<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NOS. 333-32775-01
333-32775-02
333-32775-03
333-32775-04
333-32775-07
PROSPECTUS SUPPLEMENT
(To Prospectus dated December 23, 1997)
$1,585,000,000
LOGO
THE MONEY STORE TRUST 1997-D
--------------
The Money Store Asset Backed Certificates, Series 1997-D (the
"Certificates"), will represent fractional undivided ownership interests in a
trust fund, designated as The Money Store Trust 1997-D (the "Trust"). The
primary assets of the Trust will be four
(cover continued on next page)
--------------
SEE "RISK FACTORS" ON PAGE S-51 HEREIN AND PAGE 21 OF THE PROSPECTUS FOR A
DISCUSSION OF CERTAIN RISKS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE CERTIFICATES OFFERED HEREBY.
--------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND, EXCEPT FOR THE
MBIA POLICIES DESCRIBED HEREIN WHICH APPLY ONLY TO THE POOL I AND POOL IV
CERTIFICATES, DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE MONEY
STORE INC., MBIA INSURANCE CORPORATION OR ANY OF THEIR RESPECTIVE
AFFILIATES OR SUBSIDIARIES. EXCEPT FOR THE FHA LOANS, 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
CERTIFICATE PASS-THROUGH
BALANCE RATE (1)
------------- ------------
POOL I CERTIFICATES
- -------------------
<S> <C> <C>
Class AF-1
Certificates........ $122,000,000 6.815%
Class AF-2
Certificates........ $ 88,000,000 6.415%
Class AF-3
Certificates........ $249,000,000 6.345%
Class AF-4
Certificates........ $ 68,000,000 6.440%
Class AF-5
Certificates........ $ 37,000,000 6.555%
Class AF-6
Certificates........ $ 76,000,000 (3)
Class AF-7
Certificates........ $ 85,000,000 6.485%
POOL II CERTIFICATES
- --------------------
Class AV-1
Certificates........ $466,750,000 (2)
Class AV-2
Certificates........ $ 76,000,000 6.490%
Class MV-1
Certificates........ $ 37,375,000 (3)
</TABLE>
<TABLE>
<CAPTION>
INITIAL CLASS
CERTIFICATE PASS-THROUGH
BALANCE RATE (1)
------------- ------------
<S> <C> <C>
Class MV-2
Certificates....... $37,375,000 (3)
Class BV
Certificates........ $32,500,000 (3)
POOL III CERTIFICATES
- ---------------------
Class AH-1
Certificates........ $84,571,000 6.520%
Class AH-2
Certificates........ $28,024,000 6.365%
Class AH-3
Certificates........ $19,947,000 6.570%
Class AH-4
Certificates........ $20,457,000 6.950%
Class MH-1
Certificates........ $13,500,000 6.940%
Class MH-2
Certificates........ $15,000,000 7.280%
Class BH
Certificates........ $18,501,000 7.575%
POOL IV CERTIFICATES
- --------------------
Class AMF
Certificates........ $10,000,000 6.790%
</TABLE>
- -------
(1) Interest will accrue at the applicable Pass-Through Rate from (i)
December 1, 1997 for the Class AF-1 through Class AF-5, Class AF-7,
Class AV-2, Pool III and Pool IV Certificates, (ii) December 15, 1997
for the Class AV-1 Certificates and (iii) the Closing Date for the Class
AF-6, Class MV-1, Class MV-2 and Class BV Certificates.
(2) The Pass-Through Rate for the Class AV-1 Certificates will adjust based
on one-month LIBOR, as described herein. See "Description of the
Certificates--The Distribution Amounts.
(3) The Pass-Through Rate for the Class AF-6 Certificates will be determined
pursuant to the Auction Procedures described in Annex III to the
Prospectus Supplement and the Pass-Through Rate for the Class MV-1,
Class MV-2 and Class BV Certificates will be determined pursuant to the
Auction Procedures described in Appendix I to the Prospectus.
The Offered Certificates will be purchased by the underwriters indicated
below (the "Underwriters") from the Representative, on behalf of the
Originators, and will be offered by the Underwriters from time to time in
negotiated transactions or otherwise, at varying prices to be determined at
the time of sale. Aggregate proceeds to the Originators from the sale of the
Offered Certificates are expected to be approximately $1,580,900,000, plus
accrued interest, before deducting expenses payable by the Originators
estimated to be approximately $300,000. See "Underwriting" herein.
The Offered 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 Offered 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, societe
anonyme ("Cedel Bank") or the Euroclear System ("Euroclear") in Europe on or
about December 31, 1997.
--------------
Pool I Certificates
MORGAN STANLEY DEAN WITTER PRUDENTIAL SECURITIES INCORPORATED
(Joint Book Lead)
FIRST CHICAGO CAPITAL MARKETS, INC.
--------------
Pool II Certificates
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
--------------
Pool III Certificates
LEHMAN BROTHERS
--------------
Pool IV Certificates
NOMURA SECURITIES INTERNATIONAL, INC.
December 29, 1997
<PAGE>
(cover continued from previous page)
separate cross-supported sub-trusts, each consisting of a pool ("Pool I," "Pool
II," "Pool III" and "Pool IV," 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 junior 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 and junior 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 primarily of fixed rate, single family residential first,
second and more junior home improvement mortgage loans (the "Home Improvement
Loans"), certain of which loans (the "FHA Loans") are partially insured by the
Federal Housing Administration (the "FHA") of the United States Department of
Housing and Urban Development ("HUD") under Title I of the National Housing Act
of 1934 ("Title I"). The FHA Loans will have original terms to stated maturity
of up to 20 years and the other Home Improvement Loans (the "Conventional Home
Improvement Loans") will have original terms to stated maturity of up to 25
years. Pool IV will consist of fixed and adjustable 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 and the administrator (in such capacity, the "Claims
Administrator") of the FHA 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 Pool I and Pool IV 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 Pool I and Pool IV Certificates, of Insured Payments and
Guaranteed Supplemental Payments (each 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 MBIA Policies. See "The
MBIA Policies and MBIA" herein for a more complete description of the MBIA
Policies. MBIA DOES NOT INSURE ANY AMOUNTS DUE TO HOLDERS OF POOL II OR POOL III
CERTIFICATES.
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 March 30, 1998 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
Pools--General." On the Closing Date (as defined herein), an aggregate cash
amount not to exceed approximately $131,000,000, in the case of Pool I,
approximately $40,000,000, in the case of Pool II, approximately $38,000,000, in
the case of Pool III, and approximately $2,000,000, in the case of Pool IV will
be deposited into the Pre-Funding Account. See "The Agreement--Pre-Funding
Account" herein.
The Certificates will consist of the Classes of regular certificates set
forth on the front cover (collectively, the "Offered Certificates"), one Class
of interest only subordinate certificates (the "Class X Certificates") and one
or more Classes of residual certificates (collectively, the "Class R
Certificates," and together with the Offered Certificates and the Class X
Certificates, the "Certificates"). Only the Offered Certificates are offered
hereby. 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 Home Improvement Loans in Pool III. The
Pool IV Certificates generally will represent the right to receive payments
distributable on or with respect to the Multifamily Loans in Pool IV. HOWEVER,
DUE TO THE CROSS-SUPPORT PROVISIONS DESCRIBED HEREIN, THE HOLDERS OF EACH CLASS
OF CERTIFICATES MAY
S-2
<PAGE>
RECEIVE CASH AS CREDIT SUPPORT FROM ANY LOAN IN ANY POOL. See "Description of
the Certificates--Cross-Support Provisions and Spread Amount" herein.
Distributions of principal and interest to the holders of the
Certificates (the "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 in January 1998 (each such day, a "Remittance Date").
On each Remittance Date, the owners of each Class of 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 March
30, 1998 will be distributed as a principal prepayment on March 31, 1998
(together with accrued interest at the applicable Pass-Through Rates on the
amount of such prepayment) to the Certificates then entitled to receive
distributions of principal. The interest due such Certificates on the April 1998
Remittance Date will be adjusted to take account of such distribution.
By purchasing a Class AF-6, Class MV-1, Class MV-2 or Class BV
Certificate (the "Auction Rate Certificates"), whether in an Auction or
otherwise, each prospective purchaser will be deemed to have agreed to
participate in Auctions on the terms described herein and in the attached
Prospectus and, in the case of the Class MV-1, Class MV-2 and Class BV
Certificates, so long as the beneficial ownership of the Auction Rate
Certificates is maintained in book-entry form to sell, to 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 Certificates. The
Underwriters intend to make a secondary market for the Offered Certificates, but
have no obligation to do so. There can be no assurance that a secondary market
for the Offered Certificates will develop or, if one does develop, that it will
offer sufficient liquidity of investment or continue.
As described herein, one or more 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, all of the
Classes of Certificates (other than the Class R 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 Classes of Offered Certificates offered by this Prospectus
Supplement each constitute a separate class of the series of Certificates being
offered by the Representative and the Originators pursuant to the Prospectus
dated December 23, 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 OFFERED 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.
S-3
<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 Asset Backed
Certificates, Series 1997-D,
consisting of the Offered
Certificates set forth on the
cover, the Class X
Certificates and the Class R
Certificates (collectively,
the "Certificates"), which are
more particularly identified
below under "--Transaction
Structure."
Each Class of Offered
Certificates will be issued in
the initial Class Principal
Balance set forth for such
Class on the cover page
hereof. Each Class of Offered
Certificates (other than the
Class AF-6, Class AV-1, Class
MV-1, Class MV-2 and Class BV
Certificates) will bear
interest for each Remittance
Date at the per annum rate set
forth for such Class on the
cover page hereof.
For the first Remittance Date,
the Class AV-1 Certificates
will bear interest at the per
annum rate of 6.06094%. For
each Remittance Date
thereafter, the Class AV-1
Certificates will bear
interest at a per annum rate
equal to LIBOR (as defined
herein) plus before the
Optional Servicer Termination
Date (as defined under "--
Optional Termination by the
Servicer") 0.10%, and after
the Optional Servicer
Termination Date if
termination has not occurred,
0.20%, subject in each case to
the Net Funds Cap (as defined
herein) but in no event
exceeding 14% per annum.
For the first Remittance Date,
the Class AF-6 Certificates
will bear interest at a per
annum rate equal to LIBOR as
determined on December 29,
1997. For each Remittance Date
thereafter, the Class AF-6
Certificates will bear
interest based upon the
Auction Procedures described
in Annex III to this
Prospectus Supplement, but in
no event exceeding 14.0% per
annum.
For the first Remittance Date,
the Class MV-1, Class MV-2 and
Class BV Certificates will bear
interest at a per annum rate
equal to LIBOR plus 0.09%,
0.14% and 0.54%, respectively.
For each Remittance Date
thereafter, the Class MV-1,
Class MV-2 and Class BV
Certificates will bear interest
based upon the Auction
Procedures described in
Appendix I to the Prospectus
(as modified pursuant to Annex
III hereto), subject to
S-4
<PAGE>
the Net Funds Cap, but in no
event exceeding 14% per annum.
The per annum rate of interest
at which a Class of
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, Pool III and Pool
IV Loans (each as defined
herein) is based on preliminary
Pools expected to be delivered
to the Trustee and Co-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 of 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 four separate cross-
supported sub-trusts consisting
of the Pool I, Pool II, Pool
III and Pool IV Loans. The
Trust will issue the following
Classes of Certificates:
Pool I Certificates.........................Class AF-1, Class AF-2, Class
AF-3, Class AF-4, Class AF-5,
Class AF-6 and Class AF-7
Certificates.
Pool II Certificates........................Class AV-1, Class AV-2, Class
MV-1, Class MV-2 and Class BV
Certificates.
Pool III Certificates.......................Class AH-1, Class AH-2, Class
AH-3, Class AH-4, Class MH-1,
Class MH-2 and Class BH
Certificates.
Pool IV Certificates........................Class AMF Certificates.
Regular Certificates........................All Classes of Certificates
except the Residual
Certificates.
Residual Certificates.......................Class R Certificates.
Interest Only Certificates..................Class X Certificates.
S-5
<PAGE>
Other Designations..............................As used herein, certain Classes
of Certificates have been
assigned the following
additional designations:
Adjustable Rate Certificates.................Class AV-1 Certificates.
Auction Rate Certificates....................Class AF-6, Class MV-1, Class
MV-2 and Class BV
Certificates.
Pool I Class A Certificates..................All Pool I Certificates
Pool II Class A Certificates.................Class AV-1 and Class AV-2
Certificates.
Pool III Class A Certificates................Class AH-1, Class AH-2, Class
AH-3 and Class AH-4
Certificates.
Pool IV Class A Certificates.................Class AMF Certificates.
Pool Class A Certificates....................Pool I Class A Certificates or
Pool II Class A Certificates
or Pool III Class A
Certificates or Pool IV Class
A Certificates.
Pool II Class M Certificates.................Class MV-1 and Class MV-2
Certificates.
Pool III Class M Certificates................Class MH-1 and Class MH-2
Certificates.
Pool Class M Certificates....................Pool II Class M Certificates or
Pool III Class M Certificates.
Pool II Class B Certificates.................Class BV Certificates.
Pool III Class B Certificates................Class BH Certificates.
Pool Class B Certificates....................Pool II Class B Certificates or
Pool III Class B Certificates.
Cut-Off Date....................................November 30, 1997.
Closing Date....................................December 31, 1997.
Issuer..........................................The Money Store Trust 1997-D
(the "Trust").
Representative, Servicer and Claims
Administrator The Money Store Inc., a New
Jersey corporation (in its
capacity as sponsor of the
Trust, the "Representative," in
its capacity as the servicer of
the Loans, the "Servicer," and
in its capacity as the
administrator of the insurance
claims to the FHA (the
"Claims") with respect to the
FHA Loans, the "Claims
Administrator"). In the
Agreement (as defined herein),
the Claims Administrator will
appoint its subsidiary, TMS
Mortgage Inc., a New Jersey
corporation, to assist in
S-6
<PAGE>
performing the functions of the
Claims Administrator. 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 Agreement--The Trustee"
herein.
Co-Trustee .....................................First Union Trust Company,
National Association, a
national banking association
headquartered in Wilmington,
Delaware will be the Co-
Trustee with respect to the
Home Improvement Loans. See
"The Agreement--The Co-
Trustee" herein.
Custodian ......................................First Union National Bank, a
national banking association,
headquartered in Charlotte,
North Carolina, will be the
Custodian with respect to the
Home Improvement Loans. In
such capacity, it will retain
the files relating to the Home
Improvement Loans. Such files
will be held at the
Custodian's offices in
Ijamsville, Maryland. See "The
Agreement--The Custodian"
herein.
Remarketing Agent...............................Morgan Stanley & Co. Inc. will
act as remarketing agent (in
such capacity, the
"Remarketing Agent") with
respect to the Class AF-6
Certificates. See "The
Agreement--The Remarketing
Agent" 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 Class MV-
1, Class MV-2 and Class BV
Certificates. See "The
Agreement--The 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
S-7
<PAGE>
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 four separate
cross-supported sub-trusts,
each consisting of a pool
("Pool I," "Pool II," "Pool
III" and "Pool IV,"
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 junior mortgage
loans expected to have
aggregate principal balances
as of the Cut-Off Date of not
less than approximately
$594,000,000 and $610,000,000,
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 Pools--Home Equity Loans"
herein.
Pool III will consist primarily
of fixed rate, single family
residential first, second and
more junior home improvement
loans (the "Home Improvement
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 $162,000,000 and
original terms to stated
maturity of up to 25 years or,
in the case of the FHA Loans,
20 years. Certain of the Pool
III Loans are insured by the
FHA under Title I. See
"Lending Programs--The Home
Improvement Lending Program"
herein.
Pool IV will consist of fixed
and adjustable rate five or
more unit residential or
mixed-use residential and
commercial first mortgage
loans (the "Multifamily Loans"
or the "Pool IV Loans," which
terms include any Subsequent
Loans acquired by Pool IV,
unless the context requires
otherwise) expected to have an
aggregate principal balance as
of the Cut-Off Date of not
less than approximately
$8,000,000 and original
S-8
<PAGE>
terms to stated maturity of up
to 30 years. See "The Loan
Pools--Multifamily Loans"
herein.
Collectively, the Home Equity
Loans, the Home Improvement
Loans and the Multifamily
Loans are at times referred to
herein as the "Loans."
The Pool I Certificates
generally will be entitled to
receive payments distributable
on or with respect to the Pool
I Home Equity Loans. The Pool
II Certificates generally will
be entitled to receive
payments distributable on or
with respect to the Pool II
Home Equity Loans. The Pool
III Certificates generally
will be entitled to receive
payments distributable on or
with respect to the Pool III
Home Improvement Loans. The
Pool IV Certificates generally
will be entitled to receive
payments distributable on or
with respect to the Pool IV
Multifamily Loans. HOWEVER,
DUE TO 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
"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
holders of Pool I and Pool IV
Certificates.
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." The
holders of the Pool IV
Certificates are also referred
to herein as the "Pool IV
Certificateholders." Each
holder of a Certificate is
referred to herein as a
"Certificateholder."
The projected last Remittance
Dates for each Class of
Offered 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 Offered Certificates will
occur significantly earlier
than its projected last
Remittance Date. See
"Maturity, Prepayment and
Yield Considerations" herein.
The Offered 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
S-9
<PAGE>
book-entry form in minimum
denominations of $25,000
original principal amount and
integral multiples of $25,000
in excess thereof.
Pre-Funding Account.............................On the Closing Date, an
aggregate cash amount (the
"Pre-Funded Amount") will be
deposited into the Pre-Funding
Account in an amount not to
exceed approximately
$131,000,000, in the case of
Pool I, approximately
$40,000,000, in the case of
Pool II, approximately
$38,000,000 in the case of
Pool III and approximately
$2,000,000, in the case of
Pool IV. Amounts allocated to
Pool I, Pool II, Pool III and
Pool IV, 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 March 30,
1998, 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
Certificates of the related
Pool as set forth herein.
However, any Pre-Funded Amount
remaining at the close of
business on March 30, 1998
will be distributed as a
principal prepayment on March
31, 1998 (the "Special
Remittance Date") to holders
of 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 in
the Capitalized Interest
Account will be used by the
Trustee on the Remittance
Dates occurring during the
Funding Period 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
Certificates on the portion of
the 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 Certificates on each such
Remittance Date. Additionally,
if a principal prepayment is
made on the Special Remittance
Date to any Class of
Certificates, such
Certificates also will receive
on such date, from the
Capitalized Interest Account,
accrued interest at the
S-10
<PAGE>
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
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 January
15, 1998 (each, a "Remittance
Date"), to each person in
whose name 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 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 March 30,
1998 (together with interest
thereon) will be distributed
by or on behalf of the Trustee
on the Special Remittance Date
to the Classes of Certificates
of the related Pool then
entitled to receive payments
of principal in the order and
percentages as described
herein. Such distribution will
be made to each person in
whose name a Certificate of
any such Class is registered
on February 28, 1998.
Distributions...................................As more fully described herein,
distributions with respect to
each Class of Offered
Certificates will be payable,
after payment of certain fees,
generally from (i) receipts on
the Loans of the applicable
Pool (subject to certain
adjustments as a result of the
cross support provisions
described herein), (ii) Monthly
Advances (as defined under
"-Monthly Advances") and
payments of Compensating
Interest (as defined under
"--Compensating Interest") by
the Servicer, (iii) with
respect to the Pool I and Pool
IV Certificates, amounts
transferred from the Spread
Account, if any, and payments
under the related MBIA Policy,
(iv) with respect to the Pool
III Certificates, any FHA
Payments, as defined below
under "--Obligations of the
Claims Administrator") and (v)
for the Remittance Dates
occurring during the Funding
Period, any amounts transferred
to the Certificate Account (as
defined under "The
Agreement--Payments on the
Loans" herein) from the
Pre-Funding Account or the
Capitalized Interest Account
(with respect to each Pool of
Certificates, the "Pool
Available Amount").
S-11
<PAGE>
The "Due Period" with respect
to any Remittance Date is the
calendar month preceding the
month of such Remittance Date.
Current Interest................................On each Remittance Date, to the
extent of the applicable Pool
Available Amount, the holders
of each Class of Offered
Certificates will receive 30
days' interest (or in the case
of the Adjustable Rate
Certificates and Auction Rate
Certificates, the actual number
of days since the last
Remittance Date (or, in the
case of the first Remittance
Date, from December 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; provided,
however, that for purposes of
the foregoing, the Pass-Through
Rate for the Class AF-6
Certificates shall not exceed
the related Net Funds Cap. If
for any Remittance Date the
amount of interest accrued on
the Class AF-6 Certificates
calculated at its actual
Pass-Through Rate exceeds the
amount of interest accrued at
the applicable Net Funds Cap
(the "Class AF-6 Supplemental
Interest Amount"), such excess
will be paid from the related
MBIA Policy; provided, however,
that if MBIA is not in default
with regard to payment under
the MBIA Policy relating to
Pool I, such amount may be
funded, in whole or in part,
from the Class X Accelerated
Distribution Amount.
Interest with respect to the
Offered 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
Certificates 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 or
in the case of the first
Remittance Date, from December
15, 1997 for the Adjustable
Rate Certificates and from the
Closing Date for the Auction
Rate Certificates). See
"Description of the
Certificates" herein.
The amount of interest each
Class of Certificates is
entitled to receive on each
Remittance Date at the related
Pass-Through Rate (which, for
the Class AF-6 Certificates
will be limited to the
applicable Net Funds Cap) is
referred to as the "Current
Interest Requirement" for such
Class.
Notwithstanding the foregoing,
if a principal prepayment is
made to one or more Classes of
Certificates on the
S-12
<PAGE>
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
April 1998 Remittance Date will
be based on the related
Principal Balance on March 31,
1998, after giving effect to
such principal prepayment.
Interest will first be
allocated to the applicable
Pool Class A Certificates, pro
rata in accordance with the
Current Interest Requirements,
then in the case of Pool II and
Pool III Certificates, to the
applicable Pool Class M
Certificates in ascending
numerical order and then to the
applicable Pool Class B
Certificates.
If on a particular
Remittance Date, the Pool
Available Amount for a Pool of
Certificates is less than the
aggregate Current Interest
Requirement for the related
Pool Class A Certificates, the
amount of the shortfall for
each such Class of Pool Class A
Certificates, together with
interest thereon at the
applicable Pass-Through Rates
to the extent permitted by law
(each, a "Class Interest
Shortfall Carryforward Amount")
will be carried forward and
distributed as described below.
In the case of Pool I and Pool
IV Certificates, the Class
Interest Shortfall Carryforward
Amount will be paid by MBIA
under the MBIA Policies and
there should be no carry
forward thereof. With respect
to the Class AF-6 Certificates,
the related MBIA Policy also
will cover interest accrued up
to the actual Pass-Through
Rate, regardless of the Net
Funds Cap.
Similarly, if the Pool
Available Amount for any Class
of Pool Class M Certificates or
Class of Pool Class B
Certificates after making the
distributions of the Current
Interest Requirements to all
classes which are prior in
right of distribution as
described in the second
preceding paragraph, is less
than the Current Interest
Requirement for such Class the
remaining Pool Available Amount
will be distributed with
respect thereto and a Class
Interest Shortfall Carryforward
Amount will be created for such
Class.
Class Interest Shortfall
Carryforward Amounts for
Classes of Pool II Certificates
do not include any
Certificateholders' Interest
Carryover (as defined below).
If on any Remittance Date the
Pass-Through Rate for a Class
of Adjustable Rate Certificates
or Auction Rate Certificates
(other than the Class AF-6
Certificates) is
S-13
<PAGE>
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
the applicable maximum rate set
forth above), over (ii) the
amount of interest such Class
will receive on such Remittance
Date at the applicable 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
the applicable maximum rate set
forth above) 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
Agreement--Flow 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 Pool II Certificates do not
address the likelihood of the
payment of the amount of any
Certificateholders' Interest
Carryover.
As to any Remittance Date, the
"Net Funds Cap" for the Class
AF-6 Certificates will be a
percentage equal to the
difference between (A) the
weighted average Pool I
Mortgage Interest Rate and (B)
the sum of (i) the percentages
used in determining the
Servicing Fee, the Contingency
Fee, the premium due MBIA and
the fee due the Trustee and
(ii) the percentage used in
determining the fee due the
Remarketing Agent.
As to any Remittance Date, the
"Net Funds Cap" for the Pool II
Certificates (other than the
Class AV-2 Certificates) 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 and the fee due the Trustee
and (ii) with respect to the
Auction Rate Certificates, the
percentage used in determining
the fee due the Auction Agent
and the Broker-Dealer (as
defined in the Auction
Procedures described herein and
in Appendix I to the
Prospectus).
For any Remittance Date until
the Class Principal Balance of
the Class AF-6 Certificates is
reduced to zero, the "Class X
Accelerated Distribution
Amount" will equal the lesser
of (i) the excess, if any, of
(A) the amount of interest
received on or with respect to
the Pool I Loans during the
related Due Period over
S-14
<PAGE>
(B) the sum of the aggregate
Current Interest Requirement
for the Pool I Certificates and
the portion of the Servicing
Fee, the Contingency Fee, fees
due the Trustee, the premium
due MBIA and the Remarketing
Agent Fee allocable to the Pool
I Loans and (ii) the Class AF-6
Supplemental Interest Amount.
Class A Principal Distribution Amounts..........Holders of the applicable Pool
Class A Certificates will be
entitled to receive on each
Remittance Date as payments of
principal, in the order of
priority set forth below, in
the aggregate, the lesser of
(i) the remaining applicable
Pool Available Amount in the
Certificate Account on such
Remittance Date after payment
of the Current Interest
Requirements on all Classes of
Offered Certificates in the
applicable Pool (and payment of
the Class AF-6 Supplemental
Interest Amount, if any) and
(ii) (A) with respect to Pool
I, Pool II and Pool IV, the
applicable Senior Percentage of
the applicable Pool Principal
Distribution Amount (with
respect to each such Pool of
Certificates, the "Class A
Formula Principal Distribution
Amount") or (B) with respect to
Pool III, the Pool III Class A
Principal Distribution Amount.
The "Senior Percentage" for
any Remittance Date (a) for the
Pool I and Pool IV Class A
Certificates is 100% and (b)
for the Pool II Class A
Certificates (i) prior to the
Pool II Class B Cross-over Date
(as defined under "-- Pool II
Class B Pool Principal
Distribution Amount"),
respectively, and for any
Remittance Date on or after the
Pool II Class B Cross-over Date
on which the Trigger Event with
respect to such Pool is in
effect (as described under
"Description of the
Certificates--Distributions on
the Certificates--Pool II Class
B Pool Principal Distribution
Amounts"), will be 100%, or
(ii) on or after the Pool II
Class B Cross-over Date on
which the Trigger Event with
respect to the applicable Pool
is not in effect, the "Senior
Percentage" will equal a
fraction, expressed as a
percentage, the numerator of
which is the sum of the Class
Principal Balances of the Pool
II Class A and Class M
Certificates as of the
immediately preceding
Remittance Date and the
denominator of which is the sum
of the Class Principal Balances
of the Pool II Class A, Class M
and Class B Certificates as of
the immediately preceding
Remittance Date.
For any Remittance Date, the
"Pool Principal Distribution
Amount" is equal to the excess
of (X) the sum, without
duplication, of (i) each
payment of
S-15
<PAGE>
principal received by the
Servicer or any Subservicer
(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
Subservicer 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 Subservicer
during the related Due Period
with respect to the Loans of
the related Pool (and, with
respect to the Pool III Loans,
any FHA Payments received by
the Claims Administrator with
respect to principal on a Pool
III Loan during the related Due
Period), (iv) that portion of
the purchase price for any Loan
of the related Pool repurchased
by The Money Store Inc. 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)
with respect to Pool I or Pool
IV, the amount of any
Subordination Deficit (as
defined under "Description of
the Certificates--Cross Support
Provisions and Spread Amount"
herein) for such Remittance
Date, (vii) any moneys released
from the Pre-Funding Account on
the Remittance Dates during the
Funding Period as a prepayment
of the Certificates of the
related Pool, (viii) with
respect to Pool I or Pool IV,
the amount of any Subordination
Increase Amount (as defined
under "Description of the
Certificates--Cross-Support
Provisions and Spread Amount"
herein) with respect to the
applicable Pool for such
Remittance Date, and (ix) with
respect to Pool III, the Pool
Accelerated Principal
Distribution Amount (as defined
under "Description of the
Certificates--Class A Principal
Distribution Amounts") for such
Remittance Date over (Y) the
amount of any Subordination
Reduction Amount (as defined
under "Description of the
Certificates-Distributions on
the Certificates--Class A
Principal Distribution
Amounts") with respect to the
applicable Pool for such
Remittance Date.
The "Class A Pool Principal
Distribution Amount" with
respect to the Pool I, Pool II
or Pool IV Certificates for any
Remittance Date is intended to
be equal to the Class A Formula
Principal Distribution Amount
for such Pool of Certificates.
If the Class A Formula
Principal Distribution Amount
exceeds the applicable
S-16
<PAGE>
Pool Available Amount in the
Certificate Account on such
Remittance Date (after payment
of all Current Interest
Requirements for the
Certificates in such Pool and
payments of the Class AF-6
Supplemental Interest Amount,
if any), then the Class A Pool
Principal Distribution Amount
for such Pool of Certificates
shall instead equal such
remaining Pool Available
Amount.
The "Pool III Class A
Principal Distribution Amount"
means, for any Remittance Date
(a) prior to the Stepdown Date,
(as defined under "Description
of the Certificates--Class A
Principal Distribution
Amounts") and for any
Remittance Date on or after the
Stepdown Date on which the
Trigger Event for such Pool is
in effect, the lesser of (i)
100% of the Pool Principal
Distribution Amount for Pool
III and (ii) the Class
Principal Balance of the Pool
III Class A Certificates and
(b) on or after the Stepdown
Date on which the Trigger Event
for Pool III is not in effect,
the excess, if any, of (i) the
Class Principal Balance of the
Pool III Class A Certificates
immediately prior to such
Remittance Date over (ii) the
lesser of (A) 41.5% of the
outstanding principal balance
of the Pool III Loans as of the
last day of the related Due
Period and (B) the outstanding
principal balance of the Pool
III Loans as of the last day of
the related Due Period minus
$1,000,000.
Pool I ......................................On each Remittance Date, the
Class A Pool Principal
Distribution Amount for Pool I
will be distributed to the
holders of the Pool I Class A
Certificates in the following
order of priority: (i) first,
to the holders of the Class AF-
7 Certificates, an amount equal
to the Class AF-7 Principal
Distribution Amount (as defined
below) for such Remittance
Date, (ii) second, to the
holders of the Class AF-1 and
Class AF-2 Certificates,
sequentially in that order,
until the Class Principal
Balance of each such Class (in
ascending order of numerical
designation) is reduced to
zero, (iii) third, to the
holders of the Class AF-3,
Class AF-4 and Class AF-5
Certificates, sequentially in
that order, until the Class
Principal Balance of each Class
(in ascending order of
numerical designation) is
reduced to its Targeted Balance
(as defined herein) for such
Remittance Date, (iv) fourth,
to the holders of the Class AF-
6 Certificates, until the Class
Principal Balance of such Class
is reduced to zero, (v) fifth,
to the holders of the Class AF-
3, Class AF-4 and Class AF-5
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
S-17
<PAGE>
(vi) sixth, to the holders of
the Class AF-7 Certificates,
until the Class Principal
Balance of such Class 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 (as defined herein) that
is recovered from such
Certificateholders.
The "Class AF-7 Principal
Distribution Amount" for any
Remittance Date will be the
product of (i) the applicable
Class AF-7 Principal Percentage
for such Remittance Date and
(ii) the Class AF-7 Pro Rata
Principal Distribution Amount
for such Remittance Date. In no
event will the Class AF-7
Principal Distribution Amount
on any Remittance Date be
greater than the Class A Pool
Principal Distribution Amount
for Pool I for such Remittance
Date or the Class Principal
Balance of the Class AF-7
Certificates.
The "Class AF-7 Principal
Percentage" for each Remittance
Date shall be as follows:
Class AF-7
Principal
Remittance Dates Percentage
January 1998 - December 2000 0%
January 2001 - December 2002 45%
January 2003 - December 2003 80%
January 2004 - December 2004 100%
January 2005 - and thereafter 300%
The "Class AF-7 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
AF-7 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 Pool Principal Distribution
Amount for Pool I for such
Remittance Date.
Notwithstanding the foregoing
and only through the Remittance
Date in October 1998, for
purposes of making the
foregoing distributions, the
Class A Pool Principal
Distribution Amount for Pool I
shall not include the lesser of
(a) the Total Monthly Excess
Cashflow for Pool I less any
Pool I Subordination Deficit
and (b) an amount equal to 30
days' interest at a rate of
2.50% per annum on a notional
amount equal to
S-18
<PAGE>
the Class Principal Balance of
the Class AF-7 Certificates
prior to the distributions
being made on the specified
Remittance Date (the "Pool I
Strip Amount"). The Pool I
Strip Amount will be paid to
the Holders of the Class X
Certificates.
Pool II .....................................On each Remittance Date, the
Class A Pool Principal
Distribution Amount for Pool II
will be distributed to the
holders of the Pool II Class A
Certificates in the following
order or priority: (i) first,
to the holders of the Class AV-
2 Certificates, an amount equal
to the Class AV-2 Principal
Distribution Amount (as defined
below) for such Remittance Date
(ii) second, to the holders of
the Class AV-1 Certificates,
until the Class Principal
Balance of such Class is
reduced to zero and (iii)
third, to the holders of the
Class AV-2 Certificates, until
the Class Principal Balance of
such Class is reduced to zero;
provided, however, that on any
Remittance Date on which the
Class Principal Balances of the
Pool II Class M and Class B
Certificates have been reduced
to zero, any amounts payable to
the Pool II Class A
Certificates on such Remittance
Date shall be distributed pro
rata and not sequentially.
The "Class AV-2 Principal
Distribution Amount" for any
Remittance Date prior to and
including the Remittance Date
in June 2001 will be zero, and
thereafter will equal the
lesser of the Class A Pool
Principal Distribution Amount
for Pool II and the Class
Principal Balance of the Class
AV-2 Certificates.
Pool III ....................................On each Remittance Date, the
Class A Pool Principal
Distribution Amount for Pool
III will be distributed to the
holders of the Pool III Class A
Certificates in the order of
their numerical designations,
commencing with the Class AH-1
Certificates, until the Class
Principal Balance of each such
Class is reduced to zero;
provided, however that on any
Remittance Date on which the
Class Principal Balances of the
Pool III Class M and Class B
Certificates have been reduced
to zero, any amounts payable to
the Pool III Class A
Certificates on such Remittance
Date shall be distributed pro
rata and not sequentially.
Pool IV .....................................On each Remittance Date, the
Class A Pool Principal
Distribution Amount for Pool IV
will be distributed to the
holders of the Class AMF
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
S-19
<PAGE>
the definition of Distribution
Amount that is recovered from
such Certificateholders.
Pool II Class M Pool Principal Distribution
Amounts....................................... On each Remittance Date on and
after the Class Principal
Balances of the Pool II Class A
Certificates have been reduced
to zero, the Holders of the
Pool II Class M Certificates
will be entitled to receive, as
payments of principal, the
lesser of (i) the remaining
applicable Pool Available
Amount in the Certificate
Account on such Remittance Date
after payment of the Current
Interest Requirements on all
Classes of Offered Certificates
in such Pool and the applicable
Class A Pool Principal
Distribution Amount, if any, on
such Remittance Date and (ii)
the Senior Percentage of the
Pool II Pool Principal
Distribution Amount (the "Class
M Formula Principal
Distribution Amount"). Such
Class M Pool Principal
Distribution Amount shall be
allocated between the Pool II
Class M Certificates in the
order of their numerical
designations, commencing with
the Class MV-1 Certificates,
until the Class Principal
Balance of the respective
Classes of Class M Certificates
are reduced to zero.
The "Class M Pool Principal
Distribution Amount" with
respect to the Pool II
Certificates for any Remittance
Date is intended to be equal to
the Class M Formula Principal
Distribution Amount for such
Pool of Certificates. If the
Class M Formula Principal
Distribution Amount exceeds the
applicable remaining Pool
Available Amount in the
Certificate Account on such
Remittance Date then the Class
M Pool Principal Distribution
Amount shall instead equal such
remaining Pool Available
Amount.
On each Remittance Date on or
after the Class B Cross-over
Date on which the applicable
Trigger Event is not in effect,
payments of principal will be
made to the Pool II Class B
Certificateholders, even if the
related Class M
Certificateholders are not yet
entitled to receive payments of
principal because the Class
Principal Balances of the Pool
II Class A Certificates have
not been reduced to zero.
Pool III Class MH-1 and Class MH-2 Principal
Distribution Amounts.........................On each Remittance Date, the
Holders of the Class MH-1
Certificates will be entitled
to receive an amount (the
"Class MH-1 Principal
Distribution Amount") equal to
(a) prior to the Stepdown Date,
and for any Remittance Date on
or after the Stepdown Date on
which the applicable Trigger
Event is in effect and the
S-20
<PAGE>
Pool III Class A Certificates
are still outstanding, zero and
(b) on any other Remittance
Date, the excess, if any, of
(i) the sum of (A) the Class
Principal Balance of the Pool
III Class A Certificates after
giving effect to the payment of
the Pool III Class A Principal
Distribution Amount on such
Remittance Date and (B) the
Class Principal Balance of the
Class MH-1 Certificates
immediately prior to such
Remittance Date over (ii) the
lesser of (A) 55% of the
outstanding principal balance
of the Pool III Loans as of the
last day of the related Due
Period and (B) the outstanding
principal balance of the Pool
III Loans as of the last day of
the related Due Period minus
-----
$1,000,000.
On each Remittance Date, the
Holders of the Class MH-2
Certificates will be entitled
to receive an amount (the
"Class MH-2 Principal
Distribution Amount") equal to
(a) prior to the Stepdown Date,
and for any Remittance Date on
or after the Stepdown Date on
which the applicable Trigger
Event is in effect and the Pool
III Class A Certificates or the
Class MH-1 Certificates are
still outstanding, zero and (b)
on any other Remittance Date,
the excess, if any, of (i) the
sum of (A) the Class Principal
Balance of the Pool III Class A
Certificates after giving
effect to the payment of the
Pool III Class A Principal
Distribution Amount on such
Remittance Date, (B) the Class
Principal Balance of the Class
MH-1 Certificates after giving
effect to the payment of the
Class MH-1 Principal
Distribution Amount on such
Remittance Date and (C) the
Class Principal Balance of the
Class MH-2 Certificates
immediately prior to such
Remittance Date over (ii) the
lesser of (A) 70% of the
outstanding principal balance
of the Pool III Loans as of the
last day of the related Due
Period and (B) the outstanding
principal balance of the Pool
III Loans as of the last day of
the related Due Period minus
-----
$1,000,000.
Pool II Class B Pool Principal
Distribution Amount...........................Prior to the Class B Cross-over
Date, there will be no
distributions of principal on
the Pool II Class B
Certificates. The "Class B
Cross-over Date" will be the
earlier of (A) the Remittance
Date on which the Class MV-2
Class Principal Balance is
reduced to zero, and (B) the
first Remittance Date on or
after the Remittance Date in
January 2001 on which the
fraction, expressed as a
percentage, the numerator of
which is the sum of the Pool II
Class A and Pool II Class M
Class Principal Balances as of
the immediately preceding
Remittance Date and the
denominator of which is the
aggregate outstanding principal
balance of the Pool II Loans as
of
S-21
<PAGE>
the end of the second preceding
Due Period, is less than or
equal to 85.0%.
On each Remittance Date on
or after the Class B Cross-over
Date and prior to the
Remittance Date on which the
Pool II Class A and Pool II
Class M Class Principal
Balances have been reduced to
zero, holders of the Class BV
Certificates will be entitled
to distributions of principal
only if the Trigger Event with
respect to Pool II (as
described under "Description of
the Certificates--Distributions
on the Certificates--Pool II
Class B Pool Principal
Distribution Amount" herein) is
not in effect on such
Remittance Date.
On each Remittance Date on
or after the Class B Cross-over
Date, if the applicable Trigger
Event is not in effect on such
Remittance Date, the Holders of
the Class BV Certificates will
be entitled to receive, as
payments of principal, the
lesser of (i) the remaining
applicable Pool Available
Amount on such Remittance Date
after payments of the Current
Interest Requirements on all
Classes of Offered Certificates
in Pool II and the Pool II
Class A and Pool II Class M
Pool Principal Distribution
Amounts, if any, on such
Remittance Date and (ii) the
Class B Percentage (as
described under "Description of
the Certificates--Distributions
on the Certificates--Pool II
Class B Pool Principal
Distribution Amount" herein) of
the Pool II Pool Principal
Distribution Amount (the "Class
B Formula Principal
Distribution Amount"), until
the Class Principal Balance of
the Class BV Certificates is
reduced to zero.
The "Class B Pool Principal
Distribution Amount" with
respect to the Pool II
Certificates for any Remittance
Date is intended to be equal to
the Class B Formula Principal
Distribution Amount for such
Pool of Certificates. If the
Class B Formula Principal
Distribution Amount exceeds the
applicable remaining Pool
Available Amount in the
Certificate Account on such
Remittance Date then the Class
B Pool Principal Distribution
Amount shall instead equal such
remaining Pool Available
Amount.
Pool III Class BH Principal
Distribution Amount............................On each Remittance Date, the
Holders of the Class BH
Certificates will be entitled
to receive an amount (the
"Class BH Principal
Distribution Amount") equal to
(a) prior to the Stepdown Date,
and for any Remittance Date on
or after the Stepdown Date on
which the applicable Trigger
Event is in effect and the Pool
III
S-22
<PAGE>
Class A Certificates, the Class
MH-1 Certificates or the Class
MH-2 Certificates are still
outstanding, zero and (b) on
any other Remittance Date, the
excess, if any, of (i) the sum
of (A) the Class Principal
Balance of the Pool III Class A
Certificates after giving
effect to the payment of the
Pool III Class A Principal
Distribution Amount on such
Remittance Date, (B) the Class
Principal Balance of the Class
MH-1 Certificates after giving
effect to the payment of the
Class MH-1 Principal
Distribution Amount on such
Remittance Date, (C) the Class
Principal Balance of the Class
MH-2 Certificates after giving
effect to the payment of the
Class MH-2 Principal
Distribution Amount on such
Remittance Date and (D) the
Class Principal Balance of the
Class BH Certificates
immediately prior to such
Remittance Date over (ii) the
lesser of 88.5% of the
outstanding principal balance
of the Pool III Loans as of the
last day of the related Due
Period and (B) the outstanding
principal balance of the Pool
III Loans as of the last day of
the related Due Period minus
$1,000,000.
Remaining Pool II and Pool III
Pool Available Amounts........................On each Remittance Date, after
payments of amounts as set
forth above with respect to
Pool II and Pool III, the
remaining Pool II and Pool III
Pool Available Amounts shall be
paid to the following Classes,
in the following order of
priority:
(i) the aggregate Class A Class
Interest Shortfall Carryforward
Amounts will be paid
concurrently to the Holders of
the applicable Class or Classes
of Class A Certificates, pro
rata for each such Pool of
Class A Certificates in
accordance with their
respective entitlements to
Class A Interest Shortfall
Carryforward Amounts, and any
Class A Interest Shortfall
Carryforward Amounts not paid
shall be carried forward to the
next Remittance Date;
(ii) in the case of Pool II
only, the Pool II Accelerated
Principal Distribution Amount
(as defined under "Description
of the Certificates--
Distributions on the
Certificates--Remaining Pool II
and Pool III Pool Available
Amounts") will be paid to the
Holders of the Pool II Class A,
Class M and Class B
Certificates in the same order
and priority as payments of the
Pool II Principal Distribution
Amount described above.
(iii) the lesser of the
remaining Pool II or Pool III
Pool Available Amount and the
applicable Pool Available
Maximum Subordination Amount
(as defined under
S-23
<PAGE>
"Description of the
Certificates--Distributions on
the Certificates--Remaining
Pool II and Pool III Pool
Available Amounts") will be
paid in reduction of the
related Class Interest
Shortfall Carryforward Amounts
and then the Applied Realized
Loss Amounts, first to the
Class MV-1 and Class MH-1
Certificates, respectively,
second to the Class MV-2 and
Class MH-2 Certificates,
respectively, and then to the
Class BV and Class BH
Certificates, respectively. Any
Class Interest Shortfall
Carryforward Amounts or Applied
Realized Loss Amounts not paid
shall be carried forward to the
next Remittance Date subject to
the applicable Pool Available
Maximum Subordination Amount.
(iv) the Pool II Strip Amount
will be paid to the Holders of
the Class X Certificates.
(v) any remaining amounts,
subject to the cross support
provisions described under "--
Credit Enhancement" will be
paid to the Class X and/or
Class R Certificates.
When the applicable Pool
Available Maximum Subordination
Amount has been reduced to
zero, (i) no further Class M or
Class B Class Interest
Shortfall Carryforward Amounts
or Class M or Class B Applied
Realized Loss Amounts with
respect to the same Pool shall
be carried forward to
succeeding Remittance Dates and
(ii) interest shall cease to
accrue on such remaining Class
M or Class B Class Interest
Shortfall Carryforward Amounts.
Credit Enhancement
Pool I and Pool IV...........................The credit enhancement provided
for the benefit of the Pool I
and Pool IV Certificates
consists of (i) the Spread
Amount (as defined below), the
Spread Account and cross-
support features, which utilize
the internal cash flows of all
the Pools as described herein
and (ii) the MBIA Policies.
Pool II and Pool III.........................The credit enhancement provided
for the benefit of the Pool II
and Pool III Certificates
consists of (i) the Spread
Amount, and cross-support
features, which utilize the
internal cash flows of all the
Pools as described herein, (ii)
certain subordination features
and (iii) in the case of the
Pool III Certificates, the
benefit of the FHA Insurance
described herein.
S-24
<PAGE>
Spread Amount and Realized Losses ............. Certain provisions of the Trust
are intended to provide for
limited acceleration of the
respective Pool of Certificates
relative to the amortization of
the related 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 Certificates
for the related 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 (i.e.,
the "Specified Subordinated
Amount" as defined under
"Description of the
Certificates--Distributions on
the Certificates--Class A
Principal Distribution
Amounts") 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 losses in the other
Pools of Loans, subject to
certain prior requirements for
application of such excess
amounts. See "Description of
the Certificates-Cross-Support
Provisions and Spread Amount"
herein.
