will have the right to proceed
directly against GNMA under the terms of the Guaranty Agreements relating to
such GNMA Certificates for any amounts that are not paid when due.
All mortgage loans underlying a particular GNMA Certificate must have the
same interest rate (except for pools of mortgage loans secured by manufactured
homes) over the term of the loan. The interest rate on such GNMA I Certificate
will equal the interest rate on the mortgage loans included in the pool of
mortgage loans underlying such GNMA I Certificate, less one-half percentage
point per annum of the unpaid principal balance of the mortgage loans.
Mortgage loans underlying a particular GNMA II Certificate may have per
annum interest rates that vary from each other by up to one percentage point.
The interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points lower than the highest
interest rate on the mortgage loans included in the pool of mortgage loans
underlying such GNMA II Certificate (except for pools of mortgage loans secured
by manufactured homes).
Regular monthly installment payments on each GNMA Certificate held in a
Trust Fund will be comprised of interest due as specified on such GNMA
Certificate plus the scheduled principal payments on the FHA Loans or VA Loans
underlying such GNMA Certificate due on the first day of the month in which the
scheduled monthly installments on such GNMA Certificate is due. Such regular
monthly installments on each such GNMA Certificate are required to be paid to
the Trustee as registered holder by the 15th day of each month in the case of a
GNMA I Certificate and are required to be mailed to the Trustee by the 20th day
of each month in the case of a GNMA II Certificate. Any principal prepayments on
any FHA Loans or VA Loans underlying a GNMA Certificate held in a Trust Fund or
any other early recovery of principal on such loan will be passed through to the
Trustee as the registered holder of such GNMA Certificate.
GNMA Certificates may be backed by graduated payment mortgage loans or by
"buydown" mortgage loans for which funds will have been provided (and deposited
into escrow accounts) for application to the payment of a portion of the
borrowers' monthly payments during the early years of such mortgage loan.
Payments due the registered holders of GNMA Certificates backed by pools
containing "buydown" mortgage loans will be computed in the same manner as
payments derived from other GNMA Certificates and will include amounts to be
collected from both the borrower and the related escrow account. The graduated
payment mortgage loans will provide for graduated interest payments that, during
the early years of such mortgage loans, will be less than the amount of stated
interest on such mortgage loans. The interest not so paid will be added to the
principal of such graduated payment mortgage loans and, together with interest
thereon, will be paid in subsequent years. The obligations of GNMA and of a GNMA
Issuer will be the same irrespective of whether the GNMA Certificates are backed
by graduated payment mortgage loans or "buydown" mortgage loans. No statistics
comparable to the FHA's prepayment experience on level payment, non-buydown
loans are available in respect of graduated payment or buydown mortgages. GNMA
Certificates related to a Series of Certificates may be held in book-entry form.
GNMA also guarantees the timely payment of principal of and interest on
"fully modified pass-through" mortgage-backed securities issued and serviced by
certain mortgage banking companies and other financial concerns ("FNMA Project
Issuers") based upon and backed by pools of multi-family residential mortgage
loans coinsured by FHA and GNMA Project Issuers under the Housing Act ("GNMA
Project Certificates"). The Prospectus Supplement for a Series of Certificates
that includes GNMA Project Certificates will set forth additional information
regarding the GNMA guaranty program, servicing of the mortgage pool, the payment
of principal and interest on GNMA Project Certificates and other matters with
respect to multi-family residential mortgage loans that qualify for the GNMA
guaranty.
Federal National Mortgage Association. FNMA is a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act (the "Charter Act"). FNMA was originally
established in 1938 as a United States government agency to provide supplemental
liquidity to the mortgage market and was transformed into a stockholder-owned
and privately-managed corporation by legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing mortgage
loans from lenders, thereby replenishing their funds for additional lending.
FNMA acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgages, thereby expanding the
total amount of funds available for housing. Operating nationwide, FNMA helps to
redistribute mortgage funds from capital-surplus to capital-short areas.
FNMA Certificates. FNMA Certificates are either Guaranteed Mortgage
Pass-Through Certificates ("FNMA MBS") or Stripped Mortgage-Backed Securities
("FNMA SMBS"). The following discussion of FNMA Certificates applies equally to
both FNMA MBS and FNMA SMBS, except as otherwise indicated. Each FNMA
Certificate included in the Trust for a Series will represent a fractional
undivided interest in a pool of mortgage loans formed by FNMA. Each such pool
will consist of mortgage loans of one of the following types: (i) fixed-rate
level installment conventional mortgage loans; (ii) fixed-rate level installment
mortgage loans that are insured by FHA or partially guaranteed by the VA; (iii)
adjustable rate conventional mortgage loans; or (iv) adjustable rate mortgage
loans that are insured by the FHA or partially guaranteed by the VA. Each
mortgage loan must meet the applicable standards set forth under the FNMA
purchase program. Each such mortgage loan will be secured by a first lien on a
one-family or two- to four-family residential property. Each such FNMA
Certificate will be issued pursuant to a trust indenture. Original maturities of
substantially all of the conventional, level payment mortgage loans underlying a
FNMA Certificate are expected to be between either 8 to 15 years or 20 to 40
years. The original maturities of substantially all of the fixed rate level
payment FHA Loans or VA Loans are expected to be 30 years.
Mortgage loans underlying a FNMA Certificate may have annual interest rates
that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA MBS (and the series pass-through rate payable with
respect to a FNMA SMBS) is equal to the lowest interest rate of any mortgage
loan in the related pool, less a specified minimum annual percentage
representing servicing compensation and FNMA's guaranty fee. Under a regular
servicing option (pursuant to which the mortgagee or other servicer assumes the
entire risk of foreclosure losses), the annual interest rates on the mortgage
loans underlying a FNMA Certificate will be between 50 basis points and 250
basis points greater than the annual pass-through rate if a FNMA MBS or the
series pass-through rate if a FNMA SMBS; and under a special servicing option
(pursuant to which FNMA assumes the entire risk for foreclosure losses), the
annual interest rates on the mortgage loans underlying a FNMA Certificate will
generally be between 55 basis points and 255 basis points greater than the
annual FNMA Certificate pass-through rate if a FNMA MBS, or the series
pass-through rate if a FNMA SMBS.
FNMA guarantees to each registered holder of a FNMA Certificate that it
will distribute on a timely basis amounts representing such holder's
proportionate share of scheduled principal and interest payments at the
applicable pass-through rate provided for by such FNMA Certificate on the
underlying mortgage loans, whether or not received, and such holder's
proportionate share of the full principal amount of any foreclosed or other
finally liquidated mortgage loan, whether or not such principal amount is
actually recovered. The obligations of FNMA under its guarantees are obligations
solely of FNMA and are not backed by, nor entitled to, the full faith and credit
of the United States. If FNMA were unable to satisfy its obligations,
distributions to holders of FNMA Certificates would consist solely of payments
and other recoveries on the underlying mortgage loans and, accordingly, monthly
distributions to holders of FNMA Certificates would be affected by delinquent
payments and defaults on such mortgage loans.
FNMA SMBS are issued in series of two or more classes, with each class
representing a specified undivided fractional interest in principal
distributions and interest distributions (adjusted to the series pass-through
rate) on the underlying pool of mortgage loans. The fractional interests of each
class in principal and interest distributions are not identical, but the classes
in the aggregate represent 100% of the principal distributions and interest
distributions (adjusted to the series pass-through rate) on the respective pool.
Because of such difference between the fractional interests in principal and
interest of each class, the effective rate of interest on the principal of each
class of FNMA SMBS may be significantly higher or lower than the series
pass-through rate and/or the weighted average interest rate of the underlying
mortgage loans.
Unless otherwise specified by FNMA, FNMA Certificates evidencing interests
in pools of mortgages formed on or after May 1, 1985 will be available in
book-entry form only. Distributions of principal and interest on each FNMA
Certificate will be made by FNMA on the 25th day of each month to the persons in
whose name the FNMA Certificate is entered in the books of the Federal Reserve
Banks (or registered on the FNMA Certificate register in the case of fully
registered FNMA Certificates) as of the close of business on the last day of the
preceding month. With respect to FNMA Certificates issued in book-entry form,
distributions thereon will be made by wire, and with respect to fully registered
FNMA Certificates, distributions thereon will be made by check.
Federal Home Loan Mortgage Corporation. FHLMC is a publicly held United
States government- sponsored enterprise created pursuant to the Federal Home
Loan Mortgage Corporation Act, Title III of the Emergency Home Finance Act of
1970, as amended (the "FHLMC Act"). The common stock of FHLMC is owned by the
Federal Home Loan Banks. FHLMC was established primarily for the purpose of
increasing the availability of mortgage credit for the financing of urgently
needed housing. It seeks to provide an enhanced degree of liquidity for
residential mortgage investments primarily by assisting in the development of
secondary markets for conventional mortgages. The principal activity of FHLMC
currently consists of the purchase of first lien conventional mortgage loans or
participation interests in such mortgage loans and the sale of the mortgage
loans or participations so purchased in the form of mortgage securities,
primarily FHLMC Certificates. FHLMC is confined to purchasing, so far as
practicable, mortgage loans that it deems to be of such quality, type and class
as to meet generally the purchase standards imposed by private institutional
mortgage investors.
FHLMC Certificates. Each FHLMC Certificate represents an undivided interest
in a pool of mortgage loans that may consist of first lien conventional loans,
FHA Loans or VA Loans (a "FHLMC Certificate Group"). FHLMC Certificates are sold
under the terms of a Mortgage Participation Certificate Agreement. A FHLMC
Certificate may be issued under either FHLMC's Cash Program or Guarantor
Program.
Unless otherwise described in the Prospectus Supplement, Mortgage loans
underlying the FHLMC Certificates held by a Trust Fund will consist of mortgage
loans with original terms to maturity of between 10 and 40 years. Each such
mortgage loan must meet the applicable standards set forth in the FHLMC Act. A
FHLMC Certificate Group may include whole loans, participation interests in
whole loans and undivided interests in whole loans and/or participations
comprising another FHLMC Certificate Group. Under the Guarantor Program, any
such FHLMC Certificate Group may include only whole loans or participation
interests in whole loans.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest on the underlying mortgage loans to the extent of the
applicable Certificate rate on the registered holder's pro rata share of the
unpaid principal balance outstanding on the underlying mortgage loans in the
FHLMC Certificate Group represented by such FHLMC Certificate, whether or not
received. FHLMC also guarantees to each registered holder of a FHLMC Certificate
ultimate receipt by such holder of all principal on the underlying mortgage
loans, without any offset or deduction, to the extent of such holder's pro rata
share thereof, but does not, except if and to the extent specified in the
Prospectus Supplement for a Series of Certificates, guarantee the timely payment
of scheduled principal. Under FHLMC's Gold PC Program, FHLMC guarantees the
timely payment of principal based on the difference between the pool factor,
published in the month preceding the month of distribution and the pool factor
published in such month of distribution. Pursuant to its guarantees, FHLMC
indemnifies holders of FHLMC Certificates against any diminution in principal by
reason of charges for property repairs, maintenance and foreclosure. FHLMC may
remit the amount due on account of its guarantee of collection of principal at
any time after default on an underlying mortgage loan, but not later than (i) 30
days following foreclosure sale, (ii) 30 days following payment of the claim by
any mortgage insurer, or (iii) 30 days following the expiration of any right of
redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal. In taking actions regarding the collection of principal after default
on the mortgage loans underlying FHLMC Certificates, including the timing of
demand for acceleration, FHLMC reserves the right to exercise its judgment with
respect to the mortgage loans in the same manner as for mortgage loans which it
has purchased but not sold. The length of time necessary for FHLMC to determine
that a mortgage loan should be accelerated varies with the particular
circumstances of each mortgagor, and FHLMC has not adopted standards which
require that the demand be made within any specified period.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guarantee are obligations solely of FHLMC and are not backed by, nor entitled
to, the full faith and credit of the United States. If FHLMC were unable to
satisfy such obligations, distributions to holders of FHLMC Certificates would
consist solely of payments and other recoveries on the underlying mortgage loans
and, accordingly, monthly distributions to holders of FHLMC Certificates would
be affected by delinquent payments and defaults on such mortgage loans.
Registered holders of FHLMC Certificates are entitled to receive their
monthly pro rata share of all principal payments on the underlying mortgage
loans received by FHLMC, including any scheduled principal payments, full and
partial prepayments of principal and principal received by FHLMC by virtue of
condemnation, insurance, liquidation or foreclosure, and repurchases of the
mortgage loans by FHLMC or the seller thereof. FHLMC is required to remit each
registered FHLMC Certificateholder's pro rata share of principal payments on the
underlying mortgage loans, interest at the FHLMC pass-through rate and any other
sums such as prepayment fees, within 60 days of the date on which such payments
are deemed to have been received by FHLMC.
Under FHLMC's Cash Program, with respect to pools formed prior to June 1,
1987, there is no limitation on the amount by which interest rates on the
mortgage loans underlying a FHLMC Certificate may exceed the pass-through rate
on the FHLMC Certificate. With respect to FHLMC Certificates issued on or after
June 1, 1987, the maximum interest rate on the mortgage loans underlying such
FHLMC Certificates may exceed the pass through rate of the FHLMC Certificates by
50 to 100 basis points. Under such program, FHLMC purchases groups of whole
mortgage loans from sellers at specified percentages of their unpaid principal
balances, adjusted for accrued or prepaid interest, which when applied to the
interest rate of the mortgage loans and participations purchased, results in the
yield (expressed as a percentage) required by FHLMC. The required yield, which
includes a minimum servicing fee retained by the servicer, is calculated using
the outstanding principal balance. The range of interest rates on the mortgage
loans and participations in a FHLMC Certificate group under the Cash Program
will vary since mortgage loans and participations are purchased and assigned to
a FHLMC Certificate group based upon their yield to FHLMC rather than on the
interest rate on the underlying mortgage loans.
Under FHLMC's Guarantor Program, the pass-through rate on a FHLMC
Certificate is established based upon the lowest interest rate on the underlying
mortgage loans, minus a minimum servicing fee and the amount of FHLMC's
management and guaranty income as agreed upon between the seller and FHLMC. For
FHLMC Certificate Groups formed under the Guarantor Program with certificate
numbers beginning with 18-012, the range between the lowest and the highest
annual interest rates on the mortgage loans in a FHLMC Certificate group may not
exceed two percentage points.
FHLMC Certificates duly presented for registration of ownership on or
before the last business day of a month are registered effective as of the first
day of the month. The first remittance to a registered holder of a FHLMC
Certificate will be distributed so as to be received normally by the 15th day of
the second month following the month in which the purchaser became a registered
holder of the FHLMC Certificates. Thereafter, such remittance will be
distributed monthly to the registered holder so as to be received normally by
the 15th day of each month. The Federal Reserve Bank of New York maintains
book-entry accounts with respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, and makes payments of principal and interest each month to the
registered holders thereof in accordance with such holders' instructions.
FHLMC also issues mortgage participation certificates representing an
undivided interest in a group of multi-family residential mortgage loans or
participations in multi-family residential mortgage loans purchased by FHLMC
("FHLMC Project Certificates"). The Prospectus Supplement for a Series of
Securities issued by a Trust that included FHLMC Project Certificates will set
forth additional information regarding multi-family residential mortgage loans
that qualify for purchase by FHLMC.
Stripped Mortgage-Backed Securities. Agency Securities may consist of one
or more stripped mortgage-backed securities, each as described herein and in the
related Prospectus Supplement. Each such Agency Security will represent an
undivided interest in all or part of either the principal distributions (but not
the interest distributions) or the interest distributions (but not the principal
distributions), or in some specified portion of the principal and interest
distributions (but not all of such distributions) on certain FHLMC, FNMA, GNMA
or other government agency or government-sponsored agency Certificates. The
underlying securities will be held under a trust agreement by FHLMC, FNMA, GNMA
or another government agency or government- sponsored agency, each as trustee,
or by another trustee named in the related Prospectus Supplement. FHLMC, FNMA,
GNMA or another government agency or government-sponsored agency will guarantee
each stripped Agency Security to the same extent as such entity guarantees the
underlying securities backing such stripped Agency Security, unless otherwise
specified in the related Prospectus Supplement.
Other Agency Securities. If specified in the related Prospectus Supplement,
a Trust Fund may include other mortgage pass-through certificates issued or
guaranteed by GNMA, FNMA, FHLMC or other government agencies or
government-sponsored agencies. The characteristics of any such mortgage
pass-through certificates will be described in such Prospectus Supplement. If so
specified, a combination of different types of Agency Securities may be held in
a Trust Fund.
PRIVATE MORTGAGE-BACKED SECURITIES
General. Private Mortgage-Backed Securities may consist of (a) mortgage
pass-through certificates evidencing an undivided interest in a pool of mortgage
loans, or (b) collateralized mortgage obligations ("CMO's") secured by mortgage
loans. Private Mortgage-Backed Securities will have been issued pursuant to a
PMBS agreement (the "PMBS Agreement"). The seller/servicer of the underlying
mortgage loans will have entered into the PMBS Agreement with the PMBS Trustee
under the PMBS Agreement. The PMBS Trustee or its agent, or a custodian, will
possess the mortgage loans underlying such Private Mortgage-Backed Security.
Mortgage loans underlying a Private Mortgage-Backed Security will be serviced by
the PMBS Servicer directly or by one or more sub-servicers who may be subject to
the supervision of the PMBS Servicer. The PMBS Servicer will be approved as a
servicer by FNMA or FHLMC and, if FHA Loans underlie the Private Mortgage-Backed
Securities, approved by the Department of Housing and Urban Development ("HUD")
as an FHA mortgagee.
The PMBS Issuer will be a financial institution or other entity engaged
generally in the business of mortgage lending or the acquisition of mortgage
loans, a public agency or instrumentality of a state, local or federal
government, or a limited purpose or other corporation organized for the purpose
of among other things, establishing trusts and acquiring and selling housing
loans to such trusts and selling beneficial interests in such trusts. If so
specified in the Prospectus Supplement, the PMBS Issuer may be an affiliate of
the Representative. The obligations of the PMBS Issuer will generally be limited
to certain representations and warranties with respect to the assets conveyed by
it to the related trust. Unless otherwise specified in the related Prospectus
Supplement, the PMBS Issuer will not have guaranteed any of the assets conveyed
to the related trust or any of the Private Mortgage-Backed Securities issued
under the PMBS Agreement. Additionally, although the mortgage loans underlying
the Private Mortgage-Backed Securities may be guaranteed by an agency or
instrumentality of the United States, the Private Mortgage-Backed Securities
themselves will not be so guaranteed.
Distributions of principal and interest will he made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Mortgage-Backed
Securities by the PMBS Trustee or the PMBS Servicer. The PMBS Issuer or the PMBS
Servicer may have the right to repurchase assets underlying the Private
Mortgage-Backed Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
Underlying Loans. The mortgage loans underlying the Private Mortgage-Backed
Securities may consist of fixed rate, level payment, fully amortizing loans or
graduated payment mortgage loans, buydown loans, adjustable rate mortgage loans,
or loans having balloon or other special payment features. Such mortgage loans
may be Single Family Loans, Multifamily Loans, Cooperative Loans or Contracts
secured by Manufactured Homes. As specified in the related Prospectus
Supplement, (i) no mortgage loan underlying the Private Mortgage-Backed
Securities will have had a Combined Loan-to-Value Ratio at origination in excess
of the percentage set forth in the related Prospectus Supplement, (ii) each
underlying mortgage loan will have had an original term to stated maturity of
not less than 5 years and not more than 40 years, (iii) each underlying mortgage
loan (other than Cooperative Loans) will be required to be covered by a standard
hazard insurance policy (which may be a blanket policy), and (iv) each mortgage
loan (other than Cooperative Loans or Contracts secured by a Manufactured Home)
will be covered by a title insurance policy.
Credit Support Relating to Private Mortgage-Backed Securities. Credit
support in the form of subordination of other private mortgage certificates
issued under the PMBS Agreement, reserve funds, insurance policies, letters of
credit, financial guaranty insurance policies, guarantees or other types of
credit support may be provided with respect to the mortgage loans underlying the
Private Mortgage-Backed Securities or with respect to the Private Mortgage-
Backed Securities themselves.
Additional Information. The Prospectus Supplement for a Series for which
the related Trust includes Private Mortgage-Backed Securities will specify (i)
the aggregate approximate principal amount and type of the Private
Mortgage-Backed Securities to be included in the Trust Fund, (ii) certain
characteristics of the mortgage loans underlying the Private Mortgage-Backed
Securities including (A) the payment features of such mortgage loans, (B) the
approximate aggregate principal balance, if known, of underlying mortgage loans
insured or guaranteed by a governmental entity, (C) the servicing fee or range
of servicing fees with respect to the underlying mortgage loans, and (D) the
minimum and maximum stated maturities of the underlying mortgage loans at
origination, (iii) the maximum original term-to-stated maturity of the Private
Mortgage-Backed Securities, (iv) the weighted average term- to-stated maturity
of the Private Mortgage-Backed Securities, (v) the pass-through or certificate
rate of the Private Mortgage-Backed Securities, (vi) the weighted average
pass-through or certificate rate of the Private Mortgage- Backed Securities,
(vii) the PMBS Issuer, the PMBS Servicer (if other than the PMBS Issuer) and the
PMBS Trustee for such Private Mortgage-Backed Securities, (viii) certain
characteristics of credit support, if any, such as reserve funds, insurance
policies, letters of credit or guarantees relating to the mortgage loans
underlying the Private Mortgage-Backed Securities or to such Private
Mortgage-Backed Securities themselves, (ix) the terms on which the underlying
mortgage loans for such Private Mortgage-Backed Securities may, or are required
to, be purchased prior to their stated maturity or the stated maturity of the
Private Mortgage-Backed Securities and (x) the terms on which other mortgage
loans may be substituted for those originally underlying the Private
Mortgage-Backed Securities.
USE OF PROCEEDS
The Representative and the Originators may use the net proceeds to be
received from the sale of the Certificates of each Series for general corporate
purposes, including repayment of debt and the origination and acquisition of
residential mortgage loans and other loans. The Representative expects
Certificates to be sold in Series from time to time.
THE REPRESENTATIVE AND THE ORIGINATORS
The Mortgage Loans will have been originated or acquired by the
Originators. The Money Store will act as the Master Servicer of the Mortgage
Loans and other Mortgage Assets. Except for certain representations and
warranties relating to the Mortgage Loans and other Mortgage Assets and certain
other matters, the obligations of The Money Store with respect to the Mortgage
Loans and other Mortgage Assets will be limited to its contractual servicing
obligations.
The Money Store is a New Jersey corporation and is headquartered in
Sacramento, California and Union, New Jersey.
The Money Store is a financial services company engaged, through its
subsidiaries (including the Originators), in the business of originating,
purchasing, selling and servicing consumer and commercial loans of specified
types and offering related services. Loans originated by The Money Store and its
subsidiaries have consisted primarily of mortgage loans, loans partially
guaranteed by the United States Small Business Administration, student loans,
and automobile loans.
Since 1967, The Money Store and its subsidiaries have been active in the
development of the residential home equity lending industry in the United
States.
THE SINGLE FAMILY LOAN LENDING PROGRAM
OVERVIEW
The Money Store's and the Originators' mortgage lending activities consist
primarily of originating, purchasing, selling and servicing mortgage loans that
are primarily secured by one- to four-family residential properties, including
low-rise condominiums, single-family detached homes, single-family attached
homes, planned unit developments and mixed use properties (collectively, "Single
Family Loans"). It has been the Originators' policy generally not to make
mortgage loans secured by high-rise condominiums, cooperative residences or
other categories of properties that management believes have demonstrated
relatively high levels of risk. The majority of Single Family Loans are to
borrowers owning a single-family detached home. Single Family Loans are made to
borrowers for, among other purposes, education, home improvements and debt
consolidation. The Money Store and its subsidiaries also originate, with the
intention of selling and servicing, Multifamily Loans, FHA Loans, Secured
Conventional Home Improvement Loans, Unsecured Home Improvement Loans and loans
partially guaranteed by the United States Small Business Administration. In
addition, The Money Store and its subsidiaries from time to time purchase
packages of loans from other lenders or government agencies.
Historically, the majority of all loans originated and purchased by the
Originators were Single Family Loans with original terms of 15 years. Starting
in 1992, the Originators began originating and purchasing Single Family Loans
with original terms of up to 30 years. The Money Store believes that the longer
term, and correspondingly lower monthly payments, of these Single Family Loans
is attractive to customers who might otherwise refinance an existing loan or
obtain a new loan from a bank or other traditional long term lender. The Money
Store believes that its rapid turnaround time from application to funding also
makes it an attractive alternative to more traditional lenders. The following is
a description of the origination, underwriting, servicing and other procedures
used by The Money Store and the Originators in connection with their Single
Family Loan program. If a significant portion of the Mortgage Loans underlying a
given Series of Certificates consists of FHA Loans, Secured Conventional Home
Improvement Loans and/or Unsecured Home Improvement Loans, the related
Prospectus Supplement will contain a similar description of the program relating
to such Mortgage Loans.
SINGLE FAMILY LOAN ORIGINATION
The Originators' Single Family Loan origination offices are generally
located in small and medium-sized suburban communities. All Single Family Loan
origination offices have a manager who reports to senior management. Each
regional office supervises the operations of a group of states. The supervision
of all of the Originator's underwriting and administrative functions is
conducted from the Sacramento, California headquarters.
The entire application and approval process for Single Family Loans is
generally conducted by telephone. The Originators attempt to grant approvals of
loans quickly to borrowers meeting their underwriting criteria. A loan officer
is responsible for completing, evaluating and processing the loan application of
a prospective borrower based on information obtained from the borrower and
verified with third parties. Depending on the size of the loan applied for, loan
applications must be approved by an underwriter located in the Sacramento,
California headquarters. Loan officers are trained to structure loans that meet
the applicant's needs, while satisfying the Originators' lending criteria. If an
applicant does not meet the lending criteria, the loan officer may offer to make
a smaller loan, if a smaller loan would meet the lending criteria, or suggest a
debt consolidation package that better suits the applicant's needs.
The Originators also acquire Single Family Loans through an indirect
lending program, from independent brokers. Such Single Family Loans are
underwritten by the Originators using the same criteria applied to loans
originated by such Originator. Brokers participating in this program must
satisfy certain requirements established by the Originators pertaining to
experience, size of business and various licenses and approvals. The Originators
also acquire, from time to time, portfolios of Single Family Loans from various
third parties. The Originators will not sell such acquired loans to a Trust
unless the Originators determine that such loans, when originated, were
underwritten using the same criteria applied to loans originated by the
Originators.
Starting in October 1995, the Originators began originating Single Family
Loans under a program that will result in lower interest rates for borrowers
that make timely payments during the early years of the related loan. Under this
program, if a borrower remits all scheduled payments during the first year of
the loan on a timely basis, the interest rate on the loan will be reduced 0.50%
per annum. If the borrower remits all scheduled payments during the second year
of the loan on a timely basis, the interest rate will be reduced an additional
0.50% per annum and, if all payments are made during the third year of the loan
on a timely basis, the interest rate will be reduced a final 0.50% per annum.
Once the interest rate on a loan is reduced, it will not be increased,
regardless of the borrowers future payment record.
UNDERWRITING CRITERIA
The following is a brief description of certain of the underwriting
standards used by the Originators to underwrite Single Family Loans. The
underwriting process is intended to assess both the prospective borrower's
ability to repay and the adequacy of the real property security as collateral
for the loan granted. To the extent that the relevant underwriting criteria
differ from those described herein, the related Prospectus Supplement for such
Series will specifically describe such criteria.
In certain cases deemed appropriate by an Originator's underwriters, loans
may be made outside of the Originator's guidelines with the prior approval of
pre-designated senior officials. No information is available with respect to the
portion of the Mortgage Loans which was originated outside of these guidelines.
The Originators' objective in originating Single Family Loans is to provide
loans to borrowers with satisfactory income and credit histories deemed
sufficient to demonstrate the ability to repay their loan. The primary and
initial origination policy is to analyze the applicant's creditworthiness (i.e.,
a determination of the applicant's ability to repay the loan). Creditworthiness
is assessed by examination of a number of factors, including calculating a
debt-to-income ratio obtained by dividing a borrower's fixed monthly debt by the
borrower's gross monthly income. Fixed monthly debt generally includes (i) the
monthly payment under the related prior mortgages (which generally includes an
escrow for real estate taxes) based, in the case of an adjustable-rate first
mortgage, on the assumption that the then-current rate is the rate at which
interest will accrue on such loan, (ii) the monthly payment on the loan applied
for and (iii) other installment debt, including, for revolving debt, the
required monthly payment thereon or if no such payment is specified, 5% of the
balance as of the date of calculation. Fixed monthly debt does not include any
debt (other than revolving credit debt) described above that matures within less
than 10 months of the date of calculation. Except as otherwise set forth in the
related Prospectus Supplement, the debt-to-income ratio of any borrower will not
have exceeded 50% as of origination of the related loan. Creditworthiness is
also assessed by examining the applicant's credit history through standard
credit reporting bureaus, and by checking the applicant's payment history with
respect to the first mortgage, if any, on the property.
The second origination policy for Single Family Loans is a determination of
the Combined Loan-to-Value Ratio. Combined Loan-to-Value Ratio guidelines are
established depending on the type of loan. For each Single Family Loan, the
Originator confirms the value of the property to be mortgaged by appraisals
(which in certain cases may be drive-by appraisals) performed by independent
appraisers. Drive-by appraisals involve a visual observation of the exterior of
the characteristics and condition of the property and the neighborhood. Because
the interior dimensions, improvements and conditions are not inspected, a
drive-by appraisal produces only a general approximation of value for the
particular property. If the Originator has previously originated a loan to the
same borrower secured by the same property within one year, the Originator may
rely on the prior appraisal in conjunction with a new drive-by appraisal. If an
appraisal is not required to be obtained for a Single Family Loan, the value of
the related mortgaged property, as represented by the borrower, may be evaluated
through other methods such as a drive-by appraisal, a review of comparable sales
or tax assessments or reliance upon a recent sales price for such mortgaged
property. Such methods do not constitute an appraisal of the related mortgaged
property. All Combined Loan-to-Value Ratios are determined prior to approval of
the loans.
The Originators have several procedures which they use to verify
information obtained from an applicant. The applicant's outstanding balance and
payment history on any senior mortgage may be verified by calling the senior
mortgage lender. If the senior mortgage lender cannot be reached by telephone to
verify this information, the Originator may rely upon information provided by
the applicant, such as a recent statement from the senior lender and
verification of payment, such as canceled checks, or upon information provided
by national credit bureaus.
In order to verify an applicant's employment status, the Originators may
obtain from the applicant recent tax returns or other tax forms (e.g., W-2
forms) or current pay stubs or may telephone the applicant's employer or obtain
written verification from the employer. As in the case of the senior mortgage
lender verification procedures, if the employer will not verify employment
history over the telephone, the Originator may rely solely on the other
information provided by the applicant.
The Originators will not close a Single Family Loan prior to receiving
evidence that the property securing the loan is insured. In addition, at the
closing, the borrower is required to sign a letter addressed to his insurance
carrier naming the Originator as a loss payee under the insurance policy, which
the Originator will thereafter mail to the insurer. Accordingly, the Originator
normally will not be named as a loss payee with respect to the property securing
the Single Family Loan at the time the loan is closed.
A title search is ordered to verify the vesting of title to the Mortgaged
Property, along with the existence of any mortgages, tax or other liens that
have been levied on the property, to assure that the lien priority will be as
represented by the borrower.
Most Single Family Loans originated or purchased by the Originators
generally are scheduled to amortize over their terms and provide for equal
monthly payments over their terms. The Originators also offer a "balloon"
mortgage on a limited basis. The Originators collect nonrefundable points, late
charges and various fees in certain states in connection with their mortgage
loans. Other fees charged, where allowable, include those related to credit
reports, lien searches, title insurance and recordings, prepayment fees and
appraisal fees.
Although the Originators have no maximum dollar amount for Single Family
Loans, the actual maximum amount that they will lend is determined by an
evaluation of the applicant's ability to repay the loan, the value of the
borrower's equity in the real estate and the ratio of such equity to the real
estate's appraised value.
QUALITY CONTROL
Quality control is exercised in two areas: lending and documentation
standards. In the case of Single Family Loans, a centralized quality control
staff checks to confirm that lending and documentation standards are met. Every
month, at least one office is audited and every loan type originated during the
prior month by such office is reviewed for compliance with lending and
documentation standards. Five percent of all Single Family Loans originated by
the Originators are audited at random on a monthly basis for compliance with
lending and documentation standards. Additional offices receive audits on a
random, monthly basis. In order to confirm the validity of appraisals obtained
at the time loans are made, reappraisals are obtained for the property securing
the loans in approximately two percent to five percent of the transactions.
REFINANCING POLICY
Where the Originators believe that borrowers having existing loans with
them are likely to refinance such loans due to interest rate changes or other
reasons, the Originators actively attempt to retain such borrowers through
solicitations of such borrowers to refinance with the Originators. Such
refinancings generate fee and servicing income for the Originators. Since the
solicited borrowers may refinance their existing loans in any case, the
Representative believes that this practice will be unlikely to affect the
prepayment experience of the Single Family Loans in a material respect. The
Originators also have solicited their borrowers who are in good standing to
apply for additional loans, consistent with their origination standards, where
deemed appropriate.
SERVICING AND COLLECTIONS
The Money Store, as Master Servicer, will be required under the related
Agreement to master service the Mortgage Loans and other Mortgage Assets
underlying a particular Series of Certificates with the same degree of skill and
care that it exercises with respect to all comparable loans and assets that it
master services for its own account. Servicing includes, but is not limited to,
post-origination loan processing, customer service, remittance handling,
collections and liquidations.
Borrowers are sent payment coupon books that specify the fixed payment due
and the late payment amount, if any. Due dates for payments occur throughout the
calendar month. If payment is not received within fifteen working days of the
due date, an initial collection effort is made by telephone in an attempt to
bring the delinquent account current. The various stages of delinquency are
monitored and evaluated on a monthly basis.
Means of contacting delinquent accounts include, but are not limited to,
telephone calls and collection letters. When an account is 30 days past due, the
collection supervisor analyzes the account to determine the appropriate course
of action. If a borrower is experiencing difficulty in making payments on time,
the Servicer may modify the payment schedule (as permitted by the Agreement) but
will not remove the loan from a delinquency status.
The course of action taken by the Servicer is dependent upon a number of
factors including the borrower's payment history, the amount of equity in the
related Mortgaged Property and the reason for the current inability to make
timely payments.
When a loan is 90 days past due, the related Mortgaged Property is required
to be reappraised and the results evaluated by the Company to determine a course
of action. Foreclosure regulations and practices and the rights of the owner in
default vary from state to state, but generally procedures may be initiated if:
(i) the loan is 90 days or more delinquent; (ii) a notice of default on a senior
lien is received or (iii) the servicer discovers circumstances indicating
potential loss exposure. During the foreclosure process, any expenses incurred
by the Servicer may be added to the amount owed by the borrower, as permitted by
applicable law. Upon completion of the foreclosure, the property is sold to an
outside bidder, or passes to the mortgagee, in which case the Servicer proceeds
to liquidate the asset.
The Servicer may not foreclose on the property securing a junior mortgage
loan unless it forecloses subject to the related senior mortgages. In such
cases, the Servicer generally will pay the amount due on the senior mortgages to
the senior mortgagees, if the Servicer considers it to be in the best interest
of the related Certificateholders to do so. In the event that foreclosure
proceedings have been instituted on a senior mortgage prior to the initiation of
the Servicer's foreclosure action, the Servicer will either satisfy such
mortgage at the time of the foreclosure sale or take other appropriate action.
The Servicer retains "in-house" counsel in part to help assist with problem
accounts. Such counsel may be utilized by all levels of management to help avoid
legal problems, including those associated with consumer lending.
Servicing and charge-off policies and collection practices may change over
time in accordance with the servicer's business judgment, changes in its
real-estate loan portfolio and applicable laws and regulations, as well as other
items.
Regulations and practices regarding the liquidation of properties (e.g.,
foreclosure) and the rights of the borrower in default vary greatly from state
to state. Only if a delinquency cannot otherwise be cured will the servicer
decide that liquidation is the appropriate course of action. If, after
determining that purchasing a property securing a mortgage loan will minimize
the loss associated with such defaulted loan, the servicer may bid at the
foreclosure sale for such property or accept a deed in lieu of foreclosure.
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to an Agreement, dated
as of the date set forth in the related Prospectus Supplement (each such date, a
"Cut-off Date"), among The Money Store, the applicable Originators and the
Trustee for the benefit of the Certificateholders of such 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. A form of an Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The following summaries describe certain 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 Representative will provide a copy of the Agreement (without
exhibits) relating to any Series without charge upon written request of a holder
of a Certificate of such Series addressed to The Money Store, 2840 Morris
Avenue, Union, New Jersey 07083, Attention: Corporate Counsel.
GENERAL
The Certificates of each Series will represent fractional undivided
ownership interests in a Trust created pursuant to the related Agreement and/or
such other assets as may be described in the related Prospectus Supplement. The
Certificates will be issued in fully registered form, in minimum denominations
of $1,000 and integral multiples of $1,000 in excess thereof (or such other
amounts do may be set forth in a Prospectus Supplement), except that one
Certificate of each Class may be issued in a different denomination.
Definitive Certificates, if issued, will be transferable and exchangeable
at the corporate trust office of the Trustee or, at the election of the Trustee,
at the office of a Certificate Registrar appointed by the Trustee. No service
charge will be made for any registration of exchange or transfer, but the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge. If provided in the related Agreement, a certificate
administrator may perform certain duties in connection with the administration
of the Certificates.
The Certificates will not represent obligations of the Representative, the
Originators or any affiliate thereof. The assets of each Trust will consist of
one or more of the following, as set forth in the related Prospectus Supplement,
(a) the Mortgage Loans that from time to time are subject to the related
Agreement and which are held in the related Pool; (b) the assets for the Trust
that from time to time are required by the Agreement to be deposited in certain
reserve accounts, including the Certificate Account, the Principal and Interest
Account, the Expense Account, the Letter of Credit Fee Account and the Insurance
Account (each, as defined herein), or to be invested in Permitted Investments
(as defined herein); (c) property and any proceeds thereof acquired by
foreclosure of the Mortgage Loans in such Pool, deed in lieu of foreclosure or a
comparable conversion; (d) any Primary Mortgage Insurance Policies; (e) any
Mortgage Pool Insurance Policies; (f) any Special Hazard Insurance Policies; (g)
any Bankruptcy Bonds; and (h) all rights under any other insurance policies,
guarantees, supplemental interest payments, surety bonds, letters of credit,
guaranties of The Money Store or other credit enhancement or maturity protection
covering any Certificates, any Mortgage Loan in the related Pool or any related
Mortgaged Property which is required to be maintained pursuant to the related
Agreement.
Each Series of Certificates will be issued in one or more Classes. Each
Class of Certificates of a Series will evidence beneficial ownership of the
interest in assets of the related Trust specified in the related Prospectus
Supplement. A Class of Certificates may be divided into two or more Sub-Classes,
as specified in the related Prospectus Supplement.
A Series of Certificates may include one or more Classes of Senior
Certificates that receive certain preferential treatment with respect to one or
more Subordinated Classes of Certificates of such Series. Certain Series or
Classes of Certificates may he covered by a Mortgage Pool Insurance Policy,
Special Hazard Insurance Policy, Bankruptcy Bond or other insurance policies,
cash accounts, letters of credit, financial guaranty insurance policies, third
party guarantees, supplemental interest payments or other forms of credit
enhancement or maturity protection, in each case as described herein and in the
related Prospectus Supplement. Distributions on one or more Classes of a Series
of Certificates may be made prior to one or more other Classes, after the
occurrence of specified events, in accordance with a schedule or formula, on the
basis of collections from designated portions of the Mortgage Assets in the
related Trust or on a different basis, in each case, as specified in the related
Prospectus Supplement. The timing and amounts of such distributions may vary
among classes or over time as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal only
or interest only) on the related Certificates will be made by the Trustee on
each Remittance Date, in the amounts specified in the related Prospectus
Supplement. Distributions will be made to the persons in whose names the
Certificates are registered at the close of business on the record dates
specified in the Prospectus Supplement Unless Definitive Certificates have been
issued, the registered holder of all Certificates will be Cede. Distributions
will be made by check mailed to the persons entitled thereto at the address
appearing in the register maintained for holders of Certificates (the
"Certificate Register") or, to the extent described in the related Prospectus
Supplement, by wire transfer or by such other means as are described therein,
except 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 or other person specified in the final distribution notice
to Certificateholders.
DISTRIBUTIONS ON CERTIFICATES
Each Class of Certificates within a Series will evidence the interests
specified in the related Prospectus Supplement, which may (i) include the right
to receive distributions allocable only to principal, only to interest or to any
combination thereof; (ii) include the right to receive distributions only of
prepayments of principal throughout the lives of the Certificates or during
specified periods; (iii) be subordinated in its 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 or may be
subordinated with respect to certain losses or delinquencies; (iv) include the
right to receive such distributions only after the occurrence of events
specified in the Prospectus Supplement; (v) include the right to receive
distributions in accordance with a schedule or formula or on the basis of
collections from designated portions of the assets in the related Trust; (vi)
include, as to Certificates entitled to distributions allocable to interest, the
right to receive interest at a Fixed Rate or an Adjustable Rate; and (vii)
include, as to Certificates entitled to distributions allocable to interest, the
right to distributions allocable to interest only after the occurrence of events
specified in the related Prospectus Supplement, and in each case, may accrue
interest until such events occur, as specified in such Prospectus Supplement.
Distributions allocable to principal and interest on the Certificates will
be made by the Trustee out of, and only to the extent of, funds available in the
related Certificate Account and other accounts to the extent described in the
related Prospectus Supplement. To the extent described in the related Prospectus
Supplement, on each Remittance Date, the Master Servicer will withdraw from the
applicable Certificate Account and such other accounts as may be described in
the related Prospectus Supplement and distribute to the Certificateholders of
each Class (other than a Series having a Class of Subordinated Certificates, as
described below), either the specified interest of such Class in the Pool times
the aggregate of all amounts on deposit in the Certificate Account as of the
Determination Date, or, in the case of Classes which have been assigned an
aggregate principal balance and Pass-Through Rate, payments of interest and
payments in reduction of such aggregate principal balance from all amounts on
deposit in the Certificate Account on the Determination Date, in the priority
and calculated in the manner set forth in the related Prospectus Supplement,
except, in each case, for (i) all payments on the Mortgage Loans that were due
on or before the Cut-off Date; (ii) all Principal Prepayments, Liquidation
Proceeds and Insurance Proceeds received after the period specified in the
related Prospectus Supplement (the "Principal Prepayment Period"); (iii) all
scheduled payments of principal and interest due on a date or dates subsequent
to the Determination Date; (iv) amounts representing reimbursement for Advances,
as specified in the related Prospectus Supplement; (v) amounts representing
reimbursement for any unpaid Servicing Fee or Contingency Fee and expenses from
Liquidation Proceeds, condemnation proceeds and proceeds of insurance policies
with respect to the related Mortgage Loans; (vi) all income from any Permitted
Investments held in the Certificate Account for the benefit of the Master
Servicer; and (vii) any Advances deposited in the Certificate Account prior to
the applicable Remittance Date.
The timing and amounts of distributions allocable to interest and principal
and, if applicable, Principal Prepayments and scheduled payments of principal,
to be made on any Remittance Date may vary among Classes, over time or otherwise
as specified in the Prospectus Supplement. Differing allocations of principal
and interest to different Classes of Certificateholders will have the effect of
accelerating the amortization of Senior Certificates while increasing the
interests evidenced by the Subordinated Certificates in the related Trust.
Distributions to any Class of Certificates will be made pro rata to all
Certificateholders of that Class, or as otherwise described in a Prospectus
Supplement.
MONTHLY ADVANCES AND COMPENSATING INTEREST
In order to maintain a regular flow of scheduled interest payments to
Certificateholders (rather than to guarantee or insure against losses) if
provided in the related Prospectus Supplement, the Master Servicer will be
required to advance to the Trustee, on or before each Remittance Date (from its
own funds), the amount, if any, by which (a) the sum of (x) 30 days' interest at
the applicable weighted average Adjusted Mortgage Loan Remittance Rate (as
defined below) on the then outstanding principal balance of the related Series
of Certificates and (y) the amount, if any, required to be deposited into the
related Reserve Account (as specified in the Prospectus Supplement) for the
related Remittance Date exceeds (b) the amount received by the Master Servicer
and any Sub-Servicers in respect of interest on the Mortgage Loans as of the
related Record Date (such excess, the "Monthly Advance"). For each Class of
Certificates, the "Adjusted Mortgage Loan Remittance Rate" will equal the sum of
the related Pass- Through Rate and the rate used in determining certain expenses
payable by the related Trust, as more specifically set forth in the related
Prospectus Supplement.
If so specified in the related Prospectus Supplement, not later than the
close of business on each Determination Date, with respect to each Mortgage Loan
for which a Principal Prepayment in full or Curtailment was received during the
related Due Period, the Master Servicer will be required to remit to the Trustee
for deposit in the Certificate Account from amounts otherwise payable to it as
servicing compensation, an amount equal to the excess of (a) 30 days' interest
on the principal balance of each such Mortgage Loan as of the beginning of the
related Due Period at the applicable weighted average Adjusted Mortgage Loan
Remittance Rate, over (b) the amount of interest actually received on the
related Mortgage Loan for such Due Period (such difference, "Compensating
Interest").
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, the Certificates
initially will be registered in the name of Cede, the nominee of DTC. DTC is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code ("UCC") and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC was created to hold securities for its
participating organizations ("Participants") and facilitate the clearance and
settlement of securities transactions between Participants through electronic
book-entry changes in their accounts, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system also is available to others
such as brokers, dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participant").
Under a book-entry format, Certificateholders that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of Certificates registered in the name of Cede, as nominee of DTC, may
do so only through Participants and Indirect Participants. In addition, such
Certificateholders will receive all distributions of principal of and interest
on the Certificates and reports relating to the Certificates from the Trustee
through DTC and its Participants. Under a book-entry format, Certificateholders
will receive payments and reports relating to the Certificates after the related
Remittance Date because, while payments and such reports are required to be
forwarded to Cede, as nominee for DTC, on each such date, DTC will forward such
payments and reports to its Participants which thereafter will be required to
forward them to Indirect Participants or Certificateholders. Unless and until
Definitive Certificates are issued, it is anticipated that the only
Certificateholder will be Cede, as nominee of DTC, and that the beneficial
holders of Certificates will not be recognized by the Trustee as
Certificateholders under the Agreement. The beneficial holders of such
Certificates will only be permitted to exercise the rights of Certificateholders
under the Agreement indirectly through DTC and its Participants who in turn will
exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Certificates and is required to
receive and transmit reports and payments of principal of and interest on the
Certificates. Participants and Indirect Participants with which
Certificateholders have accounts with respect to the Certificates similarly are
required to make book-entry transfers and receive and transmit such reports and
payments on behalf of their respective Certificateholders. Accordingly, although
Certificateholders will not possess certificates, the rules provide a mechanism
by which Certificateholders will receive distributions and reports and will be
able to transfer their interests.
Unless and until Definitive Certificates are issued, Certificateholders who
are not Participants may transfer ownership of Certificates only through
Participants by instructing such Participants to transfer Certificates, by
book-entry transfer, through DTC for the account of the purchasers of such
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Certificates will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited. Similarly, the
respective Participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Certificateholders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificateholder to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates may be limited due to the lack of a physical certificate for such
Certificates.
DTC in general advises that it will take any action permitted to be taken
by a Certificateholder under an Agreement only at the direction of one or more
Participants to whose account with DTC the Certificates are credited.
Additionally, DTC in general advises that it will take such actions with respect
to specified percentages of the Certificateholders only at the direction of and
on behalf of Participants whose holdings include current principal amounts of
outstanding Certificates that satisfy such specified percentages. DTC may take
conflicting actions with respect to other current principal amounts of
outstanding Certificates to the extent that such actions are taken on behalf of
Participants whose holdings include such current principal amounts of
outstanding Certificates.
Any Certificates initially registered in the name of Cede, as nominee of
DTC, will be issued in fully registered, certificated form to Certificateholders
or their nominees ("Definitive Certificates"), rather than to DTC or its nominee
only under the events specified in the related Agreement and described in the
related Prospectus Supplement. Upon the occurrence of any of the events
specified in the related Agreement and Prospectus Supplement, DTC will be
required to notify all Participants of the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the certificates representing
the Certificates and instruction for re-registration, the Trustee will issue the
Certificates in the form of Definitive Certificates, and thereafter the Trustee
will recognize the holders of such Definitive Certificates as
Certificateholders. Thereafter, payments of principal of and interest on the
Certificates will be made by the Trustee directly to Certificateholders in
accordance with the procedures set forth herein and in the Agreement. The final
distribution of any Certificate (whether Definitive Certificates or Certificates
registered in the name of Cede), however, will be made only upon presentation
and surrender of such Certificates on the final Remittance Date at such office
or agency as is specified in the notice of final payment to Certificateholders.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more Classes of a
Series of Certificates or with respect to the Mortgage Assets in the related
Trust. Credit enhancement may be in the form of (i) the subordination of one or
more Classes of the Certificates of such Series, (ii) the use of a Certificate
Guarantee Insurance Policy, Spread Amount, Mortgage Pool Insurance Policy,
Special Hazard Insurance Policy, Bankruptcy Bond, Reserve Accounts, Supplemental
Interest Payments, a letter of credit, a limited financial guaranty insurance
policy, a guaranty of The Money Store, other third party guarantees or maturity
protection, another method of credit enhancement described in the related
Prospectus Supplement, or the use of a cross-support feature, or (iii) any
combination of the foregoing. Credit enhancement 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 enhancement or which are not covered
by the credit enhancement, holders of one or more Classes of Certificates will
bear their allocable share of deficiencies. If a form of credit enhancement
applies to several Classes of Certificates, and if principal payments equal to
the aggregate principal balances of certain Classes will be distributed prior to
such distributions to other Classes, the Classes which receive such
distributions at a later time are more likely to bear any losses which exceed
the amount covered by credit enhancement. Coverage under any credit enhancement
may be canceled or reduced by the Master Servicer or the Representative if such
cancellation or reduction would not adversely affect the rating or ratings of
the related Certificates. The Trustee of the related Trust will have the right
to sue providers of credit enhancement if a default is made on a required
payment.
SUBORDINATION
To enhance the likelihood of regular receipt by holders of Senior
Certificates of the full amount of payments which they would be entitled to
receive in the absence of any losses or delinquencies, if so specified in the
related Prospectus Supplement, distributions of scheduled principal, Principal
Prepayments, interest or any combination thereof that otherwise would have been
payable to one or more Classes of Subordinated Certificates of a Series will
instead be payable to holders of one or more Classes of Senior Certificates,
under the circumstances and to the extent specified in the Prospectus
Supplement. If specified in the related Prospectus Supplement, the holders of
Senior Certificates will receive the amounts of principal and/or interest due to
them on each Remittance Date, out of the funds available for distribution on
such date in the related Certificate Account, prior to any such distribution
being made to holders of the related Subordinated Certificates, in each case
under the circumstances and subject to the limitations specified in the
Prospectus Supplement. The protection afforded to the holders of Senior
Certificates through subordination also may be accomplished by first allocating
certain types of losses or delinquencies to the related Subordinated
Certificates, to the extent described in the related Prospectus Supplement. If
aggregate losses and delinquencies 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 would 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 Remittance Date may instead be
deposited into one or more Reserve Accounts established and maintained with the
Trustee. If so specified in the Prospectus Supplement, such deposits may be made
on each Remittance Date, on each Remittance 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 related Prospectus Supplement, amounts on
deposit in the Reserve Account may be released to the holders of the Class of
Certificates specified in the Prospectus Supplement at the times and under the
circumstances specified in the Prospectus Supplement. See "--Reserve Accounts"
below.
If so specified in the related Prospectus Supplement, the same Class of
Certificates may be Senior Certificates with respect to certain types of
payments or certain types of losses or delinquencies and Subordinated
Certificates with respect to other types of payment or types of losses or
delinquencies. If specified in the related 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. The related Prospectus Supplement will set forth information
concerning the amount of subordination of a Class or Classes of Subordinated
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 any Reserve Account, and the
conditions under which amounts in any such Reserve Account will be used to make
distributions to Senior Certificateholders or released to Subordinated
Certificateholders from the related Trust.
CERTIFICATE GUARANTY INSURANCE POLICIES
If so specified in the related Prospectus Supplement, a Certificate
Guaranty Insurance Policy may be obtained and maintained for any Class or Series
of Certificates. The issuer of any Certificate Guaranty Insurance Policy (a
"Certificate Guaranty Insurer") will be described in the related Prospectus
Supplement. A copy of any such Certificate Guaranty Insurance Policy will be
attached as an exhibit to the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a Certificate
Guaranty Insurance Policy will unconditionally and irrevocably guarantee to
Certificateholders that an amount equal to each full and complete Insured
Payment will be received by an agent of the Trustee (an "Insurance Paying
Agent") on behalf of Certificateholders, for distribution by the Trustee to each
Certificateholder. The "Insured Payment" will equal the full amount of the
distributions of principal and interest to which Certificateholders are entitled
under the related Agreement plus any other amounts specified therein or in the
related Prospectus Supplement.
The specific terms of any Certificate Guaranty Insurance Policy will be as
set forth in the related Prospectus Supplement. Certificate Guaranty Insurance
Policies may have limitations including (but not limited to) limitations on the
insurer's obligation to guarantee the Master Servicer's obligation to repurchase
or substitute for any Mortgage Loans, to guarantee any specified rate of
prepayments or to provide funds to redeem Certificates on any specified date.
Subject to the terms of the related Agreement, the Certificate Guaranty
Insurer may be subrogated to the rights of each Certificateholder to receive
payments under the Certificates to the extent of any payments by such
Certificate Guaranty Insurer under the related Certificate Guaranty Insurance
Policy.