If a Loan becomes a Liquidated
Loan during a Due Period, the
Net Liquidation Proceeds
relating thereto and allocated
to principal may be less than
the then outstanding principal
balance of such Loan. The
amount of such insufficiency is
a "Realized Loss."
To the extent that Realized
Losses in a Pool are
experienced, such Realized
Losses will reduce the
aggregate outstanding balance
of the related Loans (i.e., a
reduction in the collateral
balance will occur). Since the
Spread Amount with respect to a
Pool is the excess, if any, of
the related aggregate principal
balances of the Loans plus the
related amounts on deposit in
the Pre-Funding Account over
the aggregate Class Principal
Balances of the related
Certificates,
S-25
<PAGE>
Realized Losses will in the
first instance reduce the
related Spread Amount.
If on any Remittance Date after
taking into account all
Realized Losses experienced
during the prior Due Period on
Pool II and Pool III Loans and
after taking into account the
distribution of principal
(including the Pool II and Pool
III Accelerated Principal
Distribution Amounts) with
respect to the related
Certificates on such Remittance
Date, the aggregate Class
Principal Balance of the Pool
II or Pool III Certificates
exceeds the aggregate balance
of the related Loans as of the
end of the related Due Period
(i.e., if the level of
overcollateralization is
negative), then if cross
support is not available from
other Pools, the Class
Principal Balances of the
related Class B and Class M
Certificates will be reduced
(in effect, "written down") in
the order described below such
that the level of the
applicable Spread Amount is
zero, rather than negative.
Such a negative level is an
"Applied Realized Loss Amount
," which will be applied as a
reduction of the Class
Principal Balance of the
related Class B and Class M
Certificates in reverse order
of seniority, i.e., first
against the Class B Class
Principal Balance, then against
the Class Principal Balances of
the Class M Certificates in
reverse numerical order,
commencing with the Class MV-2
and Class MH-2 Certificates,
respectively, in each case
until the respective Class
Principal Balance is reduced to
zero. The Agreement does not
permit the "write down" of the
Class Principal Balance of any
Class A Certificate.
Once the Class Principal
Balance of a Class of Class M
or Class B Certificates has
been "written down," the amount
of such write down will no
longer bear interest, nor will
such amount thereafter be
"reinstated" or "written up,"
although the amount of such
write down may, on future
Remittance Dates, be paid to
Holders of the Class M and
Class B Certificates which
experienced the write down, in
direct order of seniority
(i.e., first, the Class M
Certificates, commencing with
the Class MV-1 and Class MH-1
Certificates, respectively, and
then the Class B Certificates).
Subordination of Pool II and Pool III
Class M and Class B Certificates...............The rights of the Holders of
Class M Certificates and Class
B Certificates to receive
distributions with respect to
the Loans will be subordinated
to such rights of the related
Class A Certificateholders.
This subordination
S-26
<PAGE>
is intended to enhance the
likelihood of regular receipt
by the holders of the related
Pool Class A Certificates of
the full amount of their
monthly payments of interest
and principal and to afford
such holders protection against
losses on Liquidated Loans. The
protection afforded to the
Holders of the related Pool
Class A Certificates by means
of the subordination feature
will be accomplished by the
preferential right of the
Holders of the Pool Class A
Certificates (i) to receive,
prior to any distribution being
made on a Remittance Date in
respect of principal or
interest on the related Class M
Certificates and Class B
Certificates, the applicable
Current Interest Requirement
due them on each Remittance
Date out of the respective Pool
Available Amount on deposit on
such date in the Certificate
Account and (ii) to receive,
prior to any distribution being
made on a Remittance Date in
respect of principal on the
related Class M Certificates
and Class B Certificates, the
applicable Class A Pool
Principal Distribution Amount
due them on each Remittance
Date out of the respective Pool
Available Amount on deposit on
such date in the Certificate
Account.
In addition, the rights of
the Holders of the Class MV-2
and Class MH-2 Certificates and
the related Class B
Certificates to receive
distributions with respect to
the related Loans will be
subordinate to such rights of
the Holders of the Class MV-1
and Class MH-1 Certificates,
respectively. This
subordination is intended to
enhance the likelihood of
regular receipt by the Holders
of the Class MV-1 and Class
MH-1 Certificates of the full
amount of their monthly
payments of interest and
principal and to afford such
holders protection against
losses on Liquidated Loans. The
protection afforded to the
Holders of the Class MV-1 and
Class MH-1 Certificates by
means of the subordination
feature will be accomplished by
the preferential right of the
Holders of the Class MV-1 and
Class MH-1 Certificates (i) to
receive, prior to any
distribution being made on a
Remittance Date in respect of
principal or interest on the
Class MV-2 and Class MH-2
Certificates, respectively, and
the related Class B
Certificates, the applicable
Current Interest Requirement
due them on each Remittance
Date out of the respective Pool
Available Amount on deposit on
such date in the Certificate
Account and (ii) to receive,
prior to any distribution being
made on a Remittance Date in
respect of principal on the
Class MV-2 and Class MH-2
Certificates, respectively, and
the related Class B
Certificates, the applicable
Class M Pool Principal
Distribution Amount due them on
each
S-27
<PAGE>
Remittance Date out of the
respective Pool Available
Amount on deposit on such date
in the Certificate Account.
In addition, the rights of
the Holders of the Class B
Certificates to receive
distributions with respect to
the related Loans will be
subordinate to such rights of
the Holders of the Class MV-2
and Class MH-2 Certificates, as
applicable. This subordination
is intended to enhance the
likelihood of regular receipt
by the Holders of the Class
MV-2 and Class MH-2
Certificates of the full amount
of their monthly payments of
principal and interest and to
afford such holders protection
against losses on Liquidated
Loans. The protection afforded
to the Holders of the Class
MV-2 and Class MH-2
Certificates by means of the
subordination feature will be
accomplished by the
preferential right of the
Holders of the Class MV-2 and
Class MH-2 Certificates (i) to
receive, prior to any
distribution being made on a
Remittance Date in respect of
interest or principal on the
related Class B Certificates,
the applicable Current Interest
Requirement due them on each
Remittance Date out of the
respective Pool Available
Amount on deposit on such date
in the Certificate Account and
(ii) to receive, prior to any
distribution being made on a
Remittance Date in respect of
principal on the related Class
B Certificates, the applicable
Class M Pool Principal
Distribution Amount due them on
each Remittance Date out of the
respective Pool Available
Amount on deposit on such date
in the Certificate Account.
Cross Support Features.........................After distribution of amounts
otherwise provided herein from
funds available for a P ool of
Certificates from the Total
Monthly Excess Cashflow
applicable to that Pool, any
remaining Total Monthly Excess
Cashflow with respect to Pool I
and Pool IV will first be
allocated to the other such
Pool to reduce any Subordinated
Deficiency Amount until the
respective Specified
Subordination Amount is reached
and then any remaining Total
Monthly Excess Cashflow from
any Pool will be allocated to
the Certificates then entitled
to receive principal in the
other Pools to cover Realized
Losses in the current period,
pro rata, based on the amount
so required by each such other
Pool. See "Description of the
Certificates-Cross Support
Provisions and Spread Amount".
Spread Account.................................The Agreement may provide for
an initial cash deposit into an
account (the "Spread Account")
to be maintained with the
Trustee. The Agreement will
S-28
<PAGE>
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 but not Guaranteed
Supplemental Payments (each as
defined below) otherwise
required to be made on a
Remittance Date with respect to
the Pool I and Pool IV
Certificates, without
distinction as to the Pool,
and, in certain circumstances,
to make accelerated payments of
principal on the Pool I and
Pool IV Certificates.
Additionally, if the level of
delinquencies for the Pool I
and Pool IV Loans exceeds
certain specified levels,
excess interest received on the
Pool I and Pool IV Loans will
be deposited into the Spread
Account. 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 may, 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 Pool I and Pool IV
Certificates. 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) and, with
respect to the Class AF-6
Certificates, the full amount
of each Guaranteed Supplemental
Payment (as 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 and (ii) any
Preference Amount (each, as
defined under "The MBIA
Policies and MBIA").
"Guaranteed Supplemental
Payment" means, for any
Remittance Date until the Class
Principal Balance of the Class
AF-6 Certificates is reduced to
zero, the Class
S-29
<PAGE>
AF-6 Supplemental Interest
Amount, if any, for such
Remittance Date; provided,
however, if MBIA is not in
default with regard to payment
under the MBIA Policies, the
amount of the Guaranteed
Supplemental Payment required
to be paid by MBIA shall be
reduced by the Class X
Accelerated Distribution
Amount.
As stated above, amounts, if
any, in the Spread Account will
be used to fund Insured
Payments but not Guaranteed
Supplemental Payments, prior to
draws being made on the MBIA
Policies.
The MBIA Policies do not (i)
cover any amounts due to
holders of the Pool II or Pool
III Certificates, (ii) 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, (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 Pool I and Pool
IV Certificates to the extent
of any Insured Payments or
Guaranteed Supplemental
Payments made under the
applicable MBIA Policy and not
otherwise reimbursed, but its
right to reimbursement will be
subject to the prior rights of
the holders of the Pool I and
Pool IV Certificates to amounts
to which such holders are
entitled under the Agreement.
FHA Insurance..................................Subject to the then remaining
Reserve Amount (as defined
below) of the Co-Trustee, each
FHA Loan will be insured by the
FHA in an amount currently
equal to 90% of the sum of the
following: (i) the unpaid
principal and uncollected
interest earned to the date of
default, calculated on the
actuarial method even if the
Note (as defined herein)
relating to such FHA Loan
provides for simple interest,
reduced by certain amounts
received by the Claims
Administrator in connection
with enforcing a lien on the
related Mortgaged Property
prior to the lien of the
related FHA Loan; (ii) the
unpaid amount of interest on
the unpaid principal from the
date of default to the date of
the initial submission of the
related Claim to the FHA for
payment plus 15 calendar days,
but not for any period greater
than nine months from the date
of default, calculated at 7%
per annum; and (iii) the amount
of certain uncollected court
costs, attorney's fees, and
expenses for recording the
assignment of the related
Mortgage to the United States.
See "The Trusts--FHA
S-30
<PAGE>
Loans" in the Prospectus and
"Risk Factors--Limitations on
FHA Insurance" and "Lending
Programs--The Home Improvement
Lending Program--FHA Loans"
herein.
The Co-Trustee's Reserve Amount.................Each of the FHA Loans will be
insured by the FHA, to the
extent described herein, under
each Originator's FHA contract
of insurance. In connection
with the transfer of the FHA
Loans from the Originators to
the Co-Tru stee, the
Originators also will file with
the FHA all documents necessary
to effect the transfer of the
FHA insurance reserves applic
able to the FHA Loans to the
Co-Trustee's FHA contract of
insurance.
Based upon information provided
by the FHA, The Money Store
Inc. believes that upon the
transfer referred to above and
after the Funding Period, the
FHA insurance available to the
Co-Trustee will be equal to at
least (A) 10% of the principal
balance of the FHA Loans as of
the Cut-Off Date or Subsequent
Cut-Off Date, as the case may
be; or (B) 10% of the principal
balance of all Title I loans
originated or purchased and
currently reported for FHA
insurance by the Co-Trustee,
less amounts for annual
reductions as described below
and for insurance claims
previously paid to the
Co-Trustee by the FHA,
including payments in respect
of loans other than the FHA
Loans, and increased by an
amount equal to 10% of the
lesser of the original
principal balance or the
purchase price paid for Title I
loans subsequently originated
or purchased of record by the
Co-Trustee (in the case of
clause (A) or (B), the "Reserve
Amount "). See "The Trusts--FHA
Insurance" in the Prospectus
and "Risk Factors--Limitations
on FHA Insurance" herein.
FHA Claims paid to the Co-
Trustee by the FHA with respect
to Title I loans other than the
FHA Loans may affect the total
amount of the Reserve Amount.
Since the adequacy of the Co-
Trustee's Reserve Amount is
dependent upon future events,
including the reductions for
the payment of claims, no
assurance can be given that the
Reserve Amount is or will be
adequate to cover 90% of all
potential losses on the FHA
Loans. See "Risk Factors--
Limitations on FHA Insurance"
herein.
Obligations of the Claims Administrator.........If any FHA Loan becomes a 90 Day
Delinquent FHA Loan (as defined
below), and if sufficient
coverage is available in the
Reserve Amount to make an FHA
Payment with respect to such
FHA Loan, the Claims
S-31
<PAGE>
Administrator may, in its sole
discretion, during any
subsequent Due Period,
determine to file a Claim with
the FHA with respect to such 90
Day Delinquent FHA Loan. If the
Claims Administrator determines
to file such a Claim, the
Claims Administrator will so
notify the Co-Trustee and the
Custodian no later than the
Determination Date following
such determination and shall
request delivery of the related
loan file (the "Trustee's Loan
File"). Upon receipt of such
certification and request, the
Custodian shall, no later than
the related Remittance Date,
release to the Claims
Administrator the related
Trustee's Loan File and the
Co-Trustee and the Custodian
shall execute and deliver such
instruments necessary to enable
the Claims Administrator to
file a Claim with the FHA on
behalf of the Co-Trustee.
Within 120 days of its receipt
of the related Trustee's Loan
File, the Claims Administrator
shall, in its sole discretion,
either file a Claim with the
FHA for an FHA Payment with
respect to such 90 Day
Delinquent FHA Loan or, if the
Claims Administrator determines
not to file such a Claim,
return to the Co-Trustee the
related Trustee's Loan File.
With respect to any 90 Day
Delinquent FHA Loan transferred
to the Claims Administrator as
described above, the Claims
Administrator shall deposit
(or, if the Claims
Administrator is not also the
Servicer, the Claims
Administrator shall instruct
the Servicer to deposit) in the
Principal and Interest Account
within 24 hours of receipt or
determination thereof the
following amounts (such amounts
to be net of certain amounts
that would be reimbursable to
the Servicer under the
Agreement with respect to
amounts in the Principal and
Interest Account): (i) any FHA
Payments; (ii) the amount, if
any, by which the FHA Payment
was reduced in accordance with
FHA Regulations due to the
Claims Administrator enforcing
a lien on the related Mortgaged
Property prior to the lien of
the related 90 Day Delinquent
FHA Loan; and (iii) any
principal and interest payments
received with respect to a 90
Day Delinquent FHA Loan after
the Due Period in which the FHA
Loan is transferred to the
Claims Administrator and before
either the related FHA Payment
is paid or the related
Trustee's Loan File is returned
to the Co-Trustee, as the case
may be (the amounts referred to
in (ii) and (iii) above are
referred to herein as "Related
Payments").
If an FHA Loan becomes a 90 Day
Delinquent FHA Loan when there
is insufficient coverage in the
Reserve Amount or if the Claims
Administrator
S-32
<PAGE>
determines not to file a Claim
with the FHA with respect to
such 90 Day Delinquent FHA
Loan, the Co-Trustee will not
transfer such FHA Loan to the
Claims Administrator, no Claim
will be made to the FHA and the
Servicer may take other action,
including the commencement of
foreclosure proceedings on the
related Mortgaged Property, if
any. The Servicer will continue
to make Monthly Advances with
respect to interest on 90 Day
Delinquent FHA Loans as
described under "Monthly
Advances" herein.
The Certificateholders will not
have any direct right to
receive the FHA Payments fr om
the FHA. See "Risk Factors--
Dependence on Claims
Administrator, Representative
and Servicer for Making FHA
Claims and Paying the FHA
Payments" herein.
A "90 Day Delinquent FHA Loan"
is a Loan with respect to which
four consecutive Monthly
Payments have not been received
by the Servicer as of the last
day of the related Due Period
unless, on or prior to the last
day of the Due Period in which
the fourth Monthly Payment is
due, the Servicer has received
from the related Obligor an
amount at least equal to one
unpaid Monthly Payment.
An "FHA Payment" is any amount
paid by the FHA pursuant to a
Claim with respect to a 90 Day
Delinquent FHA Loan.
FHA Premium Account............................The Trustee will establish with
itself a separate account (an
"FHA Premium Account") to
reimburse the Claims
Administrator for the payment
to the FHA of the annual
insurance premium (the "FHA
Insurance Premium") on each FHA
Loan in the Trust. The FHA
Insurance Premium is an annual
premium equal to 0.5% of the
original principal balance of
each FHA Loan. If the related
Obligor pays the FHA Insurance
Premium in addition to the
monthly payment, any payment of
the FHA Insurance Premium
received during a Due Period
will be deposited in the FHA
Premium Account on the related
Remittance Date by the Trustee
from the related Certificate
Account. In certain states, the
Servicer is prohibited from
directly collecting the FHA
Insurance Premium from the
Obligor. With respect to FHA
Loans secured by Mortgaged
Properties located in such
states, the Servicer will cause
to be deposited in the FHA
Premium Account a specified
percentage of each scheduled
interest payment. Since an
Obligor pays interest on the
declining principal balance of
the related FHA Loan and the
FHA Insurance Premium is based
S-33
<PAGE>
upon the original principal
balance of the FHA Loan, the
amount of interest allocated to
the FHA Premium Account may be
more or less than the amount of
the related FHA Insurance
Premium. The Servicer has
agreed to satisfy any resulting
shortfall from its own funds.
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 Home
Improvement Loans." The Loans
that will comprise Pool IV as
of the Closing Date are
referred to herein as the
"Initial Multifamily Loans"
and, together with the Initial
Home Equity Loans and the
Initial Home Improvement 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 March 30, 1998 from
funds on deposit in the
Pre-Funding Account allocated
to Pools I and II. Prior to the
Closing Date, 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 Program--Underwriting
S-34
<PAGE>
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
Agreement--Representations and
Warranties" in the Prospectus.
No more than approximately 18%,
15%, 12%, 12%, 12%, 10%, 10%
and 10% of the Pool I Home
Equity Loans will be secured by
Home Equity Mortgaged
Properties located in New York,
California, Pennsylvania,
Illinois, Michigan, Florida,
Georgia and Ohio, respectively.
No more than approximately 25%,
20%, 12%, 12%, 10% and 10% of
the Pool II Home Equity Loans
will be secured by Home Equity
Mortgaged Properties located in
Michigan, Illinois, California,
Ohio, Washington and New York,
respectively. No more than
approximately 7% of the Pool I
Home Equity Loans and 7% 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 6% and 6% 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% and 4% 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%
and 12% 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% 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% and 1% 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.
S-35
<PAGE>
No less than approximately 70%
of the Pool I Home Equity Loans
and no less than approximately
90% 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
and Pool II Home Equity Loans
will constitute second or more
junior 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 ap
proximately 55% and 50% 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 79% and 80%,
respectiv ely. 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") which,
as of the Cut-Off Date, ranged
from approximately 7.325% to
approximately 18% per annum.
S-36
<PAGE>
The Pool II Home Equity Loans
will bear interest at
adjustable rates (each, a "Pool
II Mortgage Interest Rate")
which, as of the Cut-Off Date,
ranged from approximately 5% to
approximately 17% per annum,
and 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 50% of the Pool
II Home Equity Loans will have
their first Change Date
occurring approximately 24
months after origination, no
more than approximately 5% of
the Pool II Home Equity Loans
will have their first Change
Date occurring approximately 36
months after origination and no
more than approximately 30% 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 90%
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
"Lifetime Cap" is the maximum
rate of interest on any
adjustable rate loan. The
"Lifetime Floor" is the minimum
rate of interest on any
adjustable rate loan.
The Gross Margins for the Pool
II Home Equity Loans will range
from approximately 2% to 12%.
The weighted average Gross
Margin of the Pool II Home
S-37
<PAGE>
Equity Loans will be no less
than approximately 6%. 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 6% to 32%. The
weighted average Lifetime Cap
of the Pool II Home Equity
Loans will be no less than
approximately 16%. The Lifetime
Floors of the Pool II Home
Equity Loans will range from
approximately 0% to 18%. The
weighted average Lifetime Floor
of the Pool II Home Equity
Loans will be no less than
approximately 10%.
The weighted average Pool I
Mortgage Interest Rate of the
Initial Pool I Home Equity
Loans will be no less than
approximately 11.5%. The
weighted average current Pool
II Mortgage Interest Rate of
the Initial Pool II Home Equity
Loans will be no less than
approximately 10%. 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
$500,000 and $800,000,
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 no less than
approximately $40,000 and
$85,000, 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 no more
than approximately 257 months
and 359 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 no more than
approximately 261 months and
360 months, respectively.
No more than approximately 15%
of the Pool I Home Equity Loans
will provide for a st ated
maturity of less than the
period of time of the
corresponding amortization
schedule ("Balloon Loans"). As
a result, upon the ma turity 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
more than approximately 2% of
the Pool II Home Equity Loan
will be Balloon Loans. See
"Risk Factors--Nature of the
Security" in th e Prospectus.
S-38
<PAGE>
Pool III........................................The Home Improvement Loans in
Pool III will consist of fixed
rate home improvement mortgages
(the "Home Improvement
Mortgages") and the related
promissory notes, retail
installment contracts or
obligations, or sales
agreements (the "Home
Improvement Mortgage Notes" or
"Notes") secured, except as set
forth below, by one- to four-
family residences, units in
planned unit developments
("PUDs") or units in
condominium developments (the
"Home Improvement Mortgaged
Properties" or "Mortgaged
Properties").
As stated above, the Agreement
will provide that Subsequent
Home Improvement Loans may be
purchased by the Trust from the
Originators from time to time
on or before the close of
business on March 30, 1998 from
funds on deposit in the
Pre-Funding Account allocated
to Pool III. Each Subsequent
Home Improvement Loan
(including Dealer Loans, as
defined herein under "Lending
Programs--The Home Improvement
Lending
Program--Dealer/Contractor
Origination") 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
herein under the caption
"Lending Programs--The Home
Improvement Lending
Program--FHA Loans--Title I
Underwriting Requirements," in
connection with Subsequent Home
Improvement Loans that are FHA
Loans, and "Lending
Programs--The Home Improvement
Lending Program--Conventional
Home Improvement
Loans--Underwriting Criteria,"
in connection with Subsequent
Home Improvement Loans that are
Conventional Home Improvement
Loans. The purchase price for
each Subsequent Home
Improvement Loan will be no
greater than its unpaid
principal balance as of the
related Subsequent Cut-Off
Date. The Agreement will
provide that the Home
Improvement Loans, following
the conveyance of any
Subsequent Home Improvement
Loans to Pool III, must, in the
aggregate, conform to certain
specified characteristics. See
"The Agreement--Representations
and Warranties" in the
Prospectus.
Between approximately 10% and
20% of the Initial Home
Improvement Loans will be FHA
Loans and the remainder will be
Conventional Home Improvement
Loans. The Home Improvement
Loans will have been originated
and underwritten, or purchased
and re-underwritten, by one of
the Originators substantially
in accordance with the
Originators' underwriting
criteria
S-39
<PAGE>
described herein under the
caption "Lending Programs--The
Home Improvement Lending
Program--FHA Loans--Title I
Underwriting Requirements," in
connection with FHA Loans, and
"Lending Programs--The Home
Improvement Lending Program--
Conventional Home Improvement
Loans--Underwriting Criteria,"
in connection with Conventional
Home Improvement Loans.
No more than approximately 40%,
15%, 12%, 12%, 12%, 10%, 10%
and 7% of the Home Improvement
Loans will be secured by Home
Improvement Mortgaged
Properties located in
California, Illinois, Florida,
Nevada, New Jersey, Texas, New
York, and Georgia,
respectively. No more than
approximately 7% of the Home
Improvement Loans will be
secured by Home Improvement
Mortgaged Properties located in
any other state. Based on
representations made by the
mortgagor on a Home Improvement
Mortgage Note (the "Home
Improvement Mortgagor" or
"Obligor"), no less than
approximately 95% of the Home
Improvement Loans will be
secured by one- to four-family
residences, no more than
approximately 2% of the Home
Improvement Loans will be
secured by vacation homes,
secondary residences, or
investment properties, no more
than approximately 2% of the
Home Improvement Loans will be
secured by individual units in
low rise condominiums, no more
than approximately 3% of the
Home Improvement Loans will be
secured by two-, three- or
four-family houses, no more
than approximately 3% of the
Home Improvement Loans will be
secured by Multifamily
Mortgaged Properties and no
more than approximately 2% of
the Home Improvement Loans will
be secured by individual units
of other types including high
rise condominiums and mixed-use
buildings. No more than
approximately 2% of the Home
Improvement Loans will be
secured by a manufactured home
or a cooperative residence.
No less than approximately 5% of
the Home Improvement Loans will
be secured by first mortgage
liens on the related Home
Improvement Mortgaged Property,
no less than approximately 75%
of the Home Improvement Loans
will be secured by second
mortgage liens on the related
Home Improvement Mortgaged
Property and the remainder of
the Home Improvement Loans will
be secured by more junior
mortgage liens on the related
Home Improvement Mortgaged
Property.
S-40
<PAGE>
The FHA Loans are insured by the
FHA to the extent described
herein. The Conventional Home
Improvement Loans are not
insured by any governmental
entity.
The Initial Home Improvement
Loans will provide for a
schedule of payments which
will be, if timely paid,
sufficient to amortize fully
the principal balance of the
Home Improvement Loan on or
before its maturity date. The
Home Improvement Loans will be
"simple interest" loans.
However, with respect to FHA
Loans secured by Mortgaged
Properties loc ated in states
where the Servicer collects the
FHA Insurance Premium directly
from the related Obligor,
payments are applied to the FHA
Insurance Premium prior to
accrued interest. The Home
Improvement Loans will bear
interest at fixed rates (each,
a "Pool III Home Improvement
Interest Rate").
The Home Improvement Loans will
bear interest at fixed Pool III
Home Improvement Interest Rates
which range from approximately
8.095% to approximately 17% per
annum. The weighted average
Pool III Home Improvement
Interest Rate of the Initial
Home Improvement Loans will be
no less than approximately
12.75%. The lowest principal
balances of any Initial Home
Improvement Loan as of the
Cut-Off Date will be
approximately $1,000, and the
highest will be approximately
$120,000. As of the Cut-Off
Date, the average principal
balance of the Initial Home
Improvement Loans will be no
less than approximately
$15,000. As of the Cut-Off
Date, the weighted average
remaining term to stated
maturity of the Initial Home
Improvement Loans will be no
more than approximately 222
months. The weighted average
term to stated maturity of the
Initial Home Improvement Loans
at origination will be no more
than approximately 223 months.
Each Home Improvement Loan that
is a first lien is covered by a
title insurance policy.
Pool IV.........................................The Multifamily Loans in Pool IV
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").
S-41
<PAGE>
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 March 30, 1998 from
funds on deposit in the
Pre-Funding Account allocated
to Pool IV. 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 Programs--The
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 IV, must, in the
aggregate, conform to certain
specified characteristics. See
"The Agreement--Representations
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 Programs--The
Multifamily Lending Program"
herein.
No more than approximately 60%,
30%, 25%, 20%, 15% and 10% of
the Multifamily Loans will be
secured by Multifamily
Mortgaged Properties located in
Texas, California, New York,
Massachusetts, Illinois and
Florida, resp ectively. No more
than approximately 10% 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 mo re
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
(based upon appraisals or
valuations made at origination
of the Pool IV Multifamily
Loans) exceeding 100%. The
weighted average Combined Loan-
to-Value Ratio, will be no more
than
S-42
<PAGE>
approximately 70%. The
Multifamily Loans will not be
insured or guaranteed by any
governmental entity.
Substantially all of 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 da te. The
Multifamily Loans will be
"simple interest" loans. The
Multifamily Loans will bear
interest at fixed or adjustable
rates (e ach, a "Multifamily
Mortgage Interest Rate").
Approximately 80% of the
Initial Multifamily Loans will
bear interest at fixed rates
and approximately 20% of the
Initial Multifamily Loans will
bear interest at adjustable
rates. The Initial Multifamily
Loans will bear interest at
rates ranging, as of the
Cut-Off Date, from
approximately 9% to
approximately 13% per annum.
The adjustable interest rates
will adjust on the date set
forth in the related Mortgage
Note. For each Multifamily Loan
bearing an adjustable rate, the
related Multifamily Mortgage
Interest Rate will change
initially after the period set
forth in the related Mortgage
Note and periodically
thereafter. Each date on which
a Multifamily Mortgage Interest
Rate changes is referred to as
the "Change Date" for the
related Multifamily Mortgage
Loan. No more than
approximately 1% of the Initial
Multifamily Mortgage Loans will
have their first Change Date
occurring approximately 48
months after origination. No
more than approximately 19% of
the Initial Multifamily Loans
will have their first Change
Date occurring no later than 12
months after origination.
The Multifamily Mortgage
Interest Rate relating to the
Multifamily Loans bearing
adjustable rates will adjust on
each applicable Change Date to
equal to sum of (i) the LIBOR
Index and (ii) the related
Gross Margin, subject to
rounding and to the effects of
the Periodic Rate Cap, the
applicable Lifetime Cap and
Lifetime Floor. Substantially
all of the Initial Multifamily
Loans bearing adjustable rates
currently bear interest at a
rate equal to the Lifetime
Floor.
The Gross Margin for the
Multifamily Loans bearing
adjustable rates will range
from approximately 4% to 8%.
The weighted average Gross
Margin of the Multifamily Loans
bearing adjustable rates will
be no less than approximately
5%. The Lifetime Caps of the
Multifamily Loans bearing
adjustable rates will range
from approximately 15% to 18%.
The weighted
S-43
<PAGE>
average Lifetime Cap of the
Multifamily Loans bearing
adjustable rates will be no
less than approximately 16%.
The Lifetime Floors of the
Multifamily Loans bearing
adjustable rates will range
from approximately 9% to 12%.
The weighted average Lifetime
Floor of the Multifamily Loans
bearing adjustable rates will
be no less than approximately
10%.
The weighted average
Multifamily Mortgage Interest
Rate of the Initial Multifamily
Loans will be no less than
approximately 11%. The lowest
principal balance of any
Initial Multifamily Loan as of
the Cut-Off Date will be
approximately $55,000, and the
highest will be approximately
$1,800,000. As of the Cut-Off
Date, the average principal
balance of the Initial
Multifamily Loans will be no
less than approximately
$260,000. All Initial
Multifamily Loans will be
covered by title insurance
policies. As of the Cut-Off
Date, the weighted a verage
remaining term to stated
maturity of the Initial
Multifamily Loans will be no
more than approximately 357
months. The weighte d average
term to stated maturity of the
Initial Multifamily Loans at
origination will be no more
than approximately 358 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 Agree-
ment. 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
Certificates and the Auction
Rate Certificates, the actual
number of days since the last
Remittance Date (or, in the
case of the first Remittance
Date, from December 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
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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 Excess Spread (as defined
herein under "Description of
the Certificates--Cross-Support
Provisions and Spread 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 during
the Funding Period, 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"), FHA Payments 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. Notwithstanding
the foregoing, the Servicer
will not be required to make an
advance if it determines, in
its good faith judgment, that
such advance will not be
recoverable from the foregoing
sources. 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
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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 December 15, 1997)
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.
Optional Repurchase.............................The Servicer has the right, but
not the obligation, to
repurchase any Defaulted Mort
gage Loan for the purchase
price and in the manner
described under "The
Agreement-Representations and
Warranties". In no event,
however, may the aggregate
principal balance of Defaulted
Mortgage Loans purchased
pursuant to this provision
exceed 10% of the sum of the
Original Pool Principal Balance
and the original Pre-Funded
Amount. A "Defaulted Mortgage
Loan" is any Mortgage Loan as
to which the related Obligor
has failed to make unexcused
payment in full of three or
more consecutive monthly
payments.
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 Certificates
that each Class of Offered
Certificates receive the
following ratings from Standard
& Poor's Ratings Services, a
division of The McGraw-Hill
Companies, Inc. ("S&P"),
Moody's Investors Service, Inc.
("Moody's") and/or Fitch IBCA
Inc. ("Fitch"):
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<PAGE>
RATING
Class S&P MOODY'S FITCH
--- ------- -----
AF-1 AAA Aaa --
AF-2 AAA Aaa --
AF-3 AAA Aaa --
AF-4 AAA Aaa --
AF-5 AAA Aaa --
AF-6 AAA Aaa --
AF-7 AAA Aaa --
AV-1 AAA Aaa --
AV-2 AAA Aaa --
MV-1 AA Aa2 --
MV-2 A A2 --
BV BBB Baa2 --
AH-1 AAA -- AAA
AH-2 AAA -- AAA
AH-3 AAA -- AAA
AH-4 AAA -- AAA
MH-1 AA -- AA+
MH-2 A -- A
BH BBB -- BBB
AMF AAA Aaa --
The ratings assigned by S&P and
Moody's to the Pool I and Pool
IV 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 Certificates. The rat
ings of the Pool II
Certificates by S&P and
Moody's do not address the
likelihood of the payment of
the amount of any
Certificatehold ers' Interest
Carryover. In general, the
ratings address credit risk
and do not address the
likelihood or rate of
principal prepayments. See
"Rating of the Offered
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, the Initial Home
Improvement 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
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<PAGE>
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 including the portion of
the principal balance of each
90 Day Delinquent FHA Loan for
which the Certificateholders
have not received payment and
for which a Claim was submitted
to the FHA, and (y) 30 days'
interest (or, with respect to
the Adjustable Rate
Certificates and the 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 Certificates plus an amount
equal to the interest portion
of any unreimbursed Insured
Payments and Guaranteed
Supplemental 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 Pool Available Maximum
Subordination Amounts for all
Pools are zero, on any
Remittance Date on which Pool
I and/or Pool IV 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, with respect
to Pool I and Pool IV 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,
one or more elections will be
made to treat certain assets of
the Trust as real estate
mortgage investment conduits
("REMICs"). Each Class of
Certificates (other than the
Class AF-6 and Class R
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. For federal
income tax purposes, the Class
AF-6 Certificateholders will be
treated as owning (i) a regular
interest in a REMIC with terms
identical to the Class AF-6
Certificates except having
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<PAGE>
a Pass-Through Rate equal to
the Class AF-6 Pass-Through
Rate, but subject to the
applicable Net Funds Cap, and
(ii) rights under the MBIA
Policy relating to the Class
AF-6 Supplemental Interest
Amount. See "Federal Income Tax
Considerations" herein and
"Federal Income Tax
Consequences" in the
Prospectus.
ERISA Considerations...........................As described under "ERISA
Considerations" herein, the
Pool 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. Such exemptions
are Prohibited Transaction
Exemption ("PTE") 90-32 and PTE
90-24 with respect to the Pool
I Class A Certificates, PTE 90-
29 and PTE 89-89 with respect
to the Pool II Class A
Certificates, PTE 91-14 with
respect to the Pool III Class A
Certificates and PTE 92-32 with
respect to the Pool IV Class A
Certificates (collectively, the
"Exemption"), which provide an
exemption for the purchase,
holding or subsequent transfer
of certain asset-backed
certificates by Plans. As the
Class M and Class B
Certificates are subordinated
and, therefore, not eligible
for exemptive relief under the
Exemption they may not be
purchased directly or
indirectly, for or on behalf of
a Plan or any entity whose
underlying assets include plan
assets; provided that certain
insurance company general
accounts may purchase Class M
and Class B Certificates
pursuant to PTCE 95-60. See
"ERISA Considerations" herein
and in the Prospectus.
Legal Investment Considerations.................No Class of Offered Certificates
will constitute "mortgage
related securities" under the
Secondary Mortgage Market
Enhancement Act of 1984
("SMMEA"). Each investor should
consult its own legal advisers
in determining whether and the
extent to which a Class of
Offered Certificates
constitutes a legal investment
for such investor. See "Legal
Invest ment Considerations"
herein.
Registration of the Certificates................The Offered Certificates will be
represented by global
certificates registered in the
name of Cede & Co. ("Cede"), as
the nominee of The Depository
Trust
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<PAGE>
Company ("DTC") in the
United States, or Cedel
Bank, sociJtJ anonyme
("Cedel Bank") or the
Euroclear System
("Euroclear") in Europe. No
Certificateholder will be
entitled to receive
definitive certificates
("Definitive Certificates")
representing such person's
interest, except in the
event that Definitive
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 Certificates, as
such rights may be exercised
through DTC and Participants
except as otherwise
specified herein. See "Risk
Factors--Book-Entry
Registration" in the
Prospectus and "Description
of the Certificates--Book-
Entry Certificates" herein.
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<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, in addition to the
factors described under "Risk Factors" in the Prospectus, the following factors.
RECENT DEVELOPMENTS
On December 3, 1997 in connection with the offering by the
Representative of certain Subordinated Notes, Moody's confirmed its ratings of
Ba1 for the Representative's outstanding senior notes and Ba2 for the
Representative's $1.72 Mandatory Convertible Preferred Stock (the "Preferred
Shares"), but changed its outlook from stable to negative. Moody's stated that
continued increases in effective leverage and delinquencies will put additional
downward pressure on its ratings. As of the date of this Prospectus Supplement,
neither Moody's nor any other rating agency has downgraded the ratings of the
Representative's securities, although no assurance can be given that any such
downgrading will not occur in the future.
In addition, on December 15, 1997, S&P placed its ratings of the
Representative's outstanding senior notes, subordinated notes and the Preferred
Shares on CreditWatch with negative implications. While citing industry issues
and specific concerns with certain of the Representative's product lines, S&P
did state that the placement on CreditWatch with negative implications implies
that the ratings could remain the same or be lowered pending a detailed review
with the Representative during the first quarter of 1998.
TRUST ASSETS ARE THE ONLY SOURCE OF CREDIT ENHANCEMENT FOR POOL II AND POOL III
CERTIFICATES.
The subordination provisions described below and the
overcollateralization provisions of the Trust are the sole sources of protection
for the Pool II and Pool III Certificates against losses on Loans and other
shortfalls in available funds. If losses or other shortfalls exceed the
protection afforded by such mechanisms, Holders of the Pool II and Pool III
Certificates will bear such losses and shortfalls as described herein. See
"Description of the Certificates--Cross-Support and Spread Amount." The assets
of the Trust are the sole source of funds for distributions on the Pool II and
Pool III Certificates. In certain instances available funds with respect to
another Pool of Certificates may be used to cover current Applied Realized Loss
Amounts (as defined herein) in Pool II or Pool III.
The holders of the Pool II and Pool III Certificates do not have the
benefit of the MBIA Policies. However, the Agreement affords MBIA certain rights
that may affect all Certificateholders, regardless of Pool. In particular, MBIA
has the right to control the removal and replacement of the Servicer and the
Claims Administrator upon the occurrence of certain events described in the
Agreement. Additionally, under certain circumstances, MBIA may purchase all of
the Mortgage Loans and effect an early termination of the Trust. See "The
Agreement - Termination; Purchase of Loans" herein.
SUBORDINATION--LIMITED PROTECTION AFFORDED TO POOL II AND POOL III CLASS A AND
CLASS M CERTIFICATES.
The rights of the Holders of the Class M Certificates to receive
distributions with respect to the Loans will be subordinate to the rights of the
holders of the Class A Certificates in the same Pool to receive such
distributions, the rights of Holders of the Class MV-2 and Class MH-2
Certificates to receive distributions with respect to the applicable Pool of
Loans will be subordinate to the rights of the Holders of the related Class A
Certificates and the Class MV-1 and Class MH-1 Certificates, respectively, to
receive such distributions and the rights of the Holders of the Class BV and
Class BH Certificates to receive distributions with respect to the applicable
Pool of Loans will be subordinate to the rights of the Holders of the related
Class A Certificates and Class M Certificates to receive such distributions. The
subordination of the Class B Certificates relative to the related Class A
Certificates (and of the more junior Classes of Class M Certificates to the less
junior Classes thereof) is intended to enhance the likelihood of regular receipt
by the Holders of the Class A Certificates (and such less junior Classes of
Class M Certificates) of the full amount of the monthly distributions allocable
to them, and to afford such Holders protection against losses.
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<PAGE>
DEPENDENCE ON CLAIMS ADMINISTRATOR, REPRESENTATIVE, AND SERVICER FOR MAKING FHA
CLAIMS AND PAYING THE FHA PAYMENTS
The Trustee, the Co-Trustee and the Certificateholders are dependent on
the Claims Administrator to (1) assure that the FHA Loans will be insured by the
FHA, (2) make Claims on 90 Day Delinquent FHA Loans and (3) remit all FHA
Payments received from the FHA to the Trustee in accordance with the terms of
the Agreement. See "The Agreement--Obligations of The Claims Administrator"
herein.
LIMITATIONS ON FHA INSURANCE
The FHA Loans are covered by FHA insurance to the extent described
herein. The Agreement provides that if an FHA Loan becomes a 90 Day Delinquent
FHA Loan and if sufficient coverage is available in the related Reserve Amount,
the Claims Administrator may, in its sole option, file a Claim with the FHA with
respect to such 90 Day Delinquent FHA Loan. If such a Claim is submitted and
assuming the Representative, the Originators and the Claims Administrator comply
with the provisions described herein, the FHA will pay with respect to such 90
Day Delinquent FHA Loan the amount set forth under "The Home Improvement Lending
Program--FHA Loans--Insurance Claims Procedures for Title I Loans" herein
regardless of whether, in the case of FHA Loans, the related Mortgaged Property
has available equity over and above all liens on such property.
The availability of FHA insurance following a default on an FHA Loan is
subject to a number of conditions, including strict compliance with FHA
regulations in originating and servicing the FHA Loan and limits on the
aggregate insurance coverage available with respect to all FHA Title I loans
then owned and reported for FHA insurance by the Co-Trustee. Although the Claims
Administrator is an FHA-approved lender and believes, and represents and
warrants in the Agreement, that it has complied with FHA regulations, such
regulations are susceptible to substantial interpretation. The Claims
Administrator is not required to obtain, and has not obtained, approval from the
FHA of its origination and servicing practices. Failure to comply with FHA
regulations may result in a denial of FHA insurance claims, and there can be no
assurance that the FHA's enforcement of its regulations will not change in the
future. In addition, any Claim paid by the FHA will cover only 90% of the sum of
the unpaid principal (determined on the actuarial basis) on the FHA Loan, a
portion of the unpaid interest and certain other liquidation costs.
Prior to the transfer of the FHA Loans to the Co-Trustee, the FHA Loans
will be insured by the FHA, to the extent described herein, under the related
Originator's FHA contract of insurance. In connection with the transfer of the
FHA Loans from the Originators to the Co-Trustee, the Originators also will file
with the FHA all documents necessary to effect the transfer of the FHA insurance
reserves applicable to the FHA Loans to the Co-Trustee's FHA contract of
insurance.
Based upon information provided by the FHA, The Money Store Inc.
believes that upon the transfer referred to above and after the Funding Period,
the FHA insurance available to the Co-Trustee will be equal to at least (A) 10%
of the principal balance of the FHA Loans as of the Cut-Off Date or Subsequent
Cut-Off Date, as the case may be; or (B) 10% of the principal balance of all
Title I loans originated or purchased and currently reported for FHA insurance
by the Co-Trustee, less amounts for insurance claims previously paid to the
Co-Trustee by the FHA, including payments in respect of loans other than the FHA
Loans, and increased by an amount equal to 10% of the lesser of the original
principal balance or the purchase price paid for Title I loans subsequently
originated or purchased of record by the Co-Trustee.
FHA Claims paid to the Co-Trustee by the FHA with respect to Title I
loans other than the FHA Loans may affect the total amount of the Reserve
Amount.
Since the adequacy of the Co-Trustee's Reserve Amount is dependent upon
future events, including the annual reductions in the Reserve Amount and the
reductions for the payment of claims, no assurance can be given that the Reserve
Amount is or will be adequate to cover 90% of all potential losses on the FHA
Loans.
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<PAGE>
In connection with the FHA Loans, pursuant to FHA underwriting criteria
in effect at the time substantially all the FHA Loans were originated, there was
no requirement that the Mortgaged Property have any available equity over and
above the total of all liens on such property, including the Title I loan.
However, loans originated between November 18, 1991 and August 15, 1994 that
exceeded $15,000 were limited to a maximum encumbrance of 100% loan to value of
all liens on such property, including the Title I loan, and non-owner occupied
property loans originated after November 18, 1991 were limited to a maximum
encumbrance of 100% loan to value of all liens on such property, including the
Title I loan. See "The Trusts--FHA Loans" in the Prospectus and "Lending
Programs--The Home Improvement Lending Program--FHA Loans--The Title I Loan
Program-General" herein.
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 Appendix I to
the Prospectus, as modified pursuant to Annex III herein (or in the case of the
Class AF-6 Certificates, Annex III hereto). Although the Mortgage Interest Rates
on the Pool II Loans (which rates will be used in determining the Net Funds Cap
for such Pool) 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 the Auction Rate
Certificates and adjust by reference to either the London Interbank Offered Rate
("LIBOR"), 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. Also, the Mortgage Interest Rates on
the Pool I Loans (which rates will be used in determining the Net Funds Cap for
the Class AF-6 Certificates) are fixed.
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
Certificates and the Auction Rate Certificates (other than the Class AF-6
Certificates)
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<PAGE>
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 Certificates when the related
Certificateholders' Interest Carryover was created. The Class AF-6 Certificates
will be entitled to receive the Class AF-6 Supplemental Interest Amount. See
"Description of the Certificates-Distributions on the Certificates." The ratings
of the Certificates do not address the likelihood of the payment of any
Certificateholders' Interest Carryover.
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<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 Home Improvement Loans, the
Multifamily Loans and a new lending program applicable to Home Equity and Home
Improvement Loans.
THE HOME IMPROVEMENT LENDING PROGRAM
FHA LOANS
The Title I Loan Program-General
The National Housing Act of 1934 (the "NHA Act"), in Sections 1 and 2(a)
thereof, authorized the creation of the FHA and the Title I credit insurance
program (the "Title I Loan Program"). Several types of loans may be made under
the Title I Loan Program, including, among others, property improvement loans
(the "Title I Property Improvement Loans") which may be made by approved lenders
to finance alterations, repair or improvement of existing single family,
multifamily and nonresidential structures. See "The Trusts--FHA Loans" in the
Prospectus for a general description of the Title I Loan Program.
Requirements for Title I Property Improvement Loans
The following is a description of the requirements for Title I Property
Improvement Loans currently in effect.
A Title I Property Improvement Loan cannot be used to purchase property.
The loan proceeds may only be used to finance property improvements which
substantially protect or improve the basic livability or utility of the property
to be improved. The loan amount may include the cost of the proposed
improvements and (i) an origination fee not to exceed 5% of the loan amount on
any new property improvement loan; (ii) fees for architectural and engineering
services; (iii) building permit costs; (iv) credit report costs; (v) title
examination costs; (vi) fees for determining whether the property is in a
special flood hazard area; (vii) recording fees, recording taxes, filing fees
and documentary stamp taxes; (viii) a fee for inspection of the property by the
lender or its agent, not to exceed $75, but only where the total principal
obligation is $7,500 or more; and (ix) for loans originated prior to June 3,
1996, appraisal fees in conjunction with a loan or combination of loans on the
same property with a total principal balance in excess of $15,000.
One borrower may have multiple loans on multiple properties. In
addition, a borrower may obtain more than one loan to improve one property as
long as the total balance does not exceed the maximum permitted for the
particular type of loan involved.
The following maximum dollar limits applied to Title I property
improvement loans when the FHA Loans were originated:
<TABLE>
<CAPTION>
Type of Property Loan Limit
---------------- ----------
<S> <C>
Single Family $25,000 per property (non-manufactured home)
$17,500 per property (manufactured home)
Multifamily $60,000 per property or an average of $12,000 per unit
Nonresidential $25,000 per property
Unsecured $7,500 per property
</TABLE>
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Title I loans bear fixed rates of interest and are fully amortizing with
equal installment payments (except for the first or last payments, which may not
exceed 150% of the regular installment payment). Weekly, biweekly, semi-monthly
or monthly payments are permitted at the lender's option. Where the borrower has
an irregular flow of income, the loan may be repaid in quarterly or semi-annual
installments which correspond with the borrower's flow of income. The loan
maturity may not be less than six months nor greater than 20 years plus 32 days.
The interest rate is established by each lender. For applications taken after
June 3, 1996, lenders may not charge any prepayment penalty.
The lender is entitled to recover the following fees and charges from
the borrower, but these costs may not be financed: (i) discount points paid by
the borrower to the lender; (ii) a fee for the services of a qualified closing
agent; (iii) Title I loan insurance charges assessed by the lender; (iv) title
insurance costs; (v) a handling charge to refinance an existing Title I loan,
not to exceed 1% of the new loan amount; and (vi) with respect to loans for
which the credit application was received prior to July 5, 1995, an origination
fee.
An eligible borrower of a secured Title I loan must have at least a
one-half interest in one of the following: (i) fee simple title to the related
mortgaged property; (ii) a lease on the mortgaged property which runs at least
six months longer than the loan term; or (iii) a recorded land installment
contract on the mortgaged property.
There are two different types of FHA Loans: (1) direct loans ("Direct
Loans") and (2) dealer or dealer-contractor loans ("Dealer Loans"). On a Direct
Loan, the proceeds of the loan are disbursed directly to the borrower, and there
is no participation in the loan application process by a dealer-contractor. On a
Dealer Loan, the dealer-contractor participates in the financing in some
fashion, such as presenting the loan application to the lending institution,
receiving the check or money order (although made payable to the borrower) or
accompanying the borrower to the institution for the purpose of receiving
payment. On Dealer Loans, before it may disburse funds, the lender must have in
its possession a properly signed and dated completion certificate, a copy of the
dealer-contractor's contract or sales agreement, and a borrower's authorization
certificate, if the loan proceeds are to be disbursed to the dealer-contractor.
Title I Underwriting Requirements
Specified loan underwriting requirements must be satisfied prior to loan
approval and disbursement of funds. For secured Title I loans the lender must
verify that the borrower has at least a one-half interest in the mortgaged
property. Additionally, the Originator requires that all owners in fee simple
have signed the lien instrument. A copy of the cost estimate on a direct loan or
a contract signed by the contractor and borrower must be reviewed with the
nature of the work to be done specifically described in the contract. In
addition, the loan file must contain the promissory note, lien instrument and
other documents required by regulation.
The borrower's current paying habits and previous credit history must be
ascertained by obtaining a consumer credit report and by other credit
investigation. Written verification of income and employment is also required.
This may include any one of the following: (i) recent payroll stubs (year-to-
date plus current); (ii) verification of employment forms; (iii) signed tax
returns (self-employed); or (iv) financial statements (self-employed).
Generally, any Title I loan originated after August 1994 in excess of
$7,500 must be secured by a recorded lien on the improved property which is
evidenced by a mortgage or deed of trust executed by the borrower and all other
owners in fee simple. Prior to August 1994, any Title I loan in excess of $5,000
was required to be secured by such a recorded lien. In order to facilitate the
financing of small home improvement projects, the FHA does not require loans of
$7,500 or less, in the case of Title I loans originated after August 1994, and
$5,000 or less, in the case of Title I loans originated prior to August 1994, to
be secured by the property being improved. Notwithstanding the preceding
sentence, such loans must be secured by a recorded lien on the improved
property, if, including such loan, the total amount of all Title I loans
obtained by the borrower on one property exceeds $7,500, or $5,000, as the case
may be.
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Effective November 18, 1991, for any secured Title I loan or combination
of loans on the same property with a total unpaid principal balance in excess of
$15,000, the borrower is required to have equity in the property being improved
in an amount at least equal to the loan amount, except for certain loans
originated by a governmental institution.
Effective August 15, 1994, for secured Title I loans the requirement
that the borrower have equity in the property was eliminated for owner-occupied
properties if the structure being improved has been completed and occupied at
least six months prior to the date of the related application. For non-owner
occupied properties, or owner occupied properties not meeting this requirement,
the borrower is required to have equity in the property being improved in an
amount at least equal to the loan amount and all existing liens on such
property.
Effective June 3, 1996, for secured Title I loans, the requirement that
the borrower have equity in the property was eliminated for both owner-occupied
and non owner-occupied properties.
Insurance Claims Procedures for Title I Loans
The FHA has specific requirements for servicing of loans in default and
filing of claims. The FHA requires the lender to make a reasonable effort to
contact the borrower and have a face-to-face meeting or conduct a telephone
interview prior to accelerating the maturity of the note and filing an insurance
claim.
If the lender's efforts to have the loan brought current are
unsuccessful, the lender is required to notify credit reporting agencies, file a
claim with the FHA for insurance and assign the loan to the United States
government, unless the lender chooses to proceed against the mortgaged property
under its Title I security instrument. If the lender chooses so to proceed, it
may not, without the approval of FHA, also file an insurance claim. However, if
the lender holds an obligation secured by the mortgaged property which is senior
to the Title I loan, it may both proceed against the mortgaged property under
the senior lien instrument and file an insurance claim for the Title I loan.
When a lender files an insurance claim with the FHA, the FHA reviews the claim,
the submitted loan documents relating to the loan and the lender's servicing
practices in order to verify compliance with FHA Title I requirements. Based
upon this review, the loan is either accepted or rejected for insurance claims.
Subject to the then remaining reserve amount, the amount of the
insurance claim payment, when made, is equal to 90% of the sum of the following
amounts:
(1) The unpaid amount of the loan obligation (net of unpaid
principal and the uncollected interest earned to the date of default calculated
according to the actuarial method).
(2) The unpaid amount of interest on the unpaid amount of the
loan obligation from the date of default to the date of the claim's initial
submission for payment plus 15 calendar days, calculated at the rate of 7% per
annum. (However, interest will not be paid for any period greater than nine
months from the date of default.)
(3) The amount of uncollected court costs including fees paid for
issuing, serving and filing a summons.
(4) The amount of attorneys' fees on an hourly or other basis for
time actually expended and billed, not to exceed $500.
(5) The amount of expenses for recording the assignment of the
loan to the United States.
Because Certificateholders do not hold a contract of insurance, the FHA
will not recognize the Certificateholders as owners of the FHA Loans, or any
portion thereof, who are entitled to submit Claims to the FHA.
Certificateholders will have no direct right to receive insurance payments from
the FHA.
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DEALER/CONTRACTOR ORIGINATION
The Originators originate loans through and purchase contracts from home
improvement contractors located in various states throughout the United States.
An Originator employs account executives who contact home improvement
contractors and explain the merits and features of the Originator's available
financing plans. Account executives review contractor needs and discuss the
Originator's prevailing home improvement loan rates, terms, credit standards and
policies. If a contractor desires to utilize the Originator's financing
programs, it must make application to the Originator for contractor approval.
The Originator has a contractor approval process pursuant to which the financial
condition, business experience, and qualifications of the contractor are
reviewed prior to its approval to sell or refer loans to the Originator. An
approved contractor's qualifications are reviewed annually in order to determine
whether such approval will be continued. The annual re-approval process includes
the updating of financial and business reference information. Contractors are
also monitored as to default levels, delinquency trends and customer complaint
resolution.
All contractor loans are written on an Originator's approved documents
and are either executed by the borrower in the presence (i) of the Originator's
employees or designated agents or (ii) of the contractor. All contracts which
are purchased are written on forms provided or approved by the Originator. Each
loan or contract is individually approved in accordance with the Originator's
guidelines. The contractor submits the customer credit application and
construction contract to the appropriate Originator office where the customer's
credit worthiness is determined. Credit analysis includes a review of the
customer's previous credit experience, paying habits, length and likelihood of
continued employment, ability to repay the debt, and other factors. The credit
analysis also includes the determination of the ratio of a customer's long-term
debt payments in relation to their gross monthly income.
The Originators require that all secured home improvement loans and
contracts be secured by a recorded lien on the property to be improved. Liens
may be in first, second or more junior position. Certain other criteria for FHA
insured loans and contracts are described under the caption "--FHA Loans." If an
Originator determines that the application meets the Originator's underwriting
guidelines (and FHA regulations where applicable) and the credit is approved,
the Originator originates the loan or purchases the contract. Unless a customer
has specifically requested staged funding of a contract, contracts are not
purchased until the customer has verified satisfactory completion of the home
improvement project. Where staged funding is used, the Originator requests a
completion certificate from the customer within 60 days of funding.
Property values are generally determined by a drive-by "as-is" appraisal
with the cost of the improvement added to the appraisal to reflect the "after
improvement" value of the property. Title insurance is required on some FHA
Loans where the mortgage is in first position.
CONVENTIONAL HOME IMPROVEMENT LOANS - UNDERWRITING CRITERIA
Conventional Home Improvement Loans are underwritten in the same manner
as the FHA Loans except that the loan proceeds may be used for projects that do
not qualify for FHA Loans, the amount of the loan may exceed applicable FHA
limits and the loan maturity may be for up to 25 years from origination.
However, the maximum amount of an unsecured Conventional Home Improvement Loan
is $12,500.
Conventional Home Improvement Loans and contracts are not insured by the
FHA.
The original principal amount of a Conventional Home Improvement Loan
generally may not exceed $50,000 for the Originator's secured no equity program,
a program in which no appraisal is required and no Loan-to-Value ratio is
calculated, and generally may not exceed $75,000 for the Originator's other
secured contractor programs.
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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.
90-DAY DEFERRED PROGRAM
With respect to Home Equity and Home Improvement Loans, a borrower is
offered the opportunity to defer two scheduled payments of principal and
interest on his loan. The interest that accrues for that period is accounted for
separately and is collected either from monthly payments made which are in
excess of the borrower's scheduled monthly payment or when the loan is paid in
full. Payment of principal during the period is similarly deferred. No principal
reduction occurs until the first payment is made. The term to maturity and other
loan terms are no different than those for loan products without this feature
and are not changed due to the deferral.
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. 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 nine months ended September
30, 1997, The Money Store Inc. and its subsidiaries originated or purchased
approximately $5.7 billion and $5.5 billion of loans, respectively. Of those
loans, approximately 73% and 74%, respectively, by principal amount were home
equity loans, approximately 11% and 9%, respectively, by principal amount were
SBA Loans, approximately 8% and 8%, respectively, by principal amount were
Student Loans and approximately 8% and 9%, respectively, by principal amount
were Auto Loans. The business
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strategy of The Money Store Inc. has been to identify and pursue niche lending
opportunities which management believes have had widespread unsatisfied demand.
At September 30, 1997, The Money Store Inc. and its subsidiaries
operated out of 213 branch locations in 50 states, the District of Columbia and
the Commonwealth of Puerto Rico.
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The following table shows the originations and portfolio balances of The
Money Store Inc. and its subsidiaries for the periods indicated:
ORIGINATIONS AND SERVICED LOAN PORTFOLIO BY LOAN TYPE
(Dollars in thousands)
Year Ended December 31,
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
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, 1996 Nine months Ended September 30, 1997
---------------------------- ------------------------------------
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 $4,035,632 107,934 $10,423,203
% of Total........... 72.9% 67.5% 74.0% 68.3%
SBA Loans............ 635,498 1,769 2,282,384 513,774 1,206 2,562,022
% of Total........... 11.2% 18.7% 9.4% 16.8%
Student Loans........ 458,459 168,837 1,203,739 421,421 114,407 1,489,390
% of Total........... 8.0% 9.9% 7.7% 9.8%
Auto Loans........... 448,105 45,124 475,533 482,545 47,499 775,556
% of Total........... 7.9% 3.9% 8.9% 5.1 %
------ ------ ------ -------
$5,693,054 320,249 $12,192,432 $5,453,372 271,046 $15,250,171
========== ======= =========== ========== ======= ===========
</TABLE>
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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 nine months of
1997, the average loan size was approximately $52,000, $43,000, $40,000 and
$37,307, 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:
HOME EQUITY LOAN DELINQUENCIES AND CHARGE-OFFS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS AS OF AND FOR THE NINE MONTHS
ENDED DECEMBER 31, ENDED SEPTEMBER 30, 1997
----------------------- -----------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C> <C>
30-59 days past due............... 1.77% 1.76% 1.31% 1.61%
60-89 days past due............... 0.42% 0.68% 0.81% 0.94%
90+ days past due................. 1.86% 2.42% 3.83% 4.23%
Loans charged-off, net............ $19,942 $24,205 $37,039 $41,036
Loans charged-off, net, as a percentage
of the home equity serviced loan
portfolio (1).................... 0.54% 0.42% 0.45% 0.53%
</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. The percentage reported for the
nine months ended September 30, 1997 has been annualized.
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 Certificates--The 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 Home Improvement Loans and Multifamily Loans and
there can be no assurance, and no representation is made, that the delinquency
and charge-off experience with respect to the Home Improvement Loans and 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
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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.
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 Offered Certificates upon request
and will be filed with the Securities and Exchange Commission within 15 days
after issuance of the Offered 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 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 (except
with respect to the Initial Pool III Home Improvement Loans), 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 and the Co-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 March 30, 1998 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
Program--Underwriting 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 Programs--The
Home Improvement Lending Program--FHA Loans--Title I Underwriting Requirements,"
in the case of FHA Loans, or "Lending Programs--The Home Improvement Lending
Program--Conventional Improvement Loans--Underwriting Criteria," in the case of
Conventional Home Improvement Loans. Any Subsequent Pool IV 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 Program--The
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 Agreement--
Representations and Warranties" in the Prospectus.
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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 $594,000,000,
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 $610,000,000. 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 Program--Underwriting Criteria." However, with respect to up to
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 50% of the Pool II Home Equity Loans
will have their first Change Date occurring approximately 24 months after
origination, no more than approximately 5% of the Pool II Home Equity Loans will
have their first Change Date occurring approximately 36 months after origination
and no more than approximately 30% 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 90% 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 2% to 12%. The weighted average Gross Margin of the Pool II Home
Equity Loans will be no less than approximately 6%. 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 6% to 32%. The weighted average Lifetime Cap of the
Pool II Home Equity Loans will be no less than approximately 16%. The Lifetime
Floors of the Pool II Home Equity Loans will range from approximately 0% to 18%.
The weighted average Lifetime Floor of the Pool II Home Equity Loans will be no
less than approximately 10%. The Pool II Home Equity Loans do not provide for
negative amortization.
No less than approximately 70% of the Pool I Home Equity Loans and no
less than approximately 90% 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 junior mortgage liens. Based on representations made by the Obligors,
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
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secured by one-to four-family residences, no more than approximately 6% and 6%
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% and 4% 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% and 12% 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% 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% and 1% 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 more than approximately 18%, 15%, 12%, 12%, 12%, 10%, 10% and 10% of
the Pool I Home Equity Loans are secured by Mortgaged Properties located in New
York, California, Pennsylvania, Illinois, Michigan, Florida, Georgia and Ohio,
respectively. No more than approximately 20%, 25%, 12%, 12%, 10% and 10% of the
Pool II Home Equity Loans will be secured by Mortgaged Properties located in
Illinois, Michigan, California, Ohio, Washington and New York, respectively. No
more than approximately 7% of the Pool I Home Equity Loans and 7% 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.
Based upon the original principal balances of the Home Equity Loans, no
more than approximately 55% and 50% 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 79% and 80%,
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, range from approximately 7.325% to 18% per annum.
The Initial Pool II Home Equity Loans will bear interest at adjustable rates
which, as of the Cut-Off Date, ranged from 5% to 17% per annum. The weighted
average Pool I Mortgage Interest Rate on the Initial Pool I Home Equity Loans
will be no less than approximately 11.5% 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% 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 no less than
approximately $500,000 and $800,000, 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 no less than approximately $40,000 and $85,000, 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 no
more than approximately 257 months and 359 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 no more than approximately 261 months and
360 months, respectively. No more than approximately 15% of the Pool I Home
Equity Loans will be Balloon Loans. No more than approximately 2% of the Pool II
Home Equity Loans will be Balloon Loans.
HOME IMPROVEMENT LOANS
The Home Improvement Loans consist of fixed-rate, residential home
improvement mortgages, deeds of trust or other security instruments (the "Home
Improvement Mortgages" or "Mortgages"), and the related promissory notes, retail
installment contracts or obligations, or sales agreements (the "Home Improvement
Mortgage Notes" or "Notes") secured, except as set forth below, by one- to
four-family residences, units in planned unit developments and units in
condominium developments (the "Home Improvement Mortgaged Properties" or
"Mortgaged Properties"). Between approximately 10% and 20% of the Initial Home
Improvement Loans will be
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FHA Loans and the remainder will be Conventional Home Improvement Loans. The
Initial Home Improvement Loans 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 herein under
the caption "Lending Programs--The Home Improvement Lending Program-Title I
Underwriting Requirements," in the case of FHA Loans, or "Lending Programs--The
Home Improvement Lending Programs--Conventional Home Improvement Loans--
Underwriting Criteria," in the case of Conventional Home Improvement Loans.
Certain of the Conventional Home Improvement 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 Improvement
Loans described herein on the Cut-Off Date and the statistics are given as of
the Cut-Off Date.
No less than approximately 5% of the Home Improvement Loans will be
secured by first mortgage liens, no less than approximately 75% of the Home
Improvement Loans will be secured by second mortgage liens and the remainder of
the Home Improvement Loans will be secured by more junior mortgage liens. Based
on representations made by the Obligors, no less than approximately 95% of the
Home Improvement Loans will be secured by one-to four-family residences, no more
than approximately 2% of the Home Improvement Loans are secured by vacation
homes, secondary residences, or investment properties, no more than
approximately 2% of the Home Improvement Loans will be secured by individual
units in low-rise condominiums, no more than approximately 3% of the Home
Improvement Loans will be secured by two-, three- or four-family houses, no more
than approximately 3% of the Home Improvement Loans will be secured by
Multifamily Mortgaged Properties and no more than approximately 2% of the Home
Improvement Loans will be secured by individual units of other types including
high-rise condominiums and mixed-use buildings. No more than approximately 2% of
the Home Improvement Loans will be secured by a manufactured home or a
cooperative residence.
No more than approximately 40%, 15%, 12%, 12%, 12%, 10%, 10% and 7% of
the Home Improvement Loans are secured by Mortgaged Properties located in
California, Illinois, Florida, Nevada, New Jersey, Texas, New York and Georgia,
respectively. No more than approximately 7% of the Home Improvement Loans will
be secured by Mortgaged Properties located in any other state.
The FHA Loans are insured by the FHA to the extent described herein. The
Conventional Home Improvement Loans are not insured or guaranteed by any
governmental entity.
The Initial Home Improvement Loans will bear interest at fixed rates
which range from approximately 8.095% to 17% per annum. The weighted average
Mortgage Interest Rate on the Initial Home Improvement Loans will be no less
than approximately 12.75% per annum. The lowest principal balance of any Initial
Home Improvement Loans will be approximately $1,000 and the highest will be
approximately $120,000. The average principal balance of the Initial Home
Improvement Loans will be no less than approximately $15,000. As of the Cut-Off
Date, the weighted average remaining terms to stated maturity of the Initial
Home Improvement Loans will be no more than be approximately 222 months. The
weighted average term to stated maturity of the Initial Home Improvement Loans
at origination will be no more than approximately 223 months. None of the Home
Improvement Loans will be Balloon Loans.
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 Programs--The Multifamily Lending Program."
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No more than approximately 60%, 30%, 25%, 20%, 15% and 10% of the
Multifamily Loans will be secured by Mortgaged Properties located in Texas,
California, New York, Massachusetts, Illinois and Florida, respectively. No more
than approximately 10% 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.
None of the Multifamily Loans (based upon appraisals or valuations made
at origination of the Multifamily Loans) will have a Combined Loan-to-Value
Ratio exceeding 100%. The weighted average Combined Loan-to-Value Ratios of the
Multifamily Loans will be approximately 70%. The Multifamily Loans will not be
insured or guaranteed by any governmental entity.
Approximately 80% of the Initial Multifamily Loans will bear interest at
fixed rates and approximately 20% of the Initial Multifamily Loans will bear
interest at adjustable rates. The Initial Multifamily Loans will bear interest
at rates ranging, as of the Cut-Off Date, from approximately 9% to approximately
13% per annum. The adjustable interest rates will adjust on the date set forth
in the related Mortgage Note. For each Multifamily Loan bearing an adjustable
rate the related Multifamily Mortgage Interest Rate will change initially after
the period set forth in the related Mortgage Note and periodically thereafter.
Each date on which a Multifamily Mortgage Interest Rate changes is referred to
as the "Change Date" for the related Multifamily Loan. No more than
approximately 1% of the Multifamily Loans will have their first Change Date
occurring approximately 48 months after origination. No more than approximately
19% of the Multifamily Loans will have their first Change Date occurring no
later than 12 months after origination. The Multifamily Mortgage Interest Rate
relating to the Multifamily Loans bearing adjustable rates will adjust on each
applicable Change Date to equal the sum of (i) the LIBOR Index and (ii) the
Gross Margin, subject to rounding and to the effects of the Periodic Rate Cap,
the applicable Lifetime Cap and the applicable Lifetime Floor. Substantially all
of the Initial Multifamily Loans bearing adjustable rates currently bear
interest at a rate equal to the Lifetime Floor.
The Gross Margins for the Multifamily Loans bearing adjustable rates
will range from approximately 4% to 8%. The weighted average Gross Margin of the
Multifamily Loans bearing adjustable rates will be no less than approximately
5%. The Lifetime Caps of the Multifamily Loans will range from approximately 15%
to 18%. The weighted average Lifetime Cap of the Multifamily Loans will be no
less than approximately 16%. The Lifetime Floors of the Multifamily Loans will
range from approximately 9% to 12%. The weighted average Lifetime Floor of the
Multifamily Loans will be no less than approximately 10%.
The weighted average Mortgage Interest Rate on the Initial Multifamily
Loans will be no less than approximately 11% per annum. The lowest principal
balance of any Initial Multifamily Loans will be approximately $55,000 and the
highest will be approximately $1,800,000. As of the Cut-Off Date, the average
principal balance of the Initial Multifamily Loans will be no less than
approximately $260,000. All Initial Multifamily Loans will be covered by title
insurance policies. As of the Cut-Off Date, the weighted average remaining term
to stated maturity of the Initial Multifamily Loans will be no more than
approximately 357 months. The weighted average term to stated maturity of the
Initial Multifamily Loans at origination will be no more than approximately 358
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
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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;
provided, however, that with respect to FHA Loans secured by Mortgaged
Properties located in states where the Servicer collects the FHA Insurance
Premium directly from the related Mortgagor, payments are applied first to the
FHA Insurance Premium. 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 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 Certificateholders are
entitled to receive 30 days' interest (or, with respect to the Adjustable Rate
Certificates and Auction Rate Certificates, the actual number of days from the
last Remittance Date (or, in the case of the first Remittance Date, from
December 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
immediately prior to such Remittance Date. The Servicer is required to remit to
the Trustee the excess, if any, of the amount of interest the 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
Certificates. See "The Agreement--Monthly 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
Agreement--Servicing 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
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
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 Certificateholders
over the life of the transaction, but it may affect the weighted average lives
of the Certificates.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The effective yield on the Certificates (other than the Adjustable Rate
Certificates 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
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month following the month of accrual. For the Adjustable Rate Certificates 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, Pool III and Pool IV 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
Certificates and the 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 portfolios of home
equity and home improvement loans.
Unscheduled payments, delinquencies, repurchases of defective Loans and
Defaulted Mortgage 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 Pool I and Pool IV Loans that have been liquidated
(each, a "Liquidated Loan") is equal to or exceeds 25% of the sum of (i) the
Original Pool I and Pool IV Principal Balance and (ii) the original Pre-Funded
Amount relating to Pool I and Pool IV. The Cross-Over Date is defined in the
Agreement as the date on which the Pool Available Maximum Subordination Amounts
for all of the Pools are 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 amounts from the Loans in other Pools as a result of the
cross support features described herein), the yield will be increased on Offered
Certificates purchased by such investor at a price less than par (i.e., the
principal balance of an Offered 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 Offered
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
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anticipated by the investor in the period immediately following the issuance of
the applicable Class of Offered Certificates may not be offset by a subsequent
like reduction (or increase) in the rate of principal payments. The weighted
average lives of the Offered 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. Delinquencies and defaults will generally
slow the rate of payment of principal to the Offered Certificateholders since
(i) neither the Servicer nor MBIA in the case of Pool I and Pool IV 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
Certificates--Cross-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. Additionally, the holders of the Pool III
Certificates will be entitled to any FHA Payments received by the Claims
Administrator.
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 Offered 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 Offered 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 Offered 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 Excess Spread (as defined herein under "Description of the
Certificates--Cross-Support Provisions and Spread Amount"), Insured Payments or
Guaranteed Supplemental 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, 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 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 will not necessarily
correspond to changes in one-month LIBOR or the Pass-Through Rates determined
pursuant to the
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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 Certificates and the Auction Rate
Certificates in Pool II.
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 Certificates and the Auction Rate Certificates in
Pool II is limited by the 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 Certificates and the
Auction Rate Certificates in Pool II.
The Net Funds Cap for Pool II 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 Mortgage Loans, and
consequently the Net Funds Cap, would be lower than otherwise would be the case.
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The projected last Remittance Dates for each Class of Offered
Certificates is as follows:
Projected Last Projected Last
Class Remittance Date Class Remittance Date
- ----- --------------- ----- ---------------
AF-1 July 15, 2006 MV-2 April 15, 2029
AF-2 April 15, 2010 BV April 15, 2029
AF-3 November 15, 2021 AH-1 July 15, 2008
AF-4 September 15, 2024 AH-2 October 15, 2010
AF-5 December 15, 2038 AH-3 March 15, 2017
AF-6 December 15, 2038 AH-4 March 15, 2024
AF-7 December 15, 2038 MH-1 March 15, 2024
AV-1 October 15, 2026 MH-2 March 15, 2024
AV-2 October 15, 2026 BH March 15, 2024
MV-1 April 15, 2027 AMF April 15, 2029
The projected last Remittance Date for the Class AF-5, Class AF-6, Class
AF-7, Class MV-2, Class BV, Class AH-4, Class MH-1, Class MH-2, Class BH and
Class AMF 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 Offered
Certificates other than the Class AV-2 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
Offered Certificates receives payments of principal as described herein and the
Spread Amount is equal to zero. The projected last Remittance Date for the Class
AV-2 Certificates is the date on which the Class Principal Balance of the Class
AV-2 Certificates would be reduced to zero, assuming that no prepayments are
received on the Loans and that the Class AV-2 Certificates are being paid
sequentially to the Class AV-1 Certificates. The weighted average lives of the
Offered 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 Offered Certificates could occur
significantly earlier than the last projected Remittance Dates because (i)
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 Offered 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
Offered 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, FHA Payments 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:
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<PAGE>
<TABLE>
<CAPTION>
POOL I
Assumed Original Remaining Remaining
Cut-off Date Mortgage Term of Term of Term to Assumed
Principal Interest Amortization Amortization Maturity Delivery of
Balance Rate (in months) (in months) (in months) Loans
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 12,604,051.49 10.938% 352 328 155 Balloon Closing
$ 38,828,589.57 12.378% 166 141 141 Level Closing
$ 2,795,242.91 10.618% 236 212 212 Level Closing
$ 39,917,220.78 11.087% 355 329 329 Level Closing
$ 20,255,965.58 11.472% 360 356 175 Balloon Closing
$ 196,366,007.63 11.741% 164 162 162 Level Closing
$ 49,374,728.09 11.553% 240 238 238 Level Closing
$ 260,498,759.31 10.979% 352 350 350 Level Closing
$ 4,359,434.64 10.059% 480 479 479 Level Closing
$ 3,815,725.49 11.472% 360 360 179 Balloon Feb-98
$ 36,990,524.04 11.741% 164 164 164 Level Feb-98
$ 9,300,983.85 11.553% 240 240 240 Level Feb-98
$ 49,071,556.40 10.979% 352 352 352 Level Feb-98
$ 821,210.22 10.059% 480 480 480 Level Feb-98
</TABLE>
S-73
<PAGE>
<TABLE>
<CAPTION>
Pool II
Assumed Initial Original Remaining Gross Initial
Cut-off Date Mortgage Term of Term to Margin Periodic
Principal Interest Amoritzation Maturity Cap
Balance Rate (in months) (i months)
- -----------------------------------------------------------------------------------------------------------------------------------
6-month LIBOR
- -------------
<S> <C> <C> <C> <C> <C>
$ 233,970.07 11.127% 360 333 5.221% 1.000%
$ 4,379,106.49 10.871% 360 332 4.879% 1.000%
$ 689,917.99 10.161% 360 330 4.266% 1.000%
$ 925,406.43 10.301% 360 329 4.466% 1.000%
$ 4,104,563.87 10.685% 356 325 4.830% 1.053%
$ 8,483,734.33 10.946% 360 330 4.908% 1.017%
$ 6,605,297.09 10.882% 360 331 4.817% 1.000%
$ 1,181,025.85 10.473% 360 354 7.009% 1.222%
$ 5,746,750.87 9.757% 360 356 6.387% 1.255%
$ 16,947,443.10 9.824% 360 357 6.464% 1.297%
$ 31,923,529.74 9.279% 360 358 5.926% 1.303%
$ 68,514,749.27 8.843% 360 359 5.426% 1.300%
$ 28,451,719.97 8.796% 360 360 5.249% 1.301%
$ 184,384,954.39 10.450% 360 358 6.287% 2.922%
$ 6,072,617.09 10.655% 360 357 6.144% 2.848%
$ 148,126,820.46 10.542% 360 359 6.107% 3.000%
$ 299,679.74 10.473% 360 360 7.009% 1.122%
$ 1,458,210.89 9.757% 360 360 6.387% 1.255%
$ 4,300,333.64 9.824% 360 360 6.464% 1.297%
$ 8,100,444.88 9.279% 360 360 5.926% 1.303%
$ 17,385,294.00 8.843% 360 360 5.426% 1.300%
$ 7,219,489.55 8.796% 360 360 5.249% 1.301%
$ 46,786,811.24 10.450% 360 360 6.287% 2.922%
$ 1,540,897.90 10.655% 360 360 6.144% 2.848%
$ 37,586,481.02 10.542% 360 360 6.107% 3.000%
1-YEAR CMT
- ---------
$ 499,174.32 11.200% 360 330 5.315% 2.000%
$ 95,638.16 10.566% 360 329 3.570% 2.000%
$ 3,395,240.13 9.912% 360 357 6.725% 2.051%
$ 152,269.87 11.675% 360 352 7.250% 2.000%
$ 861,526.14 9.912% 360 360 6.725% 2.051%
$ 38,637.76 11.675% 360 360 7.250% 2.000%
1 Year LIBOR
- ------------
$ 957,671.17 9.516% 360 357 5.596% 1.781%
$ 706,175.51 9.645% 360 358 6.468% 2.000%
$ 285,545.99 10.743% 360 332 4.816% 2.000%
$ 243,004.54 9.516% 360 360 5.596% 1.781%
$ 179,188.70 9.645% 360 360 6.468% 2.000%
1 Month LIBOR
- -------------
$ 1,136,677.84 11.014% 360 331 5.262% 1.910%
</TABLE>
<TABLE>
<CAPTION>
Subsequent Lifetime Lifetime Months Reset Assumed
Periodic Cap Floor to Reset Frequency Delivery of
Cap Date Loans
- ------------------------------------------------------------------------------------------------------------------------------------
6-month LIBOR
- -------------
<S> <C> <C> <C> <C> <C>
1.000% 14.097% 8.097% 0 6 Closing
1.000% 15.210% 9.351% 1 6 Closing
1.000% 12.934% 6.071% 2 6 Closing
1.000% 13.901% 6.438% 3 6 Closing
1.053% 15.268% 8.635% 4 6 Closing
1.017% 15.351% 9.216% 5 6 Closing
1.000% 15.467% 9.151% 6 6 Closing
1.122% 17.018% 10.324% 1 6 Closing
1.226% 16.132% 9.555% 2 6 Closing
1.249% 16.143% 9.589% 3 6 Closing
1.219% 15.353% 9.245% 4 6 Closing
1.261% 14.845% 8.840% 5 6 Closing
1.301% 14.796% 8.796% 6 6 Closing
1.079% 16.748% 10.367% 22 6 Closing
1.000% 17.137% 9.905% 33 6 Closing
1.000% 16.542% 10.538% 47 6 Closing
1.122% 17.018% 10.324% 1 6 Feb-98
1.226% 16.132% 9.555% 2 6 Feb-98
1.249% 16.143% 9.589% 3 6 Feb-98
1.219% 15.353% 9.245% 4 6 Feb-98
1.261% 14.845% 8.840% 5 6 Feb-98
1.301% 14.796% 8.796% 6 6 Feb-98
1.079% 16.748% 10.367% 22 6 Feb-98
1.000% 17.137% 9.905% 33 6 Feb-98
1.000% 16.542% 10.538% 47 6 Feb-98
1-YEAR CMT
- ----------
2.000% 15.632% 9.632% 5 12 Closing
2.000% 16.567% 10.567% 11 12 Closing
2.051% 1.996% 16.359% 9 12 Closing
2.000% 18.675% 11.675% 28 12 Closing
1.996% 16.359% 8.920% 9 12 Feb-98
2.000% 18.675% 11.675% 28 12 Feb-98
1 Year LIBOR
- ------------
2.000% 15.437% 9.218% 5 12 Closing 1.17
2.000% 15.645% 9.645% 10 12 Closing 5.51
2.000% 14.458% 8.458% 11 12 Closing 5.99
2.000% 15.437% 9.218% 5 12 Feb-98 4.54
2.000% 15.645% 9.645% 10 12 Feb-98 8.70
1 Month LIBOR
- -------------
2.000% 13.952% 7.120% 1 1 Closing .84
</TABLE>
S-74
<PAGE>
<TABLE>
<CAPTION>
POOL III
ASSUMED 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>
$ 20,900,182.16 12.880% 106 105 105 Level Closing
$ 44,837,962.77 12.909% 178 177 177 Level Closing
$ 66,493,601.62 13.364% 240 239 239 Level Closing
$ 58,768,253.45 12.976% 300 299 299 Level Closing
</TABLE>
S-75
<PAGE>
<TABLE>
<CAPTION>
POOL IV
ADJUSTABLE RATE LOANS
Assumed Initial Original Remaining Remaining
Cut-off Date Mortgage Term of Term of Term to
Principal Interest Amortization Amortization Maturity Gross Periodic Lifetime Lifetime
Balance Rate (in months) (in months) (in months) Margin Cap Cap Floor
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 694,023.46 10.328% 360 359 359 5.242% 1.000 16.328% 10.328%
$ 188,902.01 9.250% 360 360 360 4.950% 1.000 15.250% 9.250%
$ 66,950.00 9.950% 360 360 360 5.050% 1.000 15.950% 9.950%
$ 57,000.00 10.750% 360 360 360 6.250% 1.000 16.750% 10.750%
$ 902,330.27 10.328% 362 362 362 5.242% 1.000 16.328% 10.328%
$ 245,599.76 9.250% 362 362 362 4.950% 1.000 15.250% 9.250%
$ 87,044.62 9.950% 362 362 362 5.050% 1.000 15.950% 9.950%
$ 74,108.19 10.750% 362 362 362 6.250% 1.000 16.750% 10.750%
<CAPTION>
Months to Assumed
Reset Reset Amortization Delivery of
Date Frequency Method Loans
- ---------------------------------------------------------------------
<S> <C> <C> <C>
4 6 Level Mar-98
5 6 Level Mar-98
6 6 Level Mar-98
48 6 Level Mar-98
5 6 Level Mar-98
6 6 Level Mar-98
7 6 Level Mar-98
49 6 Level Mar-98
</TABLE>
<TABLE>
<CAPTION>
Pool IV
Fixed Rate
Loans Initial Original Remaining Remaining
Assumed Mortgage Term of Term of Term to
Cut-off Date Interest Amortization Amortization Maturity Amortization Assumed
Principal Rate (in months) (in months) (in months) Method Delivery of
Balance Loans
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 46,773.10 12.990% 360 358 177 Balloon Mar-98
$ 319,393.54 11.736% 180 180 180 Level Mar-98
$ 97,387.22 10.990% 240 239 239 Level Mar-98
$ 112,350.00 11.702% 300 300 300 Level Mar-98
$2,764,775.03 11.426% 360 359 359 Level Mar-98
$ 60,811.75 12.990% 362 362 182 Balloon Mar-98
$ 415,257.51 11.736% 182 182 182 Level Mar-98
$ 126,617.39 10.990% 242 242 242 Level Mar-98
$ 146,071.15 11.702% 302 302 302 Level Mar-98
$3,594,605.00 11.426% 362 362 362 Level Mar-98
</TABLE>
S-76
<PAGE>
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 Certificates--Distributions
on the Certificates," (ii) distributions on the Certificates are received in
cash on the 15th day of each month, commencing in January 1998, (iii)
prepayments represent payment in full of individual Loans and are received on
the last day of each month (commencing in December 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 Offered Certificates are purchased on December 31, 1997, (viii) with respect
to the Loans, one-month LIBOR, six-month LIBOR, one-year LIBOR and one-year CMT
remain constant at 5.96094%, 5.90625%, 6.00000% and 5.46000 %, respectively,
(ix) with respect to the Pool II Certificates, one-month LIBOR remains constant
at 5.96094% and (x) the Specified Subordinated Amount (as defined herein under
"Description of the Certificates--Distributions on the Certificates--Class A
Principal Distribution Amounts") 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 Offered 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 March 30, 1998 for all Pools other than Pool III and by the
Closing Date for Pool III.
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 III 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 and Pool III, the "100% Prepayment
Assumption" assumes a CPR of 2.4% and 1.7% per annum, respectively, of the then
outstanding principal balance of the respective Pool I Home Equity Loans and
Pool III Home Improvement Loans in the first month of the life of such Loans and
an additional 2.4% and 1.7% per annum, respectively, in each month thereafter
until the tenth month. Beginning in the tenth month and in each month thereafter
during the life of the respective Loans, the 100% Prepayment Assumption with
respect to Pool I and Pool III assumes a CPR of 24% and 17%, respectively, per
annum each month. With respect to Pool II, the "100% Prepayment Assumption"
assumes a CPR of 26% per annum of the then outstanding principal balance of the
adjustable rate Pool II Home Equity Loans each month. With respect to Pool IV,
the "100% Prepayment Assumption" assumes a CPR of 12% per annum of the then
outstanding principal balance of the Multifamily Loans in Pool IV for the life
of such Multifamily Loans. 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.
The Targeted Balance Schedules for the Class AF-3, Class AF-4 and Class
AF-5 Certificates have been based on the 100% Prepayment Assumption for Pool I.
There is no assurance that the principal balances of the Class AF-3, Class AF-4
or Class AF-5 Certificates will conform on any Remittance Date to the applicable
balances specified for such Remittance Date in the Targeted Balance Schedules
contained in Annex II, or that distributions of principal will begin or end on
the respective Remittance Dates specified therein. Because any excess of the
principal available for distribution on any Remittance Date over the amount
necessary to reduce the principal balances of the applicable Classes of
Certificates to their respective scheduled principal amounts will be distributed
to the Class AF-6 Certificates, the ability to so reduce the principal balances
of such Classes will not be enhanced by
S-77
<PAGE>
the averaging of high and low principal payments. In addition, even if payments
remain as specified in the Targeted Balance Schedules, the principal available
for future distributions may be insufficient to reduce the applicable Classes of
Certificates to their scheduled principal amounts if prepayments do not occur at
a constant level. Moreover, because of the diverse remaining terms to maturity
of the Mortgage Loans (which will include recently originated Mortgage Loans),
the Certificates specified above may not be reduced to their respective
scheduled principal amounts even if prepayments occur at a constant level at the
constant rate specified above.
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.
CLASS AF-1 CERTIFICATES
PERCENTAGE WEIGHTED
OF PREPAYMENT AVERAGE EXPECTED
ASSUMPTION LIFE (YEARS) MATURITY
0% 2.92 5/15/04
75% 0.50 12/15/98
100% (2) 0.42 10/15/98
125% 0.37 8/15/98
150% 0.33 8/15/98
CLASS AF-2 CERTIFICATES
PERCENTAGE Weighted
OF PREPAYMENT Average Expected
ASSUMPTION Life (years) Maturity
0% 8.60 7/15/08
75% 1.27 8/15/99
100% (2) 1.01 4/15/99
125% 0.85 1/15/99
150% 0.74 11/15/98
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<PAGE>
CLASS AF-3 CERTIFICATES
PERCENTAGE Weighted
OF PREPAYMENT Average Expected
ASSUMPTION Life (years) Maturity
0% 15.35 3/15/20
75% 2.95 9/15/02
100% (2) 2.23 7/15/01
125% 2.24 7/15/01
150% 1.98 1/15/01
CLASS AF-4 CERTIFICATES
PERCENTAGE Weighted Earliest
OF PREPAYMENT Average Expected Retirement
ASSUMPTION Life (years) Maturity Date (1)
0% 23.94 6/15/23 1/15/22
75% 5.58 8/15/04 8/15/04
100% (2) 4.08 9/15/02 9/15/02
125% 4.23 1/15/03 1/15/03
150% 3.59 5/15/02 5/15/02
CLASS AF-5 CERTIFICATES
PERCENTAGE Weighted Earliest
OF PREPAYMENT Average Expected Retirement
ASSUMPTION Life (years) Maturity Date (1)
0% 26.15 10/15/24 1/15/22
75% 7.94 4/15/07 4/15/07
100% (2) 5.22 10/15/03 10/15/03
125% 6.54 9/15/07 9/15/07
150% 5.69 3/15/09 3/15/09
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<PAGE>
CLASS AF-6 CERTIFICATES (3)
PERCENTAGE Weighted Earliest
OF PREPAYMENT Average Expected Retirement
ASSUMPTION Life (years) Maturity Date (1)
0% 28.05 6/15/27 1/15/22
75% 12.65 12/15/18 12/15/18
100% (2) 9.39 5/15/14 5/15/14
125% 3.10 4/15/11 4/15/11
150% 1.07 3/15/99 3/15/99
CLASS AF-7 CERTIFICATES
PERCENTAGE WEIGHTED Earliest
OF PREPAYMENT AVERAGE EXPECTED Retirement
ASSUMPTION LIFE (YEARS) MATURITY Date (1)
0% 11.08 1/15/27 1/15/22
75% 6.85 9/15/18 9/15/18
100% (2) 6.40 3/15/14 3/15/14
125% 6.06 1/15/11 1/15/11
150% 5.80 12/15/08 12/15/08
CLASS AV-1 CERTIFICATES
PERCENTAGE WEIGHTED Earliest
OF PREPAYMENT AVERAGE EXPECTED Retirement
ASSUMPTION LIFE (YEARS) MATURITY Date (1)
0% 21.77 9/15/26 8/15/25
75% 2.66 12/15/06 12/15/06
100% (2) 1.71 6/15/04 6/15/04
125% 1.20 12/15/00 12/15/00
150% 0.96 5/15/00 5/15/00
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<PAGE>
CLASS AV-2 CERTIFICATES
PERCENTAGE WEIGHTED
OF PREPAYMENT AVERAGE EXPECTED
ASSUMPTION LIFE (YEARS) MATURITY
0% 9.95 3/15/12
75% 4.25 2/15/03
100% (2) 4.29 3/15/03
125% 3.77 9/15/02
150% 2.80 7/15/01
CLASS MV-1 CERTIFICATES(3)
PERCENTAGE Weighted Earliest
OF PREPAYMENT Average Expected Retirement
ASSUMPTION Life (years) Maturity Date (1)
0% 29.01 4/15/27 8/15/25
75% 10.57 3/15/10 3/15/07
100% (2) 7.42 8/15/06 12/15/05
125% 5.49 5/15/04 5/15/04
150% 4.13 11/15/02 11/15/02
CLASS MV-2 CERTIFICATES(3)
PERCENTAGE Weighted Earliest
OF PREPAYMENT Average Expected Retirement
ASSUMPTION Life (years) Maturity Date (1)
0% 29.61 12/15/27 8/15/25
75% 15.55 8/15/20 3/15/07
100% (2) 11.15 11/15/14 12/15/05
125% 8.36 12/15/10 4/15/05
150% 6.44 4/15/08 11/15/04
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<PAGE>
CLASS BV CERTIFICATES(3)
PERCENTAGE WEIGHTED EARLIEST
OF PREPAYMENT AVERAGE EXPECTED RETIREMENT
ASSUMPTION LIFE (YEARS) MATURITY DATE(1)
0% 27.37 12/15/27 8/15/25
75% 7.63 8/15/20 3/15/07
100% (2) 6.15 11/15/14 12/15/05
125% 5.41 12/15/10 4/15/05
150% 4.92 4/15/08 11/15/04
CLASS AH-1 CERTIFICATES
PERCENTAGE WEIGHTED
OF PREPAYMENT AVERAGE EXPECTED
ASSUMPTION LIFE (YEARS) MATURITY
0% 5.08 3/15/08
75% 1.43 2/15/01
100% (2) 1.17 6/15/00
125% 1.00 1/15/00
150% 0.88 9/15/99
CLASS AH-2 CERTIFICATES
PERCENTAGE Weighted
OF PREPAYMENT Average Expected
ASSUMPTION Life (years) Maturity
0% 11.85 5/15/11
75% 3.79 8/15/02
100% (2) 3.00 8/15/01
125% 2.48 12/15/00
150% 2.11 7/15/00
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<PAGE>
CLASS AH-3 CERTIFICATES
PERCENTAGE WEIGHTED
OF PREPAYMENT ASSUMPTION AVERAGE EXPECTED
LIFE (YEARS) MATURITY
0% 15.74 4/15/16
75% 6.26 3/15/06
100% (2) 5.00 8/15/04
125% 4.12 6/15/03
150% 3.16 8/15/02
CLASS AH-4 CERTIFICATES
PERCENTAGE WEIGHTED EARLIEST
OF PREPAYMENT ASSUMPTION AVERAGE EXPECTED RETIREMENT
LIFE (YEARS) MATURITY DATE (1)
0% 21.22 10/15/22 2/15/08
75% 12.45 12/15/19 3/15/06
100% (2) 10.32 6/15/17 12/15/05
125% 8.68 5/15/15 10/15/05
150% 7.40 2/15/13 8/15/05
CLASS MH-1 CERTIFICATES
PERCENTAGE WEIGHTED EARLIEST
OF PREPAYMENT ASSUMPTION AVERAGE EXPECTED RETIREMENT
LIFE (YEARS) MATURITY DATE (1)
0% 18.38 9/15/22 2/15/08
75% 9.24 6/15/18 3/15/06
100% (2) 7.57 4/15/16 12/15/05
125% 6.32 12/15/13 10/15/05
150% 5.59 11/15/11 8/15/05
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<PAGE>
CLASS MH-2 CERTIFICATES
PERCENTAGE WEIGHTED EARLIEST
OF PREPAYMENT ASSUMPTION AVERAGE EXPECTED RETIREMENT
LIFE (YEARS) MATURITY DATE (1)
0% 18.37 8/15/22 2/15/08
75% 9.23 9/15/17 3/15/06
100% (2) 7.55 8/15/15 12/15/05
125% 6.30 3/15/13 10/15/05
150% 5.47 3/15/11 8/15/05
CLASS BH CERTIFICATES
PERCENTAGE WEIGHTED EARLIEST
OF PREPAYMENT ASSUMPTION AVERAGE EXPECTED RETIREMENT
LIFE (YEARS) MATURITY DATE (1)
0% 18.36 6/15/22 2/15/08
75% 9.16 11/15/16 3/15/06
100% (2) 7.47 6/15/14 12/15/05
125% 6.23 1/15/12 10/15/05
150% 5.36 3/15/10 8/15/05
CLASS AMF CERTIFICATES
PERCENTAGE WEIGHTED EARLIEST
OF PREPAYMENT ASSUMPTION AVERAGE EXPECTED RETIREMENT
LIFE (YEARS) MATURITY DATE (1)
0% 14.38 2/15/26 12/15/21
75% 5.33 4/15/27 2/15/06
100% (2) 4.28 2/15/26 2/15/06
125% 3.54 12/15/23 1/15/06
150% 3.01 3/15/21 1/15/06
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(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.