SPREAD AMOUNT
If so specified in the related Prospectus Supplement, certain Classes of
Certificates may be entitled to receive limited acceleration of principal
relative to the amortization of the related Mortgage Assets. The accelerated
amortization will be achieved by applying certain excess interest collected on
the Mortgage Assets to the payment of principal on such Classes of Certificates.
This acceleration feature is intended to create an amount (the "Spread Amount"),
resulting from, and generally equal to, the excess of the aggregate principal
balances of the applicable Mortgage Assets over the principal balances of the
applicable Classes of Certificates. Once the required Spread Amount is reached,
and subject to the provisions described in the next sentence and in the related
Prospectus Supplement, the acceleration feature will cease, unless necessary to
maintain the required level of the Spread Amount. The applicable Agreement will
provide that, subject to certain floors, caps and triggers, the required level
of the Spread Amount may increase or decrease over time. An increase would
result in a temporary period of accelerated amortization of the applicable
Classes of Certificates to increase the actual level of the Spread Amount to its
required level; a decrease would result in a temporary period of decelerated
amortization to reduce the actual level of the Spread Amount to its required
level. An Agreement also may provide that after one or more Classes of
Certificates have been paid to the required level of the Spread Amount, excess
interest, together with certain other excess amounts, may be applied to make-up
shortfalls in, or accelerate the amortization of, other Classes of Certificates.
MORTGAGE POOL INSURANCE POLICIES
If specified in the Prospectus Supplement related to any Pool of Mortgage
Loans, a Mortgage Pool Insurance Policy issued by the insurer (the "Pool
Insurer") named in such Prospectus Supplement will be obtained and maintained
for each Series pertaining to Mortgage Loans. Each Mortgage Pool Insurance
Policy will, subject to the limitations described below or in the related
Prospectus Supplement, cover loss by reason of default in payment on the related
Mortgage Loans in the Pool in an amount initially equal to a specified
percentage of the aggregate principal balance of all Mortgage Loans included in
the Pool as of the Cut-off Date or such other date as is specified in such
Prospectus Supplement. The Mortgage Pool Insurance Policies, however, are not
blanket policies 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 Mortgage Pool Insurance
Policies generally will not cover losses due to a failure to pay or denial of a
claim under a Primary Mortgage Insurance Policy.
A Mortgage Pool Insurance Policy generally will not insure (and many
Primary Mortgage Insurance Policies do 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, the originator 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, an
endorsement to the Mortgage Pool Insurance Policy, a bond or other credit
support may cover fraud in connection with the origination of Mortgage Loans. If
so specified in the related Prospectus Supplement, a failure of coverage
attributable to an event specified in clause (i) or (ii) above might result in a
breach of the Master Servicer's representations described above and, in such
event, might give rise to an obligation on the part of the Master Servicer to
purchase the defaulted Mortgage Loan if the breach cannot be cured by the Master
Servicer. No Mortgage Pool Insurance Policy will cover (and many Primary
Mortgage Insurance Policies do not cover) a claim in respect of a defaulted
Mortgage Loan occurring when the servicer of such Mortgage Loan, at the time of
default or thereafter, was not approved by the applicable insurer.
The original amount of coverage under each Mortgage Pool Insurance Policy
will be reduced over the life of the related 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 Master Servicer as
well as accrued interest on delinquent Mortgage Loans to the date of payment of
the claim. Accordingly, if aggregate net claims paid under any Mortgage Pool
Insurance Policy reach the original policy limit, coverage under that Mortgage
Pool Insurance Policy will be exhausted and any further losses will be borne by
the Certificateholders.
The terms of any pool insurance policy relating to a pool of Contracts will
be described in the related Prospectus Supplement.
SPECIAL HAZARD INSURANCE POLICIES
If specified in the related Prospectus Supplement, a separate Special
Hazard Insurance Policy will be obtained for the Pool and will be issued by the
insurer (the "Special Hazard Insurer") named in such Prospectus Supplement. Each
Special Hazard Insurance Policy will, subject to limitations described below,
protect holders of the related 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 insured against under
the standard form of hazard insurance policy for the respective states in which
the Mortgaged Properties are located or under a flood insurance policy if the
Mortgaged Property is located in a federally designated flood area, and (ii)
loss caused by reason of the application of the coinsurance clause contained in
hazard insurance policies. See "The Agreement-- Hazard Insurance." No Special
Hazard Insurance Policy will cover losses occasioned by war, civil insurrection,
certain governmental action, 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. The amount of coverage under any Special
Hazard Insurance Policy will be specified in the related Prospectus Supplement.
Each Special Hazard Insurance Policy will provide that no claim may be paid
unless hazard and, if applicable, flood insurance on the property securing the
Mortgage Loan has been kept in force and other protection and preservation
expenses have been paid.
Since each Special Hazard Insurance Policy will be designed to permit full
recovery under the Mortgage Pool Insurance Policy in circumstances in which such
recoveries would otherwise be unavailable because property has been damaged by a
cause not insured against by a standard hazard policy and thus would not be
restored, each Agreement will provide that, if the related Mortgage Pool
Insurance Policy shall have been terminated or been exhausted through payment of
claims, the Master Servicer will be under no further obligation to maintain such
Special Hazard Insurance Policy.
The terms of any Special Hazard Insurance Policy relating to a pool of
Contracts will be described in the related Prospectus Supplement.
BANKRUPTCY BONDS
If specified in the related Prospectus Supplement, a Bankruptcy Bond for
proceedings under the federal Bankruptcy Code will be issued by an insurer named
in such Prospectus Supplement. Each Bankruptcy Bond will cover certain losses
resulting from a reduction by a bankruptcy court of scheduled payments of
principal 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 required amount of coverage under each Bankruptcy Bond
will be set forth in the related Prospectus Supplement. To the extent specified
in an applicable Prospectus Supplement, the Master Servicer may deposit cash, an
irrevocable letter of credit or any other instrument acceptable to each
nationally recognized rating agency rating the Certificates of the related
Series in the Trust to provide protection in lieu of or in addition to that
provided by a Bankruptcy Bond. See "Certain Legal Aspects of the Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on Lenders."
The terms of any Bankruptcy Bond relating to a pool of Contracts will be
described in the related Prospectus Supplement.
RESERVE ACCOUNTS
If specified in a Prospectus Supplement, cash, U.S. Treasury securities,
instruments evidencing ownership of principal or interest payments thereon,
letters of credit, demand notes, certificates of deposit or a combination
thereof in the aggregate amount specified in the Prospectus Supplement may be
deposited by the Master Servicer or Representative on the date specified in the
Prospectus Supplement in one or more Reserve Accounts established with the
Trustee. In addition to or in lieu of the foregoing, if so specified in such
Prospectus Supplement, all or any portion of distributions otherwise payable to
holders of Subordinated Certificates on any Remittance Date may instead be
deposited into such Reserve Accounts. Such deposits may be made on the date
specified in the Prospectus Supplement, which may include each Remittance Date,
each Remittance Date for specified periods or until the balance in the Reserve
Account has reached a specified amount. See "--Subordination" above.
The cash and other assets in the Reserve Accounts 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, to pay the expenses of
the Trust or for such other purposes specified in the Prospectus Supplement. Any
cash in a Reserve Account and the proceeds upon maturity or liquidation of any
other asset or instrument therein will be invested, to the extent acceptable to
the applicable Rating Agency, in 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 instruments acceptable to the applicable
Rating Agency ("Permitted Investments"). Any asset or instrument deposited in
the Reserve Account generally will name the Trustee, in its capacity as trustee
for the Certificateholders, as beneficiary and will be issued by an entity
acceptable to the applicable Rating Agency. 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 assets and instruments deposited
in a Reserve Account will be available for withdrawal from such Reserve Account
for distribution to Certificateholders for the purposes, in the manner and at
the times specified in the Prospectus Supplement.
SUPPLEMENTAL INTEREST PAYMENTS
If so specified in the Prospectus Supplement, one or more Classes of
Certificates may be entitled to receive supplemental interest payments under
specified circumstances. Supplemental interest payments will be available to
fund some or all of the difference, if any, between the interest owed to a Class
of Certificates on a Remittance Date and the interest that would be available to
pay such interest assuming no defaults or delinquencies on the Mortgage Assets.
Such differences may result if the interest rates on the applicable Classes of
Certificates are based upon an index that differs from the index used in
determining the interest rates on the Mortgage Assets. Except as otherwise
provided in a Prospectus Supplement, supplemental interest payments will not be
available to fund shortfalls resulting from delinquencies or defaults on the
Mortgage Assets.
MATURITY PROTECTION
If so specified in the Prospectus Supplement, one or more Classes of
Certificates may be entitled to third-party payments to help provide that the
holders of such Certificates receive their unpaid principal on or prior to a
specified date.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If specified in the related Prospectus Supplement, a Trust may include in
lieu of some or all of the foregoing or in addition thereto letters of credit,
financial guaranty insurance policies, a guaranty of The Money Store, other
third party guarantees, limited guarantees or insurance from agencies or
instrumentalities of the United States, and other arrangements for maintaining
timely payments or providing additional protection against losses on the assets
included in such Trust, paying administrative expenses, or accomplishing such
other purpose as may be described in the Prospectus Supplement. The Trust may
include a guaranteed investment contract or reinvestment agreement pursuant to
which funds held in one or more accounts will be invested at a specified rate.
If any Class of Certificates has a floating interest rate, or if any of the
Mortgage Assets has a floating interest rate, the Trust may include an interest
rate swap contract, an interest rate cap agreement or similar contract providing
limited protection against interest rate risks.
CROSS SUPPORT
If specified in the related Prospectus Supplement, the beneficial ownership
of separate groups of assets included in a Trust 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 requires that distributions be made
with respect to Certificates evidencing a beneficial ownership interest in other
asset groups within the same Trust. 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 related Prospectus Supplement, the coverage provided by
one or more forms of credit support may apply concurrently to two or more
separate Trusts. If applicable, the Prospectus Supplement will identify the
Trusts 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 Trusts.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The yields to maturity of the Certificates will be affected by the amount
and timing of principal payments on or in respect of the Mortgage Assets
included in the related Trusts, the allocation of available funds to various
Classes of Certificates, the Pass-Through Rate for various Classes of
Certificates and the purchase price paid for the Certificates.
The original terms to maturity of the Mortgage Loans in a given Pool will
vary depending upon the type of Mortgage Loans included therein. Each Prospectus
Supplement will contain information with respect to the type and maturities of
the Mortgage Loans in the related Pool. Single Family Loans, Cooperative Loans
and Contracts generally may be prepaid without penalty in full or in part at any
time, although a prepayment fee or penalty may be imposed in connection
therewith. Multifamily Loans may prohibit prepayment for a specified period
after origination, may prohibit partial prepayments entirely, and may require
the payment of a prepayment fee or penalty upon prepayment in full or in part.
In general, prepayment of Mortgage Loans is likely to increase when the
level of prevailing interest rates declines significantly, although the
prepayment rate is influenced by a number of other factors, some of which are
described below. Similarly, when the level of prevailing interest rates rises,
prepayment rates may decrease. No prediction can be made as to the prepayment
rate that the Mortgage Loans will actually experience.
Generally, junior mortgage loans have smaller average principal balances
than senior or first mortgage loans and are not viewed by borrowers as permanent
financing. Accordingly, Mortgage Loans which are junior mortgage loans may
experience a higher rate of prepayment than Mortgage Loans which represent first
liens. In addition, any future limitations on the right of borrowers to deduct
interest payments on Mortgage Loans for Federal income tax purposes may result
in a higher rate of prepayment of the Mortgage Loans. The obligation of the
Master Servicer to enforce due-on-sale provisions (described below) of the
Mortgage Loans may also increase prepayments. The prepayment experience of the
Pools may be affected by a wide variety of factors, including general and local
economic conditions, mortgage market interest rates, the availability of
alternative financing and homeowner mobility. The Representative is unaware of
any reliable studies that would project the prepayment risks associated with the
Mortgage Loans based upon current interest rates and economic conditions or the
historical prepayment experience of The Money Store's and its affiliates'
portfolios of Mortgage Loans.
The secured conventional Mortgage Loans and Contracts generally will
contain due-on-sale provisions permitting the mortgagee or holder of the
Contract to accelerate the maturity of the Mortgage Loan or Contract upon sale
or certain transfers by the borrower of the underlying Mortgaged Property. The
Master Servicer generally will enforce any due-on-sale or due-on-encumbrance
clause, to the extent it has knowledge of the conveyance or further encumbrance
or the proposed conveyance or proposed further encumbrance of the Mortgaged
Property and reasonably believes that it is entitled to do so under applicable
law; provided, however, that the Master Servicer will not take any enforcement
action that would impair or threaten to impair any recovery under any related
insurance policy. See "The Agreement--Collection Procedures" and "Certain Legal
Aspects of the Mortgage Loans" for a description of certain provisions of each
Agreement and certain legal developments that may affect the prepayment
experience on the Mortgage Loans.
Greater than anticipated prepayments of principal will increase the yield
on Certificates purchased at a price less than par. Similarly, greater than
anticipated prepayments of principal will decrease the yield on Certificates
purchased at a price greater than par. The effect on an investor's yield of
principal prepayments on the Mortgage Loans occurring at a rate that is faster
(or slower) than the rate anticipated by the investor in the period immediately
following the issuance of the applicable Class of Certificates may not be offset
by a subsequent like reduction (or increase) in the rate of principal payments.
The weighted average lives of Certificates will also be affected by the
amount and timing of delinquencies and defaults on the Mortgage Loans and the
liquidations of defaulted Mortgage Loans. Delinquencies and defaults will
generally slow the rate of payment of principal to the Certificateholders.
However, this effect will be offset to the extent that lump sum recoveries on
defaulted Mortgage Loans and foreclosed Mortgaged Properties result in principal
payments on the Mortgage Loans faster than otherwise scheduled.
When a full prepayment or Curtailment occurs on a Mortgage Loan, the
Mortgagor will be charged interest on the principal amount of the Mortgage Loan
so prepaid only for the number of days in the month actually elapsed up to the
date of the prepayment rather than for a full month. Interest shortfalls also
could result from the application of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), as described under "Certain Legal
Aspects of the Mortgage Loans-- Soldiers' and Sailors' Civil Relief Act" herein.
If so specified in the related Prospectus Supplement, in the event that less
than 30 days' interest is collected on a Mortgage Loan during a Due Period,
whether due to prepayment in full or a Curtailment, the Master Servicer will be
obligated to pay Compensating Interest with respect thereto, but only to the
extent of the aggregate Servicing Fee and Contingency Fee for the related
Remittance Date. To the extent such shortfalls exceed the amount of Compensating
Interest that the Master Servicer is obligated to pay, and are not otherwise
covered by Insured Payments, the yield on the Certificates could be adversely
affected.
Under certain circumstances, the Master Servicer, certain insurers, the
holders of REMIC Residual Certificates or certain other entities specified in
the related Prospectus Supplement may have the option to purchase the Mortgage
Assets and other assets of a Trust, thereby effecting earlier retirement of the
related Series of Certificates. See "The Agreement--Termination; Purchase of
Mortgage Loans."
If so specified in the related Prospectus Supplement, the effective yield
to certain Certificateholders may be slightly lower than the yield otherwise
produced by the applicable Remittance Rate and purchase price, because while
interest generally will accrue on such Certificates from the first day of each
month, the distribution of such interest will not be made earlier than a
specified date in the month following the month of accrual.
In addition, if so specified in the related Prospectus Supplement,
prepayments may result from amounts on deposit, if any, in the Pre-Funding
Account at the end of the Funding Period being applied to the payment of
principal 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) on the yield, weighted average lives and maturities of
such Certificates. Factors other than those identified herein and in the related
Prospectus Supplement could significantly affect principal prepayments at any
time and over the lives of the Certificates.
THE AGREEMENTS
Set forth below is a summary of certain provisions of each Agreement which
are not described elsewhere in this Prospectus. The summary does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
the provisions of each Agreement. Where particular provisions or terms used in
the Agreements are referred to, such provisions or terms are as specified in the
Agreements.
SALE OF MORTGAGE LOANS
Pursuant to each Agreement, at the time of issuance of Certificates of a
Series the Originators and/or The Money Store will sell to the related Trust,
without recourse, all interest of the Originators and/or The Money Store in each
of the Mortgage Assets comprising the assets of such Trust and all interest in
all actual payments collected after the Cut-off Date with respect to such
Mortgage Assets.
In addition, to the extent specified in the related Prospectus Supplement,
the net proceeds received from the sale of the Certificates of a given Series
will be applied to the deposit of the Pre-Funded Amount into the Pre-Funding
Account. The aggregate principal balance of additional Mortgage Assets to be
purchased for the related Trust generally will be equal to the Pre-Funded Amount
on the date of the issuance of the related Series. On each applicable purchase
date, the Originators and/or The Money Store will sell to the related Trust,
without recourse, the entire interest of the Originators and/or The Money Store
in the additional Mortgage Assets identified in a schedule attached to a
supplemental conveyance relating to such additional Mortgage Assets executed on
such date by the Originators and/or The Money Store. In connection with each
purchase of additional Mortgage Assets, the related Trust will be required to
pay to the Originators and/or The Money Store a cash purchase price equal to the
outstanding principal balance of each additional Mortgage Asset as of its
related Cut-off Date. The purchase price will be withdrawn from the Pre-Funding
Account and paid to the Originators and/or The Money Store so long as the
representations and warranties set forth in "--Representations and Warranties"
below apply to each additional Mortgage Asset to be conveyed, and the conditions
set forth in the paragraph below and in the related Agreement are satisfied. The
Originators and/or The Money Store will convey the additional Mortgage Assets to
the related Trust on the applicable purchase date pursuant to the Agreement.
Any conveyance of additional Mortgage Assets will be subject to the
following conditions, among others specified in the related Prospectus
Supplement: (i) each such additional Mortgage Asset must satisfy the eligibility
criteria specified in the preceding paragraph as of its applicable Cut-off Date
and such additional criteria as may be specified in the related Prospectus
Supplement; (ii) if and to the extent specified in the related Prospectus
Supplement, the third-party credit enhancement provider, if any, shall have
approved the transfer of such additional Mortgage Assets to the related Trust;
(iii) neither the Originator nor The Money Store will have selected such
additional Mortgage Assets in a manner that either believes is adverse to the
interests of Certificateholders; and (iv) the Originator and The Money Store
will deliver certain opinions of counsel to the Trustee(s) and the Rating
Agencies with respect to the validity of the conveyance of such additional
Mortgage Assets.
In connection with such sales of the Mortgage Loans, the Representative
will be required to deliver to the Trustee certain specified items (collectively
with respect to each Mortgage Loan, the "Trustee's Mortgage File") with respect
to each Mortgage Loan. Unless otherwise specified in the related Prospectus
Supplement, each Trustee's Mortgage File will be required to include the
following, together with certain other specified items: (a) The original
Mortgage Note; (b) either: (i) the original Mortgage, with evidence of recording
thereon or (ii) a certified copy of the Mortgage where the original has been
transmitted for recording or has been lost; and (c) an assignment of the
Mortgage Loan from the applicable Originator to either the related Trustee or
Initial Co-Trustee under the Agreement with evidence of recording thereon.
The Trustee will be required to review each such Trustee's Mortgage File to
ascertain that all required documents have been executed and received. If the
Certificate Guaranty Insurer, if any, or the Trustee finds any document
constituting a part of a Trustee's Mortgage File which is not properly executed,
has not been received, is unrelated to the Mortgage Loans of the related Trust
or does not conform in a material respect to the description thereof provided on
behalf of the Representative, the Certificate Guaranty Insurer, if any, or the
Trustee is required promptly to notify the Master Servicer, The Money Store, and
the Trustee or the Certificate Guaranty Insurer, if any, respectively. The Money
Store is required to use reasonable efforts to remedy a material defect in a
document constituting part of a Trustee's Mortgage File of which it is so
notified. If, however, within 60 days after the Trustee's notice to it
respecting such defect The Money Store has not remedied the defect and the
defect materially and adversely affects the interest of the Trust in the related
Mortgage Loan or the interests of the Certificate Guaranty Insurer, if any, The
Money Store is required to (i) substitute in lieu of such Mortgage Loan a
substitute Mortgage Loan which qualifies for substitution under the Agreement (a
"Qualified Substitute Mortgage Loan") and, if the then outstanding principal
balance of such Qualified Substitute Mortgage Loan is less than the principal
balance of such Mortgage Loan as of the date of such substitution, deposit in
the related Principal and Interest Account (as defined herein under "--Payments
on the Mortgage Loans") the amount of such shortfall in principal balance
arising from such substitution (the "Substitution Adjustment") or (ii) purchase
such Mortgage Loan at a price equal to the principal balance of such Mortgage
Loan as of the date of purchase, plus 30 days' interest on such principal
balance, computed at the Adjusted Mortgage Loan Remittance Rate (as defined in
the related Prospectus Supplement) as of the next succeeding Determination Date,
plus any accrued unpaid Servicing Fees and Contingency Fees (each as defined
herein under "--Servicing and Other Compensation and Payment of Expenses") and
certain other amounts advanced by and reimbursable to the Master Servicer, plus
the interest portion of any unreimbursed Insured Payments made by the
Certificate Guaranty Insurer, if any, related to such Mortgage Loan, which
purchase price will be deposited in the Principal and Interest Account and
delivered to the Trustee on the next succeeding Determination Date, except for
the amount described above relating to unreimbursed Insured Payments, if any,
which shall be paid directly to the Certificate Guaranty Insurer; provided,
however, that, if a REMIC election has been made for the related Trust, The
Money Store may not take any such action unless it has theretofore caused to be
delivered to the Trustee an opinion of counsel knowledgeable in federal income
tax matters (an "Opinion of Counsel") which states that such a purchase or
substitution would not constitute a "prohibited transaction," as defined in
Section 860F of the Code (a "Prohibited Transaction").
REPRESENTATIONS AND WARRANTIES
The Representative will represent, among other things, that as of the
related Cut-off Date as to each Mortgage Loan sold to the related Trust, the
information provided with respect to such Mortgage Loan was true and correct;
all of the original or certified documentation constituting the Trustee's
Mortgage Files (including all material documents related thereto) has been or
will be delivered to the Trustee or a custodian on its behalf (the "Custodian");
each Mortgage was a valid and subsisting lien of record on the Mortgaged
Property; immediately prior to such transfer and assignment, the Originators
were the sole owners of each Mortgage Loan conveyed by them; and as of the
related Cut-off Date, no Mortgage Loan will be 59 days or more delinquent in
payment, no Mortgage Loan originated within 12 months of the related Cut-off
Date will be delinquent 59 days or more as measured at the end of any month
during the 12 months immediately preceding such Cut-off Date, and with respect
to Mortgage Loans originated more than 12 months before such Cut-off Date, no
more than the percentage of Mortgage Loans specified in the related Prospectus
Supplement (measured by outstanding principal balance as of such Cut-off Date)
will have been on up to two occasions 60 days delinquent as measured at the end
of any month since the inception of each such Mortgage Loan.
Pursuant to the Agreement, upon the discovery by The Money Store, the
Servicer, any Subservicer, the Custodian, the Certificate Guaranty Insurer, if
any, or the Trustee that any of the representations and warranties contained in
the Agreement have been breached in any material respect as of the related
Cut-off Date, with the result that the interests of the related Trust in the
related Mortgage Loan or the interests of the Certificate Guaranty Insurer, if
any, were materially and adversely affected, notwithstanding that such
representation and warranty was made to The Money Store's best knowledge, the
party discovering such breach is required to give prompt written notice to the
other parties. Within 60 days of the earlier to occur of The Money Store's
discovery or its receipt of notice of any such breach, The Money Store will be
required to cure promptly such breach in all material respects, or (i) remove
such Mortgage Loan and substitute one or more Qualified Substitute Mortgage
Loans or (ii) purchase such Mortgage Loan, in each case on the same terms and on
the same conditions as described above under "Sale of Mortgage Loans." The
obligation of The Money Store to so substitute or purchase any Mortgage Loan
will constitute the sole remedy respecting a material breach of any such
representation or warranty available to the Certificateholders or the Trustee.
PAYMENTS ON THE MORTGAGE LOANS
The Agreement will require the Master Servicer to establish and maintain
one or more principal and interest accounts (each a "Principal and Interest
Account") at one or more institutions designated as a "Designated Depository
Institution" in the Agreement.
All funds in the Principal and Interest Accounts will be required to be
held (i) uninvested, up to the limits insured by the Federal Deposit Insurance
Corporation or (ii) invested in instruments designated as "Permitted
Instruments" in the Agreement. Any investment earnings on funds held in the
Principal and Interest Accounts are for the account of the Master Servicer.
The Master Servicer will be required to deposit or cause to be deposited in
the related Principal and Interest Account (within 24 hours of receipt) all
payments received after the related Cut-off Date on account of principal and
interest on the related Mortgage Loans (but net of the Servicing Fee and the
Contingency Fee with respect to each Mortgage Loan and other servicing
compensation payable to the Master Servicer as permitted by the Agreement).
Not later than the day of each month which is the later of (i) the third
Business Day prior to the 15th day of such month and (ii) the seventh Business
Day of such month (each such day a "Determination Date"), the Master Servicer
will be required to wire transfer to the Trustee the Available Remittance Amount
for deposit in the segregated trust accounts to be maintained with the Trustee
for such purpose (each a "Certificate Account").
Unless otherwise specified in the related Prospectus Supplement, the
"Available Remittance Amount" will be defined in the Agreement to include, with
respect to any Remittance Date, without duplication:
(i) the sum of all amounts received by the Master Servicer or
any Sub-Servicer on the Mortgage Loans (including amounts paid by the
Master Servicer and the Representative and excluding amounts required
to be deposited into any related Reserve Account, amounts paid as
reimbursement to the Master Servicer of advances and amounts recovered
as voidable preferences) during the immediately preceding calendar
month (the "Due Period"), plus
(ii) the amount of any Monthly Advance and Compensating
Interest payments with respect to the Mortgage Loans remitted by the
Master Servicer for such Remittance Date.
The term Available Remittance Amounts will not include Insured Payments, if
any.
GENERAL SERVICING STANDARDS
The Master Servicer will agree to master service the Mortgage Loans in
accordance with the related Agreement and, where applicable, prudent mortgage
servicing standards. "Prudent mortgage servicing standards" generally will
require the Master Servicer to exercise collection and foreclosure procedures
with respect to the Mortgage Loans with the same degree of care and skill that
it would use in master servicing mortgage loans for its own account. Pursuant to
each Agreement, the Master Servicer will be required to make reasonable efforts
to collect all payments called for under the terms of the related Mortgage Loan.
Nonetheless, the Master Servicer, in determining the type of action that is
reasonable to pursue may consider, among other things, the unpaid principal
balance of a Mortgage Loan against the estimated cost of collection or
foreclosure action, the unpaid balance of the related prior mortgage, if any,
the condition and estimated market value ("as is" and "if repaired"), the
estimated marketability of the related Mortgaged Property and the borrower's
ability to repay.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer will be entitled to a servicing fee (the "Servicing
Fee") and a contingency fee (the "Contingency Fee") equal to the percentage per
annum specified in the related Prospectus Supplement of the principal balance of
each Mortgage Loan. The Contingency Fee is meant to provide additional servicing
compensation to a successor servicer if The Money Store is replaced as Master
Servicer under the related Agreement. However, as long as The Money Store acts
as Master Servicer, it will be entitled to receive the Contingency Fee, although
such amount is not deemed servicing compensation. Unless otherwise specified in
the related Prospectus Supplement, the Servicing Fee and Contingency Fee will
each be calculated and payable monthly from the interest portion of scheduled
monthly payments, liquidation proceeds and certain other collected proceeds. In
addition, the Master Servicer will be entitled under the Agreement to retain
additional servicing compensation in the form of assumption and other
administrative fees, prepayment penalties and premiums, late payment charges,
interest paid on funds in the Principal and Interest Account, interest paid on
earnings realized on Permitted Instruments, and certain other excess amounts.
The Master Servicer will be required to pay all reasonable and customary
"out-of-pocket" costs and expenses incurred in the performance of its
obligations under the Agreements, including, but not limited to, the cost of (i)
the preservation, restoration and protection of the Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, and (iii) the
management and liquidation of Mortgaged Property acquired in satisfaction of the
related Mortgage Loan. Such expenditures may include costs of collection
efforts, reappraisals when a loan is 90 days past due, forced placement of
hazard insurance if a borrower allows his hazard policy to lapse, legal fees in
connection with foreclosure actions, advancing payments on the related senior
mortgage, if any, advances of delinquent property taxes, upkeep and maintenance
of the property if it is acquired through foreclosure and similar types of
expenses. Each such expenditure constitutes a "Servicing Advance." The Master
Servicer will be obligated to make the Servicing Advances incurred in the
performance of its servicing obligations. The Master Servicer will be entitled
to recover Servicing Advances to the extent permitted by the Mortgage Loans or,
if not theretofore recovered from the Mortgagor on whose behalf such Servicing
Advance was made, from Liquidation Proceeds, Released Mortgaged Property
Proceeds, Insurance Proceeds and such other amounts as may be collected by the
Servicer from the Mortgagor or otherwise relating to the Mortgage Loan.
Servicing Advances will be reimbursable to the Servicer from the sources
described above out of the funds on deposit in the Principal and Interest
Account.
HAZARD INSURANCE
The Master Servicer will be required to cause to be maintained fire and
hazard insurance with extended coverage customary in the area where the
Mortgaged Property is located, in an amount which is at least equal to the least
of (i) the outstanding principal balance owing on the Mortgage Loan and the
related senior mortgage, if any, (ii) the full insurable value of the premises
securing the Mortgage Loan, and (iii) the minimum amount required to compensate
for damage or loss on a replacement cost basis. If the Mortgaged Property is in
an area identified in the Federal Register by the Flood Emergency Management
Agency as having special flood hazards (and such flood insurance has been made
available), the Master Servicer will be required to cause to be purchased a
flood insurance policy with a generally acceptable insurance carrier, in an
amount representing coverage not less than the least of (a) the outstanding
principal balance of the Mortgage Loan and the senior lien, if any, (b) the full
insurable value of the Mortgaged Property, or (c) the maximum amount of
insurance available under the National Flood Insurance Act of 1968, as amended.
The Master Servicer will also be required to maintain, to the extent such
insurance is available, on REO Property, fire and hazard insurance in the
applicable amounts described above, liability insurance and, to the extent
required and available under the National Flood Insurance Act of 1968, as
amended, flood insurance in an amount equal to that required above. Any amounts
collected by the Master Servicer or any Sub-Servicer under any such policies
(other than amounts to be applied to the restoration or repair of the Mortgaged
Property, or to be released to the Mortgagor in accordance with customary first
or second mortgage servicing procedures) are required to be deposited in the
Principal and Interest Account.
In the event that the Master Servicer obtains and maintains a blanket
policy insuring against fire and hazards of extended coverage on all of the
Mortgage Loans, then, to the extent such policy names the Trustee as loss payee
and provides coverage in an amount equal to the aggregate unpaid principal
balance on the Mortgage Loans without individual fire and hazard insurance, and
otherwise complies with the requirements of the preceding paragraph, the Master
Servicer will be deemed conclusively to have satisfied its obligations with
respect to fire and hazard insurance coverage.
ENFORCEMENT OF DUE ON SALE CLAUSES
When a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Master Servicer, on behalf of the Trustee, will, to the extent it
has knowledge of such conveyance or prospective conveyance, be required to
enforce the rights of the Trustee as the mortgagee of record to accelerate the
maturity of the related Mortgage Loan under any "due-on-sale" clause contained
in the related Mortgage or Mortgage Note; provided, however, that the Master
Servicer will not be required to exercise any such right if the "due-on-sale"
clause, in the reasonable belief of the Master Servicer, is not enforceable
under applicable law or if such enforcement would materially increase the risk
of default or delinquency on, or materially decrease the security for, such
Mortgage Loan. In such event, the Master Servicer will attempt to 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 and, unless prohibited by applicable law or the mortgage
documents, the Mortgagor remains liable thereon. The Master Servicer also will
be authorized with the prior approval of the Certificate Guaranty Insurer, if
any, to enter into a substitution of liability agreement with such person,
pursuant to which the original Mortgagor is released from liability and such
person is substituted as Mortgagor and becomes liable under the Mortgage Note.
REALIZATION UPON DEFAULTED MORTGAGE
The Master Servicer generally will foreclose upon or otherwise comparably
convert the ownership in the name of the Trustee of Mortgaged Properties
relating to defaulted Mortgage Loans as to which no satisfactory arrangements
can be made for collection of delinquent payments. However, the Master Servicer
will be required to take into account the existence of any hazardous substances,
hazardous wastes or solid wastes on a Mortgaged Property in determining whether
to foreclose upon or otherwise comparably convert the ownership of such
Mortgaged Property.
WAIVERS AND DEFERMENTS OF CERTAIN PAYMENTS
The Agreement will require the Master Servicer to make reasonable efforts
to collect all payments called for under the terms and provisions of the
Mortgage Loans. Consistent with the foregoing, the Master Servicer may in its
discretion waive any late payment charge, prepayment charge, assumption fee or
any penalty interest in connection with the prepayment of a Mortgage Loan or any
other fee or charge which the Master Servicer would be entitled to retain as
servicing compensation and may waive, vary or modify any term of any Mortgage
Loan or consent to the postponement of strict compliance with any such term or
in any matter grant indulgence to any Mortgagor, subject to the limitations set
forth in the Agreement. In the event the Master Servicer consents to the
deferment of the due dates for payments due on a Mortgage Note, the Master
Servicer will nonetheless make payment of any required Monthly Advance with
respect to the payments so extended to the same extent as if such installment
were due, owing and delinquent and had not been deferred.
SUB-SERVICERS
The Master Servicer will be permitted under the related Agreement to enter
into sub-servicing arrangements with sub-servicers meeting the requirements of
the related Agreement (each, a "Sub-Servicer"). Such sub-servicing arrangements
will not relieve the Master Servicer of any liability it might otherwise have,
had the sub-servicing arrangement not been entered into.
REMOVAL AND RESIGNATION OF MASTER SERVICER
With respect to each Series of Certificates, the Certificate Guaranty
Insurer, if any, or the Holders of not less than 50 percent of each Class of
Certificates of the related Series, other than the Class R Certificates (the
"Majority Certificateholders"), by notice in writing to the Master Servicer and
with the prior written consent of the Certificate Guaranty Insurer, if any,
which consent may not be unreasonably withheld, may, pursuant to the related
Agreement, remove the Master Servicer upon the occurrence of any of the
following events:
(i) (A) an Event of Nonpayment (as defined below); (B) the
failure by the Master Servicer to make any required Servicing Advance
to the extent such failure materially or adversely affects the
interests of the Certificate Guaranty Insurer, if any, or the
Certificateholders; (C) the failure by the Master Servicer to make any
required Monthly Advance; (D) the failure by the Master Servicer to
remit any Compensating Interest; or (E) any failure by the Master
Servicer to remit to the Trustee any payment required to be made under
the terms of the related Agreement, which in each case continues
unremedied (in the case of the events described in clauses (i)(A),
(i)(B), (i)(D) and (i)(E) for 30 days) after the date upon which
written notice of such failure, requiring the same to be remedied,
shall have been given to the Master Servicer by the Trustee or to the
Master Servicer and the Trustee by any Certificateholder or the
Certificate Guaranty Insurer, if any; or
(ii) failure by the Master Servicer or The Money Store (so
long as The Money Store is the Master Servicer) duly to observe or
perform, in any material respect, any other covenants, obligations or
agreements of the Master Servicer or the Representative, as set forth
in the related Agreement, which failure continues unremedied for a
period of 60 days after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to
the Master Servicer or The Money Store, as the case may be, by the
Trustee or to the Master Servicer or The Money Store, as the case may
be, and the Trustee by any Certificateholder or the Certificate
Guaranty Insurer, if any; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, or for
the winding-up or liquidation of its affairs, shall have been entered
against the Master Servicer and such decree or order shall have
remained in force, undischarged or unstayed for a period of 60 days; or
(iv) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings
of or relating to the Master Servicer or of or relating to all or
substantially all of the Master Servicer's property; or
(v) the Master Servicer shall admit in writing its inability
to pay its debts as they become due, file a petition to take advantage
of any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors, or voluntarily suspend
payment of its obligations.
An "Event of Nonpayment" will generally be defined in the Agreements as a
shortfall on any Remittance Date in moneys (excluding any amounts representing
Insured Payments) available to fund the full amount of the Distribution Amounts
due on such Remittance Date.
The Master Servicer may not assign its obligations under the Agreement nor
resign from the obligations and duties thereby imposed on it except by mutual
consent of the Master Servicer, the Certificate Guaranty Insurer, if any, the
Trustee and the Majority Certificateholders, or upon the determination that the
Master Servicer's duties thereunder are no longer permissible under applicable
law and such incapacity cannot be cured by the Master Servicer. No such
resignation shall become effective until a successor has assumed the Master
Servicer's responsibilities and obligations in accordance with the Agreement.
Upon removal or resignation of the Master Servicer, the Trustee will be the
successor servicer (the "Successor Servicer"), except that the Trustee as
Successor Servicer will not be required to make Monthly Advances and certain
other advances to the extent that the Trustee determines reasonably and in good
faith that such advances would not be recoverable. If, however, the Trustee is
unwilling or unable to act as Successor Servicer, or if the Majority
Certificateholders or the Certificate Guaranty Insurer, if any, so request, the
Trustee may appoint, or petition a court of competent jurisdiction to appoint,
any established mortgage loan servicing institution acceptable to the
Certificate Guaranty Insurer, if any, having a net worth of not less than
$15,000,000 and which is approved as a servicer by FNMA and FHLMC as the
Successor Servicer in the assumption of all or any part of the responsibilities,
duties or liabilities of the Master Servicer.
The Successor Servicer will be entitled to receive the Servicing Fee, the
Contingency Fee and such other compensation as is described under "--Servicing
and Other Compensation and Payment of Expenses" above.
TERMINATION; PURCHASE OF MORTGAGE LOANS
The Trust established under each Agreement will terminate upon notice to
the Trustee following the earlier to occur of (i) the final payment or other
liquidation of such last Mortgage Loan remaining in the related Trust or the
disposition of all REO Property, (ii) the optional purchase of the assets of the
Trust by the Servicer or the Certificate Guaranty Insurer, if any, as described
below, (iii) mutual consent of the Master Servicer, the Certificate Guaranty
Insurer, if any, and all Certificateholders in writing, or (iv) if a REMIC
election has been made for the related Trust, the occurrence of a "qualified
liquidation" of the Trust, as permitted by the REMIC provisions of the Code as
described below; provided, however, that in no event will any Trust terminate
later than twenty-one years after the death of the last survivor of the person
named in the related Agreement.
Subject to provisions in an Agreement concerning adopting a plan of
complete liquidation, on any date on which the aggregate principal balances of
the Mortgage Loans are less than 10% of the Original Pool Principal Balance (or
such other percentage as may be specified in the related Prospectus Supplement),
the Master Servicer may, at its option, and in the absence of the exercise
thereof by the Master Servicer, the Certificate Guaranty Insurer, if any, may,
at its option, purchase, on the next succeeding Remittance Date, all of the
Mortgage Loans and any related REO Properties at a price equal to the
Termination Price.
On any Remittance Date on or after the Cross-Over Date on which Mortgage
Loans with an aggregate principal balance as of the Cut-off Date that equals or
exceeds 25% of the Original Pool Principal Balance (or such other percentage as
may be specified in the related Prospectus Supplement) have become liquidated
Mortgage Loans, the Certificate Guaranty Insurer, if any, may determine to
purchase and may cause the purchase from the Trust of all Mortgage Loans and REO
Properties in the Pool at a price equal to the sum of the Termination Price and
the outstanding and unpaid fees and expenses of the Trustee and the Master
Servicer.
If a REMIC election is made for a Series of Certificates, following a final
determination by the Internal Revenue Service (the "IRS") or by a court of
competent jurisdiction, in either case from which no appeal is taken within the
permitted time for such appeal, or if any appeal is taken, following a final
determination of such appeal from which no further appeal can be taken, to the
effect that the REMIC does not and will no longer qualify as a REMIC pursuant to
Section 860D of the Code (the "Final Determination"), at any time on or after
the date which is 30 calendar days following such Final Determination (i) the
Majority Certificateholders may direct the Trustee on behalf of such Trust to
adopt a "plan of complete liquidation" (within the meaning of Section
860F(a)(4)(B)(i) of the Code) with respect to such REMIC and (ii) the
Certificate Guaranty Insurer, if any, may notify the Trustee of the Certificate
Guaranty Insurer's determination to purchase from the Trust all Mortgage Loans
and all property theretofore acquired by foreclosure, deed in lieu of
foreclosure, or otherwise in respect of any Mortgage Loan, then remaining in
such REMIC at a price (the "Termination Price") equal to the sum of (x) 100% of
the aggregate principal balances of such Mortgage Loans as of the day of
purchase minus amounts remitted from the Principal and Interest Account to the
Certificate Account representing collections of principal on such Mortgage Loans
during the current Due Period, (y) 30 days' interest on such amount computed at
the applicable weighted average of the Adjusted Mortgage Loan Remittance Rates,
and (z) the interest portion of any unreimbursed insured payment made by the
Certificate Guaranty Insurer, if any. Upon receipt of such direction by the
Majority Certificateholders or of such notice from the Certificate Guaranty
Insurer, the Trustee will notify the holders of the Class R Certificates of such
election to liquidate or such determination to purchase, as the case may be (the
"Termination Notice"). The Holders of a majority of the percentage interest of
the Class R Certificates then outstanding may, within 60 days from the date of
receipt of the Termination Notice (the "Purchase Option Period"), at their
option, purchase from the related Trust all Mortgage Loans and all property
theretofore acquired by foreclosure, deed in lieu of foreclosure, or otherwise
in respect of any Mortgage Loan then remaining in the REMIC at a purchase price
equal to the Termination Price.
If, during a Purchase Option Period, the holders of the Class R
Certificates have not exercised the option described in the immediately
preceding paragraph, then upon the expiration of the Purchase Option Period (i)
in the event that the Majority Certificateholders have given the Trustee the
direction described in clause (i) above, the Trustee is required to sell the
Mortgage Loans and such other property in the REMIC and distribute the proceeds
of the liquidation of the REMIC, each in accordance with the plan of complete
liquidation, such that, if so directed, the liquidation of the REMIC and the
distribution of the proceeds of the liquidation occur no later than the close of
the 60th day, or such later day as the Majority Certificateholders shall permit
or direct in writing, after the expiration of the Purchase Option Period and
(ii) in the event that the Certificate Guaranty Insurer has given the Trustee
notice of the Certificate Guaranty Insurer's determination to purchase the
assets described in clause (ii) preceding, the Certificate Guaranty Insurer
shall so purchase such assets within 60 days after the expiration of the
Purchase Option Period.
Following a Final Determination, the holders of a majority of the
percentage interest of the Class R Certificates then outstanding may, at their
option and upon delivery to the Trustee and the Certificate Guaranty Insurer, if
any, of an opinion of nationally recognized tax counsel selected by the Holders
of such Class R Certificates, which opinion shall be reasonably satisfactory in
form and substance to the Majority Certificateholders and the Certificate
Guaranty Insurer, if any, that the effect of the Final Determination is to
increase substantially the probability that the gross income of the REMIC will
be subject to federal taxation, purchase from the Trust all Mortgage Loans and
all property theretofore acquired by foreclosure, deed in lieu of foreclosure,
or otherwise in respect of any Mortgage Loan then remaining in the applicable
REMIC at a purchase price equal to the Termination Price. The foregoing opinion
shall be deemed satisfactory unless the Majority Certificateholders give the
holders of a majority of percentage interests in the Class R Certificates notice
that such opinion is not satisfactory within thirty days after receipt of such
opinion.
CONTROL BY HOLDERS
Each Agreement will provide that the Majority Certificate-holders may
exercise any trust or power conferred on the Trustee with respect to the
Certificates or the Trusts, upon satisfaction of certain conditions set forth in
the Agreements; provided, however, that with respect to any action or event
affecting only one or more Classes of Certificates, only Holders of such Class
or Classes may exercise such trust or power.
AMENDMENT
Each Agreement may be amended from time to time by the Master Servicer and
the Trustee by written agreement, upon the prior written consent of the
Certificate Guaranty Insurer, if any, without the notice to, or consent of, the
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions therein, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions of such Agreement, or any
agreement for the retention of each Trustee's Mortgage File; provided, however,
that such action shall not, as evidenced by an Opinion of Counsel delivered to
the Trustee, adversely affect the interest of any Certificateholder or any other
party and further provided that no such amendment shall reduce in any manner the
amount of, or delay the timing of, any amounts which are required to be
distributed on any Certificate without the consent of the Holder of such
Certificate, or change the rights or obligations of any other party thereto
without the consent of such party.
Each Agreement may be amended from time to time by The Money Store, the
Master Servicer and the Trustee with the consent of the Certificate Guaranty
Insurer, if any, and the Holders of the majority of the percentage interest in
each Class of Certificates affected thereby 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 any provisions thereof; provided,
however, that if a REMIC election is made for the applicable Trust, no such
amendment shall be made unless the Trustee receives an Opinion of Counsel, at
the expense of the party requesting the change, that such change will not
adversely affect the status of the Trust as a REMIC or cause a tax to be imposed
on the REMIC, and provided further, that no such amendment shall reduce in any
manner the amount of, or delay the timing of, any amounts which are required to
be distributed on any Certificates without the consent of the Holders of 100% of
each Class of Certificates affected thereby.
Each Agreement may be amended from time to time by the Master Servicer, The
Money Store and the Trustee by written agreement, upon the prior written consent
of the Certificate Guaranty Insurer, if any, without the notice to or consent of
the Certificateholders, in connection with the substitution of cash, a letter of
credit or any other collateral deposited in a Reserve Account.
It will not be necessary for the consent of holders to approve the
particular form of any proposed amendment, but it will be sufficient if such
consent shall approve the substance thereof.
THE TRUSTEE
Each Prospectus Supplement will name the Trustee under the related
Agreement. The Agreement will provide that the Trustee may resign at any time,
in which event the Representative will be obligated to appoint a successor
Trustee. The Representative may also remove the Trustee if the Trustee ceases to
be eligible to continue as such under the Agreement or if the Trustee becomes
insolvent. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the appointment
by the successor Trustee.
<PAGE>
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
GENERAL
The following discussion contains summaries, which are general in nature,
of certain legal matters relating to the Mortgage Loans. Laws and practices
relating to the legal effects and enforcement of mortgages and deeds of trust
vary somewhat from state to state. In general, however, the most significant
applicable legal principles are similar in all states. The following discussion
addresses the more significant legal principles applicable to mortgages and
deeds of trust in all states. It should be noted that some of the Mortgage Loans
may relate to Mortgaged Properties located in California, which has enacted
various laws, not common to most other states, which impose special limitations
on the remedies available to the holders of mortgages and deeds of trust. These
laws, called "anti-deficiency laws," are discussed below.
NATURE OF THE MORTGAGE ASSETS
Single Family Loans, FHA Loans, Secured Conventional Home Improvement Loans
and Multifamily Loans. The Single Family Loans, FHA Loans, Secured Conventional
Home Improvement Loans and Multifamily Loans generally will be secured by
mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice in the state in which the property subject to the
loan is located. A mortgage creates a lien upon the real property encumbered by
the mortgage, which lien is generally not prior to the lien for real estate
taxes and assessments. Priority between mortgages depends on their terms and
generally on the order of recording with a state or county office. There are two
parties to a mortgage, the mortgagor, who is the borrower and owner of the
mortgaged property, and the mortgagee, who is the lender. The mortgagor delivers
to the mortgagee a note or bond and the mortgage. Although a deed of trust is
similar to a mortgage, a deed of trust formally has three parties, the
borrower-property owner 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, generally with a power of sale, to
the trustee to secure payment of the obligation. A security deed and a deed to
secure debt are special types of deeds which indicate on their face that they
are granted to secure an underlying debt. By executing a security deed or deed
to secure debt, the grantor conveys title to, as opposed to merely creating a
lien upon, the subject property to the grantee until such time as the underlying
debt is repaid. The mortgagee's authority under a mortgage, the trustee's
authority under a deed of trust and the grantee's authority under a security
deed or deed to secure debt are governed by law and, with respect to some deeds
of trust, the directions of the beneficiary.
Condominiums. Certain of the Mortgage Loans may be loans secured by
condominium units. The condominium building may be a multi-unit building or
buildings, or a group of buildings whether or not attached to each other,
located on property subject to condominium ownership. Condominium ownership is a
form of ownership of real property wherein each owner is entitled to the
exclusive ownership and possession of his or her individual condominium unit and
also owns a proportionate undivided interest in all parts of the condominium
building (other than the individual condominium units) and all areas or
facilities, if any, for the common use of the condominium units. The condominium
unit owners appoint or elect the condominium association to govern the affairs
of the condominium.
Cooperatives. Certain of the Mortgage Loans may be Cooperative Loans. The
Cooperative (i) owns all the real property that comprises the project, including
the land and the apartment building comprised of separate dwelling units and
common areas or (ii) leases the land generally by a long-term ground lease and
owns the apartment building. The Cooperative is directly responsible for project
management and, in most cases, payment of real estate taxes and hazard and
liability insurance. If there is a blanket mortgage on the Cooperative and/or
underlying land, as is generally the case, the Cooperative, as project
mortgagor, is also responsible for meeting these mortgage obligations. A blanket
mortgage is ordinarily incurred by the Cooperative in connection with the
construction or purchase of the Cooperative's apartment building. The interest
of the occupants under proprietary leases or occupancy agreements to which the
Cooperative is a party are generally subordinate to the interest of the holder
of the blanket mortgage in that building. If the Cooperative is unable to meet
the payment obligations arising under its blanket mortgage, the mortgagee
holding the blanket mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements. In addition, the
blanket mortgage on a Cooperative may provide financing in the form of a
mortgage that does not fully amortize with a significant portion of principal
being due in one lump sum at final maturity. The inability of the Cooperative to
refinance this mortgage and its consequent inability to make such final payment
could lead to foreclosure by the mortgagee providing the financing. A
foreclosure in either event by the holder of the blanket mortgage could
eliminate or significantly diminish the value of any collateral held by the
lender who financed the purchase by an individual tenant-stockholder of
Cooperative shares or, in the case of a Trust including Cooperative Loans, the
collateral securing the Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a Cooperative must make a monthly
payment to the Cooperative representing such tenant-stockholder's pro rata share
of the Cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying rights is financed through a
Cooperative share loan evidenced by a promissory note and secured by a security
interest in the occupancy agreement or proprietary lease and in the related
Cooperative shares. The lender takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement, and a financing
statement covering the proprietary lease or occupancy agreement and the
Cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of Cooperative
shares.
Contracts. Each Contract evidences both (a) the obligation of the obligor
to repay the loan evidenced thereby, and (b) the grant of a security interest in
the Manufactured Home to secure repayment of such loan. The Contracts generally
are "chattel paper" as defined in the UCC in effect in the states in which the
Manufactured Homes initially were registered. Pursuant to the UCC, the rules
governing the sale of chattel paper are similar to those governing the
perfection of a security interest in chattel paper. Unless otherwise specified
in the Prospectus Supplement, under the Agreement, the Representative will
transfer or cause the transfer of physical possession of the Contracts to the
Trustee or its custodian. In addition, the Representative will make or cause to
be made an appropriate filing of a UCC-1 financing statement in the appropriate
states to give notice of the Trustee's ownership of the Contracts.
Under the laws of most states, manufactured housing constitutes personal
property and is subject to the motor vehicle registration laws of the state or
other jurisdiction in which the unit is located. In a few states, where
certificates of title are not required for Manufactured Homes, security
interests are perfected by the filing of a financing statement under Article 9
of the UCC. Such financing statements are effective for five years and must be
renewed at the end of each five years. The certificate of title laws adopted by
the majority of states provide that ownership of motor vehicles and manufactured
housing shall be evidenced by a certificate of title issued by the motor
vehicles department (or a similar entity) of such state. In the states which
have enacted certificate of title laws, a security interest in a unit of
manufactured housing, so long as it is not attached to land in so permanent a
fashion as to become a fixture, is generally perfected by the recording of such
interest on the certificate of title to the unit in the appropriate motor
vehicle registration office or by delivery of the required documents and payment
of a fee to such office, depending on state law. Unless otherwise specified in
the related Prospectus Supplement, the Master Servicer will be required to
effect such notation or delivery of the required documents and fees, and to
obtain possession of the certificate of title, as appropriate under the laws of
the state in which any Manufactured Home is registered. If the Master Servicer
fails, due to clerical errors or otherwise, to effect such notation or delivery,
or files the security interest under the wrong law (for example, under a motor
vehicle title statute rather than under the UCC, in a few states), the Trustee
may not have a first priority security interest in the Manufactured Home
securing a Contract.
As manufactured homes have become larger and often have been attached to
their sites without any apparent intention to move them, courts in many states
have held that manufactured homes may, under certain circumstances, become
subject to real estate title and recording laws. As a result, a security
interest in a manufactured home could be rendered subordinate to the interests
of other parties claiming an interest in the home under applicable state real
estate law. In order to perfect a security interest in a Manufactured Home under
real estate laws, the holder of the security interest must file either a
"fixture filing" under the provisions of the UCC or a real estate mortgage under
the real estate laws of the state where the home is located. These filings must
be made in the real estate records office of the county where the home is
located. Generally, Contracts will contain provisions prohibiting the obligor
from permanently attaching the Manufactured Home to its site. So long as the
obligor does not violate this agreement, a security interest in the Manufactured
Home will be governed by the certificate of title laws or the UCC, and the
notation of the security interest on the certificate of title or the filing of a
UCC financing statement will be effective to maintain the priority of the
security interest in the Manufactured Home. If, however, a Manufactured Home is
permanently attached to its site, other parties could obtain an interest in the
Manufactured Home which is prior to the security interest originally retained by
the Seller and transferred to the Representative.