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DESCRIPTION OF THE CERTIFICATES
The 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 Home Improvement Loans in Pool III. The
Pool IV Certificates generally will represent the right to receive payments
distributable on or with respect to the Multifamily Loans in Pool IV. The Trust
also will issue the Class X and the Class R Certificates. Only the Offered
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 "--Cross 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 in
both Pool I and Pool IV.
The Certificates will not represent obligations of the Representative,
the Originators or any of their respective affiliates. The Offered 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
minimum denominations of $25,000 and integral multiples of $25,000 in excess
thereof, except that one certificate of each Class of Offered Certificates may
be issued in a different denomination and, if so issued, will be held in
physical form.
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.
The assets of the Trust will consist of (a) the Home Equity Loans, Home
Improvement Loans and Multifamily Loans that are subject to the Agreement; (b)
amounts that from time to time are required by the Agreement to be deposited in
the Certificate Account, the Principal and Interest Account, the Expense
Account, the Insurance Account, the FHA Premium Account, the Spread Account, the
Pre-Funding Account and the Capitalized Interest Account, or to be invested in
Permitted Instruments; (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 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 January 1998
(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
Certificates has been reduced to zero, the Trustee or Paying Agent will be
required to distribute to the persons in whose name a Certificate 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 the amount available to be paid to the
respective Class of Offered Certificates for such Remittance Date. Any
Pre-Funded Amount remaining at the close of business on March 30, 1998 will be
distributed by or on behalf of
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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 Offered Certificates then entitled to receive payments of principal
as described herein. Such distribution will be made to each person in whose name
an Offered Certificate of any such Class is registered on February 28, 1998. For
so long as the Offered Certificates are in book-entry form with DTC, the only
"Holder" of the Offered Certificates will be Cede. See "--Book-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 (plus, for the Class AF-6
Certificates, the Class X Accelerated Distribution Amount) allocable to the
respective Class of Auction Rate Certificates for such Remittance Date. The
remainder of the 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, if any, allocated to the Pool II 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 any remaining Adjustable
Rate Certificates.
The "Class Principal Balance" of a Class of Offered 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, with respect of Pool I
and Pool IV Certificates, the principal portion of any related Insured Payments
and, with respect to the Pool III Certificates, FHA Payments) previously
distributed by the Trustee as principal on the applicable Class of Certificates,
and (ii) any actual loss of principal suffered by the related Certificateholders
due, in the case of Pool I and Pool IV Certificates, to the failure of MBIA to
perform its obligations under the related MBIA Policy and, in the case of Pool
II and Pool III Certificates, the amount, if any, of Applied Realized Loss
Amounts previously allocated to such Class. Any such loss with respect to a Loan
will be allocated among the Classes of Certificates as described herein.
A Certificateholder's "Percentage Interest" is that fraction, expressed
as a percentage, the numerator of which is the original denomination of such
Certificateholder's Certificate and the denominator of which is the original
aggregate Class Principal Balance of the respective Class of Certificates.
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, New Jersey,
Maryland or Delaware are authorized or obligated by law or executive order to be
closed.
As more fully described herein, distributions with respect to each Class
of Offered Certificates will be payable, after payment of certain fees,
generally from (i) receipts on the Loans of the applicable Pool, (subject to
certain adjustments described herein as a result of the cross support
provisions), (ii) advances and payments of Compensating Interest by the
Servicer, (iii) with respect to the Pool I and Pool IV Certificates, amounts
transferred from the Spread Account, if any, and payments under the related MBIA
Policy, (iv) with respect to the Pool III Certificates, any FHA Payments and (v)
for the Remittance Dates occurring during the Funding Period, any amounts
transferred to the Certificate Account from the Pre-Funding Account or the
Capitalized Interest Account (with respect to each Pool of Certificates, the
"Pool Available Amount").
The "Due Period" with respect to any Remittance Date is the calendar
month preceding the month of such Remittance Date.
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Current Interest
On each Remittance Date, to the extent of the applicable Pool Available
Amount, the Holders of each Class of Offered Certificates will receive 30 days'
interest (or in the case of the Adjustable Rate Certificates and Auction Rate
Certificates, the actual number of days since the last Remittance Date (or, in
the case of the first Remittance Date, from December 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; provided, however, that
for purposes of the foregoing, the Pass-Through Rate for the Class AF-6
Certificates shall not exceed the related Net Funds Cap. If for any Remittance
Date the amount of interest accrued on the Class AF-6 Certificates calculated at
its actual Pass-Through Rate exceeds the amount of interest accrued at the
applicable Net Funds Cap (the "Class AF-6 Supplemental Interest Amount"), such
excess will be paid from the related MBIA Policy; provided, however, that if
MBIA is not in default with regard to payment under the MBIA Policy relating to
Pool I, such amount may be funded, in whole or in part, from the Class X
Accelerated Distribution Amount.
Interest with respect to the Offered 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 Certificates 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 or in the case of the first Remittance Date, from December 15,
1997 for the Adjustable Rate Certificates and from the Closing Date for the
Auction Rate Certificates).
The amount of interest each Class of Certificates is entitled to receive
on each Remittance Date at the related Pass-Through Rate (which, for the Class
AF-6 Certificates will be limited to the applicable Net Funds Cap) is referred
to as the "Current Interest Requirement" for such Class.
Notwithstanding the foregoing, if a principal prepayment is made to one
or more Classes of 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 April 1998 Remittance Date will be based on the
related Principal Balance on March 31, 1998, after giving effect to such
principal prepayment.
Interest will first be allocated to the applicable Class A Certificates,
pro rata in accordance with the Current Interest Requirements, then in the case
of Pool II and Pool III Certificates, to the applicable Pool Class M
Certificates in ascending numerical order and then to the applicable Pool Class
B Certificates.
If on a particular Remittance Date, the Pool Available Amount for a Pool
of Certificates is less than the aggregate Current Interest Requirement for the
related Pool Class A Certificates, the amount of the shortfall for each such
Class of Pool Class A Certificates, together with interest thereon at the
applicable Pass-Through Rates to the extent permitted by law (each, a "Class
Interest Shortfall Carryforward Amount") will be carried forward and distributed
as described below. In the case of Pool I and Pool IV Certificates, the Class
Interest Shortfall Carryforward Amount will be paid by MBIA under the MBIA
Policies and there should be no carry forward thereof. With respect to the Class
AF-6 Certificates, the related MBIA Policy will also cover interest accrued up
to the actual Pass-Through Rate, regardless of the Net Funds Cap.
Similarly, if the Pool Available Amount for any Class of Pool Class M
Certificates or Class of Pool Class B Certificates after making the
distributions of the Current Interest Requirements to all Classes which are
prior in right of distribution as described in the second preceding paragraph,
is less than the Current Interest Requirement for such Class the remaining Pool
Available Amount will be distributed with respect thereto and a Class Interest
Shortfall Carryforward Amount will be created for such Class.
Any Class Interest Shortfall Carryforward Amounts for Classes of Pool II
Certificates do not include any Certificateholders' Interest Carryover (as
defined below).
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Each Class of Offered Certificates (other than the Adjustable Rate and
Auction Rate Certificates) will bear interest for each Remittance Date at the
per annum rate for such Class set forth on the cover page hereof. The Adjustable
Rate and Auction Rate Certificates will bear interest at the per annum rate
described under "Summary of Terms--Securities Offered" in this Prospectus
Supplement.
LIBOR for each Interest Period after the first Interest Period will be
determined on the second LIBOR Determination Date preceding the start of each
such Interest Period. See "The Agreement--Calculation of LIBOR."
If on any Remittance Date the Pass-Through Rate for a Class of
Adjustable Rate Certificates or Auction Rate Certificates (other than the Class
AF-6 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 (but in no event exceeding the applicable maximum rate set forth above),
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 the applicable maximum rate set forth above) 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
"--Cross-Support Provisions and Spread Amount." 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 Pool II Certificates do not
address the likelihood of the payment of the amount of any Certificateholders'
Interest Carryover.
Class A Principal Distribution Amounts
Holders of the applicable Pool Class A Certificates will be entitled to
receive on each Remittance Date as payments of principal, in the order of
priority set forth below, in the aggregate, the lesser of (i) the remaining
applicable Pool Available Amount in the Certificate Account on such Remittance
Date after payment of the Current Interest Requirements on all Classes of
Offered Certificates in the applicable Pool (and payment of the Class AF-6
Supplemental Interest Amount, if any) and (ii) (A) with respect to Pool I, Pool
II and Pool IV, the applicable Senior Percentage of the applicable Pool
Principal Distribution Amount (with respect to each Pool of Certificates, the
"Class A Formula Principal Distribution Amount") or (B) with respect to Pool
III, the Pool III Class A Principal Distribution Amount.
The "Senior Percentage" for any Remittance Date (a) for the Pool I and
Pool IV Class A Certificates is 100% and (b) for the Pool II Class A
Certificates (i) prior to the Pool II Class B Cross-over Date (as defined
herein), and for any Remittance Date on or after the Pool II Class B Cross-over
Date on which the Trigger Event with respect to such Pool is in effect (as
described under "--Pool II Class B Pool Principal Distribution Amount"), will be
100%, or (ii) on or after the Pool II Class B Cross-over Date on which the
Trigger Event with respect to such Pool is not in effect, will equal a fraction,
expressed as a percentage, the numerator of which is the sum of the Class
Principal Balances of the Pool II Class A and Class M Certificates as of the
immediately preceding Remittance Date and the denominator of which is the sum of
the Class Principal Balances of the Pool II Class A, Class M and Class B
Certificates as of the immediately preceding Remittance Date.
The "Pool III Class A Principal Distribution Amount" means, for any
Remittance Date (a) prior to the Stepdown Date (as defined below) and for any
Remittance Date on or after the Stepdown Date on which the Trigger Event for
such Pool is in effect, the lesser of (i) 100% of the Pool Principal
Distribution amount for Pool III and (ii) the Class A Current Principal Balance
and (b) on or after the Stepdown Date on which the Trigger Event is not in
effect, the excess, if any, of (i) the Class Principal Balance of the Pool III
Class A Certificates immediately prior to such Remittance Date over (ii) the
lesser of (A) 41.5% of the outstanding principal balance of the Pool III Loans
as of the last day of the related Due Period and (B) the outstanding principal
balance of the Pool III Loans as of the last day of the related Due Period minus
$1,000,000.
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For any Remittance Date, the "Pool Principal Distribution Amount" is
equal to the excess of
(X) the sum, without duplication, of
(i) each payment of principal received by the Servicer or any
Subservicer (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 Subservicer 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 Subservicer during the related Due Period with respect to the
Loans of the related Pool (and, with respect to the Pool III Loans, any FHA
Payments received by the Claims Administrator with respect to principal on a
Pool III Loan during the related Due Period),
(iv) that portion of the purchase price for any Loan of the
related Pool repurchased by The Money Store Inc. 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) with respect to Pool I or Pool IV, the amount of any
Subordination Deficit (as defined under "--Cross Support Provisions and Spread
Amount" herein) for such Remittance Date,
(vii) any moneys released from the Pre-Funding Account on the
January, February or March 1998 Remittance Date as a prepayment of the
Certificates of the related Pool,
(viii) with respect to Pool I or Pool IV, the amount of any
Subordination Increase Amount (as defined under"--Cross-Support Provisions and
Spread Amount" herein) with respect to the applicable Pool for such Remittance
Date, and
(ix) with respect to Pool III, the Pool III Accelerated Principal
Distribution Amount for such Remittance Date, OVER
(Y) the amount of any Subordination Reduction Amount with
respect to the applicable Pool for such Remittance Date.
The "Subordination Reduction Amount" for any Remittance Date is equal to
the lesser of (i) the amount set forth in clause (X) (i) through (viii) of the
definition of Pool Principal Distribution Amount and (ii) the excess, if any, of
the then current Spread Amount over the then current Specified Subordinated
Amount.
The "Spread Amount" for any Remittance Date is equal to the excess, if
any, of (i) the aggregate principal balances of the Loans in the applicable Pool
as of the last day of the immediately preceding Due Period and any amounts on
deposit in the Pre-Funding Account or, in the case of Pool I and Pool IV, the
Spread Account with respect to such applicable Pool over (ii) the aggregate
principal balances of the related Certificates (after taking into account all
distributions of principal on such Remittance Date).
The "Specified Subordinated Amount" means, for any Remittance Date (i)
with respect to Pool I and Pool IV such amounts as are required by MBIA and are
set forth in the Agreement, (ii) with respect to Pool II, (a) prior to the
related Pool Spread Amount Stepdown Date, 2.5% of the Pool II Original
Collateral Amount (as defined below) and (b) on and after the related Pool
Spread Amount Stepdown Date, the greater of (A) 5.0% of the then current
aggregate
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principal balance of the Pool II Loans as of the last day of the related Due
Period and (B) 0.5% of the Pool II Original Collateral Amount; provided that
upon the occurrence and during the continuance of (x) a Trigger Event (as
defined under "--Pool II Class B Pool Principal Distribution Amount") no
stepdown may occur and (y) an S&P Trigger Event (as defined below), the
Specified Subordinated Amount for Pool II will equal 5.25% of the Pool II
Original Collateral Amount on or prior to January 2001 and 10.50% of the then
current aggregate principal balance of the Pool II Loans as of the last day of
the related Due Period thereafter, and in any event the Specified Subordinated
Amount shall never exceed the then Class Principal Balance of the Pool II
Certificates, and (iii) with respect to Pool III, (a) prior to the related Pool
Spread Amount Stepdown Date, 5.75% of the Pool III Original Collateral Amount
and (b) on and after the related Pool Spread Amount Stepdown Date, the greater
of (A) 11.50% of the then current aggregate principal balance of the Pool III
Loans as of the last day of the related Due Period and (B) 0.5% of the Pool III
Original Collateral Amount; provided that upon the occurrence and during the
continuance of a Trigger Event, the Specified Subordinated Amount for Pool III
will equal 6.50% of the Pool III Original Collateral Amount and in any event,
the Specified Subordinated Amount shall never exceed the then Class Principal
Balance of the Pool III Certificates.
The transfer of the Subsequent Mortgage 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 issuance of the Certificates. In
connection therewith the Rating Agencies may require that the required level of
the Specified Subordinated Amount for one or more Pools be revised.
The "Pool Spread Amount Stepdown Date" for either Pool II or Pool III
means the later to occur of (i) the Distribution Date occurring in January 2001,
and (ii) the first Distribution Date on which the aggregate principal balances
of the Loans in the related Loan Pool as of the last day of the related Due
Period is less than 50% of the sum of (a) the aggregate principal balances of
the Initial Pool II Home Equity Loans or the Initial Home Improvement Loans, as
applicable, and (b) the related original Pre-Funded Amount the "Original
Collateral Amount". Notwithstanding the foregoing, the Pool II Specified
Subordinated Amount will not be reduced if, commencing with the Remittance Date
in January 2001, cumulative Realized Losses exceed certain percentages set forth
in the Agreement of the Pool II Original Collateral Amount.
An "S&P Trigger Event" will be in effect on a Remittance Date for Pool
II if the Sixty-Day Delinquency Ratio (as defined in the Agreement) as of such
Remittance Date exceeds 50% of the Pool II Senior Specified Enhancement
Percentage (as defined under "--Pool II Class B Pool Principal Distribution
Amount").
The "Pool III Accelerated Principal Distribution Amount" for any
Remittance Date is the lesser of (i) the positive difference, if any, of (x) the
Total Monthly Excess Cashflow allocated to Pool III for such Remittance Date
minus (y) the Class Interest Shortfall Carryforward Amount for the Pool III
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Class A Certificates for such Remittance Date and (ii) the Subordinated
Deficiency Amount for Pool III for such Remittance Date, calculated for this
purpose without giving effect to payment of the Pool III Accelerated Principal
Distribution Amount and prior to taking into account the Applied Realized Loss
Amount for Pool III for such Remittance Date.
The "Stepdown Date" means the earlier to occur of (i) the later to occur
of (x) the Remittance Date in January 2001 and (y) the first Remittance Date on
which the Pool III Senior Enhancement Percentage (after taking into account
distributions of principal on such Remittance Date) is greater than or equal to
the Pool III Senior Specified Enhancement Percentage and (ii) the Remittance
Date on which the Class Principal Balance of the Pool III Class A Certificates
has been reduced to zero.
"Pool III Senior Enhancement Percentage" for any Remittance Date is the
percentage obtained by dividing (x) the sum of (i) the aggregate Class Principal
Balance of the Pool III Class M Certificates and the Pool III Class B
Certificates and (ii) the Spread Amount for Pool III, in each case after giving
effect to the distribution of the Pool Principal Distribution Amount for Pool
III on such Remittance Date by (y) the aggregate principal balance of the Pool
III Loans as of the last day of the related Due Period.
"Pool III Senior Specified Enhancement Percentage" means 58.50%.
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The "Class A Pool Principal Distribution Amount" with respect to the
Pool I, Pool II or Pool IV Certificates for any Remittance Date is intended to
be equal to the Class A Formula Principal Distribution Amount for such Pool of
Certificates. If the Class A Formula Principal Distribution Amount exceeds the
applicable Pool Available Amount in the Certificate Account on such Remittance
Date (after payment of all Current Interest Requirements for the Certificates in
such Pool and the Class AF-6 Supplemental Interest), then the Class A Pool
Principal Distribution Amount for such Pool of Certificates shall instead equal
such remaining Pool Available Amount.
Pool I
On each Remittance Date, the Class A Pool Principal Distribution Amount
for Pool I will be distributed to the holders of the Pool I Class A Certificates
in the following order of priority: (i) first, to the holders of the Class AF-7
Certificates, an amount equal to the Class AF-7 Principal Distribution Amount
(as defined below) for such Remittance Date, (ii) second, to the holders of the
Class AF-1 and Class AF-2 Certificates, sequentially in that order, until the
Class Principal Balance of each such Class is reduced to zero, (iii) third, to
the holders of the Class AF-3, Class AF-4 and Class AF-5 Certificates,
sequentially in that order, until the Class Principal Balance for each such
Class is reduced to its Targeted Balance (as defined below) for such Remittance
Date, (iv) fourth, to the holders of the Class AF-6 Certificates until the Class
Principal Balance of such Class is reduced to zero, (v) fifth, to the holders of
the Class AF-3, Class AF-4 and Class AF-5 Certificates, sequentially in that
order, until the Class Principal Balance of each such Class is reduced to zero
and (vi) sixth, to the holders of the Class AF-7 Certificates until the Class
Principal Balance of such Class 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 (as defined herein) that is
recovered from such Certificateholders.
The "Class AF-7 Principal Distribution Amount" for any Remittance Date
will be the product of (i) the applicable Class AF-7 Principal Percentage for
such Remittance Date and (ii) the Class AF-7 Pro Rata Principal Distribution
Amount for such Remittance Date. In no event will the Class AF-7 Principal
Distribution Amount on any Remittance Date be greater than the Pool Principal
Distribution Amount for Pool I for such Remittance Date or the Class Principal
Balance of the Class AF-7 Certificates.
The "Class AF-7 Principal Percentage" for each Remittance Date shall be
as follows:
Class AF-7
Principal
Remittance Dates Percentage
January 1998 - December 2000 0%
January 2001 - December 2002 45%
January 2003 - December 2003 80%
January 2004 - December 2004 100%
January 2005 - and thereafter 300%
The "Class AF-7 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 AF-7 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 Pool Principal Distribution Amount for Pool
I for such Remittance Date.
"Targeted Balance" for the Class AF-3, Class AF-4 and Class AF-5
Certificates means the predetermined principal balance for each such Class of
Certificates for each Remittance Date, as set forth in Annex II hereto.
Notwithstanding the foregoing and only through the Remittance Date in
October 1998, for purposes of making the foregoing distributions, the Class A
Pool Principal Distribution Amount for Pool I shall not include the lesser of
(a) the Total Monthly Excess Cashflow for Pool I less any Pool I Subordination
Deficit and (b) an amount equal to 30 days' interest at a rate of 2.50% per
annum on a notional amount equal to the Class Principal Balance of the
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Class AF-7 Certificates prior to the distributions being made on the specified
Remittance Date (the "Pool I Strip Amount). The Pool I Strip Amount will be paid
to the Holders of the Class X Certificates.
Pool II
On each Remittance Date, the Pool II Class A Pool Principal Distribution
Amount will be distributed to the holders of the Pool II Class A Certificates in
the following order of priority: (i) first, to the holders of the Class AV-2
Certificates, an amount equal to the Class AV-2 Principal Distribution Amount
(as defined below) for such Remittance Date, (ii) second, to the holders of the
Class AV-1 Certificates until the Class Principal Balance of such Class is
reduced to zero and (iii) third, to the holders of the Class AV-2 Certificates,
until the Class Principal Balance of such Class is reduced to zero; provided,
however, that on any Remittance Date on which the Class Principal Balances of
the Pool II Class M and Class B Certificates have been reduced to zero, any
amounts payable to the Pool II Class A Certificates on such Remittance Date
shall be distributed pro rata and not sequentially.
The "Class AV-2 Principal Distribution Amount" for any Remittance Date
prior to and including the Remittance Date in June 2001 will be zero, and
thereafter will equal the lesser of the Class A Pool Principal Distribution
Amount for Pool II and the Class Principal Balance of the Class AV-2
Certificates.
Pool III
On each Remittance Date, the Class A Pool Principal Distribution Amount
for Pool III will be distributed to the holders of the Pool III Class A
Certificates in the order of their numerical designations, commencing with the
Class AH-1 Certificates, until the Class Principal Balance of each such Class is
reduced to zero; provided, however that on any Remittance Date on which the
Class Principal Balances of the Pool III Class M and Class B Certificates have
been reduced to zero, any amounts payable to the Pool III Class A Certificates
on such Remittance Date shall be distributed pro rata and not sequentially.
Pool IV
On each Remittance Date, the Class A Pool Principal Distribution Amount
for Pool IV will be distributed to the holders of the Class AMF 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.
Pool II Class M Pool Principal Distribution Amounts
On each Remittance Date on and after the Class Principal Balances of the
Pool II Class A Certificates have been reduced to zero, the Holders of the Pool
II Class M Certificates will be entitled to receive, as payments of principal,
the lesser of (i) the remaining applicable Pool Available Amount in the
Certificate Account on such Remittance Date after payment of the Current
Interest Requirements on all Classes of Offered Certificates in such Pool and
the applicable Class A Pool Principal Distribution Amount, if any, on such
Remittance Date and (ii) the Senior Percentage of the Pool II Pool Principal
Distribution Amount (the "Class M Formula Principal Distribution Amount"). Such
Class M Pool Principal Distribution Amount shall be allocated between the Pool
II Class M Certificates in the order of their numerical designations, commencing
with the Class MV-1 Certificates, until the Class Principal Balance of the
respective Classes of Class M Certificates are reduced to zero.
The "Class M Pool Principal Distribution Amount" with respect to the
Pool II Certificates for any Remittance Date is intended to be equal to the
Class M Formula Principal Distribution Amount for such Pool of Certificates. If
the Class M Formula Principal Distribution Amount exceeds the applicable
remaining Pool Available Amount in the Certificate Account on such Remittance
Date then the Class M Pool Principal Distribution Amount shall instead equal
such remaining Available Amount.
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On each Remittance Date on or after the Class B Cross-over Date on which
the Trigger Event is not in effect, payments of principal will be made to the
Pool II Class B Certificateholders, even if the related Class M
Certificateholders are not yet entitled to receive payments of principal because
the Class Principal Balances of the Pool II Class A Certificates have not been
reduced to zero.
Pool III Class MH-1 and MH-2 Pool Principal Distribution Amounts
On each Remittance Date, the Holders of the Class MH-1 Certificates will
be entitled to receive an amount (the "Class MH-1 Principal Distribution
Amount") equal to (a) prior to the Stepdown Date, and for any Remittance Date on
or after the Stepdown Date on which the applicable Trigger Event is in effect
and the Pool III Class A Certificates are still outstanding, zero and (b) on any
other Remittance Date, the excess, if any, of (i) the sum of (A) the Class
Principal Balance of the Pool III Class A Certificates after giving effect to
the payment of the Pool III Class A Principal Distribution Amount on such
Remittance Date and (B) the Class Principal Balance of the Class MH-1
Certificates immediately prior to such Remittance Date over (ii) the lesser of
(A) 55.0% of the outstanding principal balance of the Pool III Loans as of the
last day of the related Due Period and (B) the outstanding principal balance of
the Pool III Loans as of the last day of the related due period minus
$1,000,000.
On each Remittance Date, the Holders of the Class MH-2 Certificates will
be entitled to receive an amount (the "Class MH-2 Principal Distribution
Amount") equal to (a) prior to the Stepdown Date, and for any Remittance Date on
or after the Stepdown Date on which the applicable Trigger Event is in effect
and the Pool III Class A Certificates or the Class MH-1 Certificates are still
outstanding, zero and (b) on any other Remittance Date, the excess, if any, of
(i) the sum of (A) the Class Principal Balance of the Pool III Class A
Certificates after giving effect to the payment of the Pool III Class A
Principal Distribution Amount on such Remittance Date, (B) the Class Principal
Balance of the Class MH-1 Certificates after giving effect to the payment of the
Class MH-1 Principal Distribution Amount on such Remittance Date and (C) the
Class Principal Balance of the Class MH-2 Certificates immediately prior to such
Remittance Date over (ii) the lesser of (A) 70.0% of the outstanding principal
balance of the Pool II Loans as of the last day of the related Due Period and
(B) the outstanding principal balance of the Pool III Loans as of the last day
of the related Due Period minus $1,000,000.
Pool II Class B Pool Principal Distribution Amount
Prior to the Class B Cross-over Date for Pool II, there will be no
distributions of principal on the Pool II Class B Certificates. The "Class B
Cross-over Date" will be the earlier of (A) the Remittance Date on which the
Class MV-2 Class Principal Balance, is reduced to zero, and (B) the first
Remittance Date on or after the Remittance Date in January 2001 on which the
fraction, expressed as a percentage, the numerator of which is the sum of the
Pool II Class A and Pool II Class M Class Principal Balances as of the
immediately preceding Remittance Date and the denominator of which is the
aggregate outstanding principal balance of the Pool II Loans as of the end of
the second preceding Due Period, is less than or equal to 85.0%.
On each Remittance Date on or after the Class B Cross-over Date for Pool
II and prior to the Remittance Date on which the related Pool II Class A and
Pool II Class M Class Principal Balances have been reduced to zero, holders of
the Class BV Certificates will be entitled to distributions of principal only if
the Trigger Event is not in effect on such Remittance Date.
A "Trigger Event" will be in effect on a Remittance Date for Pool II if
the Sixty-Day Delinquency Ratio (as defined in the Agreement) as of such
Remittance Date exceeds 40% of the Pool II Senior Specified Enhancement
Percentage.
"Pool II Senior Specified Enhancement Percentage" means 38.0%.
On each Remittance Date on or after the Class B Cross-over Date, if the
Trigger Event for Pool II is not in effect on such Remittance Date, the Holders
of the Class BV Certificates will be entitled to receive, as payments of
principal, the lesser of (i) the remaining applicable Pool Available Amount on
such Remittance Date after payments of
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the Current Interest Requirements on all Classes of Offered Certificates in Pool
II and the Pool II Class A and Pool II Class M Pool Principal Distribution
Amounts, if any, on such Remittance Date and (ii) the Class B Percentage of the
Pool II Pool Principal Distribution Amount (the "Class B Formula Principal
Distribution Amount"), until the Principal Balance of the Class BV Certificates
is reduced to zero.
Until such time as the Pool II Class A and Pool II Class M Class
Principal Balances have been reduced to zero, the "Class B Percentage" for any
Remittance Date will be 100% minus the Senior Percentage for Pool II. The "Class
B Percentage" for each Remittance Date, if any, after the Pool II Class A and
Pool II Class M Class Principal Balances have been reduced to zero will equal
100%.
The "Class B Pool Principal Distribution Amount" with respect to the
Pool II Certificates for any Remittance Date is intended to be equal to the
Class B Formula Principal Distribution Amount for such Pool of Certificates. If
the Class B Formula Principal Distribution Amount exceeds the remaining Pool
Available Amount for Pool II in the Certificate Account on such Remittance Date
then the Class B Pool Principal Distribution Amount for Pool II shall instead
equal such remaining Pool Available Amount.
Pool III Class BH Principal Pool Principal Distribution Amount
On each Remittance Date, the Holders of the Class BH Certificates will
be entitled to receive an amount (the "Class BH Principal Distribution Amount")
equal to (a) prior to the Stepdown Date, and for any Remittance Date on or after
the Stepdown Date on which the applicable Trigger Event is in effect and the
Pool III Class A Certificates, the Class MH-1 Certificates or the Class MH-2
Certificates are still outstanding, zero and (b) on any other Remittance Date,
the excess, if any, of (i) the sum of (A) the Class Principal Balance of the
Pool III Class A Certificates after giving effect to the payment of the Pool III
Class A Principal Distribution Amount on such Remittance Date, (B) the Class
Principal Balance of the Class MH-1 Certificates after giving effect to the
payment of the Class MH-1 Principal Distribution Amount on such Remittance Date,
(C) the Class Principal Balance of the Class MH-2 Certificates after giving
effect to the payment of the Class MH-2 Principal Distribution Amount on such
Remittance Date and (D) the Class Principal Balance of the Class BH Certificates
immediately prior to such Remittance Date over (ii) the lesser of 88.5% of the
outstanding principal balance of the Pool III Loans as of the last day of the
related Due Period and (B) the outstanding principal balance of the Pool III
Loans as of the last day of the related Due Period minus $1,000,000.
A "Trigger Event" will be in effect on a Remittance Date for Pool III if
either (i) the Sixty-Day Delinquency Ratio (as defined in the Agreement) as of
such Remittance Date exceeds 50% of the Senior Enhancement Percentage for Pool
III; or (ii) both (A) either (x) the Weighted Average Five-Month Sixty-Day
Delinquency Ratio (as defined in the Agreement) as of such Remittance Date
exceeds 9% or (y) the Cumulative Realized Losses (as defined in the Agreement)
as of such Remittance Date exceed $24,000,000; and (B) either (x) the Weighted
Average Five-Month Sixty-Day Delinquency Ratio as of such Remittance Date
exceeds 15% or (y) the Cumulative Realized Losses as of such Remittance Date
exceed $8,000,000.
Remaining Pool II and Pool III Pool Available Amounts
On each Remittance Date, after payments of amounts as set forth above
with respect to Pool II and Pool III, the remaining Pool II and Pool III Pool
Available Amounts shall be paid to the following Classes, in the following order
of priority:
(i) the aggregate Class A Class Interest Shortfall Carryforward Amounts
will be paid concurrently to the Holders of the applicable Class or Classes of
Class A Certificates, pro rata for each such Pool Class A Certificates, in
accordance with their respective entitlements to Class A Interest Shortfall
Carryforward Amounts, and any Class A Interest Shortfall Carryforward Amounts
not paid shall be carried forward to the next Remittance Date;
(ii) in the case of Pool II only, the Accelerated Pool II
Principal Distribution Amount will be paid to the Holders of the Pool II
Class A, Class M and Class B Certificates in the same order and priority
as
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payments of the Pool Principal Distribution Amount described above. (For
any Remittance Date, the "Pool II Accelerated Principal Distribution
Amount" equals the lesser of (i) the remaining Pool Available Amount for
Pool II in the Certificate Account on such Remittance Date less, only
through the Remittance Date in July 1998, an amount equal to 30 days'
interest at a rate of 4.0% per annum on a notional amount equal to the
Class Principal Balance of the Class MV-1 Certificates prior to the
distributions being made on the Remittance Date (the "Pool II Strip
Amount") and (ii) the Subordinated Deficiency Amount for such Remittance
Date.
(iii) the lesser of the remaining Pool II or Pool III Pool
Available Amount and the applicable Pool Available Maximum Subordination
Amount will be paid in reduction of the related Class Interest Shortfall
Carryforward Amounts and then the Applied Realized Loss Amounts, first
to the Class MV-1 and Class MH-1 Certificates, respectively, second to
the Class MV-2 and Class MH-2 Certificates, respectively, and then to
the Class BV and Class BH Certificates, respectively. Any Class Interest
Shortfall Carryforward Amounts or Applied Realized Loss Amounts not paid
shall be carried forward to the next Remittance Date subject to the
applicable Pool Available Maximum Subordination Amount.
(iv) the Pool II Strip Amount will be paid to the Holders of the
Class X Certificates.
(v) any remaining amounts, subject to the cross support
provisions described under "--Cross-Support Provisions and Spread Amount" will
be paid to the Class X and/or Class R Certificates.
When the applicable Pool Available Maximum Subordination Amount has been
reduced to zero, (i) no further Class M or Class B Class Interest Shortfall
Carryforward Amounts or Class M or Class B Applied Realized Loss Amounts with
respect to the same Pool shall be carried forward to succeeding Remittance Dates
and (ii) interest shall cease to accrue on such remaining Class M or Class B
Class Interest Shortfall Carryforward Amounts.
For so long as any Pool II or Pool III Certificates shall be
outstanding, at no time shall the cumulative sum of amounts paid with respect to
all related (i) Class M and Class B Class Interest Shortfall Carryforward
Amounts and (ii) Class M or Class B Applied Realized Loss Amounts (such amounts
with respect to Pool II or Pool III being hereinafter referred to collectively
as "Pool Shortfall Amounts") exceed $8,635,000 in the case of Pool II and
$7,472,280 in the case of Pool III (each, a "Pool Maximum Subordination
Amount"). The "Pool Available Maximum Subordination Amount" at any time shall be
the applicable Pool Maximum Subordination Amount less all distributions
previously made in respect of the related Pool Shortfall Amounts, irrespective
of whether any such distribution is derived from another Pool.
For each Pool and any Remittance Date, the "Subordinated Deficiency
Amount" equals the excess, if any, of (i) the Specified Subordinated Amount for
such Remittance Date over (ii) the then current Spread Amount, after giving
effect to all payments previously made on such Remittance Date.
MBIA RELATED PROVISIONS FOR POOL I AND POOL IV
On any Remittance Date, the "Distribution Amount" for Pool I or Pool IV
Certificates will equal the sum of (i) the Current Interest Requirement for such
Pool, (ii) with respect to Pool I, the Class AF-6 Supplemental Interest Amount,
(iii) the Pool Principal Distribution Amount for such Pool, (iv) the
Carryforward Amount for such Pool, and (v) 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 Carryforward Amount for Pool I or Pool IV 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 and Guaranteed Supplemental Payments, if any, on such date),
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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 Carryforward 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 the Pool I and Pool IV Certificateholders to receive
payments under the Pool I and Pool IV Certificates to the extent of any Insured
Payments and Guaranteed Supplemental 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 Pool I and Pool IV Certificateholders to receive
the entire Distribution Amount on each Remittance Date.
In the event any amounts referenced in clause (iv) of the definition of
Distribution Amount or clause (X) (iv) of the definition of Pool 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 Pool I or
Pool IV Class A Certificateholder directly unless such Class A Certificateholder
has returned principal or interest paid on a related 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 Pool 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
and Guaranteed Supplemental Payments on each Remittance Date. See "The MBIA
Policies and MBIA."
The Agreement provides that the Trustee or Paying Agent will (i) receive
as attorney-in-fact of each Holder of the Pool I and Pool IV Certificates any
Insured Payment and Guaranteed Supplemental Payment from MBIA and (ii) disburse
such payment pursuant to the Agreement. The Agreement provides that to the
extent MBIA makes Insured Payments or Guaranteed Supplemental 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 or Guaranteed Supplemental 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 or
Guaranteed Supplemental Payments as provided in the Agreement, but only from the
sources (other than Insured Payments or Guaranteed Supplemental Payments) and in
the manner provided in the Agreement.
Each Holder of a Pool I or Pool IV 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 Pool I or Pool IV
Certificateholder and described in clause (iv) of the definition of Pool
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 (i) of the definition of Pool Principal
Distribution Amount includes only payments of principal actually received by the
Servicer or any Subservicer. Neither the Servicer nor MBIA is required to
advance any delinquent payments of principal. Accordingly, the holders of Pool I
and Pool IV Certificates 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 or, with respect to 90
Day Delinquent FHA Loans, following the time the related FHA Payment is
received.
The Trustee will have the right, on behalf of Pool I and Pool IV
Certificateholders, to sue MBIA in the event any required Insured Payment or
Guaranteed Supplemental Payment is not made in accordance with the terms of the
applicable MBIA Policy.
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CROSS-SUPPORT PROVISIONS AND SPREAD AMOUNT
As a result of the cross-support provisions described below, on each
Remittance Date the "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, including the Class AF-6 Supplemental Interest Amount, and
certain expenses of the Trust have been paid) and any Subordination Reduction
Amount (collectively, the "Total Monthly Excess Cashflow") will be available to
fund certain payments. Such Total Monthly Excess Cashflow, net in the case of
Pool I and Pool IV of certain amounts used to reimburse MBIA, will be applied in
the following order of priority on such Remittance Date:
(i) first, in the case of Pool I and Pool IV, to reduce the
related Class A Interest Shortfall Carryforward Amounts;
(ii) second, to make accelerated payments of principal to the
Offered Certificates of the related Pool in the order provided for payments of
the applicable Pool Principal Distribution Amounts as described above until the
Spread Amount of such Pool equals its Specified Subordinated Amount (the
"Subordination Increase Amount");
(iii) third, in the case of Pool II and Pool III to reduce the
related Class M and Class B Class Interest Shortfall Carryforward Amounts and
then the Class M and Class B Applied Realized Loss Amounts in the order provided
under "--Distributions on the Certificates--Remaining Pool II and Pool III Pool
Available Amounts;"
(iv) fourth, in the case of Pool I and Pool IV, to make
deposits into the Spread Account, if any, until the amount therein is at its
required level;
(v) fifth, to reimburse the Servicer and/or The Money Store
Inc. for certain amounts owing to it with respect to the applicable Pool;
(vi) sixth, to pay the holders of the Pool II 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);
(vii) seventh, in the case of Pool I and Pool IV, to pay the
Certificateholders of the other such Pool (in the order provided for the payment
of principal in the case of Pool I) an amount up to the amount of any
Subordinated Deficiency Amount until its Specified Subordination Amount is
reached;
(viii) eighth, to provide funds to the Certificates of the
other Pools to cover current Realized Losses, pro rata, based on the amount so
required by each such other Pool; and
(ix) ninth, to pay any remainder to the holders of the Class
X Certificates and Class R Certificates as specified in the Agreement.
Applying Excess Spread to payment of principal on the Pool Class A
Certificates has the effect of accelerating the amortization of the Pool Class A
Certificates relative to the amortization of the Loans. As a result of the
foregoing, the holders of each Class of Pool Class A Certificates may receive
cash as credit support from any Loan in any Pool.
The Spread 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 existence of an Unrecovered
Portion will reduce the Spread Amount with respect to the related Pool of Loans.
However, Certificateholders of the related Pool will be entitled to receive
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.
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Therefore, if sufficient 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. The Agreement provides
that, except in limited circumstances, if the aggregate amount of Excess Spread
applied to payments of principal on the Pool I Class A and Pool IV Class A
Certificates equals the amount specified therein, the Specified Subordinated
Amount for the applicable Pool will be zero.
If insufficient 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 Certificates
of the related Pool, after taking into account all distributions to be made on
such Remittance Date (other than in the case of Pool I and Pool IV Certificates
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, and in the case of Pool I and
Pool IV the amount, if any, in the Spread 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. Consequently, investors in the Pool I and
Pool IV 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 CERTIFICATEHOLDERS
On each Remittance Date, the Trustee will be required to forward to each
Holder of the Offered Certificates (which will be Cede, as registered Holder of
each Class of Offered Certificates and the nominee of DTC, unless and until
Definitive Certificates are issued), a statement which will set forth, among
other things:
(X) With respect to Pool I and Pool IV Certificates:
(a) the Distribution Amounts for each such Pool on such
Remittance Date, in the aggregate and by component and listed separately for the
portions relating to each related Class of Pool I or Pool IV Certificates;
(b) the Pool Principal Distribution Amounts for each such Pool
for such Remittance Date, in the aggregate and listed separately for the portion
relating to each related Class of Pool I or Pool IV Certificates;
(c) the Current Interest Requirements for each related Class of
Pool I or Pool IV Certificates for such Remittance Date;
(d) the total amount of any Insured Payments and Guaranteed
Supplemental Payments included in the Distribution Amount for each such Pool on
such Remittance Date, listed separately for each related Class of Pool I or Pool
IV Certificates;
(e) the Spread Amount and Specified Subordinated Amount for such
Remittance Date, listed separately for each such Pool; and
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(f) the Class Principal Balances for each Class of Pool I or Pool
IV Certificates and the Principal Factors (as defined below) after giving effect
to the distributions of principal on each related Class of Pool I or Pool IV
Certificates on such Remittance Date.
(Y) With respect to Pool II and Pool III Certificates:
(a) the amount of such distribution to Holders of each related
Class of Certificates allocable to interest;
(b) the amount of such distribution to holders of each related
Class of Certificates allocable to principal;
(c) the amount, if any, by which the applicable Formula Principal
Distribution Amount for each Class exceeds the applicable Principal Distribution
Amount for such Class for such Remittance Date;
(d) the Class Principal Balance of related each Class of related
Certificates after giving effect to the distribution of principal on such
Remittance Date;
(e) the applicable rate of LIBOR for such Remittance Date;
(f) the Pass-Through Rate for each Class of Adjustable Rate
Certificates or Auction Rate Certificates for such Remittance Date and if such
Pass-Through Rate for any such Class was based on the applicable Net Funds Cap,
what it would be if based on LIBOR plus the applicable margin or Auction Rate,
as the case may be;
(g) the Net Funds Cap for the related Pool for such Remittance
Date, stated separately, when applicable, for each Class of Adjustable Rate
Certificates and Auction Rate Certificates;
(h) if the Pass-Through Rate for any Class of Adjustable Rate
Certificates 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;
(i) 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
Certificates or Auction Rate Certificates entitled to receive
Certificateholders' Interest Carryover;
(j) with respect to the FHA Loans, the dollar amounts of Claims
filed, paid and denied during the related Due Period.
(k) the related Senior Percentage and Class B Percentage for the
current Remittance Date;
(l) the Principal Factor for each related Class;
(m) the Spread Amount and Specified Subordinated Amount for the
related Pool for such Remittance Date;
(n) the aggregate principal balance of the related Loans at the
end of the preceding Due Period;
(o) whether a Trigger Event or an S&P Trigger Event with respect
to such Pool is in effect;
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(p) the amount of any Applied Realized Loss Amount, Realized Loss
Amount and Unpaid Realized Loss Amount for each related Class as of the close of
Business on such Remittance Date; and
(q) the remaining Pool available Maximum Subordination Amount for
the related Pool following such Remittance Date.
(Z) With respect to all Classes of Offered Certificates:
(a) the number and aggregate Principal Balances of Loans in each
Pool delinquent (i) 31 to 59 days, (ii) 60 days to 89 days and (iii) 90 days or
more as of the end of the related Due Period;
(b) 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; and
(c) the number and aggregate Principal Balances of Defaulted
Mortgage Loans repurchased at the option of the Servicer.
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 principal 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 (X)(a) through
(c) and (Y)(a) through (d) 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 Holder of an Offered
Certificate during such year, a statement containing the information set forth
in clauses (X)(a) through (c) and (Y)(a) through (d) above aggregated for such
calendar year, or, in the case of each person who was a Holder of an Offered
Certificate 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 and the Claims Administrator.
BOOK-ENTRY CERTIFICATES
The Certificates will be book-entry Certificates (the "Book-Entry
Certificates"). Persons acquiring beneficial ownership interests in the
Certificates ("Certificate Owners") will hold their 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
Certificates and will initially be registered in the name of Cede & Co., the
nominee 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 Balances of $25,000 and integral multiples 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 Certificate"). Unless
and
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until Definitive Certificates are issued, it is anticipated that the only
"Certificateholder" of the 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 Offered Certificates from the Trustee through DTC and DTC
participants. While the Offered 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 Offered Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Offered Certificates.
Participants and indirect participants with whom Certificate Owners have
accounts with respect to Offered 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 Offered
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Certificate Owners who are not
Participants may transfer ownership of Offered Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer Offered Certificates, by book-entr transfer,
through DTC for the account of the purchasers of such Offered Certificates,
which account is maintained with their respective Participants. Under the Rules
and in accordance with DTC's normal procedures, transfers of ownership of
Offered 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 PROCEDURES--Certain U.S. Federal
Income Tax Documentation Requirements" in Annex I 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
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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
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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
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
Offered Certificates which conflict with actions taken with respect to other
Offered Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as nominee and
depository with respect to the Book-Entry Certificates and the Depositor or the
Trustee is unable to locate a qualified successor, (b) the Depositor, at its
sole option, with the consent of the Trustee, elects to terminate a book-entry
system through DTC or (c) after the occurrence of an Event of Servicing
Termination (as defined herein), beneficial owners having Percentage Interests
aggregating not less than 51% of the aggregate 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 Offered Certificates. Upon surrender by DTC of the global certificate
or certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates and Certificateholders under the Agreement.
Although DTC, Cedel Bank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Offered 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.
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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 and Guaranteed Supplemental Interest 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
or Guaranteed Supplemental Payment. MBIA's obligations under the MBIA Policies
with respect to a particular Insured Payment or Guaranteed Supplemental 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 and Guaranteed Supplemental Payments shall be made
only at the time set forth in the MBIA Policies and no accelerated Insured
Payments or Guaranteed Supplemental Payments shall be made regardless of any
acceleration of the Class A Certificates, unless such acceleration is at the
sole option of MBIA.
THE MBIA POLICIES DO NOT COVER ANY AMOUNTS DUE ON POOL II OR POOL III
CERTIFICATES. In addition, 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 or Guaranteed Supplemental 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 Pool I or Pool IV 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 Pool I or Pool IV
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 and Guaranteed Supplemental 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
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related to Preference Amounts, any amount held by the Trustee for the payment of
such Insured Payment and legally available therefor and immediately available
funds in the amount of the Guaranteed Supplemental Payment less, in respect of
Guaranteed Supplemental Payments related to Preference Amount, any amount held
by the Trustee for the payment of such Guaranteed Supplemental 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 as of
November 30, 1997 among The Money Store Inc., as Representative, Servicer and
Claims Administrator, 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 with
respect to the Pool I or Pool IV Certificates, (i) the excess, if any, of (a)
the Current Interest Requirement for such Pool over (b) the sum of the Available
Remittance Amount for such Pool (minus amounts withdrawn to pay required
premiums to MBIA), and the 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.
"Guaranteed Supplemental Payment" means, for any Remittance Date until
the Class Principal Balance of the Class AF-6 Certificates is reduced to zero,
the Class AF-6 Supplemental Interest Amount, if any, for such Remittance Date;
provided, however, if MBIA is not in default with regard to payment under the
related MBIA Policy, the amount of the Guaranteed Supplemental Payment required
to be paid by MBIA shall be reduced by the Class X Accelerated Distribution
Amount.
"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
and the Guaranteed Supplemental Payment which shall be due and owing on the
applicable Remittance Date.
"Owner" means each holder (other than the Trust) of a Pool I and Pool IV
Certificate who, on the applicable Remittance Date, is entitled under the terms
of the applicable Class of Pool I and Pool IV 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.
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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 Pool I or Pool IV 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.
On November 14, 1997, MBIA Inc. announced the signing of a definitive
agreement to merge with CapMAC Holdings Inc. ("CHI"), the parent company of
Capital Markets Assurance Corporation ("CapMAC"), in a stock-for-stock
transaction valued at $607 million. The announcement also stated that all
outstanding policies issued by CapMAC will be backed by the full financial
resources of MBIA Inc., and that the agreement is subject to regulatory
approvals and approval by CHI shareholders.
The consolidated financial statements of MBIA, a wholly owned subsidiary
of MBIA Inc., and its subsidiaries as of December 31, 1996 and December 31, 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 for MBIA Inc. for the year ended December 31, 1996
and the consolidated financial statements of MBIA and its subsidiaries as of
September 30, 1997 and for the nine month periods ended September 30, 1997 and
September 30, 1996 included in the Quarterly Report on Form 10-Q for MBIA Inc.
for the period ending September 30, 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 Pool
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.
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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"):
<TABLE>
<CAPTION>
SAP GAAP
--- ----
DECEMBER 31, 1996 SEPTEMBER 30, 1997 DECEMBER 31, 1996 SEPTEMBER 30, 1997
---------------------------------------------- ------------------------------------
(AUDITED) (UNAUDITED) (Audited (UNAUDITED)
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C>
Admitted Assets $ 4,476 $5,165 Assets $ 5,066 $ 5,819
Liabilities 3,009 3,457 Liabilities 2,262 2,594
Capital and Surplus 1,467 1,708 Shareholder's Equity 2,804 3,225
</TABLE>
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 Offered Certificates or the
advisability of investing in the Offered Certificates.
Moody's rates the claims paying ability of MBIA "Aaa." S&P rates the
claims paying ability of MBIA "AAA." Fitch 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
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 Pool I and
Pool IV Certificates. MBIA does not guaranty the market price of the Pool I or
Pool IV Certificates nor does it guaranty that the ratings on the Pool I of Pool
IV 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.
REPRESENTATIONS AND WARRANTIES
In addition to the representations and warranties as to each Loan
described under the caption "The Agreements--Representations and Warranties" in
the Prospectus, (i) the Representative will represent in the Agreement that each
FHA Loan is an FHA Title I loan, underwritten in accordance with applicable FHA
requirements and submitted to the FHA for insurance; (ii) each Originator will
represent that, assuming sufficient coverage remains available in the Reserve
Amount, each Claim filed by the Claims Administrator with respect to a 90 Day
Delinquent FHA Loan will be honored by the FHA in accordance with the rules and
regulations of the FHA; (iii) substantially all the proceeds of each Pool III
Loan have been or will be used to acquire or to improve or protect an interest
in real property that, at the origination date of such Pool III Loan, was the
only security for such Pool III Loan; and (iv) for each Pool III Loan, after
giving effect to all improvements to be made on the related Mortgaged Property
with the proceeds of such Loan, and based upon representations of the related
Obligor, the value of the related Mortgaged
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Property will at least be equal to the amount of such Pool III Loan and the
outstanding amount of all other loans secured by prior liens on such Mortgaged
Property.
The Servicer will also covenant that it will: (a) comply with all FHA
rules and regulations and will maintain its status as an approved lender and
will at all times hold a valid contract of insurance (unless such contract is
terminated so as not to affect the obligation of FHA to provide insurance
coverage with respect to the FHA Loans); (b) promptly pay all insurance charges
and take all action necessary to maintain insurance on the FHA Loans; (c)
immediately pay, or, if the Servicer is no longer the Claims Administrator,
cause the Claims Administrator to pay, in full, any FHA Payment into the
Principal and Interest Account; and (d) with certain exceptions, not allow any
modifications or assumptions of the FHA Loans that would vary their terms.
OBLIGATION OF THE CLAIMS ADMINISTRATOR
If any FHA Loan becomes a 90 Day Delinquent FHA Loan, and if sufficient
coverage is available in the Reserve Amount to make an FHA Payment with respect
to such FHA Loan, the Claims Administrator may, in its sole discretion, during
any subsequent Due Period, determine to file a Claim with the FHA with respect
to such 90 Day Delinquent FHA Loan. If the Claims Administrator determines to
file such a Claim, the Claims Administrator will so notify the Co-Trustee and
the Custodian no later than the Determination Date following such determination
and shall request delivery of the related Trustee's Loan File. Upon receipt of
such certification and request, the Custodian shall, no later than the related
Remittance Date, release to the Claims Administrator the related Trustee's Loan
File and the Co-Trustee and the Custodian shall execute and deliver such
instruments necessary to enable the Claims Administrator to file a Claim with
the FHA on behalf of the Co-Trustee. Within 120 days of its receipt of the
related Trustee's Loan File, the Claims Administrator shall, in its sole
discretion, either file a Claim with the FHA for an FHA Payment with respect to
such 90 Day Delinquent FHA Loan or, if the Claims Administrator determines not
to file such a Claim, return to the Co-Trustee the related Trustee's Loan File.
With respect to any 90 Day Delinquent FHA Loan transferred to the Claims
Administrator as described above, the Claims Administrator shall deposit (or, if
the Claims Administrator is not also the Servicer, the Claims Administrator
shall instruct the Servicer to deposit) in the Principal and Interest Account
within 24 hours of receipt or determination thereof the following amounts (such
amounts to be net of certain amounts that would be reimbursable to the Servicer
under the Agreement with respect to amounts in the Principal and Interest
Account): (i) any FHA Payments; (ii) the amount, if any, by which the FHA
Payment was reduced in accordance with FHA Regulations due to the Claims
Administrator enforcing a lien on the FHA Property prior to the lien of the
related 90 Day Delinquent FHA Loan; and (iii) any principal and interest
payments received with respect to a 90 Day Delinquent FHA Loan after the Due
Period in which the FHA Loan is transferred to the Claims Administrator and
before either the related FHA Payment is paid or the related Trustee's Loan File
is returned to the Co-Trustee, as the case may be (the amounts referred to in
(ii) and (iii) above are referenced to herein as "Related Payments").
If an FHA Loan becomes a 90 Day Delinquent FHA Loan when there is
insufficient coverage in the Reserve Amount, or if the Claims Administrator
determines not to file a Claim with the FHA with respect to such 90 Day
Delinquent FHA Loan, the Co-Trustee will not transfer such FHA Loan to the
Claims Administrator, no Claim will be made to the FHA and the Servicer may take
other action, including the commencement of foreclosure proceedings, on the
related Mortgaged Property.
FHA PREMIUM ACCOUNT
The FHA Premium Account will be established with the Trustee and will be
available to reimburse the Claims Administrator for the payment to the FHA of
the FHA Insurance Premium on each FHA Loan in the Trust. The FHA Insurance
Premium is an annual premium equal to 0.5% of the original principal balance of
the FHA Loan. If the related Mortgagor pays the FHA Insurance Premium in
addition to the monthly payment, any payment of the FHA Insurance Premium
received during a Due Period will be deposited in the FHA Premium Account on the
related Remittance Date. In certain states, the Servicer is prohibited from
directly collecting the FHA Insurance Premium from the related Mortgagor. With
respect to FHA Loans secured by Mortgaged Properties located in such states, the
Servicer
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will cause to be deposited in the FHA Premium Account a specified percentage of
each scheduled interest payment. Since a Mortgagor pays interest on the
declining principal balance of the related FHA Loan and the FHA Insurance
Premium is based upon the original principal balance of the FHA Loan, the amount
of interest allocated to the FHA Premium Account may be more or less than the
amount of the related FHA Insurance Premium. The Servicer has agreed to satisfy
any resulting shortfall from its own funds.
PRE-FUNDING ACCOUNT
On the Closing Date, an aggregate cash amount (the "Pre-Funded Amount")
will be deposited into the Pre-Funding Account in an amount not to exceed
approximately $131,000,000, in the case of Pool I, approximately $40,000,000, in
the case of Pool II, approximately $38,000,000, in the case of Pool III and
approximately $2,000,000, in the case of Pool IV. Amounts allocated to Pool I,
Pool II, Pool III and Pool IV, 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 March 31, 1998, 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 Certificates of the related Pool. However, any Pre-Funded
Amount remaining at the close of business on March 30, 1998 will be distributed
as a principal prepayment on the Special Remittance Date to the 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 January, February and March 1998 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 Certificates on the
portion of the 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 Certificates on
each such Remittance Date. Additionally, if a principal prepayment is made on
the Special Remittance Date to the Certificates, such 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 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.
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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
Subservicer 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 retained
by the Servicer with respect to the Servicing Fee and the Contingency
Fee, (d) amounts deposited into the Servicing Accounts and (e) 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
or Guaranteed Supplemental 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
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sum of (x) 30 days' interest (or, with respect to the Adjustable Rate
Certificates and the Auction Rate Certificates, the actual number of days from
the last Remittance Date (or, in the case of the first Remittance Date, from
December 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 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 January, February and March 1998, 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 September 15, 1997) 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
From that portion of the Available Remittance Amount for the applicable
Pool, the Agreement requires the Servicer to pay the MBIA Premium, the FHA
Premium, the Remarketing Agent Fees and the Auction Agent Fees and then 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 Total Monthly Excess Cashflow, Excess
Spread and Subordination Reduction Amounts, 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 Pool Available Amount,
pay into an expense account, an amount equal to one-twelfth of the estimated
annual fees and expenses of the Trustee and the Trust and make distributions of
the remainder in the order of priority provided under "Description of the
Certificates--Distributions on the Certificates" and "--Cross-Support Provisions
and Spread Amount."
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 second 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
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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, New Jersey,
Maryland or Delaware 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 December 15, 1997 and
ending on the day immediately preceding the Remittance Date in January 1998 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.
OPTIONAL REPURCHASE
The Servicer has the right, but not the obligation, to repurchase any
Defaulted Loan for the purchase price and in the manner described under "The
Agreements - Sale of Mortgage Loans" in the attached Prospectus. In no event,
however, may the aggregate principal balance of Defaulted Mortgage Loans
purchased pursuant to this provision exceed 10% of the sum of the Original Pool
Principal Balance and the original Pre-Funded Amount.
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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 Pool I or Pool IV
Certificates, unless such acceleration is at the sole option of MBIA. This will
not affect the Pool I or Pool IV 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 and after the date on which the Pool Available Maximum Subordination
Amounts for all Pools are zero, on any Remittance Date on which the Pool I and
Pool IV 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 of the
Pool I and Pool IV Loans 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 Offered 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
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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 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 Offered 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 Offered Certificates would probably be
treated as dividend income to the holders. Such an entity level tax could result
in reduced distributions to the holders of the Offered Certificates and such
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 Offered
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 CO-TRUSTEE
First Union Trust Company, National Association, a national banking
association headquartered in, Wilmington, Delaware, will be the Co-Trustee with
respect to the Home Improvement Loans.
THE CUSTODIAN
First Union National Bank, a national banking association headquartered
in Charlotte, North Carolina, will be the Custodian with respect to the Home
Improvement Loans. In such capacity, it will retain the files relating to the
Home Improvement Loans. Such files will be held at the Custodian's offices in
Ijamsville, Maryland.
THE AUCTION AGENT
Bankers Trust Company, a New York banking corporation, will act as
Auction Agent with respect to the Class MV-1, Class MV-2 and Class BV
Certificates pursuant to an Auction Agent Agreement to be entered into among the
Representative, the Trustee and the Auction Agent.
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THE REMARKETING AGENT
Morgan Stanley & Co. Inc. will act as Remarketing Agent with respect to
the Class AF-6 Certificates pursuant to an Interest Rate Services Agreement to
be entered into among the Representative, the Trustee and the Remarketing Agent.
FEDERAL INCOME TAX CONSIDERATIONS
For federal income tax purposes, one or more elections will be made to
treat certain assets of the Trust as REMICs. Each Class of Certificates (other
than the Class AF-6 and Class R Certificates) will constitute "regular
interests" in a REMIC. For federal income tax purposes, the Class AF-6
Certificateholders will be treated as owning (i) a regular interest in a REMIC
with terms identical to the Class AF-6 Certificates except having a Pass-Through
Rate equal to the Class AF-6 Pass-Through Rate, but subject to the applicable
Net Funds Cap (the "Class AF-6 Regular Interest," and together with the other
Classes of Certificates constituting regular interests, the "Regular
Certificates"), and (ii) rights under the MBIA Policy relating to the Class AF-6
Supplemental Interest Amount. 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 Regular 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 Regular Certificates, including original
issue discount with respect to any such Regular Certificates issued with
original issue discount, will be taxable to Certificateholders in accordance
with the accrual method of accounting. Holders of Class AF-6 Certificates must
allocate the purchase price of their Certificates between the Class AF-6 Regular
Interest and the rights to payments of the Class AF-6 Supplemental Interest
Amount based on their relative fair market values. The purchase price allocated
to the Class AF-6 Regular Interest will be the issue price of such regular
interest for purposes of calculating accruals of original issue discount. All
holders of Class AF-6 Certificates should consult their tax advisors regarding
the federal income taxation of payments of the Class AF-6 Supplemental Interest
Amount.
See "Federal Income Tax Consequences--REMIC Regular Certificates--Current Income
on REMIC Regular Certificates."
The prepayment assumption that will be used in determining the rate of
accrual of original issue discount with respect to the Certificates is 100%
Prepayment Assumption, as 100% Prepayment Assumption is defined herein with
respect to each Pool of Loans. 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
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 and entities in which such plans or accounts are
invested (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
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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. 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
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
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
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 administrative exemptions to a number of underwriters
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 such
exemptions which may be applicable to the Pool Class A Certificates if an
underwriter which has been granted an exemption, or any of their respective
affiliates is either the sole underwriter or the manager or co-manager of the
underwriting syndicate, or a selling or placement agent and the conditions of
such exemptions have been met. Specifically, the following exemptions may be
applicable to the Pool Class A Certificates, subject to certain considerations
discussed below: Prohibited Transaction Exemption ("PTE") 90-32 granted to
Prudential Securities Incorporated, PTE 90-24 granted to Morgan Stanley & Co.
Inc., PTE 90-29 granted to Merrill Lynch & Co., PTE 89-89 granted to Salomon
Brothers Inc., PTE 92-32 granted to Nomura Securities International, Inc., and
PTE 91-14 granted to Lehman Brothers Inc. (collectively the "Exemption"). The
conditions which must be satisfied for the Exemption to apply to the purchase,
holding and transfer of the Pool Class A Certificates are the following:
(i) The acquisition of the Pool Class A Certificates by a Plan is
on terms (including the price for the Pool 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 Pool 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 Pool 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 ("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 interests 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 interests 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 Pool
Class A Certificates.
(iv) The sum of all payments made to the Underwriters in
connection with the distribution of the Pool Class A Certificates
represents not more than reasonable compensation for distributing the
Pool 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.
S-116
<PAGE>
(v) The Trustee and Co-Trustee must not be affiliates of any
member of the Restricted Group as defined below.
In addition, it is a condition that the Plan investing in the Pool Class
A Certificates is an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D under the Securities Act. Any Plan purchasing Pool 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 Co-Trustee, the
Custodian, 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 Pool 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 Pool 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 Pool 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 Pool 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 Pool 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 Pool Class A Certificates, and at
least 50% of the aggregate interest in the Trust, are acquired by persons
independent of the Restricted Group.
On July 21, 1997, the DOL published in the Federal Register a final
amendment to the Exemption which extends 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 Pool
Class A Certificates, the amendment generally allows a portion of the Loans
supporting payments to Pool Class A Certificateholders and having a principal
amount equal to no more than 25% of the total principal amount of the Loans to
be transferred to the Trust within a 90-day or three-month period following the
Closing Date ("Pre-Funding Period"), instead of requiring that all such Loans be
either identified or transferred on or before the Closing Date. The relief is
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 being offered ("Pre-Funding
Limit") must not exceed twenty-five percent (25%).
(2) All Loans transferred after the Closing Date ("Additional 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
Authorized Rating Agency.
(3) The transfer of such Additional Loans to the Trust during the
Pre-Funding Period must not result in the Certificates receiving a lower credit
rating from the Authorized Rating Agency upon termination of the Pre-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 Pre-Funding Period must not 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 Additional 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 the
Authorized Rating Agency, the
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<PAGE>
Underwriter and the Trustee) stating whether or not the characteristics of the
Additional Loans conform to the characteristics described in the Prospectus,
Prospectus Supplement, Private Placement Memorandum ("Offering Documents")
and/or Pooling and Servicing Agreement ("Pooling 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 Pre-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 Pooling Agreement or an event of default occurs under the
Pooling 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
investments which are permitted by the Authorized Rating Agency 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 the Authorized Rating
Agency ("Permitted Instruments").
(8) The Offering Documents 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 Pre-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 Pre-Funding
Period will be remitted to Certificateholders as repayments of principal.
(9) The Pooling Agreement must describe the Permitted Instruments for
the Pre-Funding Account and Capitalized Interest Account and, if not disclosed
in the Offering Documents, the terms and conditions for eligibility of the
Additional Loans.
The Pool Class A Certificates may be acquired, held and transferred by
Plans as follows: the Pool I Class A Certificates pursuant to PTE 90-32 and PTE
90-24; the Pool II Class A Certificates pursuant to PTE 90-29 and PTE 89-89; the
Pool III Class A Certificates pursuant to PTE 91-14 and the Pool IV Certificates
pursuant to PTE 92-32.
As the Class M and Class B Certificates are subordinated they are not
eligible for prohibited transaction exemptive relief under the Exemption.
Consequently, transfers of the Class M and Class B Certificates may not be made
to any Plan unless such Plan is purchasing such Class B or Class M Certificates
pursuant to Section III of Prohibited Transaction Class Exemption 95-60, 60 Fed.
Reg. 35925 (July 12, 1995) relating to acquisitions by insurance company general
accounts. The purchase of a Class B or Class M Certificate will be deemed a
representation by the purchaser that either (i) it is not purchasing such Class
B or Class M Certificate, directly or indirectly, for, or on behalf of, a
"benefit plan investor" as such term is defined in the Plan Asset Regulations
with respect to a Plan which is subject to Title I of ERISA or Section 4975 of
the Code or (ii) the purchaser is an insurance company which is purchasing such
Class B or Class M Certificate with funds contained in an "insurance company
general account" as such term is defined in Section V(e) of PTCE 95-60 and that
the purchase and holding of such Class B or Class M Certificate is covered under
PTCE 95-60.
Before purchasing a Certificate in reliance on the Exemption, PTCE 95-60
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 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. Special caution
ought to be exercised before a Plan purchases a Certificate in such
circumstances. See "ERISA Considerations" in the Prospectus.
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LEGAL INVESTMENT CONSIDERATIONS
No Class of Offered Certificates will 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 the other Classes
of Offered Certificates. No representation is made herein as to whether and the
extent to which a Class of the Offered Certificates constitutes legal
investments for any entity under any applicable statute, law, rule, regulation
or order. Each prospective purchasers urged to consult with it counsel
concerning the status of the Offered Certificates as legal investments for such
purchaser prior to investing therein.
S-119
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement dated December 29, 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 Offered
Certificates set forth below its name.
<TABLE>
<CAPTION>
Nomura
Merrill Lynch Securities
Morgan Stanley Prudential First Pierce, Fenner Smith Lehman Inter-
& Co. Securities Chicago Capital & Smith Salomon Barney Brothers national
Incorporated Incorporated Markets, Inc. Incorporated Brothers Inc. Inc. Inc. Inc. Total
--------------------------------------------------------------------------------------------------------------
Pool I Certificates
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class AF-1 $ 47,000,000 $ 67,000,00 $ 8,000,000 $0 $0 $0 $0 $0 $ 22,000,000
Class AF-2 $ 31,500,000 $ 46,500,00 $ 10,000,000 $0 $0 $0 $0 $0 $ 88,000,000
Class AF-3 $ 119,500,000 $ 119,500,000 $ 10,000,000 $0 $0 $0 $0 $0 $249,000,000
Class AF-4 $ 26,500,000 $ 36,500,00 $ 5,000,000 $0 $0 $0 $0 $0 $ 68,000,000
Class AF-5 $ 13,500,000 $ 23,500,000 $0 $0 $0 $0 $0 $0 $ 37,000,000
Class AF-6 $ 76,000,000 $0 $0 $0 $0 $0 $0 $0 $ 76,000,000
Class AF-7 $ 26,500,000 $ 48,000,00 $ 10,500,000 $0 $0 $0 $0 $0 $ 85,000,000
Pool II Certificates
Class AV-1 $0 $0 $0 $466,750,000 $0 $0 $0 $0 $466,750,000
Class AV-2 $0 $0 $0 $0 $76,000,000 $0 $0 $0 $ 76,000,000
Class MV-1 $0 $0 $0 $0 $0 $37,375,000 $0 $0 $ 37,375,000
Class MV-2 $0 $0 $0 $0 $0 $37,375,000 $0 $0 $ 37,375,000
Class BV $0 $0 $0 $0 $0 $32,500,000 $0 $0 $ 32,500,000
Pool III
Certificates
- -----------
Class AH-1 $0 $0 $0 $0 $0 $0 $84,571,000 $0 $ 84,571,000
Class AH-2 $0 $0 $0 $0 $0 $0 $28,024,000 $0 $ 28,024,000
Class AH-3 $0 $0 $0 $0 $0 $0 $19,947,000 $0 $ 19,947,000
Class AH-4 $0 $0 $0 $0 $0 $0 $20,457,000 $0 $ 20,457,000
Class MH-1 $0 $0 $0 $0 $0 $0 $13,500,000 $0 $ 13,500,000
Class MH-2 $0 $0 $0 $0 $0 $0 $15,000,000 $0 $ 15,000,000
Class BH $0 $0 $0 $0 $0 $0 $18,501,000 $0 $ 18,501,000
Pool IV
Certificates
- ------------
Class AMF $0 $0 $0 $0 $0 $0 $0 $10,000,000 $10,000,000
======================================================================================================================
Total $340,500,000 $341,000,000 $43,500,000 $466,750,000$76,000,000 $107,250,000$200,000,000 $10,000,000 $1,585,000,000
======================================================================================================================
</TABLE>
The Representative has been advised by the Underwriters that the
Underwriters propose initially to offer the Offered Certificates to the public
from time to time in negotiated transactions or otherwise, at varying prices to
be determined at the time of sale. The Representative has been advised that
Merrill Lynch, Pierce, Fenner & Smith Incorporated may sell some or all of the
Class AV-1 Certificates to one or more trusts with respect to which Merrill
Lynch, Pierce, Fenner & Smith Incorporated will act as depositor.
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 and other
services for the Representative for which it will receive additional
compensation.
S-120
<PAGE>
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 OFFERED CERTIFICATES
It is a condition to the issuance of the Certificates that each Class of
Offered Certificate receive the following ratings from S&P, Moody's and/or Fitch
(collectively, the "Rating Agencies"):
RATING
Class S&P MOODY'S FITCH
AF-1 AAA Aaa --
AF-2 AAA Aaa --
AF-3 AAA Aaa --
AF-4 AAA Aaa --
AF-5 AAA Aaa --
AF-6 AAA Aaa --
AF-7 AAA Aaa --
AF-8 AAA Aaa --
AV-1 AAA Aaa --
AV-2 AAA Aaa --
MV-1 AA Aa2 --
MV-2 A A2 --
BV BBB Baa2 --
AH-1 AAA -- AAA
AH-2 AAA -- AAA
AH-3 AAA -- AAA
AH-4 AAA -- AAA
MH-1 AA -- AA+
MH-2 A -- A
BH BBB -- BBB
AMF AAA Aaa --
The ratings given to the Pool I and Pool IV 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 Pool I and Pool IV Certificates. A
security rating is not a recommendation to
S-121
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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. In general, the ratings address
credit risk and do not address the likelihood or rate of principal prepayments.
The ratings of the Pool II 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.
S-122
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
<S> <C>
90 Day Delinquent FHA Loan................................................................S-33
Adjustable Rate Certificates...............................................................S-6
Adjusted Mortgage Loan Remittance Rate....................................................S-45
Agreement..................................................................................S-7
Applicable Majority Certificateholders...................................................S-113
Applied Realized Loss Amount..............................................................S-26
Auction Agent..............................................................................S-7
Auction Rate Certificates..................................................................S-3
Authorized Rating Agencies...............................................................S-116
Auto Loans................................................................................S-59
Available Remittance Amount..............................................................S-110
Balloon Loans.............................................................................S-38
beneficial owner.........................................................................S-100
Book-Entry Certificates..................................................................S-100
Business Day..............................................................................S-86
Capitalized Interest Account..............................................................S-10
Cede......................................................................................S-49
Cedel Bank.................................................................................S-2
Cedel Bank Participants..................................................................S-102
Certificate Account......................................................................S-110
Certificate Owners.......................................................................S-100
Certificateholder........................................................................S-101
Certificateholders.........................................................................S-3
Certificateholders' Interest Carryover....................................................S-14
Certificates...............................................................................S-1
Change Date...............................................................................S-37
Claims.....................................................................................S-6
Claims Administrator.......................................................................S-2
Class A Certificates......................................................................S-13
Class A Formula Principal Distribution Amount.............................................S-15
Class A Pool Principal Distribution Amount................................................S-16
Class AF-6 Regular Interest..............................................................S-115
Class AF-6 Supplemental Interest Amount...................................................S-12
Class AF-7 Principal Distribution Amount..................................................S-18
Class AF-7 Principal Percentage...........................................................S-18
Class AF-7 Pro Rata Principal Distribution Amount.........................................S-18
Class AV-2 Principal Distribution Amount..................................................S-19
Class B Cross-over Date...................................................................S-21
Class B Formula Principal Distribution Amount.............................................S-22
Class B Percentage........................................................................S-94
Class B Pool Principal Distribution Amount................................................S-22
Class BH Principal Distribution Amount....................................................S-22
Class Interest Shortfall Carryforward Amount..............................................S-13
Class M Formula Principal Distribution Amount.............................................S-20
Class M Pool Principal Distribution Amount................................................S-20
Class MH-1 Principal Distribution Amount..................................................S-20
Class MH-2 Principal Distribution Amount..................................................S-21
Class Principal Balance...................................................................S-86
Class R Certificates.......................................................................S-2
Class X Accelerated Distribution Amount...................................................S-14
Class X Certificates.......................................................................S-2
Closing Date...............................................................................S-5
</TABLE>
S-123
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CMT.......................................................................................S-64
Combined Loan-to-Value Ratio..............................................................S-36
Compensating Interest.....................................................................S-11
Contingency Fee...........................................................................S-46
Conventional Home Improvement Loans........................................................S-2
Cooperative..............................................................................S-102
Co-Trustee.................................................................................S-5
CPR.......................................................................................S-77
Current Interest Requirement..............................................................S-12
Curtailment...............................................................................S-46
Custodian..................................................................................S-7
Cut-off Date...............................................................................S-5
Dealer Loans..............................................................................S-56
Defaulted Mortgage Loan...................................................................S-46
Deficiency Amount........................................................................S-105
Definitive Certificates...................................................................S-50
Designated Depository Institution........................................................S-109
Detailed Description......................................................................S-63
Determination Date........................................................................S-44
Direct Loans..............................................................................S-56
Distribution Amount.......................................................................S-95
DOL......................................................................................S-116
DTC.......................................................................................S-50
Due Period................................................................................S-12
Equity Advantage Loans....................................................................S-62
ERISA.....................................................................................S-49
ERISA Considerations......................................................................S-49
Euroclear..................................................................................S-2
Euroclear Operator.......................................................................S-102
Euroclear Participant....................................................................S-102
European Depositaries....................................................................S-100
Excess Spread.............................................................................S-97
Exemption.................................................................................S-49
FHA........................................................................................S-2
FHA Insurance Premium.....................................................................S-33
FHA Loans..................................................................................S-2
FHA Payment...............................................................................S-33
FHA Premium Account.......................................................................S-33
Final Determination......................................................................S-113
Financial Intermediary...................................................................S-101
Fiscal Agent.............................................................................S-104
Fitch.....................................................................................S-46
Funding Period............................................................................S-10
GAAP.....................................................................................S-107
Gross Margin..............................................................................S-37
Guaranteed Supplemental Payment...........................................................S-29
HEP.......................................................................................S-77
Holders....................................................................................S-3
Home Equity Loans..........................................................................S-2
Home Equity Mortgage Notes................................................................S-34
Home Equity Mortgaged Properties..........................................................S-34
Home Equity Mortgages.....................................................................S-34
Home Equity Mortgagor.....................................................................S-35
Home Improvement Loans.....................................................................S-2
</TABLE>
S-124
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Home Improvement Mortgage Notes...........................................................S-39
Home Improvement Mortgaged Properties.....................................................S-39
Home Improvement Mortgages................................................................S-39
Home Improvement Mortgagor................................................................S-40
HUD........................................................................................S-2
Initial Home Equity Loans.................................................................S-34
Initial Home Improvement Loans............................................................S-34
Initial Loans.............................................................................S-34
Initial Multifamily Loans.................................................................S-34
Initial Pool I Home Equity Loans..........................................................S-34
Initial Pool II Home Equity Loans.........................................................S-34
Insurance Paying Agent....................................................................S-29
Insurance Proceeds........................................................................S-45
Insured Payment...........................................................................S-29
Interest Period..........................................................................S-112
IRS......................................................................................S-113
LIBOR.....................................................................................S-53
LIBOR Determination Date.................................................................S-112
LIBOR Index...............................................................................S-37
Lifetime Cap..............................................................................S-37
Lifetime Floor............................................................................S-37
Liquidated Loan...........................................................................S-69
Liquidation Proceeds......................................................................S-45
Loans......................................................................................S-2
London Banking Day.......................................................................S-112
MBIA......................................................................................S-29
MBIA Policies..............................................................................S-2
Monthly Advances..........................................................................S-33
Moody's...................................................................................S-46
Mortgaged Properties......................................................................S-34
Mortgages.................................................................................S-34
Mortgagor.................................................................................S-35
Multifamily Loans..........................................................................S-2
Multifamily Mortgage Interest Rate........................................................S-43
Multifamily Mortgage Notes................................................................S-41
Multifamily Mortgaged Properties..........................................................S-41
Multifamily Mortgages.....................................................................S-41
Multifamily Mortgagor.....................................................................S-42
Net Funds Cap.............................................................................S-14
Net Liquidation Proceeds..................................................................S-16
NHA Act...................................................................................S-55
Notes.....................................................................................S-34
Notice...................................................................................S-105
Obligor...................................................................................S-42
Offered Certificates.......................................................................S-2
Optional Servicer Termination Date........................................................S-47
Original Pool Principal Balance...........................................................S-47
Originators................................................................................S-2
Owner....................................................................................S-105
Pass-Through Rate..........................................................................S-5
Percentage Interest.......................................................................S-86
Periodic Rate Cap.........................................................................S-38
Permitted Instruments....................................................................S-109
Plan Asset Regulations...................................................................S-116
</TABLE>
S-125
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Plans.....................................................................................S-49
Pool Available Amount.....................................................................S-11
Pool Available Maximum Subordination Amount...............................................S-95
Pool Class A Certificates.................................................................S-13
Pool Class B Certificates.................................................................S-13
Pool Class M Certificates.................................................................S-87
Pool I.....................................................................................S-2
Pool I Certificateholders..................................................................S-9
Pool I Certificates........................................................................S-5
Pool I Class A Certificates...............................................................S-17
Pool I Home Equity Loans...................................................................S-8
Pool I Loans...............................................................................S-8
Pool I Mortgage Interest Rate.............................................................S-36
Pool I Strip Amount.......................................................................S-19
Pool II....................................................................................S-2
Pool II Accelerated Principal Distribution Amount.........................................S-95
Pool II Certificateholders.................................................................S-9
Pool II Certificates.......................................................................S-5
Pool II Class A Certificates...............................................................S-6
Pool II Class B Certificates...............................................................S-6
Pool II Class M Certificates...............................................................S-6
Pool II Home Equity Loans..................................................................S-8
Pool II Loans..............................................................................S-8
Pool II Mortgage Interest Rate............................................................S-37
Pool II Original Collateral Amount........................................................S-89
Pool II Senior Specified Enhancement Percentage...........................................S-93
Pool II Strip Amount......................................................................S-95
Pool III...................................................................................S-2
Pool III Accelerated Principal Distribution Amount........................................S-90
Pool III Certificateholders................................................................S-9
Pool III Certificates......................................................................S-5
Pool III Class A Certificates..............................................................S-6
Pool III Class A Principal Distribution Amount............................................S-17
Pool III Home Improvement Interest Rate...................................................S-41
Pool III Loans.............................................................................S-8
Pool III Original Collateral Amount.......................................................S-90
Pool III Senior Enhancement Percentage....................................................S-90
Pool III Senior Specified Enhancement Percentage..........................................S-90
Pool IV....................................................................................S-2
Pool IV Certificateholders.................................................................S-9
Pool IV Certificates.......................................................................S-5
Pool IV Class A Certificates...............................................................S-6
Pool IV Loans..............................................................................S-8
Pool Maximum Subordination Amount.........................................................S-95
Pool Principal Distribution Amount........................................................S-15
Pool Spread Amount Stepdown Date..........................................................S-90
Pools......................................................................................S-2
Preference Amount........................................................................S-105
Pre-Funded Amount.........................................................................S-10
Pre-Funding Account........................................................................S-2
Prepayment Assumption.....................................................................S-77
Principal and Interest Account...........................................................S-109
Principal Factor.........................................................................S-100
Principal Prepayment......................................................................S-46
</TABLE>
S-126
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PTE.......................................................................................S-49
PUDs......................................................................................S-34
Purchase Option Period...................................................................S-113
Rating Agencies..........................................................................S-121
Realized Loss.............................................................................S-25
Record Date...............................................................................S-11
Reference Banks..........................................................................S-112
Regular Certificates.....................................................................S-115
Related Payments..........................................................................S-32
Released Mortgaged Property Proceeds......................................................S-45
Relevant Depositary......................................................................S-100
Remarketing Agent..........................................................................S-7
REMIC......................................................................................S-3
Remittance Date............................................................................S-3
REO Property..............................................................................S-48
Representative.............................................................................S-2
Reserve Amount............................................................................S-31
Restricted Group.........................................................................S-117
Rules....................................................................................S-101
S&P.......................................................................................S-46
S&P Trigger Event.........................................................................S-90
SAP......................................................................................S-107
SBA.......................................................................................S-59
SBA Loans.................................................................................S-59
Senior Percentage.........................................................................S-15
Servicer...................................................................................S-2
Servicing Account........................................................................S-110
Servicing Fee.............................................................................S-46
Shortfall Amounts.........................................................................S-95
single family..............................................................................S-2
SMMEA.....................................................................................S-49
Special Remittance Date...................................................................S-10
Specified Subordinated Amount.............................................................S-25
Spread Account............................................................................S-28
Stepdown Date.............................................................................S-90
Student Loans.............................................................................S-59
Subordinated Deficiency Amount............................................................S-95
Subordination Deficit.....................................................................S-98
Subordination Increase Amount.............................................................S-97
Subsequent Cut-Off Date...................................................................S-35
Subsequent Loans...........................................................................S-2
Targeted Balance..........................................................................S-91
Telerate Page 3750.......................................................................S-112
Termination Notice.......................................................................S-113
Termination Price.........................................................................S-48
Terms and Conditions.....................................................................S-102
Title I....................................................................................S-2
Title I Loan Program......................................................................S-55
Title I Property Improvement Loans........................................................S-55
Total Monthly Excess Cashflow.............................................................S-97
Treasury Index............................................................................S-37
Trigger Event.........................................................................S-93, 94
Trust...................................................................................S-1, 6
Trustee....................................................................................S-8
</TABLE>
S-127
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Trustee's Loan File.......................................................................S-32
Underwriters...............................................................................S-1
Underwriting Agreement...................................................................S-120
Unrecovered Portion.......................................................................S-97
Weighted average life.....................................................................S-72
</TABLE>
S-128
<PAGE>
ANNEX I
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.
I-1
<PAGE>
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. 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. 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.
I-2
<PAGE>
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 Global Securities 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.
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries. (Form 1001). Non-U.S. Persons that are Certificate Owners residing in
a country that has a tax treaty with the United States can obtain an exemption
or reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only
for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the Certificate
Owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). 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, or other entity taxable as such,
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
I-3
<PAGE>
(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 their holding and disposing of the Global Securities as well as the
application of recently issued Treasury regulations relating to tax
documentation requirements that are generally effective with respect to payments
made after December 31, 1998.
I-4
<PAGE>
ANNEX II
TARGETED BALANCE SCHEDULES FOR
CLASS AF-3, CLASS AF-4 AND CLASS AF-5
CLASS AF-3
----------
Per Date Balance
- ------------------------------------------------------------------------------
0 12/15/1997 $249,000,000.00
1 01/15/1998 249,000,000.00
2 02/15/1998 249,000,000.00
3 03/15/1998 249,000,000.00
4 04/15/1998 249,000,000.00
5 05/15/1998 249,000,000.00
6 06/15/1998 249,000,000.00
7 07/15/1998 249,000,000.00
8 08/15/1998 249,000,000.00
9 09/15/1998 249,000,000.00
10 10/15/1998 249,000,000.00
11 11/15/1998 249,000,000.00
12 12/15/1998 249,000,000.00
13 01/15/1999 249,000,000.00
14 02/15/1999 249,000,000.00
15 03/15/1999 249,000,000.00
16 04/15/1999 239,788,268.81
17 05/15/1999 227,049,684.60
18 06/15/1999 214,609,525.74
19 07/15/1999 202,460,908.46
20 08/15/1999 190,597,106.43
21 09/15/1999 179,011,547.16
22 10/15/1999 167,697,808.49
23 11/15/1999 156,649,615.22
24 12/15/1999 145,860,835.69
25 01/15/2000 135,325,478.57
26 02/15/2000 125,037,689.66
27 03/15/2000 114,991,748.72
28 04/15/2000 105,182,066.49
29 05/15/2000 95,603,181.64
30 06/15/2000 86,249,757.91
31 07/15/2000 77,116,581.22
32 08/15/2000 68,559,796.40
33 09/15/2000 60,391,833.24
34 10/15/2000 52,416,451.34
35 11/15/2000 44,629,192.89
36 12/15/2000 37,025,702.20
37 01/15/2001 30,538,829.37
38 02/15/2001 24,217,814.44
39 03/15/2001 18,058,691.97
40 04/15/2001 12,057,588.72
41 05/15/2001 6,210,721.48
42 06/15/2001 514,395.07
43 07/15/2001 $ 0.00
TOTAL
II-1
<PAGE>
CLASS AF-4
Per Date Balance
0 12/15/1997 $68,000,000.00
1 01/15/1998 68,000,000.00
2 02/15/1998 68,000,000.00
3 03/15/1998 68,000,000.00
4 04/15/1998 68,000,000.00
5 05/15/1998 68,000,000.00
6 06/15/1998 68,000,000.00
7 07/15/1998 68,000,000.00
8 08/15/1998 68,000,000.00
9 09/15/1998 68,000,000.00
10 10/15/1998 68,000,000.00
11 11/15/1998 68,000,000.00
12 12/15/1998 68,000,000.00
13 01/15/1999 68,000,000.00
14 02/15/1999 68,000,000.00
15 03/15/1999 68,000,000.00
16 04/15/1999 68,000,000.00
17 05/15/1999 68,000,000.00
18 06/15/1999 68,000,000.00
19 07/15/1999 68,000,000.00
20 08/15/1999 68,000,000.00
21 09/15/1999 68,000,000.00
22 10/15/1999 68,000,000.00
23 11/15/1999 68,000,000.00
24 12/15/1999 68,000,000.00
25 01/15/2000 68,000,000.00
26 02/15/2000 68,000,000.00
27 03/15/2000 68,000,000.00
28 04/15/2000 68,000,000.00
29 05/15/2000 68,000,000.00
30 06/15/2000 68,000,000.00
31 07/15/2000 68,000,000.00
32 08/15/2000 68,000,000.00
33 09/15/2000 68,000,000.00
34 10/15/2000 68,000,000.00
35 11/15/2000 68,000,000.00
36 12/15/2000 68,000,000.00
37 01/15/2001 68,000,000.00
38 02/15/2001 68,000,000.00
39 03/15/2001 68,000,000.00
40 04/15/2001 68,000,000.00
41 05/15/2001 68,000,000.00
42 06/15/2001 68,000,000.00
43 07/15/2001 62,965,000.26
44 08/15/2001 57,559,011.83
45 09/15/2001 52,292,986.67
46 10/15/2001 47,163,561.83
47 11/15/2001 42,167,452.74
48 12/15/2001 37,301,451.37
49 01/15/2002 32,562,424.50
50 02/15/2002 27,947,312.01
51 03/15/2002 23,453,125.18
52 04/15/2002 19,076,945.03
53 05/15/2002 14,815,920.78
54 06/15/2002 10,667,268.23
55 07/15/2002 6,628,268.27
56 08/15/2002 2,696,265.34
57 09/15/2002 $ 0.00
TOTAL
II-2
<PAGE>
CLASS AF-5
Per Date Balance
0 12/15/1997 $37,000,000.00
1 01/15/1998 37,000,000.00
2 02/15/1998 37,000,000.00
3 03/15/1998 37,000,000.00
4 04/15/1998 37,000,000.00
5 05/15/1998 37,000,000.00
6 06/15/1998 37,000,000.00
7 07/15/1998 37,000,000.00
8 08/15/1998 37,000,000.00
9 09/15/1998 37,000,000.00
10 10/15/1998 37,000,000.00
11 11/15/1998 37,000,000.00
12 12/15/1998 37,000,000.00
13 01/15/1999 37,000,000.00
14 02/15/1999 37,000,000.00
15 03/15/1999 37,000,000.00
16 04/15/1999 37,000,000.00
17 05/15/1999 37,000,000.00
18 06/15/1999 37,000,000.00
19 07/15/1999 37,000,000.00
20 08/15/1999 37,000,000.00
21 09/15/1999 37,000,000.00
22 10/15/1999 37,000,000.00
23 11/15/1999 37,000,000.00
24 12/15/1999 37,000,000.00
25 01/15/2000 37,000,000.00
26 02/15/2000 37,000,000.00
27 03/15/2000 37,000,000.00
28 04/15/2000 37,000,000.00
29 05/15/2000 37,000,000.00
30 06/15/2000 37,000,000.00
31 07/15/2000 37,000,000.00
32 08/15/2000 37,000,000.00
33 09/15/2000 37,000,000.00
34 10/15/2000 37,000,000.00
35 11/15/2000 37,000,000.00
36 12/15/2000 37,000,000.00
37 01/15/2001 37,000,000.00
38 02/15/2001 37,000,000.00
39 03/15/2001 37,000,000.00
40 04/15/2001 37,000,000.00
41 05/15/2001 37,000,000.00
42 06/15/2001 37,000,000.00
43 07/15/2001 37,000,000.00
44 08/15/2001 37,000,000.00
45 09/15/2001 37,000,000.00
46 10/15/2001 37,000,000.00
47 11/15/2001 37,000,000.00
48 12/15/2001 37,000,000.00
49 01/15/2002 37,000,000.00
50 02/15/2002 37,000,000.00
51 03/15/2002 37,000,000.00
52 04/15/2002 37,000,000.00
53 05/15/2002 37,000,000.00
54 06/15/2002 37,000,000.00
55 07/15/2002 37,000,000.00
56 08/15/2002 37,000,000.00
57 09/15/2002 35,868,666.00
58 10/15/2002 32,142,937.52
59 11/15/2002 28,516,606.43
60 12/15/2002 24,987,257.20
61 01/15/2003 22,123,620.50
62 02/15/2003 19,335,050.78
63 03/15/2003 16,619,676.93
64 04/15/2003 13,975,673.07
65 05/15/2003 11,401,257.46
66 06/15/2003 8,894,691.50
67 07/15/2003 6,454,278.64
68 09/15/2003 4,078,363.45
69 09/15/2003 1,765,330.61
70 10/15/2003 $ 0.00
TOTAL
II-3
<PAGE>
ANNEX III
AUCTION PROCEDURES
The following description of the Auction Rate Procedures applies to
the Class AF-6 Certificates. To the extent that the provisions contained herein
contradict the provisions contained in Appendix I to the Prospectus, the
provisions herein shall control.