The Representative will assign or cause to be assigned a security interest
in the Manufactured Homes to the Trustee, on behalf of the Certificateholders.
Unless otherwise specified in the related Prospectus Supplement, neither the
Representative, the Master Servicer nor the Trustee will amend the certificates
of title to identify the Trustee, on behalf of the Certificateholders, as the
new secured party and, accordingly, the Representative or the Seller will
continue to be named as the secured party on the certificates of title relating
to the Manufactured Homes. In most states, such assignment is an effective
conveyance of such security interest without amendment of any lien noted on the
related certificate of title and the new secured party succeeds to the
Representative's rights as the secured party. However, in some states there
exists a risk that, in the absence of an amendment to the certificate of title,
such assignment of the security interest might not be held effective against
creditors of the Representative or Seller.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Trustee on
the certificate of title or delivery of the required documents and fees should
be sufficient to protect the Trustee against the rights of subsequent purchasers
of a Manufactured Home or subsequent lenders who take a security interest in the
Manufactured Home. If there are any Manufactured Homes as to which the security
interest assigned to the Representative and the Trustee is not perfected, such
security interest would be subordinate to, among others, subsequent purchasers
for value of Manufactured Homes and holders of perfected security interests.
There also exists a risk in not identifying the Trustee, on behalf of the
Certificateholders as the new secured party on the certificate of title that,
through fraud or negligence, the security interest of the Trustee could be
released.
If the owner of a Manufactured Home moves it to a state other than the
state in which such Manufactured Home initially is registered, under the laws of
most states the perfected security interest in the Manufactured Home would
continue for four months after such relocation and thereafter until the owner
re-registers the Manufactured Home in such state. If the owner were to relocate
a Manufactured Home to another state and re-register the Manufactured Home in
such state, and if steps are not taken to re-perfect the Trustee's security
interest in such state, the security interest in the Manufactured Home would
cease to be perfected. A majority of states generally require surrender of a
certificate of title to re-register a Manufactured Home; accordingly, the
Trustee must surrender possession if it holds the certificate of title to such
Manufactured Home or, in the case of Manufactured Homes registered in states
which provide for notation of lien, the Master Servicer would receive notice of
surrender if the security interest in the Manufactured Home is noted on the
certificate of title. Accordingly, the Trustee would have the opportunity to
re-perfect its security interest in the Manufactured Home in the state of
relocation. In states which do not require a certificate of title for
registration of a Manufactured Home, re-registration could defeat perfection.
Similarly, when an obligor under a manufactured housing conditional sales
contract sells a Manufactured Home, the obligee must surrender possession of the
certificate of title or it will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related manufactured housing conditional sales contract before release of the
lien. The Master Servicer will be obligated to take such steps, at the Master
Servicer's expense, as are necessary to maintain perfection of security
interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Representative will represent that it has no knowledge of any such liens with
respect to any Manufactured Home securing a Contract. However, such liens could
arise at any time during the term of a Contract. No notice will be given to the
Trustee or Certificateholders in the event such a lien arises.
FORECLOSURE/REPOSSESSION
Single Family Loans, FHA Loans, Secured Conventional Home Improvement Loans
and Multifamily Loans. Foreclosure of a deed of trust is generally accomplished
by a non-judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction 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, to any person who has recorded a request for a copy of any
notice of default and notice of sale, to any successor in interest to the
borrower-trustor, to the beneficiary of any junior deed of trust and to certain
other persons. Before such non-judicial sales take place, typically a notice of
sale must be posted in a public place and published during a specific period of
time in one or more newspapers, posted on the property, and sent to parties
having an interest of record in the 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. When the
mortgagee's right to foreclosure is contested, the legal proceedings necessary
to resolve the issue can be time-consuming. After the completion of a judicial
foreclosure proceeding, the court generally issues a judgment of foreclosure and
appoints a referee or other court officer to conduct the sale of the property.
In general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a statutorily prescribed reinstatement period, cure a
monetary default by paying the entire amount in arrears plus other designated
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. After the reinstatement period has
expired without the default having been cured, the borrower or junior lienholder
no longer has the right to reinstate the loan and must pay the loan in full to
prevent the scheduled foreclosure sale. If the mortgage 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.
Although foreclosure sales are typically public sales, frequently no third
party purchaser bids in excess of the lender's lien because of the difficulty of
determining the exact status of title to the property, the possible
deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
the lender will assume the burden of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender will commonly obtain the services of
a real estate broker and pay the broker's commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of the
borrower's defaults under the loan documents. Some courts have been faced with
the issue of whether federal or state constitutional provisions reflecting due
process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. 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 does not involve sufficient state
action to afford constitutional protection to the borrower.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in the building but who did not purchase shares in the
Cooperative when the building was so converted.
Cooperative Loans. The Cooperative shares owned by the tenant-stockholder
and pledged to the lender are, in almost all cases, subject to restrictions on
transfer as set forth in the Cooperative's Certificate of Incorporation and
Bylaws, as well as the proprietary lease or occupancy agreement, and may be
canceled by the Cooperative for failure by the tenant-stockholder to pay rent or
other obligations or charges owed by such tenant-stockholder, including
mechanics' liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the UCC and the security
agreement relating to those shares. Article 9 of the UCC requires that a sale be
conducted in a "commercially reasonable" manner. Whether a foreclosure sale has
been conducted in a "commercially reasonable" manner will depend on the facts in
each case. In determining commercial reasonableness, a court will look to the
notice given the debtor and the method, manner, time, place and terms of the
foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency. See "Anti-Deficiency Legislation and Other
Limitations on Lenders" below.
Contracts. The Master Servicer on behalf of the Trustee, to the extent
required by the related Agreement, may take action to enforce the Trustee's
security interest with respect to Contracts in default by repossession and
resale of the Manufactured Homes securing such Contracts in default. So long as
the Manufactured Home has not become subject to the real estate law, a creditor
can repossess a Manufactured Home securing a Contract by voluntary surrender, by
"self-help" repossession that is "peaceful" (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a Contract must give the
debtor a number of days' notice, generally varying from 10 to 30 days depending
on the state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit so that the debtor may
redeem at or before such resale. In the event of such repossession and resale of
a Manufactured Home, the Trustee would be entitled to be paid out of the sale
proceeds before such proceeds could be applied to the payment of the claims of
unsecured creditors or the holders of subsequently perfected security interests
or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency on repossession and
resale of the Manufactured Home securing such a debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral.
RIGHTS OF REDEMPTION
Single Family Loans, FHA Loans, Secured Conventional Home Improvement Loans
and Multifamily Loans. 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.
Contracts. While state laws do not usually require notice to be given
debtors prior to repossession, many states do require delivery of a notice of
default and of the debtor's right to cure defaults before repossession. The law
in most states also requires that the debtor be given notice of sale prior to
the resale of the home so that the owner may redeem at or before resale. In
addition, the sale must comply with the requirements of the UCC. Manufactured
Homes are most often resold through private sale.
FORECLOSURE IN CALIFORNIA
It is expected that a significant portion of the Mortgage Assets (by
principal balance) will be secured by properties located in California.
Foreclosure of a deed of trust in California may be effected by a judicial or
nonjudicial foreclosure proceeding, with the choice of remedy depending on the
circumstances. Where the likelihood of a large recoverable deficiency is
present, a judicial foreclosure action may be preferred. The discussion above
under the heading "Foreclosure/Repossession" and "Rights of Redemption" are
generally accurate with respect to foreclosure of a deed of trust in California.
Generally, upon the completion of a non-judicial foreclosure sale in
California, the foreclosing lender is prohibited from obtaining a deficiency
judgment against the borrower. A deficiency judgment is available following a
judicial foreclosure, subject to the limitation of the excess of the outstanding
debt over the fair market value of the property at the time of sale, and in no
event may the deficiency exceed the difference between the outstanding debt and
the purchase price at the foreclosure sale. However, in the case of certain
purchase money mortgage loans, a lender may be prohibited by statute from
obtaining a deficiency judgment. California law also requires the deed of trust
beneficiary to exhaust all real property security in a single action (i.e. in a
judicial foreclosure) before a deficiency judgment may be sought against the
borrower.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states (including California) have imposed statutory prohibitions
which 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 amount due to the lender and the fair market value of the
real property sold at the foreclosure sale. As a result of these prohibitions,
it is anticipated that in many instances the Master Servicer will not seek
deficiency judgments against defaulting mortgagors. Under the laws applicable in
most states, a creditor is entitled to obtain a deficiency judgment for any
deficiency following possession and resale of a Manufactured Home. However, some
states impose prohibitions or limitations on deficiency judgments in such cases.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws
and state laws (including California law) 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, in a
proceeding under the federal Bankruptcy Code, a lender may not foreclose on the
Mortgaged Property without the permission of the bankruptcy court. The
rehabilitation plan proposed by the debtor may provide, if the court determines
that the value of the Mortgaged Property is less than the principal balance of
the mortgage loan, for the reduction of the secured indebtedness to the value of
the Mortgaged Property as of the date of the commencement of the bankruptcy,
rendering the lender a general unsecured creditor for the difference, and also
may reduce the monthly payments due under such mortgage loan, change the rate of
interest and alter the mortgage loan repayment schedule. The effect of any such
proceedings under the federal Bankruptcy Code, including but not limited to any
automatic stay, could result in delays in receiving payments on the Mortgage
Loans underlying a Series of Certificates and possible reductions in the
aggregate amount of such payments. Some states also have homestead exemption
laws which would protect a principal residence from a liquidation in bankruptcy.
Federal and local real estate tax laws provide priority to certain tax
liens over the lien of a mortgage or secured party. Numerous federal and state
consumer protection laws impose substantive requirements upon mortgage lenders
and manufactured housing lenders in connection with the origination, servicing
and enforcement of Single Family Loans, Cooperative Loans and Contracts. These
laws include the federal Truth-in-Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act and related statutes and regulations. These federal and state laws
impose specific statutory liabilities upon lenders who fail to comply with the
provisions of the law. In some cases, this liability may affect assignees of the
loans or contracts.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule") has the effect of subjecting a seller (and certain related
creditors and their assignees) in a consumer credit transaction and any assignee
of the creditor to all claims and defenses which the debtor in the transaction
could assert against the seller of the goods. Liability under the FTC Rule is
limited to the amounts paid by a debtor on the contract, and the holder of the
contract may also be unable to collect amounts still due thereunder.
Most of the Contracts in a Mortgage Pool will be subject to the
requirements of the FTC Rule. Accordingly, the Trustee, as holder of the
Contracts, will be subject to any claims or defenses that the purchaser of the
related Manufactured Home may assert against the seller of the Manufactured
Home, subject to a maximum liability equal to the amounts paid by the obligor on
the Contract. If an obligor is successful in asserting any such claim or
defense, and if the seller of such Contract had or should have had knowledge of
such claim or defense, the Master Servicer will have the right to require the
seller to repurchase the Contract because of a breach of such seller's
representation and warranty that no claims or defenses exist which would affect
the obligor's obligation to make the required payments under the Contract.
Generally, Article 9 of the UCC governs foreclosure on Cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner
DUE-ON-SALE CLAUSES
Unless otherwise provided in the related Prospectus Supplement, each
conventional Mortgage Loan will contain a due-on-sale clause which will
generally provide that if the mortgagor or obligor sells, transfers or conveys
the Mortgaged Property, the loan or contract may be accelerated by the mortgager
or secured party. The Garn-St Germain Depository Institutions Act of 1982 (the
"Garn-St Germain Act"), subject to certain exceptions, preempts state
constitutional, statutory and case law prohibiting the enforcement of
due-on-sale clauses. As to loans secured by an owner-occupied residence (which
would include a Manufactured Home), the Garn-St Germain Act sets forth nine
specific instances in which a mortgagee covered by the Act may not exercise its
rights under a due-on-sale clause, notwithstanding the fact that a transfer of
the property may have occurred. The inability to enforce a due-on-sale clause
may result in transfer of the related Mortgaged Property to an uncreditworthy
person, which could increase the likelihood of default.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed after a
certain period of time following origination of mortgage loans with respect to
prepayments on loans secured by liens encumbering owner-occupied residential
properties. Since many of the Mortgaged Properties will be owner-occupied, it is
anticipated that prepayment charges may not be imposed with respect to many of
the Mortgage Loans. The absence of such a restraint on prepayment, particularly
with respect to fixed rate Mortgage Loans having higher Mortgage Rates or APR's,
may increase the likelihood of refinancing or other early retirement of such
loans or contracts. Legal restrictions, if any, on prepayment of Multifamily
Loans will be described in the related Prospectus Supplement.
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 Office of Thrift
Supervision, 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 the states to reimpose
interest rate limits by adopting, before April 1, 1983, a law or constitutional
provision which expressly rejects an 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. Certain states have taken action to reimpose interest
rate limits and/or to limit discount points or other charges.
Title V also provides that, subject to the following conditions, state
usury limitations will not apply to any loan which is secured by a first lien on
certain kinds of manufactured housing. The Contracts would be covered if they
satisfy certain conditions, among other things, governing the terms of any
prepayment, late charges and deferral fees and requiring a 30-day notice period
prior to instituting any action leading to repossession of or foreclosure with
respect to the related unit. Title V authorized any state to reimpose
limitations on interest rates and finance charges by adopting before April 1,
1983 a law or constitutional provision which expressly rejects application of
the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V was not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on loans covered by Title V. In any state in which application of Title
V was expressly rejected or a provision limiting discount points or other
charges has been adopted, no Contract which imposes finance charges or provides
for discount points or charges in excess of permitted levels will be included in
any Trust Fund.
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 Master Servicer to
collect full amounts of interest on certain of the Mortgage Loans. Unless
otherwise provided in the applicable Prospectus Supplement, any shortfall in
interest collections resulting from the application of the Relief Act could
result in losses to the holders of the Certificates. In addition, the Relief Act
imposes limitations which would impair the ability of the Master 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.
PRODUCT LIABILITY AND RELATED LITIGATION
Certain environmental and product liability claims may be asserted alleging
personal injury or property damage from the existence of certain chemical
substances which may be present in building materials. For example, formaldehyde
and asbestos have been and in some cases are incorporated into many building
materials utilized in manufactured and other housing. As a consequence, lawsuits
may arise from time to time asserting claims against manufacturers or builders
of the housing, suppliers of component parts, and related persons in the
distribution process. Plaintiffs have won such judgments in certain such
lawsuits.
Under the FTC Rule described above, the holder of any Contract secured by a
Manufactured Home with respect to which a product liability claim has been
successfully asserted may be liable to the obligor for the amount paid by the
obligor on the related Contract and may be unable to collect amounts still due
under the Contract. Unless otherwise described in the related Prospectus
Supplement, the successful assertion of such claim constitutes a breach of a
representation or warranty of the Seller, and the Certificateholders would
suffer a loss only to the extent that (i) the Seller breached its obligation to
repurchase the Contract in the event an obligor is successful in asserting such
a claim, and (ii) the Seller, the Representative or the Trustee were
unsuccessful in asserting any claim of contribution or subrogation on behalf of
the Certificateholders against the manufacturer or other persons who were
directly liable to the plaintiff for the damages. Typical products liability
insurance policies held by manufacturers and component suppliers of manufactured
homes may not cover liabilities arising from formaldehyde and certain other
chemicals in manufactured housing, with the result that recoveries from such
manufacturers, suppliers or other persons may be limited to their corporate
assets without the benefit of insurance.
To the extent described in the Prospectus Supplement, the Mortgage Loans
may include installment sales contracts entered into with the builders of the
homes located on the Mortgaged Properties. The Mortgagors in some instances may
have claims and defenses against the builders which could be asserted against a
Trust.
ENVIRONMENTAL CONSIDERATIONS
Environmental conditions may diminish the value of the Mortgage Assets and
give rise to liability of various parties. There are many federal and state
environmental laws concerning hazardous waste, hazardous substances, gasoline,
radon and other materials which may affect the property securing the Mortgage
Assets. For example, under the federal Comprehensive Environmental Response
Compensation and Liability Act, as amended, and possibly under state law in
certain states, a secured party which takes a deed in lieu of foreclosure or
purchases a mortgaged property at a foreclosure sale may become liable in
certain circumstances for the costs of a 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
costs could become a liability of a Trust and reduce the amounts otherwise
distributable to the Certificateholders if a Mortgaged Property securing a
Mortgage Loan became the property of such Trust in certain circumstances and if
such Cleanup Costs were incurred. Moreover, certain states by statute impose a
lien for any Cleanup Costs incurred by such state on the property that is the
subject of such Cleanup Costs (a "Superlien"). All subsequent liens on such
property are subordinated to such Superlien and, in some states, even prior
recorded liens are subordinated to such Superliens. In the latter states, the
security interest of the Trustee in a property that is subject to such a
Superlien could be adversely affected.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Stroock & Stroock & Lavan LLP, special Federal tax
counsel, ("Federal Tax Counsel"), the following are the material federal income
tax consequences of the purchase, ownership and disposition of the Certificates
offered hereby. The discussion, and the opinions referred to below, are based on
laws, regulations, rulings and decisions now in effect (or, in the case of
certain regulations, proposed), all of which are subject to change or possibly
differing interpretations. Because tax consequences may vary based on the status
or tax attributes of the owner of a Certificate, prospective investors should
consult their own tax advisors in determining the federal, state, local and
other tax consequences to them of the purchase, ownership and disposition of
Certificates. For purposes of this tax discussion (except with respect to
information reporting, or where the context indicates otherwise), the terms
"Certificateholder" and "holder" mean the beneficial owner of a Certificate.
REMIC ELECTIONS
Under the Internal Revenue Code of 1986, as amended (the "Code"), an
election may be made with respect to each Trust related to a series of
Certificates to treat such Trust or certain assets of such Trust as a "real
estate mortgage investment conduit" ("REMIC"). The Prospectus Supplement for
each series of Certificates will indicate whether a REMIC election will be made
with respect to the related Trust. In addition, if the related Prospectus
Supplement so provides, the transaction documents for a Trust may provide that
an election will be made on or after September 1, 1997 to qualify such trust as
a Financial Asset Securitization Investment Trust pursuant to new provisions of
the Code which will be effective as of such date. To the extent provided in the
Prospectus Supplement for a series, Certificateholders may also have the benefit
of a Reserve Account and of certain agreements (each, a "Yield Supplement
Agreement") under which payment will be made from the Reserve Account in the
event that interest accrued on the Mortgage Loans at their Mortgage Interest
Rates is insufficient to pay interest on the Certificates of such Series (a
"Basis Risk Shortfall"). If a REMIC election is to be made, the Prospectus
Supplement will designate the Certificates of such series as "regular interests"
("REMIC Regular Certificates") in the REMIC (within the meaning of Section
860G(a)(1) of the Code) or as the "residual interest" ("REMIC Residual
Certificates") in the REMIC (within the meaning of Section 860G(a)(2) of the
Code). The terms "REMIC Certificates" and "Non-REMIC Certificates" denote,
respectively, Certificates of a series with respect to which a REMIC election
will, or will not, be made. The discussion below is divided into two parts, the
first part applying only to REMIC Certificates and the second part applying only
to Non-REMIC Certificates.
REMIC CERTIFICATES
With respect to each series of REMIC Certificates, the Trustee will agree
in the Agreement to elect to treat the related Trust or certain assets of such
Trust as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Upon the issuance of each series of REMIC Certificates,
Federal Tax Counsel will deliver its opinion generally to the effect that, with
respect to each series of REMIC Certificates for which a REMIC election is to be
made, under then existing law and assuming a proper and timely REMIC election
and ongoing compliance with the provisions of the Agreement and applicable
provisions of the Code and applicable Treasury regulations, the related Trust or
certain assets of such Trust will be a REMIC and the REMIC Certificates will be
considered to evidence ownership of "regular interests" or "residual interests"
within the meaning of the REMIC provisions of the Code.
To the extent provided in the Prospectus Supplement for a series, REMIC
Regular Certificateholders who are entitled to payments from the Reserve Account
in the event of a Basis Risk Shortfall will be required to allocate their
purchase price between their beneficial ownership interests in the related REMIC
regular interests and Yield Supplement Agreements, and will be required to
report their income realized with respect to each, calculated taking into
account such allocation. In general, such allocation would be based on the
respective fair market values of the REMIC regular interests and the related
Yield Supplement Agreements on the date of purchase of the related REMIC Regular
Certificate. However, a portion of the purchase price of a REMIC Regular
Certificate should be allocated to accrued but unpaid interest. No
representation is or will be made as to the fair market value of the Yield
Supplement Agreements or the relative values of the REMIC regular interests and
the Yield Supplement Agreements, upon initial issuance of the related REMIC
Regular Certificates or at any time thereafter. REMIC Regular Certificateholders
are advised to consult their own tax advisors concerning the determination of
such fair market values. Under the Agreement, holders of applicable classes of
REMIC Regular Certificates will agree that, for federal income tax purposes,
they will be treated as owners of the respective class of regular interests and
of the corresponding Yield Supplement Agreement.
Status of REMIC Certificates. The REMIC Certificates will be "real estate
assets" for purposes of Section 856(c)(5)(A) of the Code and assets described in
Section 7701(a)(19)(C) of the Code (assets qualifying under one or both of those
sections, applying each section separately, "qualifying assets") to the extent
that the REMIC's assets are qualifying assets, but not to the extent that the
REMIC's assets consist of Yield Supplement Agreements. However, if at least 95
percent of the REMIC's assets are qualifying assets, then 100 percent of the
REMIC Certificates will be qualifying assets. Similarly, income on the REMIC
Certificates will be treated as "interest on obligations secured by mortgages on
real property" within the meaning of Section 856(c)(3)(B) of the Code, subject
to the limitations of the preceding two sentences. In addition to Mortgage
Assets, the REMIC's assets will include payments on Mortgage Assets held pending
distribution to holders of REMIC Certificates, amounts in reserve accounts (if
any), other credit enhancements (if any) and possibly buydown funds ("Buydown
Funds"). The Mortgage Assets generally will be qualifying assets under the
foregoing sections of the Code except to the extent provided in the Prospectus
Supplement. However, Mortgage Assets that are not secured by residential real
property or real property used primarily for church purposes may not constitute
qualifying assets under Section 7701(a)(19)(C)(v) of the Code. In addition, to
the extent that the principal amount of a Mortgage Asset exceeds the value of
the property securing the Mortgage Asset, it is unclear and Federal Tax Counsel
is unable to opine whether the loans will be qualifying assets. The regulations
under Sections 860A through 860G of the Code (the "REMIC Regulations") treat
credit enhancements as part of the mortgage or pool of mortgages to which they
relate, and therefore credit enhancements generally should be qualifying assets.
Regulations issued in conjunction with the REMIC Regulations provide that
amounts paid on Mortgage Assets and held pending distribution to holders of
Certificates ("cash flow investments") will be treated as qualifying assets. It
is unclear whether amounts in a Reserve Account or Buydown Funds would also
constitute qualifying assets under any of those provisions. The Prospectus
Supplement for each series will indicate (if applicable) that it has Buydown
Funds. The REMIC Certificates will not be "residential loans" for the purposes
of the residential loan requirement of Section 593(g)(4)(B) of the Code.
TIERED REMIC STRUCTURES
For certain series of Certificates, two or more separate elections may be
made to treat designated portions of the related Trust as REMICs ("Tiered
REMICs") for federal income tax purposes. Upon the issuance of any such series
of Certificates, Federal Tax Counsel will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement and applicable provisions of the Code and applicable
Treasury regulations and rulings, the Tiered REMICs will each qualify under then
existing law as a REMIC and the REMIC Certificates issued by the Tiered REMICs,
respectively, will be considered to evidence ownership of "regular interests" or
"residual interests" in the related REMIC within the meaning of the REMIC
provisions of the Code.
Solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Section 856(c)(5)(A) of the Code and
assets described in Section 7701(a)(19)(C) of the Code, and whether the income
on such Certificates is interest described in Section 856(c)(3)(B) of the Code,
the Tiered REMICs will be treated as one REMIC.
REMIC REGULAR CERTIFICATES
Current Income on REMIC Regular Certificates--General. Except as otherwise
indicated herein, the REMIC Regular Certificates will be treated for federal
income tax purposes (but not necessarily for accounting or other purposes) as
debt instruments that are issued by the REMIC on the date of issuance of the
REMIC Regular Certificates and not as ownership interests in the REMIC or the
REMIC's assets. Holders of REMIC Regular Certificates who would otherwise report
income under a cash method of accounting will be required to report income with
respect to REMIC Regular Certificates under an accrual method.
Payments of interest on REMIC Regular Certificates may be based on a fixed
rate, a variable rate as permitted by the REMIC Regulations, or may consist of a
specified portion of the interest payments on qualified mortgages where such
portion does not vary during the period the REMIC Regular Certificate is
outstanding. The definition of a variable rate for purposes of the REMIC
Regulations is based on the definition of a qualified floating rate for purposes
of the rules governing original issue discount set forth in Sections 1271
through 1275 of the Code and the regulations thereunder (the "OID Regulations")
with certain modifications and permissible variations. See "REMIC Regular
Certificates-Current Income on REMIC Regular Certificates--Original Issue
Discount---Variable Rate REMIC Regular Certificates," below, for a discussion of
the definition of a qualified floating rate for purposes of the OID Regulations.
In contrast to the OID Regulations, for purposes of the REMIC Regulations, a
qualified floating rate does not include any multiple of a qualified floating
rate (also excluding multiples of qualified floating rates that themselves would
constitute qualified floating rates under the OID Regulations), and the
characterization of a variable rate that is subject to a cap, floor or similar
restriction as a qualified floating rate for purposes of the REMIC Regulations
will not depend upon the OID Regulations relating to caps, floors, and similar
restrictions. See "REMIC Regular Certificates-Current Income on REMIC Regular
Certificates--Original Issue Discount---Variable Rate REMIC Regular
Certificates," below, for a discussion of the OID Regulations relating to caps,
floors and similar restrictions. A qualified floating rate, as defined above for
purposes of the REMIC Regulations (a "REMIC qualified floating rate"), qualifies
as a variable rate for purposes of the REMIC Regulations if such REMIC qualified
floating rate is set at a "current rate" as defined in the OID Regulations. In
addition, a rate equal to the highest, lowest or an average of two or more REMIC
qualified floating rates qualifies as a variable rate for REMIC purposes. A
REMIC Regular Certificate also may have a variable rate based on a weighted
average of the interest rates on some or all of the qualified mortgages held by
the REMIC where each qualified mortgage taken into account has a fixed rate or a
variable rate that is permissible under the REMIC Regulations. Further, a REMIC
Regular Certificate may have a rate that is the product of a REMIC qualified
floating rate or a weighted average rate and a fixed multiplier, is a constant
number of basis points more or less than a REMIC qualified floating rate or a
weighted average rate, or is the product, plus or minus a constant number of
basis points, of a REMIC qualified floating rate or a weighted average rate and
a fixed multiplier. An otherwise permissible variable rate for a REMIC Regular
Certificate, described above, will not lose its character as such because it is
subject to a floor or a cap, including a "funds available cap" as that term is
defined in the REMIC Regulations. Lastly, a REMIC Regular Certificate will be
considered as having a permissible variable rate if it has a fixed or otherwise
permissible variable rate during one or more payment or accrual periods and
different fixed or otherwise permissible variable rates during other payment or
accrual periods.