The term "Security," as used in this Annex III, refers to the Class AF-6
Certificates and the term "Securityholder" refers to Holders of Class AF-6
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:
"All Hold Rate" means ninety percent (90%) of One-Month LIBOR or such other
rate as may be set forth in the related Prospectus Supplement.
"Auction" means the implementation of the Auction Procedures on an Auction
Date.
"Auction Date" means, with respect to the Initial Period for each Class of
Securities, the date set forth in the related Prospectus Supplement and
thereafter, the Business Day immediately preceding the first day of each Auction
Period for each Security, other than:
(A) each Auction Period commencing after the ownership of the Securities
is no longer maintained in Book-Entry Form by DTC;
(B) each Auction Period commencing after and during the continuance of an
Event of Default; or
(C) each Auction Period commencing less than two Business Days after the
cure or waiver of an Event of Default.
Notwithstanding the foregoing, the Auction Date for one or more Auction Periods
may be changed pursuant to the related Agreement and the related Terms
Supplement, as described herein.
"Auction Period" means, with respect to each Security, the Interest Period
applicable to such Security during which time the applicable Security Interest
Rate is determined pursuant to the related Agreement and the related Terms
Supplement, which Auction Period (after the Initial Period for such Security)
initially shall consist of between 7 days and one year (as set forth in the
related Prospectus Supplement), as the same may be adjusted pursuant to such
related Agreement and the related Terms Supplement.
"Auction Period Adjustment" means an adjustment to the Auction Period as
provided in the related Terms Supplement, as described herein.
"Auction Procedures" means the procedures set forth and described herein by
which the Auction Rate applicable to a Security is determined.
"Auction Rate" means, with respect to any Security, the rate of interest
per annum that results from the implementation of the Auction Procedures and is
determined as described in the related Agreement and this Annex III.
"Estimated Funds Rate" has the meaning as set forth in this Annex III.
III-1
<PAGE>
"Federal Funds Rate" means, for any date of determination, the federal
funds (effective) rate as published on page 118 of 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) on the immediately preceding
Business Day. If no such rate is published on such page on such date, "Federal
Funds Rate" shall mean for any date of determination, the Federal funds
(effective) rate as published by the Federal Reserve Board in the most recent
edition of Federal Reserve Statistical Release No. H.15 (519) that is available
on the Business Day immediately preceding such date.
"Initial Period" means, as to any Security, the period commencing on the
Closing Date of such Security and continuing through the day immediately
preceding the Security Initial Rate Adjustment Date for such Security.
"Interest Period" means, with respect to a Security, the Initial Period for
such Security and each period commencing on the Rate Adjustment Date for such
Security and ending on the day before (i) the next Rate Adjustment Date for such
Security or (ii) the final maturity date of such Security, as applicable.
"Interest Rate Services Agreement" means the initial Interest Rate Services
Agreement unless and until a substitute Interest Rate Services Agreement is
entered into, after which "Interest Rate Services Agreement" shall mean such
substitute Interest Rate Services Agreement.
"Maximum Auction Rate" generally means the lesser of (i) either (A) One-
Month LIBOR plus 0.60% (if both ratings assigned by the Rating Agencies to the
applicable Security are "Aa3" or "AA-" or better) or (B) One-Month LIBOR plus
1.25% (if any one of the ratings assigned by the Rating Agencies to the Security
is less than "Aa3" or "AA-") or (ii) 14.00%. For purposes of the Remarketing
Agent and the Auction Procedures, the ratings referred to in this definition
shall be the last ratings of which the Remarketing Agent has been given notice
pursuant to the Interest Rate Services Agreement.
"Non-Payment Rate" means the then applicable Maximum Auction Rate.
"Rate Adjustment Date" means, with respect to each Security, the date on
which the applicable Security Interest Rate is effective and means, with respect
to each such Security, the date of commencement of each Auction Period.
"Rate Determination Date" means, with respect to any Security, the Auction
Date, or if no Auction Date is applicable to such Series, the Business Day
immediately preceding the date of commencement of an Auction Period.
"Remarketing Agent" means the initial remarketing agent under the initial
Interest Rate Services Agreement unless and until a substitute Interest Rate
Services Agreement becomes effective, after which "Remarketing Agent" shall mean
the substitute remarketing agent.
"Remarketing Agent Fee" has the meaning set forth in the Interest Rate
Services Agreement.
"Security Initial Rate" means, with respect to any Security, the rate
identified as such in the related Prospectus Supplement.
"Security Initial Rate Adjustment Date" means, with respect to any Class of
Certificates, the date set forth in the related Prospectus Supplement.
"Three-Month LIBOR" means the London interbank offered rate for deposits in
U.S. dollars having a maturity of three months commencing on the related LIBOR
Determination Date (the "Three-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 Three 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 Remarketing 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,
III-2
<PAGE>
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
Remarketing 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 Three 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, Three-Month LIBOR in
effect for the applicable Interest Period will be Three-Month LIBOR in effect
for the previous Interest Period.
Remarketing Agent
The Representative has appointed Morgan Stanley & Co. Incorporated as
initial Remarketing Agent. The Remarketing Agent, may, with the consent of the
Representative and notice to the Trustee and designation of the party authorized
to direct the Trustee, enter into an agreement with one or more co-remarketing
agents under which certain duties of the Remarketing Agent may be delegated to
the co-remarketing agent. The Remarketing Agent and all co-remarketing agents,
if any, shall be members of the National Association of Securities Dealers, Inc.
having a capitalization acceptable to the Representative and the Rating Agencies
and authorized by law to perform all the duties imposed upon them by the Pooling
and Servicing Agreement and the Interest Rate Services Agreement. Subject to
certain limitations set forth in the Interest Rate Services Agreement, the
Remarketing Agent may at any time resign and be discharged of the duties and
obligations created by the Pooling and Servicing Agreement and the Interest Rate
Services Agreement by giving at least 60 days' written notice to the
Representative, the Certificate Insurer and the Trustee. Subject to certain
limitations set forth in the Interest Rate Services Agreement, the Remarketing
Agent may be removed upon at least 60 days' written notice to the Remarketing
Agent, at the direction of the Representative with the prior written consent of
the Trustee and the Certificate Insurer, by an instrument signed by the
Representative and filed with the Remarketing Agent, the Certificate Insurer and
the Trustee. Any subsequent Remarketing Agent shall be selected by the
Representative, with the prior written consent of the Certificate Insurer with
notice to the Trustee, provided, however, that, with the Representative's
consent, the co-remarketing agent (or one of them, at the Representative's
discretion and the prior written consent of the Certificate Insurer) shall
become the Remarketing Agent automatically if the Remarketing Agent ceases to
act as Remarketing Agent for any reason.
The Remarketing 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 Remarketing 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 Interest Rate Services Agreement and will not be liable for
any error of judgment made in good faith unless the Remarketing Agent will have
been negligent in ascertaining (or failing to ascertain) the pertinent facts.
The Trustee will pay the Remarketing Agent the Remarketing Agent Fee on the
Certificate Remittance Date set forth in the related Prospectus Supplement, and
will reimburse the Remarketing Agent upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Remarketing Agent
in accordance with any provision of the Interest Rate Services Agreement
(including the reasonable compensation and the expenses and disbursements of its
agents and counsel).
AUCTION PROCEDURES
General
Pursuant to the Agreement, Auctions to establish the Auction Rate for each
Security 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 the Class AF-6
Certificates.
The Remarketing Agent will calculate the Maximum Auction Rate, the All Hold
Rate and One-Month LIBOR or Three-Month LIBOR, as the case may be, on each
Auction Date. If the ownership of a Security is no longer maintained in Book-
Entry Form, the Trustee will calculate the Maximum Auction Rate, on the Business
Day immediately preceding the first day of each Interest Period commencing after
delivery of such Security. If the
III-3
<PAGE>
Certificate Insurer is in default under the Certificate Insurance Policies has
occurred under the Pooling and Servicing Agreement, 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 Payment
Default and (ii) any Interest Period commencing less than two Business Days
after the cure of any Event of Default. The Remarketing Agent will determine
One-Month LIBOR or the Three-Month LIBOR, as applicable, for each Interest
Period other than the Initial Period for a Security; provided, that if the
ownership of the Securities is no longer maintained in Book-Entry Form, or if an
Event of Default has occurred, then the Trustee will determine the One-Month
LIBOR or the Three-Month LIBOR, as applicable, for each such Interest Period.
The determination by the Trustee or the Remarketing Agent, as the case may be,
of the One-Month LIBOR or the Three-Month LIBOR, as applicable, will (in the
absence of manifest error) be final and binding upon the Securityholders and all
other parties. If calculated or determined by the Remarketing Agent, the
Remarketing Agent will promptly advise the Trustee of the One- Month LIBOR or
the Three-Month LIBOR, as applicable.
Determination of Auction Rate and Security Interest Rate, Notice
Promptly after the Remarketing Agent has made the determinations described
above, the Remarketing Agent is to advise the Trustee of 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 the Class AF-6 Certificates.
Promptly after the Remarketing Agent has determined the Auction Rate, the
Remarketing Agent will determine and advise the Trustee of such Auction Rate for
each applicable Security, which rate will be the lesser of (a) the Maximum
Auction Rate for each such Security and (b) the rate established by the
Remarketing Agent for the Class AF-6 Certificates no later than 1:00 p.m., New
York City time, on the Auction Date immediately preceding each Interest Period
for the Class AF-6 Certificates as being the minimum rate of interest that would
be necessary, in the best professional judgment of the Remarketing Agent, taking
into account prevailing market conditions, to sell all of the Class AF-6
Certificates for the next succeeding Interest Period on such date in the
secondary market at a price equal to the principal amount thereof for settlement
on the next succeeding Remittance Date for the Class AF-6 Certificates (or, in
the case of the Initial Rate Adjustment Date for the Class AF-6 Certificates,
the rate announced as such for such period on or prior to delivery of the Class
AF-6 Certificates).
In the process of taking into account prevailing market conditions, the
Remarketing Agent shall take, among other actions it may deem appropriate, the
following actions. Not more than one Business Day before the Auction Date, the
Remarketing Agent shall make available to all interested parties an estimated
range of interest rates for the Class AF-6 Certificates for the next ensuing
Interest Period (the "Estimated Range of Interest Rate"). The Remarketing Agent
shall then inquire of owners of the Class AF-6 Certificates that communicate
with the Remarketing Agent as to whether or not such owners choose to continue
to hold their Class AF-6 Certificates at the Estimated Range of Interest Rate
or, if not, as to the specific interest rate, if any, at which such owners would
choose to continue to hold such Class AF-6 Certificates. The Remarketing Agent
shall thereupon establish the Auction Rate for the Class AF-6 Certificates for
the next ensuing Auction Period or Periods and communicate the same to the
parties and in the manner required by the Auction Procedures. In no event shall
a Security Interest Rate exceed the rate (the "Security Interest Rate
Limitation") set forth in the related Prospectus Supplement.
REMARKETING AGENT
For each Auction Date, the Trustee shall notify the Remarketing Agent of
the principal amount of Securities outstanding not later than the Business Day
preceding each Auction Date. The Remarketing Agent will accept bids that
satisfy the lowest possible bid for all outstanding Securities and will allocate
payments accordingly. 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 Securities
delivered as necessary to effect the purchases and sales of Securities as
determined in the Auction. Purchasers are required to make payment through
their Participants in same-day funds to DTC against
III-4
<PAGE>
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.
TRUSTEE NOT RESPONSIBLE FOR REMARKETING AGENT
The Trustee shall not be liable or responsible for the actions of or
failure to act by the Remarketing Agent under the related Agreement, the related
Terms Supplement or under the Interest Rate Services Agreement. The Trustee may
conclusively rely upon any information required to be furnished by the
Remarketing Agent without undertaking any independent review or investigation of
the truth or accuracy of such information.
CHANGES IN AUCTION TERMS
Changes in the Auction Date
The Remarketing Agent, at the written direction of the Representative, 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 Securities. The Representative will not
consent to such change in the Auction Date unless the Representative will have
received from the Remarketing 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 Remarketing 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 Remarketing Agent, the Trust, the Certificate Insurer
and the Representative.
Subject to the prior written consent of the Certificate Insurer, the
changes in Auction terms described above may be made with respect to any Class
of the Securities. In connection with any change in Auction Terms described
above, the Remarketing Agent is to provide such further notice to such parties
as is specified in the Interest Rate Services Agreement.
III-5
<PAGE>
The description of the Auction Procedures applicable to the Class MV-1,
Class MV-2 and Class BV Certificates (the "Pool II Auction Rate Certificates")
shall be as set forth in Appendix I to the Prospectus, except that the following
terms and conditions shall apply to the Pool II Auction Rate Certificates. To
the extent that the provisions contained herein contradict the provisions
contained in Appendix I to the Prospectus, the provisions herein shall control.
"Failed Auction" means a situation in which Sufficient Bids do not exist
(other than because all of the Securities of the applicable Security are subject
to Submitted Hold Orders), such that the Auction Rate for the next succeeding
Interest Period will be equal to the Maximum Auction Rate.
"Maximum Auction Rate" means, for each Class of Pool II Auction Rate
Certificates, either (i) One-Month LIBOR plus 0.70% (if the ratings assigned to
such Class of Pool II Auction Rate Certificates by Moody's and S&P are "Aa3" or
better and "AA-" or better, respectively); (ii) One-Month LIBOR plus 1.25% (if
the rating assigned to such Class of Pool II Auction Rate Certificates by either
Moody's or S&P is below "Aa3" or "AA-," respectively, but the ratings assigned
to such Class of Pool II Auction Rate Certificates by both Moody's and S&P are
equal to or better than "A3" and "A-," respectively); (iii) One-Month LIBOR plus
2.00% (if the rating assigned to such Class of Pool II Auction Rate Certificates
by either Moody's or S&P is below "A3" or "A-," respectively, but the ratings
assigned to such Class of Pool II Auction Rate Certificates by both Moody's and
S&P are equal to or better than "Baa3" and "BBB-," respectively); or (iv) One-
Month LIBOR plus 3.50% (if the rating assigned to such Class of Pool II Auction
Rate Certificates by either Moody's or S&P is below "Baa3" or "BBB-,"
respectively); provided, however, that (A) in the case of the first Failed
Auction, the Maximum Auction Rate for each class of Pool II Auction Rate
Certificates shall be the rate calculated pursuant to clauses (i), (ii), (iii)
or (iv) above, as applicable, minus 0.10% and (B) in the case of two or more
consecutive Failed Auctions, the rate to be applied will be the Maximum Auction
Rate for each class of Pool II Auction Rate Certificates as calculated pursuant
to clauses (i), (ii), (iii) or (iv) above, as applicable. If a successful
auction is completed, the rate to the next Failed Auction shall be the rate
calculated pursuant to clause (A) above.
EXISTING SECURITYHOLDERS AND POTENTIAL SECURITYHOLDERS
Participants in each Auction will include: (1) "Existing Securityholders,"
which shall mean any Securityholder according to the records of the Auction
Agent at the close of business on the Business Day preceding each Auction Date;
and (ii) "Potential Securityholders," which shall mean any person, including any
Existing Securityholder or a Broker/Dealer, who may be interested in acquiring
Securities (or, in the case of an Existing Securityholder, an additional
principal amount of the Security such Securityholder then holds). See "--
Broker-Dealer."
By purchasing a Security, whether in an Auction or otherwise, each
prospective purchaser of Securities 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 Securities is maintained
in Book-Entry Form to sell, transfer or otherwise dispose of the Securities 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 Securityholder
of the Securities so transferred, its Participant or Broker-Dealer advises the
Auction Agent of such transfer; (iii) to have its beneficial ownership of
Securities 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 Securityholder will
constitute an irrevocable offer to sell the principal amount of the Security
specified in such Sell Order; (v) that a Bid placed by an Existing
Securityholder will constitute an irrevocable offer to sell the principal amount
of the Security specified in such Bid if the rate specified in such Bid is
greater than, or in some cases equal to, the Security Interest Rate of such
Security, determined as described herein; and (vi) that a Bid placed by a
Potential Securityholder will constitute an irrevocable offer to purchase the
amount, or a lesser principal amount, of the Security specified in such Bid if
the rate specified in such Bid is, respectively, less than or equal to the
Security Interest Rate of the specified Security, determined as described
herein.
III-6
<PAGE>
The principal amount of the Securities purchased or sold may be subject to
probation procedures on the Auction Date. Each purchase or sale of Securities 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
The entity named in the related Prospectus Supplement, will be appointed as
Auction Agent to serve as agent for a Trust in connection with Auctions. The
Trustee and the Representative will enter into the Auction Agreement with the
Auction Agent. Any Auction Agent or 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 Securities 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 related Agreement and under
the Auction Agent Agreement. The Auction Agent may at any time resign and be
discharged of the duties and obligations created by the related Agreement by
giving at least 90 days notice to the Trustee, the Trust, the Representative and
the Market Agent. The Auction Agent may be removed at any time by the Trustee
upon the written direction of the Security Guaranty Insurer, if applicable, or,
with the consent of the Security Guaranty Insurer, if applicable, the
Securityholders of 66b% of the aggregate principal amount of the Securities then
outstanding, by an instrument signed by the Security Guaranty Insurer, if
applicable, or such Securityholders or their attorneys and filed with the
Auction Agent, the Representative, 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 and has accepted such appointment.
If required by the Trust or the Representative or by the Market Agent, with the
Trust's and the Representative's consent, 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, the Trust, the Representative, the
Security Guaranty Insurer, if applicable, 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 (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 the
Certificate Remittance Date set forth in the Prospectus Supplement.
III-7
<PAGE>
PROSPECTUS
- ----------
THE MONEY STORE INC.
(REPRESENTATIVE)
THE MONEY STORE ASSET BACKED CERTIFICATES
THE MONEY STORE ASSET BACKED NOTES
(ISSUABLE IN SERIES)
This Prospectus relates to The Money Store Asset Backed Certificates
(the "Certificates") and The Money Store Asset Backed Notes (the "Notes" and
collectively with the Certificates, the "Securities") described herein, issuable
in one or more series (each a "Series"), which may be sold from time to time on
terms determined at the time of sale and described in the related Supplement to
this Prospectus (each a "Prospectus Supplement"), evidencing specified interests
in, or rights to receive payments from, one or more trust funds (each, a
"Trust"), the primary assets of which will consist of one or more 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 and/or Notes.
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 of the related Securities 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.
Securities 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, maturity protection or derivative
instruments, to the extent described in the related Prospectus Supplement. The
Prospectus Supplement for each Series of Securities 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 Securities will be issued in one or more classes (each, a
"Class"). Each Class of Securities of any series will represent the right to
receive, or be secured by, a specified amount of payments of principal and/or
interest on the related Mortgage Assets in the manner described herein and in
the related Prospectus Supplement. The right of each Class of Securities to
receive payments may be senior or subordinate to the rights of one or more of
the other Classes of such Series. The right of the holders of any Class of Notes
("Noteholders") and the right of the holders of any Class of Certificates
("Certificateholders" and collectively with the Noteholders, "Securityholders"
or "Holders") to receive any distributions of principal and interest will be set
forth in the related Prospectus Supplement. A Series may include two or more
Classes of Certificates and/or Notes which differ as to the timing and priority
of payment, interest rate or amount of distributions in respect of principal or
interest or both. A Series may include one or more Classes of Certificates
and/or Notes entitled to distributions in respect of principal, with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no distributions in respect of
principal. Distributions on Certificates of any Series will be subordinated to
prior payments due on the related Notes, if any, to the extent described herein
and in the related Prospectus Supplement. The Securities of each Series will
represent fractional undivided ownership interests in the related Trust.
SEE RISK FACTORS ON PAGE 21 HEREIN FOR A DISCUSSION OF CERTAIN RISK
FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES
OFFERED HEREBY.
------------------------
The date of this Prospectus is December 23, 1997
<PAGE>
Distributions to Holders of Securities 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 at which any Class of Certificates (the "Pass-Through Rate")
or the rate at which any Class of Notes (the "Interest Rate") bear interest or
the method of calculating such Pass-Through Rate or Interest Rate, which may be
fixed or variable, will be set forth in the related Prospectus Supplement.
Distributions on the Certificates and/or Notes of a Series will be made only
from the assets of the related Trust and certain related property. The
Pass-Through Rate for a Class of Certificates or the Interest Rate for a Class
of Notes that bear interest based upon a floating rate of interest, as specified
in the related Prospectus Supplement, may base such floating rate upon any of
following: (i) the auction procedures described herein (such Securities being
referred to herein as "Auction Rate Securities"), (ii) the London interbank
offered rate for U.S. dollar deposits for a specified period ("LIBOR") plus an
amount set forth in the related Prospectus Supplement , (iii) the average bond
equivalent rates of weekly auctions of Treasury bills for a specified period
(the "T-Bill Rate") plus an amount set forth in the related Prospectus
Supplement or (iv) any such other method or procedures used to determine the
floating rate of interest as may be described in the applicable Prospectus
Supplement.
The Securities will not represent an obligation of or interest in the
Representative (except for any Guaranty (as defined herein) issued in connection
with a Series), 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 Securities 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 and/or Notes will be limited
to its contractual servicing obligations. If the amount available for
distribution to Holders 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 Holders, to the extent such deficiency is attributable to
delinquent payments of principal and/or interest during the immediately
preceding Due Period (as defined herein). See "Description of the Securities -
Monthly Advances and Compensating Interest."
The yield to Holders on each Class of Certificates and/or Notes 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.
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Offers of the Securities 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 Securities will
be set forth in the related Prospectus Supplement. There can be no assurance
that a secondary market for the Securities will develop, or if it does develop,
that it will continue. This Prospectus may not be used to consummate sales of a
Series of Securities 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 and/or
Notes to be offered hereunder, among other things, will set forth with respect
to such Series of Certificates and/or Notes: (i) the aggregate principal amount,
the Pass-Through Rate, Interest 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 and/or Notes; (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 or other derivative
instruments, if any, relating to the Pools or all or part of the related
Certificates and/or Notes; (iii) the specified interest of each Class of
Certificates and/or Notes 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 and/or Notes, 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 and/or Notes.
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 Securities. 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 Securities offered
hereby and thereby nor an offer of the Securities 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.
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REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning any Securities and the related
Trust will be provided to the Securityholders as described in the related
Prospectus Supplement. If specified in the related Prospectus Supplement, a
Series of Certificates and/or Notes may be issuable in book-entry form. In such
event, the related Certificates and/or Notes may be registered in the name of
Cede & Co. ("Cede"), the nominee of The Depository Trust Company ("DTC") or
another nominee. All reports will be provided to Cede or such other nominee,
which in turn will provide such reports to Participants and Indirect
Participants (as defined herein) of DTC or such other entities as described in
the related Prospectus Supplement. Such Participants and Indirect Participants
will then forward such reports to the beneficial owners of Securities. See
"Description of the Securities - 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 the related
Prospectus Supplement and to be a part hereof from the date of the filing of
such documents. With respect to any Class of Certificates and/or Notes that is
supported by a Guaranty of The Money Store (a "Guaranty"), The Money Store's
Annual Report on Form 10-K for the year ended December 31, 1996, and Quarterly
Reports on Form 10-Q for the periods ended March 31 and June 30, 1997, 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 Securities that is supported by a Guaranty, 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 Securities 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.
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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") and The Money Store Asset Backed
Notes (the "Notes"). Notes are issuable from time
to time in Series pursuant to an Indenture (an
"Indenture"), and Certificates are issuable from
time to time in Series pursuant to either a
Pooling and Servicing Agreement (a "Pooling and
Servicing Agreement") or a Trust Agreement (a
"Trust Agreement"). As used herein, "Agreements"
means, collectively, with respect to a Series of
Certificates, the related Pooling and Servicing
Agreement or the related Trust Agreement, with
respect to a Series of Notes, the related
Indenture and the related Sale and Servicing
Agreement, as the context requires, and with
respect to a Series of Securities, the relevant
combination of Agreements for such Series. Each
Certificate of a Series will evidence an interest
in the Trust Fund or Trust Funds for such Series,
as specified in the related Prospectus Supplement.
Each Series of Securities will consist of one or
more Classes, each Class may differ in, among
other things, the amounts allocated to and the
priority of principal and interest payments. The
Securities of each Class will be issued in fully
registered form in the denominations specified in
the related Prospectus Supplement. If so specified
in the related Prospectus Supplement, the
Securities or certain Classes of such Securities
offered thereby may be available in book-entry
form only.
Issuers..................... Certain trust funds (each, a "Trust") represented
by The Money Store or its affiliates, the primary
assets of which will be one or more Pools of
Mortgage Loans and certain other Mortgage Assets.
Representative
and Master
Servicer.................... The Money Store Inc. ("The Money Store"), a New
Jersey corporation, or certain of its affiliates.
The Prospectus Supplement relating to any Series
of Certificates and/or Notes 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"), on the terms and
conditions set forth in the related Pooling and
Servicing Agreement or Sale and Servicing
Agreement (a "Sale and Servicing Agreement"). 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 Securities 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
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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 not
constituting Agency 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." The Mortgage
Loans may be closed-end or revolving as described
in the related Prospectus Supplement.
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
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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 may 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
Securities 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"),
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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
Securities generally 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 weighted
average Combined Loan-to-Value Ratios at
origination (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 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, if any, and terms of any other credit
enhancement or other derivative instruments to be
provided with respect to all or any Mortgage Loans
or the Pool and (xiii) 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
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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
(each an "Underlying Mortgage Loan") 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.
Unless otherwise specified in the Prospectus
Supplement relating to a Series of Securities,
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
Securities will specify, with respect to any
Private Mortgaged-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
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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
Securities may exceed the principal balance of the
Mortgage Assets initially being delivered to the
Trustee. Cash in an amount up to the amount of
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 current
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 Securities 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, 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
and/or Notes.
Revolving Period and
Amortization Period;
Retained Interest........ If the related Prospectus Supplement so provides,
there may be a period commencing on the date of
issuance of a Class or Classes of Notes and/or
Certificates of a Series and ending on the date
set forth in the related Prospectus Supplement
(each, a "Revolving Period") during which limited
or no principal payments will be made to one or
more Classes of Notes and/or Certificates of the
related Series as are identified in such
Prospectus Supplement. Some or all
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<PAGE>
collections of principal otherwise allocated to
such Classes of Notes or Certificates may be (i)
utilized during the Revolving Period to acquire
additional Mortgage Assets which satisfy the
criteria described under "The Trusts--The Mortgage
Loans" and the criteria set forth in the related
Prospectus Supplement, (ii) held in an account and
invested in Permitted Investments (as defined
herein), for later distribution to
Securityholders, (iii) applied to those Notes or
Certificates for such Series, if any, specified in
the related Prospectus Supplement as then are in
amortization, or (iv) otherwise applied as
specified in the related Prospectus Supplement.
An "Amortization Period" is the period during
which an amount of principal is payable to Holders
of Securities which, during the Revolving Period,
were not otherwise entitled to such payments. If
so specified in the related Prospectus Supplement,
during an Amortization Period all or a portion of
principal collections on the Mortgage Loans may be
applied as specified above for a Revolving Period
and, to the extent not so applied, will be
distributed to the Classes of Notes and/or
Certificates for such Series specified in the
related Prospectus Supplement as then being
entitled to payments of principal. In addition, if
so specified in the related Prospectus Supplement,
amounts deposited in certain accounts for the
benefit of one or more Classes of Notes or
Certificates for such Series may be released from
time to time or on a specified date and applied as
a payment of principal on such Classes of Notes
and/or Certificates. The related Prospectus
Supplement will set forth the circumstances which
will result in the commencement of an Amortization
Period.
Each Series which has a Revolving Period may also
issue to the Representative or one of its
affiliates a certificate evidencing an undivided
beneficial interest (a "Retained Interest") in
such Series not represented by the other
Securities issued by the related Trusts. As
further described in the related Prospectus
Supplement, the value of such Retained Interest
will fluctuate as the amount of Notes and
Certificates of the related Series of Securities
outstanding is reduced.
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"). In addition, a Series may include
one or more Series entitled to (i) principal
payments with disproportionate, nominal or no
interest payments or (ii) interest payments with
disproportionate, nominal or no principal payments
(such Certificates, "Strip Certificates"). Certain
Series or Classes of Certificates may be covered
by a 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, or
derivative products as described herein and in the
related Prospectus Supplement.
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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 a
floating 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 Pass-Through Rate for a
Class of Certificates that pay interest based upon
a floating rate of interest, as specified in the
related Prospectus Supplement, may base such
floating rate upon any of following: (i) the
auction procedures for Auction Rate Securities
described herein, (ii) LIBOR plus an amount set
forth in the related Prospectus Supplement , (iii)
the T-Bill Rate plus an amount set forth in the
related Prospectus Supplement or (iv) any such
other method or procedures used to determine the
floating rate of interest as may be described in
the applicable 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
Securities."
With respect to any Series of Securities including
one or more Classes of Notes, distributions in
respect of the Certificates may be subordinated in
priority of payment to payments on the Notes of
such Series, to the extent specified in the
related Prospectus Supplement.
Description of the Notes.... Any Series of Securities may include one or more
Classes of Notes, as specified in the related
Prospectus Supplement, each of which will be
issued pursuant to an Indenture and will be
treated as debt obligations of the related Trust.
Unless otherwise specified in the related
Prospectus Supplement, Notes will be available for
purchase in denominations of $1,000 and integral
multiples of $1,000 (or such other accounts as may
be set forth in a Prospectus Supplement), except
that one Note of each Class may be issued in a
different denomination, in book-entry form or in
definitive form, as specified in the related
Prospectus Supplement. See "Description of the
Securities."
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Each Class of Notes will have a stated principal
amount and will bear interest at the Interest Rate
or Rates as specified in the related Prospectus
Supplement, which may be different for each Class
of Notes and may be fixed, variable, adjustable,
or any combination of the foregoing. The related
Prospectus Supplement will specify the Interest
Rate for each Class of Notes or the method for
determining the Interest Rate. The Interest Rate
for a Class of Notes that pay interest based upon
a floating rate of interest, as specified in the
related Prospectus Supplement, may base such
floating rate upon any of following: (i) the
auction procedures for Auction Rate Securities
described herein, (ii) LIBOR plus an amount set
forth in the related Prospectus Supplement , (iii)
the T-Bill Rate plus an amount set forth in the
related Prospectus Supplement or (iv) any such
other method or procedures used to determine the
floating rate of interest as may be described in
the applicable Prospectus Supplement. Each Note
may also represent a fractional undivided interest
in, or be entitled to receive payments from,
monies on deposit, if any, in the Pre-Funding
Account as specified in the related Prospectus
Supplement and any other account established for
the benefit of Noteholders, as specified in the
related Prospectus Supplement.
A Series may include two or more Classes of Notes
which differ as to the timing and priority of
payment, seniority, allocations of loss, Interest
Rate or amount of payments of principal or
interest, or as to which payments of principal or
interest may or may not be made upon the
occurrence of specified events or on the basis of
collections from designated portions of the
Mortgage Assets for such Series. In addition, a
Series may include one or more Classes of Notes
entitled to (i) principal payments with
disproportionate, nominal or no interest payments
or (ii) interest payments with disproportionate,
nominal or no principal payments (such Notes,
"Strip Notes"). A Series of Notes may include one
or more Classes of senior Notes (collectively,
"Senior Notes") which receive certain preferential
treatment specified in the related Prospectus
Supplement with respect to one or more Classes of
subordinate Notes (collectively, the "Subordinated
Notes"). Certain Series or Classes of Notes may be
covered by a 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 or derivative instruments, as described
herein and in the related Prospectus Supplement.
Credit
Enhancement ................ The Mortgage Assets in a Trust or the Securities
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 all Certificateholders will be
subordinated to the rights of all Noteholders of a
Series to receive distributions to the extent
described in the related Prospectus Supplement,
with respect to the Mortgage Assets and other
assets in the related Trust. The rights of the
holders of Subordinated Certificates and/or
Subordinated Notes, as the case may be
(collectively, "Subordinated Securities"), of a
Series to receive distributions will be
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subordinated to the rights of the holders of the
Senior Certificates and/or Senior Notes, as the
case may be (collectively, "Senior Securities"),
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 Securities 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 Securities 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
Securities 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 Distribution Account (as defined
herein) to the extent described in the related
Prospectus Supplement. The protection afforded to
the holders of Senior Securities through
subordination also may be accomplished by
allocating certain types of losses or
delinquencies to the related Subordinated
Securities to the extent described in the related
Prospectus Supplement .
If so specified in the related Prospectus
Supplement, the same Class of Securities may
constitute Senior Certificates and/or Senior
Notes, as the case may be, with respect to certain
types of payments or certain losses or
delinquencies and Subordinated Certificates and/or
Subordinated Notes, as the case may be, 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 and/or Subordinated
Notes, as the case may be, 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 and/or
Subordinated Notes, as the case may be, 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 holders of Senior
Certificates and/or Senior Notes, as the case may
be, or released to holders of Subordinated
Certificates and/or Subordinated Notes, as the
case may be, from the related Trust.
B. Guaranty
Insurance
Policy................. A certificate or note guaranty insurance policy
(each a "Guaranty Insurance Policy") may be
obtained and maintained for each Class or Series
of Certificates and/or Notes. 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 holders of the covered Securities.
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
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or substitute for any Mortgage Loans, to guarantee
any specified rate of prepayments or to provide
funds to redeem Securities on any specified date.
C. Spread
Amount................. If so specified in the related Prospectus
Supplement, certain Classes of Certificates and/or
Notes 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 Securities. 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 Securities. 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 may
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
Securities 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
Securities 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 Securities.
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.
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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 and/or Notes. In such case, credit
support may be provided by a cross-support feature
which requires that distributions be made with
respect to certain Certificates and/or Notes
evidencing interests in one or more Trusts or
asset groups prior to distributions to other
Certificates and/or Notes 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 and/or Notes
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 Securities
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 Securities 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 and/or Notes
may be entitled to third-party payments to help
provide that the holders of such Securities
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 and/or Notes. The amount and formula
for calculating such guaranty shall be as set
forth in the Prospectus Supplement.
K. Other Insurance,
Guarantees, Swaps,
and Similar Instruments
or Agreements......... If so 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, 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
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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 Securities 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 hedge contract providing
limited protection against interest rate risks. If
provided in the related Prospectus Supplement,
interest and/or principal on one or more Classes
of the Securities of a Series may be paid to
Holders thereof in a currency other than U.S.
dollars. If so provided, the Trust may, in
connection therewith, enter into one or more
currency rate swaps to provide limited protection
against foreign currency rate fluctuation risks.
One or more Classes of Securities also may be
issued in conjunction with a put or call feature
entitling (in the case of a put) or obligating (in
the case of a call) the applicable Securityholders
to sell some or all of its Securities to the party
named in the applicable Prospectus Supplement on
the date or dates set forth therein. Any such
arrangement must be acceptable to each nationally
recognized rating agency that provides a rating
for the related Series of Securities (the "Rating
Agency"). Additionally, to the extent a
significant portion of the Mortgage Loans
underlying a given Series of Securities 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 Securities--Monthly Advances
and Compensating Interest") on the then
outstanding principal balance of the related
Series of Certificates and/or Notes 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. The Master Servicer will not be
required to make any Monthly Advances which it
determines, in good faith, would be nonrecoverable
from amounts received in respect of the Mortgage
Loans. See "Description of the Securities--Monthl
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
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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 certain classes of Certificates or Notes, or
certain other entities specified in the related
Prospectus Supplement may have the option to
effect early retirement of a Series of Securities
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 Securities 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 Securities (each, a
"Trustee") will be specified in the related
Prospectus Supplement. Additionally, any Co-
Trustees, Custodians or Co-Custodians will be set
forth 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"), and, if such election is not
made, whether the Trust is structured and intended
to be treated as a grantor trust, a partnership or
otherwise.
REMIC. If an election is to be made to treat
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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 LLP, 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)(4)(A) of the Code
and assets described in Section 7701(a)(19)(C) of
the Code.
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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
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treat the Trust for a series of Certificates
("Non-REMIC Certificates") as a REMIC, the Trust
may be classified as a grantor trust for federal
income tax purposes and not as an association
taxable as a corporation or a taxable mortgage
pool. 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 in the related Prospectus
Supplement, 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.
Partnership. If no election is to be made to
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treat the Trust for a Series as a REMIC and it is
so specified in the related Prospectus Supplement,
the Trust generally will be treated as a
partnership for federal income tax purposes, and
Federal Tax Counsel will deliver its opinion
generally to the effect that the Trust will not be
an association (or publicly traded partnership)
taxable as a corporation, or a taxable mortgage
pool, for federal income tax purposes. Each
Noteholder, by the acceptance of a Note of such
series, will agree to treat such
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<PAGE>
Note as indebtedness, and each Certificateholder,
by the acceptance of a Certificate of such Series,
generally will agree to treat the related Trust as
a partnership in which such Certificateholder is a
partner for federal income and state tax purposes.
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 Section 4975 of the Code should
carefully review with their legal advisors whether
an investment in Securities 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 Securities 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 Securities
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
Securities.................. Securities may be represented by global
certificates and notes registered in the name of
Cede, as nominee of DTC or another nominee. In
such case, Securityholders will not be entitled to
receive definitive certificates and/or notes
representing such Holders' interests, except in
certain circumstances described in the related
Prospectus Supplement. See "Description of the
Securities--Book-Entry Registration" herein.
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RISK FACTORS
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Securities
will develop or, if a secondary market does develop, that it will provide
Holders of the Securities with liquidity of investment or that it will continue
for the lives of the Securities.
BOOK-ENTRY REGISTRATION
Issuance of the Certificates and/or Notes in book-entry form may reduce
the liquidity of such Securities in the secondary trading market since investors
may be unwilling to purchase Securities for which they cannot obtain physical
Securities.
Since transactions in Certificates and Notes will, in most cases, be
able to be effected only through DTC, Direct or Indirect Participants and
certain banks, the ability of a Securityholder to pledge a Certificate or Note
to persons or entities that do not participate in the DTC system, or otherwise
to take actions in respect of such Securities, may be limited due to lack of a
physical certificate or note representing such Securities.
Securityholders may experience some delay in their receipt of
distributions of interest on and principal of the Securities 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 Securityholders either directly or indirectly through
Indirect Participants or such other entities as described in the related
Prospectus Supplement. See "Description of the Securities--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. 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
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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 Securityholders 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 Securityholders 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
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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.
PRE-FUNDING ACCOUNTS
If a Trust Fund includes a Pre-Funding Account and the principal balance
of additional Mortgage Loans delivered to the Trust Fund during the Pre-Funding
Period is less than the original Pre-Funded Amount, the Holders of the
Securities of the related Series will receive a prepayment of principal as and
to the extent described in the related Prospectus Supplement. Any such principal
prepayment may adversely affect the yield to maturity of the applicable
Securities.
The ability of a Trust Fund to obtain subsequent Mortgage Loans during
the related Pre-Funding Period will be dependent on the ability of the
Originators to originate or acquire Mortgage Loans that satisfy the requirements
for transfer to the Trust Fund. The ability of the Originators to originate or
acquire such Mortgage Loans will be affected by a variety of social and economic
factors, including the prevailing level of market interest rates, unemployment
levels and consumer perception of general economic conditions.
COMBINED LOAN-TO-VALUE RATIOS
The Originators' underwriting standards allow loans to be approved with
Combined Loan-to-Value Ratios (as defined below) that exceed 100%. Because the
original Combined Loan-to-Value Ratios of certain of the Mortgage Loans may be
high relative to that of other similar mortgage loans, recoveries on defaulted
Mortgage Loans may be lower than the level of recoveries experienced by such
other defaulted mortgage loans.
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."
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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 Securities. 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 affected Securityholders as a
prepayment of such Mortgage Loans.
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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 subordinated interest in a Trust
Fund, 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 Securityholders 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 Securities and
liquidate the Mortgage Loans, with the Securityholders entitled to the then
outstanding principal amount thereof together with accrued interest. Thus, the
Securityholders 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.
SECURITY RATING
If set forth in the related Prospectus Supplement, the rating of one or
more Classes of Securities may depend, to a large extent, on the
creditworthiness of a third party provider of credit enhancement. In such event,
any reduction in the rating assigned to the claims-paying ability of such
provider below the rating initially given to such Class of Securities would
likely result in a reduction in the rating of such Class of Securities. See
"Rating."
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OTHER
To the extent a significant portion of the Mortgage Loans underlying a
given series of Securities 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.
THE TRUSTS
A Trust for any Series of Securities will include the Mortgage Assets
consisting of (A) one or more Pools* 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. The
Mortgage Loans may be closed-end or revolving as described in the related
Prospectus Supplement.
The Notes of each Series will be secured by the pledge of the assets of
the related Trust, and the Certificates of each Series will represent interest
in the assets of the related Trust. The Securities 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 Securities 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 Securities 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 Securities (the "Detailed Description"). A copy of the
Agreement with respect to each Series of Securities will be attached to the Form
8-K and will be available for inspection at the corporate trust office of the
Trustee specified in the 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
Securities.
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
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* Whenever the terms "Pool," "Certificates," "Notes," and "Securities" are used
in this Prospectus, such terms will be deemed to apply, unless the context
indicates otherwise, to one specific Pool, the Certificates representing
certain undivided fractional interests, as described below, in a single Trust
consisting primarily of the Mortgage Loans in such Pool, and the Notes shall
refer to debt obligations of such Trust secured by the related Pool of
Mortgage Loans. Similarly, the term "Pass-Through Rate" will refer to the
Pass-Through Rate borne by the Certificates of one specific Series, the terms
"Interest Rate will refer to the Interest Rate borne by the Notes of one
specific Series and the term "Trust" will refer to one specifc Trust.
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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 may require the monthly
payments of principal and interest to increase for a specified period,
provide for deferred payment of some or all of the payments due during a
specified period, which may be recouped as deferred interest through
negative amortization or otherwise. 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 Securities 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
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Prospectus Supplement for each Series of Securities 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 weighted average Combined Loan-to-Value
Ratios at origination (except with respect to home improvement loans), (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) the amount, if any, and terms of any
other credit enhancement or other derivative instruments to be provided with
respect to all or a material portion of the Mortgage Loans or the Pool and
(xiii) 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 Securities 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 Securities 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, if
applicable, 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.
The Mortgage Loans in any Trust may include Mortgage Loans whose
Combined Loan to Value Ratios exceed 100%. The related Mortgaged Properties are
unlikely to provide adequate security for such Mortgage Loans. Even assuming
that a Mortgaged Property provides adequate security for the related Mortgage
Loan, substantial delays could be encountered in connection with the liquidation
of a Mortgage Loan that would result in current shortfalls in payments to
Securityholders to the extent such shortfalls are not covered by any credit
enhancement as described in the related Prospectus Supplement. In addition,
liquidation expenses relating to any liquidated Mortgage Loan (such as legal
fees, real estate taxes, and maintenance and preservation expenses) will reduce
the liquidation proceeds otherwise available for payment to Securityholders. In
the event that any Mortgaged Property fails to provide adequate security for the
related Mortgage Loan, any losses in connection with such Mortgage Loan will be
borne by Securityholders as described in the related Prospectus Supplement to
the extent that the applicable credit enhancement described in the related
Prospectus Supplement is insufficient to absorb all such losses.
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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 Securityholders 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 Securities 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.
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The only obligations of the Representative or the Originators with
respect to a Series of Securities 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
Securities 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 Securities--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 Securities 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 PreFunding 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 Securities 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
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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 Department of Veterans
Affairs ("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
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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 unsecured 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
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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
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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 Securities 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 Securities
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-famil 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
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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.
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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 Security 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 Securities, 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
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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
participations or pass-through certificates representing beneficial interests in
certain mortgage loans or (b) CMOs secured by such 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
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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 Mortgage Loans. The Underlying 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 Underlying 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 Underlying Mortgage Loan
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 Underlying Mortgage Loans 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 Underlying Mortgage Loans including (A) the payment
features of such Underlying 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 Underlying Mortgage Loans or to such
Private Mortgage-Backed Securities themselves, (ix) the terms on which the
Underlying Mortgage Loans for such Private Mortgage-
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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 Securities of each Series for general corporate
purposes, including repayment of debt, including but not limited to warehouse
facilities, and the origination and acquisition of residential mortgage loans
and other loans. The Representative expects Securities 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.