Original Issue Discount. REMIC Regular Certificates of certain series may
be issued with "original issue discount" within the meaning of Section 1273(a)
of the Code. Holders of REMIC Regular Certificates issued with original issue
discount generally must include original issue discount in gross income for
federal income tax purposes as it accrues, in advance of receipt of the cash
attributable to such income, under a method that takes account of the
compounding of interest. The Code requires that information with respect to the
original issue discount accruing on any REMIC Regular Certificate be reported
periodically to the Internal Revenue Service and to certain categories of
holders of such REMIC Regular Certificates.
Each Trust will report original issue discount, if any, to the holders of
REMIC Regular Certificates based on the OID Regulations. OID Regulations
concerning contingent payment debt instruments do not apply to the REMIC Regular
Certificates.
The OID Regulations provide that, in the case of a debt instrument such as
a REMIC Regular Certificate, (i) the amount and rate of accrual of original
issue discount will be calculated based on a reasonable assumed prepayment rate
(the "Prepayment Assumption"), and (ii) adjustments will be made in the amount
and rate of accrual of such discount to reflect differences between the actual
prepayment rate and the Prepayment Assumption. The method for determining the
appropriate assumed prepayment rate will eventually be set forth in Treasury
regulations, but those regulations have not yet been issued. The applicable
legislative history indicates, however, that such regulations will provide that
the assumed prepayment rate for securities such as the REMIC Regular
Certificates will be the rate used in pricing the initial offering of the
securities. The Prospectus Supplement for each series of REMIC Regular
Certificates will specify the Prepayment Assumption, but no representation is
made that the REMIC Regular Certificates will, in fact, prepay at a rate based
on the Prepayment Assumption or at any other rate.
In general, a REMIC Regular Certificate will be considered to be issued
with original issue discount if its stated redemption price at maturity exceeds
its issue price. Except as discussed below under "Payment Lag REMIC Regular
Certificates; Initial Period Considerations" and "Qualified Stated Interest,"
and in the case of certain Variable Rate REMIC Regular Certificates (as defined
below) and accrual certificates, the stated redemption price at maturity of a
REMIC Regular Certificate is its principal amount. The issue price of a REMIC
Regular Certificate is the initial offering price to the public (excluding bond
houses and brokers) at which a substantial amount of the class of REMIC Regular
Certificates was sold. The issue price will be reduced if any portion of such
price is allocable to a related Yield Supplement Agreement. Notwithstanding the
general definition of original issue discount, such discount will be considered
to be zero for any REMIC Regular Certificate on which such discount is less than
0.25% of its stated redemption price at maturity multiplied by its weighted
average life. The weighted average life of a REMIC Regular Certificate
apparently is computed for purposes of this de minimis rule as the sum, for all
distributions included in the stated redemption price at maturity of the REMIC
Regular Certificate, of the amounts determined by multiplying (i) the number of
complete years (rounding down for partial years) from the Closing Date to the
date on which each such distribution is expected to be made, determined under
the Prepayment Assumption, by (ii) a fraction, the numerator of which is the
amount of such distribution and the denominator of which is the REMIC Regular
Certificate's stated redemption price at maturity. The OID Regulations provide
that holders will include any de minimis original issue discount ratably as
payments of stated principal are made on the REMIC Regular Certificates.
The holder of a REMIC Regular Certificate issued with original issue
discount must include in gross income the sum of the "daily portions" of such
original issue discount for each day during its taxable year on which it held
such REMIC Regular Certificate. In the case of an original holder of a REMIC
Regular Certificate, the daily portions of original issue discount are
determined first by calculating the portion of the original issue discount that
accrued during each period (an "accrual period") that begins on the day
following a Distribution Date (or in the case of the first such period, begins
on the Closing Date) and ends on the next succeeding Distribution Date. The
original issue discount accruing during each accrual period is then allocated
ratably to each day during such period to determine the daily portion of
original issue discount for that day.
The portion of the original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (A) the present value,
as of the end of the accrual period, of all of the distributions to be made on
the REMIC Regular Certificate, if any, in future periods and (B) the
distributions made on the REMIC Regular Certificate during the accrual period
that are included in such REMIC Regular Certificate's stated redemption price at
maturity, over (ii) the adjusted issue price of such REMIC Regular Certificate
at the beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated (i)
assuming that the REMIC Regular Certificates will be prepaid in future periods
at a rate computed in accordance with the Prepayment Assumption and (ii) using a
discount rate equal to the original yield to maturity of the REMIC Regular
Certificates. For these purposes, the original yield to maturity of the REMIC
Regular Certificates will be calculated based on their issue price and assuming
that the REMIC Regular Certificates will be prepaid in accordance with the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such REMIC
Regular Certificate, increased by the portion of the original issue discount
that has accrued during prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods
that were included in such REMIC Regular Certificate's stated redemption price
at maturity.
The daily portions of original issue discount may increase or decrease
depending on the extent to which the actual rate of prepayments diverges from
the Prepayment Assumption. If original issue discount accruing during any
accrual period computed as described above is negative, it is likely that a
holder will be entitled to offset such amount only against positive original
issue discount accruing on such REMIC Regular Certificate in future accrual
periods. Although Federal Tax Counsel is unable to opine with respect to this
matter, such a holder may be entitled to deduct a loss to the extent that its
remaining basis would exceed the maximum amount of future payments to which such
holder is entitled. It is unclear whether the Prepayment Assumption is taken
into account for this purpose.
A subsequent holder that purchases a REMIC Regular Certificate issued with
original issue discount at a cost less than its remaining stated redemption
price at maturity will also generally be required to include in gross income,
for each day on which it holds such REMIC Regular Certificate, the daily
portions of original issue discount with respect to the REMIC Regular
Certificate, calculated as described above. However, if (i) the excess of the
remaining stated redemption price at maturity over such cost is less than (ii)
the aggregate amount of such daily portions for all days after the date of
purchase until final retirement of such REMIC Regular Certificate, then such
daily portions will be reduced proportionately in determining the income of such
holder.
Qualified Stated Interest. Interest payable on a REMIC Regular Certificate
which qualifies as "qualified stated interest" for purposes of the OID
Regulations will not be includible in the stated redemption price at maturity of
the REMIC Regular Certificate. Accordingly, if the interest on a REMIC Regular
Certificate does not constitute "qualified stated interest," the REMIC Regular
Certificate will have original issue discount. Interest payments will not
qualify as qualified stated interest unless the interest payments are
"unconditionally payable." The OID Regulations state that interest is
unconditionally payable if reasonable legal remedies exist to compel timely
payment, or the debt instrument otherwise provides terms and conditions that
make the likelihood of late payment (other than a late payment that occurs
within a reasonable grace period) or nonpayment of interest a remote
contingency, as defined in the OID Regulations. It is unclear whether the terms
and conditions of the Mortgage Assets underlying the REMIC Regular Certificates
or the terms and conditions of the REMIC Regular Certificates are considered
when determining whether the likelihood of late payment or nonpayment of
interest is a remote contingency. Any terms or conditions that do not reflect
arm's length dealing or that the holder does not intend to enforce are not
considered. Accordingly, Federal Tax Counsel is unable to opine whether interest
payments on REMIC Regular Certificates that otherwise would not be treated as
having original issue discount would be considered to have original issue
discount because there are not reasonable remedies to compel timely payment of
interest or terms or conditions that would make the likelihood of late payment
or nonpayment remote.
Premium. A purchaser of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost greater than its remaining stated redemption
price at maturity will be considered to have purchased such REMIC Regular
Certificate at a premium, and may, under Section 171 of the Code, elect to
amortize such premium under a constant yield method over the life of the REMIC
Regular Certificate. The Prepayment Assumption is probably taken into account in
determining the life of the REMIC Regular Certificate for this purpose. Except
as provided in regulations, amortizable premium will be treated as an offset to
interest income on the REMIC Regular Certificate.
Payment Lag REMIC Regular Certificates; Initial Period Considerations.
Certain REMIC Regular Certificates will provide for distributions of interest
based on a period that is the same length as the interval between Distribution
Dates but ends prior to each Distribution Date. Any interest that accrues prior
to the Closing Date may be treated under the OID Regulations either (i) as part
of the issue price and the stated redemption price at maturity of the REMIC
Regular Certificates or (ii) as not included in the issue price or the stated
redemption price. The OID Regulations provide a special application of the de
minimis rule for debt instruments with long first accrual periods where the
interest payable for the first period is at a rate which is effectively less
than that which applies in all other periods. In such cases, for the sole
purpose of determining whether original issue discount is de minimis, the OID
Regulations provide that the stated redemption price is equal to the
instrument's issue price plus the greater of the amount of foregone interest or
the excess (if any) of the instrument's stated principal amount over its issue
price.
Variable Rate REMIC Regular Certificates. Under the OID Regulations, REMIC
Regular Certificates paying interest at a variable rate (a "Variable Rate REMIC
Regular Certificate") are subject to special rules. A Variable Rate REMIC
Regular Certificate will qualify as a "variable rate debt instrument" if (i) its
issue price does not exceed the total noncontingent principal payments due under
the Variable Rate REMIC Regular Certificate by more than a specified de minimis
amount; (ii) it provides for stated interest, paid or compounded at least
annually, at (a) one or more qualified floating rates, (b) a single fixed rate
and one or more qualified floating rates, (c) a single objective rate or (d) a
single fixed rate and a single objective rate that is a qualified inverse
floating rate; and (iii) it does not provide for any principal payments that are
contingent, as defined in the OID Regulations, except as provided in (i), above.
Because the OID Regulations relating to contingent payment debt instruments do
not apply to REMIC regular interests, principal payments on the REMIC Regular
Certificates should not be considered contingent for this purpose.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate REMIC Regular Certificate is denominated. A multiple of a
qualified floating rate will generally not itself constitute a qualified
floating rate for purposes of the OID Regulations. However, a variable rate
equal to (i) the product of a qualified floating rate and a fixed multiple that
is greater than 0.65 but not more than 1.35 or (ii) the product of a qualified
floating rate and a fixed multiple that is greater than 0.65 but not more than
1.35, increased or decreased by a fixed rate will constitute a qualified
floating rate for purposes of the OID Regulations. In addition, under the OID
Regulations, two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Variable Rate REMIC Regular Certificate will be treated as a single qualified
floating rate (a "Presumed Single Qualified Floating Rate"). Two or more
qualified floating rates with values within 25 basis points of each other as
determined on the Variable Rate REMIC Regular Certificate's issue date will be
conclusively presumed to be a Presumed Single Qualified Floating Rate.
Notwithstanding the foregoing, a variable rate that would otherwise constitute a
qualified floating rate but which is subject to one or more restrictions such as
a cap or floor, will not be a qualified floating rate for purposes of the OID
Regulations unless the restriction is fixed throughout the term of the Variable
Rate REMIC Regular Certificate or the restriction is not reasonably expected as
of the issue date to significantly affect the yield of the Variable Rate REMIC
Regular Certificate.
An "objective rate" is a rate that is not itself a qualified floating rate
but which is determined using a single fixed formula and which is based upon
objective financial or economic information. The OID Regulations also provide
that other variable rates may be treated as objective rates if so designated by
the Internal Revenue Service in the future. An interest rate on a REMIC Regular
Certificate that is the weighted average of the interest rates on some or all of
the qualified mortgages held by the REMIC should constitute an objective rate.
Despite the foregoing, a variable rate of interest on a Variable Rate REMIC
Regular Certificate will not constitute an objective rate if it is reasonably
expected that the average value of such rate during the first half of the
Variable Rate REMIC Regular Certificate's term will be either significantly less
than or significantly greater than the average value of the rate during the
final half of the Variable Rate REMIC Regular Certificate's term. Further, an
objective rate does not include a rate that is based on information that is
within the control of the issuer (or a party related to the issuer) or that is
unique to the circumstances of the issuer (or a party related to the issuer). An
objective rate will qualify as a "qualified inverse floating rate" if such rate
is equal to a fixed rate minus a qualified floating rate and variations in the
rate can reasonably be expected to inversely reflect contemporaneous variations
in the qualified floating rate. The OID Regulations also provide that if a
Variable Rate REMIC Regular Certificate provides for stated interest at a fixed
rate for an initial period of less than one year followed by a variable rate
that is either a qualified floating rate or an objective rate and if the
variable rate on the Variable Rate REMIC Regular Certificate's issue date is
intended to approximate the fixed rate, then the fixed rate and the variable
rate together will constitute either a single qualified floating rate or
objective rate, as the case may be (a "Presumed Single Variable Rate"). If the
value of the variable rate and the initial fixed rate are within 25 basis points
of each other as determined on the Variable Rate REMIC Regular Certificate's
issue date, the variable rate will be conclusively presumed to approximate the
fixed rate.
For Variable Rate REMIC Regular Certificates that qualify as a "variable
rate debt instrument" under the OID Regulations and provide for interest at
either a single qualified floating rate, a single objective rate, a Presumed
Single Qualified Floating Rate or a Presumed Single Variable Rate throughout the
term (a "Single Variable Rate REMIC Regular Certificate"), original issue
discount is computed as described in "REMIC Regular Certificates- Current Income
on REMIC Regular Certificates--Original Issue Discount" based on the following:
(i) stated interest on the Single Variable Rate REMIC Regular Certificate which
is unconditionally payable in cash or property (other than debt instruments of
the issuer) at least annually will constitute qualified stated interest; (ii) by
assuming that the variable rate on the Single Variable Rate REMIC Certificate is
a fixed rate equal to: (a) in the case of a Single Variable Rate REMIC Regular
Certificate with a qualified floating rate or a qualified inverse floating rate,
the value of, as of the issue date, of the qualified floating rate or the
qualified inverse floating rate or (b) in the case of a Single Variable Rate
REMIC Regular Certificate with an objective rate (other than a qualified inverse
floating rate), a fixed rate which reflects the reasonably expected yield for
such Single Variable Rate REMIC Regular Certificate; and (iii) the qualified
stated interest allocable to an accrual period is increased (or decreased) if
the interest actually paid during an accrual period exceeds (or is less than)
the interest assumed to be paid under the assumed fixed rate described in (ii),
above.
In general, any Variable Rate REMIC Regular Certificate other than a Single
Variable Rate REMIC Regular Certificate (a "Multiple Variable Rate REMIC Regular
Certificate") that qualifies as a "variable rate debt instrument" will be
converted into an "equivalent" fixed rate debt instrument for purposes of
determining the amount and accrual of original issue discount and qualified
stated interest on the Multiple Variable Rate REMIC Regular Certificate. The OID
Regulations generally require that such a Multiple Variable Rate REMIC Regular
Certificate be converted into an "equivalent" fixed rate debt instrument by
substituting any qualified floating rate or qualified inverse floating rate
provided for under the terms of the Multiple Variable Rate REMIC Regular
Certificate with a fixed rate equal to the value of the qualified floating rate
or qualified inverse floating rate, as the case may be, as of the Multiple
Variable Rate REMIC Regular Certificate's issue date. Any objective rate (other
than a qualified inverse floating rate) provided for under the terms of the
Multiple Variable Rate REMIC Regular Certificate is converted into a fixed rate
that reflects the yield that is reasonably expected for the Multiple Variable
Rate REMIC Regular Certificate. In the case of a Multiple Variable Rate REMIC
Regular Certificate that qualifies as a "variable rate debt instrument" and
provides for stated interest at a fixed rate in addition to either one or more
qualified floating rates or a qualified inverse floating rate, the fixed rate is
initially converted into a qualified floating rate (or a qualified inverse
floating rate, if the Multiple Variable Rate REMIC Regular Certificate provides
for a qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Multiple Variable Rate REMIC
Regular Certificate as of the Multiple Variable Rate REMIC Regular Certificate's
issue date is approximately the same as the fair market value of an otherwise
identical debt instrument that provides for either the qualified floating rate
or qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Multiple Variable Rate REMIC Regular Certificate is
then converted into an "equivalent" fixed rate debt instrument in the manner
described above.
Once the Multiple Variable Rate REMIC Regular Certificate is converted into
an "equivalent" fixed rate debt instrument pursuant to the foregoing rules, the
amount of original issue discount and qualified stated interest, if any, are
determined for the "equivalent" fixed rate debt instrument by applying the
original issue discount rules to the "equivalent" fixed rate debt instrument in
the manner described in "REMIC Regular Certificates-Current Income on REMIC
Regular Certificates--Original Issue Discount". A holder of the Multiple
Variable Rate REMIC Regular Certificate will account for such original issue
discount and qualified stated interest as if the holder held the "equivalent"
fixed rate debt instrument. In each accrual period, appropriate adjustments will
be made to the amount of qualified stated interest or original issue discount
assumed to have been accrued or paid with respect to the "equivalent" fixed rate
debt instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Multiple Variable Rate REMIC Regular Certificate
during the accrual period.
If a Variable Rate REMIC Regular Certificate does not qualify as a
"variable rate debt instrument" under the OID Regulations, then the Variable
Rate REMIC Regular Certificate would be treated as a contingent payment debt
obligation. Federal Tax Counsel is unable to opine how a Variable Rate REMIC
Regular Certificate would be taxed if such REMIC Regular Certificate were
treated as a contingent payment debt obligation, since the OID Regulations
relating to contingent payment debt obligations do not apply to REMIC regular
interests.
Interest-Only REMIC Regular Certificates. The Trust intends to report
income from interest-only classes of REMIC Regular Certificates to the Internal
Revenue Service and to holders of interest-only REMIC Regular Certificates based
on the assumption that the stated redemption price at maturity is equal to the
sum of all payments determined under the Prepayment Assumption. As a result,
such interest-only REMIC Regular Certificates will be treated as having original
issue discount.
Market Discount. A holder that acquires a REMIC Regular Certificate at a
market discount (that is, a discount that exceeds any unaccrued original issue
discount) will recognize gain upon receipt of a principal distribution,
regardless of whether the distribution is scheduled or is a prepayment. In
particular, the REMIC Regular Certificateholder will be required to allocate
that principal distribution first to the portion of the market discount on such
REMIC Regular Certificate that has accrued but has not previously been
includible in income, and will recognize ordinary income to that extent. In
general terms, unless Treasury regulations when issued state otherwise, market
discount on a REMIC Regular Certificate may be treated, at the REMIC
Certificateholder's election, as accruing either (i) under a constant yield
method, taking into account the Prepayment Assumption, or (ii) in proportion to
accruals of original issue discount (or, if there is no original issue discount,
in proportion to stated interest at the Pass-Through Rate).
In addition, a holder may be required to defer deductions for a portion of
the holder's interest expense on any debt incurred or continued to purchase or
carry a REMIC Regular Certificate purchased with market discount. The deferred
portion of any interest deduction would not exceed the portion of the market
discount on the REMIC Regular Certificate that accrues during the taxable year
in which such interest would otherwise be deductible and, in general, would be
deductible when such market discount is included in income upon receipt of a
principal distribution on, or upon the sale of, the REMIC Regular Certificate.
The Code requires that information necessary to compute accruals of market
discount be reported periodically to the Internal Revenue Service and to certain
categories of holders of REMIC Regular Certificates.
Notwithstanding the above rules, market discount on a REMIC Regular
Certificate will be considered to be zero if such discount is less than 0.25% of
the remaining stated redemption price at maturity of such REMIC Regular
Certificate multiplied by its weighted average remaining life. Weighted average
remaining life presumably is calculated in a manner similar to weighted average
life (described above under "Current Income on REMIC Regular
Certificates-Original Issue Discount"), taking into account distributions
(including prepayments) prior to the date of acquisition of such REMIC Regular
Certificate by the subsequent purchaser. If market discount on a REMIC Regular
Certificate is treated as zero under this rule, the actual amount of such
discount must be allocated to the remaining principal distributions on the REMIC
Regular Certificate, and when each such distribution is made, gain equal to the
discount, if any, allocated to the distribution will be recognized.
Election to Treat All Interest Under the Constant Yield Rules. The OID
Regulations provide that all holders may elect to include in gross income all
interest that accrues on a debt instrument issued after April 4, 1994 by using
the constant yield method. For purposes of this election, interest includes
stated interest, original issue discount, and market discount, as adjusted to
account for any premium. Holders should consult their own tax advisors regarding
the availability or advisability of such an election.
Sales of REMIC Regular Certificates. If a REMIC Regular Certificate is
sold, the seller will recognize gain or loss equal to the difference between the
amount realized on the sale and its adjusted basis in the REMIC Regular
Certificate. A holder's adjusted basis in a REMIC Regular Certificate generally
equals the cost of the REMIC Regular Certificate to the holder, increased by
income reported by the holder with respect to the REMIC Regular Certificate and
reduced (but not below zero) by distributions on the REMIC Regular Certificate
received by the holder and by amortized premium. Except as indicated in the next
two paragraphs, any such gain or loss generally will be capital gain or loss
provided the REMIC Regular Certificate is held as a capital asset.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includible in the seller's income with respect to the REMIC Regular Certificate
had income accrued thereon at a rate equal to 110% of "the applicable Federal
rate" (generally, an average of current yields on Treasury securities),
determined as of the date of purchase of the REMIC Regular Certificate, over
(ii) the amount actually includible in the seller's income. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
the REMIC Regular Certificate at a market discount would be taxable as ordinary
income in an amount not exceeding the portion of such discount that accrued
during the period the REMIC Regular Certificate was held by such seller, reduced
by any market discount includible in income under the rules described above
under "Current Income on REMIC Regular Certificates--Market Discount."
REMIC Regular Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from a
sale of a REMIC Regular Certificate by a bank or other financial institution to
which such section applies would be ordinary income or loss.
Termination. The REMIC will terminate shortly following the REMIC's receipt
of the final payment in respect of the Mortgage Assets. The last distribution on
a REMIC Regular Certificate should be treated as a payment in full retirement of
a debt instrument.
TAX TREATMENT OF YIELD SUPPLEMENT AGREEMENTS
Whether a REMIC Regular Certificateholder of a series will have a separate
contractual right to payments under a Yield Supplement Agreement, and the tax
treatment of such payments, if any, will be addressed in the related Prospectus
Supplement.
REMIC RESIDUAL CERTIFICATES
Because the REMIC Residual Certificates will be treated as "residual
interests" in the REMIC, each holder of a REMIC Residual Certificate will be
required to take into account its daily portion of the taxable income or net
loss of the REMIC for each day during the calendar year on which it holds its
REMIC Residual Certificate. The daily portion is determined by allocating to
each day in a calendar quarter a ratable portion of the taxable income or net
loss of the REMIC for that quarter and allocating such daily amounts among the
holders on such day in proportion to their holdings. All income or loss of the
REMIC taken into account by a REMIC Residual Certificateholder must be treated
as ordinary income or loss as the case may be. Income from residual interests is
"portfolio income" which cannot be offset by "passive activity losses" in the
hands of individuals or other persons subject to the passive loss rules. The
Code also provides that all residual interests must be issued on the REMIC's
startup day and designated as such. For this purpose, "startup day" means the
day on which the REMIC issues all of its regular and residual interests, and
under the REMIC Regulations may, in the case of a REMIC to which property is
contributed over a period of up to ten consecutive days, be any day designated
by the REMIC within such period.
The taxable income of the REMIC, for purposes of determining the amounts
taken into account by holders of REMIC Residual Certificates, is determined in
the same manner as in the case of an individual, with certain exceptions. The
accrual method of accounting must be used and the taxable year of the REMIC must
be the calendar year. The basis of property contributed to the REMIC in exchange
for regular or residual interests is its fair market value immediately after the
transfer. The REMIC Regulations determine the fair market value of the
contributed property by deeming it equal to the aggregate issue prices of all
regular and residual interests in the REMIC.
A REMIC Regular Certificate will be considered indebtedness of the REMIC.
Market discount on any of the Mortgage Assets held by the REMIC must be included
in the income of the REMIC as it accrues, rather than being included in income
only upon sale of the Mortgage Assets or as principal on the Mortgage Assets is
paid. The REMIC is not entitled to any personal exemptions or to deductions for
taxes paid to foreign countries and U.S. possessions, charitable contributions
or net operating losses, or to certain other deductions to which individuals are
generally entitled. Income or loss in connection with a "prohibited transaction"
is disregarded. See "Prohibited Transactions."
As previously discussed, the timing of recognition of negative original
issue discount, if any, on a REMIC Regular Certificate is uncertain. As a
result, the timing of recognition of the REMIC taxable income related to a REMIC
Residual Certificate is also uncertain. Although Federal Tax Counsel is unable
to opine as to this matter, the related REMIC taxable income may be recognized
when the adjusted issue price of such REMIC Regular Certificate would exceed the
maximum amount of future payments with respect to such REMIC Regular
Certificate. It is unclear whether the Prepayment Assumption is taken into
account for this purpose.
A REMIC Residual Certificate has a tax basis in its holder's hands that is
distinct from the REMIC's basis in its assets. The tax basis of a REMIC Residual
Certificate in its holder's hands will be its cost (i.e., the purchase price of
the REMIC Residual Certificate), and will be reduced (but not below zero) by the
holder's share of cash distributions and losses and increased by its share of
taxable income from the REMIC.
If, in any year, cash distributions to a holder of a REMIC Residual
Certificate exceed its share of the REMIC's taxable income, the excess will
constitute a return of capital to the extent of the holder's basis in its REMIC
Residual Certificate. A return of capital is not treated as income for federal
income tax purposes, but will reduce the tax basis of the holder in its REMIC
Residual Certificate (but not below zero). If a REMIC Residual Certificate's
basis is reduced to zero, any cash distributions with respect to that REMIC
Residual Certificate in any taxable year in excess of its share of the REMIC's
income would be taxable to the holder as gain on the sale or exchange of its
interest in the REMIC.
The losses of the REMIC taken into account by a holder of a REMIC Residual
Certificate in any quarter may not exceed the holder's basis in its REMIC
Residual Certificate. Any excess losses may be carried forward indefinitely to
future quarters subject to the same limitation.
There is no REMIC counterpart to the partnership election under Code
Section 754 to increase or decrease the partnership's basis in its assets by
reference to the adjusted basis to subsequent partners of their partnership
interest. Consequently, a subsequent purchaser of a REMIC Residual Certificate
at a premium will not be able to use the premium to reduce his share of the
REMIC's taxable income.
Mismatching of Income and Deductions; Excess Inclusions. The taxable income
recognized by the holder of a REMIC Residual Certificate in any taxable year
will be affected by, among other factors, the relationship between the timing of
recognition of interest and discount income (or deductions for amortization of
premium) with respect to Mortgage Assets, on the one hand, and the timing of
deductions for interest (including original issue discount) on the REMIC Regular
Certificates, on the other. In the case of multiple classes of REMIC Regular
Certificates issued at different yields, and having different weighted average
lives, taxable income recognized by the holders of REMIC Residual Certificates
may be greater than cash flow in earlier years of the REMIC (with a
corresponding taxable loss or less taxable income than cash flow in later
years). This may result from the fact that interest expense deductions,
expressed as a percentage of the outstanding principal amount of the REMIC
Regular Certificates, will increase over time as the shorter term, lower
yielding classes of REMIC Regular Certificates are paid, whereas interest income
from the Mortgage Assets may not increase over time as a percentage of the
outstanding principal amount of the Mortgage Assets.