The Originators originate and purchase Single Family Loans with original
terms of up to 40 years. 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
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Loans underlying a given Series of Securities 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, which may include calculating
a debt-to-income ratio obtained by dividing a borrower's fixed monthly debt by
the borrower's gross
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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. From time-to-time, the Originators may originate or purchase
Single Family Loans containing other features. To the extent that a substantial
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portion of a Trust Fund consists of such Single Family Loans such features will
be described in the related Prospectus Supplement.
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.
Commencing in 1997, the Originators began originating Single Family
Loans with Combined Loan-to-Value Ratios exceeding 100%. Such Single Family
Loans are originated to borrowers believed by the Originators to have the income
capacity and credit history to offset the lack of equity in the related
Mortgaged Property. Such Single Family Loans generally bear a higher rate of
interest than Single Family Loans with lower Combined Loan-to-Value Ratios.
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 or one of its affiliates, 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 Securities 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 or monthly statements 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.
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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 Securityholders 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 SECURITIES
Each Series of Certificates will be issued, from time to time, pursuant
to either a Pooling and Servicing Agreement or a Trust Agreement, and each
Series of Notes will be issued, from time to time, pursuant to an Indenture,
each to be 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/or certain affiliates thereof and the Trustee for the benefit of
the related Certificateholders or Noteholders, as the case may be, of such
Series. A Series may contain either Certificates or Notes or a combination
thereof. The provisions of each Agreement will vary depending upon the nature of
the Securities to be issued thereunder and the nature of the related Trust. A
form of a Pooling and Servicing Agreement, Trust Agreement, Sale and Servicing
Agreement and an Indenture have each 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 Securities 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
Securities 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 Security of such Series
addressed to The Money Store, 2840 Morris Avenue, Union, New Jersey 07083,
Attention: Corporate Counsel.
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GENERAL
The Securities of each Series will represent debt obligations of, in the
case of Notes, or fractional undivided ownership interests in, in the case of
Certificates, a Trust created pursuant to the related Agreement and/or such
other assets as may be described in the related Prospectus Supplement. The
Securities 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 or
Note of each Class may be issued in a different denomination.
Definitive Securities, 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 Security 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 security
administrator may perform certain duties in connection with the administration
of the Securities.
The Securities will not represent obligations of the Representative
(except with respect to a Guaranty issued in connection with a Series), 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 Distribution 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
or other derivative instrument covering any Securities, 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 Securities will be issued in one or more Classes. Each
Class of Securities 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 Securities may be divided into two or more Sub-Classes,
as specified in the related Prospectus Supplement.
A Series may include two or more Classes of Certificates, as specified
in the related Prospectus Supplement, which differ as to the timing and priority
of payment, seniority, allocations of loss, Pass-Through Rate or amount of
payments of principal or interest, or as to which payments of principal or
interest may or may not be made upon the occurrence of specified events or on
the basis of collections from designated portions of the Mortgage Assets for
such Series. A Series of Certificates may include one or more Classes of Senior
Certificates that receive certain preferential treatment, specified in the
related Prospectus Supplement, with respect to one or more Classes of
Subordinated Certificates of such Series. Certain Series or Classes of
Certificates within a Series may be covered by a 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, or
derivative products, in each case as described herein and in the related
Prospectus Supplement. The Pass-Through Rate for a Class of Certificates that
pay interest based upon a floating rate of interest, as specified in the related
Prospectus Supplement, may base such floating rate upon any of the following:
(i) the auction procedures for Auction Rate Securities described herein, (ii)
LIBOR plus an amount set forth in the related Prospectus Supplement , (iii) the
T-Bill Rate plus an amount set forth in the related Prospectus Supplement or
(iv) any such other method or procedures used to determine the floating rate of
interest as may be described in the applicable Prospectus Supplement. In
addition, a Series may include one or more Classes of Certificates entitled to
(a) principal payments with disproportionate, nominal or no interest payments or
(b) interest payments with disproportionate, nominal or no principal payments
(Strip Certificates).
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A Series may include two or more Classes of Notes, as specified in the
related Prospectus Supplement, which differ as to the timing and priority of
payment, seniority, allocations of loss, Interest Rate or amount of payments of
principal or interest, or as to which payments of principal or interest may or
may not be made upon the occurrence of specified events or on the basis of
collections from designated portions of the Mortgage Assets for such Series. A
Series of Notes may include one or more Classes of Senior Notes which receive
certain preferential treatment specified in the related Prospectus Supplement
with respect to one or more Classes of Subordinated Notes of such Series.
Certain Series or Classes of Notes within a Series may be covered by a 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, or derivative products, in each case as described herein and in the
related Prospectus Supplement. The Interest Rate for a Class of Notes that pay
interest based upon a floating rate of interest, as specified in the related
Prospectus Supplement, may base such floating rate upon any of following: (i)
the auction procedures for Auction Rate Securities described herein, (ii) LIBOR
plus an amount set forth in the related Prospectus Supplement , (iii) the T-Bill
Rate plus an amount set forth in the related Prospectus Supplement or (iv) any
such other method or procedures used to determine the floating rate of interest
as may be described in the applicable Prospectus Supplement. In addition, a
Series may include one or more Classes of Notes entitled to (a) principal
payments with disproportionate, nominal or no interest payments or (b) interest
payments with disproportionate, nominal or no principal payments (Strip Notes).
With respect to any Series of Securities that includes one or more
Classes of Notes, distributions in respect of the Certificates may be
subordinated in priority of payment to payments on the Notes of such Series, to
the extent 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 Securities 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 Securities are
registered at the close of business on the record dates specified in the
Prospectus Supplement unless Definitive Securities have been issued, the
registered holder of all Securities will be Cede or such other nominee specified
in the related Prospectus Supplement. Distributions will be made by check mailed
to the persons entitled thereto at the address appearing in the register
maintained for holders of Securities (the "Security 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 Securities will be made only upon presentation and surrender
of the Securities at the office or agency of the Trustee or other person
specified in the final distribution notice to Securityholders.
DISTRIBUTIONS ON SECURITIES
Each Class of Securities 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 Securities 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 Securities of such Series
throughout the lives of the Securities 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 Securities entitled to distributions allocable to interest, the
right to receive interest at a Fixed Rate or an Adjustable Rate; and (vii)
include, as to Securities 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.
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Distributions allocable to principal and interest on the Securities will
be made by the Trustee out of, and only to the extent of, funds available in the
related Distribution 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 Distribution Account and such other accounts as may be described in
the related Prospectus Supplement and distribute to the Securityholders 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 Distribution Account as of the
Determination Date, or, in the case of Classes which have been assigned an
aggregate principal balance and Pass-Through Rate or Interest Rate, payments of
interest and payments in reduction of such aggregate principal balance from all
amounts on deposit in the Distribution 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 Distribution Account for the benefit
of the Master Servicer; and (vii) any Advances deposited in the Distribution
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 Securityholders will have the
effect of accelerating the amortization of Senior Notes or Senior Certificates,
as the case may be, while increasing the interests evidenced by the Subordinated
Notes or Senior Certificates, as the case may be, in the related Trust.
Distributions to any Class of Certificates or Notes will be made pro rata to all
Securityholders of that Class, or as otherwise described in a Prospectus
Supplement.
SUMMARY OF AUCTION PROCEDURES
The following summarizes certain procedures that will be used in
determining the interest rates on any Notes or Certificates that are Auction
Rate Securities. Appendix I hereto contains a more detailed description of these
procedures. Prospective investors in the Auction Rate Securities should read
carefully the following summary, along with the more detailed description in
Appendix I.
The interest rate on each Class of Auction Rate Securities will be
determined periodically (generally, for periods ranging from 7 days to one year)
by means of a "Dutch Auction." In this Dutch Auction, investors and potential
investors submit orders through an eligible broker/dealer as to the principal
amount of Auction Rate Securities such investors wish to buy, hold or sell at
various interest rates. The broker/dealers submit their clients' orders to the
auction agent, who processes all orders submitted by all eligible broker/dealers
and determines the interest rate for the upcoming interest period. The
broker/dealers are notified by the auction agent of the interest rate for the
upcoming interest period and are provided with settlement instructions relating
to purchases and sales of Auction Rate Securities.
In the auction procedures, the following types of orders may be
submitted:
(i) Bid/Hold Orders - the minimum interest rate that a
current investor is willing to accept in order to
continue to hold some or all of its Auction Rate
----
Securities for the upcoming interest period;
(ii) Sell Orders - an order by a current investor to sell a
----
specified principal amount of Auction Rate Securities,
regardless of the upcoming interest rate; and
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(iii) Potential Bid Orders - the minimum interest rate that a
potential investor (or a current investor wishing to
purchase additional Auction Rate Securities) is willing to
accept in order to buy a specified principal amount of
---
Auction Rate Securities.
If an existing investor does not submit orders with respect to all its
Auction Rate Securities of the applicable Class, the investor will be deemed to
have submitted a Hold Order at the new interest rate for that portion of the
Auction Rate Securities for which no order was received.
In connection with each auction, Auction Rate Securities will be
purchased and sold between investors and potential investors at a price equal to
their then outstanding principal balance (i.e., par) plus any accrued interest.
----
The following example helps illustrate how the above-described procedures are
used in determining the interest rate on the Auction Rate Securities.
(a) Assumptions:
1. Denominations (Units) = $100,000
2. Interest Period = 28 Days
3. Principal Amount Outstanding = $50 Million (500 Units)
(b) Summary of All Orders Received For The Auction
Bid/Hold Orders Sell Orders Potential Bid Orders
--------------- ----------- --------------------
10 Units at 2.90% 50 Units Sell 20 Units at 2.95%
30 Units at 3.02% 50 Units Sell 30 Units at 3.00%
60 Units at 3.05% 100 Units Sell 50 Units at 3.05%
--------------
100 Units at 3.10% 200 Units 50 Units at 3.10%
100 Units at 3.12% 50 Units at 3.11%
------------------
300 Units 50 Units at 3.14%
100 Units at 3.15%
------------------
350 Units
Total units under existing Bid/Hold Orders and Sell Orders always equal
issue size (in this case 500 units).
(c) Auction Agent Organizes Orders In Ascending Order
Order Number Cumulative Order Number Cumulative Total
Number of Units Total (Units) % Number of Units (Units) %
- ------ -------- ------------- ----- ------ ---------- ------- -
1 10(W) 10 2.90% 7 100(W) 300 3.10%
2 20(W) 30 2.95% 8 50(W) 350 3.10%
3 30(W) 60 3.00% 9 50(W) 400 3.11%
4 30(W) 90 3.02% 10 100(W) 500 3.12%
5 50(W) 140 3.05% 11 50(L) 3.14%
6 60(W) 200 3.05% 12 100(L) 3.15%
(W) Winning Order (L) Losing Order
Order #10 is the order that clears the market of all available units.
All winning orders are awarded the winning rate (in this case, 3.12%) as the
interest rate for the next period that interest will accrue (each an "Interest
Period"), when another auction will be held. Multiple orders at the winning rate
are allocated units on a pro rata basis. Notwithstanding the foregoing, in no
event will the interest rate exceed the lesser of the Net Loan Rate or the
Maximum Auction Rate (each as described in Appendix I).
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The above example assumes that a successful auction has occurred (i.e.,
----
all Sell Orders and all Bid/Hold Orders below the new interest rate were
fulfilled). In certain circumstances, there may be insufficient Potential Bid
Orders to purchase all the Auction Rate Securities offered for sale. In such
circumstances, the interest rate for the upcoming Interest Period will equal the
lesser of the Net Loan Rate and the Maximum Auction Rate. Also, if all the
Auction Rate Securities are subject to Hold Orders (i.e., each holder of
----
Auction Rate Securities wishes to continue holding its Auction Rate Securities,
regardless of the interest rate) the interest rate for the upcoming Interest
Period will equal the lesser of the Net Loan Rate and the All Hold Rate (as
defined below).
As stated above, the foregoing is only a summary of the auction
procedures. A more detailed description of these procedures is contained in
Appendix I.
MONTHLY ADVANCES AND COMPENSATING INTEREST
In order to maintain a regular flow of scheduled interest payments to
Securityholders (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
Securities 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 Securities,
the "Adjusted Mortgage Loan Remittance Rate" will equal the sum of the related
Pass Through Rate or Interest Rate and the rate used in determining certain
expenses payable by the related Trust, as more specifically set forth in the
related Prospectus Supplement. The Master Servicer will not be required to make
any Monthly Advances which it determines, in good faith, would be nonrecoverable
from amounts received in respect of the Mortgage Loans.
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 Distribution 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").
REVOLVING PERIOD AND AMORTIZATION PERIOD; RETAINED INTEREST
If the related Prospectus Supplement so provides, there may be a period
commencing on the date of issuance of a Class or Classes of Notes and/or
Certificates of a Series and ending on the date set forth in the related
Prospectus Supplement (each, a "Revolving Period") during which limited or no
principal payments will be made to one or more Classes of Notes or Certificates
of the related Series as are identified in such Prospectus Supplement. Some or
all collections of principal otherwise allocated to such Classes of Notes or
Certificates may be (i) utilized during the Revolving Period to acquire
additional Mortgage Assets which satisfy the criteria specified above and the
criteria set forth in the related Prospectus Supplement, (ii) held in an account
and invested in Permitted Investments for later distribution to Securityholders,
(iii) applied to those Notes or Certificates for such Series, if any, specified
in the related Prospectus Supplement as then are in amortization, or (iv)
otherwise applied as specified in the related Prospectus Supplement.
An "Amortization Period" is the period during which an amount of
principal is payable to Holders of a Series which, during the Revolving Period,
were not otherwise entitled to such payments. If so specified in the related
Prospectus Supplement, during an Amortization Period all or a portion of
principal collections on the Mortgage Loans may be applied as specified above
for a Revolving Period and, to the extent not so applied, will be
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distributed to the Classes of Notes or Certificates for such Series specified in
the related Prospectus Supplement as then being entitled to payments of
principal. In addition, if so specified in the related Prospectus Supplement,
amounts deposited in certain accounts for the benefit of one or more Classes of
Notes or Certificates for such Series may be released from time to time or on a
specified date and applied as a payment of principal on such Classes of Notes or
Certificates. The related Prospectus Supplement will set forth the circumstances
which will result in the commencement of an Amortization Period.
Each Series which has a Revolving Period may also issue to the
Representative or one of its affiliates a certificate evidencing an undivided
beneficial interest (a "Retained Interest") in such Series not represented by
the other Securities issued by the Representative. As further described in the
related Prospectus Supplement, the value of such Retained Interest will
fluctuate as the amount of Notes and Certificates of the related Series of
Securities outstanding is reduced.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, the Certificates
and/or Notes of a Series 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 and/or Noteholders, as
applicable, that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of Certificates and/or Notes of a
Series registered in the name of Cede, as nominee of DTC, may do so only through
Participants and Indirect Participants. In addition, such Securityholders will
receive all distributions of principal of and interest on the Securities and
reports relating to the Securities from the Trustee through DTC and its
Participants. Under a book-entry format, Securityholders will receive payments
and reports relating to the Securities 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 Securityholders. Unless and until Definitive Securities
are issued, it is anticipated that the only Securityholder will be Cede, as
nominee of DTC, and that the beneficial holders of Securities will not be
recognized by the Trustee as Securityholders under the Agreement. The beneficial
holders of such Certificates and/or Notes of a Series will only be permitted to
exercise the rights of Certificateholders and/or Noteholders, as applicable,
under the applicable 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 Securities and is
required to receive and transmit reports and payments of principal of and
interest on the Securities. Participants and Indirect Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit such reports and
payments on behalf of their respective Securityholders. Accordingly, although
Securityholders will not possess Securities, the rules provide a mechanism by
which Securityholders will receive distributions and reports and will be able to
transfer their interests.
Unless and until Definitive Securities are issued, Securityholders who
are not Participants may transfer ownership of Securities only through
Participants by instructing such Participants to transfer Securities, by
book-entry transfer, through DTC for the account of the purchasers of such
Securities, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of
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Securities will be executed through DTC and the accounts of the respective
Participants at DTC will be debited and credited. Similarly, the respective
Participants will make debits or credits, as the case may be, on their records
on behalf of the selling and purchasing Securityholders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Securities may be limited due to the lack of a physical certificate for such
Securities.
DTC in general advises that it will take any action permitted to be
taken by a Securityholder under an Agreement only at the direction of one or
more Participants to whose account with DTC the Securities are credited.
Additionally, DTC in general advises that it will take such actions with respect
to specified percentages of the Securityholders only at the direction of and on
behalf of Participants whose holdings include current principal amounts of
outstanding Securities that satisfy such specified percentages. DTC may take
conflicting actions with respect to other current principal amounts of
outstanding Securities to the extent that such actions are taken on behalf of
Participants whose holdings include such current principal amounts of
outstanding Securities.
Any Notes and/or Certificates initially registered in the name of Cede,
as nominee of DTC, will be issued in fully registered, certificated form to
Securityholders or their nominees ("Definitive Securities"), 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 Securities. Upon surrender by DTC of the certificates and/or notes
representing the Securities and instruction for re-registration, the Trustee
will issue the Notes and/or Certificates in the form of Definitive Securities,
and thereafter the Trustee will recognize the holders of such Definitive
Securities as Securityholders. Thereafter, payments of principal of and interest
on the Securities will be made by the Trustee directly to Securityholders in
accordance with the procedures set forth herein and in the related Agreement.
The final distribution of any Security (whether Definitive Securities or
Securities registered in the name of Cede), however, will be made only upon
presentation and surrender of such Securities on the final Remittance Date at
such office or agency as is specified in the notice of final payment to
Securityholders.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more Classes
of a Series of Securities 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 Notes and/or Certificates of such Series, (ii) the use of a
Guaranty 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, derivative instruments, 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 Securities 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 Securities
will bear their allocable share of deficiencies. If a form of credit enhancement
applies to several Classes of Securities, 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 Securities. 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.
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SUBORDINATION
All Classes of Certificates are Subordinated in right of payment to any
Class of Notes in a given Series to the extent described in the related
Prospectus Supplement. To enhance the likelihood of regular receipt by holders
of Senior Certificates or Senior Notes, as the case may be, 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 or Subordinated Notes, as the case may be,
of a Series will instead be payable to holders of one or more Classes of Senior
Certificates or Senior Notes, as the case may be, under the circumstances and to
the extent specified in the Prospectus Supplement. If specified in the related
Prospectus Supplement, the holders of Senior Certificates or Senior Notes, as
the case may be, 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 Distribution Account, prior to any such distribution
being made to holders of the related Subordinated Certificates or Subordinated
Notes, a the case may be, 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 or Senior Notes, as the case may be,
through subordination also may be accomplished by first allocating certain types
of losses or delinquencies to the related Subordinated Certificates or
Subordinated Notes, as the case may be, 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 Subordinated Notes, as
the case may be, or, if applicable, were to exceed the specified maximum amount,
holders of Senior Certificates or Senior Notes, as the case may be, would
experience losses on the Securities.
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 or Subordinated Notes, as the case may be,
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 Senior Notes, as the case may be,
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
Securities 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
Securities may be Senior Certificates or Senior Notes, as the case may be, with
respect to certain types of payments or certain types of losses or delinquencies
and Subordinated Certificates or Subordinated Notes, as the case may be, 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 or Senior Notes, as the case may be, and Subordinated Certificates
or Subordinated Notes, as the case may be, may themselves be subordinate in
their right to receive certain distributions to other Classes of Senior and
Subordinated Certificates or Subordinated Notes, as the case may be,
respectively, through a cross support mechanism or otherwise. As between Classes
of Senior Certificates or Senior Notes, as the case may be, and as between
Classes of Subordinated Certificates or Subordinated Notes, as the case may be,
distributions may be allocated among such Classes (i) in the order of their
scheduled final Remittance 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 or Subordinated Notes, as the case may be,
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
Holders of Senior Certificates or Senior Notes, as the case may be, or released
to Holder of Subordinated Certificates or Subordinated Notes, as the case may
be, from the related Trust.
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GUARANTY INSURANCE POLICIES
If so specified in the related Prospectus Supplement, a Guaranty
Insurance Policy may be obtained and maintained for any Class or Series of
Certificates and/or Notes. The issuer of any Guaranty Insurance Policy (a
"Security Guaranty Insurer") will be described in the related Prospectus
Supplement. A copy of any such Guaranty Insurance Policy will be attached as an
exhibit to the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a Guaranty
Insurance Policy will unconditionally and irrevocably guarantee to
Securityholders 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 Securityholders, for distribution by the Trustee to each
Securityholder. The "Insured Payment" will equal the full amount of the
distributions of principal and interest to which Securityholders are entitled
under the related Agreement plus any other amounts specified therein or in the
related Prospectus Supplement.
The specific terms of any Guaranty Insurance Policy will be as set forth
in the related Prospectus Supplement. 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 Securities on any specified date.
Subject to the terms of the related Agreement, the Security Guaranty
Insurer may be subrogated to the rights of each Securityholder to receive
payments under the Securities to the extent of any payments by such Security
Guaranty Insurer under the related Guaranty Insurance Policy.
SPREAD AMOUNT
If so specified in the related Prospectus Supplement, certain Classes of
Securities 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 Securities. 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 Securities. 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 Securities 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
Securities 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 Securities.
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.
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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 Securities 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 Securityholders.
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 Securities 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.
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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 Securities 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 Securityholders, 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 Securityholders 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
Securities 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 Securities 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
Securities are based upon an index that differs from the index used in
determining the interest rates on the Mortgage Assets. Except as otherwise
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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
Securities may be entitled to third-party payments to help provide that the
holders of such Securities receive their unpaid principal on or prior to a
specified date.
OTHER INSURANCE, GUARANTEES, SWAPS, 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 Securities 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 hedge
contract providing limited protection against interest rate risks. If provided
in the related Prospectus Supplement, interest and/or principal on one or more
Classes of the Securities of a Series may be paid to Holders thereof in a
currency other than U.S. dollars. If so provided, the Trust may, in connection
therewith, enter into one or more currency rate swaps to provide limited
protection against foreign currency rate fluctuation risks. One or more Classes
of Securities also may be issued in conjunction with a put or call feature
entitling (in the case of a put) or obligating (in the case of a call) the
applicable Securityholders to sell some or all of its Securities to the party
named in the applicable Prospectus Supplement on the date or dates set forth
therein. Any such arrangements must be acceptable to each nationally recognized
rating agency that provides a rating for the related Series of Securities (the
"Rating Agency"). Additionally, to the extent a significant portion of the
Mortgage Loans underlying a given Series of Securities 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.
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 Securities. In such case, credit
support may be provided by a cross-support feature which requires that
distributions be made with respect to Securities 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 Securities 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 Securities, the Pass-Through Rate or Interest Rate for various
Classes of Securities and the purchase price paid for the Securities.
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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 Securities purchased at a price less than par. Similarly, greater than
anticipated prepayments of principal will decrease the yield on Securities
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 Securities may not be offset
by a subsequent like reduction (or increase) in the rate of principal payments.
The weighted average lives of Securities 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 Securityholders. 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 Securities 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
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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 Securities 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 Securities. See "The Agreement--Termination; Purchase of
Mortgage Loans."
If so specified in the related Prospectus Supplement, the effective
yield to certain Securityholders 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 Securities 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 Securities.
The Prospectus Supplement relating to a Series of Securities 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 Securities. 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 Securities.
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 related Pooling and Servicing Agreement or Sale and
Servicing Agreement, as the case may be, at the time of issuance of Securities
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 Securities 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
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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 Securityholders; 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
(unless opinions of counsel are delivered satisfactory to the Rating Agencies
and the Security Guaranty Insurer, if any, to the effect that recordation of
such assignments is not required in the relevant jurisdictions to protect the
interests of the Trustee in the Mortgage Loans).
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
Security 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 Securities Guaranties Insurer, if any, or the
Trustee is required promptly to notify the Master Servicer, The Money Store, and
the Trustee or the Security 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 Security 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 Security
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 Security 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").
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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 more than 59 days delinquent in
payment, no Mortgage Loan originated within 12 months of the related Cut-off
Date will be delinquent more than 59 days 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 more than 59 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 Security 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 Security 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 Securityholders 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 preceding a Remittance Date that is
set forth in a Prospectus Supplement (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 "Distribution 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:
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(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
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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 Security 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.
Notwithstanding the foregoing, with respect to Mortgage Loans with Combined
Loan-to-Value Ratios exceeding 100%, the Master Servicer may, but will be under
no obligation to, permit a borrower who is selling his principal residence to
substitute the new mortgaged property as collateral for the related Mortgage
Loan. In such event, the Master Servicer may require the borrower to make a
partial prepayment in reduction of the principal balance of the Mortgage Loan.
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
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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 Securities, the Security Guaranty
Insurer, if any, or the Holders of not less than 50 percent of each Class of
Securities of the related Series, other than the holders of residual interests
(the "Majority Securityholders"), by notice in writing to the Master Servicer
and with the prior written consent of the Security Guaranty Insurer, if any,
which consent may not be unreasonably withheld, generally 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) if the Series
of Securities has the benefit of a Guaranty Insurance Policy; (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 Security Guaranty Insurer, if any, or the Securityholders; (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 Securityholder
or the Security 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
Securityholder or the Security 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,
marshaling of
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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, marshaling 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 Security Guaranty Insurer, if any,
the Trustee and the Majority Securityholders, 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
Securityholders or the Security 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 Security
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
Pooling and Servicing Agreement; Trust Agreement. The Trust established
under a Pooling and Servicing Agreement or a Trust 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 Master Servicer or the Security Guaranty Insurer, if any, as
described below, (iii) mutual consent of the Master Servicer, the Security
Guaranty Insurer, if any, and all Securityholders 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 Security 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. If so provided in the related Prospectus Supplement, the
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Master Servicer or another entity may purchase some or all of the Mortgage
Assets under the circumstances described in such Prospectus Supplement.
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 Security 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.
Indenture. The Indenture will be discharged with respect to a Series of
Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture
may provide that, if so specified with respect to the Notes of any Series, the
related Trust Fund will be discharged from any and all obligations in respect of
the Notes of such Series (except for certain obligations relating to temporary
Notes and exchange of Notes, to register the transfer of or exchange Notes of
such Series, to replace stolen, lost or mutilated Notes of such Series, to
maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the Trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States of America which, through the
payment of interest and principal in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of and
each installment of interest on the Notes of such Series on the final scheduled
Remittance Date for such Notes and any installment of interest on such Notes in
accordance with the terms of the Indenture and the Notes of such Series. In the
event of any such defeasance and discharge of Notes of such Series, holders of
Notes of such Series would be able to look only to such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
REMIC Considerations. If a REMIC election is made for a Series of
Securities, 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 Securityholders 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 Security Guaranty Insurer, if any, may notify the
Trustee of the Security 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 Distribution 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 Security Guaranty Insurer, if any. Upon receipt of such
direction by the Majority Securityholders or of such notice from the Security
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
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event that the Majority Securityholders 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 Securityholders shall permit or
direct in writing, after the expiration of the Purchase Option Period and (ii)
in the event that the Security Guaranty Insurer has given the Trustee notice of
the Security Guaranty Insurer's determination to purchase the assets described
in clause (ii) preceding, the Security 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 Security 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 Securityholders and the Security 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 Securityholders 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 Securityholders may
exercise any trust or power conferred on the Trustee with respect to the
Securities 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 Securities, only Holders of such Class or
Classes may exercise such trust or power.
EVENTS OF DEFAULT UNDER THE INDENTURE; RIGHTS OF NOTEHOLDERS
Unless otherwise specified in the related Prospectus Supplement, Events
of Default under the Indenture for each Series of Notes include: (i) a default
for thirty (30) days or more in the payment of any principal of or interest on
any Note of such Series; (ii) failure to perform any other covenant of the
Representative or the Trust Fund in the Indenture which continues for a period
of sixty (60) days after notice thereof is given in accordance with the
procedures described in the related Prospectus Supplement; (iii) any
representation or warranty made by the Representative or the Trust Fund in the
Indenture or in any certificate or other writing delivered pursuant thereto or
in connection therewith with respect to or affecting such Series having been
incorrect in a material respect as of the time made, and such breach is not
cured within sixty (60) days after notice thereof is given in accordance with
the procedures described in the related Prospectus Supplement; (iv) certain
events of bankruptcy, insolvency, receivership or liquidation of the
Representative or the Trust Fund; or (v) any other Event of Default provided
with respect to Notes of that Series.
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Trustee or the Holders of
a majority of the then aggregate outstanding amount of the Notes of such Series
may declare the principal amount of all the Notes of such Series to be due and
payable immediately. Such declaration may, under certain circumstances, be
rescinded and annulled by the Holders of a majority in aggregate outstanding
amount of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes,
the Notes of such Series have been declared to be due and payable, the Trustee
may, in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such Series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a
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Series following an Event of Default other than a default in the payment of any
principal or interest on any Note of such Series for thirty (30) days or more,
unless (a) the Holders of 100% of the then aggregate outstanding amount of the
Notes of such Series consent to such sale, (b) the proceeds of such sale or
liquidation are sufficient to pay in full the principal of and accrued interest
due and unpaid on the outstanding Notes of such Series at the date of such sale
or (c) the Trustee determines that such collateral would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such Notes had not been declared due and payable, and the Trustee
obtains the consent of the Holders of 66 2/3% of the then aggregate outstanding
amount of the Notes of such Series.
In the event that the Trustee liquidates the collateral in connection with
an Event of Default involving a default for thirty (30) days or more in the
payment of principal of or interest on the Notes of a Series, the Indenture
provides that the Trustee will have a prior lien on the proceeds of any such
liquidation for unpaid fees and expenses. As a result, upon the occurrence of
such an Event of Default, the amount available for distribution to the
Noteholders may be less than would otherwise be the case. However, the Trustee
may not institute a proceeding for the enforcement of its lien except in
connection with a proceeding for the enforcement of the lien of the Indenture
for the benefit of the Noteholders after the occurrence of such an Event of
Default.
Unless otherwise specified in the related Prospectus Supplement, in the
event the principal of the Note of a Series is declared due and payable, as
described above, the Holders of any such Notes issued at a discount from par may
be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of such discount which is unamortized.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing with respect
to a Series of Notes, the Trustee will be under no obligation to exercise any of
the rights or powers under the Indenture at the request or direction of any of
the Holders of Notes of such Series, unless such Holders offered to the Trustee
security or indemnity satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in complying with such request or
direction. Subject to such provisions for indemnification and certain
limitations contained in the Indenture, the Holders of a majority of the then
aggregate outstanding amount of the Notes of such Series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Notes of such Series, and the Holders of a majority
of the then aggregate outstanding amount of the Notes of such Series may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all the Holders of the outstanding Notes of such Series affected thereby.
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 Security
Guaranty Insurer, if any, without the notice to, or consent of, the
Securityholders, 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 Securityholder 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 Security without the consent of the Holder of such Security, 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 Security Guaranty
Insurer, if any, and the Holders of the majority of the percentage interest in
each Class of Securities 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
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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 Securities without the consent of
the Holders of 100% of each Class of Securities 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 Security Guaranty Insurer, if any, without the notice to or consent of
the Securityholders, 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, if the Trustee becomes
insolvent or, if the Trustee enters into certain business combinations. 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.
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
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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
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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 Securityholders.
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 Securityholders, 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
Securityholders as the new secured party on the certificate of title that,
through fraud or negligence, the security interest of the Trustee could be
released.
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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 Securityholders 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
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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.
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Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative 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
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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 Securities 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.
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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
Mortgage Loan may 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 mortgagor 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
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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 Securities. 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 Securityholders 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 Securityholders against the manufacturer or other persons who were directly
liable to the plaintiff for the damages. Typical products liability insurance
policies held by manufacturers and component suppliers of manufactured homes may
not cover liabilities arising from formaldehyde 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
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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 Securityholders 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
or Notes 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 or Notes. 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 to qualify such trust as a Financial Asset
Securitization Investment Trust ("FASIT") pursuant to recently enacted
provisions of the Code. 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.
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.
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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)(4)(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 (but yield supplements will not 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)(4)(A) of the Code and
assets described in Section 7701(a)(19)(C) of the Code, and
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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.
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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 Remittance Date (or in the case of the first such period, begins on
the Closing Date) and ends on the next succeeding Remittance 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.
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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 Remittance
Dates but ends prior to each Remittance 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
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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
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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
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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 or Interest 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
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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.
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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.
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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.
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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
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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.
For taxable years beginning after December 31, 1997, all partners of
certain electing partnerships having 100 or more partners ("electing large
partnerships") will be treated as disqualified organizations for purposes of the
tax imposed on pass-through entities if such electing large partnerships hold
residual interests in a REMIC. However, the electing large partnership would be
entitled to exclude the excess inclusion income from gross income for purposes
of determining the taxable income of the partners.
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
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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. For taxable years beginning after December 31, 1997, in the
case of a partnership that has 100 or more partners and elects to be treated as
an "electing large partnership," 70 percent of such partnership's miscellaneous
itemized deductions will be disallowed, although the remaining deductions will
generally be allowed at the partnership level and will not be subject to the 2
percent floor that would otherwise be applicable to individual partners.
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. Recently issued Treasury regulations (the "Final
Withholding Regulations"), which are generally effective with respect to
payments made after December 31, 1998, consolidate and modify the current
certification requirements and means by which a holder may claim exemption from
United States federal income tax withholding and provide certain presumptions
regarding the status of holders when payments to the holders cannot be reliably
associated with appropriate documentation provided to the payor. All holders
should consult their tax advisers regarding the application of the Final
Withholding Regulations.
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
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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
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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 ISSUED BY A GRANTOR TRUST
The discussion under this heading applies only to a series of Certificates
with respect to which a REMIC election is not made and for which the Trust is
classified as a grantor trust for federal income tax purposes.
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)(4)(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
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"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.
Section 1272(a)(6) of the Code provides for use of a prepayment assumption
in determining original issue discount for any pool of debt instruments the
yield on which may be affected by reason of prepayments. Therefore, if there is
original issue discount, 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. 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
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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.
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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). The
Final Withholding Regulations consolidate and modify the current certification
requirements and means by which a Non-United States holder may claim exemption
from United States federal income tax withholding. All Non-United States
holders should consult their tax advisors regarding the application of the Final
Withholding Regulations, which are generally effective with respect to payments
made after December 31, 1998. 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 or a FASIT (or an interest in
either) (ii) substantially all of the assets of the entity are debt
obligations, and more than 50 percent of such debt obligations (or interests
therein) 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.
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NON-REMIC CERTIFICATES AND NOTES OF A TRUST INTENDED TO BE CHARACTERIZED AS A
PARTNERSHIP OR DIVISION
The discussion under this heading applies only to a series of Certificates
and Notes with respect to which a REMIC election is not made and for which the
Trust is intended to be classified as a partnership or a division for federal
income tax purposes.
Federal Tax Counsel will deliver its opinion for a Trust which is intended
to be a partnership for federal income tax purposes, as specified in the related
Prospectus Supplement, generally to the effect that the Trust will not be an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. This opinion will be based on the assumption that
the terms of the Agreements and related documents will be complied with, such
that an election has not been and will not be made to treat the Trust as an
association taxable as a corporation, and on counsel's conclusion that the
nature of the income of the Trust will exempt it from the rule that certain
publicly traded partnerships are taxable as corporations or such rule is
otherwise inapplicable to the Trust, so that the Trust will not be characterized
as a publicly traded partnership taxable as a corporation, assuming that no
action will be taken that is inconsistent with the treatment of the Trust as a
partnership (such as an election to treat the Trust as a corporation for federal
income tax purposes ("Corporation Election")). If, however, the Trust has a
single owner for federal income tax purposes, it will be treated as a division
of its owner and as such will be disregarded as an entity separate from its
owner for federal income tax purposes, assuming that no Corporation Election is
made.
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 or a FASIT (or an interest in either), (ii) substantially all of the
assets of the entity are debt obligations, and more than 50 percent of such debt
obligations (or interests therein) consists 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 the Trust were treated
as a taxable mortgage pool, it 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. Federal Tax Counsel will deliver its opinion for a Trust which is
intended to be a partnership for federal income tax purposes, as specified in
the related Prospectus Supplement, generally to the effect that the Trust will
not be a taxable mortgage pool. This opinion will be based on the assumption
that the terms of the Agreements and related documents will be complied with,
and on counsel's conclusion that either the number of classes of debt
obligations issued be the Trust, or the nature of the assets held by the Trust,
will exempt the Trust from treatment as a taxable mortgage pool.
If the Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all its income, possibly reduced by its
interest expense on the Notes. Any such corporate income tax could materially
reduce cash available to make payments on the Notes and distributions on the
Certificates, and Certificateholders could be liable for any such tax that is
unpaid by the Trust. In additions, all distributions to the Certificateholders
would be taxable as dividends.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP
Treatment Of The Notes As Indebtedness. The Trust will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Except as otherwise provided in the related
Prospectus Supplement, Federal Tax Counsel will advise the Representative that
in its opinion the Notes will be classified as debt for federal income tax
purposes.
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Possible Alternative Treatments Of The Notes. If, contrary to the opinion
of counsel, the IRS successfully asserted that one or more of the Notes did not
represent debt for federal income tax purposes, the Notes might be treated as
equity interests in the Trust. If so treated, the Trust might be taxable as a
corporation with the adverse consequences described above (and the taxable
corporation would not be able to reduce its taxable income by deductions for
interest expense on Notes recharacterized as equity). Alternatively, the Trust
might be treated as a publicly traded partnership that would not be taxable as a
corporation because it would meet certain qualifying income tests. Nonetheless,
treatment of the Notes as equity interests in such a publicly traded partnership
could have adverse tax consequences to certain holders. For example, income to
foreign holders generally would be subject to United States federal income tax
and United States federal income tax return filing and withholding requirements,
and individual holders might be subject to certain limitations on their ability
to deduct their share of the Trust's expenses.
Interest Income On The Notes. The stated interest on the Notes will be
taxable to a Noteholder as ordinary income when received or accrued in
accordance with such Noteholder's method of tax accounting. It is not
anticipated that the Notes will be issued with original issue discount within
the meaning of Section 1273 of the Code. A subsequent holder who purchases a
Note at a discount that exceeds a statutorily defined de minimis amount will be
subject to the "market discount" rules of the Code, and a holder who purchases a
Note at a premium will be subject to the premium amortization rules of the Code.
Sale Or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any original issue discount (if any), market
discount and gain previously included by such Noteholder in income with respect
to the Note and decreased by the amount of bond premium (if any) previously
amortized and by the amount of principal payments previously received by such
Noteholder with respect to such Note. Subject to the rules of the Code
concerning market discount on the Notes, any such gain or loss generally will be
capital gain or loss if the Note was held as a capital asset. Capital losses
generally may be deducted only to the extent the Noteholder has capital gains
for the taxable year, although under certain circumstances non-corporate
Noteholders can deduct losses in excess of available capital gains.
Foreign Holders. If interest paid (or accrued) to a Noteholder who is a
nonresident alien, foreign corporation or other non-United States person (a
"foreign person") is not effectively connected with the conduct of a trade or
business within the United States by the foreign person, the interest generally
will be considered "portfolio interest," and generally will not be subject to
United States Federal income tax and withholding tax, if the foreign person (i)
is not actually or constructively a "10 percent shareholder" of the Trust or
the Representative (including a holder of 10% of the outstanding Certificates)
or a "controlled foreign corporation" with respect to which the Trust or the
Representative is a "related person" within the meaning of the Code and (ii)
provides the person otherwise required to withhold United States tax with an
appropriate statement, signed under penalties of perjury, certifying that the
beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If the information provided in the statement
changes, the foreign person must so inform the person otherwise required to
withhold United States tax within 30 days of such change. The statement
generally must be provided in the year a payment occurs (prior to such payment)
or in either of the two preceding years. If a Note is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide a signed statement to the withholding agent.
However, in that case, the signed statement must be accompanies by a Form W-8 or
substitute form provided by the foreign person that owns the Note. If such
interest in not portfolio interest, then it will be subject to United States
federal income and withholding tax at a rate of 30%, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign individual is not present in the United States for 183 days
or more in the taxable year.
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If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person (although exempt from the withholding tax
previously discussed if the holder provides an appropriate statement), the
holder generally will be subject to United States federal income tax on the
interest, gain or income at regular federal income tax rates. In addition, if
the foreign person is a foreign corporation, it may be subject to a branch
profits tax equal to 30% of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable tax treaty (as
modified by the branch profits tax rules).
The Final Withholding Regulations consolidate and modify the current
certification requirements and means by which a Non-United States holder may
claim exemption from United States federal income tax withholding. All Non-
United States holders should consult their tax advisors regarding the
application of the Final Withholding Regulations, which are generally effective
with respect to payments made after December 31, 1998.
Information Reporting And Backup Withholding. The Trust will be required
to report annually to the IRS, and to each Noteholder of record, the amount of
interest paid on the Notes (and the amount of interest withheld for federal
income taxes, if any) for each calendar year, except as to exempt holders
(generally, holders that are corporations, tax-exempt organizations, qualified
pension and profit-sharing trusts, individual retirement accounts, or
nonresident aliens who provide certification as to their status as
nonresidents). Accordingly, each holder (other than exempt holders who are not
subject to the reporting requirements) will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt Noteholder fail to
provide the required certification, the Trust will be required to withhold 31%
of the amount otherwise payable to the holder, and remit the withheld amount to
the IRS, as a credit against the holder's federal income tax liability.
TAX CONSEQUENCES TO HOLDERS OF CERTIFICATES ISSUED BY A PARTNERSHIP
Treatment Of The Issuer As A Partnership. In the case of a Trust intended
to qualify as a partnership for federal income tax purposes, the Trust and the
Representative will agree, and the Certificateholders will agree by their
purchase of Certificates, to treat the Trust as a partnership for purposes of
United States federal and state income tax, franchise tax and any other tax
measured in whole or in part by income, with the assets of the partnership being
the assets held by the Trust, the partners of the partnership being the
Certificateholders, and the Notes, if any, being debt of the partnership.
However, the proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, and the Master Servicer is not clear because there is
no authority on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust. Generally, provided the
Certificates are issued at or close to face value, any such characterization
should not result in materially adverse tax consequences to Certificateholders
as compared to the consequences from treatment of the Certificates as equity in
a partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Mortgage Loans
(including appropriate adjustments for market discount, original issue discount
and bond premium) and any gain upon collection or disposition of Mortgage Loans.
The Trust's deductions will consist primarily of interest and original issue
discount accruing with respect to the Notes, servicing and other fees, and
losses or deductions upon collection or disposition of Mortgage Loans.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each month equal to
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the sum of (i) the interest that accrues on the Certificates in accordance with
their terms for such month, including interest accruing at the Pass-Through Rate
for such month and interest on amounts previously due on the Certificates but
not yet distributed; (ii) any Trust income attributable to discount on the
Mortgage Loans that corresponds to any excess of the principal amount of the
Certificates over their initial issue price; (iii) prepayment premium payable to
the Certificateholders for such month; and (iv) any other amounts of income
payable to the Certificateholders for such month. Such allocation will be
reduced by any amortization by the Trust of premium on Mortgage Loans that
corresponds to any excess of the issue price of Certificates over their
principal amount. All remaining taxable income of the Trust will be allocated to
the Representative. Based on the economic arrangement of the parties, this
approach for allocating Trust income should be permissible under applicable
Treasury regulations, although no assurance can be given that the IRS would not
require a greater amount of income to be allocated to Certificateholders.
Moreover, even under the foregoing method of allocation, Certificateholders may
be allocated income equal to the entire Pass-Through Rate plus the other items
described above even though the Trust might not have sufficient cash to make
current cash distributions of such amount. Thus, cash basis holders will in
effect be required to report income from the Certificates on the accrual basis
and Certificateholders may become liable for taxes on Trust income even if they
have not received cash from the Trust to pay such taxes. In addition, because
tax allocations and tax reporting will be done on a uniform basis for all
Certificateholders but Certificateholders may be purchasing Certificates at
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
If Notes are also issued, some or all of the taxable income allocated to a
Certificateholder that is a pension, profit sharing or employee benefit plan or
other tax-exempt entity (including an individual retirement account) will
constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees to
the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or
in part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Mortgage Loan, the
Trust might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
Discount And Premium. It is believed that the Mortgage Loans were not
issued with original issue discount and, therefore, the Trust should not have
original issue discount income. However, the purchase price paid by the Trust
for the Mortgage Loans may be greater or less than the remaining principal
balance of the Mortgage Loans at the time of purchase. If so, the Mortgage Loan
will have been acquired at a premium or discount, as the case may be. (As
indicated above, the Trust will make this calculation on an aggregate basis, but
might be required to recompute it on a Mortgage Loan by Mortgage Loan basis.)
If the Trust acquires the Mortgage Loans at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Mortgage Loans or to offset any such premium
against interest income on the Mortgage Loans. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a 12-
month period. If such a termination occurs, the partnership will be considered
to transfer its assets and liabilities to a new partnership in exchange for
interests in that new partnership, which it would then be treated as
transferring to its partners. The Trust will not comply with certain technical
requirements that might apply when such a constructive termination occurs. As a
result, the Trust may be subject to certain tax penalties and may incur
additional expenses if it is required to comply with those requirements.
Furthermore, the Trust might not be able to comply due to lack of data.
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Disposition Of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Mortgage Loans would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Representative And Transferees. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificateholders
in proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations and federal tax counsel is unable to opine on the matter. If a
monthly convention is not allowed (or only applies to transfers of less than all
of the partner's interest), taxable income or losses of the Trust might be
reallocated among the Certificateholders. The Trust's method of allocation
between transferors and transferees may be revised to conform to a method
permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust currently does not intend to make
such election. As a result, Certificateholders might be allocated a greater or
lesser amount of Trust income than would be appropriate based on their own
purchase price for Certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of Trust
income and expense to holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer
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identification number of the nominee and (ii) as to each beneficial owner (x)
the name, address and identification number of such person, (y) whether such
person is a United States person, a tax-exempt entity or a foreign government,
an international organization, or any wholly owned agency or instrumentality of
either of the foregoing, and (z) certain information on Certificates that were
held, bought or sold on behalf of such person throughout the year. In addition,
brokers and financial institutions that hold Certificates through a nominee are
required to furnish directly to the Trust information as to themselves and their
ownership of Certificates. A clearing agency registered under Section 17A of the
Exchange Act is not required to furnish any such information statement to the
Trust. The information referred to above for any calendar year must be furnished
to the Trust on or before the following January 31. Nominees, brokers and
financial institutions that fail to provide the Trust with the information
described above may be subject to penalties.