In the case of Tiered REMICs, the OID Regulations provide that the regular
interests in the REMIC which directly owns the Mortgage Assets (the "Lower Tier
REMIC") will be treated as a single debt instrument for purposes of the original
issue discount provisions. Therefore, the Trust will calculate the taxable
income of Tiered REMICs by treating the Lower Tier REMIC regular interests as a
single debt instrument.
Any "excess inclusions" with respect to a REMIC Residual Certificate will
be subject to certain special rules. The excess inclusions with respect to a
REMIC Residual Certificate are equal to the excess, if any, of its share of
REMIC taxable income for the quarterly period over the sum of the daily accruals
for such quarterly period. The daily accrual for any day on which the REMIC
Residual Certificate is held is determined by allocating to each day in a
quarter its allocable share of the product of (A) 120% of the long-term
applicable Federal rate (for quarterly compounding) that would have applied to
the REMIC Residual Certificates (if they were debt instruments) on the closing
date under Code Section 1274(d)(1) and (B) the adjusted issue price of such
REMIC Residual Certificates at the beginning of a quarterly period. For this
purpose, the adjusted issue price of such REMIC Residual Certificate at the
beginning of a quarterly period is the issue price of such Certificates plus the
amount of the daily accruals of REMIC taxable income for all prior quarters,
decreased by any distributions made with respect to such Certificates prior to
the beginning of such quarterly period.
The excess inclusions of a REMIC Residual Certificate may not be offset by
other deductions, including net operating loss carryforwards, on a holder's
return.
Recently enacted provisions governing the relationship between excess
inclusions and the alternative minimum tax provide that (i) the alternative
minimum taxable income of a taxpayer is based on the taxpayer's regular taxable
income computed without regard to the rule that taxable income cannot be less
than the amount of excess inclusions, (ii) the alternative minimum taxable
income of a taxpayer for a taxable year cannot be less than the amount of excess
inclusions for that year, and (iii) the amount of any alternative minimum tax
net operating loss is computed without regard to any excess inclusions. While
these provisions are generally effective for tax years beginning after December
31, 1986, a taxpayer may elect to have these provisions apply only with respect
to tax years beginning after August 20, 1996.
If the holder of a REMIC Residual Certificate is an organization subject to
the tax on unrelated business income imposed by Code Section 511, the excess
inclusions will be treated as unrelated business taxable income of such holder
for purposes of Code Section 511. In addition, the Code provides that under
Treasury regulations, if a real estate investment trust ("REIT") owns a REMIC
Residual Certificate, to the extent excess inclusions of the REIT exceed its
real estate investment trust taxable income (excluding net capital gains), the
excess inclusions would be allocated among the shareholders of the REIT in
proportion to the dividends received by the shareholders from the REIT. Excess
inclusions derived by regulated investment companies ("RICs"), common trust
funds, and subchapter T cooperatives must be allocated to the shareholders of
such entities using rules similar to those applicable to REITs. The Internal
Revenue Service has not yet adopted or proposed such regulations as to REITs,
RICs, or similar entities. A life insurance company cannot adjust its reserve
with respect to variable contracts to the extent of any excess inclusion, except
as provided in regulations.
The Internal Revenue Service has authority to promulgate regulations
providing that if the aggregate value of the REMIC Residual Certificates is not
considered to be "significant," then the entire share of REMIC taxable income of
a holder of a REMIC Residual Certificate may be treated as excess inclusions
subject to the foregoing limitations. This authority has not been exercised to
date.
The REMIC is subject to tax at a rate of 100 percent on any net income it
derives from "prohibited transactions." In general, "prohibited transaction"
means the disposition of a Mortgage Asset other than pursuant to specified
exceptions, the receipt of income as compensation for services, the receipt of
income from a source other than a Mortgage Loan or certain other permitted
investments, or gain from the disposition of an asset representing a temporary
investment of payments on the Mortgage Assets pending distribution on the REMIC
Certificates. In addition, a tax is imposed on the REMIC equal to 100 percent of
the value of certain property contributed to the REMIC after its "startup day."
No REMIC in which interests are offered hereunder will accept contributions that
would cause it to be subject to such tax. This provision will not affect the
REMIC's ability to accept substitute Mortgage Loans or to sell defective
Mortgage Loans in accordance with the Agreement.
A REMIC is subject to a tax (deductible from its income) on any "net income
from foreclosure property" (determined in accordance with Section 857(b)(4)(B)
of the Code as if the REMIC were a REIT).
Any tax described in the two preceding paragraphs that may be imposed on
the Trust initially would be borne by the REMIC Residual Certificates in the
related REMIC rather than by the REMIC Regular Certificateholders, unless
otherwise specified in the Prospectus Supplement.
Dealers' Ability to Mark-to-Market REMIC Residual Certificates. Treasury
regulations provide that all REMIC Residual Certificates acquired on or after
January 4, 1995, and similar interests or arrangements acquired on or after
January 4, 1995 that are determined by the Commissioner to have substantially
the same economic effect as a REMIC Residual Certificate, are not securities and
cannot be marked to market pursuant to Section 475 of the Code.
TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Tax on Disposition of REMIC Residual Certificates. The sale of a REMIC
Residual Certificate by a holder will result in gain or loss equal to the
difference between the amount realized on the sale and the adjusted basis of the
REMIC Residual Certificate.
If the seller of a REMIC Residual Certificate held the REMIC Residual
Certificate as a capital asset, the gain or loss generally will be capital gain
or loss. However, under Code Section 582(c), the sale of a REMIC Residual
Certificate by certain banks and other financial institutions will be considered
a sale of property other than a capital asset, resulting in ordinary income or
loss. Although Federal Tax Counsel is unable to opine with respect to the tax
treatment of a REMIC Residual Certificate that has unrecovered basis after all
funds of the Trust have been distributed, the holder may be entitled to claim a
loss in the amount of the unrecovered basis.
The Code provides that, except as provided in Treasury regulations (which
have not yet been issued), if a holder sells a REMIC Residual Certificate and
acquires the same or other REMIC Residual Certificates, residual interests in
another REMIC, or any similar interests in a "taxable mortgage pool" (as defined
in Section 7701(i) of the Code) during the period beginning six months before,
and ending six months after, the date of such sale, such sale will be subject to
the "wash sale" rules of Section 1091 of the Code. In that event, any loss
realized by the seller on the sale generally will not be currently deductible.
A tax is imposed on the transfer of any residual interest in a REMIC to a
"disqualified organization." The tax is imposed on the transferor, or, where the
transfer is made through an agent of the disqualified organization, on the
agent. "Disqualified organizations" include for this purpose the United States,
any State or political subdivision thereof, any foreign government, any
international organization or agency or instrumentality of the foregoing (with
an exception for certain taxable instrumentalities of the United States, of a
State or of a political subdivision thereof), any rural electrical and telephone
cooperative, and any tax-exempt entity (other than certain farmers'
cooperatives) not subject to the tax on unrelated business income.
The amount of tax to be paid by the transferor on a transfer to a
disqualified organization is equal to the present value of the total anticipated
excess inclusions with respect to the interest transferred for periods after
such transfer multiplied by the highest corporate rate of tax. The transferor
(or agent, as the case may be) will be relieved of liability so long as the
transferee furnishes an affidavit that it is not a disqualified organization and
the transferor or agent does not have actual knowledge that the affidavit is
false. Under the REMIC Regulations, an affidavit will be sufficient if the
transferee furnishes (A) a social security number, and states under penalties of
perjury that the social security number is that of the transferee, or (B) a
statement under penalties of perjury that it is not a disqualified organization.
Treatment of Payments to a Transferee in Consideration of Transfer of a
REMIC Residual Certificate. The federal income tax consequences of any
consideration paid to a transferee on a transfer of an interest in a REMIC
Residual Certificate are unclear and Federal Tax Counsel is unable to opine with
respect to this issue. The preamble to the REMIC Regulations indicates that the
Internal Revenue Service is considering the tax treatment of these types of
residual interests. A transferee of such an interest should consult its own tax
advisors.
Restrictions on Transfer; Holding by Pass-Through Entities. An entity
cannot qualify as a REMIC absent reasonable arrangements designed to ensure that
(1) residual interests in such entity are not held by disqualified organizations
and (2) information necessary to calculate the tax due on transfers to
disqualified organizations (i.e., a computation of the present value of the
excess inclusions) is made available by the REMIC. The governing instruments of
a Trust will contain provisions designed to ensure the foregoing, and any
transferee of a REMIC Residual Certificate must execute and deliver an affidavit
stating that neither the transferee nor any person for whose account such
transferee is acquiring the REMIC Residual Certificate is a disqualified
organization. In addition, as to the requirement that reasonable arrangements be
made to ensure that disqualified organizations do not hold a residual interest
in the REMIC, the REMIC Regulations require that notice of the prohibition be
provided either through a legend on the certificate that evidences ownership, or
through a conspicuous statement in the prospectus or other offering document
used to offer the residual interest for sale. As to the requirement that
sufficient information be made available to calculate the tax on transfers to
disqualified organizations (or the tax, discussed below, on pass-through
entities, interests in which are held by disqualified organizations), the REMIC
Regulations further require that such information also be provided to the
Internal Revenue Service.
A tax is imposed on "pass-through entities" holding residual interests
where a disqualified organization is a record holder of an interest in the
pass-through entity. "Pass-through entity" is defined for this purpose to
include RICs, REITs, common trust funds, partnerships, trusts, estates and
subchapter T cooperatives. Except as provided in regulations, nominees holding
interests in a "pass-through entity" for another person will also be treated as
"pass-through entities" for this purpose. The tax is equal to the amount of
excess inclusions allocable to the disqualified organization for the taxable
year multiplied by the highest corporate rate of tax, and is deductible by the
"pass-through entity" against the gross amount of ordinary income of the entity.
The Agreement provides that any attempted transfer of a beneficial or
record interest in a REMIC Residual Certificate will be null and void unless the
proposed transferee provides to the Trustee an affidavit that such transferee is
not a disqualified organization.
Legislation has been introduced which would provide that partners of
certain partnerships having a large number of partners will be treated as
disqualified organizations for purposes of the tax imposed on pass-through
entities if such partnerships hold residual interests in a REMIC. When
applicable, the legislation would disallow 70 percent of a large partnership's
miscellaneous itemized deductions, including deductions for servicing and
guaranty fees and any expenses of the REMIC, although the remaining deductions
would not be subject to the 2 percent floor applicable to individual partners.
See "Deductibility of Trust Expenses" below. No prediction can be made regarding
whether such legislation will be enacted.
The REMIC Regulations provide that a transfer of a "noneconomic residual
interest" will be disregarded for all federal income tax purposes unless
impeding the assessment or collection of tax was not a significant purpose of
the transfer. A residual interest will be treated as a "noneconomic residual
interest" unless, at the time of the transfer (1) the present value of the
expected future distributions on the residual interest at least equals the
product of (x) the present value of all anticipated excess inclusions with
respect to the residual interest and (y) the highest corporate tax rate,
currently 35 percent, and (2) the transferor reasonably expects that for each
anticipated excess inclusion, the transferee will receive distributions from the
REMIC, at or after the time at which taxes on such excess inclusion accrue,
sufficient to pay the taxes thereon. A significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known (had "improper knowledge") that the
transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A transferor will be presumed not to have improper
knowledge if (i) the transferor conducts, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and, as a
result of the investigation, the transferor finds that the transferee has
historically paid its debts as they came due and finds no significant evidence
to indicate that the transferee will not continue to pay its debts as they come
due in the future, and (ii) the transferee represents to the transferor that (A)
the transferee understands that it might incur tax liabilities in excess of any
cash received with respect to the residual interest and (B) the transferee
intends to pay the taxes associated with owning the residual interest as they
come due. A different formulation of this rule applies to transfers of REMIC
Residual Certificates by or to foreign transferees. See "Foreign Investors"
below.
DEDUCTIBILITY OF TRUST EXPENSES
A holder that is an individual, estate or trust will be subject to the
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such deductions, in the aggregate, do not exceed two
percent of the holder's adjusted gross income, and such holder may not be able
to deduct such fees and expenses to any extent in computing such holder's
alternative minimum tax liability. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount (which amount will be
adjusted for inflation for taxable years beginning after 1990) will be reduced
by the lesser of (i) 3 percent of the excess of adjusted gross income over the
applicable amount, or (ii) 80 percent of the amount of itemized deductions
otherwise allowable for such taxable year. Such deductions will include
servicing, guarantee, and administrative fees paid to the servicer of the
Mortgage Loans. These deductions will be allocated entirely to the holders of
the REMIC Residual Certificates in the case of REMIC Trusts with multiple
classes of REMIC Regular Certificates that do not pay their principal amounts
ratably. As a result, the REMIC will report additional taxable income to holders
of REMIC Residual Certificates in an amount equal to their allocable share of
such deductions, and individuals, estates, or trusts holding an interest in such
REMIC Residual Certificates may have taxable income in excess of the cash
received. In the case of a "single-class REMIC," the expenses will be allocated,
under Treasury regulations, among the holders of the REMIC Regular Certificates
and the REMIC Residual Certificates on a daily basis in proportion to the
relative amounts of income accruing to each Certificateholder on that day. In
the case of a holder of a REMIC Regular Certificate who is an individual or a
"pass-through interest holder" (including certain pass-through entities, but not
including real estate investment trusts), the deductibility of such expenses
will be subject to the limitations described above. The reduction or
disallowance of these deductions may have a significant impact on the yield of
REMIC Regular Certificates to such a holder. In general terms, a single- class
REMIC is one that either (i) would qualify, under existing Treasury regulations,
as a grantor trust if it were not a REMIC (treating all interests as ownership
interests, even if they would be classified as debt for federal income tax
purposes) or (ii) is similar to such a trust and which is structured with the
principal purpose of avoiding the single- class REMIC rules.
FOREIGN INVESTORS
REMIC Regular Certificates. Except as discussed below, a holder of a REMIC
Regular Certificate who is not a "United States person" (as defined below)
generally will not be subject to United States income or withholding tax in
respect of a distribution on a REMIC Regular Certificate, provided that (i) the
holder complies to the extent necessary with certain identification
requirements, including timely delivery of a statement, signed by the holder of
the REMIC Regular Certificate under penalties of perjury, certifying that the
holder of the REMIC Regular Certificate is not a United States person and
providing the name and address of the holder, (ii) the holder is not a
"10-percent shareholder" within the meaning of Code Section 871(h)(3)(B), which
could be interpreted to apply to a holder of a REMIC Regular Certificate who
holds a direct or indirect 10 percent interest in the REMIC Residual
Certificates, (iii) the holder is not a "controlled foreign corporation" (as
defined in the Code) related to the REMIC or related to a 10 percent holder of a
residual interest in the REMIC, and (iv) the holder is not engaged in a United
States trade or business, or otherwise subject to federal income tax as a result
of any direct or indirect connection to the United States other than through its
ownership of a REMIC Regular Certificate. For these purposes, the term "United
States person" means (a) a citizen or resident of the United States, (b) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (c) an estate
whose income is includible in gross income for United States federal income
taxation regardless of its source, and (d) a trust for which one or more United
States fiduciaries have the authority to control all substantial decisions and
for which a court of the United States can exercise primary supervision over the
trust's administration. For years beginning before January 1, 1997, the term
"United States person" shall include a trust whose income is includible in gross
income for United States federal income taxation regardless of source, in lieu
of trusts described in (d), above, unless the trust elects to have its United
States status determined under the criteria set forth in (d) above for tax years
ending after August 20, 1996. Proposed Treasury regulations, which would be
effective with respect to payments made after December 31, 1997 if adopted in
their current form, would provide alternative certification requirements and
means by which a holder of REMIC Certificates could claim the exemption from
federal income and withholding tax.
REMIC Residual Certificates. The Conference Report to the Tax Reform Act of
1986 states that amounts paid to foreign persons with respect to residual
interests should be considered interest for purposes of the withholding rules.
Interest paid to a foreign person which is not effectively connected with a
trade or business of the foreign person in the United States is subject to a 30%
withholding tax. The withholding tax on interest does not apply, however, to
"portfolio interest" (if certain certifications as to beneficial ownership are
made, as discussed above under "Foreign Investors--Regular Certificates") or to
the extent a tax treaty reduces or eliminates the tax. Treasury regulations
provide that amounts paid with respect to residual interests qualify as
portfolio interest only if interest on the qualified mortgages held by the REMIC
qualifies as portfolio interest. Generally, interest on Mortgage Loans held by a
Trust will not qualify as portfolio interest, although interest on the Private
Mortgage-Backed Securities, other pass-through certificates, or REMIC regular
interests held by a Trust may qualify. In any case, a holder of a REMIC Residual
Certificate will not be entitled to the portfolio interest exception from the
30% withholding tax (or to any treaty exemption or rate reduction) for that
portion of a payment that constitutes excess inclusions. Generally, the
withholding tax will be imposed when REMIC gross income is paid or distributed
to the holder of a residual interest or there is a disposition of the residual
interest.
The REMIC Regulations provide that a transfer of a REMIC Residual
Certificate to a foreign transferee will be disregarded for all federal income
tax purposes if the transfer has "tax avoidance potential." A transfer to a
foreign transferee will be considered to have tax avoidance potential unless at
the time of the transfer, the transferor reasonably expects that (1) the future
distributions on the REMIC Residual Certificate will equal at least 30 percent
of the anticipated excess inclusions and (2) such amounts will be distributed at
or after the time at which the excess inclusion accrues, but not later than the
close of the calendar year following the calendar year of accrual. A safe harbor
in the REMIC Regulations provides that the reasonable expectation requirement
will be satisfied if the above test would be met at all assumed prepayment rates
for the Mortgage Assets from 50 percent of the Prepayment Assumption to 200
percent of the Prepayment Assumption. A transfer by a foreign transferor to a
domestic transferee will likewise be disregarded under the REMIC Regulations if
the transfer would have the effect of allowing the foreign transferor to avoid
the tax on accrued excess inclusions.
Gain on Transfers of Certificates. A Certificateholder that is a
nonresident alien or foreign corporation will not be subject to United States
federal income tax on gain realized on the sale, exchange, or redemption of a
REMIC Certificate, provided that (i) such gain is not effectively connected with
a trade or business carried on by the Certificateholder in the United States,
(ii) in the case of a Certificateholder that is an individual, such
Certificateholder is not present in the United States for 183 days or more
during the taxable year in which such sale, exchange or redemption occurs and
(iii) in the case of gain representing accrued interest, the Certificateholder
complies to the extent necessary with certain identification requirements,
including timely delivery of a statement, signed by the Certificateholder under
penalties of perjury, certifying that such Certificateholder is not a United
States person and providing the name and address of such holder.
BACKUP WITHHOLDING
Distributions made on the REMIC Certificates and proceeds from the sale of
REMIC Certificates to or through certain brokers may be subject to a "backup"
withholding tax of 31 percent of "reportable payments" (including interest
accruals, original issue discount, and, under certain circumstances,
distributions in reduction of principal amount) unless, in general, the holder
of the REMIC Certificate complies with certain procedures or is an exempt
recipient. Any amounts so withheld from distributions on the REMIC Certificates
would be refunded by the Internal Revenue Service or allowed as a credit against
the holder's federal income tax.
REMIC ADMINISTRATIVE MATTERS
The federal information returns for a Trust (Form 1066 and Schedules Q
thereto) must be filed as if the Trust were a partnership for federal income tax
purposes. Information on Schedule Q must be provided to holders of REMIC
Residual Certificates with respect to every calendar quarter. Each holder of a
REMIC Residual Certificate will be required to treat items on its federal income
tax returns consistently with their treatment on the Trust's information returns
unless the holder either files a statement identifying the inconsistency or
establishes that the inconsistency resulted from an incorrect schedule received
from the Trust. The Trust also will be subject to the procedural and
administrative rules of the Code applicable to partnerships, including the
determination of any adjustments to, among other things, items of REMIC taxable
income by the Internal Revenue Service. (Treasury regulations exempt from
certain of these procedural rules REMICs having no more than one residual
interest holder.) Holders of REMIC Residual Certificates will have certain
rights and obligations with respect to any administrative or judicial
proceedings involving the Internal Revenue Service. Under the Code and
Regulations, a REMIC generally is required to designate a tax matters person.
Generally, subject to various limitations, the tax matters person has authority
to act on behalf of the REMIC and the holders of the REMIC Residual Certificates
in connection with administrative determinations and judicial review respecting
returns of taxable income of the REMIC.
Unless otherwise indicated in the Prospectus Supplement, and to the extent
allowable, the Representative or its designee will act as the tax matters person
for each REMIC. Each holder of a REMIC Residual Certificate, by the acceptance
of its interest in the REMIC Residual Certificate, agrees that the
Representative or its designee will act as the holder's fiduciary in the
performance of any duties required of the holder in the event that the holder is
the tax matters person.
NON-REMIC CERTIFICATES
The discussion under this heading applies only to a series of Certificates
with respect to which a REMIC election is not made.
Tax Status of the Trust. Upon the issuance of each series of Non-REMIC
Certificates, Federal Tax Counsel, will deliver its opinion to the effect that,
under then current law, assuming compliance with the Agreement, the related
Trust will be classified for federal income tax purposes as a grantor trust and
not as an association taxable as a corporation or a taxable mortgage pool.
Accordingly, each holder of a Non-REMIC Certificate will be treated for federal
income tax purposes as the owner of an undivided interest in the Mortgage Assets
included in the Trust. As further described below, each holder of a Non-REMIC
Certificate therefore must report on its federal income tax return the gross
income from the portion of the Mortgage Assets that is allocable to such
Non-REMIC Certificate and may deduct the portion of the expenses incurred by the
Trust that is allocable to such Non-REMIC Certificate, at the same time and to
the same extent as such items would be reported by such holder if it had
purchased and held directly such interest in the Mortgage Assets and received
directly its share of the payments on the Mortgage Assets and incurred directly
its share of expenses incurred by the Trust when those amounts are received or
incurred by the Trust.
A holder of a Non-REMIC Certificate that is an individual, estate, or trust
will be allowed deductions for such expenses only to the extent that the sum of
those expenses and the holder's other miscellaneous itemized deductions exceeds
two percent of such holder's adjusted gross income. In addition, the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds the "applicable amount" ($100,000 (or
$50,000 in the case of a separate return by a married individual), adjusted for
changes in the cost of living subsequent to 1990) will be reduced by the lesser
of (i) 3 percent of the excess of adjusted gross income over the applicable
amount, or (ii) 80 percent of the amount of itemized deductions otherwise
allowable for such taxable year. Moreover, a holder of a Non-REMIC Certificate
that is not a corporation cannot deduct such expenses for purposes of the
alternative minimum tax (if applicable). Such deductions will include servicing,
guarantee and administrative fees paid to the servicer of the Mortgage Loans. As
a result, individuals, estates, or trusts holding Non-REMIC Certificates may
have taxable income in excess of the cash received.
Status of the Non-REMIC Certificates. The Non-REMIC Certificates generally
will be "real estate assets" for purposes of Section 856(c)(5)(A) of the Code
and "loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code, and interest income on the Non-REMIC
Certificates generally will be "interest on obligations secured by mortgages on
real property" within the meaning of Section 856(c)(3)(B) of the Code. However,
the Non-REMIC Certificates may not be qualifying assets under any of the
foregoing sections of the Code to the extent that the Trust's assets include
Buydown Funds, amounts in a Reserve Account, or payments on mortgages held
pending distribution to Certificateholders. Further, the Non-Remic Certificates
may not be "real estate assets" to the extent loans held by the trust are not
secured by real property, and may not be "loans . . . secured by an interest in
real property" to the extent loans held by the trust are not secured by
residential real property or real property used primarily for church purposes.
In addition, to the extent that the principal amount of a loan exceeds the value
of the property securing the loan, it is unclear and Federal Tax Counsel is
unable to opine whether the loan will be a qualifying asset. The Non-REMIC
Certificates should not be "residential loans made by the taxpayer" for purposes
of the residential loan requirement of Section 593(g)(4)(B) of the Code.
Taxation of Non-REMIC Certificates Under Stripped Bond Rules. The federal
income tax treatment of the Non-REMIC Certificates will depend on whether they
are subject to the rules of section 1286 of the Code (the "stripped bond
rules"). The Non-REMIC Certificates will be subject to those rules if stripped
interest-only Certificates are issued. In addition, whether or not stripped
interest-only Certificates are issued, the Internal Revenue Service may contend
that the stripped bond rules apply on the ground that the Servicer's servicing
fee, or other amounts, if any, paid to (or retained by) the Servicer or its
affiliates, as specified in the applicable Prospectus Supplement, represent
greater than an arm's length consideration for servicing the Mortgage Loans and
should be characterized for federal income tax purposes as an ownership interest
in the Mortgage Loans. The Internal Revenue Service has taken the position in
Revenue Ruling 91-46 that retained interest in excess of reasonable compensation
for servicing is treated as a "stripped coupon" under the rules of Code Section
1286.
If interest retained for the Servicer's servicing fee or other interest is
treated as a "stripped coupon," the Non-REMIC Certificates will either be
subject to the original issue discount rules or the market discount rules. A
holder of a Non-REMIC Certificate will account for any discount on the Non-REMIC
Certificate (other than an interest treated as a "stripped coupon") as market
discount rather than original issue discount if either (i) the amount of
original issue discount with respect to the Non-REMIC Certificate was treated as
zero under the original issue discount de minimis rule when the Non-REMIC
Certificate was stripped or (ii) no more than 100 basis points (including any
amount of servicing in excess of reasonable servicing) is stripped off from the
Mortgage Loans. If neither of the above exceptions applies, the original issue
discount rules will apply to the Non-REMIC Certificates.
If the original issue discount rules apply, the holder of a Non-REMIC
Certificate (whether a cash or accrual method taxpayer) will be required to
report interest income from the Non-REMIC Certificate in each taxable year equal
to the income that accrues on the Non-REMIC Certificate in that year calculated
under a constant yield method based on the yield of the Non-REMIC Certificate
(or, possibly, the yield of each Mortgage Asset underlying such Non-REMIC
Certificate) to such holder. Such yield would be computed at the rate that, if
used in discounting the holder's share of the payments on the Mortgage Assets,
would cause the present value of those payments to equal the price at which the
holder purchased the Non-REMIC Certificate. With respect to certain categories
of debt instruments, Section 1272(a)(6) of the Code requires that original issue
discount be accrued based on a prepayment assumption determined in a manner
prescribed by forthcoming regulations. It is unclear whether such regulations
would apply this rule to the Non-REMIC Certificates, whether Section 1272(a)(6)
might apply to the Non-REMIC Certificates in the absence of such regulations, or
whether the Internal Revenue Service could require use of a reasonable
prepayment assumption based on other tax law principles and Federal Tax Counsel
is unable to opine with respect to these issues. If required to report interest
income on the Non-REMIC Certificates to the Internal Revenue Service under the
stripped bond rules, it is anticipated that the Trustee will calculate the yield
of the Non-REMIC Certificates based on a representative initial offering price
of the Non-REMIC Certificates and a reasonable assumed rate of prepayment of the
Mortgage Assets (although such yield may differ from the yield to any particular
holder that would be used in calculating the interest income of such holder).