The Representative will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
Tax Consequences To Foreign Certificateholders. It is not clear and
federal tax counsel is unable to opine whether the Trust would be considered to
be engaged in a trade or business in the United States for purposes of federal
withholding taxes with respect to non-United States persons because there is no
clear authority dealing with that issue under facts substantially similar to
those described herein. Although it is not expected that the Trust would be
engaged in a trade or business in the United States for such purposes, the Trust
will withhold as if it were so engaged in order to protect the Trust from
possible adverse consequences of a failure to withhold. The Trust expects to
withhold on the portion of its taxable income that is allocable to foreign
Certificateholders pursuant to Section 1446 of the Code, as if such income were
effectively connected to a United States trade or business, at a rate of 35% for
foreign holders that are taxable as corporations and 39.6% for all other foreign
holders. Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust to change its withholding
procedures.
If the trust is engaged in a United States trade or business, each foreign
holder might be required to file a United States individual or corporate income
tax return (including, in the case of a corporation, the branch profits tax) on
its share of the Trust's income. A foreign holder generally would be entitled
to file with the IRS a claim for refund with respect to taxes withheld by the
Trust taking the position that no taxes were due because the Trust was not
engaged in a United States trade or business. However, interest payments made
(or accrued) to a Certificateholder who is a foreign person generally will be
considered guaranteed payments to the extent such payments are determined
without regard to the income of the Trust, and for that reason or because of the
nature of the assets of the Trust probably will not be considered "portfolio
interest." As a result, even if the Trust was not considered to be engaged in a
United States trade or business, Certificateholders will be subject to United
States federal income tax which must be withheld at a rate of 30%, unless
reduced or eliminated pursuant to an applicable treaty. A foreign holder would
be entitled to claim a refund for such withheld tax, taking the position that
the interest was portfolio interest and therefore not subject to United States
tax. However, the IRS may disagree and no assurance can be given as to the
appropriate amount of tax liability. As a result, each potential foreign
Certificateholder should consult its tax advisor as to whether an interest in a
Certificate is an unsuitable investment.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
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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 Security 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 Security 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 Securities 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 U.S. 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 Securities, 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 Security 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
Securities or to the servicing of the Mortgage Loans are noted below.
Regardless of whether the Securities are treated as debt or equity for
purposes of ERISA, the acquisition or holding of Securities which are Notes by
or behalf of a Plan could still be considered to give rise to a prohibited
transaction if the Trust is or becomes a party in interest or disqualified
person with respect to such Plan or in the event that a subsequent transfer of a
Note is made between a Plan and such party in interest or disqualified person.
However, one or more Investor Based Exemptions referred to below may be
applicable to exempt such prohibited transaction.
The DOL 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 Certificateholders (except holders of the Class R 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
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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 Securities to a Plan
with respect to which the Representative, the Security 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 Securities and the rights and interests
evidenced by such Securities are not subordinated to the rights and interests
evidenced by other Securities 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 Security 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 Securities is expressly approved by an independent
fiduciary who has authority to manage and control those plan assets being
invested in Securities; (ii) the Plan pays no more for the Securities 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 Securities to
the Plan; (iv) the total value of the Securities purchased by such Plan does not
exceed 25% of the amount issued; and (v) at least 50% of the aggregate amount of
Securities is acquired by persons independent of the Representative, the
Trustee, the Servicer, and the Security Guaranty Insurer.
Before purchasing Securities, a fiduciary of a Plan should confirm that the
Trust is a "mortgage pool," that the Securities 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 Securities on behalf of a Plan.
In addition, the DOL has granted to certain underwriters and/or placement
agents individual prohibited transaction exemptions (each an "Underwriter
Exemption") 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 Underwriter
Exemption which may be applicable to the Securities. The conditions of
Underwriter Exemption, if applicable, will be set forth in "ERISA
Considerations" in the Prospectus Supplement.
One or more other prohibited transaction exemptions issued by the DOL may
be available to a Plan investing in Securities, depending in part upon the type
of Plan fiduciary making the decision to acquire a Security 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, PTCE 84-
14, regarding investments effectuated by "qualified plan asset managers", PTCE
96-23, regarding investments effectuated by "in-house asset managers" and PTCE
95-60, regarding investments by insurance company general accounts ("Investor
Based Exemptions"). However, even if the conditions specified in an Underwriter
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 Security 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 Securities is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
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LEGAL INVESTMENT CONSIDERATIONS
Each Prospectus Supplement will describe the extent, if any, to which the
Classes of Securities offered thereby will constitute "mortgage related
securities" for purposes of SMMEA. No representation is made herein as to
whether the Securities 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 Securities
as legal investments for such purchasers prior to investing in any Class of
Securities.
PLAN OF DISTRIBUTION
The Securities 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 Securities will be
determined.
The Securities 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
Securities described in the related Prospectus Supplement, if they are
purchased. If Securities 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 Securities of such Series.
The place and time of delivery for the Securities 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
Securities 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 Securities of each Series will
be passed upon for the Underwriters of the Securities 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, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996 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 Securities. Each such Trust will have no assets or obligations prior
to the issuance of the Securities and will not engage in any activities
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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 Securities 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 securities address the likelihood of
receipt by securityholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such securities, the nature of the underlying mortgage loans and
the credit quality of the guarantor, if any. Ratings on mortgage pass-through
securities 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, securityholders might
suffer a lower than anticipated yield, and, in addition, holders of stripped
pass-through securities in extreme cases might fail to recoup their underlying
investments.
A rating of a security 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.
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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...................... 48
Agency Securities........................................... 6
Agreement................................................... 5
APR......................................................... 8
ARM......................................................... 93
Auction Rate Securities..................................... 2
Available Remittance Amount................................. 60
Balloon Loans............................................... 21
Bankruptcy Bond............................................. 15
Basis Risk Shortfall........................................ 76
Buydown Funds............................................... 77
Cede........................................................ 4
Certificate................................................. 1
Certificateholders.......................................... 1
Class....................................................... 1
Cleanup Costs............................................... 76
CMOs........................................................ 9
Code........................................................ 18
Commission.................................................. 3
Compensating Interest....................................... 18
Contingency Fee............................................. 60
Contracts................................................... 6
Conventional Loans.......................................... 6
Cooperative Loans........................................... 6
Cooperatives................................................ 6
Curtailment................................................. 18
Custodian................................................... 59
Cut-off Date................................................ 43
Designated Depository Institution........................... 59
Detailed Description........................................ 26
Determination Date.......................................... 17
Distribution Account........................................ 59
DTC......................................................... 4
Due Period.................................................. 60
ERISA....................................................... 20
Event of Nonpayment......................................... 63
Federal Tax Counsel......................................... 18
FHA......................................................... 6
FHA Loans................................................... 6
FHLMC....................................................... 9
FHLMC Act................................................... 9
FHLMC Certificate Group..................................... 35
FHLMC Certificates.......................................... 9
FHLMC Project Certificates.................................. 37
Final Determination......................................... 64
Fixed Rate.................................................. 6
FNMA........................................................ 6
FTC Rule.................................................... 73
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Funding Period.............................................. 10
Garn-St. Germain Act........................................ 74
GNMA........................................................ 6
Guaranty Insurance Policy................................... 14
Home Equity Loans........................................... 29
HUD......................................................... 7
Indirect Participant........................................ 49
Insurance Proceeds.......................................... 17
Insurance Paying Agent...................................... 52
Insured Payment............................................. 52
Interest Period............................................. 47
Interest Rate............................................... 2
IRS......................................................... 64
LIBOR....................................................... 2
Liquidation Proceeds........................................ 17
Loan-to-Value Ratio......................................... 28
Lockout Periods............................................. 7
Lower Tier REMIC............................................ 85
Majority Securityholders.................................... 62
Manufactured Homes.......................................... 31
Manufacturer's Invoice Price................................ 28
Master Servicer............................................. 1
Monthly Advance............................................. 17
Mortgage Asset Schedule..................................... 26
Mortgage Assets............................................. 1
Mortgage Interest Rate...................................... 6
Mortgage Loans.............................................. 6
Mortgage Pool Insurance Policy.............................. 15
Mortgaged Properties........................................ 7
Multifamily Loans........................................... 6
NHA Act..................................................... 31
1933 Act.................................................... 3
Non-REMIC Certificates...................................... 19
Noteholders................................................. 1
Notes....................................................... 1
Opinion of Counsel.......................................... 58
Originators................................................. 1
Participants................................................ 49
Pass-Through Rate........................................... 2
Permitted Instruments....................................... 59
Permitted Investments....................................... 54
Plan........................................................ 100
PMBS........................................................ 6
PMBS Agreement.............................................. 37
PMBS Issuer................................................. 9
PMBS Servicer............................................... 10
PMBS Trustee................................................ 10
Pool........................................................ 1
Pool Insurer................................................ 52
Pre-Funding Account......................................... 10
Prepayment Assumption....................................... 79
Principal and Interest Account.............................. 59
Principal Prepayment Period................................. 46
Principal Prepayment........................................ 17
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Qualified Substitute Mortgage Loan.......................... 58
Rating Agency............................................... 17
REIT........................................................ 86
Relief Act.................................................. 25
REMIC....................................................... 2
REMIC Certificates.......................................... 76
REMIC Regular Certificates.................................. 18
REMIC Residual Certificates................................. 18
REMIC Regulations........................................... 77
Remittance Date............................................. 2
Representative.............................................. 1
Reserve Account............................................. 14
Secured Conventional Home Improvement Loans................. 6
Security Guaranty Insurer................................... 52
Security Register........................................... 45
Senior Certificates......................................... 11
Senior Notes................................................ 13
Servicing Advance........................................... 60
Servicing Fee............................................... 60
Single Family Loans......................................... 6
Single Variable Rate REMIC Regular Certificate.............. 81
SMMEA....................................................... 20
Special Hazard Insurance Policy............................. 15
Special Hazard Insurer...................................... 53
Spread Amount............................................... 15
Standard Hazard Insurance Policies.......................... 7
Subordinated Certificates................................... 11
Subordinated Notes.......................................... 13
Sub-Servicer................................................ 62
Substitution Adjustment..................................... 58
Successor Servicer.......................................... 63
Superlien................................................... 76
Supplemental Interest Payments.............................. 54
T-Bill Rate................................................. 2
Termination Notice.......................................... 64
Termination Price........................................... 64
Tiered REMICs............................................... 77
Title I Loan Program........................................ 8
Title I Property Improvement Loans.......................... 31
Title V..................................................... 74
Trust....................................................... 1
Trustee..................................................... 18
Trustee's Mortgage File..................................... 58
UCC......................................................... 49
Underwriter Exemption....................................... 102
Underwriters................................................ 102
United States person........................................ 89
Unsecured Home Improvement Loans............................ 6
VA.......................................................... 6
Variable Rate Non-REMIC Certificates........................ 92
Variable Rate REMIC Regular Certificate..................... 81
Yield Supplement Agreement.................................. 76
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Appendix I
AUCTION PROCEDURES
The following description of the Auction Procedures applies to each Class
of Auction Rate Securities (and may be different if otherwise set forth in a
related Prospectus Supplement). The term "Security," as used in this Appendix,
refers to each Class of Auction Rate Securities that are either Notes or
Certificates and the term "Securityholder" refers to Holders of Auction Rate
Securities.
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:
"All Hold Rate" means ninety percent (90%) of One-Month LIBOR or such other
rate as may be set forth in the related Prospectus Supplement.
"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
Securities, the date set forth in the related Prospectus Supplement and
thereafter, the Business Day immediately preceding the first day of each Auction
Period for each Security, other than:
(A) each Auction Period commencing after the ownership of the Securities is
no longer maintained in Book-Entry Form by DTC;
(B) each Auction Period commencing after and during the continuance of an
Event of Default; or
(C) each Auction Period commencing less than two Business Days after the
cure or waiver of an Event of Default.
Notwithstanding the foregoing, the Auction Date for one or more Auction Periods
may be changed pursuant to the related Agreement and the related Terms
Supplement, as described herein.
"Auction Period" means, with respect to each Security, the Interest Period
applicable to such Security during which time the applicable Security Interest
Rate is determined pursuant to the related Agreement and the related Terms
Supplement, which Auction Period (after the Initial Period for such Security)
initially shall consist of between 7 days and one year (as set forth in the
related Prospectus Supplement), as the same may be adjusted pursuant to such
related Agreement and the related Terms Supplement.
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"Auction Period Adjustment" means an adjustment to the Auction Period as
provided in the related Terms Supplement, as described herein.
"Auction Procedures" means the procedures set forth in the related Terms
Supplement and described herein by which the Auction Rate applicable to a
Security is determined.
"Auction Rate" means, with respect to any Security, the rate of interest
per annum that results from the implementation of the Auction Procedures and is
determined as described in the related Agreement and the related Terms
Supplement and this Appendix I.
"Authorized Denominations" means, the dollar amount set forth in the
related Prospectus Supplement and any integral multiple in excess thereof.
"Broker-Dealer" means the initial broker-dealer under the initial Broker-
Dealer Agreement 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 the
Trustee pursuant to the related Agreement 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, and approved by Representative and the Trust, 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.
"Effective Interest Rate" means, for any Mortgage Loan and any collection
period, the per annum rate at which such Mortgage Loan accrues interest during
such collection period.
"Existing Securityholder" 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 Securityholder 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 Security.
"Existing Securityholder Registry" means the registry of Persons who are
owners of the Securities, maintained by the Auction Agent as provided in the
Auction Agent Agreement.
"Federal Funds Rate" means, for any date of determination, the federal
funds (effective) rate as published on page 118 of 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) on the immediately preceding
Business Day. If no such rate is published on such page on such date, "Federal
Funds Rate" shall mean for any date of determination, the Federal funds
(effective) rate as published by the Federal Reserve Board in the most recent
edition of Federal Reserve Statistical Release No. H.15 (519) that is available
on the Business Day immediately preceding such date.
"Initial Period" means, as to any Security, the period commencing on the
Closing Date of such Security and continuing through the day immediately
preceding the Security Initial Rate Adjustment Date for such Security.
"Interest Period" means, with respect to a Security, the Initial Period for
such Security and each period commencing on the Rate Adjustment Date for such
Security and ending on the day before (i) the next Rate Adjustment Date for such
Security or (ii) the final maturity date of such Security, as applicable.
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"Market Agent" means the entity named as market agent under the related
Agreement, or any successor to it in such capacity thereunder.
"Maximum Auction Rate" generally means (i) for Auction Periods of 34 days
or less, either (A) the greater of (1) One-Month LIBOR plus 0.60% or (2) the
Federal Funds Rate plus 0.60% (if both ratings assigned by the Rating Agencies
to the applicable Security are "Aa3" or "AA-" or better) or (B) One-Month LIBOR
plus 1.50% (if any one of the ratings assigned by the Rating Agencies to the
Security is less than "Aa3" or "AA-") or (ii) for Auction Periods of greater
than or equal to 35 days, either (A) the greater of One-Month LIBOR or Three-
Month LIBOR, plus in either case, 0.60% (if both of the ratings assigned by the
Rating Agencies to the applicable Security are "Aa3" or "AA-" or better) or (B)
the greater of One-Month LIBOR or Three-Month LIBOR, plus in either case, 1.50%
(if any one of the ratings assigned by the Rating Agencies to the applicable
Security is less than "Aa3" or "AA-") or such other rate as may be set forth in
the related Prospectus Supplement. 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.
"Net Loan Rate" for any Interest Period will equal the weighted average
Effective Interest Rate for the Collection Period immediately preceding such
Interest Period less the amount set forth in the related Prospectus Supplement.
"Non-Payment Rate" means One-Month LIBOR plus 1.50%, as the same may be
adjusted pursuant to a Terms Supplement or such other rate as may be set forth
in the related Prospectus Supplement.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof.
"Potential Securityholder" means any Person (including an Existing
Securityholder 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 Securities (or, in the case of an Existing
Securityholder thereof, an additional principal amount of Securities).
"Rate Adjustment Date" means, with respect to each Security, the date on
which the applicable Security Interest Rate is effective and means, with respect
to each such Security, the date of commencement of each Auction Period.
"Rate Determination Date" means, with respect to any Security, the Auction
Date, or if no Auction Date is applicable to such Series, the Business Day
immediately preceding the date of commencement of an Auction Period.
"Security Initial Rate" means, with respect to any Class of Notes or
Certificates, the rate identified as such in the related Prospectus Supplement.
"Security Initial Rate Adjustment Date" means, with respect to any Class of
Notes, the date identified as such in the related Prospectus Supplement and,
with respect to any Class of Certificates, the date set forth in the related
Agreement or the related Terms Supplement.
"Three-Month LIBOR" means the London interbank offered rate for deposits in
U.S. dollars having a maturity of three months commencing on the related LIBOR
Determination Date (the "Three-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 Three 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
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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 Three 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, Three-Month
LIBOR in effect for the applicable Interest Period will be Three-Month LIBOR in
effect for the previous Interest Period.
EXISTING SECURITYHOLDERS AND POTENTIAL SECURITYHOLDERS
Participants in each Auction will include: (1) "Existing Securityholders,"
which shall mean any Securityholder according to the records of the Auction
Agent at the close of business on the Business Day preceding each Auction Date;
and (ii) "Potential Securityholders," which shall mean any person, including any
Existing Securityholder or a Broker/Dealer, who may be interested in acquiring
Securities (or, in the case of an Existing Securityholder, an additional
principal amount of the Security such Securityholder then holds). See "--
Broker-Dealer."
By purchasing a Security, whether in an Auction or otherwise, each
prospective purchaser of Securities 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 Securities is maintained
in Book-Entry Form to sell, transfer or otherwise dispose of the Securities 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 Securityholder
of the Securities so transferred, its Participant or Broker-Dealer advises the
Auction Agent of such transfer; (iii) to have its beneficial ownership of
Securities 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 Securityholder will
constitute an irrevocable offer to sell the principal amount of the Security
specified in such Sell Order; (v) that a Bid placed by an Existing
Securityholder will constitute an irrevocable offer to sell the principal amount
of the Security specified in such Bid if the rate specified in such Bid is
greater than, or in some cases equal to, the Security Interest Rate of such
Security, determined as described herein; and (vi) that a Bid placed by a
Potential Securityholder will constitute an irrevocable offer to purchase the
amount, or a lesser principal amount, of the Security specified in such Bid if
the rate specified in such Bid is, respectively, less than or equal to the
Security Interest Rate of the specified Security, determined as described
herein.
The principal amount of the Securities purchased or sold may be subject to
probation procedures on the Auction Date. Each purchase or sale of Securities 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
The entity named in the related Prospectus Supplement, will be appointed as
Auction Agent to serve as agent for a Trust in connection with Auctions. The
Trustee and the Representative will enter into the Auction Agreement with the
Auction Agent. Any Auction Agent or 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 Securities 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 related Agreement and under
the Auction Agent Agreement. The Auction Agent may at any time resign and be
discharged of the duties and obligations created by the related Agreement by
giving at least 90 days notice to the Trustee, the Trust,
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the Representative and the Market Agent. The Auction Agent may be removed at any
time by the Trustee upon the written direction of the Security Guaranty Insurer,
if applicable, or, with the consent of the Security Guaranty Insurer, if
applicable, the Securityholders of 66(% of the aggregate principal amount of the
Securities then outstanding, by an instrument signed by the Security Guaranty
Insurer, if applicable, or such Securityholders or their attorneys and filed
with the Auction Agent, the Representative, 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 and has accepted such appointment.
If required by the Trust or the Representative or by the Market Agent, with the
Trust's and the Representative's consent, 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, the Trust, the Representative, the
Security Guaranty Insurer, if applicable, 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 (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 the Note
Remittance Date or Certificate Remittance Date set forth in the related
Prospectus Supplement, 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 Securityholders and Potential Securityholders may participate in
Auctions only by submitting orders (in the manner described below) through a
"Broker-Dealer," including the Broker-Dealer, as the sole Broker-Dealer 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 below which (i) is a
Participant or an affiliate of a Participant, (ii) has been selected by the
Trust 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, which is payable by
the Auction Agent from monies received from the Trustee, on the Note Remittance
Date or Certificate Remittance Date set forth in the related Prospectus
Supplement.
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Market Agent
In connection with each Series of Notes and the Certificates, 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 Securityholders.
AUCTION PROCEDURES
General
Pursuant to the related Agreement and the related Terms Supplement,
Auctions to establish the Auction Rate for each Security 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 Notes and each Class of Certificates.
The Auction Agent will calculate the Maximum Auction Rate, the All Hold
Rate and One-Month LIBOR or Three-Month LIBOR, as the case may be, on each
Auction Date. The Administrator will calculate and, no later than the Business
Day preceding each Auction Date, will report to the Auction Agent in writing,
the Net Loan Rate. If the ownership of a Security is no longer maintained in
Book-Entry Form, the Trustee will calculate the Maximum Auction Rate, and
Administrator will report to the Trustee in writing the Net Loan Rate, on the
Business Day immediately preceding the first day of each Interest Period
commencing after delivery of such Security. If an Event of Default has occurred,
under the Indenture or the Pooling and Servicing Agreement, as applicable, 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 Payment Default and (ii) any Interest Period commencing less
than two Business Days after the cure of any Event of Default. The Auction Agent
will determine One-Month LIBOR or the Three-Month LIBOR, as applicable, for each
Interest Period other than the Initial Period for a Security; provided, that if
the ownership of the Securities is no longer maintained in Book-Entry Form, or
if an Event of Default has occurred, then the Trustee will determine the One-
Month LIBOR or the Three-Month LIBOR, as applicable, for each such Interest
Period. The determination by the Trustee or the Auction Agent, as the case may
be, of the One-Month LIBOR or the Three-Month LIBOR, as applicable, will (in the
absence of manifest error) be final and binding upon the Securityholders and all
other parties. If calculated or determined by the Auction Agent, the Auction
Agent will promptly advise the Trustee of the One- Month LIBOR or the Three-
Month LIBOR, as applicable.
Submission of Orders
So long as the ownership of the Securities is maintained in Book-Entry
Form, an Existing Securityholder may sell, transfer or otherwise dispose of
Securities 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 Securityholder, its
Broker-Dealer or its Participant advises the Auction Agent of such transfer.
Auctions for each Class of Notes and 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 Notes and 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 Security:
(a) each Existing Securityholder of the applicable Security may submit to a
Broker-Dealer by telephone or otherwise information as to: (i) the principal
amount and Class of outstanding Securities, if any, held by such Existing
Securityholder which such Existing Securityholder desires to continue to hold
without regard to the Security Interest Rate for such Securities for the next
succeeding Auction Period (a "Hold Order"); (ii) the principal amount and Class
of outstanding Securities, if any, which such Existing Securityholder offers to
sell if the Security Interest Rate for such Securities for the next succeeding
Auction Period will be less than the rate per annum specified
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by such Existing Securityholder (a "Bid"); and/or (iii) the principal amount and
Class of outstanding Securities, if any, held by such Existing Securityholder
which such Existing Securityholder offers to sell without regard to the Security
Interest Rate for such Securities for the next succeeding Auction Period (a
"Sell Order"); and
(b) one or more Broker-Dealers may contact Potential Securityholders to
determine the principal amount and Class of Securities which each such Potential
Securityholder offers to purchase, if the Security Interest Rate for such
Securities for the next succeeding Auction Period will not be less than the rate
per annum specified by such Potential Securityholder (also a "Bid").
Each Hold Order, Bid and Sell Order will be an "Order." Each Existing
Securityholder and each Potential Securityholder placing an Order is referred to
as a "Bidder."
Subject to the provisions described below under "Validity of Orders," a Bid
by an Existing Securityholder will constitute an irrevocable offer to sell: (i)
the principal amount and Class of the outstanding Securities specified in such
Bid if the Security Interest Rate for such Securities will be less than the rate
specified in such Bid, (ii) such principal amount or a lesser principal amount
and Class of the outstanding Securities to be determined as described below in
"Acceptance and Rejection of Orders," if the Security Interest Rate for such
Securities will be equal to the rate specified in such Bid or (iii) such
principal amount or a lesser principal amount of the then outstanding Securities
to be determined as described below under "Acceptance and Rejection of Orders,"
if the rate specified therein will be higher than the Security Interest Rate for
such Securities 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 Securityholder will constitute an irrevocable offer to
sell: (i) the principal amount of the Security specified in such Sell Order or
(ii) such principal amount or a lesser principal amount of outstanding
Securities of the specified Security 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 Securityholder will constitute an irrevocable offer to purchase:
(i) the principal amount of the Security specified in such Bid if the Security
Interest Rate for such Securities will be higher than the rate specified in such
Bid or (ii) such principal amount or a lesser principal amount of such
Securities as described below in "Acceptance and Rejection of Orders," if the
Security 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
Security that are the subject of such Order; (iii) to the extent that such
Bidder is an Existing Securityholder: (a) the principal amount and Class of
Securities, if any, subject to any Hold Order placed by such Existing
Securityholder; (b) the principal amount, and Class of Securities, if any,
subject to any Bid placed by such Existing Securityholder and the rate specified
in such Bid; and (c) the principal amount, and Class of Securities, if any,
subject to any Sell Order placed by such Existing Securityholder, and (iv) to
the extent such Bidder is a Potential Securityholder, the rate specified in such
Potential Securityholder'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 Securities of the applicable Class held
by any Existing Securityholder 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 Securityholder covering the principal
amount of Securities held by such Existing Securityholder and not subject to an
Order submitted to the Auction Agent.
Neither the Trust, 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 Securityholder or Potential
Securityholder.
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An Existing Securityholder may submit multiple Orders, of different types
and specifying different rates, in an Auction with respect to Securities then
held by such Existing Securityholder. An Existing Securityholder that offers to
purchase additional Securities is, for purposes of such offer, treated as a
Potential Securityholder.
Any Bid specifying a rate higher than the Maximum Auction Rate will (i) be
treated as a Sell Order if submitted by a Existing Securityholder and (ii) not
be accepted if submitted by a Potential Securityholder.
Validity of Orders
If any Existing Securityholder 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 Securities held by such Existing
Securityholder, 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 Securities held by such Existing
Securityholder, and if the aggregate principal amount of the Class of Securities
subject to such Hold Orders exceeds the aggregate principal amount of the Class
of Securities held by such Existing Securityholder, the aggregate principal
amount of the Class of Securities subject to each such Hold Order will be
reduced pro rata so that the aggregate principal amount of the Class of
Securities subject to all such Hold Orders equals the aggregate principal amount
of the Class of Securities held by such Existing Securityholder.
Bids. Any Bid will be considered valid up to an amount equal to the excess
----
of the principal amount of the Class of Securities held by such Existing
Securityholder over the aggregate principal amount of such Security, 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
Securityholder and the aggregate principal amount of Securities 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
Securityholder, 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 Securities, if any, subject to Bids not valid
under the provisions described above will be treated as the subject of a Bid by
a Potential Securityholder 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 Securities of the Class held by
such Existing Securityholder over the aggregate principal amount of Securities
subject to valid Hold Orders and valid Bids as referred to above.
If more than one Bid for a Class of Security is submitted on behalf of any
Potential Securityholder, 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 Securityholder covering an aggregate principal amount of Securities
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
Securityholder covering an aggregate principal amount of Securities 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:
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(a) for the applicable Security, the excess of the total principal amount
of such Securities over the sum of the aggregate principal amount of such
Securities subject to Submitted Hold Orders (such excess being hereinafter
referred to as the "Available Securities"); and
(b) from such Submitted Orders whether the aggregate principal amount of
Securities of such Class subject to Submitted Bids by Potential Securityholders
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
Securities of such Class subject to Submitted Bids by Existing Securityholders
specifying one or more rates higher than the Maximum Auction Rate and (ii) the
aggregate principal amount of Securities of such Class subject to Submitted Sell
Orders (in the event such excess or such equality exists other than because all
of the Securities are subject to Submitted Hold Orders, such Submitted Bids by
Potential Securityholders 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 Securityholders of such
Security specifying such lowest rate and all other Submitted Bids from
Existing Securityholders of such Security specifying lower rates were
rejected (thus entitling such Existing Securityholders to continue to
hold the principal amount of Securities subject to such Submitted Bids);
and
(ii) each such Submitted Bid from Potential Securityholders of such
Security specifying such lowest rate and all other Submitted Bids from
Potential Securityholders specifying lower rates, were accepted, the
result would be that such Existing Securityholders described in
subparagraph (c)(i) above would continue to hold an aggregate principal
amount of Securities which, when added to the aggregate principal amount
of Securities to be purchased by such Potential Securityholders
described in this subparagraph (ii) would equal not less than the
Available Securities.
Determination of Auction Rate and Security Interest Rate, Notice
Promptly after the Auction Agent has made the determinations described
above, the Auction Agent is to advise the Trustee of the Net Loan Rate, 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 Security 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
Securities of the applicable Security 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 Securities of the applicable Security 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 Security Interest
Rate for each applicable Security, which rate will be the lesser of (a) the
Auction Rate for each such Security and (b) the Net Loan Rate. In no event
shall a Security Interest Rate exceed the rate (the "Security Interest Rate
Limitation") set forth in the related Prospectus Supplement.
Acceptance and Rejection of Orders
Existing Securityholders of the applicable Security will continue to hold
the principal amount of Securities of such Class that are subject to Submitted
Hold Orders. If, with respect to a Security, the Net Loan Rate is equal to or
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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 Security
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
related Agreement and described below under "Sufficient Bids."
If the Net Loan Rate is less than the Auction Rate, the Security Interest
Rate will be the Net Loan Rate. If the Auction Rate and the Net Loan Rate are
both greater than the Security Interest Rate Limitation, the Security Interest
Rate for each series shall be equal to the Security 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 Securities are subject to Submitted Holds Orders), the Security Interest
Rate will be the lesser of the Maximum Auction Rate or the Net Loan Rate. 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
---------------
Security and the Net Loan Rate is equal to or greater than the Bid Auction Rate
(in which case the 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 Securityholders' Submitted Bids specifying any rate that is
higher than the Security Interest Rate will be accepted, thus requiring each
such Existing Securityholder to sell the aggregate principal amount of
Securities subject to such Submitted Bids;
(b) Existing Securityholders' Submitted Bids specifying any rate that is
lower than the Security Interest Rate will be rejected, thus entitling each such
Existing Securityholder to continue to hold the aggregate principal amount of
Securities subject to such Submitted Bids;
(c) Potential Securityholders' Submitted Bids specifying any rate that is
lower than the Security Interest Rate will be accepted;
(d) Each Existing Securityholder's Submitted Bid specifying a rate that is
equal to the Security Interest Rate will be rejected, thus entitling such
Existing Securityholder to continue to hold the aggregate principal amount of
Securities subject to such Submitted Bid, unless the aggregate principal amount
of Securities subject to such Submitted Bids will be greater than the principal
amount of Securities (the "remaining principal amount") equal to the excess of
the Available Securities over the aggregate principal amount of Securities
subject to Submitted Bids described in subparagraphs (b) and (c) above, in which
event such Submitted Bid of such Existing Securityholder will be rejected in
part and such Existing Securityholder will be entitled to continue to hold the
principal amount of Securities subject to such Submitted Bid, but only in an
amount equal to the aggregate principal amount of Securities obtained by
multiplying the remaining principal amount by a fraction, the numerator of which
will be the principal amount of Securities held by such Existing Securityholder
subject to such Submitted Bid and the denominator of which will be the sum of
the principal amount of Securities subject to such Submitted Bids made by all
such Existing Securityholders that specified a rate equal to the Security
Interest Rate; and
(e) Each Potential Securityholder's Submitted Bid specifying a rate that is
equal to the Security Interest Rate will be accepted, but only in an amount
equal to the principal amount of Securities obtained by multiplying the excess
of the aggregate principal amount of Available Securities over the aggregate
principal amount of Securities 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 Securities subject to such Submitted Bid
and the denominator of which will be the sum of the principal amount of
Securities subject to Submitted Bids made by all such Potential Securityholders
that specified a rate equal to the Security Interest Rate.
Insufficient Bids. If Sufficient Bids have not been made with respect to a
-----------------
Security (other than because all of the Securities of such Class are subject to
Submitted Hold Orders) or if the Net Loan Rate is less than the Bid Auction
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Rate (in which case the Security Interest Rate shall be the Net Loan Rate) or if
the Security 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 Securityholders' Submitted Bids specifying any rate that is
equal to or lower than the Security Interest Rate will be rejected, thus
entitling such Existing Securityholders to continue to hold the aggregate
principal amount of Securities subject to such Submitted Bids;
(b) Potential Securityholders' Submitted Bids specifying any rate that is
equal to or lower than the Security Interest Rate will be accepted, and
specifying any rate that is higher than the Security Interest Rate will be
rejected; and
(c) Each Existing Securityholder's Submitted Bid specifying any rate that
is higher than the Security Interest Rate and the Submitted Sell Order of each
Existing Securityholder will be accepted, thus entitling each Existing
Securityholder that submitted any such Submitted Bid or Submitted Sell Order to
sell the Securities subject to such Submitted Bid or Submitted Sell Order, but
in both cases only in an amount equal to the aggregate principal amount of
Securities obtained by multiplying the aggregate principal amount of Securities
subject to Submitted Bids described in subparagraph (b) above by a fraction, the
numerator of which will be the aggregate principal amount of Securities held by
such Existing Securityholder subject to such Submitted Bid or Submitted Sell
Order and the denominator of which will be the aggregate principal amount of
Securities subject to all such Submitted Bids and Submitted Sell Orders.
All Hold Orders. If all Securities 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
Securityholder would be entitled or required to sell, or any Potential
Securityholder would be entitled or required to purchase, a principal amount of
Securities 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
Securities to be purchased or sold by any Existing Securityholder or Potential
Securityholder so that the principal amount of Securities purchased or sold by
each Existing Securityholder or Potential Securityholder 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 Securityholder would be entitled or required to purchase less than a
principal amount of Securities 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 Securities for purchase among Potential
Securityholders so that only Securities in an Authorized Denomination or any
integral multiples in excess thereof are purchased by any Potential
Securityholder, even if such allocation results in one or more of such Potential
Securityholders not purchasing any Securities.
Based on the results of each Auction, the Auction Agent is to determine the
aggregate principal amount of Securities of each Class to be purchased and the
aggregate principal amount of Securities of each Class to be sold by Potential
Securityholders and Existing Securityholders 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 Securities to be sold differs
from such aggregate principal amount of Securities 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, Securities.
Any calculation by the Auction Agent (or the Trustee, if applicable) of the
Security Interest Rate, One-Month LIBOR, Three-Month LIBOR, the Maximum Auction
Rate, the All Hold Rate, the Net Loan Rate and the Non-Payment Rate will, in the
absence of manifest error, be binding on all other parties.
Notwithstanding anything in any related Agreement or, a related Terms
Supplement to the contrary, no Auction is to be held on any Auction Date on
which there are insufficient monies held by the Trustee under the related
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Agreement and available to pay the principal of and interest due on the
applicable Security on the Note Remittance Date or Certificate 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 Security Interest Rate for a Security 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 p.m., eastern time, on the Auction Date if the Interest Rate is the
Auction Rate and not later than 4:00 p.m. eastern time on the Auction Date if
the Interest Rate is the Net Loan Rate. Each Broker-Dealer that submitted an
Order on behalf of a Bidder is required to then advise such Bidder of the
applicable Security 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 Securities as a result of the Auction and advise each
Bidder purchasing or selling Securities as a result of the Auction to give
instructions to its Participant to pay the purchase price against delivery of
such Securities or to deliver such Securities against payment therefor, as
appropriate. Pursuant to the Auction Agent Agreement, the Auction Agent is to
record each transfer of Securities on the Existing Securityholders 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 Securities delivered as necessary to
effect the purchases and sales of Securities 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 Securityholder selling Securities in an Auction fails to
deliver such Securities, the Broker-Dealer of any person that was to have
purchased Securities in such Auction may deliver to such person a principal
amount of Securities that is less than the principal amount of Securities 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 Securities to be delivered will be determined by such
Broker-Dealer. Delivery of such lesser principal amount of Securities 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
Securityholder, Existing Securityholder or their respective Broker-Dealer or
Participant to deliver the principal amount of Securities or to pay for the
Securities purchased or sold pursuant to an Auction or otherwise. For a further
description of the settlement procedures, see "SETTLEMENT PROCEDURES."
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
related Agreement, the related Terms Supplement 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 AUCTION TERMS
Changes in Auction Period or Periods
While any of the Securities are outstanding, the Administrator, may, from
time to time, change the length of the one or more 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 length of the Auction Period and the interest rate borne by the Securities
(an "Auction Period Adjustment"). The Administrator will not initiate such
I-12
<PAGE>
change in the length of the Auction Period unless it shall have received the
written consent from the Market Agent, which consent will not be unreasonably
withheld, not less than three days nor more than 20 days prior to the effective
date of an Auction Period Adjustment. The Administrator will initiate an
Auction Period Adjustment by giving written notice to the Trustee, the Auction
Agent, the Market Agent, the Security Guaranty Insurer and DTC in substantially
the form of, or containing substantially the information contained in, the
related Agreement at least 10 days prior to the Auction Date for such Auction
Period.
Any such Auction Period Adjustment shall not result in an Auction Period of
less than 7 days nor more than 91 days. If any such Auction Period Adjustment
will result in an Auction Period of less than the number of days in the then
current Auction Period, the notice described above will be effective only if it
is accompanied by a written statement of the Trustee, the Auction Agent and DTC
to the effect that they are capable of performing their duties, if any, under
the related Agreement, the Auction Agent Agreement and any Broker-Dealer
Agreement with respect to such changed Auction Period.
An Auction Period Adjustment will take effect only if (A) the Trustee and
the Auction Agent receive, by 11:00 a.m., eastern time, on the Business Day
before the Auction Date for the first such Auction Period, a certificate from
the Representative authorizing an Auction Period Adjustment specified in such
certificate, the certificate of the Market Agent described above and the written
statement of the Trustee, the Auction Agent DTC described above and (B)
Sufficient Bids exist at the Auction on the Auction Date for such first Auction
Period. If the condition referred to in (A) is not met, the Security Interest
Rate applicable for the next Auction Period will be determined pursuant to the
Auction Procedures and the Auction Period will be the Auction Period determined
without reference to the proposed change. If the condition referred to in (A)
is met, but the condition referred to in (B) above is not met, the Security
Interest Rate applicable for the next Auction Period will be the lesser of the
Maximum Auction Rate and the Net Loan Rate and the Auction Period will be the
Auction Period determined without reference to the proposed change.
Changes in the Auction Date
The Market Agent, at the written direction of the Representative, 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 Securities. 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 Trust, the Representative, and DTC.
The changes in Auction terms described above may be made with respect to
any Class of the Securities. 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.
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<PAGE>
Appendix II
SETTLEMENT PROCEDURES
These Settlement Procedures apply separately to each Class of Securities and may
be different if specified in the related Prospectus Supplement.
(a) Not later than (1) 3:00 p.m. if the Security Interest Rate is the
Auction Rate or (2) 4:00 p.m. if the Security Interest Rate is the Net Loan
Rate, 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 Securityholder or Potential Securityholder of:
(i) the Security 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 Securityholder, whether
such Bid or Sell Order was accepted or rejected, in whole or in part,
and the principal amount of Securities, if any, to be sold by such
Existing Securityholder;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted a
Bid on behalf of a Potential Securityholder, whether such Bid was
accepted or rejected, in whole or in part, and the principal amount of
Securities, if any, to be purchased by such Potential Securityholder;
(v) if the aggregate amount of Securities to be sold by all
Existing Securityholders on whose behalf such Seller's Broker-Dealer
submitted Bids or Sell Orders exceeds the aggregate principal amount of
Securities to be purchased by all Potential Securityholders 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 Securities and the
principal amount of Securities to be purchased from one or more Existing
Securityholders on whose behalf such Seller's Broker-Dealer acted by one
or more Potential Securityholders on whose behalf each of such Buyer's
Broker-Dealers acted;
(vi) if the principal amount of Securities to be purchased by all
Potential Securityholders on whose behalf such Buyer's Broker-Dealer
submitted a Bid exceeds the amount of Securities to be sold by all
Existing Securityholders 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 Securities and the principal amount of
Securities to be sold to one or more Potential Securityholders on whose
behalf such Buyer's Broker-Dealer acted by one or more Existing
Securityholder 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 Securityholder or Potential Securityholder is to:
(i) advise each Existing Securityholder and Potential
Securityholder 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 Securityholder on whose behalf such
Buyer's Broker-Dealer submitted a Bid that was accepted, in whole or in
II-1
<PAGE>
part, to instruct such Potential Securityholder's Participant to pay to
such Buyer's Broker-Dealer (or its Participant) through DTC the amount
necessary to purchase the principal amount of the Securities to be
purchased pursuant to such Bid against receipt of such Securities
together with accrued interest;
(iii) in the case of a Broker-Dealer that is a Seller's Broker-
Dealer, instruct each Existing Securityholder 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 Securityholder's Participant to deliver to such
Seller's Broker-Dealer (or its Participant) through DTC the principal
amount of the Securities to be sold pursuant to such Order against
payment therefor;
(iv) advise each Existing Securityholder on whose behalf such
Broker-Dealer submitted an Order and each Potential Securityholder on
whose behalf such Broker-Dealer submitted a Bid of the Security Interest
Rate for the next Interest Period;
(v) advise each Existing Securityholder on whose behalf such
Broker-Dealer submitted an Order of the next Auction Date; and
(vi) advise each Potential Securityholder 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 Securities received by it in
connection with such Auction pursuant to paragraph (b)(iii) above, among the
Potential Securityholders, if any, on whose behalf such Broker-Dealer submitted
Bids, the Existing Securityholder, 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 Securityholder and Existing Securityholder 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 in DTC's
system will instruct its Participant to deliver such Securities through
DTC 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 DTC's
system will instruct its Participant to pay through DTC to Seller's
Broker-Dealer (or its Participant) identified following such Auction
pursuant to (a)(vi) above the amount necessary to purchase the
Securities to be purchased pursuant to (b)(ii) above against receipt of
such Securities.
(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 DTC to execute the
transactions described under (b)(ii) or (b)(iii) above for such Auction,
and DTC will execute such transactions;
(ii) each Seller's Broker-Dealer or its Participant will instruct
DTC to execute the transactions described in (d)(ii) above for such
Auction, and DTC will execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Participant will instruct
DTC to execute the transactions described in (d)(iii) above for such
Auction, and DTC will execute such transactions.
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<PAGE>
(f) If an Existing Securityholder selling Securities in an Auction fails
to deliver such Securities (by authorized book-entry), a Broker-Dealer may
deliver to the Potential Securityholder on behalf of which it submitted a Bid
that was accepted a principal amount of Securities that is less than the
principal amount of Securities that otherwise was to be purchased by such
Potential Securityholder. In such event, the principal amount of Securities to
be so delivered will be determined solely by such Broker-Dealer (but only in
Authorized Denominations). Delivery of such lesser principal amount of
Securities will constitute good delivery. Notwithstanding the foregoing terms
of this paragraph (f), any delivery or nondelivery of Securities 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 Securityholder, Existing Securityholder or
their Respective Broker-Dealer or Participant to take delivery of or deliver, as
the case may be, the principal amount of the Securities purchased or sold
pursuant to an Auction or otherwise.
II-3
<PAGE>
No dealer, salesperson or other individual has been authorized to give any in-
formation 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 Pro-
spectus Supplement and the accompanying Prospectus do not constitute an offer
to sell, or a solicitation of an offer to buy, the Offered Certificates in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
PROSPECTUS SUPPLEMENT
<S> <C>
Summary of Terms.......................................................... S-4
Risk Factors.............................................................. S-51
Lending Programs.......................................................... S-55
The Representative and the Originators.................................... S-59
The Loan Pools............................................................ S-63
Maturity, Prepayment and Yield Considerations............................. S-68
Description of the Certificates........................................... S-85
The MBIA Policies and MBIA................................................ S-104
The Agreement............................................................. S-107
Federal Income Tax Considerations......................................... S-115
ERISA Considerations...................................................... S-115
Legal Investment Considerations........................................... S-119
Underwriting.............................................................. S-120
Experts................................................................... S-121
Legal Matters............................................................. S-121
Rating of the Offered Certificates........................................ S-121
Financial Information..................................................... S-122
Index of Principal Terms.................................................. S-123
Annex I--Global Clearance, Settlement and Tax
Documentation Procedures.................................................. I-1
Annex II-Targeted Balance Schedules....................................... II-1
Annex III-Auction Procedures.............................................. III-1
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Prospectus Supplement...................................................... 3
Available Information...................................................... 3
Reports to Certificateholders.............................................. 4
Incorporation of Certain Documents by Reference............................ 4
Summary of Terms........................................................... 5
Risk Factors............................................................... 21
The Trusts................................................................. 26
Use of Proceeds............................................................ 39
The Representative and the Originators..................................... 39
The Single Family Loan Lending Program..................................... 39
Description of the Certificates............................................ 43
Credit Enhancement......................................................... 50
Maturity, Prepayment and Yield Considerations.............................. 55
The Agreements............................................................. 57
Certain Legal Aspects of the Mortgage Loans................................ 67
Federal Income Tax Consequences............................................ 76
ERISA Considerations....................................................... 101
Legal Investment Considerations............................................ 103
Plan of Distribution....................................................... 103
Legal Matters.............................................................. 103
Financial Information...................................................... 103
Rating..................................................................... 104
Index of Principal Terms................................................... 105
Appendix I Auction Procedures.............................................. I-1
Appendix II Settlement Procedures.......................................... II-1
</TABLE>
$1,585,000,000
LOGO
THE MONEY STORE TRUST 1997-D
---------------
PROSPECTUS SUPPLEMENT
---------------
Pool I Certificates
MORGAN STANLEY DEAN WITTER
PRUDENTIAL SECURITIES INCORPORATED
(Joint Book Lead for Pool I Certificates)
FIRST CHICAGO CAPITAL MARKETS INC.
Pool II Certificates
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
Pool III Certificates
LEHMAN BROTHERS
Pool IV Certificates
NOMURA SECURITIES INTERNATIONAL, INC.
December 29, 1997