The Prospectus Supplement for each series of Non-REMIC Certificates will
describe the prepayment assumption that will be used for this purpose, but no
representation is made that the Mortgage Assets will prepay at that rate or at
any other rate.
In the case of a Non-REMIC Certificate acquired at a price equal to the
principal amount of the Mortgage Assets allocable to the Non-REMIC Certificate,
the use of a reasonable prepayment assumption would not have any significant
effect on the yield used in calculating accruals of interest income. In the
case, however, of a Non-REMIC Certificate acquired at a discount or premium
(that is, at a price less than or greater than such principal amount,
respectively), the use of a reasonable prepayment assumption would increase or
decrease such yield, and thus accelerate or decelerate the reporting of interest
income, respectively.
If a Mortgage Loan is prepaid in full, the holder of a Non-REMIC
Certificate acquired at a discount or premium generally will recognize ordinary
income or loss equal to the difference between the portion of the prepaid
principal amount of the Mortgage Loan that is allocable to the Non-REMIC
Certificate and the portion of the adjusted basis of the Non-REMIC Certificate
(see "Sales of Non-REMIC Certificates" below) that is allocable to the Mortgage
Loan. The method of allocating such basis among the Mortgage Loans may differ
depending on whether a reasonable prepayment assumption is used in calculating
the yield of the Non-REMIC Certificates for purposes of accruing original issue
discount. It is not clear whether any other adjustments would be required to
reflect differences between the prepayment rate that was assumed in calculating
yield and the actual rate of prepayments.
Non-REMIC Certificates of certain series ("Variable Rate Non-REMIC
Certificates") may provide for a Pass-Through Rate based on the weighted average
of the interest rates of the Mortgage Assets held by the Trust, which interest
rates may be fixed or variable. In the case of a Variable Rate Non-REMIC
Certificate that is subject to the original issue discount rules, the daily
portions of original issue discount generally will be calculated under the
principles discussed in "REMIC Regular Certificates-Current Income on REMIC
Regular Certificates--Original Issue Discount--Variable Rate REMIC Regular
Certificates."
Taxation of Non-REMIC Certificates If Stripped Bond Rules Do Not Apply. If
the stripped bond rules do not apply to a Non-REMIC Certificate, then the holder
will be required to include in income its share of the interest payments on the
Mortgage Assets in accordance with its tax accounting method. In addition, if
the holder purchased the Non-REMIC Certificate at a discount or premium, the
holder will be required to account for such discount or premium in the manner
described below. The treatment of any discount will depend on whether the
discount is original issue discount as defined in the Code and, in the case of
discount other than original issue discount, whether such other discount exceeds
a de minimis amount. In the case of original issue discount, the holder (whether
a cash or accrual method taxpayer) will be required to report as additional
interest income in each month the portion of such discount that accrues in that
month, calculated based on a constant yield method. In general it is not
anticipated that the amount of original issue discount to be accrued in each
month, if any, will be significant relative to the interest paid currently on
the Mortgage Assets. However, original issue discount could arise with respect
to a Mortgage Loan ("ARM") that provides for interest at a rate equal to the sum
of an index of market interest rates and a fixed number. The original issue
discount for ARMs generally will be determined under the principles discussed in
"REMIC Regular Certificates-Current Income on REMIC Regular
Certificates--Original Issue Discount---Variable Rate REMIC Regular
Certificates."
If discount other than original issue discount exceeds a de minimis amount
(described below), the holder will also generally be required to include in
income in each month the amount of such discount accrued through such month and
not previously included in income, but limited, with respect to the portion of
such discount allocable to any Mortgage Asset, to the amount of principal on
such Mortgage Asset received by the Trust in that month. Because the Mortgage
Assets 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 (and therefore at a rate not
significantly slower than the rate at which such discount would be included in
income if it were original issue discount). The holder may elect to accrue such
discount under a constant yield method based on the yield of the Non-REMIC
Certificate to such holder. In the absence of such an election, it may be
necessary to accrue such discount under a more rapid straight-line method. Under
the de minimis rule, market discount with respect to a Non-REMIC Certificate
will be considered to be zero if it is less than the product of (i) 0.25% of the
principal amount of the Mortgage Assets allocable to the Non-REMIC Certificate
and (ii) the weighted average life (in complete years) of the Mortgage Assets
remaining at the time of purchase of the Non-REMIC Certificate.
If a holder purchases a Non-REMIC Certificate at a premium, such holder may
elect under Section 171 of the Code to amortize the portion of such premium that
is allocable to a Mortgage Loan under a constant yield method based on the yield
of the Mortgage Loan to such holder, 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 or, perhaps, upon termination.
It is not clear whether the foregoing adjustments for discount or premium
would be made based on the scheduled payments on the Mortgage Loans or taking
account of a reasonable prepayment assumption, and Federal Tax Counsel is unable
to opine on this issue.
If a Mortgage Loan is prepaid in full, the holder of a Non-REMIC
Certificate acquired at a discount or premium will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Mortgage Loan that is allocable to the Non-REMIC Certificate and the
portion of the adjusted basis of the Non-REMIC Certificate (see "Sales of
Non-REMIC Certificates" below) that is allocable to the Mortgage Loan. The
method of allocating such basis among the Mortgage Loans may differ depending on
whether a reasonable prepayment assumption is used in calculating the yield of
the Non-REMIC Certificates for purposes of accruing original issue discount.
Other adjustments might be required to reflect differences between the
prepayment rate that was assumed in accounting for discount or premium and the
actual rate of prepayments.
Sales of Non-REMIC Certificates. A holder that sells a Non-REMIC
Certificate will recognize gain or loss equal to the difference between the
amount realized in the sale and its adjusted basis in the Non-REMIC Certificate.
In general, such adjusted basis will equal the holder's cost for the Non-REMIC
Certificate, increased by the amount of any income previously reported with
respect to the Non-REMIC Certificate and decreased by the amount of any losses
previously reported with respect to the Non-REMIC Certificate and the amount of
any distributions received thereon. Any such gain or loss generally will be
capital gain or loss if the assets underlying the Non-REMIC Certificate were
held as capital assets, except that, for a Non-REMIC Certificate to which the
stripped bond rules do not apply and that was acquired with more than a de
minimis amount of discount other than original issue discount (see "Taxation of
Non-REMIC Certificates if Stripped Bond Rules Do Not Apply" above), such gain
will be treated as ordinary interest income to the extent of the portion of such
discount that accrued during the period in which the seller held the Non-REMIC
Certificate and that was not previously included in income.
Foreign Investors. A holder of a Non-REMIC Certificate who is not a "United
States person" (as defined below) and is not subject to federal income tax as a
result of any direct or indirect connection to the United States other than its
ownership of a Non-REMIC Certificate generally will not be subject to United
States income or withholding tax in respect of payments of interest or original
issue discount on a Non-REMIC Certificate to the extent attributable to Mortgage
Loans that were originated after July 18, 1984, provided that the holder
complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by the holder of the Non-REMIC
Certificate under penalties of perjury, certifying that such holder is not a
United States person and providing the name and address of such holder).
Proposed Treasury Regulations, which would be effective with respect to payments
made after December 31, 1997 if adopted in their current form, would provide
alternative certification requirements and means by which a holder of Non-REMIC
Certificates could claim an exemption from federal income and withholding tax.
Interest or original issue discount on a Non-REMIC Certificate attributable to
Mortgage Loans that were originated prior to July 19, 1984 will be subject to a
30% withholding tax (unless such tax is reduced or eliminated by an applicable
tax treaty). For these purposes, the term "United States person" means a citizen
or a resident of the United States, a corporation, partnership or other entity
created or organized in, or under the laws of, the United States or any
political subdivision thereof, an estate the income of which is subject to
United States federal income taxation regardless of its source, and a trust for
which one or more United States fiduciaries have the authority to control all
substantial decisions and for which a court of the United States can exercise
primary supervision over the trust's administration. For years beginning before
January 1, 1997, the term "United States person" shall include a trust whose
income is includible in gross income for United States federal income taxation
regardless of source, in lieu of trusts just described, unless the trust elects
to have its United States status determined under the criteria described in the
previous sentence for tax years ending after August 20, 1996.
TAXABLE MORTGAGE POOLS
Effective January 1, 1992, certain entities classified as "taxable mortgage
pools" are subject to corporate level tax on their net income. A "taxable
mortgage pool" is generally defined as an entity that meets the following
requirements: (i) the entity is not a REMIC, (ii) substantially all of the
assets of the entity are debt obligations, and more than 50 percent of such debt
obligations consist of real estate mortgages (or interests therein), (iii) the
entity is the obligor under debt obligations with two or more maturities, and
(iv) payments on the debt obligations on which the entity is the obligor bear a
relationship to the payments on the debt obligations which the entity holds as
assets. With respect to requirement (iii), the Code authorizes the Internal
Revenue Service to provide by regulations that equity interests may be treated
as debt for purposes of determining whether there are two or more maturities. If
a Series of Non-REMIC Certificates were treated as obligations of a taxable
mortgage pool, the Trust would be ineligible to file consolidated returns with
any other corporation and could be liable for corporate tax. Treasury
regulations do not provide for the recharacterization of equity as debt for
purposes of determining whether an entity has issued debt with two maturities,
except in the case of transactions structured to avoid the taxable mortgage pool
rules.
ERISA CONSIDERATIONS
ERISA imposes certain requirements on employee benefit plans and collective
investment funds, separate accounts and insurance company general accounts in
which such plans or arrangements are invested to which it applies and on those
persons who are fiduciaries with respect to such benefit plans. Certain employee
benefit plans, such as governmental plans (as defined in Section 3(32) of ERISA)
and certain church plans (as defined in Section 3(33) of ERISA), are not subject
to ERISA. In accordance with ERISA's general fiduciary standards, before
investing in a Certificate a benefit plan fiduciary should determine whether
such an investment is permitted under the governing benefit plan instruments and
is appropriate for the benefit plan in view of its overall investment policy and
the composition and diversification of its portfolio and is prudent.
In addition, benefit plans subject to ERISA and individual retirement
accounts or certain types of Keogh plans not subject to ERISA but subject to
Section 4975 of the Code (each a "Plan") are prohibited from engaging in a broad
range of transactions involving Plan assets and persons having certain specified
relationships to a Plan ("parties in interest" and "disqualified persons"). Such
transactions are treated as "prohibited transactions" under Sections 406 and 407
of ERISA and excise taxes are imposed upon such persons by Section 4975 of the
Code. The Representative, the Originators, the Certificate Guaranty Insurer, the
Underwriter and the Trustee and certain of their affiliates might be considered
"parties in interest" or "disqualified persons" with respect to a Plan. If so,
the acquisition or holding or transfer of Certificates by or on behalf of such
Plan could be considered to give rise to a "prohibited transaction" within the
meaning of ERISA and the Code unless an exemption is available. In addition, the
Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) concerning the definition of what constitutes the assets of a Plan
(the "Plan Asset Regulations"), which provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an "equity" investment will be
deemed for purposes of ERISA to be assets of the investing Plan unless certain
exceptions apply. If an investing Plan's assets were deemed to include an
interest in the Mortgage Loans and any other assets of the Trust and not merely
an interest in the Certificates, the assets of the Trust would become subject to
the fiduciary investment standards of ERISA, and transactions occurring between
the Representative, the Trustee, the Servicer, the Certificate Guaranty Insurer
or any of their affiliates might constitute prohibited transactions, unless an
administrative exemption applies. Certain such exemptions which may be
applicable to the acquisition and holding of the Certificates or to the
servicing of the Mortgage Loans are noted below.
The U.S. Department of Labor has issued an administrative exemption,
Prohibited Transaction Class Exemption 83-1 ("PTCE 83-1"), which, under certain
conditions, exempts from the application of the prohibited transaction rules of
ERISA and the excise tax provisions of Section 4975 of the Code transactions
involving a Plan in connection with the operation of a "mortgage pool" and the
purchase, sale and holding of "mortgage pool pass-through certificates." A
"mortgage pool" is defined as an investment pool, consisting solely of interest
bearing obligations secured by first or second mortgages or deeds of trust on
single-family residential property, property acquired in foreclosure and
undistributed cash. A "mortgage pool pass-through certificate" is defined as a
certificate which represents a beneficial undivided interest in a mortgage pool
which entitles the holder to pass-through payments of principal and interest
from the mortgage loans.
For the exemption to apply, PTCE 83-1 requires that (i) the Representative
and the Trustee maintain a system of insurance or other protection for the
Mortgage Loans and the property securing such Mortgage Loans, and for
indemnifying holders of Class A Certificates against reductions in pass-through
payments due to defaults in loan payments or property damage in an amount at
least equal to the greater of 1% of the aggregate principal balance of the
Mortgage Loans, or 1% of the principal balance of the largest covered pooled
Mortgage Loan; (ii) the Trustee may not be an affiliate of the Representative;
and (iii) the payments made to and retained by the Representative in connection
with the Trust, together with all funds inuring to its benefit for administering
the Trust, represent no more than "adequate consideration" for selling the
Mortgage Loans, plus reasonable compensation for services provided to the Trust.
In addition, PTCE 83-1 exempts the initial sale of Certificates to a Plan
with respect to which the Representative, the Certificate Guaranty Insurer, the
Servicer, or the Trustee is a party in interest if the Plan does not pay more
than fair market value for such Certificates and the rights and interests
evidenced by such Certificates are not subordinated to the rights and interests
evidenced by other Certificates of the same pool. PTCE 83-1 also exempts from
the prohibited transaction rules and transactions in connection with the
servicing and operation of the Pool, provided that any payments made to the
Servicer in connection with the servicing of the Trust are made in accordance
with a binding agreement, copies of which must be made available to prospective
investors.
In the case of any Plan with respect to which the Representative, the
Servicer, the Certificate Guaranty Insurer, or the Trustee is a fiduciary, PTCE
83-1 will only apply if, in addition to the other requirements: (i) the initial
sale, exchange or transfer of Certificates is expressly approved by an
independent fiduciary who has authority to manage and control those plan assets
being invested in Certificates; (ii) the Plan pays no more for the Certificates
than would be paid in an arm's length transaction; (iii) no investment
management, advisory or underwriting fee, sale commission, or similar
compensation is paid to the Representative with regard to the sale, exchange or
transfer of Certificates to the Plan; (iv) the total value of the Certificates
purchased by such Plan does not exceed 25% of the amount issued; and (v) at
least 50% of the aggregate amount of Certificates is acquired by persons
independent of the Representative, the Trustee, the Servicer, and the
Certificate Guaranty Insurer.
Before purchasing Certificates, a fiduciary of a Plan should confirm that
the Trust is a "mortgage pool," that the Certificates constitute "mortgage pool
pass-through certificates," and that the conditions set forth in PTCE 83-1 would
be satisfied. In addition to making its own determination as to the availability
of the exemptive relief provided in PTCE 83-1, the Plan fiduciary should
consider the availability of any other prohibited transaction exemptions. The
Plan fiduciary also should consider its general fiduciary obligations under
ERISA in determining whether to purchase any Certificates on behalf of a Plan.
In addition, DOL has granted to certain underwriters and/or placement
agents individual prohibited transaction exemptions which may be applicable to
avoid certain of the prohibited transaction rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale in the secondary market
by Plans of pass-through certificates representing a beneficial undivided
ownership interest in the assets of a trust that consist of certain receivables,
loans and other obligations that meet the conditions and requirements of the
Exemption which may be applicable to the Certificates.
One or more other prohibited transaction exemptions issued by the DOL may
be available to a Plan investing in Certificates, depending in part upon the
type of Plan fiduciary making the decision to acquire a Certificate and the
circumstances under which such decision is made, including but not limited to:
PTCE 90-1, regarding investments by insurance company pooled separate accounts,
PTCE 91-38, regarding investments by bank collective investment funds and PTCE
95-60, regarding investments by insurance company general accounts. However,
even if the conditions specified in the Exemption or one or more of these other
exemptions are met, the scope of the relief provided might or might not cover
all acts which might be construed as prohibited transactions.
Any Plan fiduciary considering the purchase of a Certificate should consult
with its counsel with respect to the potential applicability of ERISA and the
Code to such investment. Moreover, each Plan fiduciary should 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.
LEGAL INVESTMENT CONSIDERATIONS
Each Prospectus Supplement will describe the extent, if any, to which the
Classes of Certificates offered thereby will constitute "mortgage related
securities" for purposes of SMMEA. No representation is made herein as to
whether the Certificates will constitute legal investments for any entity under
any applicable statute, law, rule, regulation or order. Prospective purchasers
are urged to consult with their counsel concerning the status of the
Certificates as legal investments for such purchasers prior to investing in any
Class of Certificates.
PLAN OF DISTRIBUTION
The Certificates offered hereby will be offered in Series, either directly
by the Representative or through one or more underwriters or underwriting
syndicates ("Underwriters"). The Prospectus Supplement for each Series will set
forth the terms of the offering of such Series and of each Class within such
Series, including the name or names of the Underwriters, the proceeds to and
their use by the Representative and the Originators, and either the initial
public offering price, the discounts and commissions to the Underwriters and any
discounts or concessions allowed or reallowed to certain dealers, or the method
by which the price at which the Underwriters will sell the Certificates will be
determined.
The Certificates in a Series may be acquired by Underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The obligations of any
Underwriters will be subject to certain conditions precedent, and such
Underwriters will be severally obligated to purchase all of a Series of
Certificates described in the related Prospectus Supplement, if they are
purchased. If Certificates of a Series are offered other than through
Underwriters, the related Prospectus Supplement will contain information
regarding the nature of such offering and any agreements to be entered into
between the seller and purchasers of Certificates of such Series.
The place and time of delivery for the Certificates of a Series in respect
of which this Prospectus is delivered will be set forth in the related
Prospectus Supplement.
LEGAL MATTERS
Certain legal matters relating to the validly of the issuance of the
Certificates of each Series will be passed upon for the Representative by Eric
R. Elwin, Esq., Corporate Counsel of the Representative and certain legal
matters relating to the validity of the issuance of the Certificates of each
Series will be passed upon for the Underwriters of the Certificates of each
Series by Stroock & Stroock & Lavan LLP, New York, New York. Stroock & Stroock &
Lavan LLP has performed legal services for the Representative and it is expected
that it will continue to perform such services in the future.
EXPERTS
The consolidated financial statements of The Money Store Inc. as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995 incorporated by reference herein have been audited by KPMG
Peat Marwick LLP, independent accountants, as stated in their opinion given upon
their authority as experts in accounting and auditing.
FINANCIAL INFORMATION
A new Trust will be formed to own the Mortgage Assets and to issue each
Series of Certificates. Each such Trust will have no assets or obligations prior
to the issuance of the Certificates and will not engage in any activities other
than those described herein. Accordingly, no financial statements with respect
to such Trusts are included in this Prospectus.
RATING
It is a condition to the issuance of the Certificates of each Series
offered hereby and by the Prospectus Supplement that they shall have been rated
in one of the four highest rating categories by the nationally recognized
statistical rating agency or agencies specified in the related Prospectus
Supplement.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped pass-through certificates in extreme cases might fail to recoup their
underlying investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
<PAGE>
INDEX OF PRINCIPAL TERMS
Unless the context indicates otherwise, the following terms shall have the
meanings set forth on the page indicated below:
Adjustable Rate.................................................... 6
Adjusted Mortgage Loan Remittance Rate............................. 42
Agency Securities.................................................. 6
Agreement.......................................................... 5
APR................................................................ 8
ARM................................................................ 85
Available Remittance Amount........................................ 53
Balloon Loans...................................................... 19
Bankruptcy Bond.................................................... 13
Basis Risk Shortfall............................................... 68
Buydown Funds...................................................... 69
Cede............................................................... 17
Certificate Account................................................ 53
Certificate Guaranty Insurance Policy.............................. 12
Certificate Guaranty Insurer....................................... 45
Certificate Register............................................... 41
Certificateholders................................................. 2
Certificates....................................................... 1
Class.............................................................. 1
Cleanup Costs...................................................... 67
CMO................................................................ 9
Code............................................................... 15
Commission......................................................... 3
Compensating Interest.............................................. 15
Contingency Fees................................................... 53
Contracts.......................................................... 6
Conventional Loans................................................. 5
Cooperative Loans.................................................. 5
Cooperatives....................................................... 5
Curtailment........................................................ 15
Custodian.......................................................... 52
Cut-off Date....................................................... 40
Definitive Certificates............................................ 43
Designated Depository Institution.................................. 52
Detailed Description............................................... 23
Determination Date................................................. 14
DTC................................................................ 17
Due Period......................................................... 53
ERISA.............................................................. 17
Event of Nonpayment................................................ 56
Federal Tax Counsel................................................ 16
FHA................................................................ 5
FHA Loans.......................................................... 6
FHLMC.............................................................. 6
Final Determination................................................ 57
Fixed Rate......................................................... 6
FNMA............................................................... 6
FTC Rule........................................................... 65
Funding Period..................................................... 10
Garn-St. Germain Act............................................... 65
GNMA............................................................... 6
Home Equity Loans.................................................. 25
HUD................................................................ 7
Index.............................................................. 90
Indirect Participant............................................... 42
Insurance Proceeds................................................. 15
Insurance Paying Agent............................................. 45
Insured Payment.................................................... 45
IRS................................................................ 57
Liquidation Proceeds............................................... 15
Loan-to-Value Ratio................................................ 25
Lockout Periods.................................................... 7
Lower Tier REMIC................................................... 77
Majority Certificateholders........................................ 55
Manufactured Homes................................................. 27
Manufacturer's Invoice Price....................................... 25
Master Servicer.................................................... 1
Monthly Advance.................................................... 14
Mortgage Asset Schedule............................................ 23
Mortgage Assets.................................................... 1
Mortgage Interest Rate............................................. 6
Mortgage Loans..................................................... 6
Mortgage Pool Insurance Policy..................................... 13
Mortgaged Properties............................................... 6
Multifamily Loans.................................................. 5
NHA Act............................................................ 28
1933 Act........................................................... 3
Non-REMIC Certificates............................................. 16
Opinion of Counsel................................................. 52
Originators........................................................ 1
Participants....................................................... 42
Pass-Through Rate.................................................. 2
Permitted Instruments.............................................. 53
Permitted Investments.............................................. 47
Plan............................................................... 86
PMBS............................................................... 6
PMBS Agreement..................................................... 34
PMBS Issuer........................................................ 9
PMBS Servicer...................................................... 9
PMBS Trustee....................................................... 9
Pool............................................................... 1
Pool Insurer....................................................... 46
Pre-Funding Account................................................ 10
Prepayment Assumption.............................................. 70
Principal and Interest Account..................................... 52
Principal Prepayment Period........................................ 42
Principal Prepayment............................................... 15
Private Mortgage-Backed Securities................................. 6
Prohibited Transaction............................................. 52
Qualified Substitute Mortgage Loan................................. 52
Rating Agency...................................................... 14
REIT .............................................................. 77
Released Mortgage Property Proceeds................................ 15
Relief Act......................................................... 22
REMIC.............................................................. 2
REMIC Certificates................................................. 68
REMIC Regular Certificates......................................... 16
REMIC Residual Certificates........................................ 16
REMIC Regulations.................................................. 69
Remittance Date.................................................... 2
Representative..................................................... 1
Reserve Account.................................................... 12
Secured Conventional Home Improvement Loans........................ 6
Senior Certificates................................................ 10
Servicing Advance.................................................. 53
Servicing Fees..................................................... 53
Single Family Loans................................................ 5
SMMEA.............................................................. 17
Special Hazard Insurance Policy.................................... 13
Special Hazard Insurer............................................. 46
Spread Amount...................................................... 12
Standard Hazard Insurance Policies................................. 7
Subordinated Certificates.......................................... 10
Sub-Servicer....................................................... 55
Substitution Adjustment............................................ 52
Successor Servicer................................................. 56
Superlien.......................................................... 68
Supplemental Interest Payments..................................... 14
Termination Notice................................................. 57
Termination Price.................................................. 57
Tiered REMICs...................................................... 69
Title I Loan Program............................................... 7
Title I Property Improvement Loans................................. 28
Title V............................................................ 66
Trust ............................................................. 1
Trustee............................................................ 15
Trustee's Mortgage File............................................ 51
UCC................................................................ 42
Underwriters....................................................... 88
United States person............................................... 81
Unsecured Home Improvement Loans................................... 6
VA................................................................. 5
Variable Rate Non-REMIC Certificates............................... 84
Variable Rate REMIC Regular Certificate............................ 72
Yield Supplement Agreement......................................... 68
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IN CONNECTION WITH THE
OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE REPRESENTATIVE OR THE UNDERWRITERS. THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE CLASS A CERTIFICATES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
Summary of Terms.............................. S-4
Risk Factors.................................. S-31
Lending Programs.............................. S-33
The Representative and the Originators S-33
The Loan Pools................................ S-36
Maturity, Prepayment and Yield Considerations S-40
Description of the Certificates S-50
The MBIA Policies and MBIA.................... S-60
The Agreement ................................ S-64
Federal Income Tax Considerations S-70
ERISA Considerations.......................... S-71
Legal Investment Considerations S-73
Underwriting.................................. S-74
Experts....................................... S-75
Legal Matters................................. S-75
Rating of the Class A Certificates S-75
Financial Information ........................ S-75
Index of Principal Terms...................... S-76
Annex I - Auction Procedures I-1
Annex II - Settlement Procedures II-2
Annex III - Global Clearance, Settlement and Tax
Documentation Procedures..................... III-1
PROSPECTUS
Prospectus Supplement ........................ 3
Available Information ........................ 3
Reports to Certificateholders................. 3
Incorporation of Certain
Documents by Reference....................... 3
Summary of Terms ............................. 5
Risk Factors.................................. 18
The Trusts.................................... 24
Use of Proceeds .............................. 35
The Representative and the Originators........ 35
The Single Family Loan Lending Program........ 36
Description of the Certificates............... 40
Credit Enhancement ........................... 44
Maturity, Prepayment and Yield Considerations 49
The Agreements ............................... 50
Certain Legal Aspects of the Mortgage Loans 59
Federal Income Tax Consequences............... 67
ERISA Considerations ......................... 86
Legal Investment Considerations............... 88
Plan of Distribution ......................... 88
Legal Matters ................................ 88
Financial Information......................... 89
Rating........................................ 89
Index of Principal Terms...................... 90
$970,000,000
[THE MONEY STORE LOGO]
THE MONEY STORE
HOME EQUITY TRUST
1997-B
_____________________
PROSPECTUS SUPPLEMENT
_____________________
PRUDENTIAL SECURITIES INCORPORATED
(Lead Manager for Pool I and Pool III Certificates)
SALOMON BROTHERS INC
(Joint Lead Manager for Pool II Certificates)
LEHMAN BROTHERS
(Joint Lead Mangaer for Pool II Certificates)
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
June 25,1997
